UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ___________
Commission File Number 0-11365
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PHOTOMEDEX, INC.
----------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2058100
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
147 KEYSTONE DRIVE, MONTGOMERYVILLE, PENNSYLVANIA 18936
-------------------------------------------------------
(Address of principal executive offices, including zip code)
(215) 619-3600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (i) 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 (ii) 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 Exchange Act.)
Yes X No
--- ---
The number of shares outstanding of the issuer's Common Stock as of May 7, 2004,
was 38,542,245 shares.
PHOTOMEDEX, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information: PAGE
- ------------------------------ ----
ITEM 1. Financial Statements:
a. Consolidated Balance Sheets, March 31, 2004 (unaudited) and
December 31, 2003 (audited) 3
b. Consolidated Statements of Operations for the three months
ended March 31, 2004 and 2003 (unaudited) 4
c. Consolidated Statements of Cash Flows for the three months
ended March 31, 2004 and 2003 (unaudited) 5
d. Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 24
ITEM 4. Controls and Procedures 24
Part II. Other Information:
ITEM 1. Legal Proceedings 24
ITEM 2. Changes in Securities and Use of Proceeds 25
ITEM 3. Defaults Upon Senior Securities 25
ITEM 4. Submission of Matters to a Vote of Security Holders 25
ITEM 5. Other Information 25
ITEM 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Certifications 27
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOTOMEDEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2004 2003
------------ ------------
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents .............................................$ 5,825,956 $ 6,633,468
Accounts receivable, net of allowance for doubtful accounts of
$670,122 and $698,044, respectively ................................... 3,756,100 3,483,030
Inventories ........................................................... 4,387,541 4,522,462
Prepaid expenses and other current assets ............................. 398,319 334,002
------------ ------------
Total current assets ............................................... 14,367,916 14,972,962
Property and equipment, net ................................................. 4,163,898 4,005,205
Goodwill, net of accumulated amortization of $452,992 ....................... 2,944,423
2,944,423
Patents and licensed technologies, net ...................................... 714,647 758,655
Other assets ................................................................ 68,186 71,486
------------ ------------
Total assets ..........................................................$ 22,259,070 $ 22,752,731
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable ......................................$ 151,385 $ 101,066
Current portion of long-term debt ..................................... 1,258,945 1,269,759
Accounts payable ...................................................... 2,338,436 2,218,993
Accrued compensation and related expenses ............................. 805,584 940,352
Other accrued liabilities ............................................. 864,775 975,536
Deferred revenues ..................................................... 956,469 811,712
------------ ------------
Total current liabilities .......................................... 6,375,594 6,317,418
Notes payable ............................................................... 45,675 51,489
Long-term debt .............................................................. 347,566 405,749
------------ ------------
Total liabilities ................................................... 6,768,835 6,774,656
------------ ------------
Stockholders' equity:
Common Stock, $.01 par value, 75,000,000 shares authorized;
38,196,321and 37,736,139 shares issued and outstanding ............... 381,963 377,361
Additional paid-in capital ............................................ 87,740,435 86,871,415
Accumulated deficit ................................................... (72,625,448) (71,262,366)
Deferred compensation ................................................. (6,715) (8,335)
------------ ------------
Total stockholders' equity ......................................... 15,490,235 15,978,075
------------ ------------
Total liabilities and stockholders' equity .........................$ 22,259,070 $ 22,752,731
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
PHOTOMEDEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
2004 2003
------------ ------------
Revenues:
Product sales ...............................................................$ 1,792,400 $ 1,869,292
Services .................................................................... 2,232,830 1,604,185
------------ ------------
4,025,230 3,473,477
Cost of revenues:
Product cost of revenues .................................................... 832,483 944,882
Services cost of revenues ................................................... 1,661,583 1,465,376
------------ ------------
2,494,066 2,410,258
------------ ------------
Gross profit ..................................................................... 1,531,164 1,063,219
------------ ------------
Operating expenses:
Selling, general and administrative ........................................ 2,470,424 2,294,592
Engineering and product development ........................................ 415,950 411,932
------------ ------------
2,886,374 2,706,524
------------ ------------
Loss from operations before interest expense, net ................................ (1,355,210) (1,643,305)
Interest expense, net ............................................................ 7,872 31,023
------------ ------------
Net loss .........................................................................$ (1,363,082) $ (1,674,328)
============ ============
Basic and diluted net loss per share .............................................$ (0.04) $ (0.05)
============ ============
Shares used in computing basic and diluted net loss per share .................... 37,773,301 31,439,058
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
PHOTOMEDEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
2004 2003
----------- -----------
Operating activities:
Net loss ..............................................................$(1,363,082) $(1,674,328)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ................................. 493,745 479,334
