UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for transition period from________to _________.
Commission file number 1-11064
----------------------
ION LASER TECHNOLOGY, INC.
(Exact name of small business issuer as specified in its charter)
----------------------
UTAH 87-0410364
(State or other jurisdiction of (I.R.S. Employer
Incorporated or Organization) Identification No.)
----------------------
3828 South Main Street
Salt Lake City, Utah 84115
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (801) 262-5555
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
The number of shares of common stock of the issuer outstanding as of
June 30, 1997 was 5,616,427
<PAGE>
ION LASER TECHNOLOGY, INC.
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION -----
Item 1. Financial Statements
Unaudited Consolidated Condensed Balance Sheets as of
June 30, 1997 and March 31, 1997. 1-2
Unaudited Consolidated Condensed Statements of Operations
for the nine months and three months ended June 30, 1997 and
June 30, 1996. 3
Unaudited Consolidated Condensed Statements of Cash Flows
for the nine months ended June 30, 1997 and June 30, 1996. 4
Notes to Unaudited Consolidated Condensed Financial Statements. 5
Item 2. Management's Discussion and Analysis of Financial
Condition & Results of Operations 6-9
PART II. OTHER INFORMATION 9
Signature Page 10
<PAGE>
Ion Laser Technology, Inc.
Unaudited Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
Assets June 30, March 31,
1997 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,576,663 $ 55,222
Accounts receivable, less allowance of
$80,000 and $104,875 at June 30, 1997 and
March 31, 1997 respectively 1,861,599 1,412,625
Inventories 2,590,835 2,872,167
Prepaid expenses 184,639 226,326
Deferred taxes and other 6,624 20,515
-------------- --------------
Total current assets 7,220,360 4,586,855
Property, plant and equipment, net 2,713,617 2,592,035
Investment in joint venture 189,360 189,360
Goodwill, net 1,229,167 1,246,334
Patent costs, net 497,122 414,493
Receivable from joint venture 232,945 232,945
Other assets 387,167 455,827
-------------- --------------
Total assets $ 12,469,738 $ 9,717,849
============== ==============
</TABLE>
See accompanying notes.
1
<PAGE>
Ion Laser Technology, Inc.
Unaudited Consolidated Condensed Balance Sheets (continued)
<TABLE>
<CAPTION>
Liabilities and shareholders' equity June 30, March 31,
1997 1997
-------------- --------------
<S> <C> <C>
Current liabilities:
Notes payable $ 32,058 $ 45,529
Accounts payable 431,811 676,059
Accrued liabilities 155,991 194,551
Accrued warranty costs 66,554 76,348
Current portion of long-term debt 17,445 30,474
-------------- --------------
Total current liabilities 703,859 1,022,961
Long-term debt less current portion 850,309 845,583
-
Shareholders' Equity:
Common stock, $.001 par value:
Authorized shares 50,000,000
Issued and outstanding shares -
5,616,427 at June 30, 1997, and
5,144,030 at March 31, 1997 5,641 5,144
Additional paid-in capital 11,935,390 8,793,074
-
Retained earnings (deficit) (975,161) (898,613)
Cumulative translation adjustment (50,300) (50,300)
-------------- --------------
Total shareholders' equity 10,915,570 7,849,305
-------------- --------------
Total liabilities and shareholders' equity $ 12,469,738 $ 9,717,849
============= ==============
</TABLE>
See accompanying notes.
2
<PAGE>
Ion Laser Technology, Inc.
Unaudited Consolidated Condensed Statements of Operations
Three Months Ended
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Net sales $ 2,019,783 $ 1,398,492
Cost of products sold 1,165,968 572,441
Gross Margin 853,815 826,051
Selling & administrative expenses 784,116 701,158
Research and development expenses 135,197 33,106
--------------- ---------------
(65,498) 91,787
Other income (expense) (11,050) 42,283
--------------- ---------------
Income (loss) before income taxes (76,548) 134,070
Income tax (expense) benefit - -
--------------- ---------------
Net income (loss) (76,548) $134,070
=============== ===============
Earnings (loss) per common share ($.01) $.03
=============== ===============
</TABLE>
See accompanying notes.
3
<PAGE>
Ion Laser Technology, Inc.
