<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended June 30, 1997.
[ ] 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 1-12471
INTEGRATED SURGICAL SYSTEMS, INC.
(Exact Name of registrant as specified in its charter)
Delaware 68-0232575
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
829 West Stadium Lane
Sacramento, CA 95834
(Address of principal executive offices) (Zip Code)
916-646-3487
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter periods 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 ___
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by the court. Yes ___ No ___
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock $.01 Par Value - 3,366,956 shares as of August 1, 1997.
<PAGE> 2
INTEGRATED SURGICAL SYSTEMS, INC.
Index
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet - June 30, 1997
Consolidated Statements of Operations - Three Months ended June 30, 1997 and 1996;
Six months ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and 1996
Notes to Consolidated Financial Statements - June 30, 1997
Item 2. Management's Discussion and Analysis or Plan of Operation
Part II. Other Information
Item 4. Matters submitted to Securityholders.
Item 6. Exhibits and Reports on Form 8-K
Signatures
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED SURGICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, 1997
Current assets: (unaudited)
------------
<S> <C>
Cash and cash equivalents $ 3,685,731
Accounts receivable 655,023
Inventory 1,790,371
Other current assets 245,405
------------
Total current assets 6,376,530
Net property and equipment 269,658
Other assets 17,169
------------
$ 6,663,357
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,046,771
Value added taxes payable 270,289
Accrued payroll and related expenses 103,673
Customer deposits 257,172
Accrued product retrofit costs 135,348
Payable to subcontractor --
Other current liabilities 195,591
------------
Total current liabilities 2,008,844
Commitments
Stockholders' equity:
Preferred stock, $0.01 par value 1,000,000 shares
authorized; no shares issued and outstanding --
Common stock, $0.01 par value, 15,000,000 shares
authorized; 3,366,956 shares issued and outstanding 33,669
Additional paid-in capital 25,775,656
Deferred stock compensation (336,417)
Accumulated translation adjustment (29,994)
Accumulated deficit (20,788,401)
------------
Total stockholder's equity 4,654,513
------------
$ 6,663,357
============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
INTEGRATED SURGICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales........................... $ 737,707 $ 652,365 $1,379,696 $1,064,206
Cost of Sales....................... 316,235 266,329 531,693 458,483
--------- --------- ---------- ----------
421,472 386,036 848,003 605,723
Operating expenses:
Selling, general and
administrative............... 758,932 438,408 1,383,596 887,283
Research and development....... 538,165 445,009 1,183,519 977,616
Stock compensation............. 45,000 21,000 90,000 246,000
--------- --------- ---------- ----------
1,342,097 904,417 2,657,115 2,110,899
Other income (expense):
Interest income................ 53,805 19,904 125,147 38,723
Other.......................... (9,357) 4,241 14,374 (20,958)
--------- --------- ---------- ----------
Loss before provision for income
taxes............................. (876,177) (494,236) (1,669,591) (1,487,411)
Provision for income taxes.......... 9,000 1,183 18,000 3,183
--------- --------- ---------- ----------
Net loss............................ $(885,177) $(495,419) $(1,687,591) $(1,490,594)
========= ========= ========== ==========
Net loss applicable to common
stockholders...................... $(885,177) $(495,419) $(1,687,591) $(1,490,594)
Net loss per share.................. $ (0.26) $ (0.11) $ (0.50) $ (0.34)
Shares used in per share
calculations...................... 3,366,599 4,377,643 3,364,567 4,377,643
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
INTEGRATED SURGICAL SYSTEMS, INC.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING EXPENSES
Net loss $(1,687,591) $(1,490,594)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 83,678 103,692
Stock compensation 90,000 246,000
Changes in operating assets and liabilities
Accounts receivable (54,455) (102,983)
Inventory (760,108) 96,985
Other current assets (116,756) 785
Note payable -- (207,461)
Accounts payable 370,570 (43,089)
Value added taxes payable (2,307) (469,991)
Accrued payroll and related expenses (92,069) 19,652
Customer deposits 132,172 (9,652)
Accrued product retrofit costs -- --
Payable to subcontractor (110,176) --
Other current liabilities 3,527 80,980
Translation adjustment (38,651) (5,038)
----------- -----------
Net cash used in operating activities (2,182,166) (1,780,714)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (102,300) (10,034)
Decrease in other assets 668 217
----------- -----------
Net cash used in investing activities (101,632) (9,817)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of convertible preferred stock -- 1,000,000
Proceeds from exercise of stock options 16,272 17
Expenses from initial public offering (47,822) --
----------- -----------
Net cash provided by financing activities (31,550) 1,000,017
Net decrease in cash and cash equivalents (2,315,348) (790,514)
Cash and cash equivalents at beginning of period 6,001,079 2,339,823
----------- -----------
Cash and cash equivalents at end of period $ 3,685,731 $ 1,549,309
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
INTEGRATED SURGICAL SYSTEMS, INC.
Notes to Consolidated Financial Statements (unaudited)
June 30, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six-month period ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included in Integrated Surgical Systems, Inc.'s annual
report on Form 10-KSB for the year ended December 31, 1996.
NOTE B - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30, 1997
-------------
<S> <C>
Raw Materials $ 706,114
Work in process 363,803
Finished goods 720,454
----------
$1,790,371
==========
</TABLE>
NOTE C - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of earnings per share is not expected to be material.
