-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PPNunymW1rm5ZxPPWk/foC4wWCYnAzfr3/pyrhIdACqqkRoerK2osrHSU8J7nYSm T9gh/C8rcKSo+5xnIz1AmA== 0000891618-96-002593.txt : 19961111 0000891618-96-002593.hdr.sgml : 19961111 ACCESSION NUMBER: 0000891618-96-002593 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960830 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961108 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LASERSCOPE CENTRAL INDEX KEY: 0000851737 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 770049527 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-18053 FILM NUMBER: 96657026 BUSINESS ADDRESS: STREET 1: 3052 ORCHARD DR CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089430636 8-K/A 1 FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 30, 1996 LASERSCOPE (Exact name of Registrant as specified in its charter) CALIFORNIA 0-18053 77-0049527 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) Identification No.) 3052 ORCHARD DRIVE SAN JOSE, CALIFORNIA 95134-2011 (Address of principal executive offices) (Zip code) (408) 943-0636 (Registrant's telephone number, including area code) -1- 2 The Registrant hereby amends the following item of its Report on Form 8-K filed with the Securities and Exchange Commission on September 11, 1996. The Registrant is amending Item 7 to include certain required financial statements and pro forma financial statements and associated exhibits. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired. The following pages 2 through 14 included in Exhibit 99.1 hereto contain the audited balance sheets for Heraeus Surgical, Inc. ("HSI") as of December 31, 1995 and 1994 and the related statements of operations, stockholder's equity, and cash flows for each of the years in the three year period ended December 31, 1995 as well as the unaudited balance sheet for HSI as of June 30, 1996 and the related unaudited statements of operations, stockholder's equity and cash flows for the six-month period ended June 30, 1996 and 1995. (b) Pro Forma Financial Information. The following pages F-2 through F-6 contain the unaudited pro forma combined condensed balance sheet as of June 30, 1996, the unaudited pro forma combined condensed statements of operations for the year ended December 31, 1995 and the six months ended June 30, 1996 and the notes thereto. (c) Exhibits. *2.1 Acquisition Agreement dated April 23, 1996 between Laserscope and Heraeus Med GmbH (included as Exhibit A to the Proxy Statement of Laserscope dated July 29, 1996, which is incorporated herein by reference). *20.1 Proxy Statement of Laserscope dated July 29, 1996. 23.1 Consent of KPMG Peat Marwick LLP. 99.1 Heraeus Surgical, Inc. Financial Statements with Report of KPMG Peat Marwick LLP. - ------------------------------------------------------------------------------ *Filed with the Commission on July 29, 1996 and incorporated as an exhibit hereto pursuant to Rule 12b-32 promulgated under the Exchange Act. -2- 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LASERSCOPE (Registrant) Dated: November 8, 1996 By: /s/ DENNIS LaLUMANDIERE ----------------------- Dennis LaLumandiere Vice President of Finance and Chief Financial Officer -3- 4 INDEX TO FINANCIAL STATEMENTS
PAGE Unaudited Pro Forma Financial Statements: Combined Condensed Balance Sheet as of June 30, 1996 F-3 Combined Condensed Statements of Operations for the year ended December 31, 1995 and the six months ended June 30, 1996 F-4 Notes to Pro Forma Financial Statements F-5
F-1 5 LASERSCOPE AND HERAEUS SURGICAL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The following pages F-3 through F-6 contain the Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 1996, the Unaudited Pro Forma Combined Condensed Statements of Operations for the fiscal year ended December 31, 1995 and the six months ended June 30, 1996 and the notes thereto. The Unaudited Pro Forma Combined Condensed Balance Sheet and the Unaudited Pro Forma Combined Condensed Statements of Operations (collectively, the Unaudited Pro Forma Statements) were prepared to give effect to Laserscope's acquisition (the "Acquisition") of Heraeus Surgical, Inc. ("HSI") and certain of the assets and liabilities of Heraeus Med GmbH's laser distribution operations (the "LDB") accounted for under the purchase method of accounting. The Unaudited Pro Forma Combined Condensed Balance Sheet assumes that the Acquisition occurred on June 30, 1996. The Unaudited Pro Forma Combined Condensed Statements of Operations assume that the Acquisition occurred on January 1, 1995. The Unaudited Pro Forma Statements are based on the historical Consolidated Financial Statements of Laserscope and HSI under the assumptions and adjustments set forth in the accompanying Notes to the Unaudited Pro Forma Combined Condensed Financial Statements. The combined condensed financial information for the fiscal year ended December 31, 1995 has been obtained from the consolidated financial statements of