-----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, NU/RisRQ5M9csILUvwbtb3PtWnvhkIvNrEwwTWPokQByqlg4OiEqmlLC1tKdxXab xSUl1bsxcXZiDHM2v8Q/7A== /in/edgar/work/20000815/0000950115-00-001021/0000950115-00-001021.txt : 20000922 0000950115-00-001021.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950115-00-001021 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000601 ITEM INFORMATION: FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SURGICAL LASER TECHNOLOGIES INC /DE/ CENTRAL INDEX KEY: 0000854099 STANDARD INDUSTRIAL CLASSIFICATION: [3845 ] IRS NUMBER: 311093148 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-17919 FILM NUMBER: 701168 BUSINESS ADDRESS: STREET 1: 147 KEYSTONE DRIVE CITY: MONTGOMERYVILLE STATE: PA ZIP: 18936 BUSINESS PHONE: 6106500700 MAIL ADDRESS: STREET 1: 147 KEYSTONE DRIVE CITY: MONTGOMERYVILLE STATE: PA ZIP: 18936 8-K/A 1 0001.txt CURRENT REPORT FORM 8-K/A 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): June 1, 2000 ------------ SURGICAL LASER TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 0-17919 31-1093148 - ------------------------------- ---------------- ------------------- (State or other jurisdiction of (Commission file (I.R.S. Employer incorporation or organization) number) Identification No.) 147 Keystone Drive Montgomeryville, PA 18936 --------------------------------------- (Address of principal executive offices) (Zip Code) (215) 619-3600 --------------------------------------------------- (Registrant's telephone number, including area code) --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) The Registrant hereby amends Form 8-K, for the event dated June 1, 2000, to include the following financial statements and pro forma financial information, in reliance upon instructions 7 (a) (4) and 7 (b) (2) of Form 8-K.
ITEM 7. Financial Statements and Exhibits PAGE ---- (a) Financial Statements of Surgical Innovations & Services, Inc. Independent Auditors' Report 3 Balance Sheet as of December 31, 1998 4 Statement of Operations for the year ended December 31, 1998 5 Statement of Stockholders' Equity for the year ended December 31, 1998 6 Statement of Cash Flows for the year ended December 31, 1998 7 Notes to Financial Statements 8 Independent Auditors' Report 13 Balance Sheet as of December 31, 1999 14 Statement of Operations for the year ended December 31, 1999 15 Statement of Stockholders' Equity for the year ended December 31, 1999 16 Statement of Cash Flows for the year ended December 31, 1999 17 Notes to Financial Statements 18 (b) Interim Financial Information of Surgical Innovations & Services, Inc. Unaudited Balance Sheet as of March 31, 1999 and March 31, 1998 23 Unaudited Statement of Operations for the quarters ended March 31, 1999 and March 31, 1998 24 Unaudited Statement of Cash Flows for the quarters ended March 31, 1999 and March 31, 1998 25 Notes to Unaudited Interim Financial Statements 26 (c) Pro Forma Financial Information of Surgical Laser Technologies, Inc. and Subsidiaries Unaudited Pro Forma Combined Balance Sheet as of April 2, 2000 28 Unaudited Pro Forma Combined Statement of Operations for the year ended January 2, 2000 29 Unaudited Pro Forma Combined Statement of Operations for the quarter ended April 2, 2000 30 Notes to Unaudited Pro Forma Combined Financial Statements 31 SIGNATURES 33
2 (a) Financial Statements of Surgical Innovations & Services, Inc. Report of Independent Public Accountants Board of Directors Surgical Innovations & Services, Inc. We have audited the accompanying balance sheet of Surgical Innovations & Services Inc. (an Alabama corporation) as of December 31, 1998 and the related statements of operations, stockholders' equity, and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides 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 Surgical Innovations & Services, Inc, as of December 31, 1998 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Grant Thornton LLP Philadelphia, Pennsylvania July 28, 2000 3 SURGICAL INNOVATIONS & SERVICES, INC. BALANCE SHEET DECEMBER 31, 1998 ASSETS CURRENT ASSETS Cash $ 72,096 Accounts receivable, net of allowance for doubtful accounts of $1,500 248,022 Inventories 75,346 Prepaids and other 19,829 ---------- Total current assets 415,293 PROPERTY AND EQUIPMENT, net 1,916,942 ---------- Total assets $2,332,235 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of credit $ 73,686 Current maturities of long-term debt 436,055 Accounts payable 514,125 Accrued liabilities 23,878 ---------- Total current liabilities 1,047,744 ---------- LONG-TERM DEBT, net of current maturities 876,568 ---------- DEFERRED INCOME TAXES 205,600 ---------- STOCKHOLDERS' EQUITY Common stock, $1.00 par value, 5,000 shares authorized, 1,000 shares issued and outstanding 1,000 Additional paid-in capital 245,161 Accumulated deficit (43,838) ---------- Total stockholders' equity 202,323 ---------- Total liabilities and stockholders' equity $2,332,235 ==========
The accompanying notes are an integral part of this statement. 4 SURGICAL INNOVATIONS & SERVICES, INC. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 REVENUES $2,098,662 COST OF REVENUES 1,202,959 ---------- GROSS PROFIT 895,703 OPERATING EXPENSES 927,413 ---------- LOSS FROM OPERATIONS (31,710) OTHER EXPENSE Interest expense 123,066 ---------- LOSS BEFORE INCOME TAXES (154,776) PROVISION FOR INCOME TAXES 81,300 ---------- Net loss $ (236,076) ========== The accompanying notes are an integral part of this statement. 5 SURGICAL INNOVATIONS & SERVICES, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1998
Retained Additional earnings Common paid-in (accumulated stock capital deficit) Total ------- ---------- ------------ -------- BALANCE, beginning of year $1,000 $245,161 $192,238 $438,399 Net loss - - (236,076) (236,076) ------ -------- --------- --------- BALANCE, end of year $1,000 $245,161 $ (43,838) $202,323 ====== ======== ========= ========
