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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
.......................................
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
.......................................
For the quarter ended March 31, 2004 Commission File Number 0-19306
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 Research Way (631) 784-6175
E. Setauket, NY 11733 (Registrant's Telephone Number)
(Address of Principal Executive Offices)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes [X] No [ ]
The number of shares of the Registrant's common stock outstanding as of
April 22, 2004 was: 11,979,336.
CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements:
..................................
Consolidated Balance Sheets as of March 31, 2004
(unaudited) and December 31, 2003 3
Consolidated Statements of Income (unaudited)
for the Three Months Ended March 31, 2004 and 2003 4
Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 2004 and 2003 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
.................................................
Condition and Results of Operations 8
...................................
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
..........................................................
Item 4. Controls and Procedures 12
.......................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
.................
Item 2. Changes in Securities, Use of Proceeds and Issuer
.................................................
Purchases Of Equity Securities 14
..............................
Item 3. Defaults upon Senior Securities 14
...............................
Item 4. Submission of Matters to a Vote of Security-Holders 14
...................................................
Item 5. Other Information 14
.................
Item 6. Exhibits and Reports on Form 8-K 14
................................
(a) Exhibits - (11) Computation of net earnings per share 18
(99) Certification of periodic report 19
(b) Reports on Form 8-K
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
.................................
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, 2004 Dec. 31, 2003
.............. .............
(Unaudited)
Assets
.......
Current assets:
Cash and equivalents $ 28,933 $ 25,740
Accounts receivable, less allowance for
doubtful accounts of $988 and $1,001
in 2004 and 2003, respectively 26,706 21,917
Inventories 24,216 25,038
Deferred income taxes 1,289 1,289
Other current assets 1,095 1,025
......... .........
Total current assets 82,239 75,009
......... .........
Property, plant and equipment 27,217 27,665
Other assets 380 415
Goodwill 30,649 30,649
......... .........
Total assets $ 140,485 $ 133,738
......... .........
......... .........
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 6,401 $ 4,801
Accrued expenses and other current liabilities 11,332 10,668
......... .........
Total current liabilities 17,733 15,469
......... .........
Deferred income taxes 991 991
Minority interest in subsidiary 0 6
Stockholders' equity:
Preferred stock, par value $.001 per share:
2,000 shares authorized, none issued 0 0
Common stock, par value $.001 per share:
20,000 shares authorized, 11,979 and 11,943
shares issued and outstanding in 2004 and
2003, respectively 12 12
Additional paid-in capital 48,343 47,514
Retained earnings 71,660 67,613
Accumulated other comprehensive income 1,746 2,133
......... .........
Total stockholders' equity 121,761 117,272
......... .........
Total liabilities and
stockholders' equity $ 140,485 $ 133,738
......... .........
......... .........
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Three Months Ended
March 31,
....................
2004 2003
......... .........
Net sales and services $ 36,291 $ 31,437
Cost of sales and services 19,802 17,129
......... .........
Gross profit 16,489 14,308
Operating expenses:
Selling and marketing 4,781 4,187
General and administrative 2,804 2,633
Research and development 3,364 3,305
......... .........
Total operating expenses 10,949 10,125
......... .........
Operating income 5,540 4,183
Non-operating income:
Interest income (56) (24)
Minority interest in net loss of subsidiary (6) 0
Other income, net (170) (177)
......... .........
Income before provision for income taxes 5,772 4,384
Provision for income taxes 1,725 1,535
......... .........
Net income $ 4,047 $ 2,849
......... .........
......... .........
Basic earnings per common share $0.34 $0.24
..... .....
..... .....
Weighted average common shares outstanding 11,972 11,806
......... .........
......... .........
Diluted earnings per common share $0.33 $0.24
..... .....
..... .....
Weighted average common and
common equivalent shares outstanding 12,444 12,103
......... .........
......... .........
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
Three Months Ended
March 31,
....................
2004 2003
......... .........