Laserscope and HSI, which statements have been audited by Ernst & Young LLP and KPMG Peat Marwick LLP, the independent auditors for Laserscope and HSI, respectively. The selected financial data for Laserscope and HSI for the six-month period ended June 30, 1996 has been obtained from their respective unaudited financial statements and includes, in the opinion of Laserscope's and HSI's management, all adjustments necessary to present fairly the data for such period. The Unaudited Pro Forma Statements may not be indicative of the results that actually would have occurred if the Acquisition had been in effect on the dates indicated or which may be obtained in the future. The pro forma adjustments are based upon available information and upon certain assumptions, as described in the Notes to the Unaudited Pro Forma Statements, that Laserscope's management believes are reasonable in the circumstances. The purchase price has been allocated to the acquired assets and liabilities based on a determination from an independent appraisal of their respective fair values. The Unaudited Pro Forma Statements and accompanying notes should be read in conjunction with the separate consolidated financial statements and notes thereto of Laserscope and HSI which have been included or incorporated by reference in this report on Form 8-K/A. F-2 6 LASERSCOPE AND HSI UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (IN THOUSANDS)
LASERSCOPE HSI JUNE 30, JUNE 30, PRO FORMA PRO FORMA 1996 1996 ADJUSTMENTS(3) ADJUSTMENTS(2) COMBINED ---- ---- -------------- -------------- -------- ASSETS Current assets: Cash and cash equivalents $ 3,432 $ 561 $ (2,000)(a) $ 1,993 Accounts receivable, net 6,263 6,478 (450)(b) 12,291 Due from related parties 1,351 (430)(b) 921 Inventories 9,002 8,732 1,416 (600)(b) (708)(b) (405)(g) 17,437 Other current assets 535 198 733 -------- -------- ------- -------- -------- Total current assets 19,232 17,320 1,416 (4,593) 33,375 Property and equipment, net 2,430 505 17 (467)(g) 2,485 Intangible assets: Developed technology 2,397 (b) 2,397 In-process technology 2,139 (b) (2,139)(f) Workforce 416 (b) 416 Other assets 2,359 375 2,734 -------- -------- ------- -------- -------- Total assets $ 24,021 $ 18,200 $ 1,433 $ (2,247) $ 41,407 ======== ======== ======= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,640 $ 2,821 $ $ (430)(b) $ 4,461 Intercompany payable 2,121 430 2,121 Accrued compensation 1,369 572 350 200 (b) 2,291 Warranty 461 200 861 Deferred revenue 1,674 825 1,662 (a) 2,499 Other accrued liabilities 1,106 421 325 (g) 3,514 -------- -------- ------- -------- -------- Total current liabilities 6,250 6,960 780 1,757 15,747 Shareholders' equity: Common stock 37,404 36,997 10,900 (a) 48,304 Paid-in capital (36,997)(c) Retained earnings (deficit) (18,908) (25,757) 653 25,757 (e) (2,139)(f) (653)(e) (872)(g) (21,919) Notes receivable from shareholders (350) (350) Translation adjustments (375) (375) -------- -------- ------- -------- -------- Total shareholders' equity 17,771 11,240 653 (4,004) 25,660 -------- -------- ------- -------- -------- Total liabilities and shareholders' equity $ 24,021 $ 18,200 $ 1,433 $ (2,247) $ 41,407 ======== ======== ======= ======== ========
F-3 7 LASERSCOPE AND HSI UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31, 1995 PRO FORMA PRO FORMA LASERSCOPE HSI ADJUSTMENTS COMBINED Net revenue $30,133 $27,776 $ -- $57,909 Cost of Sales 14,792 17,470 (627)(h) 31,635 ------- ------- ------- ------- Gross margin 15,341 10,306 627 $26,274 Operating expenses: Research and development 3,838 1,714 (37)(h) 5,515 Selling, general and administrative 15,333 11,480 425 (c) (2,137)(h) 25,101 ------- ------- ------- ------- Total operating expenses 19,171 13,194 (1,749) 30,616 ------- ------- ------- ------- Operating income (loss) (3,830) (2,888) 2,376 (4,342) Interest and other income, net 278 (385) (175)(d) (282) ------- ------- ------- ------- Income (loss) before income taxes (3,552) (3,273) 2,201 (4,624) Provision for income taxes -- 2 -- 2 ------- ------- ------- ------- Net income (loss) $(3,552) $(3,275) $ 2,201 $(4,626) ------- ------- ------- ------- Net income (loss) per share $ (0.51) $ (0.40) ------- ------- Shares used in per share calculations 6,999 4,609(a) 11,608 ------- ------- -------
