UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
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 0-28566
LASERMEDICS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0335587
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
120 Industrial Boulevard, Sugar Land, Texas 77478
(Address of principal executive offices, including zip code)
713-276-7000
(Registrant's telephone number, including area code)
Check whether the Registrant (i) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
As of August 12, 1996 Lasermedics, Inc. had 2,412,001 shares of Common
Stock outstanding.
1
LASERMEDICS, INC.
FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1996.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS..................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................ 12
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES..................... 14
ITEM 5. OTHER INFORMATION......................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......... 14
SIGNATURES................................ 16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements."
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Balance Sheet 4
Statement of Operations 5-6
Statement of Cash Flows 7
Notes to Financial Statements 8-11
3
LASERMEDICS, INC.
BALANCE SHEET
- -------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1996 1995
- -------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 484,087 $ 203,364
Accounts receivable, net of allowance for doubtful
accounts of $178,195 at June 30, 1996 3,518,404 32,669
Inventory 5,717,867 114,732
Prepaid expenses 88,715 -
Other current assets 150,000 100,000
- -------------------------------------------------------------------------------
Total current assets 9,959,073 450,765
Property, plant and equipment, net of
accumulated depreciation of $52,867 and
$16,002, respectively. 3,442,322 51,074
Goodwill and other intangibles, net of accumulated
amortization of $17,728 and $12,730, respectively 1,238,270 482
License agreement 101,850 101,850
- -------------------------------------------------------------------------------
Total Assets $14,741,515 $ 604,171
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Line of credit - bank $ 2,533,455 -
Accounts payable:
Trade 619,020 $ 382,894
Related party 10,833 56,747
Accrued liabilities 924,378 95,564
Customer deposits 22,000 89,100
Current maturities of long-term debt 286,333 -
- -------------------------------------------------------------------------------
Total current liabilities 4,396,019 624,305
Notes payable, net of unamortized
discount of $151,667 335,833
Other accrued liabilities 63,000 -
Long-term debt, net of current maturities 9,198,804 -
- -------------------------------------------------------------------------------
Total liabilities 13,657,823 960,138
Stockholders' Equity (Deficiency):
Preferred stock - $.10 par value; authorized
1,000,000 shares; none issued and outstanding
Common stock - $.01 par value; authorized
10,000,000 shares; issued 2,691,001
shares at June 30, 1996, and issued
1,761,225 shares at December 31, 1995 26,910 17,612
Additional paid-in-capital 9,625,917 7,232,691
Accumulated deficit (8,341,335) (7,378,470)
- -------------------------------------------------------------------------------
1,311,492 (128,167)
Treasury stock, at cost, 279,000 common shares (227,800) (227,800)
- -------------------------------------------------------------------------------
Stockholders' equity (deficiency) 1,083,692 (355,967)
Total Liabilities and Stockholders'
Equity (Deficiency) $14,741,515 $ 604,171
- -------------------------------------------------------------------------------
See notes to financial statements.
4
LASERMEDICS, INC.
STATEMENT OF OPERATIONS
(Unaudited)
- -------------------------------------------------------------------------------
Three months ended June 30, 1996 1995
- -------------------------------------------------------------------------------
Net sales $ 2,717,546 $ 56,717
Cost of sales 1,315,953 20,747
- -------------------------------------------------------------------------------
Gross profit 1,401,593 35,970
Operating expenses 1,615,819 388,497
- -------------------------------------------------------------------------------
Loss from operations (214,226) (352,527)
Interest expense (293,838) (20,458)
Other income (expense), net (10,892) 3,056
- -------------------------------------------------------------------------------
Net loss $ (518,956) $ (369,929)
- -------------------------------------------------------------------------------
Net loss per common share $ (0.33) $ (0.26)
- -------------------------------------------------------------------------------
Weighted average common shares outstanding 1,569,236 1,427,971
- -------------------------------------------------------------------------------
See notes to financial statements.
5
LASERMEDICS, INC.
STATEMENT OF OPERATIONS
(Unaudited)
- -------------------------------------------------------------------------------
Six months ended June 30, 1996 1995
- -------------------------------------------------------------------------------
Net sales $ 2,865,293 $ 127,539
Cost of sales 1,413,748 62,249
- -------------------------------------------------------------------------------
Gross profit 1,451,545 65,290
Operating expenses 2,079,706 965,610
- -------------------------------------------------------------------------------
Loss from operations (628,161) (900,320)
Interest expense (324,713) (20,458)
Other income (expense), net (9,991) 6,115
- -------------------------------------------------------------------------------
Net loss $ (962,865) $ (914,663)
- -------------------------------------------------------------------------------
Net loss per common share $ (0.63) $ (0.64)
- -------------------------------------------------------------------------------
Weighted average common shares outstanding 1,525,280 1,423,364
- -------------------------------------------------------------------------------
See notes to financial statements.
