-----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, CJng4mDgauiV4o+i7eO6H/5D1xqJZFmB+PM1bHL+nLmctN2YumRT1H90ReH9VvEi ei/8U9nQhA3g4wnImeRk+g== 0000891618-98-004814.txt : 19981113 0000891618-98-004814.hdr.sgml : 19981113 ACCESSION NUMBER: 0000891618-98-004814 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-18053 FILM NUMBER: 98743832 BUSINESS ADDRESS: STREET 1: 3052 ORCHARD DR CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089430636 10-Q 1 FORM 10-Q FOR PERIOD ENDED 9/30/98 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30,1998 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 0-18053 LASERSCOPE (Exact name of Registrant as specified in its charter) CALIFORNIA 77-0049527 (State of Incorporation) (I.R.S. Employer Identification No.) 3052 ORCHARD DRIVE, SAN JOSE, CALIFORNIA 95134-2011 (Address of principal executive offices) Registrant's telephone number: (408) 943-0636 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 Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Registrant's common stock issued and outstanding as of November 2, 1998 was 12,480,735. 2 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION......................................................... 3 Item 1. Condensed Consolidated Balance Sheets..................................... 3 Condensed Consolidated Statements of Operations........................... 4 Condensed Consolidated Statements of Cash Flows........................... 5 Notes to Condensed Consolidated Financial Statements...................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 8 Results of Operations..................................................... 9 Liquidity and Capital Resources........................................... 12 Item 3. Qualitative and Quantitative Disclosures About Market Risk................ 14 PART II. OTHER INFORMATION............................................................ 15 Item 1. Legal Proceedings......................................................... 15 Item 2. Changes in Securities..................................................... 15 Item 3. Defaults upon Senior Securities........................................... 15 Item 4. Submission of Matters to a Vote of Security Holders....................... 15 Item 5. Other Items............................................................... 15 Item 6. Exhibits and Reports on Form 8-K......................................... 16 SIGNATURES .......................................................................... 16
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: LASERSCOPE CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (1) SEPTEMBER 30, DECEMBER 31, (thousands) 1998 1997 - ----------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 1,332 $ 2,465 Accounts receivable, net 13,454 13,960 Inventories 18,511 18,656 Other current assets 972 1,017 -------- -------- Total current assets 34,269 36,098 Property and equipment, net 5,317 5,183 Developed technology and other intangibles, net 4,664 5,339 Other assets 620 686 -------- -------- Total assets $ 44,870 $ 47,306 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,818 $ 6,071 Accrued compensation 2,018 1,710 Short-term bank loans 3,278 3,107 Other current liabilities 3,702 4,897 -------- -------- Total current liabilities 14,816 15,785 Long-term liabilities: Obligations under capital leases 814 274 Mortgages and other long term loans 3,181 2,970 -------- -------- Total long-term liabilities: 3,995 3,244 Commitments and contingencies Minority interest 485 160 Shareholders' equity: Common stock 51,128 50,939 Accumulated deficit (24,775) (21,831) Accumulated other comprehensive income (404) (616) Notes receivable from shareholders (375) (375) -------- -------- Total shareholders' equity 25,574 28,117 -------- -------- Total liabilities and shareholders' equity $ 44,870 $ 47,306 ======== ========
(1) Derived from the December 31, 1997 audited financial statements. See notes to condensed consolidated financial statements 3 4 LASERSCOPE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, (thousands except per share amounts) 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------ Net revenues .......................................... $ 12,779 $ 15,704 $ 39,503 $ 46,674 Cost of sales ......................................... 6,976 8,104 21,618 24,969 -------- -------- -------- -------- Gross margin .......................................... 5,803 7,600 17,885 21,705 Operating expenses: Research and development .......................... 1,179 893 3,862 2,258 Selling, general and administrative ............... 4,813 5,382 15,881 16,060 -------- -------- -------- -------- ....................................................... 5,992 6,275 19,743 18,318 Operating income (loss) ............................... (189) 1,325 (1,858) 3,387 Interest income (expense) and other, net .............. (138) -- (454) (24) -------- -------- -------- -------- Income (loss) before income taxes and minority interest ....................... (327) 1,325 (2,312) 3,363 Provision for income taxes ............................ 178 310 311 637 -------- -------- -------- -------- Income (loss) before minority interest ................ (505) 1,015 (2,623) 2,726 Minority interest ..................................... 232 114 321 188 -------- -------- -------- -------- Net income (loss) ..................................... $ (737) $ 901 $ (2,944) $ 2,538 ======== ======== ======== ======== Basic net income (loss) per share ..................... $ (0.06) $ 0.07 $ (0.24) $ 0.21 ======== ======== ======== ======== Diluted net income (loss) per share ................... $ (0.06) $ 0.07 $ (0.24) $ 0.20 ======== ======== ======== ======== Shares used in basic per share calculations ........... 12,469 12,279 12,405 12,154 ======== ======== ======== ======== Shares used in diluted per share calculations.......... 12,469 12,986 12,405 13,007 ======== ======== ======== ========