FOR THE SIX MONTHS ENDED JUNE 30, 1996 PRO FORMA PRO FORMA LASERSCOPE HSI ADJUSTMENTS COMBINED Net revenues $ 16,203 $ 14,776 $ -- $30,979 Cost of sales 8,140 8,650 (314)(h) 16,476 ------- ------- ------- ------- Gross margin 8,063 6,126 314 14,503 Operating expenses: Research and development 1,151 843 (18)(h) 1,976 Selling, general and administrative 6,493 5,498 213 (c) (1,068)(h) 11,136 ------- ------- ------- ------- Total operating expenses 7,644 6,341 (873) 13,112 ------- ------- ------- ------- Operating income (loss) 419 (215) 1,187 1,391 Interest and other income, net 22 200 (88)(d) 134 ------ ------- ------- ------- Income (loss) before income taxes 441 (15) 1,099 1,525 Provision for income taxes 53 3 -- 56 ------- ------- ------- ------- Net income (loss) $ 388 $ (18) $ 1,099 $ 1,469 ------- ------- ------- ------- Net income (loss) per share $ 0.05 $ 0.12 ------- ------- Shares used in per share calculations 7,512 4,609(a) 12,121 ------- ------- -------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. F-4 8 LASERSCOPE AND HERAEUS NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The pro forma information presented is theoretical in nature and not necessarily indicative of the future consolidated results of operations of the Company or the consolidated results of operations which would have resulted had the Acquisition taken place during the periods presented. The pro forma combined condensed financial statements reflect the effects of the Acquisition, assuming the Acquisition and related events occurred as of June 30, 1996 for the purposes of the pro forma condensed combined balance sheet and as of January 1, 1995 for the purposes of the pro forma condensed combined statements of operations. 2. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT ADJUSTMENTS: (a) The purchase price for the Acquisition was determined as follows (in thousands):
Cash $ 2,000 Laserscope common stock (approximately 4.6 million shares) 10,900 Estimated transaction and other direct acquisition costs 1,147 Estimated severance costs for HSI and LDB employees 515 ------- $14,562 -------
(b) Allocation of the purchase price for the completion of the Heraeus acquisition was determined as follows (in thousands):
Net assets of HSI at June 30, 1996, as adjusted $9,235 Net assets of LDB at June 30, 1996, as adjusted 375 Developed Technology 2,397 In-process Technology 2,139 Acquired workforce 416 ------- $14,562 -------
The net assets of HSI and LDB at June 30, 1996 were adjusted to conform to accounting policies of Laserscope and were for HSI: $450 reduction in accounts receivable; $600 reduction in inventories and $200 increase to warranty. For LDB the adjustments consisted of $708 reduction in inventories. In addition, the $430 intercompany balance between HSI and LDB was eliminated. (c) Amortization of the developed technology and acquired workforce will be over the estimated useful lives ranging from five to seven years. (d) To reduce interest income earned on the cash payment to Heraeus of $3,500,000 for the purchase price and related transaction and direct acquisition costs. (e) Elimination of HSI and LDB stockholders equity amounts. (f) The pro forma combined condensed balance sheet includes a charge of approximately $2.1 million for the write-off of purchased in-process technology which arose from the Acquisition. This charge is not reflected in the pro forma combined condensed statements of operations included herein since it is a non-recurring charge directly attributable to the transaction. The purchase price was allocated to the tangible and intangible assets of HSI based on the fair market values of those assets using a risk adjusted discounted cash flows approach. The evaluation of the underlying F-5 9 technology acquired considered the inherent difficulties and uncertainties in completing the development, and thereby achieving technological feasibility, and the risk related to the viability of and potential changes in future target markets. The underlying technology had no alternative future use (in research and development projects or otherwise) since the technology was acquired for the sole purpose of developing emulation products. (g) The pro forma combined condensed balance sheet includes reductions of $405,000 to inventories and $467,000 to property, plant and equipment which represent the respective reductions in value to these Laserscope assets which became redundant as a result of the acquisition of HSI. In addition, the pro forma combined condensed balance sheet includes an addition of $325,000 in accrued expenses representing expected costs of the cancellation of certain HSI distribution arrangements which became redundant as a result of the acquisition of HSI by Laserscope. (h) Represents estimated cost savings resulting from the Acquisition, primarily due to reduction in personnel and elimination of duplicate facilities. Cost savings total approximately $2,800,000 and $1,400,000 for the year ended December 31, 1995 and the six months ended June 30, 1996, respectively. 3. ADDITIONAL NET ASSETS ACQUIRED Included in the Acquisition was the purchase of certain assets and the assumption of certain liabilities related to the Heraeus laser distribution business. These net assets had an approximate fair value of $375,000 as of June 30, 1996. (See Note 2(b)). F-6 10 INDEX TO EXHIBITS
Exhibit No. Exhibit --- ------- *2.1 Acquisition Agreement dated April 23, 1996 between Laserscope and Heraeus Med GmbH *20.1 Proxy Statement of Laserscope dated July 29, 1996 23.1 Consent of KPMG Peat Marwick LLP 99.1 Heraeus Surgical, Inc. Financial Statements with Report of KPMG Peat Marwick LLP.
