FORM 10-Q
U.S. 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 quarterly period ended March 31, 1997
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: 0-22340
[GRAPHIC OMITTED]
PALOMAR MEDICAL TECHNOLOGIES, INC.
-------------------------------------------------
(Exact name of small business issuer as specified in its charter)
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<S> <C>
Delaware 04-3128178
- -------------------------------------------------------------------- ---------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
66 Cherry Hill Drive, Beverly, MA 01915
(Address of principal executive offices)
(508) 921-9300
------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 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
-
As of May 9, 1997, 32,634,923 shares of Common Stock, $.01 par value per
share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes____ No X
Page 1 of ___
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2
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets - December 31, 1996 and March 31, 1997 P. 3
Consolidated Statements of Operations - For the Three Months Ended
March 31, 1996 and 1997 P. 4
Consolidated Statements of Stockholders' Equity - For the Three Months
Ended March 31, 1997 P. 5
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1996 and 1997 P. 6
Notes to Consolidated Financial Statements P. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS P. 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS P. 19
ITEM 2. CHANGES IN SECURITIES P. 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P. 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS P. 20
ITEM 5. OTHER INFORMATION P. 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P. 20
SIGNATURES P. 21
</TABLE>
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3
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, March 31,
1996 1997
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $16,172,731 $17,661,622
Marketable securities 2,893,792 4,127,472
Accounts receivable, net 18,308,077 19,851,315
Inventories, net 18,790,484 21,004,585
Loans to officers 995,331 958,850
Notes receivable related parties 464,153 1,117,487
Other notes receivable 899,937 883,406
Other current assets 7,623,161 2,199,641
--------------- ---------------
Total current assets 66,147,666 67,804,378
--------------- ---------------
PROPERTY AND EQUIPMENT, AT COST, NET 8,404,605 10,570,927
--------------- ---------------
OTHER ASSETS:
Cost in excess of net assets acquired, net 5,024,299 4,837,742
Intangible assets, net 2,286,058 2,115,158
Deferred costs 2,895,803 3,439,978
Long-term investments 3,179,554 5,381,485
Loan to related party 1,100,000 802,000
Other assets 1,719,211 1,504,011
--------------- ---------------
Total other assets 16,204,925 18,080,374
--------------- ---------------
$90,757,196 $96,455,679
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit $4,558,052 $5,387,023
Current portion of long-term debt 2,783,683 2,609,928
Accounts payable 14,464,285 15,235,908
Accrued expenses 14,669,893 20,101,740
--------------- ---------------
Total current liabilities 36,475,913 43,334,599
--------------- ---------------
LONG-TERM DEBT, NET OF CURRENT PORTION 16,204,692 20,902,840
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value- 182 198
Authorized - 5,000,000 shares Issued and outstanding - 18,151 shares
and 19,707 shares at December 31, 1996 and March 31, 1997
Common stock, $.01 par value- 305,968 320,144
Authorized - 100,000,000 shares
Issued and outstanding - 30,596,812 shares
and 32,014,404 shares at December 31, 1996 and March 31, 1997
Additional paid-in capital 104,900,551 114,143,149
Accumulated deficit (64,971,200) (80,631,341)
Unrealized (loss) gain on marketable securities (342,500) 102,500
Subscriptions receivable from related party (604,653) (504,653)
Less: Treasury Stock (200,000 shares at cost) (1,211,757) (1,211,757)
--------------- ---------------
Total stockholders' equity 38,076,591 32,218,240
--------------- ---------------
$90,757,196 $96,455,679
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
4
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
<S> <C> <C> <C>
Three Months Ended March 31,
----------------------------------
1996 1997
--------------- ----------------
REVENUES $6,925,001 $20,126,438
COST OF REVENUES 7,283,766 20,006,222
--------------- ----------------
Gross (loss) profit (358,765) 120,216
--------------- ----------------
OPERATING EXPENSES
Research and development 1,716,803 2,847,806
Sales and marketing 1,567,138 3,250,412
General and administrative 3,397,681 5,328,785
Business development
and other financing costs 497,273 656,239
Settlement and Litigation Costs 258,973 3,150,000
--------------- ----------------
Total operating expenses 7,437,868 15,233,242
--------------- ----------------
Loss from operations (7,796,633) (15,113,026)
INTEREST EXPENSE (324,682) (1,664,777)
INTEREST INCOME 606,194 198,254
NET GAIN ON TRADING SECURITIES 115,084 1,079,917
OTHER INCOME 30,575 134,487
--------------- ----------------
NET LOSS $(7,369,462) $(15,365,145)
=============== ================
NET LOSS PER COMMON SHARE $(0.33) $(0.50)
=============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 22,239,301 31,037,426
=============== ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
5
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
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Preferred Stock Common Stock Treasury Stock
---------------------------------------------------------------------
Number $0.01 Number $0.01 Number
of Shares Par Value of Shares Par Value of Shares Cost
---------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 18,151 $182 30,596,812 $305,968 (200,000) ($1,211,757)
Sale of common stock pursuant to warrants and -- -- 319,879 3,199 -- --
options
Payments received on subscriptions receivable -- -- -- -- -- --
Issuance of preferred stock 6,000 60 -- -- -- --
Issuance of common stock for 1996 employer
401(k) matching contribution -- -- 41,425 414 -- --
Conversion of preferred stock (4,444) (44) 695,683 6,957 -- --
Conversion of convertible debentures -- -- 353,191 3,532 -- --
Issuance of common stock for investment banking
and merger and acquisition consulting
services -- -- 5,000 50 -- --
Value ascribed to the discount feature of convertible
debentures issued -- -- -- -- -- --
Issuance of common stock for 1997 Employee
Stock Purchase Plan -- -- 2,414 24 -- --
Compensation expense related to warrants issued
to non-employees under Statement
of Financial Accounting Standards No. 123 -- -- -- -- -- --
Unrealized gain on marketable securities -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------------------------------------------------------------------