Unaudited Consolidated Condensed Statements of Cash Flows
Three months ended
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
-------------- --------------
<S> <C> <C>
Operating activities
Net income (loss) $ (76,548) $ 134,070
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 120,082 48,906
Provision for losses on accounts receivable (24,875) 4,616
Changes in operating assets and liabilities:
Accounts receivable (424,099) (169,369)
Inventories 281,332 (434,843)
Prepaid expenses 41,687 (78,446)
Other assets 68,660 (5,000)
Accounts payable and accrued liabilities (282,808) (407,406)
Accrued warranty costs (9,794) (2,901)
Income taxes payable 13,891 428
-------------- --------------
Net cash provided by (used in) operating activities (292,472) (909,945)
Investing activities
Patent costs (91,294) (1,365)
Additions to property, plant and equipment (215,832) (307,294)
-------------- --------------
Net cash (used in) investing activities (307,126) (308,659)
-------------- --------------
Financing activities
Payments on debt 20,323 -
Proceeds from sale of common stock (42,097) (674,910)
Payments for purchase of common stock 3,142,813 328,125
-------------- --------------
Net cash provided by (used in) financing activities 3,121,039 (346,785)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 2,521,441 (1,565,389)
Cash and cash equivalents at beginning of period 55,222 5,081,912
-------------- --------------
Cash and cash equivalents at end of period $ 2,576,663 $ 3,516,523
============== ==============
</TABLE>
See accompanying notes.
4
<PAGE>
Ion Laser Technology, Inc.
Notes to Unaudited Consolidated Condensed Financial Statements
June 30, 1997
1. Accounting Policies
Basis of Presentation
The unaudited, consolidated, condensed financial statements of Ion Laser
Technology, Inc. ("Company") as of June 30, 1997 and March 31, 1997 and for
the three months ended June 30, 1997 and 1996 were prepared by the Company
without audit in accordance with generally accepted accounting principles
for interim financial information and in accordance with the instructions
to Form 10-QSB and Item 310 (b) of Regulation S-B of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In the opinion of management, all necessary
adjustments to the financial statements have been made to present fairly
the financial position and results of operations and cash flows of the
Company. The results of operations for the periods presented are not
necessarily indicative of the results for the respective complete years.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB
for the year ended March 31, 1997.
Earnings Per Share
Earnings per share is computed based on the weighted average number of
shares of common stock and common stock equivalent shares outstanding
during each fiscal year. Common stock equivalent shares consist primarily
of stock options that have a dilutive effect when applying the treasury
stock method. The weighted average number of shares outstanding were
5,428,724 and 5,282,660 at June 30, 1997 and 1996, respectively.
Reclassifications
Certain reclassifications, none of which affect net income, have been made
to the prior periods' amounts in order to conform to the current period
presentation.
2. Inventories
Inventories consist of the following:
June 30, March 31,
1997 1997
-------------- --------------
Raw materials $ 1,045,988 $ 1,038,156
Work in progress 835,666 1,118,504
Finished goods 709,181 715,507
-------------- --------------
Total $2,590,835 $2,872,167
============== ==============
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto
contained elsewhere in this report. The discussion of these results should
not be construed to imply any conclusion that any condition or circumstance
discussed herein will necessarily continue in the future.
When used in this report, the words "believes," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes
no obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or
circumstances after the date of this report, or to reflect the occurrence
of unanticipated events.
RESULTS OF OPERATIONS
Net Sales
Sales for the first quarter of fiscal 1998 ended June 30, 1997 totaled
$2,019,783, compared to $1,398,492 in the same quarter of the prior fiscal
year, an increase of approximately $621,000 or 31%. Dental sales, the
primary emphasis of the Company, increased from $940,000 in the first
quarter of 1997 to $1,338,000 in the same quarter in fiscal 1998, OR 42%.
The growth both in dental sales and in sales generally was due primarily to
continued growth in the sale of laser composite curing and whitening
products associated with the Company's BriteSmile laser tooth whitening
("LTW") system.
Management anticipates continued growth in sales in the dental division
with the LTW product line and the other tooth whitening chemical products.
Management intends to continue to concentrate the majority of the Company's
resources in the dental market. Although management anticipates continued
revenue from the Company's industrial and scientific operations, it does
not expect that segment of the business to be a significant contributor to
growth in future periods.
Cost of Sales
The Company's cost of sales increased when compared with the same period
one year ago. The increase is due to higher warranty costs on the LTW
product line than other product lines.