*Filed with the Commission on July 29, 1996 and incorporated as an exhibit hereto pursuant to Rule 12b-32 promulgated under the Exchange Act. EX-23.1 2 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Heraeus Surgical, Inc.: We consent to the inclusion of our report dated February 20, 1996, with respect to the balance sheets of Heraeus Surgical, Inc. as of December 31, 1995 and 1994, and the related statements of operations, stockholder's equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the Form 8-K/A of Laserscope dated November 8, 1996. /s/ KPMG Peat Marwick LLP San Francisco, California November 7, 1996 EX-99.1 3 REPORT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 99.1 HERAEUS SURGICAL, INC.
Independent Auditors' Report 2 Balance Sheets 3 Statements of Operations 4 Statements of Cash Flows 5 Statements of Stockholder's Equity 7 Notes to Financial Statements 8
-1- 2 INDEPENDENT AUDITORS' REPORT The Board of Directors Heraeus Surgical, Inc.: We have audited the accompanying balance sheets of Heraeus Surgical, Inc. (a wholly-owned subsidiary of Heraeus Med GmbH) as of December 31, 1995 and 1994, and the related statements of operations, stockholder's equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Heraeus Surgical, Inc. as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP San Francisco, California February 20, 1996 -2- 3 HERAEUS SURGICAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH) BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBERS OF SHARES)
JUNE 30, DECEMBER 31, 1996 1995 1994 ---- ---- ---- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 561 $ 1,782 $ 945 Accounts receivable, net of allowances of $105 and $138, for the years ended December 31, 1995 and 1994, respectively 6,478 6,413 5,003 Due from related parties 1,351 725 626 Inventories, net 8,732 8,566 7,567 Prepaid expenses 198 227 454 ------- ------- ------- Total current assets 17,320 17,713 14,595 Property and equipment, net 505 591 788 Intangible assets 375 250 -- ------- ------- ------- Total assets $18,200 $18,554 $15,383 ======= ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current installments of long-term debt due to related party $ -- $ 6,924 -- Accounts payable 2,821 2,567 2,435 Due to related parties 2,121 1,948 410 Accrued compensation 572 795 559 Deferred revenue 825 1,059 1,263 Other accrued expenses 621 1,000 632 ------- -------- -------- Total current liabilities 6,960 14,293 5,299 Long term debt due to related party -- -- 2,548 Commitments and Contingencies Stockholder's equity Common stock--no par value; 10,000 shares authorized; 100 shares issued and outstanding at June 30, 1996, and 4,500 shares issued and outstanding at December 31, 1995 and 1994 36,997 30,000 30,000 Accumulated deficit (25,757) (25,739) (22,464) ------- -------- -------- Total stockholder's equity 11,240 4,261 7,536 ------- -------- -------- Total liabilities and stockholder's equity $18,200 $ 18,554 $ 15,383 ======= ======== ========
See accompanying notes to financial statements -3- 4 HERAEUS SURGICAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH) STATEMENTS OF OPERATIONS (IN THOUSANDS)
SIX SIX MONTHS MONTHS ENDED ENDED JUNE 30, JUNE 30, YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1995 1994 1993 ---- ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) Revenues: Net product sales to unrelated parties $10,523 $ 9,651 $19,822 $22,761 $23,363 Net product sales to related parties 2,102 1,924 3,152 4,394 3,939 Net service revenue 2,151 2,428 4,802 5,283 5,253 ------- ------ ------- ------- ------- 14,776 14,003 27,776 32,438 32,555 Cost of sales to unrelated parties 6,222 6,060 13,135 13,072 12,400 Cost of sales to related parties 1,448 1,328 1,851 2,647 2,712 Cost of services 980 1,304 2,484 2,795 2,878 ------- ------ ------- ------- ------- Gross profit 6,126 5,311 10,306 13,924 14,565 Operating expenses: Research and development 843 888 1,714 1,957 1,755 Marketing and selling 4,469 4,535 9,079 9,750 10,914 General and administrative 1,029 1,131 2,401 2,521 2,549 ------- ------ ------- ------- ------- 6,341 6,554 13,194 14,228 15,218 ------- ------ ------- ------- ------- Operating profit (loss) (215) (1,243) (2,888) (304) (653) Other income (expense), net Interest expense (78) (107) (285) (111) (48) Other income (expense) 278 8 (100) (1) 26 ------- ------ ------- ------- ------- 200 (99) (385) (112) (22) ------- ------ ------- ------- ------- Loss before income taxes (15) (1,342) (3,273) (416) (675) Provision for income taxes 3 16 2 23 -- ------- ------ ------- ------- ------- Net loss $ (18) $(1,358) $(3,275) $ (439) $ (675) ------- ------ ------- ------- -------