6
LASERMEDICS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
- -------------------------------------------------------------------------------
Six months ended June 30, 1996 1995
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (962,865) $ (914,663)
- -------------------------------------------------------------------------------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization expense 70,595 4,321
Amortization of discount on notes payable 151,667 10,833
Bad debt expense 405,080 12,377
Compensation related to stock options and
warrants issued - 137,330
Shares issued for public relations agreement 8,000
Shares issued for clinical research studies 90,000
Shares issued for furniture 5,995
Changes in operating assets and liabilities:
Accounts receivable (618,995) 83,531
Inventory 320,943 23,577
Other current assets (116,695) (125,000)
Accounts payable 161,548 111,330
Accrued liabilities 320,924 (27,235)
Customer deposits 67,100 (16,245)
Other accrued liabilities 63,000 -
- -------------------------------------------------------------------------------
Total adjustments 833,167 310,814
- -------------------------------------------------------------------------------
Net cash used in operating activities (129,698) (603,849)
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of Henley, net of cash
acquired of $1,909 (6,496,613) -
Capital expenditures (18,583) (1,858)
- -------------------------------------------------------------------------------
Net cash used in investing activities (6,515,196) (1,858)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,907,025 5,000
Subscriptions refunded on common stock (46,000)
Net proceeds from line of credit 2,533,455
Proceeds from long-term debt 2,508,998 487,500
Principal payments of long-term debt (23,861)
- -------------------------------------------------------------------------------
Net cash provided by financing activities 6,925,617 446,500
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 280,723 (159,207)
Cash and cash equivalents at beginning of period 203,364 310,742
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 484,087 $ 151,535
- -------------------------------------------------------------------------------
See notes to financial statements.
7
LASERMEDICS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited interim financial statements of Lasermedics,
Inc., a Texas corporation (the "Company"), have been prepared in
accordance with generally accepted accounting principles and the rules of
the Securities and Exchange Commission (the "SEC"), and should be read in
conjunction with the audited financial statements and notes thereto
contained in the Company's latest Annual Report filed with the SEC on Form
10-KSB. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim periods
presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be
expected for the full year. Notes to the financial statements which would
substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year, 1995, as reported in the Form
10-KSB, have been omitted.
2. LOSS PER SHARE:
The calculation of primary loss per share is based on the weighted average
number of shares outstanding during the period, after consideration of the
dilutive effect of stock options and warrants reflected under the treasury
stock method. Fully diluted loss per share is not presented because such
amounts would be the same as amounts computed for primary loss per share.
3. ACQUISITION OF ASSETS:
On April 30, 1996 the Company entered into an agreement with Maxxim
Medical, Inc., a Delaware corporation ("Maxxim"), whereby the Company
purchased certain assets of (and assumed certain liabilities associated
with) the Henley Healthcare Division ("Henley") of Maxxim for an estimated
purchase price of approximately $13.5 million. The assets acquired consist
of real property; tangible personal property including machinery,
equipment, furniture and fixtures; general intangibles; contracts;
business licenses; accounts receivable; inventory; and prepaid expenses.
The purchase price was paid by the issuance of the Company's convertible
subordinated promissory note in the principal amount of $7,000,000 (the
"Note") with the balance of the purchase price being paid in cash. The
Company obtained the cash portion of the purchase price pursuant to a loan
agreement entered into with Comerica Bank - Texas, a Texas banking
corporation ("Comerica"), which loan is secured by substantially all of
the assets of the Company including the Henley assets acquired from
Maxxim.
The Note is due and payable on March 1, 2003 with interest payable
semi-annually on November 1 and May 1 of each calendar year and calculated
at a rate equal to 2% per annum and increasing annually 2% per annum. The
Company may redeem all or any portion of the outstanding principal amount
of the Note at redemption prices ranging from 104% to 110% of the
principal amount being redeemed, depending on when the redemption occurs
as set forth in the Note. In addition, the Note is subject to mandatory
redemption in annual installments of $1.4 million commencing on March 1,
1999 at premiums starting at 7% and decreasing 1% each year. The Company
is also required to redeem 40% of the Note upon the completion of a public
offering. The Note is convertible into common stock at an initial
conversion price of $3 per share, provided that upon the occurrence of any
default under the Note, the conversion price
8
will be automatically adjusted to an amount equal to the lesser of the
conversion price then in effect or 80% of the average market price for the
Company's common stock for the 30 trading days immediately preceding the
event of default. The conversion price is also subject to adjustment upon
the occurrence of certain events (including certain issuances of common
stock for less than the conversion price) to provide anti-dilution
protection. Such conversion could, depending on the fair market value of
the Company's common stock at the time of conversion, result in
substantial dilution to holders of the Company's common stock. The
Company's common stock issuable upon conversion of the Note is subject to
the terms of a registration rights agreement entered into by the Company
and Maxxim whereby Maxxim (and certain subsequent holders) shall retain
certain demand and piggyback registration rights with respect to those
shares of common stock.
