10-Q 1 e10-q.txt FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 2000 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 June 30, 2000 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 July 31, 2000 was 15,539,941. 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................. 9 Results of Operations......................................... 9 Liquidity and Capital Resources............................... 12 Recent Accounting Pronouncements.............................. 13 Item 3. Qualitative and Quantitative Disclosures About Market Risk.... 13 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................................................... 16 Item 6. Exhibits and Reports on Form 8-K............................. 17 SIGNATURES.................................................................... 17
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: LASERSCOPE CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 2000 1999 -------- -------- (thousands) ASSETS Current assets: Cash and cash equivalents $ 4,524 $ 1,449 Accounts receivable, net 8,574 9,500 Inventories 7,160 10,052 Other current assets 1,083 1,281 -------- -------- Total current assets 21,341 22,282 Property and equipment, net 2,469 3,949 Developed technology and other intangibles, net - 2,598 Other assets 630 127 -------- -------- Total assets $ 24,440 $ 28,956 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term bank loans $ 1,500 $ 7,361 Accounts payable 1,888 3,412 Accrued compensation 1,333 1,453 Other current liabilities 2,768 3,250 -------- -------- Total current liabilities 7,489 15,476 Long-term liabilities: Convertible subordinated debentures 3,000 - Obligations under capital leases 534 534 Mortgages and other long term loans - 862 -------- -------- Total long-term liabilities: 3,534 1,396 Commitments and contingencies Minority interest - 37 Shareholders' equity: Common stock 54,015 52,467 Accumulated deficit (39,249) (39,200) Accumulated other comprehensive income (1,170) (1,027) Notes receivable from shareholders (179) (193) -------- -------- Total shareholders' equity 13,417 12,047 -------- -------- Total liabilities and shareholders' equity $ 24,440 $ 28,956 ======== ========
See notes to condensed consolidated financial statements 3 4 LASERSCOPE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 -------- -------- -------- -------- (thousands except per share amounts) Net revenues ..................................... $ 9,294 $ 9,565 $ 17,922 $ 21,431 Cost of sales .................................... 4,902 6,556 9,661 12,912 -------- -------- -------- -------- Gross margin ..................................... 4,392 3,009 8,261 8,519 Operating expenses: Research and development .................... 825 1,181 1,691 2,564 Selling, general and administrative ......... 3,141 5,064 6,429 9,686 -------- -------- -------- -------- 3,966 6,245 8,120 12,250 Operating income (loss) .......................... 426 (3,236) 141 (3,731) Interest income (expense) and other, net ......... (123) (670) (190) (682) -------- -------- -------- -------- Income (loss) before income taxes and minority interest ....................... 303 (3,906) (49) (4,413) Provision for income taxes ....................... - 32 - 128 -------- -------- -------- -------- Income (loss) before minority interest ........... 303 (3,938) (49) (4,541) Minority interest ................................ - 14 - 50 -------- -------- -------- -------- Net income (loss) ................................ $ 303 $ (3,952) $ (49) $ (4,591) ======== ======== ======== ======== Basic net income (loss) per share ................ $ 0.02 $ (0.31) $ 0.00 $ (0.37) ======== ======== ======== ======== Diluted net income (loss) per share .............. $ 0.02 $ (0.31) $ 0.00 $ (0.37) ======== ======== ======== ======== Shares used in basic per share calculations ...... 15,491 12,550 15,407 12,541 ======== ======== ======== ======== Shares used in diluted per share calculations .... 18,667 12,550 15,407 12,541 ======== ======== ======== ========
See notes to condensed consolidated financial statements 4 5 LASERSCOPE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 1999 -------- -------- (thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (49) $ (4,591) Adjustments to reconcile net loss to cash provided (used) by operating activities: Depreciation and amortization 925 1,398 Excess inventory charge - 750 Increase (decrease) from changes in: Accounts receivable (1,552) 3,314 Inventories 378 804 Other current assets 238 (1) Accounts payable (294) (1,551) Accrued compensation (120) 451 Other current liabilities 26 (658) Minority interest - 50 Repayment and write-off of shareholder notes 14 151 -------- -------- Cash provided (used) by operating activities (434) 117 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (281) (513) NWL acquisition - (1,278) Other (248) 68 -------- -------- Cash used by investing activities (529) (1,723) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on obligations under capital leases (157) (161) Cash transferred to Wavelight in NWL sale (296) - Proceeds from the NWL sale 3,429 - Proceeds from the sale of common stock under stock plans 520 - Proceeds from the sale of common stock in private placement(1) 731 - Proceeds from the issuance of convertible subordinated debentures(1) 2,632 - Proceeds from bank loans 14,834 3,227 Repayment of bank loans (17,655) (1,058) -------- -------- Cash provided by financing activities 4,038 2,008 -------- -------- Increase in cash and cash equivalents 3,075 402 Cash and cash equivalents, beginning of period 1,449 1,456 -------- -------- Cash and cash equivalents, end of period $ 4,524 $ 1,858 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 282 $ 209 Income taxes $ 15 $ 15 Non-cash financing activities: Equipment leases - $ 561 Non-cash reduction is assets relating to NWL sale $ 8,949 - Non-cash reduction in liabilities relating to NWL sale $ 5,415 -