See notes to condensed consolidated financial statements 4 5 LASERSCOPE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, (thousands) 1998 1997 - -------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(2,944) $ 2,538 Adjustments to reconcile net income (loss) to cash used by operating activities: Depreciation and amortization 2,261 1,656 Increase (decrease) from changes in: Accounts receivable 506 (1,975) Inventories 145 (714) Other current assets 45 157 Accounts payable (253) (3,355) Accrued compensation 308 (626) Other current liabilities (1,192) 30 Minority interest 325 188 ------- ------- Cash used by operating activities (799) (2,101) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (908) (2,240) Cash paid for NWL acquisition, net of cash received -- (960) Other 146 (264) ------- ------- Cash used by investing activities (762) (3,464) ------- ------- CASH USED BY FINANCING ACTIVITIES: Payments on obligations under capital leases (143) (70) Proceeds from the sale of common stock under stock plans 189 2,057 Proceeds from bank loans 1,603 3,866 Repayment of bank loans (1,221) (1,300) ------- ------- Cash provided by financing activities 428 4,553 ------- ------- Decrease in cash and cash equivalents (1,133) (1,012) Cash and cash equivalents, beginning of period 2,465 3,917 ------- ------- Cash and cash equivalents, end of period $ 1,332 $ 2,905 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 308 $ 223 Income taxes $ 14 $ 118 Non-cash financing activities: Equipment leases $ 680 $ --
See notes to condensed consolidated financial statements 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: 1. The accompanying condensed consolidated financial statements include Laserscope (the "Company") and its wholly and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated. While the financial information in this report is unaudited, in the opinion of management, all adjustments (which included only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated have been recorded. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 1997 included in the Company's annual report on Form 10-K for the year ended December 31, 1997. The results of operations for the three and nine month periods ended September 30, 1998 are not necessarily indicative of the results expected for the full year. 2. Inventory was comprised of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 1998 1997 - --------------------------------------------------------------- Sub-assemblies and purchased parts $13,601 $13,098 Finished goods 4,910 5,558 ------- ------- $18,511 $18,656 ======= =======
3. Basic net income (loss) per share is calculated using the weighted average of common stock outstanding. Diluted net income per share is calculated using the weighted average of common stock outstanding plus dilutive common equivalent shares from stock options (707,000 shares and 853,000 shares for the quarter and nine months ended September 30, 1997, respectively). Per share amounts for the three and nine month periods ended September 30, 1997 have been restated to conform to SFAS 128 requirements. 4. The Company considers cash equivalents to be short-term financial instruments that are readily convertible to cash, subject to no more than insignificant interest rate risk and that have original maturities of three months or less. At September 30, 1998 and December 31, 1997 the Company's cash equivalents were in the form of institutional money market accounts and totaled $0.6 million and $1.3 million, respectively. At September 30, 1998 and December 31, 1997 the Company had no investments in debt or equity securities. 5. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of the Statement had no impact the Company's net income or shareholders' equity. SFAS 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, 6 7 to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. Total comprehensive income (loss) for the quarters ended September 30, 1998 and 1997 was $(501,000) and $715,000, respectively. Total comprehensive income (loss) for the nine month periods ended September 30, 1998 and 1997 was $(2,732,000) and $2,094,000, respectively. . 6. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No.131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 will change the way companies report selected segment information in annual financial statements and requires those companies to report selected segment information in interim financial reports to shareholders. The Company has not reached a conclusion as to the appropriate segments, if any, it will be required to report to comply with SFAS 131. 7. In June 1997 the Company completed the acquisition of a majority interest in NWL Laser-Technologie GmbH ("NWL"). The Company accounted for the acquisition as a purchase. Accordingly, the operating results of NWL are included in the Company's consolidated results of operations for the quarter and nine month periods ended September 30, 1998. The minority interest reported in the financial statements represents minority shareholders' proportional interest in the net assets and operating results of the NWL subsidiary. 