UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended January 1, 2005.

 

Commission file number 000-14742

 

CANDELA CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware		04-2477008
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
530 Boston Post Road, Wayland, Massachusetts		01778
(Address of principal executive offices)		(Zip code)
Registrant’s telephone number, including area code: (508) 358-7400

 

 

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  ý       No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934).

Yes  ý       No  o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

CANDELA CORPORATION

Index

 

Part I.	Financial Information:
	Item 1.	Financial Statements
		Unaudited Consolidated Balance Sheets as of January 1, 2005 and July 3, 2004	3
		Unaudited Consolidated Statements of Operations for the three-month periods ended January 1, 2005 and December 27, 2003, and for the six-month periods ended January 1, 2005 and December 27, 2003	4
		Unaudited Consolidated Statements of Cash Flows for the six-month periods ended January 1, 2005 and December 27, 2003	5
		Notes to Unaudited Consolidated Financial Statements	6-12
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-18
	Item 3.	Quantitative and Qualitative Disclosure about Market Risk	19
	Item 4.	Controls and Procedures	19
Part II.	Other Information:
	Item 1.	Legal proceedings	20
	Item 4.	Submission of Matters to a Vote of Security Holders	21
	Item 6.	Exhibits and Reports on Form 8-K	21
	Signatures
	Index to Exhibits

 

 

Part I.  Financial Information

 

Item 1 - Financial Statements

CANDELA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

(in thousands)		January 1, 2005			July 3, 2004
		(unaudited)
Assets:
Current assets:
Cash and cash equivalents		$	45,798		$	37,139
Restricted cash		260			257
Accounts receivable, net		30,291			34,302
Notes receivable		877			1,151
Inventories, net		13,679			13,571
Other current assets		1,404			2,184
Total current assets		92,309			88,604
Property and equipment, net		3,504			3,406
Deferred tax assets		5,661			5,914
Prepaid licenses		966			1,054
Other assets		3,938			1,501
Total assets		$	106,378		$	100,479
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	6,474		$	6,973
Accrued payroll and related expenses		3,314			5,428
Accrued warranty costs		4,779			4,946
Income taxes payable		3,468			1,844
Other accrued liabilities		3,542			3,586
Deferred income (current portion)		4,465			3,421
Current liabilities of discontinued operations		1,249			1,019
Total current liabilities		27,291			27,217
Other long-term liabilities		4,773			3,945
Long-term liabilities of discontinued operations		649			2,548
Total liabilities		32,713			33,710
Stockholders’ equity:
Common stock		246			246
Treasury stock, at cost		(12,997		)	(12,997		)
Additional paid-in capital		53,487			53,069
Accumulated earnings		31,478			26,023
Accumulated other comprehensive income		1,451			428
Total stockholders’ equity		73,665			66,769
Total liabilities and stockholders’ equity		$	106,378		$	100,479

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

3

 

