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 October 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: 0-17919
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
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(Address of principal executive offices)
(Zip Code)
(215) 619-3600
--------------
(Registrant's telephone number, including area code)
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(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 November 1, 2000 the registrant had outstanding 2,327,965
shares of Common Stock, $.0l par value.
<PAGE>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION: PAGE
------------------------------ ----
ITEM 1. Financial Statements:
a. Condensed Consolidated Balance Sheets (unaudited)
October 1, 2000 and January 2, 2000 3
b. Condensed Consolidated Statements of Operations (unaudited)
for the quarters ended October 1, 2000 and October 3, 1999 4
c. Condensed Consolidated Statements of Operations (unaudited) for
the nine months ended October 1, 2000 and October 3, 1999 5
d. Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended October 1, 2000 and October 3, 1999 6
e. Notes to Condensed Consolidated Financial Statements
(unaudited) 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION:
----------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBITS 16
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except par value)
Oct. 1, 2000 Jan. 2, 2000
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents (including restricted
cash of $45 at Jan. 2, 2000) $698 $277
Short-term investments 1,739 3,472
Accounts receivable, net of allowance for doubtful
accounts of $468 and $524 1,577 1,210
Inventories 2,117 1,793
Other 193 51
----------------------------
Total current assets 6,324 6,803
Property and equipment, net 3,211 612
Patents and licensed technology, net 471 516
Other assets 628 89
----------------------------
Total assets $10,634 $8,020
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $68 $163
Accounts payable 566 515
Accrued liabilities 324 604
----------------------------
Total current liabilities 958 1,282
----------------------------
Long-term debt 2,070 16
Stockholders' equity:
Common stock, $.01 par value, 30,000 shares
authorized, 2,328 and 1,978 shares issued
and outstanding 23 20
Additional paid-in capital 33,716 33,033
Accumulated deficit (26,131) (26,321)
Deferred compensation (2) (10)
----------------------------
Total stockholders' equity 7,606 6,722
----------------------------
Total liabilities and stockholders' equity $10,634 $8,020
============================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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<TABLE>
<CAPTION>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
For the Quarter Ended:
Oct. 1, 2000 Oct. 3, 1999
<S> <C> <C>
Net sales $2,513 $1,915
Cost of sales 1,088 792
--------------------------------------
Gross profit 1,425 1,123
--------------------------------------
Operating expenses:
Selling, general and administrative 1,168 970
Product development 186 149
--------------------------------------
1,354 1,119
--------------------------------------
Operating income 71 4
Interest expense (51) (18)
Interest income 41 61
--------------------------------------
Income before income taxes 61 47
Provision for income taxes - -
--------------------------------------
Net income $61 $47
======================================
Basic and diluted income per share $0.03 $0.02
======================================
Shares used in calculating basic
income per share 2,328 1,978
Shares used in calculating diluted
income per share 2,354 1,978
======================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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<TABLE>
<CAPTION>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
For the Nine Months Ended:
Oct. 1, 2000 Oct. 3, 1999
<S> <C> <C>
Net sales $6,372 $ 6,147
Cost of sales 2,819 2,647
------------------------------
Gross profit 3,553 3,500
------------------------------
Operating expenses:
Selling, general and administrative 2,932 3,516
Product development 496 606
Non-recurring charges - 1,440
------------------------------
3,428 5,562
------------------------------
Operating income (loss) 125 (2,062)
Interest expense (78) (291)
Interest income 143 214
Other income - 194
------------------------------
Income (loss) before income taxes 190 (1,945)
Provision for income taxes - -
------------------------------
Net income (loss) $190 ($1,945)
==============================
Basic and diluted income (loss) per share $0.09 ($0.98)
==============================
Shares used in calculating basic income
(loss) per share 2,135 1,978
Shares used in calculating diluted income
(loss) per share 2,185 1,978