See accompanying notes to financial statements. -4- 5 HERAEUS SURGICAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH) STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX SIX MONTHS MONTHS ENDED ENDED JUNE 30, JUNE 30, YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1995 1994 1993 ---- ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net loss $ (18) $ (1,358) $(3,275) $ (439) $ (675) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 157 157 303 286 744 Loss on sale of equipment -- -- -- 13 -- Write-off of fixed assets -- -- 14 -- -- Changes in operating assets and liabilities: Accounts receivable (65) (399) (1,410) 1,560 (2,784) Inventories (166) (771) (999) (676) (983) Prepaid expenses 29 64 227 9 11 Due to related parties, net (453) 995 1,439 (589) 427 Accounts payable 254 (397) 132 663 601 Accrued compensation (223) (123) 236 (451) 302 Other accrued expenses (379) 461 368 164 (265) Deferred revenue (234) (55) (204) (122) 131 ------ ------ ------- ------- ------- Net cash provided by (used in) operating activities (1,098) (1,426) (3,169) 418 (2,491) Cash flows from investing activities: Purchase of property and equipment (46) (70) (120) (277) (445) Purchase of patent (150) -- (250) -- -- Proceeds on sale of fixed assets -- -- -- 2 -- ------ ------ ------- ------- ------- Net cash used in investing activities (196) (70) (370) (275) (445) Cash flows from financing activities: Proceeds from recapitalization 10,800 -- -- -- -- Deemed net distribution to parent company in connection with corporate reorganization (3,803) -- -- -- -- Proceeds from parent advances -- 1364 4,376 2,548 -- Repayment of intercompany indebtedness and advances (6,924) -- -- -- -- Short-term note payable--borrowings -- -- -- -- 2,500 Repayment of short-term notes -- -- -- (2,500) -- ------ ------ ------- ------- ------- Net cash provided by financing activities 73 1364 4,376 48 2,500 ------ -------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents (1,221) (132) 837 191 (436)
-5- 6
Cash and cash equivalents at the beginning of the period 1,782 945 945 754 1,190 ------- ------ ------- ------- ------- Cash and cash equivalents at the end of the period $ 561 $813 $ 1,782 $ 945 $ 754 ------- ------ ------- ------- ------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 232 $ -- $ 212 $ 111 $ 63 ------- ------ ------- ------- ------- Income taxes $ 3 $ 16 $ 2 $ 23 $ -- ------- ------ ------- ------- -------
See accompanying notes to financial statements. -6- 7 HERAEUS SURGICAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH) STATEMENTS OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT NUMBERS OF SHARES)
TOTAL STOCK- COMMON STOCK ACCUMULATED HOLDER'S SHARES AMOUNT DEFICIT EQUITY Balance as of December 31, 1992 4,500 $30,000 $(21,350) $ 8,650 Net loss (675) (675) ------ ------- -------- ------- Balance as of December 31, 1993 4,500 30,000 (22,025) 7,975 Net loss (439) (439) ------ ------- -------- ------- Balance as of December 31, 1994 4,500 30,000 (22,464) 7,536 Net loss (3,275) (3,275) ------ ------- -------- ------- Balance as of December 31, 1995 4,500 $30,000 $(25,739) $ 4,261 Recapitalization as of March 1, 1996 (unaudited) 100 $10,800 -- $10,800 Deemed net distribution to parent company in connection with corporate reorganization (unaudited) -- $(3,803) -- $(3,803) Net loss for the six months ended June 30, 1996 (unaudited) -- -- (18) (18) ------ ------- -------- ------- Balance as of June 30, 1996 (unaudited) 100 $36,997 $(25,757) $11,240 ====== ======= ======== =======
See accompanying notes to financial statements. -7- 8 HERAEUS SURGICAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH) NOTES TO FINANCIAL STATEMENTS (INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED.) (1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (a) Operations Heraeus Surgical, Inc. (the Company) was incorporated on May 11, 1988 as a wholly-owned subsidiary of Heraeus Instruments GmbH. The Company manufactures, distributes and services surgical laser equipment. In January 1993 the Company expanded its line of business and started assembling and selling operating room equipment systems. As of January 1, 1995, Heraeus Instruments GmbH, restructured its organization and transferred its 100% share in Heraeus Surgical, Inc., to Heraeus Med GmbH (the Parent). The parent of the Company is Heraeus Holding GmbH, a German holding company (Heraeus Group). The accompanying financial statements have been prepared from the separate records of Heraeus Surgical, Inc. and may not be indicative of conditions which would have existed or the results of its operations if the Company operated autonomously. (b) Corporate Reorganization (unaudited) On February 28, 1996, Heraeus Surgical, Inc. ("Old HSI") changed its name to Heraeus Systems, Inc. In addition, a new company named Heraeus Medical, Inc. was formed. By asset transfer