CANDELA CORPORATION

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

		For the three months ended:						For the six months ended:
		January 1, 2005			December 27, 2003			January 1, 2005			December 27, 2003
Revenue
Lasers and other products		$	23,539		$	19,906		$	41,882		$	35,260
Product-related service		4,665			3,992			8,713			7,324
Total revenue		28,204			23,898			50,595			42,584
Cost of sales
Lasers and other products		9,833			9,527			17,386			17,156
Product-related service		4,395			2,124			7,192			3,869
Total cost of sales		14,228			11,651			24,578			21,025
Gross profit		13,976			12,247			26,017			21,559
Operating expenses:
Selling, general and administrative		9,997			7,818			16,657			13,221
Research and development		1,621			1,415			2,956			2,491
Total operating expenses		11,618			9,233			19,613			15,712
Income from operations		2,358			3,014			6,404			5,847
Other income (expense):
Interest income		141			76			237			155
Interest expense		—			(4		)	—			(8		)
Other income, net		75			379			118			412
Total other income		216			451			355			559
Income from continuing operations before income taxes		2,574			3,465			6,759			6,406
Provision for income taxes		824			1,024			2,163			2,176
Income from continuing operations		1,750			2,441			4,596			4,230
Discontinued operations:
Loss from discontinued Skin Care Center operations of $473 less income tax benefit of $175		—			—			—			(298		)
Gain (loss) on closure of skin care center including revision of leasehold obligations of $1,374 and provision of $(3,348) less income tax expense of $(515) and income tax benefit of $1,253		859			—			859			(2,095		)
Net income		$	2,609		$	2,441		$	5,455		$	1,837
Net income (loss) per share of common stock
Basic:
Income from continuing operations		$	.08		$	.11		$	.20		$	.20
Gain (loss) from discontinued operations		.04			—			.04			(.11		)
Net income		$	.12		$	.11		$	.24		$	.09
Diluted:
Income from continuing operations		$	.07		$	.11		$	.20		$	.19
Gain (loss) from discontinued operations		.04			—			.04			(.11		)
Net income		$	.11		$	.11		$	.24		$	.08
Basic weighted average shares outstanding		22,363			21,739			22,356			21,563
Diluted weighted average shares outstanding		23,063			22,576			23,058			22,380

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

4

 

CANDELA CORPORATION

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

		For the six months ended:
		January 1, 2005			December 27, 2003
Cash flows from operating activities:
Net income		$	5,455		$	1,837
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
(Revision of) provision for disposal of discontinued operations		(1,374		)	2,095
Depreciation and amortization		362			253
Provision for bad debts		300			111
Effect of exchange rate changes on foreign currency denominated assets and liabilities		59			25
Increase (decrease) in cash from working capital:
Accounts receivable		4,245			(2,220		)
Notes receivable		(327		)	348
Inventories		397			(2,572		)
Other current assets		(1,865		)	(613		)
Other assets		369			(80		)
Accounts payable		(975		)	(501		)
Accrued payroll and related expenses		(2,157		)	(1,593		)
Deferred revenue		909			59
Accrued warranty costs		(218		)	801
Income taxes payable		1,787			(717		)
Long term portion of deferred revenue		805			(760		)
Loss from discontinued operations		—			298
Other accrued liabilities		(122		)	1,048
Change in restricted cash		(3		)	—
Net cash provided by (used for) operating activities		7,647			(2,181		)
Cash flows from investing activities:
Purchases of property and equipment		(468		)	(88		)
Net cash used for investing activities		(468		)	(88		)
Cash flows from financing activities:
Proceeds from the issuance of common stock		419			2,434
Net cash provided by financing activities		419			2,434
Effect of exchange rates on cash and cash equivalents		1,061			362
Net increase in cash and cash equivalents		8,659			527
Cash and cash equivalents at beginning of period		$	37,139		$	31,870
Cash and cash equivalents at end of period		$	45,798		$	32,397

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

5

 

Candela Corporation

Notes to Consolidated Financial Statements

 

1.                   Basis of Presentation

 

The accompanying unaudited consolidated financial statements and notes do not include all of the disclosures made in the Annual Report on Form 10-K of Candela Corporation (the “Company”, or “Candela”) for fiscal year 2004, which should be read in conjunction with these financial statements.  The financial information included herein is unaudited, with the exception of the consolidated balance sheet as of July 3, 2004, which was derived from the audited consolidated balance sheet dated July 3, 2004. However, in the opinion of management, the financial statements include all necessary adjustments, consisting of normal recurring accruals, for a fair presentation of the quarterly results and are prepared and presented in a manner consistent with the Company’s Annual Report on Form 10-K. The results for the three and six-month periods ended January 1, 2005 are not necessarily indicative of the results to be expected for the full year.