Operating activities:
Net income $ 4,047 $ 2,849
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in net loss of subsidiary (6) 0
Depreciation and amortization 611 690
Tax benefit from employee stock
option exercises 234 0
Provision for bad debts 38 34
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (4,948) (3,488)
Inventories 734 (956)
Other current assets (85) (124)
Other assets (228) (159)
Accounts payable 1,622 594
Accrued expenses and other
current liabilities 659 1,960
......... .........
Net cash provided by operating activities 2,678 1,400
......... .........
Investing activities:
Purchases of property, plant and equipment (178) (394)
Cash paid for acquisitions 0 (4)
......... .........
Net cash used in investing activities (178) (398)
......... .........
Financing activities:
Proceeds from exercise of common stock options 595 14
......... .........
Net cash provided by financing activities 595 14
......... .........
Effect of exchange rate changes on cash
and equivalents 98 45
......... .........
Net increase in cash and equivalents 3,193 1,061
Cash and equivalents, beginning of period 25,740 11,822
......... .........
Cash and equivalents, end of period $ 28,933 $ 12,883
......... .........
......... .........
Supplemental cash flow information:
...................................
Cash paid for:
Interest $ 0 $ 0
Income taxes $ 751 $ 13
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS
.................................
The consolidated balance sheet as of March 31, 2004, and the
consolidated statements of income and cash flows for the three months
ended March 31, 2004 and March 31, 2003 have been prepared by the Company
and are unaudited. In the opinion of management, all adjustments (which
included only normal recurring adjustments) have been made which are
necessary to present fairly the financial position, results of operations
and cash flows of the Company at March 31, 2004 and for all periods
presented.
For information concerning the Company's significant accounting
policies, reference is made to the Company's Annual Report on Form 10-K
for the year ended December 31, 2003. While the Company believes that the
disclosures presented are adequate to make the information contained
herein not misleading, it is suggested that these statements be read in
conjunction with the consolidated financial statements and notes included
in the Form 10-K. Results of operations for the period ended March 31,
2004 are not necessarily indicative of the operating results to be
expected for the full year.
B. ACCOUNTING FOR STOCK-BASED COMPENSATION
.......................................
At March 31, 2004, the Company has two stock-based employee
compensation plans. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees", and related Interpretations. No stock-
based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the
market values of the underlying common stock on the date of grant. For
purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options vesting periods. The fair value of
the options was estimated at the date of grant using the Black Scholes
option pricing model. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" to stock-
based employee compensation (In thousands, except per share data).
Three months ended March 31,
2004 2003
....... .......
Net income, as reported $ 4,047 $ 2,849
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (313) (299)
....... .......
Proforma net income $ 3,734 $ 2,550
....... .......
....... .......
Earnings per share:
Basic - as reported $0.34 $0.24
..... .....
Basic - proforma $0.31 $0.22
..... .....
Diluted - as reported $0.33 $0.24
..... .....
Diluted - proforma $0.30 $0.21
..... .....
On April 22, 2003, the Financial Accounting Standards Board ("FASB")
determined that stock-based compensation should be recognized as a cost
in the financial statements and that such cost be measured according to
the fair value of the stock options. The FASB has not as yet determined
the methodology for calculating fair value and plans to issue an
accounting standard that would become effective in 2005. The Company
will continue to monitor communications on this subject from the FASB in
order to determine the impact on the Company's consolidated financial
statements.
C. INVENTORIES
...........
Inventories are recorded at the lower of weighted average cost or
market. Weighted average cost approximates actual cost on a first-in
first-out basis. Inventories consist of the following (in thousands):
March 31, 2004 December 31, 2003
.............. .................
Raw Materials $ 12,506 $ 11,686
Work-in-Process 7,155 7,360
Finished Goods 3,824 5,116
Consigned Inventory 731 876
............ ..........
$ 24,216 $ 25,038
............ ..........
............ ..........
D. LINE-OF-CREDIT
..............