BALANCE, MARCH 31, 1997 19,707 $198 32,014,404 $320,144 (200,000)($1,211,757)
=====================================================================
</TABLE>
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<CAPTION>
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Additional Accumulated Unrealized (Loss) Total
Paid-in Deficit Gain on Marketable Subscription Stockholders'
Capital securities Receivable Equity
-----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $104,900,551 ($64,971,200) ($342,500) ($604,653) $38,076,591
Sale of common stock pursuant to warrants and
options 584,429 -- -- -- 587,628
Payments received on subscriptions receivable -- -- -- 100,000 100,000
Issuance of preferred stock 5,699,940 -- -- -- 5,700,000
Issuance of common stock for 1996 employer
401(k) matching contribution 268,848 -- -- -- 269,262
Conversion of preferred stock 179,579 -- -- -- 186,492
Conversion of convertible debentures 1,504,131 -- -- -- 1,507,663
Issuance of common stock for investment banking
and merger and acquisition consulting
services 38,075 -- -- -- 38,125
Value ascribed to the discount feature of convertible
debentures issued 787,582 -- -- -- 787,582
Issuance of common stock for 1997 Employee Stock
Purchase Plan 13,525 -- -- -- 13,549
Compensation expense related to warrants issued to
non-employees under Statement of Financial
Accounting Standards No. 123 166,489 -- -- -- 166,489
Unrealized gain on marketable securities -- -- 445,000 -- 445,000
Preferred stock dividends -- (294,996) -- -- (294,996)
Net loss -- (15,365,145) -- -- (15,365,145)
-----------------------------------------------------------------------
BALANCE, MARCH 31, 1997 $114,143,149 ($80,631,341) $102,500 ($504,653) $32,218,240
=======================================================================
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
6
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
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<S> <C> <C> <C>
Three Months Ended March 31,
---------------------------------
1996 1997
-------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(7,369,462) $(15,365,145)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 570,710 1,078,556
Settlement and litigation costs -- 2,500,000
Write-off of in-process research and development 57,212 --
Write-off of deferred financing costs associated with
redemption of convertible debentures -- 27,554
Valuation allowances for notes and investments -- 250,000
Minority interest in loss of subsidiary (30,572) --
Foreign currency exchange gain -- (548,552)
Noncash interest expense related to convertible debentures 16,538 1,025,865
Noncash compensation related to common stock and warrants 36,724 204,614
Realized gain on marketable securities (164,640) --
Unrealized gain on marketable securities 49,496 (1,079,886)
Changes in assets and liabilities, net of effects
from business combinations;
Purchases of marketable securities (780,056) (146,294)
Sale of marketable securities and
interest received on marketable securities 616,860 --
Accounts receivable 34,314 (1,543,238)
Inventories (2,452,661) (2,214,101)
Other current assets and loans to officers (793,722) (23,468)
Accounts payable 2,333,136 906,623
Accrued expenses 65,008 868,403
-------------- ----------------
Net cash used in operating activities (7,811,115) (14,059,069)
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchase of Comtel Electronics, Inc., net of cash (146,586) --
acquired
Net proceeds received from sale of subsidiary stock -- 3,925,000
Purchases of property and equipment (631,344) (2,808,339)
Increase in intangible assets (325,000) --
(Increase) decrease in other assets (381,694) 215,200
Loans to related parties (3,113,116) (1,250,000)
Deferred offering costs -- (199,541)
Payments received on loans to related parties 1,421,467 500,000
Investment in nonmarketable securities (1,150,000) (1,764,431)
-------------- ----------------
Net cash used in investing activities (4,326,273) (1,382,111)
-------------- ----------------
<PAGE>
7
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures -- 10,225,169
Proceeds from issuance notes payable 21,816 --
Redemption of convertible debentures -- (196,000)
Payments of notes payable and capital lease obligations (319,350) (229,246)
Net (payments) proceeds from revolving lines of credit (47,282) 828,971
Proceeds from sale of common stock 2,860,130 13,549
Exercise of warrants and stock options 3,751,637 587,628
Issuance of preferred stock 5,964,224 5,700,000
Payment of contingent note payable (500,000) --
Redemption of preferred stock, including accrued dividends of (3,123,152) --
$71,223
Payments received on subscriptions receivable 1,988,709 --
-------------- ----------------
Net cash provided by financing activities 10,596,732 16,930,071
-------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,540,656) 1,488,891
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,138,178 16,172,731
-------------- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $15,597,522 $17,661,622
============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $90,127 $263,843
============== ================
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Conversion of convertible debentures and related accrued
interest, net of financing $-- $1,507,663
fees
============== ================
Amortization of deferred financing costs $32,500 $--
============== ================
Conversion of preferred stock $233,842 $186,492
============== ================
Dividends payable $243,122 $294,996
============== ================
Issuance of common stock for employer 401(k)
matching contribution $160,598 $269,262
============== ================
ACQUISITION OF COMTEL ELECTRONICS, INC.
Liabilities assumed ($258,144) $--
Fair value of assets acquired 72,661 --
Cash paid, net of cash acquired (146,586) --
-------------- ----------------
COST IN EXCESS OF NET ASSETS ACQUIRED ($332,069) $--
============== ================
</TABLE>
<PAGE>
8
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The results of operations for the interim periods shown in
this report are not necessarily indicative of expected results for any future
interim period or for the entire fiscal year. Palomar Medical Technologies, Inc.
(the "Company" or "Palomar") believes that the quarterly information presented
includes all adjustments (consisting of normal, recurring adjustments) necessary
for a fair presentation in accordance with generally accepted accounting
principles. The accompanying financial statements and notes should be read in
conjunction with the Company's Form 10-KSB, as amended, as of and for the year
ended December 31, 1996.