agreement as of March 1, 1996 all assets and liabilities (with the exception of an intercompany loan and cash) were transferred from Heraeus Systems, Inc. to Heraeus Medical, Inc. Heraeus Medical, Inc. subsequently changed its name to Heraeus Surgical, Inc. ("New HSI"). The corporate reorganization was accounted for as a recapitalization and accordingly the accumulated deficit of the Old HSI was carried forward to the New HSI. The amounts in the accompanying Statements of Operations and Cash Flows for the six months ended June 30, 1996 represent the addition of the amounts for the two months ended February 29, 1996 of the "Old HSI" and the four months ended June 30, 1996 of the "New HSI." In connection with the corporate reorganization Heraeus Med GmbH, the parent company, made a capital contribution of $10,800,000 to the new company named Heraeus Medical, Inc. With the proceeds of the capital contribution the new company named Heraeus Medical, Inc. paid Heraeus Systems, Inc. for the cost of the transferred assets and liabilities; subsequently Heraeus Systems, Inc. paid off the intercompany loan referred to in Note 6. As a result of this corporate reorganization, the "New HSI" Company will not be entitled to offset taxable income which may be earned by it in future periods with net operating loss carryforwards from periods prior to the reorganization. The acquisition of the assets and liabilities from Heraeus Systems, Inc. was accounted for at the historical cost of the Heraeus Group, including the carryforward of accumulated depreciation and amortization. (c) Basis of Accounting The financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America. -8- 9 (d) Interim Financial Information The financial statements and related notes for the six months ended June 30, 1996 and 1995 are unaudited, but include all adjustments (consisting solely of normal recurring adjustments with the exception of the recognition of $250,000 of other income related to the settlement of a lawsuit which was recognized during the six months ended June 30, 1996), which are, in the opinion of management, necessary for a fair presentation. The results of operations for the six months ended June 30, 1996 and 1995 are not necessarily indicative of operating results to be expected for any future period. (e) Cash and Cash Equivalents Cash equivalents consist principally of money market instruments with original maturities of three months or less. (f) Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable value). (g) Property and Equipment Property and equipment are recorded at cost and are depreciated over estimated useful lives ranging from 3 to 5 years using the straight-line method. Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful lives or the remaining term of the lease. (h) Amortization of Intangibles Intangible assets are amortized on a straight-line basis over periods of up to five years. The Company assesses the recoverability of intangibles and other long lived assets by determining whether the amortization of the related balances over its remaining useful life can be recovered through projected undiscounted cash flows. (i) Fair Value of Instruments Financial assets and liabilities have carrying values which approximate fair values. (j) Management Estimates Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (k) Dependence Upon Parent The Company had an accumulated deficit of $25,739,000 as of December 31, 1995 and has relied on corporations in the Heraeus Group to provide financing for its operations. Heraeus Holding GmbH, the ultimate parent company, plans to continue to provide the financial support necessary to the Company to enable the Company to meet its obligations as they become due and to continue as a going concern at least through January 1, 1997 or until the Company is sold to a third party, whichever is sooner. -9- 10 (l) Revenue Recognition Revenue from sales of surgical laser equipment and operating room systems is recognized when risk of ownership has transferred to the buyer. The Company provides for the estimated cost to repair or replace products under warranty provision in effect at the time of sale. Service revenue is recognized as the services are provided or pro rata over the period of the applicable contract. (m) Export Sales The Company had export sales of $5,445,000, $6,769,000 and $5,814,000 for the years ended December 31, 1995, 1994 and 1993, respectively, primarily to Europe and the Far East. (n) Concentration of Credit Risk Concentration of credit risk principally consist of cash and cash equivalents and accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential uncollectible accounts. (o) Foreign Currency Transactions Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using