The accompanying notes are an integral part of this statement. 6 SURGICAL INNOVATIONS & SERVICES, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(236,076) Adjustments to reconcile net income to net cash provided by operating activities Depreciation 248,680 Deferred income tax provision 81,300 Changes in assets and liabilities Accounts receivable 11,356 Inventories (8,675) Prepaid and other 3,870 Accounts payable 361,976 Accrued liabilities 166 ---------- Net cash provided by operating activities 462,597 ---------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (631,826) ---------- Net cash used in investing activities (631,826) ---------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from line of credit 73,686 Proceeds from long term debt 1,312,623 Principal payments on long term debt (1,152,780) ---------- Net cash provided by financing activities 233,529 ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 64,300 CASH AND CASH EQUIVALENTS, beginning of year 7,796 ---------- CASH AND CASH EQUIVALENTS, end of year $ 72,096 ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 124,611 ========== The accompanying notes are an integral part of this statement. 7 SURGICAL INNOVATIONS & SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 NOTE A - THE COMPANY AND BASIS OF PRESENTATION Surgical Innovations & Services, Inc. (SIS or the Company) was founded in 1993 to create a contract sales and distribution company providing laser services to hospitals. SIS is headquartered in Tuscaloosa, Alabama, and provides certified technicians to operate surgical lasers on a fee-per-case basis. SIS operates lasers for doctors performing urological, gynecological, cosmetic, and orthopedic procedures primarily in hospitals in the Southeastern United States. NOTE B - SIGNIFICANT ACCOUNTING POLICIES 1. Accounts Receivable Accounts receivable represent amounts due from clients for services provided by the Company. Such amounts are recorded net of estimated allowances for bad debts. The Company regularly reviews its accounts receivable and makes provisions for potentially uncollectible balances. At December 31, 1998, management believes the Company had incurred no material impairments to the carrying values of its accounts receivable, other than uncollectible amounts for which provisions have been made. 2. Inventories Inventories consist primarily of disposable medical supplies and equipment which the Company considers finished goods. Inventories are stated at the lower of cost (first-in, first-out basis) or market. 3. Property, Equipment and Depreciation Property and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Expenditures for major renewals and betterments to property and equipment are capitalized, while expenditures for maintenance and repairs are charged to operations when incurred. Laser units and laser accessories used for sales evaluation and demonstration purposes or those units/accessories used for development and medical training are capitalized and included in property and equipment. These capitalized units and accessories are being depreciated on a straight-line basis over a period of up to ten years. 4. Revenues and Expenses The Company's revenues are primarily derived from the performance of laser procedures under service contracts with hospitals and sales of disposable products used in conjunction with laser procedures. Revenues are recorded at the time services are performed or products are used. Cost of revenues consists primarily of the cost of disposable medical supplies and equipment used during the laser procedures and related labor costs. (Continued) 8 SURGICAL INNOVATIONS & SERVICES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1998 NOTE B - SIGNIFICANT ACCOUNTING POLICIES - Continued 5. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 6. Impairment of Long-Lived Assets Pursuant to Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, SIS is required to evaluate the impairment of long-lived assets and certain identifiable intangible assets on a periodic basis. SIS reviews the realizability of its long-lived assets by analyzing the projected undiscounted cash flows and adjusts the net book value of the recorded assets when necessary. No such adjustments have been recorded in 1998. 7. Concentrations In the normal course of business, the Company extends credit to its customers, which are primarily alternate-site health care providers. At December 31, 1998, approximately 12%, or $30,000, of accounts receivable was concentrated in one customer. Additionally, approximately 14%, or $304,000, of revenues were generated from one customer. Also, the Company purchases the majority of its laser supplies from one supplier. 8. Income Taxes The Company accounts for its income taxes under the liability method. Under the liability method, deferred income tax assets and liabilities are determined based on differences between the financial statement and income tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The principal difference between assets and liabilities for financial statement and tax return purposes is accelerated depreciation. NOTE C - PROPERTY AND EQUIPMENT, NET As of December 31,1998, property and equipment consists of: Useful lives Amount ------------ ---------- Laser equipment 10 years $2,117,180 Vehicles 5 years 267,313 Computer equipment 3-5 years 39,895 Furniture and office equipment 7 years 13,013 ---------- 2,437,401 Less accumulated depreciation 520,459 ---------- Net property and equipment $1,916,942 ========== 9 SURGICAL INNOVATIONS & SERVICES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1998 NOTE D - SHORT-TERM BORROWINGS The Company has entered into a $100,000 revolving line of credit agreement with a bank, with interest