(1)Net of issuance costs 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 include 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, 1999 included in the Company's annual report on Form 10-K for the year ended December 31, 1999. The results of operations for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results expected for the full year. 2. Inventory was comprised of the following (in thousands):
JUNE 30, DECEMBER 31, 2000 1999 --------- ------------ Sub-assemblies and purchased parts $ 5,186 $ 7,013 Finished goods 1,974 3,039 ------- ------- $ 7,160 $10,052 ======= =======
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, warrants and convertible debentures. Options to purchase approximately 2,887,000 and 3,086,000 shares of common stock were outstanding at June 30, 2000 and 1999, respectively. In addition, warrants to purchase approximately 459,000 shares of common stock and debentures convertible into 2,400,000 shares of common stock were outstanding at June 30, 2000. Options, warrants and convertible debentures were not included in the computation of diluted earnings per share for the periods Laserscope reported losses because the effect would be anti-dilutive. 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 June 30, 2000 the Company's cash equivalents were in the form of institutional money market accounts and totaled $0.1 million. Laserscope had no cash equivalents at December 31, 1999. At June 30, 2000 and December 31, 1999, the Company had no investments in debt or equity securities. 6 7 5. Total comprehensive loss during the periods ended March 31, 2000 and 1999 consisted of (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 ------- ------- ------- ------- Net income (loss) $ 303 $(3,952) $ (49) $(4,591) Translation adjustments (228) (41) (248) 3 ------- ------- ------- ------- Comprehensive income (loss) $ (75) $(3,993) $ (297) $(4,588) ======= ======= ======= =======
6. During all periods presented, the Company conducted its business predominantly within one industry segment: the medical systems business. 7. On February 18, 2000, the Company signed an agreement with Wavelight Laser Technologie AG (`Wavelight") to sell its interest in NWL Laser Technologie GmbH ("NWL"). The sale, which was approved by Wavelight's shareholders on March 31, 2000, has an effective date of January 1, 2000. As part of the transaction, NWL will continue to distribute Laserscope's products in all countries covered by NWL's current distribution channels. The details of the transaction are as follows (in thousands):
Assets and liabilities sold: Cash $ 296 Accounts receivable 2,477 Inventory 2,514 Other current assets 329 Property, plant & equipment 857 Licenses & intangible assets 2,707 Accounts payable & accruals (1,255) Income taxes payable (323) Short-term bank loans (3,040) Long-term bank loans (863) Minority interest & other (37) ------- 3,662 Proceeds: Received May 2000 3,429 In escrow until 2001 400 ------- Total 3,829 ------- Net Gain $ 167 =======
Laserscope will defer recognition of the gain until the funds held in escrow are paid to the Company. 8. On January 14, 2000, Laserscope completed the second and final closing of a private placement of common stock. In the transaction, the Company issued 995,000 shares to accredited investors in exchange for proceeds (net of offering expenses) of $731,000. As part of the transaction, the Company also issued 218,875 five year 7 8 warrants to purchase Laserscope common stock at a price of $1.25 to the placement agent. 9. On February 11, 2000, the Company issued $3,000,000 of 8% Convertible Subordinated Debentures with a schedule maturity in 2007 to affiliates of the Renaissance Capital Group. The debentures are convertible into common stock of the Company at a conversion price of $1.25 per share subject to adjustment in certain events. Laserscope may redeem the debentures at any time at 101% of par value in certain events. The debentures contain a mandatory principal payment feature whereby the Company is required to pay monthly principal installments equaling ten dollars per thousand dollars of the remaining principal amount beginning February 11, 2002. As part of the transaction, the Company also issued 218,875 five year warrants to purchase Laserscope common stock at a price of $1.50 to the placement agent. 10. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" or SAB 101. SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. In recent actions, the SEC has further delayed the required implementation date which, for Laserscope, will be the fourth quarter of 2000, retroactive to the beginning of the fiscal year. The SEC has indicated that additional implementation guidance will be forthcoming in the form of "Frequently Asked Questions," however, such guidance has not been issued to date. Although we cannot fully assess the impact of SAB 101 until the additional guidance from the SEC is issued, our preliminary conclusion is that the implementation of SAB 101 will not have a material impact on our financial position, results of operations or cash flows for the year ending December 31, 2000. 