As of March 31, 2004, the Company has no lines of credit.
E. COMPREHENSIVE INCOME
....................
Comprehensive income is comprised of net income and foreign currency
translation adjustments, amounting in the aggregate to $3.7 million and
$3.2 million for the three months ended March 31, 2004 and 2003,
respectively.
F. ACCRUED WARRANTY COSTS
......................
Monthly, the Company analyzes its warranty reserve for
reasonableness based upon a three-year history of warranty expense
incurred, specific product warranty issues, if any, and the levels of
shipments subject to warranty.
Changes in the product warranty accrual during the three-month
period ended March 31, 2004 were as follows (In thousands):
Balance at December 31, 2003 $ 756
Provisions for warranties increasing
the warranty accrual during the
three-month period ended March 31, 2004 67
Warranty costs during the three-month period
ended March 31, 2004 (73)
Reduction of warranty accrual (60)
.......
Balance at March 31, 2004 $ 690
.......
.......
G. STOCK OPTIONS
.............
On February 24, 2004, the Board of Directors adopted, subject to
shareholder approval, the 2004 Stock Option Plan (the "2004 Plan"), which
provides for the grant of up to 1,000,000 options to employees, officers
and directors of, and consultants and advisors to, the Company. Options
granted under the 2004 Plan, which expires February 23, 2014, may be
designated as non-incentive stock options or, for grants to employees or
directors, as incentive stock options. Options may be exercisable for a
period of up to ten years and the exercise price for incentive stock
options must be at least equal to the market value of the Company's
common stock at the time of grant, except in the case of shareholders
owning more than 10% of the outstanding common shares, the exercise price
must be at least 110% of the market value on the date of grant.
Alternatives that may be used to pay for the exercise price of stock
options granted under the 2004 Plan include a cash payment, the delivery
to the Company of common stock held by the optionee for more than six
months and having a market value equal to the exercise price or the
irrevocable instructions to a broker to sell the common shares to be
issued upon exercise of the option and delivery to the Company of the
amount of the proceeds necessary to pay the exercise price.
Item 2. Management's Discussion and Analysis of Financial Condition
...........................................................
and Results of Operations
.........................
Overview
.........
The Company designs, manufactures and markets a variety of
photonics-based solutions primarily consisting of laser systems and
electro-optical components for industrial and scientific applications.
The Company's current range of products include laser marking and
engraving systems, laser micro-machining systems, CO2 lasers, optical
scanners, high power solid state CW and Q-switched lasers, ultrafast
lasers, high energy solid state pulsed lasers, precision optical
components and light and color measurement instruments. The laser and
electro-optical industry is subject to intense competition and rapid
technological developments. Our strength and success is dependent upon
us developing and delivering successful, timely and cost effective
solutions to our customers. The Company believes, for it to maintain its
performance, it must continue to increase its operational efficiencies,
improve and refine its existing products, expand its product offerings
and develop new applications for its technology. The Company's strategy
is to grow internally and through acquisitions of complementary
businesses. Historically, the Company has successfully integrated
acquired companies.
Results of Operations
......................
Net sales and services for the quarter ended March 31, 2004
increased $4.9 million or 15.4% to $36.3 million from $31.4 million for
the comparable period in the prior year. The increase is primarily
attributable to increased sales of most of our products, specifically
scanners, CO2 lasers, marking systems, and light and color measurement
instruments offset partially by a reduction in sales of high energy solid
state pulsed lasers.
Gross margins decreased to 45.4% for the period ended March 31, 2004
from 45.5% in the same period ended March 31, 2003. The decrease is
primarily due to the product mix. Gross margins vary from direct sales
to distributor sales and also among the more than 250 Company product
configurations.
Selling and marketing expenses increased to $4.8 million in the
quarter ended March 31, 2004 from $4.2 million in the quarter ended March
31, 2003. The increase of $594 thousand or 14.2% is primarily
attributable to increased variable costs such as commissions associated
with the increased sales volume. Selling and marketing expenses as a
percentage of sales decreased to 13.2% for the quarter ended March 31,
2004 from 13.3% for the comparable period in the prior year. The
decrease as a percentage of sales is essentially attributable to fixed
costs being absorbed by higher sales volume.