The Company has incurred significant losses since inception. The Company
continues to seek additional financing from issuances of common stock and/ or
other prospective sources in order to fund future operations. The Company has
financed current operations, expansion of its core business and outside
short-term financial investments primarily through the private sale of debt and
equity securities of the Company. The Company anticipates that it will require
additional financing throughout the year to continue to fund operations and
growth. The Company may from time to time be required to raise additional funds
through additional private sales of the Company's debt or equity securities
and/or the liquidation of some of its marketable and long-term investments.
Sales of securities to private investors are sold at a discount to the public
market for similar securities. It has been the Company's experience that private
investors require that the Company make its best effort to register these
securities for resale to the public at some future time.
2. INVESTMENTS
The fair values for the Company's marketable equity securities are based on
quoted market prices. The fair values of nonmarketable equity securities, which
represent equity investments in early stage technology companies, are based on
the financial information provided by these ventures and other factors . The
amount that the Company realizes from these investments may differ significantly
from the amounts recorded in the accompanying unaudited consolidated financial
statements.
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under SFAS No. 115, securities that
the Company has the positive intent and ability to hold to maturity will be
reported at amortized cost and are classified as held-to-maturity. There were no
held-to-maturity securities as of December 31, 1996 and March 31, 1997.
Securities purchased to be held for indefinite periods of time and not intended
at the time of purchase to be held until maturity are classified as
available-for-sale securities. Securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities. Realized and unrealized gains and losses relating to trading
securities are included currently in the accompanying unaudited statements of
operations.
<PAGE>
9
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
March 31, 1997
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Costs Gain Loss Value
------------ ------------ ------------ ------------
Trading Securities:
Investments in publicly
traded companies $1,849,412 $2,442,197 $164,137 $4,127,472
------------ ------------ ------------ ------------
Available-for-Sale:
Investments in publicly
traded companies $1,000,000 $102,500 --- $1,102,500
------------ ------------ ------------ ------------
Total $2,849,412 $2,544,697 $164,137 $5,229,972
============ ============ ============ ============
</TABLE>
3. INVENTORIES
Inventories are stated at lower of cost (first-in, first-out) or market.
Work in process and finished goods inventories consist of material, labor and
manufacturing overhead and consist of the following:
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December 31, March 31,
1996 1997
---------------- ----------------
Raw materials $13,266,204 $15,396,664
Work in process and finished goods 5,524,280 5,607,921
---------------- ----------------
$18,790,484 $21,004,585
================ ================
</TABLE>
<PAGE>
10
4. PROPERTY AND EQUIPMENT
Property and Equipment consist of the following:
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December 31, March 31,
1996 1997
---------------- ----------------
Equipment under capital leases $2,261,339 $2,517,652
Machinery and equipment 5,429,764 6,922,410
Furniture and fixtures 1,926,948 2,951,325
Leasehold improvements 1,160,814 1,207,020
---------------- ----------------
10,778,865 13,598,407
Less: Accumulated depreciation
and amortization 2,374,260 3,027,480
---------------- ----------------
$8,404,605 $10,570,927
================ ================
</TABLE>
5. ACCRUED EXPENSES
Accrued Expenses consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, March 31,
1996 1997
---------------- ---------------
Payroll and consulting costs $3,456,311 $2,353,128
Professional fees 961,815 1,157,649
Settlement Costs 1,755,000 5,231,000
Warranty 2,854,401 2,968,172
Other 5,642,366 8,391,791
---------------- ---------------
Total $14,669,893 $20,101,740
================ ===============
</TABLE>
6. NET LOSS PER COMMON SHARE
For the three months ended March 31, 1996 and 1997, net loss per common
share has been computed by dividing the net loss, as adjusted for preferred
stock dividends, by the weighted average number of shares of common stock
outstanding during the period. Common stock equivalents are not considered as
outstanding, as the result would be antidilutive.
In March of 1997, SFAS No. 128, EARNINGS PER SHARE, was issued which
established new standards for calculating and presenting earnings per share. The
Company is required to adopt this new standard in its 1997 financial statements.
In accordance with this new standard, basic and diluted earnings per share for
the three months ended March 31, 1996 and 1997 are $(.33) and $(.50),
respectively.
<PAGE>
11
7. NOTES PAYABLE AND DEMAND LINE OF CREDIT
Notes payable consist of the following:
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<CAPTION>
<S> <C> <C>
December 31, March 31,
1996 1997
--------------- --------------
Dollar denominated convertible debentures $7,288,063 $12,785,458
Swiss franc denominated convertible debentures 7,222,846 6,474,447
7% Notes payable 244,782 244,782
7.4% to 21% Capital lease obligations, maturities ranging from August 1997 to May 2001 2,290,847 2,369,361
Present value of notes payable, discounted at 8%, maturities ranging from February 1996 to
February 1998 337,606 141,836
Note payable in connection with the Spectrum Medical Technologies, Inc. ("Spectrum")
acquisition, interest at the prime rate (8.5%
at March 31, 1997) plus 1%, due April 1997 150,000 150,000
Bridge notes payable due in June 1997, interest at prime (8.5% at March 31, 1997) plus 2%. 1,200,000 1,200,000
Other notes payable 254,231 146,884
--------------- --------------
18,988,375 23,512,768
Less - current maturities 2,783,683 2,609,928
-------------- --------------
$16,204,692 $20,902,840
=============== ==============
</TABLE>
On January 13, 1997 the Company issued $1,000,000 of 5% convertible
debentures. The convertible debentures have a conversion price which represents
a discount of 15% from the price of the Company's common stock at the time of
conversion. The Company has ascribed a value of $176,471 for the 15% discount
conversion feature.