==============================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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<TABLE>
<CAPTION>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
For the Nine Months Ended:
Oct. 1, 2000 Oct. 3, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $190 ($1,945)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 495 781
Imputed interest - (12)
(Decrease) increase in provision for bad debt (26) 21
Non-recurring charges - 1,440
Gain on sale of property held for sale - (70)
Increase (decrease) in assets, net of acquisition:
Accounts receivable (80) (46)
Inventories (211) 199
Other current assets (112) 60
Other assets 14 (3)
Decrease in liabilities, net of acquisition:
Accounts payable (362) (339)
Accrued liabilities (299) (593)
-------------------------------
Net cash used in operating activities (391) (507)
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments, net 1,733 129
Additions to property and equipment (212) (104)
Sale of property held for sale - 4,237
Patent costs (5) (27)
Acquisition costs (340) -
-------------------------------
Net cash provided by investing activities 1,176 4,235
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (364) (1,916)
Reduction in long-term debt on property held for sale - (3,922)
-------------------------------
Net cash used in financing activities (364) (5,838)
-------------------------------
Net increase (decrease) in cash and cash equivalents 421 (2,110)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 277 2,938
-------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $698 $828
===============================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
1. Basis of Presentation:
The condensed consolidated financial statements of the Company for the
three-month and nine-month periods ended October 1, 2000 and October 3, 1999
have been prepared by the Company without audit by the Company's independent
auditors. In the opinion of the Company's management, all adjustments
necessary to present fairly the financial position, results of operations
and cash flows of the Company as of October 1, 2000 and for the periods then
ended have been made. Those adjustments consist only of normal and
recurring adjustments. The condensed consolidated balance sheet of the
Company as of January 2, 2000 has been derived from the audited consolidated
balance sheet of the Company as of that date.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
annual report for 1999 filed with the Securities and Exchange Commission.
The results of operations for the three-month and nine-month periods ended
October 1, 2000 are not necessarily indicative of the results to be expected
for the full year.
2. Acquisition of Surgical Innovations & Services, Inc:
On June 1, 2000, the Company acquired Surgical Innovations & Services, Inc.
("SIS"), a closely held Alabama corporation that provides contract laser and
other surgical services to hospitals and surgery centers in the southeastern
United States. Under the acquisition agreement, the SIS stockholders
received 350,000 shares of the Company's common stock and $300,000 in cash.
The Company accounted for the acquisition using the purchase method. The
purchase price also included approximately $2,702,000 of assumed
liabilities. The purchase price has been preliminarily allocated to
acquired assets, which included approximately $2,764,000 of property and
equipment, based on their estimated fair values at the date of acquisition,
pending final determination of certain acquired balances. This preliminary
allocation has resulted in acquired goodwill of approximately $589,000,
which is being amortized on a straight-line basis over twenty years.
The accompanying condensed consolidated financial statements do not include
any revenues or expenses related to the acquisition prior to the June 1,
2000 closing date. Following are the Company's unaudited proforma results
for the nine months ended October 1, 2000 and October 3, 1999, assuming the
acquisition occurred on January 4, 1999.
For the Nine Months Ended
Oct. 1, 2000 Oct. 3, 1999
------------ ------------
(in thousands)
Net sales $7,537 $8,119
Net income (loss) $24 ($1,850)
Basic and diluted income (loss) per share $0.01 ($0.79)
Shares used in calculating basic and
diluted income (loss) per share 2,328 2,328
These unaudited proforma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the acquisition occurred on January 4,
1999, or of future results of operations.
7
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3. Inventories:
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Cost is determined at the latest cost for raw materials and at
production cost (materials, labor and indirect manufacturing cost) for
work-in-process and finished goods.