8. On November 9, 1998 the Company sold its AMS business unit to Heraeus Medical, Inc. ("HMI), a newly established division of Heraeus Holding, GmbH. The Company acquired the AMS business as part of its acquisition in 1996 of Heraeus Surgical Inc. from Heraeus Med GmbH, a subsidiary of Heraeus Holding. In connection with the divestiture, the Company will receive approximately $1.0 million in cash, subject to the release of $0.2 million from a related escrow account in connection with potential post-closing price adjustments and the Company's indemnification obligations to Heraeus and HMI. In addition, HMI has assumed approximately $2.1 million in associated Laserscope liabilities. The Company currently anticipates taking a non-operating charge in the range of up to $1.0 million in the fourth quarter of 1998 directly related to the divestiture. During the quarter ended September 30, 1998, AMS accounted for revenues of approximately $1.3 million and an operating loss of approximately $0.3 million. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Except for the historical information contained in this Quarterly Report on Form 10-Q, the matters discussed herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements are subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected. Factors that could cause actual results to differ materially include, but are not limited to, the risks associated with the acquisitions of Heraeus Surgical, Inc. ("HSI") and NWL Laser-Technologie, GmbH ("NWL"), including the integration of the operations and assets acquired and the assumption of the liabilities assumed by Laserscope, the timing of orders and shipments, the Company's ability to balance its inventory and production schedules, the timely development, clearance by the F.D.A. and other regulatory agencies and market acceptance of new products and surgical/therapeutic procedures, the impact of competitive products and pricing, the Company's ability to raise capital on terms acceptable to the Company, or at all, the Company's ability to expand further into international markets, and public policy relating to health care reform in the United States and other countries. The Company desires to continue expansion of its operations outside of the United States and to enter additional international markets, requiring significant management attention and financial resources and further subjecting the Company to the risks of operating internationally. These risks include unexpected changes in regulatory requirements, delays resulting from difficulty in obtaining export licenses for certain technology, customs, tariffs and other barriers and restrictions, and the burdens of complying with a variety of foreign laws. While only eight percent of the Company's revenues were attributable to sales in Asia during the nine months ended September 30, 1998 compared to ten percent during the year ended December 31, 1997, the recent economic instability in certain Asian countries could adversely affect the Company's business, financial condition and operating results. The Company is also subject to general geopolitical risks in connection with its international operations, such as political and economic instability and changes in diplomatic and trade relationships. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions will be imposed by the United States, Japan, countries in the European Union or other countries upon the import or export of the Company's products in the future, or what effect any such actions would have on its business, financial condition or results of operations. In addition, fluctuations in currency exchange rates may negatively impact the Company's ability to compete in terms of price against products denominated in local currencies. In addition, there can be no assurance that regulatory, geopolitical and other factors will not adversely impact the Company's operations in the future or require the Company to modify its current business practices. Many currently installed computer systems and software products are coded to accept only two digit entries in the date field. Beginning in the year 2000, these date fields need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in a little more than a year, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists concerning the potential effects associated with such compliance. Any Year 2000 compliance problem to either the Company, its suppliers, its service providers or its customers could result in a material adverse effect on the Company's business, financial condition and operating results. 8 9 Other risks are detailed from time to time in the Company's press releases and other public disclosure filings with the U.S. Securities and Exchange Commission (SEC), copies of which are available upon request from the Company. The forward-looking statements included herein speak only as of the date hereof. The Company assumes no obligation to update any forward-looking statements included herein. RESULTS OF OPERATIONS: The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in Part I -- Item 1 of this Quarterly Report and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 1997 contained in the Company's Annual Report on Form 10-K. The following table contains selected income statement information which serves as the basis of the discussion of the Company's results of operations for the quarter and nine months ended September 30, 1998 (in thousands except for percentages):