payable monthly at the bank's commercial rate (effectively 7.75% at December 31, 1998). The line of credit is secured by substantially all of the Company's fixed assets. The line of credit contains various restrictive covenants, generally common to such loan agreements, which include defined levels of tangible net worth, total liabilities to tangible net worth and fixed charge coverage. The amount outstanding under the revolving line of credit at December 31, 1998 was $73,686. NOTE E - LONG-TERM DEBT The Company's long-term debt at December 31, 1998 consists of the following: Term note payable, due in monthly installments of $36,549 including interest at 7.5% per annum through January 10, 2002, secured by the Company's assets $1,190,002 Note payable, due in monthly installments of $4,153, including interest of 7.5% through September 10, 1999, secured by certain fixed assets 36,226 Note payable, due in monthly installments of $1,552, including interest at 7.5% through October 10, 2002, secured by certain fixed assets 61,757 Note payable, due in monthly installments of $623, including interest at 8.00% through October 10, 2002, secured by vehicle 24,638 ---------- Total long-term debt 1,312,623 Less current maturities of long-term debt 436,055 ---------- $ 876,568 ==========
The Company's credit facilities contain various restrictive covenants. As of December 31, 1998, maturities of long-term debt are as follows: 1999 $ 436,055 2000 404,315 2001 435,704 2002 36,549 ---------- $1,312,623 ==========
NOTE F - RETIREMENT SAVINGS PLAN SIS has a defined contribution retirement plan that provides certain employees an opportunity to accumulate funds for their retirement. The Plan is a simple IRA and provides for discretionary matching contributions by SIS up to 3% of the employee's salary, up to a maximum of $6,000 of the employees' compensation. SIS made a matching contribution of $5,559 in 1998. 10 SURGICAL INNOVATIONS & SERVICES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1998 NOTE G - INCOME TAXES The provision for income taxes for the year ended December 31, 1998 follows: Current $ - Deferred 81,300 ---------- Total $ 81,300 ==========
The provision for income taxes differed from the amount computed by applying the federal statutory rate of 34% to net income before income taxes primarily due to the effect of state income taxes and the establishment during 1998 of a valuation reserve of $92,000 against deferred tax assets. The tax effects of temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities at December 31, 1998 were as follows: Deferred tax assets Net operating loss carryforwards $ 171,900 Other 9,800 ---------- 181,700 Less valuation allowance 92,000 ---------- Total deferred tax assets 89,700 Deferred tax liabilities Property and equipment 295,300 ---------- Total deferred tax liabilities 295,300 ---------- Net deferred tax liabilities $ 205,600 ==========
At December 31, 1998, the Company has federal and state net operating loss carryforwards approximating $208,000, expiring through 2013. NOTE H - RELATED PARTY TRANSACTIONS A director and stockholder of SIS performs accounting services for SIS. Total professional fees paid to this firm approximated $4,642 for 1998. The Company leases office space from an entity owned in part by a stockholder of the Company. Total lease expense under this lease approximated $16,800 for 1998. This lease expires in 2006. 11 SURGICAL INNOVATIONS & SERVICES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1998 NOTE I - COMMITMENTS AND CONTINGENCIES 1. Litigation The Company is subject to litigation occurring in the ordinary course of business. On the basis of information furnished by legal counsel and others, it is the opinion of management that no litigation has arisen that will have a material adverse effect on the financial position or results of operations of the Company. 2. Contingent Payable As of December 31, 1998, included in accounts payable is approximately $322,000 which is due to one supplier. The supplier agreed to forgive $90,000 of this old accounts payable amount if the Company paid $200,000 of this obligation by June 30, 2000. The $200,000 payment was made by Surgical Laser Technologies and the $90,000 forgiveness was accounted for in connection with the Company's merger with Surgical Laser Technologies (see note J). 3. Leased Facilities The Company leases office space from a related party. The minimum future rental payments under the lease which expires in 2006 are as follows: Year ending December 31, ------------------------ 1999 $ 16,800 2000 16,800 2001 16,800 2002 16,800 2003 16,800 Thereafter 42,000 -------- $126,000 ======== NOTE J - MERGER Merger On June 1, 2000, the Company completed a merger with Surgical Laser Technologies (SLT), a Delaware corporation, pursuant to an Agreement and Plan of Reorganization (the "Reorganization") dated May 8, 2000. Under the terms of the Reorganization Agreement, SIS stockholders received $300,000 in cash and 350,000 shares of SLT common stock in exchange for all SIS common stock issued and outstanding immediately prior to the effective date of the Reorganization. The Reorganization will be accounted for under the purchase method of accounting. 