On March 10, 1997 the Company issued $5,500,000 of 5% convertible
debentures. The convertible debentures have a conversion price of 100% of the
Company's average stock price, as defined, within the first 90 days and 90% of
the average stock price, as defined, thereafter. In addition, after 90 days, the
debentureholder may convert no more than 1/3 of the debenture in any 30 day
period. The Company has ascribed a value of $611,111 for the 10% conversion
discount.
The Company has credited this ascribed value for the discount feature
described above to additional paid-in capital, and this amount is being
amortized to interest expense over the expected life of the convertible
debenture. In addition, the Company incurred deferred financing costs of
$375,000 relating to the issuance of these debentures. These costs have been
reflected in deferred costs in the accompanying consolidated balance sheet as of
March 31, 1997 and are amortized to interest expense over the term of the
related convertible debentures. Any remaining unamortized deferred financing
costs are recorded to additional paid-in capital upon conversion.
On March 13, 1997 the Company issued $500,000 of 6% convertible debentures.
The convertible debentures have a conversion price of $11.00. In addition, after
90 days, the debentureholder may convert no more than 1/3 of the debenture in
any 30 day period. The Company has accounted for these debentures at face value.
During the first quarter, the Company's Comtel Electronics, Inc. ("Comtel")
subsidiary failed to satisfy certain financial covenants for its line of credit
with a bank due on November 30, 1998. The total amount outstanding at March 31,
1997 was $3,588,562. The Company has had discussions with this bank subsequent
to quarter end to amend these financial covenants so that Comtel will be in
compliance. Since Comtel does not have a definitive agreement, the Company has
classified the amount outstanding in current liabilities as a demand line of
credit.
<PAGE>
12
8. STOCKHOLDERS' EQUITY
(a) OPTIONS
During the three months ended March 31, 1997 the Company issued
options to purchase 10,000 shares of common stock at $6.50 per share to an
employee. One individual exercised an option to purchase 25,000 shares of common
stock at a price of $3.00. The total proceeds received by the Company were
$75,000.
(b) EXERCISE OF WARRANTS
During the three months ended March 31, 1997, certain warrantholders
exercised warrants to purchase 289,192 shares of common stock at prices ranging
from $0.60 to $2.25. The Company received total proceeds of $512,628 related to
the exercise of the warrants. In addition, net warrants to purchase 5,687 share
of common stock were exercised in the first quarter ending March 31, 1997.
(c) RESERVED SHARES
At March 31, 1997, the Company has reserved shares of its common stock
for the following:
March 31,
1997
---------------
Convertible debentures 3,803,156
Stock option plans 3,897,500
Warrants 9,647,940
Employee 401(k) plan 212,690
Convertible Preferred stock 3,287,176
---------------
Total 20,848,462
===============
(d) CONVERTIBLE PREFERRED STOCK
On March 31, 1997, for $6,000,000 the Company completed the issuance
of 6,000 shares of Series H Convertible Preferred Stock ("Series H"). The Series
H preferred stock accrues interest at varying rates of 6% to 8% per annum, as
defined. The Series H preferred stock may be converted into common stock,
including any accrued but unpaid interest, at 100% of the average stock price
for the first 179 days from the closing date, 90% of the average stock price for
the following 90 days and 85% of the average stock price thereafter. The average
stock price for the Series H preferred stock is the average closing bid price
for the ten trading days immediately preceding the conversion date, but in no
event less than $6.00. The conversion price is also adjustable for certain
antidilutive events, as defined. The holder is restricted for the first 209 days
following the closing date to converting no more than 33% of the Series H
preferred stock in any 30 day period (or 34% in the last 30 day period). The
Company has not ascribed any value to the discount conversion feature of the
Series H. Under certain conditions, the Company has the right to redeem the
Series H preferred stock.
9. RELATED PARTY TRANSACTIONS
Included in current assets at December 31, 1996 and March 31, 1997 is
$1,459,484 and $2,076,337, respectively, of notes receivable from various
officers and related entities. Also included in trading securities at December
31, 1996 and March 31, 1997 is a $1,912,614 investment and a $2,781,984
investment, respectively, in a related entity. It is reasonably possible that
the Company's estimate that it will collect these receivables within one year
will change in the near term.
The Board of Directors had established a corporate loan policy under which
loans could be granted to certain officers/stockholders/directors of the Company
for amounts up to an aggregate of $800,000. All such loans must be
collateralized by certain stockholdings of these individuals, as defined. At
December 31, 1996 and March
<PAGE>
13
31, 1997, $578,680 and $629,149, respectively, with accrued interest at the rate
of 7% per annum, was outstanding to certain officers/stockholders/directors
under the corporate loan policy. In addition, subsequent to March 31, 1997, a
majority of the Company's outside Board of Directors approved loans totaling
$1,395,000 to two executive officers of the Company. Both of these loans are
collateralized by certain stockholdings of these executive officers, as defined.
At March 31, 1997, the Company had loans receivable of $51,363 and $134,000
from two officers of Dynaco Corp., which are evidenced by promissory notes due
upon demand, with accrued interest at the rate of 7%. The $134,000 is partially
collateralized with a certain amount of vested stock options in the Company
owned by the officer with a market price in excess of the exercise price. At
March 31, 1997, the Company had an additional loan receivable for $75,000 from
an officer of Dynaco, which is evidenced by a demand promissory note and bears
interest at 7%.
The Company has a $450,000 investment in a privately held retail company. A
director of the Company's underwriter, H.J. Meyers is also a director of the
investee company. The Company has also prepaid investment banking fees totaling
$200,000 to the underwriter. During the three months ended March 31, 1997, the
Company loaned this director amounts totaling $1,000,000. These loans bear
interest at 12% per annum. The director paid back $500,000 and the remaining
$500,000 is fully collateralized by an executive officer's equity ownership in
an affiliated public company.