THREE MONTHS ENDED NINE MONTHS ENDED SEPT. 30, 1998 SEPT. 30, 1997 % SEPT. 30,1998 SEPT 30, 1997 % AMOUNT %(a) AMOUNT%(a) CHANGE AMOUNT %(a) AMOUNT %(a) CHANGE Revenues from sales of: Lasers $ 6,955 55% $ 7,983 51% (13)% $ 20,891 53% $ 21,806 47% (4)% Ascent medical systems 1,329 10% 2,225 14% (40)% 4,382 11% 7,763 17% (44)% Instruments & supplies 2,916 23% 3,427 22% (15)% 9,106 23% 11,120 24% (18)% Service 1,579 12% 2,069 13% (24)% 5,124 13% 5,985 12% (14)% -------- ----- -------- ----- ------ -------- ----- -------- ------ ------ Total net revenues $ 12,779 100% $ 15,704 100% (19)% $ 39,503 100% $ 46,674 100% (15)% Gross margin $ 5,803 45% $7,600 48% (24)% $ 17,885 45% $ 21,705 47% (18)% Research & development $1,179 9% $ 893 6% 32% $ 3,862 10% $ 2,258 5% 71% Selling, general & admin. $4,813 38% $ 5,382 34% (11)% $ 15,881 40% $ 16,060 34% (1)%
(a) expressed as a percentage of total net revenues. Net revenues decreased during the three and nine months ended September 30, 1998 relative to the corresponding periods of 1997 as a combined result of lower revenues from shipments of lasers, lower shipments of Ascent medical system ("AMS") products, lower shipments of instrumentation and supplies and lower sales of services. Revenues from the sales of laser systems decreased during the quarter and nine month periods ended September 30, 1998 relative to the same periods in 1997. During the quarter ended September 30, 1998, relative to the same period in 1997, this was due to a combination of lower unit shipments at lower average unit prices. During the nine month period ended September 30, 1998, relative to the same period in 1997, this was due to a combination of lower unit shipments and higher average unit prices. The lower unit shipments are the net result of decreased shipments of the Company's KTP Surgical Laser Systems and CO2 laser systems in the United States and Asia, partially offset by shipments of laser products acquired in the NWL acquisition. The lower average unit prices in the quarterly comparison are primarily the result of the introduction of the Company's Venus erbium laser which sold at average unit prices lower than the Company's other laser products while the higher average unit prices in the year to date comparisons are principally due to higher average unit prices for the Company's Aura office laser systems. The Company believes that the lower demand for its office laser products and CO2 laser systems in the United States and the economic 9 10 downturn in Asia may continue to impact negatively its revenues in these regions for the next several quarters. Revenues from the sales of the Company's Ascent Medical System ("AMS") products declined during the quarter and nine month periods ended September 30, 1998 relative to the same periods in 1997. The Company believes that the decrease is partially attributable to its withdrawal from the operating room table business in late 1997. Shipments of operating room tables contributed approximately $0.9 million to revenues during the nine months ended September 30, 1997. Additionally, the Company believes that lower orders of AMS products and delays in construction projects in which the AMS products have been ordered negatively impacted shipments of these products during the nine months ended September 30, 1998 relative to the corresponding periods in 1997. (See subsequent event discussion later in this report.) Revenues from the sales of instrumentation, disposable supplies and services during the quarter and nine months ended September 30, 1998 decreased compared to the corresponding periods in 1997. The decreases are due to the combination of decreased shipments of scanning devices sold as accessories to the Aura office laser system, lower shipments of disposable supplies and lower sales of services. The Company expects that revenues from sales of disposable supplies, instrumentation and service will depend principally upon the Company's ability to increase its installed base of systems and to promote and develop surgical procedures which use its laser systems, instrumentation and disposable supplies. The Company believes that acceptance of lasers in aesthetic surgery, dermatology, urology, and ear, nose and throat surgery will continue to be important to its business. In addition, the adoption of photodynamic therapy by medical practitioners will be important. The Company continues to invest in developing new instrumentation for emerging surgical applications and in educating surgeons in the United States and internationally to encourage the adoption of such new applications. Penetration of the international market, although generally increasing, has been limited and the Company continues to view expansion of international sales as important to the Company's success. During the nine months ended September 30, 1998, international revenues accounted for 38% of total net revenues compared to 29% of total net revenues during the corresponding period in 1997. Gross margin as a percentage of revenues during the quarter and nine months ended September 30, 1998 declined relative to the corresponding periods of 1997. This is due