 

2.                   Discontinued Operations

 

On September 27, 2003 management initiated a plan to close its only remaining skin care center. The closure is accounted for as a discontinued operation in accordance with Statement of Financial Accounting Standards (“SFAS”) 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” and SFAS 146 “Accounting for Costs Associated with Exit or Disposal Activities”. As a result, in the fiscal quarter ended September 27, 2003, the Company recorded a $2,095 charge for the accrual of $3,000 of future occupancy costs, primarily relating to future lease payments for the Boston facility, and $348 of severance obligations and other related costs of closure, net of anticipated tax benefits of $1,253. Approximately 45 positions have been eliminated as a result of this restructuring plan, and 44 employees have been terminated as of January 1, 2005.

 

During the three-month period ended October 2, 2004, the landlord for the Boston facility secured a sublease for that property.  The Company was not able to determine the future economic benefit of the sublease at that time. The sublessee commenced making payments to the landlord during December of 2004.  As a result of these and future payments scheduled under the sublease, the Company revised the estimated future costs associated with the Boston facility and, in the quarter ended January 1, 2005, has reversed approximately $859 of the restructuring reserve. This reversal represents the aforementioned anticipated economic benefit due to sublessee payments of $1,703, net of legal and other fees of approximately $329 and income taxes of approximately $515, and was recognized in the three-month period ended January 1, 2005.

 

The following table reflects the combined restructuring charges incurred in the six month period ended January 1, 2005:

 

(in thousands)		Leasehold Improvements and Fixed Assets			Facility Costs			Total
Balance at July 3, 2004		$	197		$	2,809		$	3,006
Reduction of reserve due to cash payments					337			337
Non-cash amortization relating to the Scottsdale reserve		50			—			50
Reduction of reserve due to revision of leasehold obligation		—			1,374			1,374
Balance at January 1, 2005		$	147		$	1,098		$	1,245

 

6

 

2.                   Discontinued Operations, continued

 

At January 1, 2005, the discontinued segment had a net liability of approximately $1.9 million consisting primarily of the aforementioned reserve of $1.2 million and deferred gift certificate revenue of $0.8 million partially offset by fixed assets of approximately $0.1 million.  Revenues for discontinued operations for the quarter ended September 27, 2003 were approximately $0.4 million. There have been no subsequent revenues.

 

3.                   Stock-based Compensation

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123R, “Share-Based Payment” (“FAS 123R”). FAS 123R is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”). The Company is required to adopt the provisions of FAS123R as of the beginning of its first fiscal quarter of 2006, beginning July 3, 2005. This statement establishes standards for and requires the recognition of the cost of employment-related services settled in share-based payment. The adoption of the provisions of FAS 123R will have a material impact on the Company’s consolidated financial statements.

 

Currently and until the adoption of FAS 123R, the Company follows the provisions of FAS 123. The provisions of FAS 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. Candela has elected to continue to apply APB 25 in accounting for its stock option incentive plans.

 

In accordance with APB 25 and related interpretations, compensation expense for stock options is recognized in income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. Generally, the exercise price for stock options granted to employees equals or exceeds the fair market value of Candela common stock at the date of grant, thereby resulting in no recognition of compensation expense by Candela. For awards that generate compensation expense as defined under APB 25, the Company calculates the amount of compensation expense and recognizes the expense over the vesting period of the award.

 

7

 

3.                   Stock-based Compensation, continued

 

Had compensation cost for Candela’s stock option plans been determined based on the fair value method set forth in FAS 123, Candela’s net income (loss) and basic and diluted net income (loss) per common share would have been changed to the pro forma amounts indicated below:

 

		For the three months ended:						For the six months ended:
(in thousands, excepts per share data)		January 1, 2005			December 27, 2003			January 1, 2005			December 27, 2003
Net income , as reported		$	2,609		$	2,441		$	5,455		$	1,837
Add: stock-based employee compensation expense included in reported net income, net of related tax effects		—			—			—			—
Deduct: total stock-based employee compensation expense, determined under fair value based method for all awards, net of related tax effects		(138		)	(401		)	(289		)	(775		)
Pro forma net income		$	2,471		$	2,040		$	5,166		$	1,062
Net income per share of common stock
Basic - as reported		$	0.12		$	0.11		$	0.24		$	0.09
Basic - pro forma		$	0.11		$	0.09		$	0.23		$	0.05
Diluted - as reported		$	0.11		$	0.11		$	0.24		$	0.08
Diluted - pro forma		$	0.11		$	0.09		$	0.22		$	0.05