Stock options and warrants issued to consultants for services 48,192 --
Amortization of deferred compensation ......................... 1,620 1,602
Provision for bad debt ........................................ -- 84,000
Changes in operating assets and liabilities:
Accounts receivable ................................................ (273,070) 289,535
Inventories ........................................................ 19,025 (216,462)
Prepaid expenses and other assets .................................. 65,865 (6,819)
Accounts payable ................................................... 119,443 27,522
Accrued compensation and related expenses .......................... (134,768) 96,831
Other accrued liabilities .......................................... (110,761) (400,849)
Deferred revenues .................................................. 144,757 101,129
----------- -----------
Net cash used in operating activities ..................... (989,034) (1,218,505)
----------- -----------
Investing activities:
Purchases of property and equipment, net .............................. (11,137) (21,136)
Lasers placed into service ............................................ (481,398) (293,401)
----------- -----------
Net cash used in investing activities ..................... (492,535) (314,537)
----------- -----------
Financing activities:
Proceeds from issuance of common stock, net ........................... 11,199 --
Proceeds from exercise of warrants .................................... 814,231 --
Payments on long-term debt ............................................ (68,997) (44,426)
Payments on notes payable ............................................. (82,376) (109,812)
Net repayments on line of credit ...................................... -- (1,407,451)
Decrease in restricted cash, cash equivalents and short-term
investments ........................................................... -- 1,637,183
----------- -----------
Net cash provided by financing activities ................. 674,057 75,494
----------- -----------
Net decrease in cash and cash equivalents .................................. (807,512) (1,457,548)
Cash and cash equivalents, beginning of period .............................. 6,633,468 4,008,051
----------- -----------
Cash and cash equivalents, end of period ....................................$ 5,825,956 $ 2,550,503
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
PHOTOMEDEX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY:
BACKGROUND
PhotoMedex, Inc. and subsidiaries (the "Company") is a medical device company
focused on facilitating the cost-effective use of technologies for doctors,
hospitals and surgery centers. The Company develops, manufactures and markets
excimer-laser-based instrumentation designed to phototherapeutically treat
psoriasis, vitiligo, atopic dermatitis and leukoderma. In January 2000, the
Company received the first Food and Drug Administration ("FDA") clearance to
market an excimer laser system, the XTRAC(R) system, for the treatment of
psoriasis. In March 2001, the Company received FDA clearance to treat vitiligo;
in August 2001, the Company received FDA clearance to treat atopic dermatitis;
and in May 2002, the FDA granted 510(k) clearance to market the XTRAC system for
the treatment of leukoderma. The Company launched the XTRAC phototherapy
treatment system commercially in the United States in August 2000.
Through the acquisition of Surgical Laser Technologies, Inc. ("SLT") on December
27, 2002, the Company also develops, manufactures and markets proprietary lasers
and delivery systems for both contact and non-contact surgery and provides
surgical services utilizing these and other manufacturers' products.
LIQUIDITY AND GOING CONCERN
The Company has incurred significant losses and has had negative cash flows from
operations since emerging from bankruptcy in May 1995. As of March 31, 2004, the
Company had an accumulated deficit of $72,625,448. The Company has historically
financed its activities from the private placement of equity securities. To
date, the Company has dedicated most of its financial resources to research and
development and general and administrative expenses. During the first quarter of
2003, the Company re-launched the marketing of its XTRAC system in the United
States following the issuance of current procedural terminology ("CPT") codes
and associated reimbursement rates by the Center of Medicare and Medicaid
Services ("CMS"). The Company has focused the re-launch on securing approval by
various private health plans to reimburse for treatments of psoriasis using the
XTRAC.
The Company expects to incur operating losses for 2004 as it plans to continue
to focus on securing reimbursement from more private insurers and to devote
sales and marketing efforts in the areas where such reimbursement has become
available. Once favorable momentum has been achieved, the Company contemplates
spending substantial amounts on the marketing of its psoriasis, vitiligo, atopic
dermatitis and leukoderma treatment products and expansion of its manufacturing
operations. Notwithstanding the approval by CMS for Medicare and Medicaid
reimbursement and recent approvals by certain private insurers, the Company may
continue to face resistance from private healthcare insurers to adopt the
excimer-laser-based therapy as an approved procedure. Management cannot provide
assurance that the Company will market the product successfully, operate
profitably in the future, or that it will not require significant additional
financing in order to accomplish its business plan.
The Company's future revenues and success depend upon its excimer-laser-based
systems for the treatment of a variety of skin disorders. The Company's
excimer-laser-based system for the treatment of psoriasis, vitiligo, atopic
dermatitis and leukoderma is currently generating revenues in both the United
States and abroad. The Company's ability to introduce successful new products
based on its business focus and the expected benefits to be obtained from these
products may be adversely affected by a number of factors, such as unforeseen
costs and expenses, technological change, economic downturns, competitive
factors or other events beyond the Company's control. Consequently, the
Company's historical operating results cannot be relied upon as indicators of
future performance, and management cannot predict whether the Company will
obtain or sustain positive operating cash flow or generate net income in the
future.