principally to decreased production levels without corresponding reductions in fixed manufacturing costs. The declines in production levels are the combined result of lower shipment levels in the 1998 periods compared to 1997 periods as well as the Company's efforts to reduce inventory levels. The Company expects that gross margin as a percentage of revenues for the remainder of 1998 will vary from quarter to quarter as it continues to balance production volumes and inventory levels with product demand and as product and distribution mix varies. Research and development expenses are the result of activities related to the development of new laser, instrumentation and disposable products and the enhancement of the Company's existing products. The increases in research and development spending during the quarter and nine month period ended September 30, 1998 relative to the corresponding periods in 1997 are due to a combination of increased spending in product development and incremental 10 11 research and development spending by NWL. The Company expects that amounts spent in research and development to remain at similar levels during the remainder of 1998. The decreases in selling, general and administrative expenses during the quarter and nine months ended September 30, 1998 relative to the same periods in 1997 primarily result from lower direct selling and marketing expenses resulting from lower revenues. The Company expects these amounts to remain at similar levels during the remainder of 1997 as the Company continues to invest in international expansion, marketing programs and educational support. Net interest expense and other non-operating expenses increased $0.4 million during the nine month period ended September 30, 1998 compared to the corresponding period in 1997. This was due to the combination of increased interest expense from NWL and domestic bank lines and the recording of the settlement of a dispute relating to the termination of a Heraeus domestic distributor. During the nine months ended September 30, 1998, the Company recorded income tax provisions of $0.3 million due to profits reported by NWL in Germany. During the same period in 1997 the Company recorded an income tax provision representing an effective tax rate of 19% which is below the combined federal and state statutory rates due to the utilization of available net operating loss carryforwards. 11 12 LIQUIDITY AND CAPITAL RESOURCES: The following table contains selected balance sheet information that serves as the basis of the discussion of the Company's liquidity and capital resources at September 30, 1998 and for the nine months then ended (in thousands):
SEPTEMBER 30, DECEMBER 31, 1998 1997 --------------------------- Cash and cash equivalents $ 1,332 $ 2,465 Total assets $44,870 $47,306 Net working capital $19,453 $20,313
The net decrease in cash and cash equivalents was due the combined result of cash used by operating activities of $0.8 million, cash used by investing activities of $0.8 and cash provided by financing activities of $0.4 million. Cash used by operating activities was the combined result of a net loss of $2.9 million and decreases in accounts payable and other current liabilities of $0.3 million and $1.2 million, respectively. Partially offsetting these uses were depreciation and amortization of $2.3 million, reductions in accounts receivable and inventory of $0.5 million and $0.1 million, respectively, and $0.3 million increases to each of minority interest and accrued compensation. Cash used by investing activities primarily consisted of capital expenditures of $0.9 million. Cash provided by financing activities primarily consisted of net increases in bank loans of $.4 million. The Company has in place a $5.0 million revolving bank line of credit that expires in November 1998. At September 30, 1998, the collateral provisions allowed for approximately $3.6 million in borrowings and $2.5 million in borrowings were outstanding. In addition, NWL has in place various bank lines totaling approximately $3.0 million that expire in 1999 and under which $2.6 million in borrowings were outstanding at September 30, 1998. The Company expects to renew its primary line of credit with terms similar to those currently existing before its expiration in November 1998 and to renew NWL's revolving bank lines prior to their respective expirations. The Company anticipates that future changes in cash and working capital will be dependent on a number of factors including management's ability to manage effectively non-cash assets such as inventory and accounts receivable. At September 30, 1998, the Company's inventories consisted of $18.5 million comprised of $13.6 million of sub-assemblies and purchased parts and $4.9 million of finished goods. This represents a 1% decrease from inventories at December 31, 1997 which consisted of $18.7 million, comprised of $13.1 million of sub-assemblies and purchased parts and $5.6 million of finished goods. The Company competes in a competitive industry where technological changes and acceptance of new and alternative procedures by its customers is rapid. Management's ability to anticipate and adapt to these changes will significantly affect the Company's investment in inventory and the potential for inventory valuation adjustments. In addition, the level of profitability of the Company will have a significant impact on cash resources. 