Inventories at October 1, 2000 and January 2, 2000 were as follows (in
thousands of dollars):
Oct. 1, 2000 Jan. 2, 2000
------------ ------------
Raw material and work-in-process $1,334 $1,156
Finished goods 783 637
---------------------------------------------------------------------------
$2,117 $1,793
===========================================================================
4. Basic and Diluted Income (Loss) Per Share:
Basic and diluted income (loss) per share have been computed under the
guidelines of Statement of Financial Accounting Standards No. 128 "Earnings
per Share" ("SFAS No. 128") as follows (in thousands except for per share
amounts):
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
Oct. 1, 2000 Oct. 3, 1999 Oct. 1, 2000 Oct. 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic EPS Calculation
Net income (loss) $61 $47 $190 ($1,945)
Denominator:
Common Stock Outstanding 2,328 1,978 2,135 1,978
-------------------------------------------------------------
Basic EPS $0.03 $0.02 $0.09 ($0.98)
=============================================================
Diluted EPS Calculation
Net income (loss) $61 $47 $190 ($1,945)
Denominator:
Common Stock Outstanding 2,328 1,978 2,135 1,978
Common Stock Options 26 - 50 -
-------------------------------------------------------------
Total Shares 2,354 1,978 2,185 1,978
-------------------------------------------------------------
Diluted EPS $0.03 $0.02 $0.09 ($0.98)
=============================================================
</TABLE>
For the quarter and nine months ended October 1, 2000, the Company had
common stock options and warrants outstanding of 518,000, of which 26,000
and 50,000 options were included in the calculation of diluted earnings per
share, respectively. The remainder of common stock options and warrants
outstanding were excluded from the calculation of diluted earnings per share
because those options' and warrants' exercise prices were greater than the
average market price of the common stock. For the quarter ended October 3,
1999, these common share equivalents were excluded from the calculation of
diluted earnings per share because their exercise prices were greater than
the average market price of the common stock. Due to the net loss incurred
for the nine months ended October 3, 1999, the inclusion of these common
share equivalents had an anti-dilutive effect when calculating diluted loss
per share for nine months ended October 3, 1999, and as a result, were
excluded from the calculation.
5. Bank Borrowings:
Concurrent with the SIS acquisition, the Company obtained a $3 million
credit facility from a bank to replace the term debt of SIS. This $3
million credit facility has a commitment term of three years, permits
deferment of principal payments until the end of the commitment term, and is
secured by the Company's business assets, including collateralization of $2
million of the Company's cash and cash equivalents and short-term
investments. The credit facility has an interest rate of floating LIBOR
plus 2.25% and is subject to certain restrictive covenants and
8
<PAGE>
borrowing base certificates, with which the Company was in compliance at
October 1, 2000. At October 1, 2000, the Company had $1,956,000 in
outstanding obligations under the credit facility with $1,044,000 available
under the credit facility.
6. Income Taxes:
No income tax provision was recorded for the nine months ended October 1,
2000 and October 3, 1999 due to the availability of net operating loss
carryforwards.
7. Business Segment and Geographic Data:
The Company is engaged primarily in one business segment: the design,
development, manufacture and marketing for sale or rental of laser products
and other instruments for medical applications. The Company's customers are
primarily hospitals and surgery centers. For the three months and nine
months ended October 1, 2000 and October 3, 1999, the Company did not have
material net sales to any individual customer.
The Company reported net sales in the following categories (in thousands of
dollars):
<TABLE>
<CAPTION>
For the Three Months Ended: For the Nine Months Ended:
Oct. 1, 2000 Oct. 3, 1999 Oct. 1, 2000 Oct. 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Disposables and accessories $1,287 $1,409 $4,007 $4,514
Laser system sales, service and rental 1,226 506 2,365 1,633
------------------------------------------------------------------------------------------------
Total net sales $2,513 $1,915 $6,372 $6,147
================================================================================================
</TABLE>
For the three months and nine months ended October 1, 2000 and October 3,
1999, there were no material net sales attributed to an individual foreign
country. Net sales by geographic area were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
For the Three Months Ended: For the Nine Months Ended:
Oct. 1, 2000 Oct. 3, 1999 Oct. 1, 2000 Oct. 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Domestic $2,212 $1,696 $5,637 $5,460
Foreign 301 219 735 687
------------------------------------------------------------------------------------------------
$2,513 $1,915 $6,372 $6,147
================================================================================================
8. Supplemental Cash Flow Information:
The following noncash investing and financing activities took place:
In connection with the acquisition of SIS, the Company issued 350,000 shares of
its common stock, valued at $686,000, to the shareholders of SIS.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------------------------------------------------------------------
OVERVIEW
The Company is engaged in the development, manufacture and sale of
proprietary laser systems for both contact and non-contact surgery, and in
the contract and per-procedure rentals of proprietary and other laser and
medical equipment. The Company also develops, manufactures and sells
certain non-laser products. The Company's growth strategy includes a
specific focus in the surgical specialties of Otolaryngology, Head and Neck
surgery and Neurosurgery (ENT and Neurosurgery). In conjunction with this
focused strategy, the Company has entered 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 Neurosurgery,
and has utilized and will continue to seek to utilize its strengths in
supplying other companies with products that draw on the Company's expertise
and competencies.