8 9 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 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, Laserscope'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. Laserscope intends 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. 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 Laserscope'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 affect the Company's ability to compete in terms of price against products denominated in local currencies. There can be no assurance that regulatory, geopolitical and other factors will not adversely affect the Laserscope's operations in the future or require Laserscope to modify its current business practices. Other risks are detailed from time to time in Laserscope'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. Laserscope 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, 1999 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 six months ended June 30, 2000 (in thousands except for percentages): 9 10
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------- ---------------------------------- JUNE 30, 2000 JUNE 30, 1999 % JUNE 30, 2000 JUNE 30, 1999 % AMOUNT %(a) AMOUNT %(a) CHANGE AMOUNT %(a) AMOUNT %(a) CHANGE ---------------- ---------------- ------- ---------------- ---------------- ------- Revenues from sales of: Lasers $ 5,104 55% $ 5,232 55% (2)% $ 9,428 52% $12,377 58% (24)% Instruments & supplies 2,836 30% 2,786 29% 2 % 5,684 32% 5,926 28% (4)% Service 1,354 15% 1,547 16% (12)% 2,810 16% 3,128 14% (10)% ------- ------ ------- ------ ------- ------- ------ ------- ------ ------- Total net revenues $ 9,294 100% $ 9,565 100% (3)% $17,922 100% $21,431 100% (16)% Gross margin $ 4,392 47% $ 3,009 31% 45 % $ 8,261 46% $ 8,519 40% (3)% Research & development $ 825 9% $ 1,181 12% (30)% $ 1,691 9% $ 2,564 12% (34)% Selling, general & admin. $ 3,141 34% $ 5,064 53% (38)% $ 6,429 36% $ 9,686 45% (34)%
(a) expressed as a percentage of total net revenues. Net revenues decreased during the three and six months ended June 30, 2000 relative to the corresponding periods of 1999. The decrease is primarily attributable to the Company discontinuing sales of NWL products and services. Sales of NWL products and services contributed revenues of approximately $1.5 million during the second quarter of 1999 and approximately $3.3 million during the first half of 1999. Laserscope sold NWL effective January 1, 2000 but retained distribution of the Company's products through NWL in Germany. This decrease was partially offset by higher sales of Laserscope products and services during these periods. Revenues from the sales of laser systems decreased during the quarter and six-month periods ended June 30, 2000 relative to the same periods in 1999. This was due principally to Laserscope's discontinuing the sale of NWL lasers which represented approximately $1.2 million and $2.5 million in total net revenues during the quarter and six month periods ended June 30, 1999, respectively. This reduction was partially offset by higher sales of Laserscope lasers during the quarter ended June 30, 2000 relative to the same period in 1999 with year to date sales of Laserscope lasers being at approximately the same level in each of the six month periods ended June 30. The higher levels of Laserscope laser sales in the quarter ended June 30, 2000 resulted from higher unit shipments at lower average selling prices due to an increased number of aesthetic lasers sold in the United States and Europe. The Company expects that its revenue mix trends in all geographic markets will continue to shift toward lower-priced office-based aesthetic lasers. Revenues from the sales of instrumentation and disposable supplies increased during the quarter and decreased during the six months ended June 30, 2000 compared to the corresponding periods in 1999. The increase during the quarter is due to the combination of lower shipments of disposable supplies and increased shipments of scanning devices sold as accessories to Laserscope's office laser system. The decrease year to date is due to the discontinued sales of NWL's instrumentation. The Company believes that sales of laser equipment in the United States, which have trended towards lower-priced office lasers for aesthetic procedures and away from lasers to be used in the hospital for non-aesthetic procedures, has resulted in lower sales of disposable supplies and instrumentation. Office lasers used in aesthetic procedures, although carrying one-time sales of instrumentation, generally do not create a stream of sales of disposable supplies. The Company expects revenues from the sales of instrumentation and disposable supplies to 10 11 depend on the Laserscope's ability to develop and promote surgical procedures that use these products and to increase its installed base of systems. Laserscope's service revenues decreased during the three and six-month periods ended June 30, 2000 compared to the same periods in 1999. This decrease is principally attributable to the discontinued sale of NWL services, partially offset by higher domestic revenues as a result of increased service contract revenues. The Company believes that future revenues depend on increases to the installed base of lasers as well as the acceptance of its service contracts by its customers. 