 

In computing this pro-forma amount, the Company has used the Black-Scholes pricing model using the following assumptions for options granted in fiscal years 2005 and 2004:

 

		2005		2004
Risk-free interest rate		4.25	%	4.25	%
Estimated volatility		78	%	76	%
Expected life for stock options (yrs)		2.96		2.99
Expected life for stock purchase plan (yrs)		0.5		0.5
Expected dividends		—		—

 

4.                   Earnings Per Share

 

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period and, if there are dilutive securities, diluted earnings per share is computed by including common stock equivalents outstanding for the period in the denominator.

 

8

 

4.                   Earnings Per Share, continued

 

Common stock equivalents include shares issuable upon the exercise of stock options or warrants, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.

 

		For the three months ended:						For the six months ended:
(in thousands, except per share data)		January 1, 2005			December 27, 2003			January 1, 2005			December 27, 2003
Basic shares used in the calculation of earnings per share		22,363			21,739			22,356			21,563
Effect of dilutive securities:
Stock options		700			786			702			767
Stock warrants		—			51			—			50
Diluted shares used in the calculation of earnings per share		23,063			22,576			23,058			22,380
Per share effect of dilutive securities on income from continuing operations		$	.01		$	.00		$	.00		$	.01
Per share effect of dilutive securities on net income		$	.01		$	.00		$	.00		$	.01

 

During the three and six month periods ended January 1, 2005, options to purchase 335 and 351 shares of common stock, respectively, were excluded from the calculation of diluted earnings per share because the exercise price of such options was greater than the average market price of the common stock for the period.  During the three and six month periods ended December 27, 2003, options to purchase 927 and 677 shares of common stock, respectively, were excluded from the calculation of diluted earnings per share because the exercise price of such options was greater than the average market price of the common stock for the period.

 

5.      Comprehensive Income

 

Components of comprehensive income include net income and certain transactions that have generally been reported in the consolidated statement of stockholders’ equity.

 

		For the three months ended:						For the six months ended:
(in thousands)		January 1, 2005			December 27, 2003			January 1, 2005			December 27, 2003
Net income		$	2,609		$	2,441		$	5,455		$	1,837
Foreign currency translation adjustment		1,210			851			1,023			698
Total comprehensive income		$	3,819		$	3,292		$	6,478		$	2,535

 

9

 

6.                   Inventories

 

(in thousands)		January 1, 2005			July 3, 2004
Raw materials		$	5,328		$	4,833
Work in process		441			556
Finished goods		7,910			8,182
		$	13,679		$	13,571

 

7.      Segment Information

 

The Company operates in one industry segment: the design, manufacture, sale, and service of medical devices and related equipment. The results in this segment have been presented in the Consolidated Statements of Operations for the appropriate periods.

 

8.                   Guarantees

 

The Company’s products generally carry a standard one-year warranty, except for Vbeam products which typically carry a three-year warranty. The Company records a reserve based on anticipated warranty claims at the time product revenue is recognized. In anticipation of actual warranty claims, the Company amortizes the reserve ratably over the life of the warranty, thereby offsetting actual warranty claims incurred. Actual warranty claims incurred and charged to product costs of sales during an interim period may be more or less than the amount of amortized warranty reserve allocated against them. Factors that affect the Company’s product warranty liability include the number of installed units, the anticipated cost of warranty repairs, and historical and anticipated rates of warranty claims.