9
<PAGE>
While refocusing its strategy in ENT and Neurosurgery, 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.
Through its wholly-owned subsidiary, Surgical Innovations & Services, Inc.,
the Company seeks to expand its contract and per-procedure rental business
through product expansion as well as through geographic expansion.
ACQUISITION OF SURGICAL INNOVATIONS & SERVICES, INC.
On June 1, 2000, the Company acquired Surgical Innovations & Services, Inc.
("SIS"), a closely held Alabama corporation that provides contract laser and
other surgical services to hospitals and surgery centers in the southeastern
United States. The acquisition of SIS significantly increases the
Company's sales presence in the southeastern United States and expands the
Company's product offerings to include rentals on a per procedure basis for
various types of surgical procedures.
The Company accounted for the acquisition using the purchase accounting
method and has therefore included the revenues and expenses of SIS as of
June 1, 2000 in the accompanying condensed consolidated financial
statements. As consideration for the SIS business, the Company paid
$300,000 in cash and issued 350,000 shares of the Company's common stock to
the stockholders of SIS. The purchase price also included approximately
$2,702,000 of assumed liabilities, comprised of $2,323,000 in debt
obligations and $379,000 in accounts payable and accrued liabilities.
The purchase price has been preliminarily allocated to acquired assets based
on their estimated fair values at the date of acquisition, pending final
determination of certain acquired balances. Based on the preliminary
allocation, the Company has acquired assets valued at $3,193,000, comprised
of $2,763,000 in property and equipment; $260,000 in accounts receivable;
$136,000 in inventory; and $34,000 in other assets. The property and
equipment acquired included $2,523,000 of lasers used in providing the SIS
rental services to customers. The excess of the purchase price over the
fair value of the assets acquired of approximately $589,000 was allocated to
goodwill, which will be amortized on a straight-line basis over twenty
years. Goodwill is included within the long-term asset portion of the
Balance Sheet within the caption "Other Assets".
During the next nine months, the Company will analyze whether a portion of
the excess of the purchase price over the assets acquired can be allocated
to intangible assets other than goodwill, such as customer base or trade
name. Therefore, the value assigned to goodwill is preliminary and subject
to change.
RESULTS OF OPERATIONS
Net sales for the quarter ended October 1, 2000 of $2,513,000 increased
$598,000 or 31% compared to the third quarter 1999 net sales of $1,915,000.
For the nine months ended October 1, 2000, net sales were $6,372,000
compared to $6,147,000 in the first nine months of 1999, an increase of
$225,000 or 4%.
Net sales of disposables and related accessories of $4,007,000 in the nine
months ended October 1, 2000 declined $507,000 or 11% compared to the nine
months ended October 3, 1999. This decrease was due to the lower level of
Contact Laser Delivery System sales primarily within the US markets, which
were offset, in part, by increases in sales of non-laser disposable
products.
Net sales of laser systems, service and rentals of $2,365,000 in the nine
months ended October 1, 2000 increased $732,000 or 45% compared to the nine
months ended October 3, 1999. The Company's acquisition of SIS on June 1,
2000 resulted in the Company recording SIS rental revenue of $948,000 for
the months June 2000 through September 2000. The increase in rental revenue
was offset, in part, by a reduction in the Company's Laser On
Call[trademark] rental business and lower Nd:YAG laser sales.
Gross profits of $1,425,000 for the quarter ended October 1, 2000 increased
$302,000 or 27% compared to gross profits of $1,123,000 for the quarter
ended October 3, 1999, primarily due to increased sales. Gross profits for
the nine months ended October 1, 2000 of $3,553,000 increased $53,000 or 2%
compared to gross profit of $3,500,000 for the first nine months of 1999.