6
Cash and cash equivalents were $5,825,956 as of March 31, 2004. Management
believes that the existing cash balance together with its existing financial
resources, including access to lease financing for capital expenditures, and any
revenues from sales, distribution, licensing and manufacturing relationships,
will be sufficient to meet the Company's operating and capital requirements
through the first quarter of 2005. The 2004 operating plan reflects anticipated
revenue growth from an increase in per-treatment fees for the use of the XTRAC
system based on growing private insurance coverage in the United States and
continuing cost savings from the integration of the combined companies. However,
depending upon the Company's rate of growth and other operating factors, the
Company may require additional equity or debt financing to meet its working
capital requirements or capital expenditure needs. There can be no assurance
that additional financing, if needed, will be available when required or, if
available, could be obtained on terms satisfactory to the Company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
QUARTERLY FINANCIAL INFORMATION AND RESULTS OF OPERATIONS
The financial statements as of March 31, 2004 and for the three months ended
March 31, 2004 and 2003, are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position as of March 31, 2004, and the
results of operations and cash flows for the three months ended March 31, 2004
and 2003. The results for the three months ended March 31, 2004 are not
necessarily indicative of the results to be expected for the entire year. While
management of the Company believes that the disclosures presented are adequate
to make the information not misleading, these consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates and be based on events different from those assumptions.
CASH AND CASH EQUIVALENTS
The Company invests its excess cash in highly liquid, short-term investments.
The Company considers short-term investments that are purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents consisted of cash and money market accounts at March 31, 2004 and
December 31, 2003.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Cost is determined at the latest cost for raw materials and at
production cost (materials, labor and indirect manufacturing cost) for
work-in-process and finished goods. Throughout the laser manufacturing process,
the related production costs are recorded within inventory.
The Company's skin disorder treatment equipment will either (i) be sold to
distributors or physicians directly or (ii) be placed in a physician's office
and remain the property of the Company. For lasers that are placed in a
physician's office, the cost is transferred from inventory to "lasers in
service" within property and equipment. The Company earns revenue each time the
laser is used for a patient treatment. Lasers that are not placed in a
physician's office are maintained in inventory until the unit is sold.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, primarily
three to seven years for lasers in service, computer hardware and software,
furniture and fixtures, automobiles, and machinery and equipment. Leasehold
improvements are amortized over the lesser of the useful lives or lease terms.
Expenditures for major renewals and betterments to property and equipment are
capitalized, while expenditures for maintenance and repairs are charged to
operations as incurred. Upon retirement or disposition, the applicable property
7
amounts are relieved from the accounts and any gain or loss is recorded in the
consolidated statements of operations.
Laser units and laser accessories located at medical facilities for sales
evaluation and demonstration purposes or those units/accessories used for
development and medical training are included in property and equipment under
the caption "machinery and equipment". These units and accessories are being
depreciated over a period of up to five years. Laser units utilized in the
provision of surgical services are included in property and equipment under the
caption "lasers in service."
Management evaluates the realizability of property and equipment based on
estimates of undiscounted future cash flows over the remaining useful life of
the asset. If the amount of such estimated undiscounted future cash flows is
less than the net book value of the asset, the asset is written down to the net
realizable value. As of March 31, 2004, no such write-down was required (see
Impairment of Long-Lived Assets below).
PATENT COST AND LICENSED TECHNOLOGIES
Costs incurred to obtain or defend patents are capitalized and amortized over
the shorter of the estimated useful lives or eight to 12 years. Developed
technology relates to the purchase of the minority interest of Acculase, a
former subsidiary of the Company, and is being amortized on a straight-line
basis over seven years.
Management evaluates the realizability of intangible assets based on estimates
of undiscounted future cash flows over the remaining useful life of the asset.
If the amount of such estimated undiscounted future cash flows is less than the
net book value of the asset, the asset is written down to the net realizable
value. As of March 31, 2004, no such write-down was required (see Impairment of
Long-Lived Assets below).
ACCRUED WARRANTY COSTS
The Company offers a warranty on product sales generally for a one to two-year
period. The Company provides for the estimated future warranty claims on the
date the product is sold. The activity in the warranty accrual during the
quarter ended March 31, 2004 is summarized as
follows:
March 31, 2004
------------------
Accrual at beginning of period $316,714
Additions charged to warranty expense 117,546
Claims paid and charged against the accrual (98,983)
------------------
Accrual at end of period $335,277
==================
REVENUE RECOGNITION
The Company has two distribution channels for its phototherapy treatment
equipment. The Company will either (i) sell the laser through a distributor or
directly to a physician or (ii) place the laser in a physician's office (at no
charge to the physician) and charge the physician a fee for an agreed upon
number of treatments. When the Company sells a laser to a distributor or
directly to a physician, revenue is recognized when the product is shipped and
the Company has no significant remaining obligations, persuasive evidence of an
arrangement exists, the price to the buyer is fixed or determinable, and
collection is probable. At times, units are shipped but revenue is not
recognized until all of the criteria are met.