 

The following table reflects changes in the Company’s accrued warranty account during the six-month period ended January 1, 2005:

 

(in thousands)
Beginning balance July 3, 2004		$	8,257
Plus accruals related to new sales		2,391
Less amortization of prior period accruals		3,173
Ending balance on January 1, 2005		$	7,475

 

The Company also offers extended service contracts that may be purchased after a standard warranty has expired. Service contracts may be purchased for periods from one to five years. The Company recognizes service contract revenue ratably over the life of the contract. Actual service contract expenses incurred and charged to service costs of sales during an interim period may be more or less than the amount of amortized service contract revenue recognized in that period.

 

10

 

8.                   Guarantees, continued

 

The following table reflects changes in the Company’s deferred revenue account during the six-month period ended January 1, 2005:

 

(in thousands)
Beginning balance July 3, 2004		$	4,055
Plus deferral of new service contract sales		5,068
Less recognition of deferred revenue		2,581
Ending balance on January 1, 2005		$	6,542

 

The Company has an agreement (the “Agreement”) with an independent leasing company whereby the Company will purchase delinquent leases (the “UNL Provision”) relating to Company products purchased by customers and financed through the leasing company.  The Company is required to honor the UNL Provision when the leasing company’s aggregate losses reach levels specified in the Agreement.  The UNL Provision of the Agreement was eliminated for any lease initiated after December 31, 2002.  Since the inception of the Agreement, the cumulative amounts paid to the leasing company under the UNL Provision have not been significant.

 

9.       Stock split

 

On January 28, 2004, the Company announced that its Board of Directors approved a two-for-one stock split of the Company’s common stock effected in the form of a stock dividend paid on March 16, 2004. As a result of this action, 13.3 million shares were issued to shareholders of record as of February 16, 2004. Par value of the stock remains at $.01 per share and accordingly $133 was transferred from additional paid-in capital to common stock. All references to the number of common shares and per common share amounts have been restated to give retroactive effect to the stock split for all periods presented.

 

10.    Commitments and Contingencies

 

The Company has an Amended and Restated License Agreement (the “License”) with The Regents of the University of California (“The Regents”) pursuant to which the Company licenses certain patent rights to its dynamic cooling device (“DCD”) from The Regents.  The Company sells its DCD as a component part of its Smoothbeam ® laser system and as an accessory to its other laser systems.  In April of 2004, The Regents issued a notice of default under the License, asserting, among other things, that the Company is in breach of the License for the alleged failure to make required royalty payments and to make required disclosures.  The Regents’ April notice asserted that the total underpaid royalties, interest and other charges for the period from August of 2000 through September 2003 are $1,128,000.  The Regents issued a subsequent notice of default, dated June 30, 2004, relating to the quarterly periods ended December 27, 2003 and March 27, 2004, for which The Regents asserted that the Company underpaid additional royalties amounting to $1,350,000.  The Regents issued a subsequent notice of default, dated September 10, 2004, relating to the quarterly period ended July 3, 2004, for which The Regents asserted that the Company underpaid additional royalties amounting to $990,000. The Company and The Regents differ in their respective interpretations of which products sold by the Company give rise to a royalty-bearing obligation to The Regents.  The Company believes it has made all payments it was required to make.

 

11

 

10.    Commitments and Contingencies, continued

 

Under the License, disputes are to be settled by binding arbitration through a mutually acceptable single arbitrator.  On June 14, 2004, the Company filed a Demand for Arbitration to adjudicate the differing interpretations of the License Agreement held by the Company and The Regents.  On July 8, 2004, The Regents filed their response and counterclaim for breach of contract and declaratory relief.  Candela deposited approximately $1.0 million in June of 2004, and an additional $1.0 and $1.4 million in August and December, respectively, of 2004, into an escrow fund to be paid in whole or in part to the Company or The Regents as determined by the arbitrator.  As a result of the establishment of the escrow fund, The Regents will not terminate or purport to terminate the License Agreement based on any alleged breach by the Company related to any matter now before the arbitrator.  The $3.4 million deposited in the escrow fund has been included in Other Assets on the accompanying balance sheet, and no expense has or will be recorded with respect to the escrow fund or any additional contingent liabilities while the matter is being arbitrated. A final decision of the arbitrator in this matter is presently expected to be delivered during the third quarter of fiscal 2005.