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Surgical Innovations & Services, Inc.: We have audited the accompanying balance sheet of Surgical Innovations & Services, inc. (an Alabama corporation) as of December 31, 1999 and the related statements of operations, stockholders' equity, and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. These 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 audit provides 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 Surgical Innovations & Services, Inc. as of December 31, 1999 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Birmingham, Alabama April 21, 2000 13 SURGICAL INNOVATIONS & SERVICES, INC. BALANCE SHEET DECEMBER 31, 1999 ASSETS CURRENT ASSETS: Cash $ 22,511 Accounts receivable, net of allowance for doubtful accounts of $5,375 318,729 Inventories 198,889 Prepaids and other 48,352 ---------- Total current assets 588,481 PROPERTY AND EQUIPMENT, net 2,825,450 ---------- Total assets $3,413,931 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of capital lease obligations $ 11,951 Current maturities of long-term debt 483,225 Accounts payable 493,821 Accrued liabilities 46,358 ---------- Total current liabilities 1,035,355 ---------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current maturities 1,810,479 ---------- deferred income taxes 278,637 ---------- COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' EQUITY: Common stock, $1.00 par value, 5,000 shares authorized, 1,000 shares issued and outstanding 1,000 Additional paid-in capital 245,161 Retained earnings 43,299 ---------- Total stockholders' equity 289,460 ---------- Total liabilities and stockholders' equity $3,413,931 ========== The accompanying notes are an integral part of this balance sheet. 14 SURGICAL INNOVATIONS & SERVICES, INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 REVENUES $2,684,869 COST OF REVENUES 1,647,090 ---------- GROSS PROFIT 1,037,779 OPERATING EXPENSES 774,981 ---------- INCOME FROM OPERATIONS 262,798 OTHER INCOME (EXPENSE) Interest expense (132,009) Other income 29,384 ---------- INCOME BEFORE INCOME TAXES 160,173 PROVISION FOR INCOME TAXES 73,037 ---------- Net income $ 87,136 ========== BASIC AND DILUTED EARNINGS PER SHARE (Note 2) $ 87 ========== WEIGHTED AVERAGE SHARES OUTSTANDING--BASIC AND DILUTED $ 1,000 ========== The accompanying notes are an integral part of this statement. 15 SURGICAL INNOVATIONS & SERVICES, INC. STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999
Additional Common Paid-In Retained Stock Capital Earnings Total ------- ----------- --------- -------- BALANCE, December 31, 1998 $1,000 $245,161 $ (43,837) $202,324 Net income 0 0 87,136 87,136 ------ -------- -------- -------- BALANCE, December 31, 1999 $1,000 $245,161 $ 43,299 $289,460 ====== ======== ======== ========
The accompanying notes are an integral part of this statement. 16 SURGICAL INNOVATIONS & SERVICES, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 87,136 ---------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 318,622 Provision for bad debt allowance 3,875 Deferred income tax provision 73,037 Changes in assets and liabilities: Accounts receivable (74,582) Inventories (153,931) Other current assets (28,523) Accounts payable 10,083 Accrued liabilities 22,481 ---------- Net cash provided by operating activities 258,198 ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,188,727) ---------- Net cash used in investing activities (1,188,727) ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of debt 2,283,071 Payments on debt (1,402,127) ---------- Net cash provided by financing activities 880,944 ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (49,585) CASH AND CASH EQUIVALENTS, beginning of year 72,096 ---------- CASH AND CASH EQUIVALENTS, end of year $ 22,511 ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 128,272 ========== NONCASH INVESTING AND FINANCING ACTIVITIES: Purchase of equipment under capital lease obligations $ 38,402 ========== The accompanying notes are an integral part of this statement. 17 SURGICAL INNOVATIONS & SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 1. THE COMPANY AND BASIS OF PRESENTATION Surgical Innovations & Services, Inc. ("SIS" or the "Company") was founded in 1993 to create a contract sales and distribution company providing laser services to hospitals. SIS is headquartered in Tuscaloosa, Alabama, and provides a certified technician to operate surgical lasers on a fee-per-case basis. SIS operates lasers for doctors performing urological, gynecological, cosmetic, and orthopedic procedures primarily in hospitals in the Southeastern United States. 2. SIGNIFICANT ACCOUNTING POLICIES Accounts Receivable Accounts receivable represent amounts due from clients for services provided by the Company. Such amounts are recorded net of estimated allowances for bad debts. The Company regularly reviews its accounts receivable and makes provision for potentially uncollectible balances. At December 31, 1999, management believes the Company had incurred no material impairments to the carrying values of its accounts receivable, other than uncollectible amounts for which provisions had been made. Inventories Inventories consist primarily of disposable medical supplies and equipment. Inventories are stated at the lower of cost (first-in, first-out basis) or market. Property, Equipment, and Depreciation Property and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Expenditures for major renewals and betterments to property and equipment are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred. Laser units and laser accessories used for sales evaluation and demonstration purposes or those units/accessories used for development and medical training are capitalized and included in property and equipment. These capitalized units and accessories are being depreciated on a straight-line basis over a period of up to 10 years. Revenues and Expenses The Company's revenues are primarily derived from the performance of laser procedures under service contracts with hospitals and sales of disposable products used in conjunction with laser procedures. Revenues are recorded at the time services are performed or products are used. Cost of revenues consists primarily of the cost of disposable medical supplies and equipment used during the laser procedures and related labor costs. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Earnings Per Share Earnings per share ("EPS") are calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. There are no dilutive shares issued or outstanding for the year ended December 31, 1999; therefore, basic and diluted EPS are equal. 18 Impairment of Long-Lived Assets Pursuant to SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, SIS is required to evaluate the impairment of long-lived assets and certain identifiable intangible assets on a periodic basis. SIS reviews the realizability of its long-lived assets by analyzing the projected undiscounted cash flows and adjusts the net book value of the recorded assets when necessary. No such adjustments have been recorded in 1999. Concentrations In the normal course of business, the Company extends credit to its customers, which are primarily alternate-site health care providers. At December 31, 1999, approximately 10.5%, or $34,000, of accounts receivable was concentrated in one customer. Additionally, approximately 10.6%, or $285,000, of revenues were generated from one customer. Also, the Company purchases the majority of its laser supplies from one supplier. 3. PROPERTY AND EQUIPMENT, NET As of December 31, 1999, property and equipment consists of: Useful Lives Amount ------------ ---------- Laser equipment 10 $3,206,364 Vehicles 5 380,088 Furniture and office equipment 3-7 64,764 ---------- 3,651,216 Less accumulated depreciation (825,766) ---------- Net property and equipment $2,825,450 ========== At December 31, 1999, net property and equipment included $38,402 in assets recorded under capitalized lease arrangements (see Note 5). 19 4. SHORT-TERM BORROWINGS At December 31, 1999, SIS had two available unused lines of credit. A $250,000 revolving line of credit is to be used for working capital purposes, extends through October 2000, and had an interest rate of 8.35% at December 31, 1999. A $350,000 line of credit is to be used for purchasing laser equipment and components, extends through October 2000, and bears interest at the 30-day LIBOR rate plus 245 basis points, 7.86% at December 31, 1999. Any outstanding borrowings under both lines of credit are 50% guaranteed by the Company's stockholders. The unused lines of credit contain various restrictive covenants, generally common to such loan agreements, with which the Company was in compliance at December 31, 1999. 5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS The Company's long-term debt at December 31, 1999 consists of the following: Term note payable, due in monthly installments of $34,507, including interest at 30-day LIBOR plus 2.45% (8.58% at December 31, 1999) through October 31, 2003, secured by the Company's assets, half of outstanding debt guaranteed by the Company's stockholders $1,377,410 Term note payable, due in monthly installments of $15,387, including interest at 30-day LIBOR plus 2.45% (8.58% at December 31, 1999) through October 25, 2004, secured by the Company's assets, half of outstanding debt guaranteed by the Company's stockholders 743,453 Note payable, due in monthly installments of $904, including interest of 8.75% through December 10, 2003, secured by a vehicle 36,405 Note payable, due in monthly installments of $804, including interest at 8.75% through December 25, 2003, secured by a vehicle 32,405 Note payable, due in monthly installments of $800, including interest at 8.70% through October 18, 2003, secured by a vehicle 31,152 Note payable, due in monthly installments of $792, including interest at 8.50% through April 5, 2003, secured by a vehicle 27,537 Note payable, due in monthly installments of $623, including interest at 8.00% through October 10, 2002, secured by a vehicle 18,891 ---------- Total long-term debt 2,267,253 Less current maturities of long-term debt (483,225) ---------- $1,784,028 ==========
The Company's credit facilities contain various restrictive covenants, generally common to such loan agreements, with which the Company was in compliance at December 31, 1999. 20 As of December 31, 1999, future minimum lease payments under capital lease obligations and maturities of debt are as follows:
Capital Leases Debt ------- ----------- 2000 $15,751 $ 483,225 2001 15,751 523,494 2002 13,775 565,160 2003 0 542,703 2004 0 152,671 ------- ---------- Total minimum lease payments and maturities 45,277 $2,267,253 ========== Less amounts representing interest and taxes 6,875 ------- Present value of minimum lease payments 38,402 Less current maturities of capital lease obligations 11,951 ------- Long-term portion of capital lease obligations $26,451 =======
At December 31, 1999, the estimated fair value of long-term debt described above was approximately the same as the carrying amount of such debt. 6. RETIREMENT SAVINGS PLAN SIS has a defined contribution retirement plan that provides certain employees an opportunity to accumulate funds for their retirement. The Plan is a simple IRA and provides for discretionary dollar for dollar matching contributions by SIS up to 3% of the employee's salary, up to a maximum of $6,000 of the employee's compensation. SIS made a matching contribution of $6,687 in 1999. 7. INCOME TAXES The provision for income taxes for the year ended December 31, 1999 follows: Current $ 0 Deferred 73,037 ------- Total $73,037 ======= The provision for income taxes differed from the amount computed by applying the federal statutory rate of 34% to net income before income taxes primarily due to the effect of state income taxes. The tax effects of temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities at December 31, 1999 were as follows: Deferred tax assets: Net operating loss carryforwards $117,526 Other 7,802 -------- Total deferred tax assets 125,328 Deferred tax liabilities: Property and equipment (403,965) -------- Total deferred tax liabilities (403,965) -------- Net deferred tax liabilities $278,637 ======== 21 At December 31, 1999, the Company has federal and state net operating loss carryforwards approximating $313,000. Net operating loss carryforwards of approximately $36,000, $172,000, and $105,000 will expire in the years 2012, 2013, and 2019, respectively. 