Under the terms of the distributor agreements, the distributors do not have the
right to return any unit, which they have purchased. However, the Company does
allow products to be returned by its distributors in redress of product defects
or other claims.
When the Company places a laser in a physician's office, it recognizes service
revenue based on an estimate of patient treatments. Treatment codes or treatment
cards sold to physicians but not yet used are deferred and recognized as a
liability until the treatment occurs.
In the first quarter of 2003, the Company implemented a limited program to
support certain physicians in addressing treatments with the XTRAC system that
may be denied reimbursement by private insurance carriers. The Company
recognizes service revenue during the program from the sale of treatment codes
to physicians participating in this program only if and to the extent the
physician has been reimbursed for the treatments. In the first quarter of 2004,
8
the Company deferred revenues of $143,271 under this program and at March 31,
2004 had total deferred revenues of $817,218 under the program.
Through the surgical businesses, the Company generates revenues primarily from
three channels. The first is through sales of recurring laser delivery systems
and accessories; the second is through the per-procedure surgical services; and
the third is through the sale of laser systems and related maintenance service
agreements. The Company recognizes revenues from product sales, including sales
to distributors, when products are shipped and the Company has no significant
remaining obligations, persuasive evidence of an arrangement exists, the price
to the buyer is fixed or determinable, and collection is probable. At times,
units are shipped but revenue is not recognized until all of the criteria are
met.
For per-procedure surgical services, the Company recognizes revenue upon the
completion of the procedure. Revenue from maintenance service agreements is
deferred and recognized on a straight-line basis over the term of the
agreements. Revenue from billable services, including repair activity, is
recognized when the service is provided.
PRODUCT DEVELOPMENT COSTS
Costs of research, new product development and product redesign are charged to
expense as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, the liability method is used for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax basis of assets and liabilities and are measured
using enacted tax rates and laws that are expected to be in effect when the
differences reverse.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share." In accordance with SFAS No. 128, basic net loss per share
is calculated by dividing net loss available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted net
loss per share reflects the potential dilution from the conversion or exercise
of securities into common stock, such as stock options and warrants.
In these consolidated financial statements, diluted net loss per share is the
same as basic net loss per share. No additional shares for the potential
dilution from the conversion or exercise of securities into common stock are
included in the denominator, since the result would be anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for financial instruments under SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The fair value of
cash is based on its demand value, which is equal to its carrying value. The
fair values of notes payable are based on borrowing rates that are available to
the Company for loans with similar terms, collateral and maturity. The estimated
fair values of notes payable approximate the carrying values. Additionally, the
carrying value of all other monetary assets and liabilities is equal to its fair
value due to the short-term nature of these instruments.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," long-lived assets, such as property and equipment, and
purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Assets to be disposed of would be
separately presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and would no longer be
depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.
9
STOCK OPTIONS
The Company applies the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations, to account for its fixed-plan stock
options. Under this method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, as amended in SFAS No. 148, "Accounting for Stock-Based
Compensation," the Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and has adopted only
the disclosure requirements of SFAS No. 123 and SFAS No. 148.
Had stock compensation cost for the Company's common stock options been
determined based upon the fair value of the options at the date of grant, as
prescribed under SFAS No. 123, as amended by SFAS No. 148, the Company's net
loss and net loss per share would have been increased to the following pro-forma
amounts:
Three Months Ended March 31,
-----------------------------------------
2004 2003
----------------- --------------------
Net loss:
As reported ($1,363,082) ($1,674,238)
Less: stock-based employee compensation expense
included in reported net loss 1,620 1,602
Impact of total stock-based compensation expense
determined under fair value based method for all
grants and awards (444,720) (512,313)
----------------- --------------------
Pro-forma ($1,806,182) ($2,184,949)
================= ====================
Net loss per share:
As reported ($0.04) ($0.05)
================= ====================
Pro-forma ($0.05) ($0.07)
================= ====================
The above pro-forma amounts may not be indicative of future pro-forma amounts
because future options are expected to be granted.
The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions applicable
to options granted in the following three-month periods:
Three Months Ended March 31,
--------------------------------------
2004 2003
----------------- -----------------
Risk-free interest rate 3.07% 3.05%
Volatility 99.9% 100%
Expected dividend yield 0% 0%
Expected option life 5 years 5 years
SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2004, the Company financed an insurance
policy through a note payable for $126,881.
During the three months ended March 31, 2003, the Company financed vehicle and
equipment purchases of $94,501 under capital leases, financed an insurance
policy through a note payable for $138,000 and financed certain acquisition
costs, which were included in accounts payable at December 31, 2002, through a
note payable for $171,000.