12 13 Under the terms of the NWL purchase agreement, the Company has an obligation to purchase an additional 26.9% ownership interest in NWL in January 1999 for $1,278,500. From time to time, the Company may also consider the acquisition of, or evaluate investments in, other products and businesses complementary to the Company's business. Any such acquisition or investment may require additional capital resources. The Company has historically financed acquisitions using its existing cash resources. While the Company believes its remaining cash resources will be sufficient to fund its operating needs for the next twelve months, additional financing either through its bank lines of credit or otherwise will be required for the Company's currently envisioned long term needs. There can be no assurance that such additional financing will be available on terms acceptable to the Company, or at all. YEAR 2000 The Company has developed a plan to modify its information technology to recognize the Year 2000 and has begun converting critical data processing systems. The Company currently expects the project to be substantially complete by early 1999 and to cost approximately $200,000. This estimate includes internal costs, but excludes the costs to upgrade and replace systems in the normal course of business. The Company continues to implement systems with strategic value to improve operating efficiencies and believes that such implementation efforts will also address the Company's Year 2000 compliance issues. Based on the Company's assessment to date, the products sold by the Company are not affected by the Year 2000 date. The Company is in the process of obtaining assurances from its suppliers of products and services that their systems are Year 2000 compliant. Additionally, the Company is in the process of evaluating the need for contingency plans with respect to Year 2000 requirements. The necessity of any contingency plan must be evaluated on a case-by-case basis and will vary considerably in nature depending on the Year 2000 issue it may need to address. The Company expects that its review of Year 2000 compliance issues and its development of contingency plans will be completed by September 1999. Significant uncertainty exists concerning the potential effects associated with Year 2000 compliance. Any Year 2000 compliance problem to either the Company, its suppliers, its service providers or its customers could result in a material adverse effect on the Company's financial condition and operating results. There can be assurances that the modifications to its data processing systems will be completed within the Company's timetable or within the cost estimate. In addition, there can be no assurance that further assessment of the Company's products will not determine the need for modifications for the products to be Year 2000 compliant, that its suppliers will be Year 2000 compliant or that its contingency plans will address all issues of Year 2000 compliance. SUBSEQUENT EVENT On November 9, 1998 the Company sold its AMS business unit to Heraeus Medical, Inc. ("HMI), a newly established division of Heraeus Holding, GmbH. The Company acquired the AMS business as part of its acquisition in 1996 of Heraeus Surgical Inc. from Heraeus Med GmbH, a subsidiary of Heraeus Holding. In connection with the divestiture, the Company will receive approximately $1.0 million in cash, subject to the release of $0.2 million from a related escrow account in connection with potential post-closing price adjustments and the Company's indemnification obligations to Heraeus and HMI. In addition, HMI has assumed approximately $2.1 million in associated 13 14 Laserscope liabilities. The Company currently anticipates taking a non-operating charge in the range of up to $1.0 million in the fourth quarter of 1998 directly related to the divestiture. During the quarter ended September 30, 1998, AMS accounted for revenues of approximately $1.3 million and an operating loss of approximately $0.3 million. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 14 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to a number of legal proceedings arising in the ordinary course of business. While it is not feasible to predict or determine the outcome of the actions brought against it, the Company believes that the ultimate resolution of these claims will not ultimately have a material adverse effect on its financial position or results of operations. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Pursuant to recent amendments to the rules relating to proxy statements under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), shareholders of the Company are hereby notified that any shareholder proposal not included in the Company's proxy materials for its 1999 Annual Meeting of Shareholders (the "Annual Meeting") in accordance with Rule 14a-8 under the Exchange Act will be considered untimely for the purposes of Rules 14a-4 and 14a-5 under the Exchange Act if notice thereof is received by the Company after April 6, 1999. Management proxies will be authorized to exercise discretionary voting authority with respect to any shareholder proposal not included in the Company's proxy materials for the Annual Meeting unless (a) the Company receives notice of such proposal by April 6, 1999, and (b) the conditions set forth in Rule 14a-4(c)(2)(i)-(iii) under the Exchange Act are met. 15 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed herewith (numbered in accordance with Item 601 of Regulation S-K):