As a percentage of net sales, gross profit was 56% during the nine months
ended
10
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October 1, 2000 and 57% during the nine months ended October 3, 1999. Lower
percentage margins from the acquired SIS business were offset in part by lower
reserves required for laser inventories due to increased production.
Operating expenses for the third quarter of 2000 were $1,354,000, an
increase of $235,000 or 21% from the third quarter of 1999. This increase
was primarily attributable to the incorporation since June 1, 2000 of the
operating expenses of SIS, and to an increase in new product development
costs. The higher level of expenses was offset, in part, by lower
depreciation expense and the collection of previously reserved notes
receivable. For the first nine months of 2000, operating expenses were
$3,428,000, a decrease of $694,000 or 17% from the first nine months of 1999
operating expenses before non-recurring charges. This decrease was
primarily attributable to reductions in depreciation expense, the collection
of previously reserved notes receivable and personnel and other expense
reductions implemented during the second quarter of 1999 for the purpose of
bringing expenses more in line with current sales levels. These reductions
were offset, in part, by the incorporation of SIS operating expenses since
June 1, 2000.
Selling, general and administrative expenses were $1,168,000 in the third
quarter of 2000, an increase of $198,000 or 20% from the comparable prior
year period. This increase was primarily attributable to the SIS
acquisition, offset, in part, by lower depreciation expense and the
collection of previously reserved notes receivable. In the first nine
months of 2000, selling, general and administrative expenses were $2,932,000
compared to $3,516,000 in the first nine months of 1999, a decrease of
$584,000 or 17%. This decrease was primarily attributable to lower
depreciation expense, the collection of previously reserved notes receivable
and reductions of the Company's personnel associated expenses enacted during
the second quarter of 1999. The lower level of expenditures was offset, in
part, by the incorporation of SIS selling, general and administrative
expenses since June 1, 2000.
Product development expenses of $186,000 in the third quarter of 2000
increased by $37,000 or 25% from the comparable period in 1999 due to
increased consulting costs related to new product development. Product
development expenses of $496,000 in the first nine months of 2000 decreased
by $110,000 or 18% from the comparable period in 1999. This lower level of
spending was principally due to a decrease in personnel costs and related
expenses.
In the second quarter of 1999, the Company recorded non-recurring charges of
$1,440,000. The non-recurring charges consisted of $719,000 in charges
related to the discontinuance of certain new product ventures, a $539,000
charge to reserve for excess inventories and a $182,000 charge for
severance and for related costs associated with headcount reductions made in
response to the discontinuance of the new product ventures.
Interest expense of $51,000 for the quarter ended October 1, 2000 increased
$33,000 from interest expense of $18,000 for quarter ended October 3, 1999.
This increase was due to the assumption of SIS debt. Interest expense of
$78,000 for the first nine months of 2000 was $213,000 or 73% lower than in
the first nine months of 1999. The decrease was primarily attributable to
the sale of the Company's facility in Oaks, Pennsylvania during June 1999,
whereby the mortgages on the facility were assumed by the buyer, offset in
part, by the interest incurred on the assumed SIS debt.
Interest income of $41,000 for the third quarter of 2000 declined $20,000 or
33% from the third quarter of 1999. Interest income of $143,000 for the
first nine months of 2000 declined $71,000 or 33% from the first nine months
of 1999. These declines were due to the lower level of cash, cash
equivalents and short-term investments.
Other income primarily consisted of facility-related income and expense
items. Due to the Company's sale of its facility in Oaks, Pennsylvania
during June 1999, there was no other income recorded for the nine months
ended October 1, 2000. Other income for the nine months ended October 3,
1999 was $194,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments at October 1, 2000 were
$2,437,000, a decrease of $1,312,000 from the January 2, 2000 balance of
$3,749,000. Accounting for the majority of this decline was the $300,000
cash payment to the shareholders of SIS in accordance with the terms of the
acquisition agreement, $630,000 in cash
11
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payments of SIS trade payables and debt and $320,000 in fixed assets and
inventory purchases. The Company invests its excess cash in high-quality,
liquid, short-term investments. Restricted cash and cash equivalents
consisted of $45,000 held in escrow for payment of taxes related to the sale
of the Company's property in Oaks, Pennsylvania, at January 2, 2000.