10
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46 (revised December 2003), "Consolidation of Variable
Interest Entities," ("VIEs") which addresses how a business enterprise should
evaluate whether it has a controlling financial interest in an entity through
means other than voting rights and accordingly should consolidate the entity.
FIN 46R replaces FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities," which was issued in January 2003. The Company will be required to
apply FIN 46R to variable interests in VIEs created after December 31, 2003. For
variable interests in VIEs created before January 1, 2004, the Interpretation
will be applied beginning on January 1, 2005. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and noncontrolling interests of the VIE initially would be measured
at their carrying amounts with any difference between the net amount added to
the balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure the assets, liabilities and noncontrolling interest of the VIE. At this
time, the adoption of FIN 46R is not expected to have an effect on the
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective July 1, 2003. The adoption of SFAS No.
150 did not have a material impact on the Company's consolidated financial
statements, as the Company does not have the types of financial instruments
which would require consideration under this Statement.
Note 2
INVENTORIES:
Set forth below is a detailed listing of inventories.
March 31, 2004 December 31, 2003
---------------------- ----------------------
Raw materials $2,826,940 $2,506,827
Work-in-process 84,680 79,520
Finished goods 1,475,921 1,936,115
---------------------- ----------------------
Total inventories $4,387,541 $4,522,462
====================== ======================
11
Note 3
PROPERTY AND EQUIPMENT:
Set forth below is a detailed listing of property and equipment.
March 31, 2004 December 31, 2003
----------------------- ---------------------
Lasers in service $ 7,765,629 $ 7,254,340
Computer hardware and software 256,340 256,340
Furniture and fixtures 202,748 200,247
Machinery and equipment 167,479 72,841
Autos and trucks 189,820 196,870
Leasehold improvements 109,652 109,652
----------------------- ---------------------
8,691,668 8,090,290
Accumulated depreciation and amortization
(4,527,770) (4,085,085)
----------------------- ---------------------
Property and equipment, net $ 4,163,898 $ 4,005,205
======================= =====================
Depreciation expense was $449,737 and $435,324 for the three months ended March
31, 2004 and 2003, respectively. At March 31, 2004 and December 31, 2003, net
property and equipment included $714,613 and $763,429, respectively, of assets
recorded under capitalized lease arrangements, of which $606,511 and $675,508
was included in long-term debt at March 31, 2004 and December 31, 2003,
respectively (see Note 7).
Note 4
PATENTS AND LICENSED TECHNOLOGIES:
Set forth below is a detailed listing of patents and licensed technology.
March 31, 2004 December 31, 2003
----------------------- ---------------------
Patents, net of accumulated amortization of $124,870 and
$112,865 $277,274 $289,279
Licensed technologies, net of accumulated amortization of
$399,627 and $367,624 437,373 469,376
----------------------- ---------------------
Total patents and licensed technologies, net $714,647 $758,655
======================= =====================
Amortization expense was $44,008 and $44,010 for the three months ended March
31, 2004 and 2003, respectively.
Note 5
OTHER ACCRUED LIABILITIES:
Set forth below is a detailed listing of other accrued liabilities.
March 31, 2004 December 31, 2003
----------------------- ---------------------
Accrued professional and consulting fees $178,699 $203,699
Accrued warranty 335,277 316,714
Accrued liability from matured notes 246,720 247,108
Cash deposit on sales 12,000 125,500
Other accrued expenses 92,079 82,515
----------------------- ---------------------
Total other accrued liabilities $864,775 $975,536
======================= =====================
During 2002, SLT resumed direct control of $223,000 of funds previously set
aside for the payment of SLT's subordinated notes, which matured and ceased to
bear interest on July 30, 1999, and $31,000 of funds set aside to pay related
accrued interest. As of March 31, 2004 and December 31, 2003, the matured
principal and related interest was $246,720 and $247,108, respectively.
12
Note 6
NOTES PAYABLE:
Set forth below is a detailed listing of notes payable.
March 31, 2004 December 31, 2003
--------------------- ----------------------
Note payable - secured creditor, interest at 16.47%, payable
in monthly principal and interest installments of $2,618 through
December 2006. $ 67,570 $ 72,382
Note payable - unsecured creditor, interest at 7.47%, payable in
monthly principal and interest installments of $7,827 through
June 2004. 20,453 40,907
Note payable - unsecured creditor, repaid in January 2004. - 37,409
Note payable - unsecured creditor, repaid in January 2004. - 1,857
Note payable - unsecured creditor, interest at 6.25%, payable in
monthly principal and interest installments of $18,505 through
September 2004. 109,037 -
---------------------- ----------------------
197,060 152,555
Less: current maturities (151,385) (101,066)
---------------------- ----------------------
Notes payable, net of current maturities $ 45,675 $ 51,489
====================== ======================
Note 7
LONG-TERM DEBT:
Set forth below is a detailed listing of the Company's long-term debt.