The loan agreement with Comerica (the "Loan Agreement") provides for (i) a
revolving loan ("Line of Credit" or "Revolver"), which permits borrowings
up to $4,000,000 pursuant to a borrowing base calculation derived from the
Company's accounts receivable and inventory and (ii) two term loans in the
amount of $893,000 and $1,616,000, respectively. The Revolver also
includes a $250,000 letter of credit facility. Interest on the Revolver
and the two term loans is payable monthly and is calculated at a rate
equal to the Prime Rate plus one-half of one percent per annum. The
Revolver's maturity date is two years from the date of the Loan Agreement
while the maturity dates of the $893,000 and $1,616,000 term loans are
five years and fifteen years, respectively, from the date of the Loan
Agreement, except that Comerica may call the $1,616,000 term loan
beginning on the fifth anniversary of the Loan Agreement. All of the
borrowings from Comerica are secured by substantially all of the assets of
the Company including the Henley assets acquired from Maxxim. The loan
agreement also contains a number of affirmative covenants, negative
covenants and financial covenants with which the Company must comply
including a minimum tangible net worth, leverage ratio, working capital
ratio, fixed charge ratio and interest coverage ratio. The Company is also
limited in the amount of its capital expenditures and research and
development expenditures, and all future acquisitions and major corporate
transactions require approval of Comerica, as do offerings of securities
by the Company.
From the date of the Loan Agreement through June 30, 1996, the Company was
not in compliance with some of its covenants under the Loan Agreement and
the Note. While the Company expects to be in compliance with such
covenants in the foreseeable future, unforeseen changes in cash flows,
taxes, requirements for capital expenditures, customer receivables and
other factors and conditions could cause the Company to breach its
covenants. In such event, the Company would be in default under the Loan
Agreement and/or the Note, as applicable, and all amounts due thereunder
could be declared immediately due and payable. The failure to pay such
amounts (which failure would occur unless the Company is able to obtain
additional sources of funding, of which no assurances can be given) would
likely result in Comerica and/or Maxxim foreclosing on all of the
Company's assets.
The acquisition has been accounted for as a purchase, and the results of
operations of Henley have been included in operations from the date of
acquisition. The estimated fair value of the Note amounted to $7,000,000
pursuant to a valuation by an investment banking firm.
9
4. OTHER CURRENT ASSETS:
At June 30, 1996, the Company had two stand-by Letters of Credit (the
"LOCs") one of which is for the benefit of the Company's Danish supplier,
in the amount of $100,000, expiring October 31, 1996, and the other is for
the benefit of one of the Company's wholesale suppliers, in the amount of
$50,000, expiring December 31, 1996. The LOCs are collateralized by
certificates of deposit for a total of $150,000 included in other current
assets.
5. RELATED PARTY TRANSACTIONS:
Included in accounts payable at June 30, 1996, were fees of $10,833
related to consulting agreements with two of the directors of the Company.
6. STOCKHOLDERS' EQUITY:
In connection with an agreement it entered into (in December 1995) with a
public relations firm, the Company issued to the firm, in February 1996,
2,000 shares of its treasury common stock as compensation for services.
The Company has recognized $8,000 in related compensation expense based on
the market price of the common stock of $4.00 per share on the date of the
agreement.
During March 1996, the Company amended the terms of a "best-efforts"
private offering of its securities commenced in December 1995 (the
"Offering") by extending the Offering from January 31, 1996 to June 21,
1996, increasing the size of the Offering up to 1,000,000 units and
modifying the provisions of certain common stock registration rights
granted in the Offering.
On April 30, 1996 the Company consummated the Offering with respect to
those subscriptions received to that date. Pursuant to such consummation
the Company received an aggregate of approximately $1,300,000 from
investors and issued to such investors in exchange therefor, 433,333 units
of its securities ("Units"), each Unit consisting of one share of the
Company's common stock and one four-year warrant to purchase one share of
the Company's common stock at an exercise price of $6.00 per share.
Subsequent to April 30, 1996 the Company consummated the Offering with
respect to those subscription agreements received after that date and, in
connection therewith, received approximately $734,000 and issued an
additional 244,670 Units.