the exchange rates in effect at the balance sheet date and any gains and losses are recognized in the statements of operations. Gains and losses from foreign currency transactions are recognized as incurred and are included in other income (expense) in the accompanying statements of operations. Heraeus Holding GmbH (the parent company) enters into various foreign currency hedging contracts on behalf of the Company to provide an economic hedge against fluctuations in foreign currency exchange rates that affect the intercompany loan as referred to in note 6. Foreign currency transaction gains and losses, net of the impact of hedging, were not significant for the years ended December 31, 1995, 1994 and 1993. As of December 31, 1995, Heraeus Holding GmbH had entered into foreign currency contracts on behalf of the Company totaling approximately $6 million. (p) Research and Development Expenditures All research and development costs are expensed as incurred. (q) Income Taxes Deferred tax assets and liabilities are recognized under the asset and liability method for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. -10- 11 (2) INVENTORIES Inventories consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 1996 1995 1994 ------ ------ ------ Raw material $3,347 $1,577 $1,175 Work in progress 643 634 635 Finished goods 2,814 4,504 4,192 Demo 1,928 1,851 1,565 ------ ------ ------ $8,732 $8,566 $7,567 ====== ====== ======
(3) PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 1996 1995 1994 ------ ------ ------ Machinery and equipment $1,594 $1,553 $1,497 Office equipment and furniture 1,217 1,212 1,422 Leasehold improvements 1,015 1,015 1,015 ------ ------ ------ 3,826 3,780 3,934 Less: Accumulated Depreciation 3,321 3,189 3,146 ------ ------ ------ $ 505 $ 591 788 ------ ------ ------
(4) INTANGIBLE ASSETS At December 31, 1995, intangible asset balances consisted of technical rights, patents and documentation rights to licensed technology. Included in depreciation and amortization expense for the year ended December 31, 1993 was the write-off of $125,000 of certain intangible assets that were considered to no longer have continuing value. (5) EMPLOYEE BENEFITS The Company offers participation in a 401(k) plan ("the Plan"). The Plan covers all full time employees (i.e., employees that work more than 30 hours per week). Eligible participants must have at least six months of service. The Company matches 25% of participants' contributions up to certain amounts. Matching contributions are fully vested after three years of service. Employer contributions for 1995, 1994 and 1993 were $103,000, $124,000 and $83,000, respectively. (6) DEBT Debt due to related party of $6,924,000 and $2,548,000 at December 31, 1995 and 1994, respectively, represented three notes payable, due on September 19, 1996 of DM (Deutsche Mark) 4,000,000, DM2,000,000 and DM3,700,000, to a member of the Heraeus Group and bearing an interest rate of 7.25%. Accrued interest related to these notes payable was $113,000 and $2,000 at December 31, 1995 and 1994, respectively. (See Note(1)(b) "Corporate Reorganization (unaudited)"). Interest expense related to the notes amounted to $348,000 and $2,000 in 1995 and 1994, respectively. In December 1994, the Company repaid a $2,500,000 short term note to Commerzbank. Interest expense related to this note amounted to $98,000 and $8,000 in 1994 and 1993, respectively. -11- 12 (7) INCOME TAXES The Company accounts for income taxes according to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the asset and liability method specified by SFAS No. 109, a deferred tax asset or liability is determined based on the differences between the financial statement carrying amounts and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% of pretax losses from operations as a result of the following:
1995 1994 1993 ---- ---- ---- (IN THOUSANDS) Computed "expected" tax benefit $(1,113) $ (141) $ (229) Meals and entertainment expenses not deductible for income taxes 41 41 14 State tax expense, net of federal income tax benefit 1 4 -- Losses and credits for which no benefit has been recognized 1,088 153 209 Utilization of loss carryforwards -- (43) -- Alternative minimum tax -- 16 -- Other (15) (7) 6 ------- ------- ------- Provision for income taxes $ 2 $ 23 $ -- ------- ------- -------
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, is presented below:
1995 1994 ---- ---- (IN THOUSANDS) Deferred tax assets: Reserve and expense accruals $ 1,267 $ 1,104 Net operating loss carryover 7,470 6,531 Other 139 33 ------- ------- Total gross deferred tax assets 8,876 7,668 Less: valuation allowance (8,868) (7,668) ------- ------- Net deferred tax assets $ 8 $ -- ------- ------- Deferred tax liability: Property and equipment $ (8) $ -- ------- ------- Deferred tax liability $ (8) $ -- ------- ------- Net deferred tax asset $ -- $ -- ------- -------
