U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997
[ ] 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 (IRS Employer
of Incorporation or Organization) Identification No.)
3828 South Main Street
Salt Lake City, Utah 84115
........................................................
(Address of principal executive offices with Zip Code)
(801) 262-5555
................................
(Issuer's telephone number)
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 Registrant outstanding as of
September 30, 1997 was 5,804,791.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Ion Laser Technology, Inc.
Unaudited Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,966,862 $ 55,222
Accounts receivable, less allowance
of $78,678 and $104,875 at Sept. 30, 1997
and March 31, 1997 respectively 1,422,620 1,412,625
Inventories 2,773,919 2,872,167
Prepaid expenses 146,073 226,326
Deferred taxes and other 6,624 20,515
-------------- --------------
Total current assets 6,316,098 4,586,855
Property, plant and equipment, net 2,831,984 2,592,035
Investment in joint venture 189,360 189,360
Goodwill, net 1,214,954 1,246,334
Patent costs, net 504,758 414,493
Receivable from joint venture 212,805 232,945
Other assets 370,640 455,827
-------------- --------------
Total assets $ 11,640,599 $ 9,717,849
============== ==============
</TABLE>
See accompanying notes.
<PAGE>
Ion Laser Technology, Inc.
Unaudited Consolidated Condensed Balance Sheets (continued)
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
----------------- --------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 18,133 $ 45,529
Accounts payable 270,627 676,059
Accrued expenses 271,715 194,551
Accrued warranty costs 86,819 76,348
Current portion of long-term debt 21,148 30,474
-------------- ---------------
Total current liabilities 668,442 1,022,961
Long-term debt less current portion 958,962 845,583
Shareholders' Equity:
Common stock, $.001 par value:
Authorized shares - 50,000,000 5,805 5,144
Issued and outstanding shares -
September 30, 1997 - 5,804,791
March 31, 1997 - 5,144,030
Additional paid-in capital 11,960,611 8,793,074
Retained earnings (deficit) (1,902,921) (898,613)
Cumulative translation adjustment (50,300) (50,300)
-------------- ---------------
Total shareholders' equity 10,013,195 7,849,305
-------------- ---------------
Total liabilities and shareholders' equity $ 11,640,599 $ 9,717,849
============== ===============
</TABLE>
See accompanying notes.
<PAGE>
Ion Laser Technology, Inc.
Unaudited Consolidated Condensed Statements of Operations
<TABLE>
<CAPTION>
For six months ended For three months ended
--------------------------------------- ----------------------------------
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1997 1996 1997 1996
------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 3,104,025 $ 3,354,010 $ 1,084,242 $ 1,955,518
Cost of products sold 1,939,674 1,714,612 773,706 1,325,736
Gross Margin 1,164,351 1,639,398 310,536 629,782
Selling and administrative expenses 1,818,712 1,412,647 1,034,596 536,200
Research and development expenses 313,686 100,035 178,488 58,653
------------- ------------- ------------ --------------
(968,047) 126,716 (902,548) 34,929
Other income (expense) (36,263) 82,086 (25,213) 39,803
------------- ------------- ------------ --------------
Income (loss) before income taxes (1,004,310) 208,802 (927,761) 74,732
Income tax (expense) benefit - - - -
------------- ------------- ------------ --------------
Net income (loss) $ (1,004,310) $ 208,802 $ (927,761) $ 74,732
============= ============= ============ ==============
Earnings (loss) per common share $ (.18) $ .04 $ (.17) $ .02
============= ============= ============ ==============
</TABLE>
See accompanying notes.
<PAGE>
Ion Laser Technology, Inc.
Unaudited Consolidated Condensed Statements of Cash Flows
For the six months ended:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
----------------- -----------------
<S> <C> <C>
Operating activities
Net income (loss) $ (1,004,308) $ 208,802
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 190,267 100,972
Provision for losses on accounts receivable 26,197 5,277
Changes in operating assets and liabilities:
Accounts receivable (16,052) 105,061
Inventories 98,248 (1,041,262)
Prepaid expenses 80,253 (14,770)
Other assets 85,187 593
Accounts payable and accrued liabilities (328,268) (174,573)
Accrued warranty costs 10,471 (50,095)
Income taxes payable 13,891 426
--------------- --------------
Net cash provided by (used in) operating activities (844,114) (859,569)
--------------- --------------
Investing activities
Patent costs (91,942) (188,839)
Goodwill - 6,696
Additions to property, plant and equipment (397,159) (756,488)
--------------- --------------
Net cash (used in) investing activities (489,101) (938,631)
--------------- --------------
Financing activities
Proceeds from issuance of debt 111,903 0
Payments on debt (35,246) (688,642)
Proceeds from sale of common stock 3,168,198 359,375
--------------- --------------
Net cash provided by (used in) financing activities 3,244,855 (329,267)
--------------- --------------
Net increase (decrease) in cash and cash equivalents 1,911,640 (2,127,467)
Cash and cash equivalents at beginning of period 55,222 5,081,912
--------------- --------------
Cash and cash equivalents at end of period $ 1,966,862 $ 2,954,445
=============== ==============
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1997
1. Accounting Policies
Basis of Presentation
The unaudited, consolidated, condensed financial statements of Ion Laser
Technology, Inc. (the "Company") as of September 30, 1997 and March 31, 1997
and for the six months and three months ended September 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 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 the notes 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
period. Common stock equivalent shares consist primarily of stock options
that have a dilative effect when applying the treasury stock method. The
weighted average number of shares outstanding were 5,490,073 and 5,282,660 at
September 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 presentation.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---------------- -----------------
<S> <C> <C>
Raw materials $ 978,311 $ 1,038,156
Work in progress 787,407 1,118,504
Finished goods 1,008,201 715,507
------------ ------------
$ 2,773,919 $ 2,872,167
============ ============
</TABLE>
<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
Total sales fell from $1,955,518 in the quarter ended September 30, 1996 to
$1,084,242 for the quarter ended September 30, 1997. Also, sales for the six
months ended September 30, 1997 were $3,104,025 compared to $3,354,010 for the
six months ended September 30, 1996. Sales of products into the dental market
decreased from $1,525,000 in the second quarter of fiscal year 1997 to
$648,000 in the second quarter of fiscal year 1998.