The Company's gross margin decreased from 59% in the prior period to 42% in
the quarter ended June 30, 1997. This decrease is due largely to costs
associated with warranty and engineering. During the quarter, the Company
introduced the model 6800 argon whitening laser. The Company experienced
higher than desirable failure rates on certain components in prior models
of the argon whitening laser. The model 6800 has been engineered to
respond to these failures, and it is expected that the introduction of
these changes into the product will assist the Company in controlling its
warranty costs in the future.
Management expects that as the product mix moves toward greater sales of
LTW products and tooth whitening reagents, the cost of sales as a percent
of sales should decrease.
6
<PAGE>
During the quarter ending June 30, 1997, the Company spent significant
resources to improve customer relations and to increase customer
satisfaction and chemical sales related to its LTW products. The Company
continues its follow-up visits to dentists to assist in enhancing their use
of the LTW products and procedures and improving marketing and public
relations. This increased customer support led to increased sales of LTW
chemicals to existing customers by more than 36% during the first quarter
of fiscal 1998, compared to sales of such products to these customers in
the fourth quarter of fiscal 1997.
Selling & Administrative Expenses
Selling and administrative expenses decreased from 50% of sales in the
first quarter of fiscal 1997, to 39% of sales in the first quarter of
fiscal 1998. Although these expenses decreased as a percentage of sales,
the actual expenditures increased from $701,158 to $784,116, compared to
the same period in fiscal 1997. Marketing dollars continue to be used to
penetrate the dental market. The Company uses several forms of marketing to
contact potential users of its products, including advertising in trade
magazines, attending trade shows, mailing literature to target markets,
and the utilization of field sales persons and endorsements by high profile
dentists. Management expects to continue to spend resources on marketing
and selling at levels similar to those spent in the past.
Research & Development Expenses
Research and development expenses were $135,197 and $33,106 in the first
quarters of fiscal 1998 and 1997, respectively. The Company continues to
maintain a research and development team currently focused on the
development of new dental products and the improvement of existing product
lines. The increase in research and development expenses is largely
attributable to the development of the Argo HP. This product has been
developed as a low-cost, high speed (less than one second) curing device
for curing composites in dental applications. The product received FDA
market clearance in March 1997 and management expects to begin shipment of
the product during the third quarter of fiscal 1998. The Company expects
research and development expenditures to continue at a similar level as a
percentage of sales during fiscal 1998.
Inflation
The Company actively strives to contain costs on parts from suppliers by
renegotiating purchase order contracts. Inflation has not been a major
factor in the past and is not seen as a major factor that will impact the
Company's earnings in the immediate future.
Net Income (Loss)
The Company incurred a net loss of ($76,548) in the first quarter of fiscal
1998, compared to net income of $134,070 in the same quarter of fiscal
1997. The loss is due in large part to increased marketing and warranty
expenses. The gross margins associated with the LTW products are higher
than those of other product lines currently sold by the Company, and the
Company expects the factors that resulted in the net loss during fiscal
1997 and the first quarter of fiscal 1998 will not be present to the same
degree or have the same adverse impact in the remainder of fiscal 1998.
There can be no assurance, however, that future net losses will not occur
or, if they occur, that they will be less than the losses sustained in
fiscal 1997 and the first quarter of fiscal 1998.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position increased $2,521,000 during the quarter.
During this period, operating activities used $300,000 mainly due to
increases in accounts receivable as sales increased, and a decrease in
accounts payable and accrued liabilities. Management has improved the
Company's inventory position through increasing throughput and implementing
better controls on purchases. Inventory was reduced through these efforts
by $280,000 during the quarter.
The Company spent $91,000 in attorney and other fees related to patent
costs. In July 1997, the Company received a patent on its LTW. This
patent allows for protection against competitors in relation to the use of
lasers for tooth whitening. The Company is in the process of notifying
those it believes to be in violation of this patent. Management believes
that it may incur significant costs associated with the defense of this and
other patents owned by the Company. Additionally, the Company spent
$216,000 on capital improvements during the quarter. The Company has
neared completion of remodeling on its facilities in Salt Lake City, Utah.
Included in the remodeling of the facilities is a six operatory dental
facility which the Company plans to use for training, sales presentations
and research and development. The Company is also in the beginning stages
of implementing a new enterprise software system which is expected to
assist in creating a more efficient business environment.