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 Company expects that the adoption of photo dynamic 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. Gross margin as a percentage of revenues during the quarter and six months ended June 30, 2000 increased relative to the corresponding periods of 1999. This is due primarily to a revenue mix shift towards Laserscope's higher margin Lyra product as well a distribution mix shift towards the United States and away from international distributors during the quarter ended June 30, 2000. In addition, Laserscope recorded a $0.8 million charge during the period ended June 30, 1999, to provide for inventory the Company considered potentially obsolete. Laserscope expects that gross margin as a percentage of revenues for the remainder of 2000 may vary from quarter to quarter 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 Laserscope's existing products. These expenses decreased during the quarter and six month periods ended June 30, 2000 compared to the same periods in 1999 due to decreased laser product development activity in the United States, and to a lesser extent the elimination of NWL research and development expenses. The Company expects that amounts spent in research and development will remain at similar levels during the remainder of 2000. Selling, general and administrative expenses decreased during the quarter and six month periods ended June 30, 2000, compared to the corresponding periods in 1999. The decreases are due principally to expense reduction programs instituted by Laserscope in third quarter of 1999 and, to a lesser extent, the elimination of NWL selling, general and administrative expenses. Laserscope expects amounts spent in selling, general and administrative expenses to increase during the remainder of 2000 as variable selling and marketing expenses increase. 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 June 30, 2000 and for the six months then ended (in thousands):
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ Cash and cash equivalents $ 4,524 $ 1,449 Total assets $24,440 $28,956 Net working capital $13,832 $ 6,806
The net increase in cash and cash equivalents during the six month period was due primarily to the receipt of the net proceeds from the sale of NWL. Cash used by operating activities totaled $0.4 million and was the combined result of increased accounts receivable of $1.5 million, decreased accounts payable of $0.3 million and decreased accrued compensation of $0.1 million. Offsetting these uses were depreciation and amortization of $0.9 million, a reduction in inventory of $0.4 million and a reduction in other current assets of $0.2 million. Cash used by investing activities consisted of capital expenditures of $0.3 million and other comprehensive income of $0.2 million. Cash provided by financing activities totaled $4.0 million and consisted of net proceeds from the sale of NWL of $3.1 million, net proceeds from the sale of convertible debentures - $2.6 million; net proceeds from the private placement of common stock - $0.7 million; and proceeds from the sale of common stock under stock plans $0.5 million. These sources were offset by reductions in short-term bank borrowings of $2.8 million; and payments on obligations under capital leases of $0.1 million. The Company has in place a $6.0 million asset based line of credit based on the Company's eligible accounts receivable and inventory which expires in September 2000. At June 30, 2000, the Company had approximately $3.4 million in collateral available against the $1.5 million outstanding and was in compliance with all financial covenants. Laserscope anticipates that future changes in cash and working capital will depend on a number of factors, including, but not limited to, management's ability to effectively manage non-cash assets such as inventory and accounts receivable. 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. Historically, a source of liquidity for the Company has been the sale of common stock under stock plans, principally employee stock option and stock purchase plans. To the extent that the market price of the common stock discourages the exercise of stock options, this source of liquidity may be unavailable. At June 30, 2000, options to purchase approximately 2.9 million shares of Laserscope's common stock were outstanding, of which approximately 1.4 million were exercisable at a weighted average exercise price of $2.17 Finally, the level of profitability of the Company will have a significant effect on cash resources. 12 13 From time to time, the Company may also consider the acquisition of, or evaluate investments in, certain 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 existing 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 also can be no assurance that any additional financing will be available on terms acceptable to the Company, or at all. In addition, future equity financings could result in dilution to the Company's shareholders, and future debt financings could result in certain financial and operational restrictions. RECENT ACCOUNTING PRONOUNCEMENTS: In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" or SAB 101. SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. In recent actions, the SEC has further delayed the required implementation date which, for Laserscope, will be the fourth quarter of 2000, retroactive to the beginning of the fiscal year. The SEC has indicated that additional implementation guidance will be forthcoming in the form of "Frequently Asked Questions," however, such guidance has not been issued to date. Although we cannot fully assess the impact