The Company has refocused its sales efforts to utilize marketing partners for
the sale of its BriteSmile and new Sub-Second product lines. The two
marketing partners negotiated or signed in the second quarter have existing
and seasoned distribution channels. Management believes this will effect a
more rapid and broader market penetration of the Company's dental products
both domestically and internationally. A broader placement of the Company's
dental equipment will help accelerate residual income from the sale of
chemical compounds used in conjunction with the Company's laser and laser-like
products for in-office patient procedures.
The Company also added two key executives, VP of Dental Relations and VP of
Marketing and Sales, who joined the Company late in the second quarter.
The Company received FDA marketing clearance for the sale of a Sub-Second(
curing device known as the Apollo 9500, in March 1997. The new product was
introduced to the dental market by the Company's exclusive domestic
distributor in October, 1997, as a high speed curing and whitening product.
The Company expects to begin production and delivery of the product during the
fourth quarter of fiscal year 1998. The Company is developing a compatible
composite material and whitening reagent which it intends to sell for use with
the device. Orders are currently being taken for fulfillment during the
quarter of fiscal year 1998.
The exclusive domestic distributor, Dental/Medical Diagnostics, Inc. ("DMD"),
is conducting the entire product launch of the Apollo 9500 in the United
States and Canada with minimum requirement levels to be filled in order to
maintain exclusive distributorship. The first year's purchases of the Apollo
9500 are guaranteed by DMD for approximately $5,000,000, subject to the
Company's delivery of 100 Apollo 9500 units on or before February 28, 1998 and
certain other conditions. For purposes of the agreement with DMD, the "first
year" does not commence until the first 100 units are delivered and concludes
twelve months thereafter. The purchase of $5,000,000 of Apollo 9500 units does
not include any chemicals or composites which may be purchased by DMD or its
customers and which the Company is presently developing. With the product
launch underway for the U.S. and Canada, ILT's in-house marketing team is
focusing on the advancement of laser tooth whitening worldwide and
international expansion for the Sub-Second product in the dental and industrial
photonics markets.
Sales of laser tooth whitening chemicals for the quarter increased 58% over the
prior year's period. This represents extensive efforts by the Company to
assist current owners of the LTW system in marketing efforts to potential
patients of the procedures.
The Company believes the Sub-Second curing ability of its patent-pending, new
technology has applications in the industrial photonics industry. Market
potential of this product is being researched for applications with the
Company's industrial and scientific laser products.
Despite the Company's marketing agreement with DMD and its own increased
marketing and sales activities, there can be no assurance that the factors
which have caused a decline in sales in the first half of fiscal year 1998
will not continue for the remainder of the fiscal year.
<PAGE>
Cost of Sales
The Company's cost of sales increased when compared with the same period one
year ago. The Company's gross margin decreased from 32% in the prior period
to 29% in the quarter ended September 30, 1997.
The increase in cost of sales as a percent of sales is largely due to the lack
of sales of the higher margin laser tooth whitening system. Management
expects that sales of higher margin laser tooth whitening systems will
increase during the balance of fiscal year 1998. Management expects that the
product mix in the long term will move towards the LTW line and other higher
margin products. However, management also expects that the increased cost of
sales will continue for the remainder of the fiscal year 1998.
Furthermore, the Company was maintaining a training facility in Birmingham,
Alabama. The Birmingham facility has been closed and its operations
discontinued as the Company opened a new training and educational facility in
Salt Lake City, Utah in September. The Company has recognized expenses of
approximately $229,000 related to the Birmingham facility and its closure
during the first six months of fiscal year 1998.