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. The Company reported net sales of $1,380,000 during the
first six months of 1997, approximately $315,000 higher than the same period
in 1996. The increase is attributable to sales at a higher selling price in
1997. Sales in 1996 were discounted.
Cost of Sales. Cost of sales were $532,000, approximately $73,000
higher than the same period in 1996 due to increased manufacturing staffing in
1997.
Selling, General and Administrative. Selling, general and
administrative expenses were $1,384,000 during the first six months of 1997,
approximately $496,000 higher than the same period in 1996 due primarily to
increased sales and marketing activity. A European based sales manager, trainer,
and service technician were added in 1997. General and administrative costs
also increased to support the increased growth and investor relations.
Research, and Development. Research and Development expenses were
$1,184,000 during the first six months of 1997, approximately $206,000 higher
than the same period in 1996 primarily due to additional engineering staff
required to support new product development projects.
Stock Compensation. Stock compensation expense during the first six
months of 1997 was $90,000, approximately $156,000 lower than the first six
months of 1996. This decrease is due to the immediate vesting of a portion of
a large grant of stock options in the first six months of 1996. The Company
charged to operations in 1996 deferred stock compensation relating to stock
options granted during 1996 with exercise prices less than the estimated fair
value of the Company's Common Stock, as determined by an independent valuation
analysis, on the date of grant. Deferred compensation for the non-vested
portion is being amortized into expense over the vesting period of the stock
options, which generally range from three to five years. Stock compensation
expense during the first six months of 1997 represents the additional vesting
which occurred in the first six months of 1997.
Interest Income. Interest income for the first six months of 1997 was
$125,000, approximately $86,000 higher than the first six months of 1996 due to
higher than average cash balances resulting from the issuance of Common Stock
in the Company's initial public offering in the fourth quarter of 1996.
Other Income and Expense. Other income for the first six months was
$14,000 compared to an expense of $21,000 in the first six months of 1996. The
primary reason for the difference is the strengthening of the Dutch Guilder
against the U.S. Dollar during 1996, as compared to a weakening of the Dutch
Guilder against the dollar in the first six months of 1997. This resulted in
currency transaction gains and losses on the U.S. currency obligations of the
Company's wholly owned subsidiary in The Netherlands, Integrated Surgical
Systems B.V.
Liquidity and Capital Resources. The Company used $2,182,000 in cash
from the operating activities in the first six months of 1997 compared to
$1,781,000 usage in the first six months of 1996. Net cash used for operations
in each of these periods resulted primarily from the net loss.
The Company used $102,000 in cash in the first six months of 1997 for
the purchase of equipment to support the increase in the number of employees.
The Company received $16,272 in the first six months of 1997 on the
exercise of common stock options (5,795 shares) and paid expenses of $48,000
attributable to the Company's initial public offering in November 1996.
The Company expects to incur additional operating losses at least
through 1997. These losses will be as a result of expenditures related to
product development projects and the establishment of
<PAGE> 8
marketing, sales, service and training organizations. The timing and amounts of
these expenditures will depend on many factors, some of which are beyond the
Company's control, such as the requirements for and time required to obtain FDA
authorization to market the ROBODOC System in the United States, the progress of
the Company's product development projects and market acceptance of the
Company's products. The Company expects that its cash and cash equivalents as of
June 30, 1997, will be sufficient to finance its operations through 1997.
PART II. OTHER INFORMATION
Item 4. Matters Submitted to Securityholders
The Company's Annual Meeting of Stockholders was held on May 14, 1997.
The following Directors, constituting all of the Directors of the Company, were
elected at the meeting to serve as Directors until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified. The
Directors elected at the Annual Meeting received the number of votes set forth
opposite their respective names:
Votes Cast
-----------------------------------
For Withheld
Election Authority/Abstained
-------- -------------------
Ramesh C. Trivedi 2,460,547 7,500
James C. McGroddy 2,460,547 7,500
John N. Kapoor 2,460,547 7,500
Paul A.H. Pankow 2,460,547 7,500
Gerald D. Knodson 2,460,547 7,500
Patrick G. Hays 2,460,547 7,500
At the Annual Meeting, the stockholders also ratified by the number of
votes indicated below the appointment of the firm of Ernst & Young LLP as the
independent public auditors of the corporation's accounts.
For Against Abstain
--- ------- -------
2,462,512 3,035 2,500
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports
The Company did not file any reports on Form 8-K during the
period ended June 30, 1997.
<PAGE> 9
Signatures
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTEGRATED SURGICAL SYSTEMS, INC.
Date: August 13, 1997 by: /s/ Michael J. Tomczak
------------------------------------------
Michael J. Tomczak, Vice President and CFO
<PAGE> 10
Exhibit Index
Exhibit Description
- ------ -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 3,685,731
<SECURITIES> 0
<RECEIVABLES> 655,023
<ALLOWANCES> 0
<INVENTORY> 1,790,371
<CURRENT-ASSETS> 6,376,530
<PP&E> 1,358,540
<DEPRECIATION> 1,088,820
<TOTAL-ASSETS> 6,663,357
<CURRENT-LIABILITIES> 2,008,844
<BONDS> 0
0
0
<COMMON> 33,669
<OTHER-SE> 4,620,844
<TOTAL-LIABILITY-AND-EQUITY> 6,663,357
<SALES> 1,379,696
<TOTAL-REVENUES> 1,379,696
<CGS> 531,693
<TOTAL-COSTS> 2,657,115
<OTHER-EXPENSES> (139,521)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,669,591)
<INCOME-TAX> 18,000
<INCOME-CONTINUING> (1,687,591)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,687,591)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
</TABLE>