During the three months ended March 31, 1997, the Company invested an
additional $250,000 in a privately held medical and cosmetic services company.
The Company's cumulative investment as of March 31, 1997 totalled approximately
$750,000 and represents approximately 12% of the total equity ownership of this
company. An officer of CTI is a director of the privately held company. In
return for the $250,000 investment, the Company received 250,000 shares of
common stock and a promissory note for $249,900 accruing interest at 12% per
annum due on June 16, 1997.
10. PRO FORMA INFORMATION
The results of operations related to Comtel have been included with those
of the Company since March 20, 1996.
Unaudited pro forma operating results for the Company, assuming the Comtel
acquisition had been made as of January 1, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
-------------------------------------
1996 1997
------------------- ------------------
Revenue $7,310,001 $20,126,438
Net loss $(7,407,462) $(15,365,145)
Net loss per common share $(0.33) $(0.50)
</TABLE>
11. COMMITMENTS
The Company has issued guarantees to several of its subsidiaries for
payment of trade payables. The total amount guaranteed at March 31, 1997 was
$1,225,000.
The Company is a defendant in a lawsuit filed by Commonwealth Associates
("Commonwealth") on March 14, 1996 in the United States District Court for the
Southern District of New York. In its suit, Commonwealth alleges that the
Company breached a contract with Commonwealth in which Commonwealth was to
provide certain investment banking services in return for certain compensation.
In January 1997, Commonwealth's motion for summary judgment on its breach of
contract claim was granted. Commonwealth is seeking up to $3,381,250 in damages
on its breach of contract claim, exclusive of interest. A ruling on
Commonwealth's damages claim is pending. The Company intends to appeal the
matter if damages are awarded, and believes its grounds for appeal will be
meritorious.
During the three months ended March 31, 1997, the Company accrued an
additional $2,500,000 related to the above matter and another $650,000 for other
smaller claims and litigation costs.
<PAGE>
14
12. SUBSEQUENT EVENT
Subsequent to March 31, 1997, the Company raised an additional $7,000,000
through the issuance of 7,000 shares of Series H Convertible Preferred Stock.
The Company will account for this financing in a method similar to previous
preferred stock issuances and the terms are the same as the Series H Convertible
Preferred Stock described in Note 8(d).
Subsequent to March 31, 1997, the Company sold of all of its issued and
outstanding common stock of its wholly owned subsidiary, CD Titles, Inc. In
exchange, the Company will receive three promissory notes for an aggregate total
of $600,000 and warrants to purchase 450,000 shares of common stock at various
exercise prices ranging from $6.00 to $10.00 per share. The sale of CD Titles
did not have a material affect on the Company's financial position or results of
operations.
On April 14, 1997 Nexar Technologies, Inc. ("Nexar") completed an initial
public offering of 2,500,000 shares at $9.00 per share, for net proceeds of
$20,300,000. As of the effective date of Nexar's initial public offering, the
Company owned 6,100,000 shares of Nexar's common stock and 45,684 shares of
Nexar's convertible preferred stock. The convertible preferred stock is
convertible into 408,080 shares of Nexar's common stock. Pursuant to an
agreement between the Company and Nexar, 1,200,000 common shares ( the
Contingent Shares) of the total 6,508,080 common and common equivalent shares of
Nexar that are owned by the Company are subject to a mandatory repurchase, in
whole or part, by Nexar at $0.01 per share after the 48 month anniversary of the
initial public offering of Nexar' common stock unless these shares are released
from escrow. The Contingent Shares shall be placed in escrow, subject to the
release to the Company in installments of 400,000 shares each (upon the
achievement of any 3 of the 4 milestones as specified in the agreement between
the Company and Nexar). The milestones are based on Nexar achieving certain
revenue and net income levels as defined in the agreement. Subsequent to the
initial public offering the Company purchased 300,000 shares of Nexar's newly
issued publicly registered common stock for $2,700,000 from Nexar's underwriter
in a private placement transaction.
<PAGE>
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED MARCH 31, 1997, COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
For the three months ended March 31, 1997, the Company had revenues of
$20,126,438 as compared to $6,925,001 for the three months ended March 31, 1996.
The 191% increase in revenues from the quarter ended March 31, 1996 to the
quarter ended March 31, 1997 is principally due to increased sales volume
generated in the electronics segment. Net revenues by the Company's business
segments are as follows:
Three months ended
March 31,
-----------------------------------
1996 1997
-----------------------------------
Medical $2,406,419 $ 2,612,765
Electronics 4,518,582 17,513,673
--------- -----------
Total $6,925,001 $20,126,438
========== ===========
In the medical segment of the Company's business revenues were $2.6 million
for the quarter ended March 31, 1997 compared to $2.4 million for the quarter
ended March 31, 1996. The increase of approximately $206,000 or 8.6% was due to
additional sales volume at Spectrum Medical Technologies Inc. ("Spectrum")
associated with its EpiLaser(TM) product of approximately $1,267,000 offset by a
decline of approximately $894,000 in sales volume at Tissue Technologies, Inc.
("Tissue") for its TruPulse(R) laser product. Spectrum began manufacturing and
shipping its EpiLaser in the third and fourth quarters of 1996. The decline in
sales volumes at Tissue was due to manufacturing and production issues
associated with the CO2 tubes for the Company's TruPulse product. The Company
anticipates that revenues from its medical segment will increase because in late
March 1997 the Company obtained clearance from the FDA to sell and market the
EpiLaser product for hair removal in the United States and the Company is
addressing manufacturing issues related to its TruPulse product and believes
that these production issues will be corrected in the near term.