Additionally, on April 30, 1996 the holders of all of the Company's
previously issued convertible, unsecured, non-negotiable promissory notes
("Bridge Notes") converted the amounts due thereunder into an aggregate of
176,773 shares of the Company's common stock and four-year warrants to
purchase an aggregate of 176,773 shares of the Company's common stock at
an exercise price of $6.00 per share. Such conversion was effected under
the same terms as those offered to investors in the Offering.
7. STOCK OPTIONS & WARRANTS:
Effective January 15, 1996, the Board of Directors of the Company adopted,
subject to approval by the Company's stockholders, a 1996 Incentive Stock
Option Plan covering 1,200,000 shares of
10
the Company's common stock and a 1996 Non-employee Directors Stock Option
Plan (the "NonEmployee Director Plan") covering 250,000 shares of the
Company's common stock.
In connection with their election to the Company's Board of Directors in
January 1996, two directors were each granted stock options under the
Non-Employee Director Plan to purchase a total of 25,000 shares of the
Company's common stock at a price of $5.50 per share. The grant of these
options was subject to stockholder approval of the Non-Employee Director
Plan which approval was obtained in July 1996.
In February 1996, the Company extended the expiration date from February
16, 1997 to February 1, 1999 of an immediately exercisable option to
purchase 75,000 shares of the Company's common stock at a price of $4.25
per share granted in connection with an agreement entered into with a
consultant of the Company in February 1994.
In March 1996, the Company extended the expiration date from July 15, 1996
to March 12, 1998 of an immediately exercisable option to purchase 20,000
shares of the Company's common stock at a price of $4.00 per share granted
in connection with an agreement entered into with a financial public
relations firm in December 1995.
Effective June 14, 1996 the Company entered into a settlement agreement
with J.W. Cabott Holding Corp. ("JWC") and certain of JWC's principals
with respect to an agreement the Company entered into with JWC in July
1994 pursuant to which JWC was granted a warrant to purchase 125,000
shares of the Company's common stock at $.10 per share. The settlement
agreement provides for, among other things, a reduction in the number of
shares issuable pursuant to the warrant granted to JWC from 125,000 to
75,000 and the transfer of such warrant to three principals of JWC. The
Company subsequently issued 75,000 shares of its common stock to the three
principals of JWC pursuant to their exercise of the warrant at the
specified price of $.10 per share.
8. SUBSEQUENT EVENTS:
At the Company's annual shareholders' meeting held in July 1996, the
Company's shareholders, among other things, approved the 1996 Incentive
Stock Option Plan and the Non-Employee Director Plan as adopted by the
Board of Directors of the Company in January 1996. (See Item 5 of Part
II.)
In connection with their re-election to the Company's Board of Directors
in July 1996, four non-employee directors were each granted stock options
under the Non-Employee Director Plan to purchase a total of 40,000 shares
of the Company's common stock at a price of $7.00 per share.
9. DEVELOPMENT STAGE:
For financial reporting purposes the Company was considered to be in the
development stage at March 31, 1996. Subsequent to April 30, 1996 (date of
acquisition of Henley) the Company is no longer in the development stage.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Operating deficit for the quarter ended June 30, 1996 increased
approximately 40% to $518,956 compared to operating deficit of $369,929 for the
same period in 1995. Operating deficit for the six months ended June 30, 1996
increased approximately 5% to $962,865 compared to operating deficit of $914,663
for the same period in 1995. The increase in operating deficit results primarily
from the effects of certain expenses incurred in the consolidation of the
newly-acquired Henley operations partially offset by less expenses recognized
during the first quarter of 1996 in connection with stock or stock
options/warrants issued for compensation or under certain agreements which the
Company entered into.
Net sales for the three months ended June 30, 1996 increased to $2,717,546
compared to $56,717 reported for the same period in 1995. For the six months
ended June 30, 1996 net sales increased to $2,865,293 compared to $127,539
reported for the same period in 1995. Gross margin for the three months ended
June 30, 1996 increased to $1,401,593 compared to $35,970 reported for the same
period in 1995, and for the six months ended June 30, 1996 gross margin
increased to $1,451,545 compared to $65,290 reported for the same period in
1995. These increases in net sales and gross margins resulted primarily from the
effects of the Henley acquisition completed in the quarter ended June 30, 1996.
Operating expenses for the quarter ended June 30, 1996 were $1,615,819
compared to $388,497 reported for the same period in 1995. For the six months
ended June 30, 1996 operating expenses were $2,079,706 compared to $965,610
reported for the same period in 1995. The increase in operating expenses was
directly attributable to the acquisition of the Henley operations.