Concurrent with the SIS acquisition, the Company obtained a $3 million
credit facility from a bank to replace the term debt of SIS. This $3
million credit facility has a commitment term of three years, permits
deferment of principal payments until the end of the commitment term, and is
secured by the Company's business assets, including collateralization of $2
million of the Company's cash and cash equivalents and short-term
investments. The credit facility has an interest rate of floating LIBOR
plus 2.25% and is subject to certain restrictive covenants and borrowing
base certificates, with which the Company was in compliance at October 1,
2000. At October 1, 2000, the Company had $1,956,000 in outstanding
obligations under the credit facility with $1,044,000 available under the
credit facility.
Net cash used in operating activities was $391,000 in the first nine months
of 2000 compared to cash used in operating activities of $507,000 in the
comparable period in 1999. The decrease in cash used in operating
activities was due principally to the profit of $190,000 reported in the
first nine months of 2000 compared to the net loss, before non-recurring
charges, of $505,000 in the first nine months of 1999.
On June 30, 1999, the Company sold its property in Oaks, Pennsylvania. The
sale resulted in an increase in cash provided by investing activities of
$4,237,000, which represented the net book value of the property at the time
of sale, and an increase in cash used by financing activities of
$3,922,000, which represented the assumption of the mortgages on the
property by the buyer at the time of sale.
Net cash provided by investing activities was $1,176,000 in the first nine
months of 2000 compared to net cash used in investing activities of $2,000,
excluding the sale of the property in Oaks, Pennsylvania in the first nine
months of 1999. The comparable increase in cash provided by investing
activities was due principally to the sale of short-term investments offset
by acquisition costs.
Excluding the sale of the property in Oaks, Pennsylvania, net cash used in
financing activities was $364,000 and $1,916,000 in the first nine months of
2000 and 1999, respectively. This decrease in cash used in financing
activities was the result of the Company's cash payment of $1,621,000 to the
holders of the Company's 8% subordinated notes during the third quarter of
1999, for which there was no comparable payment in the 2000 period.
Management believes the Company's current cash position and credit facility
with its bank 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.
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 January 2, 2000, which is incorporated
herein by reference. The risk factors described in such report continue to
be applicable at October 1, 2000.
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PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on July 19, 2000.
Sheldon M. Bonovitz, Richard J. DePiano, Jay L. Federman, James Lee Stafford
and Michael R. Stewart, the director nominees set forth in the Notice of
Annual Meeting, were elected to serve as directors. The following table
provides the details of the votes cast for each director nominee.
Nominee Votes For Withhold Authority
------- --------- ------------------
Sheldon M. Bonovitz 1,637,362 52,915
Richard J. DePiano 1,637,402 52,875
Jay L. Federman 1,637,502 52,775
James Lee Stafford 1,637,522 52,775
Michael R. Stewart 1,637,502 52,775
Grant Thornton LLP was ratified to serve as the Company's independent
accountants for the fiscal year ending December 31, 2000, with 1,677,524
votes favoring ratification, 8,844 votes opposing and 3,913 votes
abstaining.
On the resolution to approve and adopt the Company's 2000 Equity Incentive
Plan, 290,567 votes were cast in favor of such resolution, 156,942 were cast
against such resolution and 6,508 votes abstained from voting on such
resolution. On the basis of such vote, the 2000 Equity Incentive Plan was
approved and adopted.
ITEM 5. Other Information
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the 2001 Annual Meeting of Stockholders, which is
scheduled for July 17, 2001, must be received by the Company no later than
February 14, 2001 in order that they may be included, subject to compliance
with applicable federal securities laws and regulations, in the proxy
statement and form of proxy relating to that meeting.
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ITEM 6. Exhibits and Reports on Form 8-K
----------------------------------------
a. Exhibits: Exhibit 27 - Financial Data Schedule, October 1, 2000.
b. Reports on Form 8-K: None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SURGICAL LASER TECHNOLOGIES, INC.
Date: November 9, 2000 By: /s/ Davis Woodward
--------------------
Davis Woodward
Vice President, Finance and
Chief Financial Officer
Signing on behalf of the Company
and as principal financial officer.
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