In the electronics segment of the Company's business, revenues were $17.5
million for the quarter ended March 31, 1997 compared to $4.5 million for the
quarter ended March 31, 1996. The increase of approximately $13.0 million was
principally due to Nexar sales volume which increased to $8,824,758 for the
three months ended March 31, 1997 from $117,468 for three months ended March 31,
1996. Nexar continues to increase its revenue since the introduction in April
1996 of its proprietary upgradeable PC. The overall increase in revenues in the
electronics segment was also due to an increase in sales volume at Dynaco which
generated sales of approximately $8 million for the quarter ended March 31, 1997
compared to sales of approximately $4.3 million for the quarter ended March 31,
1996. This increase of $3.7 million was due to the acquisition of Dynaco's
Comtel subsidiary, acquired in March of 1996, and revenues of approximately $0.9
million for the quarter ended March 31,1997 from Dynaco's Dynamem subsidiary,
which manufactures high density memory modules and had no revenue for the
quarter ended March 31, 1996.
Gross margin for the three months ended March 31, 1997, was a profit of
$120,216 (0.6% of revenues) versus a loss of $358,765 ((19.6%) of revenues) for
the three months ended March 31, 1996. Gross margin by the Company's business
segments are as follows:
Three months ended
March 31,
---------------------------------
1996 1997
---------------------------------
Medical $(316,911) $ (271,261)
Electronics (41,854) 391,477
-------- --------
Total $(358,765) $ 120,216
========== ===========
The Company's medical products business segment incurred a gross loss of
$271,261 for the three months ended March 31, 1997 compared to a gross loss of
$316,911 in 1996. The loss for 1997 occurred due to the delay in receiving FDA
approval for the Company's EpiLaser, combined with the significant
pre-production costs in order to prepare for the introduction of the EpiLaser
into the United States as well as an increase in manufacturing costs for the
production of the CO2 tubes for Tissue's TruPulse product.
<PAGE>
16
In the electronics segment of the Company's business, gross margin
increased to $391,477 (2.2% of revenues) for the quarter ended March 31, 1997 as
compared to a gross loss of $41,854 ((1.0%) of revenues) for the three months
ended March 31, 1996. This increase in gross margin is primarily the result of
additional gross margin for the three months ended March 31, 1997 totaling
$688,468 generated by the Company's Nexar subsidiary as a result of revenues
generated from its proprietary upgradeable PC. Nexar's gross profit was offset
by a gross loss at Dynaco's Comtel subsidiary.
Research and development costs increased to $2,847,806 (14% of revenues)
for the three months ended March 31, 1997, from $1,716,803 (25% of revenues) for
the three months ended March 31, 1996. This 66% increase in research and
development reflects the Company's continuing commitment to research and
development for medical devices and delivery systems for cosmetic laser
applications and other medical applications using a variety of lasers, while
continuing dermatology research utilizing the Company's ruby and diode lasers.
Approximately $2.2 million of the $2.8 million expended in the quarter ended
March 31, 1997 is attributed to the medical segment. Management believes that
research and development expenditures will increase over the next few years as
the Company continues clinical trials of its medical products and develops
additional applications for its lasers and delivery systems. However, management
anticipates that research and development as a percentage of net revenues will
decrease as revenue increases with the commercialization of its laser medical
products and continued penetration of its electronic products. The remaining
$0.6 million expended in the current year's first quarter was in the electronics
segment, mainly due to the continued development and improvement of Nexar PC
products.
General and Administrative expenses increased to $5,328,785 (26% of
revenues) for the three months ended March 31, 1997, from $3,397,681 (49% of
revenues) for the three months ended March 31, 1996. This 57% increase is
attributable to increased administrative resources required to oversee the
growth of the Company's medical and electronics business segments. Approximately
50% of the general and administrative expense increase for the three month ended
March 31, 1997 compared to the three months ended March 31, 1996 is attributed
to the Company's Cosmetic Technology International, Inc. ("CTI") subsidiary. CTI
is in the process of opening and establishing revenue sharing sites with
established partners such as Columbia/HCA, as well as with various international
partners. CTI also operates its own CliniSpa sites.
Selling and Marketing expenses increased to $3,250,412 (16% of revenues)
for the three months ended March 31, 1997, from $1,567,138 (23% of revenues) for
the three months ended March 31, 1996. This increase is nearly all attributed to
Nexar which recorded approximately $1.7 million in selling and marketing
expenses in the first quarter of 1997 compared to approximately $300,000 for the
three months ended March 31, 1996. Selling and marketing expenses will increase
in the near term, particularly in the medical products segment as revenues begin
to increase now that the Company has a suite of FDA cleared lasers products.
Business Development and Financing Costs increased to $656,239 (3% of
revenues) for the three months ended March 31, 1997, from $497,273 (7% of
revenues) for the three months ended March 31, 1996. This 32% increase is
attributable to the Company's continuing financing activities during the quarter
ended March 31, 1997.
Settlement and Litigation costs increased to $3,150,000 (16% of revenues)
for the three months ended March 31, 1997, from $258,973 (4% of revenues) for
the three months ended March 31, 1996. This increase is attributable mainly to
an additional legal settlement accrual of $2,500,000 recorded by the Company in
the first quarter of 1997 related to a former consultant combined with other
smaller settlement claims. The Company is a defendant in a lawsuit filed by a
former consultant to the Company. In the suit, the former consultant alleges
that the Company breached a contract with the consultant in which the consultant
was to provide certain investment banking services in return for certain
compensation.
Interest expense increased to $1,664,777 for the three months ended March
31, 1997, from $324,682 for the three months ended March 31, 1996. This 413%
increase is primarily the result of an increase in convertible debenture
financings and an additional outstanding line of credit financing at Dynaco's
Comtel subsidiary which was entered into in December 1996.
<PAGE>
17
Interest income decreased to $198,254 for the three months ended March 31,
1997, from $606,194 for the three months ended March 31, 1996. This decrease is
primarily the result of a change in the Company's average balances of its cash
equivalents.