General and administrative expenses increased $171 thousand or 6.5%
from $2.6 million in the quarter ended March 31, 2003 to $2.8 million in
the current period. The increase is primarily attributable to increased
professional fees related to complying with Sarbanes-Oxley legislation
related to internal controls, legal fees for the Patlex patent litigation
and higher bonus expense as a result of higher operating income.
Research and development costs were $3.4 million for the quarter
ended March 31, 2004, an increase of $59 thousand from the $3.3 million
for the comparable period in the prior year. The cost of research
activities for most of our products was comparable for the two periods in
comparison.
Interest expense was zero for the quarters ended March 31, 2004 and
2003, respectively. The Company had no debt during the first quarter of
2004 and 2003.
The increase in interest income of $32 thousand to $56 thousand in
the quarter ended March 31, 2004 from $24 thousand in the same period of
2003 is primarily due to higher average investable cash balances during
the quarter ended March 31, 2004. The Company ended the quarter with
$28.9 million in cash and equivalents, an increase of $16.0 million over
the $12.9 million at March 31, 2003.
Other income was $170 thousand for the quarter ended March 31, 2004
as compared to income of $177 thousand for the quarter ended March 31,
2003. This is primarily attributable to the recording of foreign
currency transaction gains at Excel Europe for the settlement of payables
due in U.S. dollars for the purchase of inventories from the Company's
U.S. subsidiaries as a result of the decline in the value of the U.S.
dollar against the Euro.
The provision for income taxes increased $190 thousand or 12.4% from
$1.5 million in the quarter ended March 31, 2003 to $1.7 million for the
current quarter ended March 31, 2004. The increase is primarily
attributable to higher pre-tax earnings in 2004 offset by a lower
effective tax rate. The effective tax rate was 30% for the quarter ended
March 31, 2004 compared to 33% for the year ended December 31, 2003. The
lower rate in 2004 was primarily due to a reduction in the liability for
an income tax exposure item which has been reflected as an adjustment to
the 2004 annual effective tax rate in accordance with the Company's past
accounting policy.
Liquidity and Capital Resources
................................
Cash Flow Overview
Cash and equivalents increased $3.2 million during the first quarter
of 2004 to $28.9 million. The increase was primarily due to the net cash
provided by operating activities of $2.7 million and financing activities
from the exercise of stock options of $595 thousand partially offset by
net cash used for capital expenditures of $178 thousand. The Company
also experienced a favorable foreign exchange effect on cash and cash
equivalents of $98 thousand during the first quarter of 2004. As of
March 31, 2004 the Company had no bank debt.
At March 31, 2004, the Company had working capital of $64.5 million,
including cash and equivalents of $28.9 million, compared to working
capital of $59.5 million, including cash and equivalents of $25.7
million, at December 31, 2003. The working capital increased by $5.0
million and cash and equivalents increased by $3.2 million during the
first quarter of 2004.
Net cash provided by operating activities was $2.7 million for the
quarter ended March 31, 2004 and $1.4 million for the quarter ended March
31, 2003, which were primarily attributable to net income before the
deduction of depreciation and amortization expenses, offset partially by
net changes in working capital items. Depreciation and amortization for
the quarter ended March 31, 2004 was $611 thousand. Accounts receivable
at March 31, 2004 of $26.7 million increased $4.8 million from December
31, 2003 due to higher sales in the first quarter of 2004.
Net cash used in investing activities of $178 thousand and $398
thousand for the quarters ended March 31, 2004 and 2003, respectively was
primarily attributable to the purchase of equipment.
Net cash provided by financing activities was $595 thousand for the
quarter ended March 31, 2004 and $14 thousand for the quarter ended March
31, 2003, resulting from the proceeds received upon the exercise of
employee stock options.