of SAB 101 until the additional guidance from the SEC is issued, our preliminary conclusion is that the implementation of SAB 101 will not have a material impact on our financial position, results of operations or cash flows for the year ending December 31, 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a variety of risks, including changes in interest rates affecting the return on its investments, outstanding debt balances and foreign currency fluctuations. In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in interest rates and foreign currency values. INTEREST RATE RISK The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's investment and debt portfolios. The Company has not used derivative financial instruments in its investment or debt portfolios. The Company invests its excess cash in money market funds and commercial paper. The Company's debt financing consist of convertible debentures and bank loans requiring either fixed or variable rate interest payments. Investments in and borrowings under both fixed-rate and floating-rate interest-earning instruments carry a degree of interest rate risk. On the investment side, fixed-rate securities may have their fair market value adversely affected due to a rise in interest rates, while floating-rate securities may produce less income than expected if interest rates fall. In addition, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell 13 14 securities which have declined in market value due to changes in interest rates. On the debt side, borrowings that require fixed-rate interest payments require greater than current market rate interest payments if interest rates fall, while floating rate borrowings may require greater interest payments if interest rates rise. Additionally, the Company's future interest expense may be greater than expected due to changes in interest rates. FOREIGN CURRENCY RISK International revenues were 28% and 34% in the quarter and six months ended June 30, 2000, respectively compared to 47% and 48% in the same periods in 1999. International sales are made through international distributors and wholly- and majority-owned subsidiaries with payments to the Company typically denominated in the local currencies of the United Kingdom and France, and in U.S. dollars in the rest of the world. The Company's international business is subject to risks typical of an international business, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, the Company's future results could be materially adversely affected by changes in these or other factors. The effect of foreign exchange rate fluctuations on the Company in the three and six month periods ended June 30, 2000 and 1999 was not material, and the Company does not engage in hedging transactions for speculative or trading purposes. 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. In 1997, a medical malpractice and product liability suit was filed against a hospital, two physicians and Laserscope relating to a laser manufactured by Heraeus Surgical, Inc. which was acquired by Laserscope in August 1996. On May 12, 2000, the parties in the case agreed to binding arbitration under which the maximum award to the plaintiff would be within the Company's insurance policy limits. 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 (a) The annual meeting of shareholders was held on June 23, 2000. (b) The first matter voted upon at the meeting was the election of directors and the results of that vote were as follows:
Present but For Withheld Abstained Not Voting ---------- -------- --------- ----------- E. Walter Lange 13,758,149 388,317 0 0 Ruediger Naumann-Etienne, Ph.d 13,818,119 328,347 0 0 Rodney Perkins, M.D 13,703,197 443,269 0 0 Robert J. Pressley, Ph.D 13,703,009 443,457 0 0 Eric M. Reuter 13,817,151 329,315 0 0
(c) The second matter voted upon at the meeting and the results of that vote were as follows:
Present but For Opposed Abstained Not Voting ---------- -------- --------- ----------- To authorize an 13,111,013 964,692 70,760 1 amendment to the Company's 1994 Stock Option Plan to increase the number of shares for issuance thereunder by 300,000 shares to an aggregate of 3,050,000 shares.
15 16 (d) The third matter voted upon at the meeting and the results of that vote were as follows:
Present but For Opposed Abstained Not Voting ---------- -------- --------- ----------- To authorize an 13,198,605 874,977 72,883 1 amendment to the Company's 1999 Employee Stock Purchase Plan to increase the number of shares for issuance thereunder by 250,000 shares to an aggregate of 350,000.
(e) The fourth matter voted upon at the meeting and the results of that vote were as follows:
Present but For Opposed Abstained Not Voting ---------- -------- --------- ----------- To authorize an 12,298,760 1,767,872 79,833 1 amendment to the Company's 1999 Directors' Stock Purchase Plan to increase the number of shares for issuance thereunder by 120,000 shares to an aggregate of 420,000.
(f) The fifth matter voted upon at the meeting and the results of that vote were as follows:
Present but For Opposed Abstained Not Voting ---------- -------- --------- ----------- To ratify the appointment 13,870,699 235,012 40,755 0 of Ernst & Young LLP as the independent auditors for the Company for the fiscal year ending December 31, 2000.
ITEM 5. OTHER INFORMATION None 16 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (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: August 9, 2000 17 18 EXHIBIT INDEX 27.1 Financial Data Schedule