Net realized and unrealized trading gains were $1,079,917 for the three
months ended March 31, 1997, up from $115,084 for the three months ended March
31, 1996. These gains resulted from the sale and/or appreciation of certain
marketable securities during the first quarter of the current year. It is the
Company's intention to begin to liquidate a portion of its trading investments
in the near term, which may result in additional trading gains or losses in the
future.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $21,789,094 in cash, cash equivalents
and trading securities. During the three months ended March 31, 1997, the
Company generated $10,225,169, $5,700,000 and $3,925,000 in net proceeds from
the issuance of convertible debentures, the sale of its preferred stock and the
sale of Palomar owned Nexar stock, respectively.
The Company's net loss for the three months ended March 31, 1997, included
the following noncash items: $1,078,556 of depreciation and amortization
expense; $1,025,865 of additional interest expense relating to the amortization
of the discounts on the convertible debentures; $204,614 in investment banking
fees paid with common stock and warrants; and a legal settlement accrual of
$2,500,000 in connection with a breach of contract case (the Company intends to
appeal any damages award in that case).
The Company anticipates that capital expenditures for the remaining nine
months of 1997 will total approximately $12 million, of which a majority is
attributed to CTI laser centers. The Company will finance these expenditures
with cash on hand, equipment leasing lines or the Company will seek to raise
additional funds. However, there can be no assurance that the Company will be
able to raise the funds.
Dynaco has a three-year revolving credit and security agreement with a
financial institution. The agreement provides for the revolving sale of
acceptable accounts receivable, as defined in the agreement, with recourse at
85% of face value, up to a maximum commitment of $3,000,000. As of March 31,
1997, the amount of accounts receivable sold that remained uncollected totaled
$1,798,461 net of related reserves and fees, as defined in the agreement. This
amount is classified as a revolving line of credit in the accompanying balance
sheet as of March 31, 1997. The interest rate on such outstanding amounts is the
bank's prime rate (8.50% at March 31, 1997) plus 1.5%, and interest is payable
monthly in arrears. The financing is collateralized by the purchased accounts
receivable and substantially all of Dynaco's assets. Borrowings under this loan
agreement are guaranteed by the Company.
On December 5, 1996, Comtel entered into a loan agreement with a loan
association which provided for borrowings up to $4,500,000 in the form of
revolving receivable and inventory loans. Borrowings under the loan agreement
are limited by a borrowing base calculation on eligible accounts receivable and
inventory, and are collateralized by accounts receivable, inventory, and certain
other assets. Borrowings bear interest at the lender's prime rate plus 2.25% and
amounted to $3,588,562 as of March 31, 1997. The loan agreement terminates on
November 30, 1998. Comtel is in default of a financial covenant under this line
due to its failure to maintain a minimum tangible net worth of $3 million. The
terms of the loan agreement are presently under negotiation. Borrowings under
this loan agreement are guaranteed by the Company.
A large part of the Company's medical products businesses are still in the
developmental stage, with significant research and development costs and
regulatory constraints that currently limit sales of its medical products. These
activities are an important part of the Company's business plan. Due to the
nature of clinical trials and research and development activities, it is not
possible to predict with any certainty the timetable for completion of these
research activities or the total amount of funding required to commercialize
products developed as a result of such research and development. The rate of
research and the number of research projects underway are dependent to some
extent upon external funding. While the Company is regularly reviewing potential
funding sources in relation to these ongoing and proposed research projects,
there can be no assurance that the current levels of funding or additional
funding will be available, or, if available, on terms satisfactory to the
Company.
<PAGE>
18
The Company has had significant losses to date and expects these losses to
continue for the near future. Therefore, the Company must continue to secure
additional financing to complete its research and development activities,
commercialize its current and proposed medical products, expand its electronic
products segment, execute its acquisition business plan and fund ongoing
operations. The Company believes that the cash generated to date from its
financing activities and amounts available under its credit agreement will be
sufficient to satisfy its working capital requirements through at least the next
twelve months. However, there can be no assurance that events in the future will
not require the Company to seek additional financing sooner. The Company
continues to investigate several financing alternatives, including additional
government research grants, strategic partnerships, additional bank financing,
private debt and equity financing and other sources. The Company believes that
it has adequate cash reserves or it will be successful in obtaining additional
financing in order to fund current operations in the near future.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made
by its employees may contain "forward-looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995 (the "Act").
This report may also contain information that is deemed to be forward looking
information under the Act. The Company cautions investors that there can be no
assurance that actual results or business conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors, including but not limited to the factors identified in the
Company's Form 10-KSB for the year ended December 31, 1996, as amended, and the
following:
The Company and certain of its subsidiaries have a history of losses,
and the Company expects its losses to continue. The Company must
secure additional financing to complete its research and development
activities, commercialize its current and proposed medical products,
expand its current non-medical business, execute its acquisition
business plan and fund ongoing operations.
The Company's future operating results are dependent on its ability to
develop, produce and achieve Food and Drug Administration approval for
certain medical products and market new and innovative products and
services. There are numerous risks inherent in this complex process,
including rapid technological change and the requirement that the
Company bring to market in a timely fashion new products and services
which meet customers' changing needs.
The Company's business segments operate in a highly competitive
environment and in highly competitive industries, which include
significant competitive pricing pressures and intense competition for
skilled employees.
The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating
results, changes in analysts' earnings estimates, market conditions in
the information technology industry, as well as general economic
conditions and other factors external to the Company.