As of March 31, 2004, the Company has no lines of credit.
The Company intends to continue to invest in support of its growth
strategy. These investments are a requirement in expanding the Company's
current product offerings, further developing its operating
infrastructure and retaining and acquiring new customers. The Company
believes that current cash and equivalents will be sufficient to meet
these anticipated cash needs for at least the next twelve months.
However, any projections of future cash needs and cash flows are subject
to substantial uncertainty. If current cash and equivalents and those
that may be generated from operations are insufficient to satisfy the
Company's liquidity requirements, the Company may seek to sell additional
equity or debt securities or secure lines of credit. The sale of
additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders. In addition, the
Company will, from time to time, consider the acquisition of, or
investment in, complementary businesses, products, services and
technologies, which might impact the Company's liquidity requirements or
cause the Company to issue additional equity or debt securities. There
can be no assurance that financing will be available, on terms that are
acceptable to the Company or at all.
Inflation
..........
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
New Accounting Pronouncements
..............................
On April 22, 2003, the Financial Accounting Standards Board ("FASB")
determined that stock-based compensation should be recognized as a cost
in the financial statements and that such cost be measured according to
the fair value of the stock options. The FASB has not as yet determined
the methodology for calculating fair value and plans to issue an
accounting standard that would become effective in 2005. The Company
will continue to monitor communications on this subject from the FASB in
order to determine the impact on the Company's consolidated financial
statements.
Forward-Looking Statements
...........................
The information set forth in this Report (and other reports issued
by the Company and its officers from time to time) contain certain
statements concerning the Company's future results, future performance,
intentions, objectives, plans and expectations that are or may be deemed
to be "forward-looking statements". Such statements are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on current
expectations that involve numerous risks and uncertainties, including
those risks and uncertainties discussed in the Company's Annual Report on
Form 10K for the year ended December 31, 2003. Assumptions relating to
the foregoing involve judgments with respect to, among other things,
future economic, competitive, and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately
and many of which are beyond the Company's control. Although the Company
believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and,
therefore, the Company cannot assure you that the results discussed or
implied in such forward-looking statements will prove to be accurate. In
light of the significant uncertainties inherent in such forward-looking
statements, the inclusion of such statements should not be regarded as a
representation by the Company or any other person that the Company's
objectives and plans will be achieved. Words such as "believes,"
"anticipates," "expects," "intends," "may," and similar expressions are
intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. The Company undertakes
no obligation to revise any of these forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
..........................................................
Market Risk
............
The principal market risks (i.e. the risk of loss arising from
adverse changes in market rates and prices) to which the Company is
exposed are interest rates on demand deposits with banks and money market
funds and foreign currency exchange rates generating translation and
transaction gains and losses.
Interest Rates
...............
The Company manages its cash and investment portfolios considering
investment opportunities and risks, tax consequences and overall
financing strategies. The Company's investment portfolios consist
primarily of cash and equivalents, with carrying amounts approximating
market value. Assuming investment levels remain the same, a one-point
change in interest rates would not have a material impact on interest
income.
Foreign Currency Exchange Rates
................................
Operating in international markets involves exposure to movements in
currency exchange rates, which are volatile at times. The economic
impact of currency exchange rate movements on the Company is complex
because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors. These
changes, if material, could cause the Company to adjust its financing and
operating strategies. Consequently, isolating the effect of changes in
currency exchange rates does not incorporate these other important
economic factors.
The Company's net sales and services to foreign customers represent
a large percentage of total net sales. The Company generally has not
engaged in foreign currency hedging transactions.
Changes in the foreign currency rate for the Euro and Yen would have
the largest impact on translating the Company's international operating
profit. The Company estimates that a 10% change in foreign currency
exchange rates would not materially impact reported operating profits.
Item 4. Controls and Procedures
.......................
Evaluation of Disclosure Controls and Procedures
.................................................