The net change in the valuation allowance for the years ended December 31, 1995, 1994 and 1993 was $1,200,000, $134,000 and $244,000, respectively. As of December 31, 1995, the Company had net operating loss carryforwards for federal and state income tax purposes of $20,300,000 and $9,100,000, respectively, which are available to offset future federal and state taxable income, if any, and expiring through the year 2010 for federal tax purposes and the year 2000 for state tax purposes. As a result of the corporate reorganization referred to in Note (1)(b), New HSI will not be entitled to offset taxable income which may be earned by it in future periods with net operating loss carryforwards from periods prior to the reorganization. -12- 13 (8) COST ASSOCIATED WITH RESTRUCTURING OPERATIONS In 1995, the Company recorded $140,000 of restructuring costs (included in general and administrative expenses) primarily associated with the reduction in personnel and closure of a service warehouse. Approximately $85,000 of the accrual related to severance benefits. The balance primarily reflected an accrual for commitments due under a lease net of estimated sublease income. (9) RELATED PARTY TRANSACTIONS The Company has transactions in the normal course of business with various other corporations, which are members of the Heraeus Group. Due from related parties and due to related parties consist of the following balances as of December 31, 1995 and 1994:
1995 1994 ---- ---- (IN THOUSANDS) Due from related parties: Heraeus KK, Japan $ 103 $315 Heraeus Instruments GmbH -- 270 Heraeus Med GmbH 617 -- Other 5 41 ------ ---- $ 725 626 ------ ---- Due to related parties: Heraeus Med GmbH $1,927 $ -- Heraeus Instruments GmbH -- 410 Other 21 -- ------ ---- $1,948 $410 ------ ----
The Company has entered into product distribution agreements with certain members of the Heraeus Group. Product sales to these Heraeus distributors are for resale internationally. The balance due from Heraeus KK, Japan at December 31, 1995 and 1994, relates to product sold to Heraeus KK under distribution agreements. Balances due from Heraeus Instruments GmbH, Heraeus Med GmbH and other at December 31, 1995 and 1994 represents expenses incurred by the Company on their behalf. The Company in the normal course of business purchases inventory from related parties. During 1995, 1994 and 1993, the purchases from related parties amounted to $2,763,000, $2,674,000 and $2,947,000 respectively. The balances due to Heraeus Med GmbH and Heraeus Instruments GmbH at December 31, 1995 and 1994, represent payments due for purchase of inventory. The balance due to other related parties at December 31, 1995 relates to expenses incurred by other related parties on behalf of the Company. (10) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is involved in various legal matters. In the opinion of management, the disposition of such litigation will not have a materially adverse effect on the Company's financial statements. In October, 1995, the Company acquired technical rights, patents and documentation to Centralized Airborne Evacuation System from CVAC, Inc. ("CVAC") for $250,000. In addition, the Company must pay CVAC royalty payments of 25% on revenues generated as a result of bookings for the CVAC system until December 31, 1995 and for certain bookings by June 30, 1996, respectively. From the beginning of 1996 through -13- 14 the end of 1999 the Company must pay 7% to 10% on related revenues. The minimum royalty payments for years 1996 through 1999 are $150,000 per year. From January 1, 2000 until the end of the life of the patents, royalty payments will range from 2% to 5% of related revenues. The Company leases certain space and equipment under operating lease agreements. The following is a schedule of estimated minimum payments due under non-cancelable leases with a term of more than one year as of December 31, 1995:
Year Ending December 31, (in thousands) 1996 $535 1997 61 ----- Total minimum lease payments $596 ====
Rental expense under operating leases amounted to $588,000, $601,000 and $518,000 for the years ended December 31, 1995, 1994 and 1993, respectively. (11) SUBSEQUENT EVENT (UNAUDITED) Sale of the Company On April 23, 1996, Heraeus Med GmbH, the parent of the Company, entered into a share transfer agreement with Laserscope a publicly traded company, to transfer and assign all of its shares in the new company named Heraeus Surgical, Inc. to Laserscope in exchange for common shares of Laserscope and cash. Closing of this transaction occurred on August 30, 1996. -14- -----END PRIVACY-ENHANCED MESSAGE-----