Warranty expenses for the quarter ended September 30, 1997 decreased by
approximately $97,000 from the quarter ended September 30, 1996. This
decrease in warranty costs represents ongoing product changes in an effort to
increase the reliability of the Company's dental product lines.
Selling & Administrative Expenses
Expenditures for selling and administrative expenses were $1,034,596, and
$536,200 for the quarters ended September 30, 1997 and 1996 respectively. The
Company continues to invest in marketing to both the dental community and the
whitening consumer. Sales and marketing expenses were approximately $518,000
during the current quarter as compared to $338,000 for the prior year's
quarter. 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 $178,488 and $58,653 in the second
quarter of fiscal year 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 in the current period is largely
attributable to the development of the Apollo 9500. This product has been
developed as a low-cost, high speed (less than one second) curing device for
curing composites in dental applications and a high speed whitening light
source. The product received FDA market clearance in March 1997. The
Company signed an exclusive license agreement with DMD for the sale of this
product into the US and Canadian markets. DMD sells high technology equipment
to the dental community. The Apollo 9500 was introduced at a national dental
convention in October by DMD, and orders for this product are currently being
taken by DMD for shipment in the fourth quarter of the Company's fiscal year.
The Company expects research and development expenditures to continue at a
similar level as a percentage of sales during the remainder of fiscal year
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 ($927,761) in the second quarter of fiscal
year 1998, compared to net income of $74,732 in the same quarter of fiscal
year 1997. The loss is due in large part to a reduction of sales to the
dental market during the summer months and increased marketing expenses.
There can be no assurance, however, that future net losses will not occur
especially in light of the Company's decline in sales when combined with
expected levels of expense or, if they occur, that they will be less than the
losses sustained in fiscal year 1997 and the first two quarters of fiscal year
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position increased $1,966,862 during the six months,
principally as a result of the sale of common stock in May 1997. During this
period, operating activities used $844,000 mainly due to the net loss
sustained coupled with a decrease in accounts payable and accrued liabilities.
Management believes that levels of cash will generally decrease during the
balance of fiscal year 1998, which may necessitate seeking further external
funding.
The Company currently maintains a line of credit with a bank in the amount of
$500,000. The Company currently has no borrowings against the line of
credit. The line of credit is secured by accounts receivable of the Company
and the ability of the Company may be limited by the value of the accounts
securing the line and other factors.
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 system. This patent
allows for certain protection against competitors in relation to the use of
lasers for tooth whitening. The Company has notified many of those it
believes to be in violation of this patent, and has served two of its
competitors with lawsuits related to infringement of its patents. Management
believes that it may incur significant costs associated with the defense of
this and other patents owned by the Company.
The Company has completed 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 uses for training, sales presentations, and
research and development. The Company is also in the process 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 September 30,
1997 and March 31, 1997 were as follows:
September 30, March 31,
1997 1997
-------------- ---------------
Current Ratio 9.1 4.5
Working Capital $5,397,754 $3,563,894
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 financial
condition, results of operations and cash flow may be affected by factors which
could cause actual results to differ materially from those described in the
forward looking statements contained in this 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 and the matters discussed above in
this Form 10-QSB.
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, results of operations and cash flow.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On or September 22, 1997, BriteSmile, Inc., a wholly owned subsidiary of the
Company commenced an action in the United States District Court for the
District of Utah against Interdent, Inc. and Premier Laser Systems, Inc. In
its complaint, the Company alleges that both Interdent and Premier have
infringed and continue to infringe the Company's patent no. 5,645,428 issued
on July 8, 1997 bearing the title, "Method for Teeth Whitening" by selling
tooth whitening compositions which are activated by Arago and MOD( lasers.
The defendants have not yet answered the Company's complaint or otherwise
responded to its allegations.
Item 2. Changes in Securities. None
Item 3. Defaults upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
Exhibit No. Description
---------- ------------
27 Financial Data Schedule
<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: November 14, 1997 /s/ Dean E. Hutchings
--------------------------
Dean E. Hutchings
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 1,966,862
<SECURITIES> 0
<RECEIVABLES> 1,422,620
<ALLOWANCES> 78,678
<INVENTORY> 2,773,919
<CURRENT-ASSETS> 6,316,098
<PP&E> 2,831,984
<DEPRECIATION> 1,046,532
<TOTAL-ASSETS> 11,640,599
<CURRENT-LIABILITIES> 668,442
<BONDS> 0
0
0
<COMMON> 5,805
<OTHER-SE> 10,007,390
<TOTAL-LIABILITY-AND-EQUITY> 11,640,599
<SALES> 3,104,025
<TOTAL-REVENUES> 3,104,025
<CGS> 1,939,674
<TOTAL-COSTS> 4,108,335
<OTHER-EXPENSES> 36,263
<LOSS-PROVISION> 8,000
<INTEREST-EXPENSE> 60,232
<INCOME-PRETAX> (1,004,310)
<INCOME-TAX> 0
<INCOME-CONTINUING> (968,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,004,310)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