As of the end of the period covered by this Quarterly Report on Form
10-Q, the Company carried out an evaluation, under the supervision and
with the participation of the Company's management, including the
CEO/CFO, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15e. Based upon that evaluation, the Company's CEO/CFO
concluded that the Company's disclosure controls and procedures are
effective in timely alerting him to material information relating to the
Company (including its consolidated subsidiaries) required to be included
in the Company's periodic SEC filings.
The Company does not expect that its disclosure controls and
procedures will prevent all errors and all fraud. A control procedure,
no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control procedure are
met. Because of the inherent limitations in all control procedures, no
evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by
the individual acts of some persons, by collusion of two or more people,
or by management override of the control. The design of any control
procedure also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of
changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control procedure, misstatements due to error or fraud may
occur and not be detected.
Changes in Internal Controls
.............................
The Company has not identified any changes in its internal controls
over financial reporting during the quarter ended March 31, 2004 that
have materially affected, or are reasonably likely to materially affect,
its internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
.................
In November, 2002, Dr. R. Gordon Gould and Patlex Corporation
("Gould/Patlex") filed a lawsuit in the United States District Court for
the District of Massachusetts against Great Computer Corp. ("GCC"), a
customer of the Company's Synrad, Inc. ("Synrad") subsidiary, for
infringement of one of the patents licensed by Gould/Patlex to Synrad.
The lawsuit is based upon GCC's incorporation of Synrad's sealed C02
lasers into a system sold by GCC to its customers. In April 2003, GCC
attempted to bring Synrad into the case as a cross-defendant, on a
variety of indemnification and fraud theories. Because the Court's
jurisdiction over the cross-claim was not properly pleaded, Synrad moved
to have GCC's cross-claim dismissed. The motion was granted. In view of
the District Court's dismissal of GCC's cross-claim against Synrad,
Gould/Patlex filed a separate, new action for patent infringement and
breach of license agreement and false advertising against Synrad. The
case is currently pending in the United States District Court for the
District of Massachusetts. Gould/Patlex contends that Synrad has failed
to properly pay royalties to Gould/Patlex, which allegation has been
denied. As a result, Gould/Patlex purported to terminate the Gould/Patlex
- - Synrad patent license agreement, thus allegedly converting Synrad's
licensed activities into infringing activities. Synrad has denied all of
the substantive allegations of Gould/Patlex, and on July 8, 2003 filed
counterclaims against Gould/Patlex for breach of contract, wrongful
termination of license and violation of Mass. Gen. Laws c. 93A (unfair
business practices). During October 2003, the case filed by Gould/Patlex
against GCC and Synrad were consolidated and are now pending as a single
case in the United States District court for the District of
Massachusetts as Case Nos. l:02-civ-12000 PBS and 03-10874 PBS. The cases
are now in the fact discovery stage. In order to defeat Synrad's defense
that it remained licensed as a subsidiary of the Company, in August,
2003, Gould/Patlex took steps to terminate its patent license agreement
with the Company. In response, in September, 2003, the Company filed its
own declaratory judgment action, alleging nearly the same claims as
Synrad's counterclaims against Gould/Patlex for breach of contract,
wrongful termination of license and violation of Mass. Gen Laws c. 93A
(unfair business practices). Gould/Patlex has answered and
counterclaimed with the same allegations of patent infringement and
breach of license agreement and false advertising as were levied against
Synrad. The parties have agreed that this case should also be
consolidated, at least for discovery purposes. Synrad intends to request
consolidation for trial and all other purposes, as well.
Synrad believes that it is and has always been in compliance with
all terms and conditions of the Gould/Patlex - Synrad patent license
agreement, and any errors in royalty calculations which were made in the
past were timely corrected after notice, pursuant to the "notice and
cure" provisions of the agreement. Efforts to obtain explanations of the
reasoned position of Gould/Patlex have been fruitless to date. As a
result, it is not possible at this early stage of the case to determine
what liability exposure, if any, is faced by Synrad. Synrad continues to
operate in accordance with its duties and obligations under its agreement
with Gould/Patlex, including the obligation to pay royalties upon its
sales of licensed lasers.