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.11C Loan Modification Agreement between the Registrant and Silicon Valley Bank dated September 3, 1998. 27.1 Financial Data Schedule
(b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LASERSCOPE Registrant /s/ Dennis LaLumandiere -------------------------------------- Dennis LaLumandiere Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 12, 1998 16 17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.11C Loan Modification Agreement between the Registrant and Silicon Valley Bank dated September 3, 1998. 27.1 Financial Data Schedule
EX-10.11C 2 LOAN MODIFICATION AGREEMENT 1 EXHIBIT 10.11C 2 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of September 3, 1998, by and between Laserscope ("Borrower") and Silicon Valley Bank ("Bank"). 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, an Amended and Restated Loan and Security Agreement, dated November 27, 1996, as may be amended from time to time, (the "Loan Agreement"). The Loan Agreement provided for, among other things, a Committed Line in the original principal amount of Five Million Dollars ($5,000,000.00) (the "Revolving Facility"). Defined terms used but not otherwise defined herein shall have the same meanings as in the Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the "Indebtedness." 2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is secured by the Collateral as described in the Loan Agreement. Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Indebtedness shall be referred to as the "Security Documents". Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. A. Waiver of Default. 1. Bank hereby waives Borrower's existing default under the Loan Agreement by virtue of Borrower's failure to comply with the Tangible Net Worth covenant and Profitability covenant as of the quarter ended June 30, 1998. Bank's waiver of Borrower's compliance of these covenants shall apply only to the foregoing period. Accordingly, for the quarter ending September 30, 1998, Borrower shall be in compliance with these covenants as amended herein. Bank's agreement to waive the above-described default (1) in no way shall be deemed an agreement by the Bank to waive Borrower's compliance with the above-described covenants as of all other dates and (2) shall not limit or impair the Bank's right to demand strict performance of these covenants as of all other dates and (3) shall not limit or impair the Bank's right to demand strict performance of all other covenants as of any date. B. Modification(s) to Loan Agreement. 1. Section 2.3(a) entitled "Interest Rate" is hereby amended in part to provide that except as set forth in Section 2.3(b), any Advances shall bear interest, on the average Daily Balance, at a rate equal to one (1) percentage point above the Prime Rate. 2. Section 6.8 entitled "Quick Ratio" is hereby amended to read as follows: Borrower shall maintain, as of the last day of each fiscal quarter, a ratio of Quick Assets to Current Liabilities of at least 0.90 to 1.00. 3 3. Section 6.9 entitled "Debt-Net Worth Ratio" is hereby amended to read as follows: Borrower shall maintain, as of the last day of each fiscal quarter, a ratio of Total Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than 1.00 to 1.00. 4. Section 6.10 entitled "Tangible Net Worth" is hereby amended to read as follows: Borrower shall maintain, as of the last day of each fiscal quarter, a Tangible Net Worth of not less than $19,000,000.00. 5. Section 6.11 entitled "Profitability" is hereby amended to read as follows: Borrower shall have a minimum net profit of One Dollar ($1.00) (net of amortization and depreciation) for each fiscal quarter. Profitability shall be calculated as follows: add depreciation and amortization from 10-Q cash flow statement to net income (loss). 4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 5. PAYMENT OF LOAN FEE. Borrower shall pay to Lender a fee in the amount of One Thousand Five Hundred and 00/100 Dollars ($1,500.00) (the "Loan Fee") plus all out-of-pocket expenses. 6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing below) agrees that, as of the date hereof, it has no defenses against the obligations to pay any amounts under the Indebtedness. 7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below) understands and agrees that in modifying the existing Indebtedness, Bank is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. 8. COUNTERPARTS. This Loan Modification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 9. CONDITIONS. The effectiveness of this Loan Modification Agreement is conditioned upon Borrower's payment of the Loan Fee. 4 This Loan Modification Agreement is executed as of the date first written above. BORROWER: BANK: LASERSCOPE SILICON VALLEY BANK By: /s/ Dennis LaLumandiere By: /s/ Lois M. Fisher -------------------------------- ---------------------------------------- Name: Dennis LaLumandiere Name: Lois M. Fisher Title: Vice President of Finance and Title: Senior Vice President, Chief Financial Officer Life Sciences and Health Care Practice EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 1,332 0 14,254 800 18,511 34,269 17,664 12,347 44,870 14,816 0 0 0 51,128 (25,554) 44,870 39,503 39,503 21,618 21,618 19,743 0 (454) (2,312) 311 (2,944) 0 0 0 (2,944) (.24) (.24)
-----END PRIVACY-ENHANCED MESSAGE-----