8. RELATED PARTY TRANSACTIONS A director and stockholder of SIS performs accounting services for SIS. Total professional fees paid to this firm approximated $10,000 for 1999. The Company leases office space from an entity owned in part by a stockholder of the Company. Total lease expense under this lease approximated $17,000 for 1999. This lease expires in 2006. 9. COMMITMENTS AND CONTINGENCIES Litigation The Company is subject to litigation occurring in the ordinary course of business. On the basis of information furnished by legal counsel and others, it is the opinion of management that no litigation has arisen that will have a material adverse effect on the financial position or results of operations of the Company. Contractual Commitments Contractual obligations for purchases of equipment amounted to approximately $138,000 at December 31, 1999. Contingent Payable As of December 31, 1999, included in accounts payable is approximately $423,000 which is due to one supplier. Included in that amount is approximately $322,000 which represents invoices prior to December 31, 1998. If $200,000 of this old accounts payable amount with this supplier is paid by June 30, 2000, the supplier has agreed to forgive the remaining $90,000 old accounts payable. 10. SUBSEQUENT EVENT Pending Merger On May 8, 2000, the Company entered into an Agreement and Plan of Reorganization (the "Reorganization") with Surgical Laser Technologies ("SLT"), a Delaware corporation. Under the terms of the Reorganization Agreement, upon completion of the reorganization, SIS stockholders will receive approximately $300,000 in cash and 350,000 shares of SLT common stock in exchange for all SIS common stock issued and outstanding immediately prior to the effective date of the Reorganization. The Reorganization will be accounted for under the purchase method of accounting. 22 (b) Interim Financial Information of Surgical Innovations & Services, Inc. SURGICAL INNOVATIONS & SERVICES, INC. BALANCE SHEETS (UNAUDITED) (In thousands, except par value)
Mar. 31, 1999 Mar. 31, 1998 ------------- ------------- ASSETS Current assets: Cash $ 31 $ 3 Accounts receivable 217 246 Inventories 65 60 Other 17 20 ------- ------- Total current assets 330 329 Property and equipment, net 2,115 1,745 ------- ------- Total assets $ 2,445 $ 2,074 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 495 $ 345 Accounts payable 468 228 Accrued liabilities 22 24 ------- ------- Total current liabilities 985 597 ------- ------- Long-term debt 1,051 877 ------- ------- Deferred income taxes 206 124 ------- ------- Stockholders' equity: Common stock, $1.00 par value, 5 shares authorized, 1 share issued and outstanding 1 1 Additional paid-in capital 245 245 Accumulated (deficit) earnings (43) 230 ------- ------- Total stockholders' equity 203 476 ------- ------- Total liabilities and stockholders' equity $ 2,445 $ 2,074 ======= =======
The accompanying notes are an integral part of these interim financial statements. 23 SURGICAL INNOVATIONS & SERVICES, INC. STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data)
For the Quarter Ended: Mar. 31, 1999 Mar. 31, 1998 ------------- ------------- Net sales $ 588 $476 Cost of sales 398 260 ----- ------ Gross profit 190 216 ----- ------ Operating expenses: Selling, general and administrative 161 148 ----- ------ Operating income 29 68 Interest expense 28 30 ----- ------ Income before income taxes 1 38 Provision for income taxes -- -- ----- ------ Net income $ 1 $ 38 ===== ====== Basic and diluted income per share $1.00 $38.00 ===== ====== Shares used in calculating basic and diluted income per share 1 1
The accompanying notes are an integral part of these interim financial statements. 24 SURGICAL INNOVATIONS & SERVICES, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
For the Quarter Ended: Mar. 31, 1999 Mar. 31, 1998 ------------- ------------- Cash Flows From Operating Activities: Net income $ 1 $ 38 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 71 54 Decrease in assets: Accounts receivable 31 13 Inventories 10 6 Other assets 3 3 (Decrease) Increase in liabilities: Accounts payable (46) 76 Accrued liabilities (2) 1 ----- ----- Net cash provided by operating activities 68 191 ----- ----- Cash Flows From Investing Activities: Additions to property and equipment -- (73) Cash Flows From Financing Activities: Payments on long-term debt (109) (126) Issuances of debt -- 3 ----- ----- Net cash used in financing activities (109) (123) ----- ----- Net decrease in cash and cash equivalents (41) (5) Cash and Cash Equivalents, Beginning of Period 72 8 ----- ----- Cash and Cash Equivalents, End of Period $ 31 $ 3 ===== ===== Non Cash Investing and Financing Activities: ----- ----- Purchase of equipment under long term debt obligations $ 269 $ 192 ===== =====