For the three months and six months ended June 30, 1996 the Company had
interest expense of $293,838 and $324,713, respectively, compared to $20,458
reported for the same periods in 1995. The increase in interest expense is
directly related to the long-term debt incurred and the credit facility
established to finance the Henley acquisition as well as the effects of the
conversion of the Bridge Notes into shares of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company had cash and cash equivalents of $484,087
compared to cash and cash equivalents of $203,364 at December 31, 1995. The
increase in cash and cash equivalents resulted from proceeds of the Offering
consummated during the quarter ended June 30, 1996. Also, at June 30, 1996, the
Company had two stand-by letters of credit expiring October 31, 1996 and
December 31, 1996, respectively, aggregating $150,000 under which CBS and
another supplier are the beneficiaries. The letters of credit are collateralized
by certificates of deposit for a total of $150,000 classified as other current
assets in the financial statements.
The Company's current sources of liquidity consist primarily of (i) funds
held at the end of fiscal year 1995, (ii) proceeds received from the Offering
and (iii) the amounts, if any, available under the revolving loan from Comerica
(the "Revolver".) As of June 30, 1996 the Company had consummated the Offering
and in connection therewith had received an aggregate of approximately
$2,000,000, portions of which were used in operations. Also, as of June 30, 1996
the Company had approximately $1,700,000 available for borrowing pursuant to the
Revolver. The total amount available for borrowing under the Revolver is the
lesser of (i) $4,000,000 and (ii) a variable borrowing base calculated based on
the amount and type of outstanding accounts receivable and the value of certain
items of inventory.
The Company's on-going efforts to obtain FDA approval for Microlight
830(TM) continues to be a major source of depletion of capital resources. If the
Company's operating cash flow from the recently
12
acquired Henley assets is not adequate, the Company may require new sources of
liquidity to (i) fund future activities required to obtain FDA approval of the
Microlight 830(TM), (ii) make the required payments under the Note and term
loans with Comerica, (iii) make the payments required to obtain the exclusive
manufacturing and marketing rights to the Microlight 830(TM), (iv) expand the
Henley operations, (v) begin full-scale manufacturing of the Microlight 830(TM)
and (vi) pursue additional acquisitions. The Company believes that its success
in obtaining the necessary financing will depend on, among other factors, (i)
obtaining approval from the FDA to commercially distribute the Microlight
830(TM) in U.S. markets for human application, (ii) successfully operating the
recently-acquired Henley business, (iii) successfully marketing the Microlight
830(TM) and (iv) the availability of competing products. The failure to
accomplish any of the foregoing could have a significant adverse impact on the
Company's business and financial condition. Sources of additional financing may
include additional bank debt or public or private sale of equity or debt
securities. There can be no assurance that the Company will be successful in
arranging such financing on terms commercially acceptable to the Company.
13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
At the Company's annual meeting of shareholders held in July 1996, the
Company's shareholders approved an amendment to the Company's Articles of
Incorporation that, among other things, eliminated the cumulative voting of
shares of the Company's common stock in the election of directors.
ITEM 5. OTHER INFORMATION
In April 1996 the Company submitted its PMA supplement to the FDA in
response to the FDA's request for additional information and some clarification
of certain data submitted in the Company's original PMA application. In June
1996 the FDA informed the Company that the PMA submission was formally accepted
for filing and substantive review. However, there can be no assurance that the
Company's submission will ultimately satisfy the FDA's requirements or that the
FDA will grant PMA approval on a timely basis, if at all. The Company will be
unable to sell the Microlight 830(TM) in commercial quantities for human
application in the U.S. market until it obtains the FDA's clearance to market
the device.
In July 1996 the Company was informed that the FDA had reviewed the
Company's response to the FDA's October 1995 warning letter and had no further
concerns with respect to the matters covered in the warning letter. The FDA's
warning letter was issued pursuant to a June 1995 inspection of the Company's
clinical studies program involving the Microlight 830(TM).
At the Company's annual meeting of shareholders held in July 1996, in
addition to approving the stock option plans discussed in Part I hereof, the
Company's shareholders (a) elected a board of six directors and (b) approved a
proposal amending the Company's Articles of Incorporation which (i) increased
the authorized number of shares of the Company's Common Stock, par value $.01
per share from 10,000,000 shares to 20,000,000 shares; (ii) increased the
authorized number of shares of the Company's Preferred Stock, par value $.10 per
share from 1,000,000 shares to 2,500,000 shares; (iii) granted specific
authority to the Company's Board of Directors to designate the rights,
preferences, terms and conditions of one or more series of Preferred Stock
without further shareholder approval; and (iv) eliminated cumulative voting in
the election of directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See "Index of Exhibits" on page 17 which lists the documents required to
be filed as exhibits to this Form 10-QSB by Item 601 of Regulation S-B.