March 31, 2004 December 31, 2003
--------------------- ---------------------
Borrowings on credit facility $1,000,000 $1,000,000
Capital lease obligations (see Note 3) 606,511 675,508
Less: current portion (1,258,945) (1,269,759)
--------------------- ---------------------
Total long-term debt $ 347,566 $ 405,749
===================== =====================
Concurrent with the SLT acquisition, the Company assumed a $3,000,000 credit
facility from a bank, subsequently amended on February 27, 2003 and March 26,
2003 to $1,400,000 and on May 13, 2003 to $1,000,000. The credit facility had a
commitment term expiring May 31, 2004, permitted deferment of principal payments
until the end of the commitment term, and was secured by SLT's business assets,
including collateralization (until May 13, 2003) of $2,000,000 of SLT's cash and
cash equivalents and short-term investments. The bank allowed the Company to
apply the cash collateral to a paydown of the facility in 2003. The credit
facility has an interest rate equal to the 30 day LIBOR plus 2.25%. The rate at
March 31, 2004 was 3.34%.
The credit facility was subject to certain restrictive covenants at the SLT
level and at the group level and borrowing base limitations. At December 31,
2003, the group did not meet the covenants set by the bank. On March 10, 2004,
the bank waived the non-compliance with the covenants as of December 31, 2003
and will allow the line to continue until it expires on May 31, 2004.
The assets of SLT, including the subsidiaries of SLT, may not be transferred to
PhotoMedex without observance of certain restrictions imposed on SLT by the
terms of the credit facility with its bank. Under a restriction on dividends,
the assets of SLT may not be dividended, distributed or otherwise transferred by
way of purchase, redemption or retirement of SLT's capital stock if such a
dividend, distribution or transfer would cause SLT to be in default of the
financial covenants it has made to the bank. Given this restriction, no
dividend, distribution or other transfer was made in the year ended December 31,
2003 nor in the quarter ended March 31, 2004. On the other hand, under a
13
restriction under the credit facility on other, non-dividend transfers, SLT is
permitted to engage in other transactions with affiliated entities, including
PhotoMedex, provided such transactions are in the ordinary course of, and
pursuant to the reasonable requirements of, SLT's business and are based upon
fair and reasonable terms no less favorable to SLT than would obtain in
comparable arm's length transactions with non-affiliated entities. The net
assets of SLT subject to the restriction on dividends and other similar
transfers amounted to approximately $5,149,000 and $4,412,000 at March 31, 2004
and December 31, 2003, respectively.
The obligations under capital leases are at fixed interest rates and are
collateralized by the related property and equipment (see Note 3).
Note 8
WARRANT EXERCISES
In the three months ended March 31, 2004, 460,182 warrants on the common stock
of the Company were exercised, resulting in an increase to the Company's shares
outstanding as of the end of the period by the same amount. Most of these
warrants were exercisable at $1.77 per share and were set to expire on March 31,
2004. The Company received $746,735 in cash proceeds from the exercises and
$67,496 in subscriptions receivable that were paid promptly after the end of the
period.
Note 9
BUSINESS SEGMENT AND GEOGRAPHIC DATA:
The Company is engaged in four business segments: Domestic XTRAC, International
XTRAC, Surgical Services, and Surgical Products and Other. The Company markets
its offering through traditional products sales as well as through the provision
of fee-based medical procedures services. The Company's customers are primarily
doctors, hospitals and surgery centers. For the three months ended March 31,
2004 and 2003, the Company did not have material net revenues from any
individual customer.