The accompanying notes are an integral part of these interim financial statements. 25 SURGICAL INNOVATIONS & SERVICES, INC. NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation: The Unaudited Interim Financial Statements of Surgical Innovations & Services, Inc. ("SIS") for the quarters ended March 31, 1999 and March 31, 1998 have been prepared by SIS without audit by SIS's independent auditors. In the opinion of SIS's management, all adjustments necessary to present fairly the financial position, results of operations, and cash flows of SIS as of March 31, 1999 and March 31, 1998 and for the periods then ended have been made. Those adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in SIS's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in this Form 8-K filing. The results of operations for the quarters ended March 31, 1999 and March 31, 1998 are not necessarily indicative of the results to be expected for the full year. 26 (c) Pro Forma Combined Condensed Financial Data The Unaudited Pro Forma Combined Statement of Operations of Surgical Laser Technologies, Inc. ("SLT") for the fiscal year ended January 2, 2000 and the three-month period ended April 2, 2000 (the "Pro Forma Statements of Operations"), and the Unaudited Pro Forma Combined Balance Sheet of the Company as of April 2, 2000 (the "Pro Forma Balance Sheet" and together with the Pro Forma Statements of Operations, the "Pro Forma Financial Statements"), have been prepared to illustrate the estimated historical effect of the SIS acquisition. The Pro Forma Financial Statements do not reflect any anticipated cost savings from the SIS acquisition, or any synergies that are anticipated to result from the SIS acquisition, and there can be no assurance that any such cost savings or synergies will occur. The Pro Forma Statements of Operations give pro forma effect to the SIS acquisition as if it had occurred on January 4, 1999. The Pro Forma Balance Sheet gives pro forma effect to the SIS acquisition as if it had occurred on April 2, 2000. The Pro Forma Financial Statements do not purport to be indicative of the results of operations or financial position of SLT that would have actually been obtained had such transactions been completed as of the assumed dates and for the periods presented, or which may be obtained in the future. The pro forma adjustments are described in the accompanying notes and are based upon available information and certain assumptions that SLT believes are reasonable. The Pro Forma Financial Statements should be read in conjunction with SLT's Consolidated Financial Statements for the year ended January 2, 2000 filed with the Form 10-K. The SIS acquisition has been accounted for under the purchase method of accounting. The purchase price has been preliminarily determined, and may be subject to further adjustment as further information becomes available and further analysis is made. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities in the accompanying Pro Forma Financial Statements based on available information. The actual allocation of purchase price and the resulting effect on income from operations may differ significantly from the pro forma amounts included herein. Moreover, the categories of assets may be subject to further refinement, especially as to intangible assets other than goodwill, as further information becomes available and further analysis is conducted. These pro forma adjustments represent SLT's preliminary determination of purchase accounting adjustments and are based upon available information and certain assumptions that SLT believes to be reasonable. Consequently, the amounts reflected in the Pro Forma Financial Statements are subject to change, and the amounts, when finally determined, may differ substantially. 27 SURGICAL LASER TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF APRIL 2, 2000 (In thousands, except par value)
Historical Pro Forma Pro Forma SLT SIS Adjustments Combined -------- -------- ----------- --------- ASSETS Current assets: Cash and cash equivalents $ 1,045 $ 30 ($ 300)(1a) $ 775 Short-term investments 2,616 -- -- 2,616 Accounts receivable 1,105 248 -- 1,353 Inventories 1,777 258 -- 2,035 Other 190 42 -- 232 -------- -------- -------- -------- Total current assets 6,733 578 (300) 7,011 Property and equipment, net 589 2,811 -- 3,400 Patents and licensed technology, net 491 -- -- 491 Other assets 68 -- 507(1c) 575 -------- -------- -------- -------- Total assets $ 7,881 $ 3,389 $ 207 $ 11,477 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 104 $ 531 ($ 497)(5) $ 138 Accounts payable 543 571 -- 1,114 Accrued liabilities 408 39 89 (1b) 536 -------- -------- -------- -------- Total current liabilities 1,055 1,141 (408) 1,788 -------- -------- -------- -------- Long-term debt 14 1,680 497 (5) 2,191 -------- -------- -------- -------- Deferred income taxes -- 279 (279)(3) -- -------- -------- -------- -------- Stockholders' equity: Common stock 20 1 2 (4a) 23 Additional paid-in capital 33,033 245 438 (4b) 33,716 Accumulated (deficit) earnings (26,234) 43 (43)(4c) (26,234) Deferred compensation (7) -- -- (7) -------- -------- -------- -------- Total stockholders' equity 6,812 289 397 7,498 -------- -------- -------- -------- Total liabilities and stockholders' equity $ 7,881 $ 3,389 $ 207 $ 11,477 ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited pro forma financial statements. 28 SURGICAL LASER TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 2, 2000 (In thousands, except per share data)
Historical Pro Forma Pro Forma SLT SIS Adjustments Combined ---------- -------- ----------- --------- Net sales $ 7,951 $ 2,685 -- $ 10,636 Cost of sales 3,386 1,647 -- 5,033 -------- -------- -------- -------- Gross profit 4,565 1,038 -- 5,603 -------- -------- -------- -------- Operating expenses: Selling, general and administrative 4,427 775 25(2) 5,227 Product development 741 -- -- 741 Non-recurring charges 1,440 -- -- 1,440 -------- -------- -------- -------- 6,608 775 25 7,408 -------- -------- -------- -------- Operating income (loss) (2,043) 263 (25) (1,805) Interest expense 304 132 -- 436 Interest income (270) -- 17 (6) (253) Other income (194) (29) -- (223) -------- -------- -------- -------- Income (loss) before income taxes (1,883) 160 (42) (1,765) Provision for income taxes -- 73 (73)(3) -- -------- -------- -------- -------- Net income (loss) ($ 1,883) $ 87 31 ($ 1,765) ======== ======== ======== ======== Basic and diluted loss per share ($ 0.76)(7) Shares used in calculating basic and diluted loss per share 2,328 (7) ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited pro forma financial statements. 29 SURGICAL LASER TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE PERIOD ENDED APRIL 2, 2000 (In thousands, except per share data)