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K (and a subsequent amendment
on Form 8- K/A) dated April 30, 1996 in which the following items were reported:
o Acquisition of certain assets of Henley;
o Increase in the number of directors constituting the entire Board of
Directors of the Company from two to six; and
o The adoption by the Board of Directors of a 1996 Incentive Stock
Option Plan and a 1996 Non- Employee Directors Stock Option Plan.
24
(b) REPORTS ON FORM 8-K, CONTINUED
The following financial statements of the business acquired (Henley) were
also filed as part of the Current Report on Form 8-K/A:
o Divisional statement of net assets as of October 29, 1995 (audited.)
o Statements of revenues and direct expenses for the years ended
October 29, 1995 and October 30, 1994 (audited) and for the six
months ended April 30, 1995 and 1996 (unaudited.)
o Statements of cash flows for the years ended October 29, 1995 and
October 30, 1994 (audited) and for the six months ended April 30,
1995 and 1996 (unaudited.)
15
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, HEREUNTO DULY AUTHORIZED.
LASERMEDICS, INC.
(Registrant)
By : MICHAEL M. BARBOUR
Date: AUGUST 13, 1996 Michael M. Barbour
(President and Chief Executive Officer)
By : CHIKE J. OGBOENYIYA
Date: AUGUST 13, 1996 Chike J. Ogboenyiya
(Vice President and Chief Financial Officer)
16
LASERMEDICS, INC.
EXHIBITS TO FORM 10-QSB
for the quarter ended June 30, 1996
INDEX OF EXHIBITS
Exhibits incorporated by reference to a prior filing are designated by
an asterisk (*); all exhibits not so designated are documents required to be
filed as exhibits to this Form 10-QSB.
Report or SEC File or
Exhibit Registration Registration Exhibit
Number Description Statement Number Reference
- ------- ----------- ------------ ------------ ---------
2.1* Agreement of Form 8-K/A dated
Purchase and Sale April 30, 1996 33-49972 1(A)
of Assets dated
April 30, 1996
with Maxxim.
10.1* Convertible Form 8-K dated
Subordinated April 30, 1996 33-49972 1(B)
Promissory Note
dated April 30,
1996 payable to
Maxxim.
10.2* Registration Form 8-K dated
Rights Agreement April 30, 1996 33-49972 1(C)
dated April 30, 1996
with Maxxim.
10.3* Voting and Form 8-K dated
Shareholders April 30, 1996 33-49972 1(D)
Agreement dated
April 30, 1996 by
and between M.M.
Barbour, Dr. C. F.
Smith and Maxxim.
10.4* Loan Agreement Form 8-K dated
dated April 30, April 30, 1996 33-49972 1(E)
1996 with
Comerica Bank-
Texas.
3.1 Amendment to
By-Laws
3.2 Articles of
Amendment to
Articles of
Incorporation
17
EXHIBIT 3.1
LASERMEDICS, INC.
UNANIMOUS CONSENT OF THE DIRECTORS
IN LIEU OF SPECIAL MEETING
Pursuant to the authority contained in Article 9.10 of the Texas Business
Corporation Act, the undersigned being all of the directors of Lasermedics,
Inc., a Texas corporation (the "Corporation"), hereby waive notice of meeting
and hereby consent to the following recitals and resolutions, such consent to
have the same force and effect as if adopted at a duly called meeting of the
Board of Directors of the Corporation:
ACQUISITION OF HENLEY HEALTHCARE
WHEREAS, the Corporation has conducted discussions with Maxxim Medical,
Inc., a Delaware corporation ("Maxxim"), regarding the purchase of certain
assets and the assumption of certain liabilities pertaining to the business
conducted by Maxxim through its "Henley Healthcare" division (the
"Acquisition");
WHEREAS, in connection with such discussions, the parties have negotiated
the specific terms and provisions of the following agreements, instruments,
memoranda and documents required to consummate the Acquisition (collectively,
the "Acquisition Documents"):
(i) that certain Agreement of Purchase and Sale of Assets of even date
herewith by and between the Corporation and Maxxim (the "Purchase
Agreement");
(ii) that certain Lasermedics, Inc. Convertible Subordinated Promissory
Note of even date herewith in the original principal amount of $7,300,000
made by the Corporation payable to Maxxim (the "Note");
(iii) that certain Registration Rights Agreement of even date herewith by
and between Maxxim and the Corporation;
(iv) that certain Voting and Shareholders Agreement of even date herewith
by and among Maxxim, the Corporation, Michael M. Barbour and Chadwick F.