Three Months Ended March 31, 2004
--------------------------------------------------------------------------------------
SURGICAL
DOMESTIC INTERN'L SURGICAL PRODUCTS
XTRAC XTRAC SERVICES AND OTHER TOTAL
--------------- -------------- -------------- ------------- ---------------
Revenues $550,601 $580,744 $1,639,604 $1,254,281 $4,025,230
Costs of revenues 486,286 370,380 1,138,910 498,490 2,494,066
--------------- -------------- -------------- ------------- ---------------
Gross profit 64,315 210,364 500,694 755,791 1,531,164
--------------- -------------- -------------- ------------- ---------------
Allocated Operating expenses:
Selling, general and
administrative 500,740 128,101 325,991 124,454 1,079,286
Engineering and product
development 162,794 101,911 - 151,245 415,950
Unallocated Operating
expenses - - - - 1,391,138
--------------- -------------- -------------- ------------- ---------------
663,534 230,012 325,991 275,699 2,886,374
--------------- -------------- -------------- ------------- ---------------
Income (loss) from operations (599,219) (19,648) 174,703 480,092 (1,355,210)
Interest expense, net - - - - 7,872
--------------- -------------- -------------- ------------- ---------------
Net income (loss) $(599,219) $(19,648) $174,703 $480,092 $(1,363,082)
=============== ============== ============== ============= ===============
14
Three Months Ended March 31, 2003
--------------------------------------------------------------------------------------
SURGICAL
DOMESTIC INTERN'L SURGICAL PRODUCTS
XTRAC XTRAC SERVICES AND OTHER TOTAL
--------------- -------------- -------------- ------------- ---------------
Revenues $153,164 $163,300 $1,405,801 $1,751,212 $3,473,477
Costs of revenues 581,959 125,132 868,417 834,750 2,410,258
--------------- -------------- -------------- ------------- ---------------
Gross profit (loss) (428,795) 38,168 537,384 916,462 1,063,219
--------------- -------------- -------------- ------------- ---------------
Allocated Operating expenses:
Selling, general and
administrative 379,088 68,586 299,167 234,012 980,853
Engineering and product
development 207,860 80,835 - 123,237 411,932
Unallocated Operating
expenses - - - - 1,313,739
--------------- -------------- -------------- ------------- ---------------
586,948 149,421 299,167 357,249 2,706,524
--------------- -------------- -------------- ------------- ---------------
Loss from operations (1,015,743) (111,253) 238,217 559,213 (1,643,305)
Interest expense, net - - - - 31,023
Other income, net - - - - -
--------------- -------------- -------------- ------------- ---------------
Net loss $(1,015,743) $(111,253) $238,217 $559,213 $(1,674,328)
=============== ============== ============== ============= ===============
March 31, 2004 December 31, 2003
--------------------- ---------------------
Assets:
Total assets for reportable segments $15,787,697 $15,602,758
Other allocated assets 6,471,373 7,149,973
--------------------- ---------------------
Consolidated total $22,259,070 $22,752,731
===================== =====================
For the three months ended March 31, 2004 and 2003, there were no material net
revenues attributed to an individual foreign country. Net revenues by geographic
area were as follows:
For the Three Months Ended March 31,
2004 2003
--------------------- --------------------
Domestic $ 3,269,746 $ 2,935,080
Foreign 755,484 538,397
--------------------- --------------------
$ 4,025,230 $ 3,473,477
===================== ====================
Note 10
SIGNIFICANT ALLIANCES/AGREEMENTS:
TNC AGREEMENT
The Company has entered into an agreement with True North Capital Ltd. (the "TNC
Agreement"), dated as of October 28, 2003, pursuant to which True North Capital
has agreed to assist the Company in identifying and evaluating proposed
strategic growth transactions relating to the healthcare industry. True North
Capital is a fund management group, which provides management and acquisition
advisory services with a specialty in the healthcare industry. One of the
Company's directors is a senior member of the executive management staff of True
North Capital and holds approximately 20.3% equity interests in True North
Capital and its affiliate, True North Partners, LLC.
15
In the event of the completion of an acquisition or merger transaction, the
Company has agreed to pay True North Capital a "success fee" equal to the
greater of: (i) $250,000, or (ii) the sum of (a) 5% of the aggregate purchase,
if the aggregate consideration is equal to or greater than $5,000,000 and less
than $10,000,000; plus, (b) 3% of the aggregate consideration from $10,000,000
to $50,000,000; plus, (c) 2.5% of the aggregate consideration from $50,000,000
to $100,000,000; plus, (d) 2% of the aggregate consideration from $100,000,000
to $150,000,000; plus, (e) 1.5% of the aggregate consideration in excess of
$150,000,000. The Company has paid True North Capital a one-time $20,000 expense
reimbursement for the deployment of its personnel and resources in the
fulfillment of the goals set forth in the TNC Agreement. The Company has also
agreed to reimburse True North Capital the cost of out-of-pocket expenses which
it incurs in performance of the agreement and which the Company has approved
beforehand. The TNC Agreement may be canceled upon 30 days' notice from either
party.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements in this Quarterly Report on Form 10-Q, or the
Report, are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about the plans, objectives,
expectations and intentions of PhotoMedex, Inc., a Delaware corporation
(referred to in this Report as "we," "us," "our" or "registrant") and other
statements contained in this Report that are not historical facts.
Forward-looking statements in this Report or hereafter included in other
publicly available documents filed with the Securities and Exchange Commission,
or the Commission, reports to our stockholders and other publicly available
statements issued or released by us involve known and unknown risks,
uncertainties and other factors which could cause our actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward-looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent
results of operations. When used in this Report, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements,
because these forward-looking statements involve risks and uncertainties. There
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
the section entitled "Risk Factors," in our Annual Report on Form 10-K for the
year ended December 31, 2003.
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and related notes included elsewhere
in this Report.