 

During January of 2005, the Company received a demand for payment of bankruptcy preference claims relating to payments the Company received in the ordinary course of business prior to the bankruptcy of DVI Strategic Partner Group (DVI). The Company is in the process of researching the claim, but feels that no preferential treatment was bestowed upon it during the months leading up to the aforementioned bankruptcy, and accordingly believes the demand is without merit.

 

From time to time, the Company is a party to various legal proceedings incidental to its business.  Except for the pending arbitration proceedings with The Regents, and the bankruptcy preference claims in the DVI matter, the Company believes that none of the legal proceedings that are presently pending, if adversely decided to the Company, will have a material adverse effect upon its financial position, results of operations, or liquidity.

 

12

 

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

We research, develop, manufacture, market and service lasers used to perform aesthetic and cosmetic procedures. We sell our lasers to physicians and personal care practitioners.  We market our products directly and through a network of distributors to end-users. Our traditional customer base includes plastic and cosmetic surgeons and dermatologists. More recently we have expanded our sales to a broader group of practitioners consisting of general practitioners and certain specialists including obstetricians, gynecologists and general and vascular surgeons.   We derive our revenue from the sales of lasers and other products, and the provision of product-related services.

 

Critical Accounting Policies

 

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates and judgments on an on-going basis, including those related to revenue recognition, bad debts, inventories, warranty obligations, contingencies, restructurings and income taxes. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and judgments under different assumptions or conditions. A discussion of our critical accounting policies and the related estimates and judgments affecting the preparation of our consolidated financial statements is included in our Annual Report on Form 10-K for fiscal year 2004.

 

13

 

Results of Operations

 

Revenue.

 

Revenue source by geographic region is reflected in the following table:

 

		For the three months ended:
(in thousands)		January 1, 2005					December 27, 2003					Change
US revenue		$	13,156		47	%	$	11,242		47	%	$	1,914		17	%
Foreign revenue		15,048			53	%	12,656			53	%	2,392			19	%
Total revenue		$	28,204		100	%	$	23,898		100	%	$	4,306		18	%
		For the six months ended:
		January 1, 2005					December 27, 2003					Change
US revenue		$	22,580		45	%	$	19,094		45	%	$	3,486		18	%
Foreign revenue		28,015			55	%	23,490			55	%	4,525			19	%
Total revenue		$	50,595		100	%	$	42,584		100	%	$	8,011		19	%

 

Consolidated Overview

 

Consolidated revenue increased $4.3 and $8.0 million, to $28.2 and $50.6 million for the three and six-month periods, respectively, ended January 1, 2005, as compared to the three and six-month periods ended December 27, 2003. The increase was due primarily to uniform increase in demand for our products and product-related service on a worldwide basis, coupled with our emerging ability to reach into new markets.

 

Foreign revenue increased 18.9% to $15.0 million for the three-month period ended January 1, 2005, as compared to the three-month period ended December 27, 2003. Revenues in Japan increased approximately $1.4 million quarter over quarter while total European revenues increased approximately $0.9 million.

 

Foreign revenue increased 19.3% to $28.0 million for the six-month period ended January 1, 2005, as compared to the six-month period ended December 27, 2003. Year-to-date foreign revenue increased across all countries with the exception of France which showed a slight decrease. Year-to-date revenues in South America increased over 360 percent, accounting for approximately $1.2 million or 27% of the year over year comparative increase while European revenues increased approximately $2.2 million accounting for 48% of this comparative increase. Increases in Japan were more modest, totaling approximately $0.9 million for the year to date or approximately 20% of the year-to-date increase.

 

US revenue increased by $1.9 and $3.5 million, respectively, for the three and six month periods ended January 1, 2005, as compared to the same periods during the prior fiscal year. This increase was primarily due to market demand for our GentleYag™ product line which was launched during the third quarter of last year.

 

14