Smith (the "Voting Agreement");
(v) that certain Commercial Security Agreement of even date herewith by
and between Maxxim and the Corporation;
(vi) that certain Transition Agreement of even date herewith by and
between Maxxim and the
Corporation;
(vii) that certain Bill of Sale, Assignment and Assumption Agreement of
even date herewith by and between Maxxim and the Corporation; and
(vii) that certain Second Lien Deed of Trust covering the Sugar Land Real
Property (as defined in the Purchase Agreement);
(viii) that certain Second Lien Deed of Trust covering the Belton Real
Property (as defined in the Purchase Agreement); and
WHEREAS, each of the undersigned have received, read and considered a copy
of each Acquisition Document; and
WHEREAS, the undersigned, believing it to be in Corporation's best
interest, desire to authorize the execution and delivery of the Acquisition
Documents and the performance of the Corporation's obligations thereunder
including, without limitation, the reservation for issuance of the shares of the
Corporation's common stock, par value $.01 per share ("Common Stock"), issuable
upon conversion of the Note and the issuance, sale and delivery of such shares.
NOW, THEREFORE, BE IT RESOLVED, that the form, terms and conditions of
each of the Acquisition Documents be, and hereby are, approved, adopted,
ratified and confirmed in all respects;
RESOLVED, FURTHER, that the President and any Vice President of the
Corporation be and hereby are authorized and directed to execute and deliver the
Acquisition Documents on behalf of the Corporation, and upon such execution and
delivery, the Corporation be and hereby is authorized to perform its obligations
thereunder;
RESOLVED, FURTHER, that the Corporation hereby reserves for issuance,
pursuant to the terms of the Note, without further action by the Board of
Directors of the Corporation, such number of shares of Common Stock as will
permit the conversion of the Note, including reservation for issuance of that
additional number of shares of Common Stock as from time to time may become
issuable as a result of the operation of the anti-dilution provisions set forth
in the Note (the "Reserved Shares");
RESOLVED, FURTHER, that, the Corporation be and hereby is authorized to
issue and deliver the Reserved Shares upon conversion of the Note in accordance
with the terms thereof, and, upon their issuance, the Reserved Shares shall be
considered to be fully paid and non-assessable;
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RESOLVED, FURTHER, that the President and any Vice President of the
Corporation be and hereby are authorized and directed to execute, file and
deliver such financing statements, securities sales notices and any and all
other certificates, documents, papers and instruments, to make any and all
payments and to do or cause to be done any and all acts and things, and to make
any and all changes, amendments or modifications to the Acquisition Documents
and all such other agreements and documents as such officers may deem necessary,
appropriate, desirable or convenient to enable the Corporation to fully and
promptly carry out the purposes and intent of the foregoing resolutions, all of
which actions to be taken, or previously taken, are hereby ratified and
confirmed in all respects.
NUMBER OF DIRECTORS
WHEREAS, the terms of the Voting Agreement require the Corporation to
create a vacancy in its Board of Directors and fill such vacancy with a nominee
designated by Maxxim; and
WHEREAS, the undersigned, believing it to be in the best interests of the
Corporation, in addition to creating such vacancy, desire to add another member
to its Board of Directors.
NOW, THEREFORE, BE IT RESOLVED, that effective upon the closing of the
Acquisition and only if such closing occurs, Article II, Section 1 of the Bylaws
of the Corporation shall be deleted in its entirety and amended and restated as
follows:
"Section 1. Election and Term of Office. The business of the Corporation
shall be managed and controlled by a Board of Directors consisting of six
(6) members who shall be elected by the shareholders. They shall hold
office for the ensuing year and until their successors have been elected
and have qualified. The Directors need not be shareholders or residents of
Texas."
RESOLVED, FURTHER, that, effective upon the closing of the Acquisition and
only if such closing occurs, Kenneth W. Davidson and Ernest J. Henley be and
hereby are each elected to serve as a director of the Corporation until his
successor is duly elected and qualified.
RESCISSION AND TERMINATION OF EMPLOYMENT AGREEMENTS
WHEREAS, the Corporation and Michael M. Barbour have previously entered
into that certain Executive Employment Agreement dated December 31, 1991, as
amended (the "Old Barbour Agreement");
WHEREAS, the Corporation and Barbour have recently entered into (i) that
certain Executive Employment Agreement dated effective as of January 15, 1996
which replaced and terminated the
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Old Barbour Agreement and (ii) that certain Lasermedics, Inc. Nonqualified Stock
Option Agreement dated effective as of January 15, 1996 (collectively, the "New
Barbour Agreements");
WHEREAS, the Corporation and Smith have previously entered into that
certain Professional Services Agreement dated January 1, 1992, as amended (the
"Old Smith Agreement");
WHEREAS, the Corporation and Smith have recently entered into (i) that
certain Executive Employment Agreement dated effective as of January 15, 1996
which replaced and terminated the Old Smith Agreement and (ii) that certain
Lasermedics, Inc. Nonqualified Stock Option Agreement dated effective as of
January 15, 1996 (collectively, the "New Smith Agreements");
WHEREAS, the undersigned, believing it to be in the Corporation's best
interest, desire to authorize the rescission of the New Barbour Agreements and
the New Smith Agreements and the termination of the Old Barbour Agreement and
the Old Smith Agreement by entering into that certain Rescission and Termination
Agreement (the "Rescission Agreement") of even date herewith (a copy of which
has been received, read and considered by the undersigned).