In mid-October 2003, Gould/Patlex filed a frivolous motion for
extraordinary preliminary injunctive relief based upon Synrad's royalty
calculation practices admittedly known to Gould/Patlex since at least as
early as 1992. The Massachusetts District Court denied the motion filed
by Gould/Patlex on April 8, 2004.
The parties have been ordered to attempt Alternative Dispute
Resolution during the Summer of 2004, and the District Court has
established a schedule for summary resolution of the cases, if possible,
in September 2004, without any need for a trial.
Synrad intends to vigorously defend the case in order to protect its
ability to sell its sealed CO2 lasers, and to vindicate its past conduct
and present right. In any event, the last-surviving licensed Gould
patent which is the subject of the dispute expires on November 3, 2004,
in the event that the case is not resolved before then. At this point,
there is virtually no chance that this dispute will have any actual
impact on Synrad's manufacturing or sales operations, other than for the
ongoing expense of the litigation and, according to legal counsel, the
exceedingly remote possibility of liability of any kind.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
...........................................................
of Equity Securities
....................
None.
Item 3. Defaults upon Senior Securities
...............................
None.
Item 4. Submission of Matters to a Vote of Security-Holders
...................................................
None.
Item 5. Other Information
.................
None.
Item 6. Exhibits and Reports on Form 8-K
................................
a) Exhibits - 11. Computation of net earnings per share
31. Certification Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32. Certification Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
b) Reports on Form 8-K - Filed in the first quarter of 2004:
Form 8-K dated January 22, 2004 relating to the press
release announcing the earnings for the year ended
December 31, 2003.
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.
DATED: April 23, 2004
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
.....................................
J. Donald Hill, Chairman of the Board
By: /s/ Antoine Dominic
.....................................
Antoine Dominic, President,
Chief Executive Officer,
Chief Operating Officer
and Principal Accounting Officer
INDEX TO EXHIBITS
.................
Exhibit No. Description
11 Computation of Net Earnings Per Share
31 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
EXHIBIT 11
COMPUTATION OF NET EARNINGS PER SHARE
(In thousands, except per share data)(Unaudited)
BASIC DILUTED
Three Months Ended Three Months Ended
March 31, March 31,
.................. ..................
2004 2003 2004 2003
.... .... .... ....
Net earnings $ 4,047 $ 2,849 $ 4,047 $ 2,849
....... ....... ....... .......
....... ....... ....... .......
Weighted average common
shares outstanding 11,972 11,806 11,972 11,806
Weighted average common
share equivalents outstanding:
Stock options 0 0 472 297
....... ....... ....... .......
Weighted average common shares
and common share equivalents
outstanding 11,972 11,806 12,444 12,103
....... ....... ....... .......
....... ....... ....... .......
Net earnings per share $0.34 $0.24 $0.33 $0.24
....... ....... ....... .......
....... ....... ....... .......
EXHIBIT 31
CERTIFICATION
..............
I, Antoine Dominic, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Excel
Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the registrant and I have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this report is being
prepared;
b) intentionally omitted;
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report my conclusions about
the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
By: /s/ Antoine Dominic
..............................
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating Officer
(Principal Accounting Officer)
Dated: April 23, 2004
EXHIBIT 32
CERTIFICATION OF PERIODIC REPORT
.................................
I, Antoine Dominic, Chief Executive Officer and Chief Financial
Officer of Excel Technology, Inc. (the "Company"), certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
that, to the best of his knowledge,:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly
period ended March 31, 2004 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15. U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: April 23, 2004
/s/ Antoine Dominic
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating Officer
(Principal Accounting Officer)
A signed original of this written statement required by Section 906
of the Sarbanes-Oxley Act of 2002 has been provided to the Company and
will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.