<PAGE>
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 7, 1996 the Company filed a declaratory judgment action against
MEHL/Biophile ("MEHL") seeking (i) a declaration that MEHL is without right or
authority to threaten or maintain suit against the Company or its customers for
alleged infringement of the patent held by MEHL's subsidiary Selvac Acquisitions
Corp. ("Selvac" and the "Selvac Patent"), that the Selvac Patent is invalid,
void and unenforceable, and that the Company does not infringe the Selvac
patent; (ii) a preliminary and permanent injunction enjoining MEHL from
threatening the Company or its customers with infringement litigation or
infringement; and (iii) an award to the Company of damages suffered in
connection with MEHL's conduct. On March 7, 1997, Selvac filed a complaint for
injunctive relief and damages for patent infringement and for unfair competition
against the Company, its Spectrum Medical Technologies and Spectrum Financial
Services subsidiaries, and a New Jersey dermatologist, in the United States
District Court for the District of New Jersey. Selvac's complaint alleges that
the Company's EpiLaser infringes the Selvac Patent and that the Company unfairly
competed by promoting the EpiLaser for hair removal before it had received FDA
approval for that specific application. The Company and Selvac have agreed to
dismiss the Massachusetts litigation without prejudice. Palomar has brought in
the New Jersey action its claims that the Selvac patent is invalid, that the
Company has not infringed the Selvac patent, that MEHL should be enjoined from
making further assertions concerning infringement and unfair competition, and
that the Company should be awarded attorney fees and other appropriate relief.
Thus, both the Company's and MEHL's claims will be tried on the merits in New
Jersey. As of May 13, 1997, discovery had not yet commenced. The extent of
exposure of the Company cannot be determined at this time.
The Company is a defendant in a lawsuit filed by Commonwealth Associates
("Commonwealth") on March 14, 1996 in the United States District Court for the
Southern District of New York. In its suit, Commonwealth alleges that the
Company breached a contract with Commonwealth in which Commonwealth was to
provide certain investment banking services in return for certain compensation.
In January 1997, Commonwealth's motion for summary judgment on its breach of
contract claim was granted. Commonwealth is seeking up to $3,381,250 in damages
on its breach of contract claim, exclusive of interest. A ruling on
Commonwealth's damages claim is pending. The Company intends to appeal the
matter if damages are awarded, and believes its grounds for appeal will be
meritorious.
ITEM 2. CHANGES IN SECURITIES
CONVERTIBLE DEBENTURES
Pursuant to Section 4(2) of the Act, the Company sold a total of
$5,500,000 5% Convertible Debentures on March 10, 1997 to the Promethean
Investment Group. The notes may be converted within 90 days from issuance at the
option of the holder into shares of the Company's common stock at a price equal
to 100% of the average trailing five day bid price from the date of conversion.
The notes may be converted after 90 days from issuance at the option of the
holder into shares of the Company's common stock at a price equal to 90% of the
average trailing five day bid price from the date of conversion, provided that
in any 30 day period the holder of these debentures may convert no more than 33%
(or 34% in the last thirty day period available for conversion) of the
debentures.
Pursuant to Section 4(2) of the Act, the Company sold a total of
$500,000 6% Convertible Debentures on March 13, 1997 to Soginvest Bank. The
debentures may be converted at any time after 180 days from issuance, including
accrued interest, into shares of the Company's common stock at a price of
$11.00. Interest will be forfeited if converted prior to 180 days after the
closing date. The holder may not convert more than 33% of the debentures (or 34%
in the last thirty day period available for conversion) in any 30 day period.
PREFERRED STOCK
Pursuant to Section 4(2) of the Act, the Company sold 13,000 shares of
Series H Convertible Preferred Stock to three investors for a total of
$13,000,000. RGC International Investors, LDC purchased 6,000 shares on March
31, 1997; Credit Suisse First Boston Corporation purchased 4,000 shares on May
5, 1997 and CC
<PAGE>
20
Investments, LDC purchased 3,000 shares on May 5, 1997. The Series H Convertible
Preferred Stock may be converted into common stock, including any accrued but
unpaid interest, at 100% of the average stock price for the first 179 days from
the closing date, 90% of the average stock price for the following 90 days and
85% of the average stock price thereafter. The average stock price for the
Series H Convertible Preferred Stock is the average closing bid price for the
ten trading days immediately preceding the conversion date but in no event less
than $6.00 for the first 210 ten days following the closing date and thereafter
no less than the lower of $6.00 or 65% of the conversion ceiling price, as
defined. The holder is restricted for the first 209 days following the closing
date to converting no more than 33% of the Series H Convertible Preferred Stock
in any thirty day period (or 34% in the last thirty day period available for
conversion). Interest shall be accrued at 6% per annum for the first 179 days
following the closing date, 7% for the following 80 days and at 8% thereafter.
Interest shall cease to be accrued if, at any time, the Average Stock Price is
greater than 175% of the Conversion Ceiling Price. The Company has a right to
redeem 50% of the Series H preferred stock if, at any time after April 1, 1999,
the Average Stock Price is greater than 150% of the Conversion Ceiling Price and
any and all of the Series H preferred stock if, at any time after March 31,
1999, the Average Stock Price is greater than 200% of the Conversion Ceiling
Price. The redemption amount shall be calculated by multiplying the sum of the
preferred stock and the premium by 150% and 200% respectively divided by the
Conversion Ceiling Price and a redemption notice must be received by the Holder
no less than 10 and no more than 20 trading days priors to the date which the
Company intends to redeem the Series H preferred stock. Notwithstanding the
foregoing, the Holder would be entitled to convert any or all of the Series H
preferred stock prior to 10 days after the Company's redemption notice.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K.
None.
<PAGE>
21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
certifies that it has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Beverly in the
Commonwealth of Massachusetts on May 15, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
(Registrant)
DATE: May 15, 1997 By: /s/ Louis P. Valente
--------------------
Louis P. Valente
Chief Executive Officer
(Principal Executive Officer)
DATE: May 15, 1997 /s/ Joseph P. Caruso
--------------------
Joseph P. Caruso
Chief Financial Officer and
Treasurer
(Principal Financial Officer
and Principal Accounting
Officer)