NOW, THEREFORE, BE IT RESOLVED, that (i) the rescission of the New Barbour
Agreements and the New Smith Agreements and the termination of the Old Barbour
Agreement and the Old Smith Agreement be, and hereby are, approved, ratified and
confirmed; and (ii) the form, terms and conditions of the Rescission Agreement
be and is hereby approved, adopted, ratified and confirmed in all respects; and
RESOLVED, FURTHER, that the President and any Vice President of the
Corporation be and hereby are authorized and directed to execute and deliver the
Rescission Agreement.
RATIFICATION OF PRIOR SECURITIES ISSUANCES
RESOLVED, that the undersigned hereby approve, adopt, ratify and confirm
in all respects all prior issuances of securities of the Corporation including,
without limitation, the securities listed on Schedule 4.6 to the Purchase
Agreement, a copy of which is attached hereto.
RATIFICATION OF PREVIOUS ACTS
RESOLVED, FURTHER, that any lawful act heretofore taken by any officer of
the Corporation in connection with the matters contemplated in the foregoing
recitals and resolutions be and hereby is accepted, adopted, approved and
ratified in all respects as an act of the Corporation.
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FURTHER ACTIONS
RESOLVED, FURTHER, that the President and any Vice President be and hereby
are authorized and directed, on behalf of the Corporation, to execute,
acknowledge, deliver and file such other documents and to take such actions as
they may deem necessary or appropriate to effect the intent and accomplish the
purposes of the foregoing resolutions.
IN WITNESS WHEREOF, the undersigned, being all members of the
Corporation's Board of Directors hereby consent to all of the foregoing
effective as of the 30th day of April 1996, which consent may be executed by
facsimile signature and in multiple counterparts, each of which shall be deemed
an original, but all of which together shall be considered one and the same
Consent.
/s/ MICHAEL M. BARBOUR
/s/ CHADWICK F. SMITH, M.D.
/s/ DAN D. SUDDUTH
/s/ PEDRO A. RUBIO, M.D.
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EXHIBIT 3.2
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
LASERMEDICS, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, Lasermedics, Inc. hereby adopts these Articles of Amendment to
its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Lasermedics, Inc. (the "Corporation").
ARTICLE TWO
The following amendments to the Articles of Incorporation of the
Corporation were adopted by the shareholders of the Corporation on July 24, 1996
at the Corporation's Annual Meeting of Shareholders. The amendments affect
Article Four (concerning the Corporation's authorized capital stock) and Article
Six (concerning cumulative voting in the election of directors) of the Articles
of Incorporation.
Article Four is amended and restated in its entirety as follows:
"ARTICLE FOUR
The Corporation shall have the authority to issue two classes of shares,
to be designated respectively, "Preferred Stock" and "Common Stock". The total
number of shares which the Corporation is authorized to issue is 22,500,000. The
number of Preferred shares authorized is 2,500,000 and the par value of each
such share is Ten Cents ($.10). The number of Common shares authorized is
20,000,000, and the par value of each such share is One Cent ($.01).
The Preferred Stock may be issued in one or more series. The Board of
Directors is hereby authorized to fix or alter by resolution or resolutions, the
designations, preferences, and relative participating, optional or other special
rights of the shares of each such series and the qualifications, limitations or
restrictions thereon, including, but not limited to, determination of the
dividend rights, dividend rates, conversion rights, voting rights and rights in
terms of redemption."
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Article Six is amended by deleting the last sentence of the second
paragraph thereof and replacing such deleted sentence with the following:
"Cumulative voting of shares in the election of directors is expressly denied."
ARTICLE THREE
The number of shares of the Corporation outstanding at the time of such
adoption was 1,482,225 and the number of shares entitled to vote thereon was
1,482,225.
ARTICLE FOUR
The number of shares of the Corporation voted for the amendment was
1,006,982 and the number of shares of the Corporation voted against the
amendment was 12,267.
Dated July 24, 1996. LASERMEDICS, INC.
By: /s/ MICHAEL M. BARBOUR
President and Chief Executive Officer
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