In this section, the term "Current Ratio" means current assets divided by
current liabilities. "Working Capital" means current assets less current
liabilities. The Company's Current Ratio and Working Capital at June 30,
1997 and March 31, 1997 were as follows:
June 30 March 31
1997 1997
-------------- ---------------
Current Ratio 10.4 4.5
Working Capital $6,523,808 $3,563,894
Recent Sales of Securities
In April 1997, the Company completed a private placement of its common
stock in which it obtained proceeds of approximately $3,000,000. Also, in
April 1997, the Company obtained a line of credit with a bank whereby the
Company can borrow up to $1,200,000 for operating capital. The line of
credit is secured by inventory and accounts receivable of the Company. The
Company believes that cash flow from sales, proceeds from the sale of the
Company's securities following the end of fiscal 1997, and amounts
available under the Company's bank line of credit, will be sufficient to
meet the Company's needs for the next twelve months.
Forward Looking Statements and Certain Risk Factors
Statements contained in this report on Form 10-QSB that are not purely
historical are forward looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Such statements include statements regarding the Company's
expectations, beliefs, hopes, intentions or strategies regarding the
future. All forward looking statements included in this report are based
on information available to the Company on the date hereof and the Company
assumes no obligation to update any such statements. The Company cautions
that actual results could differ materially from those in such forward
looking statements. Among other things, the Company's business and its
results of operations may be affected by factors which could cause actual
results to differ materially from those described in the forward looking
statements contained in this
8
<PAGE>
report. Such factors include, but are not limited to factors described in
the Company's annual report on Form 10-KSB for the year ended March 31, 1997.
Unless revised by statements contained in this report, those factors
continue to be significant and may cause actual results to differ
materially from the forward-looking statements contained in this report.
As a result of the foregoing or other factors, there can be no assurance
that the Company will not experience material fluctuations in future
operating results on a quarterly or annual basis, which would materially
and adversely affect the Company's business, financial condition and
results of operations.
PART II - OTHER INFORMATION
Item 1.Legal Proceedings.
There are no legal proceedings involving the Company or any of its
directors, officers or affiliates which are required to be discussed in
this Report.
Item 2.Changes in Securities.
c. Unregistered sales of equity securities during quarter (other
than in reliance on Regulation S).
Recent Sales of Unregistered Securities. During the quarterly period
ended June 30, 1997, the Company issued equity securities that were not
registered under the Securities Act of 1933, as amended (the "Act"), other
than unregistered sales in reliance on Regulation S under the Act as
follows:
On May 8, 1997, the Company issued 458,572 shares of common stock in
consideration of a payment of $3,000,000 from two shareholders, LCO
Investments Limited and Richard S. Braddock. As additional consideration
to LCO Investments Limited and Mr. Braddock, the Company also (a) issued
options to purchase up to 500,000 shares of common stock at an exercise
price of $9.00 per share, exercisable until May 1, 2007, and (b) amended
certain options previously granted to reduce the purchase price per share
from $20.00 to $9.00 and to remove and contractual restrictions on resales
of the shares of common stock underlying such options. The Company issued
such securities without registration under the Act in reliance on Section
4(2) of the Act and/or Regulation D. All such common stock issued was as
restricted securities and the certificates representing such shares were
stamped with a restrictive legend to prevent any resale without
registration under the Act or in compliance with an exemption.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
Exhibit No. Description
---------- ------------
27 Financial Data Schedule
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Ion Laser Technology, Inc.
Date: August 10, 1997 /s/ Dean E. Hutchings
-----------------------
Dean E. Hutchings
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,576,663
<SECURITIES> 0
<RECEIVABLES> 1,861,599
<ALLOWANCES> 80,000
<INVENTORY> 2,590,835
<CURRENT-ASSETS> 7,220,360
<PP&E> 2,713,617
<DEPRECIATION> 1,012,160
<TOTAL-ASSETS> 12,469,738
<CURRENT-LIABILITIES> 703,859
<BONDS> 0
0
0
<COMMON> 5,641
<OTHER-SE> 10,909,929
<TOTAL-LIABILITY-AND-EQUITY> 12,469,738
<SALES> 2,019,783
<TOTAL-REVENUES> 2,019,783
<CGS> 1,165,968
<TOTAL-COSTS> 2,085,281
<OTHER-EXPENSES> 11,050
<LOSS-PROVISION> 10,328
<INTEREST-EXPENSE> 26,005
<INCOME-PRETAX> (76,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> (65,498)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,548)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