Historical Pro Forma Pro Forma SLT SIS Adjustments Combined ---------- ------- ----------- --------- Net sales $ 1,837 $ 712 -- $ 2,549 Cost of sales 772 547 -- 1,319 ------- ------- ------- ------- Gross profit 1,065 165 -- 1,230 ------- ------- ------- ------- Operating expenses: Selling, general and administrative 880 200 6 (2) 1,086 Product development 146 -- -- 146 ------- ------- ------- ------- 1,026 200 6 1,232 ------- ------- ------- ------- Operating income (loss) 39 (35) (6) (2) Interest expense 9 47 -- 56 Interest income (57) -- 4 (6) (53) ------- ------- ------- ------- Income (loss) before income taxes 87 (82) (10) (5) Provision for income taxes -- -- -- -- ------- ------- ------- ------- Net income (loss) $ 87 ($ 82) ($ 10) ($ 5) ------- ------- ------- ------- Basic and diluted loss per share ($ 0.00)(7) Shares used in calculating basic and diluted loss per share 2,328 (7) ======= ======= ======= =======
The accompanying notes are an integral part of these unaudited pro forma financial statements. 30 SURGICAL LASER TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 1. Preliminary allocation of purchase price to identifiable net assets and goodwill: SLT has accounted for the acquisition of SIS under purchase accounting. As a result, the purchase price has been allocated to the fair market value of the net assets acquired, with the excess allocated to goodwill. Listed below is the schedule of the preliminary allocation of goodwill. This schedule has been calculated based on information available to SLT. The actual allocation of the purchase price and the resulting effects on income may differ significantly from that presented in the Pro Forma Financial Statements and the notes thereto.
(in thousands) (a) Cash payment to SIS owners $300 Issuance of 350,000 shares of SLT's Common Stock to SIS owners 686 (b) Accrue for miscellaneous acquisition costs 89 ----- Total purchase price 1,075 Fair market value of net assets acquired 568 ----- (c) Goodwill $507 =====
2. Goodwill Amortization: SLT will amortize the goodwill from the SIS acquisition over a 20-year straight-line basis. The following presents the effects of the amortization of goodwill on the Pro Forma Combined Statement of Operations (in thousands): Year Ended Period Ended January 2, 2000 April 2, 2000 --------------- ------------- S, G, & A S, G, & A --------------- ------------- Amortization of Goodwill $25 $6 3. Treatment of Tax Liabilities: In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), the deferred tax liability of SIS will be absorbed by the net operating loss carryforwards and temporary differences of SLT and as a result, are eliminated as a pro forma adjustment. Also in accordance with SFAS 109, the income tax expense of SIS for the year ended January 2, 2000 is eliminated as a pro forma adjustment due to the elimination of income tax expense in consolidation with the net operating losses of SLT. 31 4. Adjustments to Stockholders'Equity: The adjustments to common stock, paid in capital, and retained earnings as a result of the SIS acquisition are as follows (in thousands):
(a) Common Stock: Issuance of 350,000 shares of common stock of $0.01 par value per share $3 Elimination of SIS common stock (1) ---- Total $2 ==== (b) Paid-in Capital: Issuance of 350,000 shares of common stock valued at $1.96 per share $686 Estimated stock registration costs (3) Elimination of SIS paid-in capital (245) ---- Total $438 ==== (c) Retained Earnings: Elimination of SIS retained earnings (43)
5. Refinancing of Debt: As of April 2, 2000, SIS had outstanding debt obligations to AmSouth Bank in the amount of $2.1 million. This debt was secured by personal guarantees of the stockholders of SIS. In accordance with the terms of the SIS acquisition, SLT was obliged to secure funding of this debt, and thus cause AmSouth Bank to remove the personal guarantees. As a result, concurrent with the SIS acquisition, SLT obtained a $3 million credit facility from AmSouth Bank to replace the term debt of SIS. This $3 million credit facility has a commitment term of 3 years and is secured by SLT's business assets, including collateralization with the bank of $2 million of SLT's cash and short-term investments. The credit facility permits the deferment of principal payments until the end of the commitment term. The pro forma adjustment on the Pro Forma Balance Sheet represents the transfer of this term debt to the credit facility. The interest rate on the credit facility, floating LIBOR +2.25%, is similar to the interest rate on the term debt of SIS. As a result, there is no pro forma adjustment recorded for changes in interest expense on the Pro Forma Financial Statements. 6. Adjustment to Interest Income: The cash payment included in the acquisition cost of SIS of $300,000 resulted in a reduction in interest income of $17,000 and $4,000 in the Pro Forma Statement of Operations for the year ended January 2, 2000 and quarter ended April 2, 2000, respectively. 7. Shares used in calculation of loss per share: The shares used in the calculation of loss per share includes 350,000 shares of Common Stock issued to the stockholders of SIS in accordance with the terms of the acquisition. 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has caused this report to be signed on behalf by the undersigned thereunto duly authorized: Dated: August 14, 2000 SURGICAL LASER TECHNOLOGIES, INC. By: /s/ Davis Woodward -------------------------------------- Davis Woodward Vice President and Chief Financial Officer Signing on behalf of the Company and as principal financial officer. 33 -----END PRIVACY-ENHANCED MESSAGE-----