INTRODUCTION
Our primary focus in 2003 was to secure from private health plans
favorable reimbursement policies for treatment of psoriasis using the XTRAC(R)
excimer laser. In March 2003, we had re-introduced the XTRAC and, based on the
establishment of CPT codes by the AMA and reimbursement rates from the Centers
for Medicare and Medicaid Services, we began efforts to secure such favorable
policies. To persuade such plans to adopt favorable policies, we also
commissioned a clinical economic study of the use of the XTRAC laser as a
second-step therapy for psoriasis. This study was sufficiently complete in
December 2003 that we were able to deploy it through a Data Compendium in our
ongoing efforts to secure favorable reimbursement policies.
Moving into 2004, we have expanded our deployment of the study and,
from feedback we have received from the medical insurers to the Data Compendium
that we mailed in December 2003, we anticipate that the study, coupled with our
other efforts, will succeed in gaining a place on the agenda of private plans as
they consider their coverage and reimbursement policies. We have already secured
such approval in 2004 from two significant plans and are under consideration by
other plans. We cannot at this time assure you that other plans will adopt the
favorable policies that we desire, and if they do not, what further requirements
may be asked of us. In addition to reimbursement, our focus in 2004 will be to
continue to improve care for those suffering from psoriasis, and to obtain a
larger body of satisfied practitioners using the XTRAC and to increase domestic
XTRAC revenues for the Company.
We integrated the business of SLT in 2003. We acquired two revenue
streams from SLT: one from surgical services, the other from surgical products;
these supplemented our own discrete product lines, XTRAC Domestic and XTRAC
16
International. We view our business as comprised of four business segments:
Domestic XTRAC, International XTRAC, Surgical Services and Surgical Products.
We experienced revenue growth in Surgical Services in 2003 from 2002
and expect growth in 2004. Our plan in 2003 was to grow in a controlled fashion
such that capital expenditures necessary for that growth would come from these
operations. We anticipate that this will continue in 2004. In this manner, we
intend to conserve our cash resources for the Domestic XTRAC business segment.
In 2003, our revenues from Surgical Products remained stable and
contributed to maintaining our staying power in our two growth business
segments. Our surgical products enjoy a reputation for qualityand believe that
this reputation for quality will continue to generate revenues for us in 2004.
While surgical product revenues decreased in the first quarter of 2004 when
compared to 2003, we expect those revenues may grow as we introduce two new
surgical lasers in 2004.
Finally, our revenues from International XTRAC sales provided needed
working capital in 2003. We have enjoyed some distinction in the market from our
clinical studies and the physician researchers involved in such studies; we also
benefited in 2003 from the improved reliability and functionality of the XTRAC.
Despite intensifying price competition in 2003 and into 2004, we saw an overall
improvement in the gross profit percentage to 36%, due largely to efficiencies
and product cost reductions realized through our operations in Carlsbad,
California.
OVERVIEW OF BUSINESS OPERATIONS
We are engaged in the development, manufacturing and marketing of our
proprietary XTRAC(R), or XTRAC, excimer laser and delivery systems and
techniques directed toward the treatment of inflammatory skin disorders. In
addition, through the acquisition of SLT on December 27, 2002, we also engage in
the development, manufacture and sale of surgical products, including free-beam
laser systems for surgery and in the provision of surgical services on a
turn-key procedural basis.
In connection with our current business plan, the initial medical
applications for our excimer laser technology are intended for the treatment of
psoriasis, vitiligo, atopic dermatitis and leukoderma. In January 2000, we
received approval of our 510(k) submission from the Food and Drug
Administration, or FDA, relating to the use of our XTRAC system for the
treatment of psoriasis. The 510(k) establishes that our XTRAC system has been
determined to be substantially equivalent to currently marketed devices for
purposes of treating psoriasis.
In February 2002, the Current Procedural Terminology Editorial Board of
the AMA approved the request by the American Academy of Dermatology to issue
reimbursement codes for the laser therapies in the treatment of psoriasis and
other inflammatory diseases, which would include laser therapy using the XTRAC
system to treat such conditions. The AMA published three CPT code numbers
covering the treatment of psoriasis and other inflammatory skin diseases with
the XTRAC system. These new codes were effective in the first quarter of 2003.
We believe that the publication of these codes, together with a compilation of
clinical and economic studies (Data Compendium) recently mailed to almost all
private healthcare insurers throughout the United States will facilitate our
ability to obtain broader approvals for reimbursement for treatment of psoriasis
and other inflammatory skin diseases using the XTRAC system. We have already
secured in 2004 approval from two significant insurance groups, Regence and
Wellpoint, and are under consideration by other groups and plans. We anticipate
that the approvals by Regence and Wellpoint will positively influence other
private plans to adopt favorable reimbursement policies. Such influence and
possible momentum from it can help in 2004 to overcome resistance and inertia
that we encountered in 2003. However, there can be no assurance that these
effects will transpire.
As part of our commercialization strategy in the United States, we are
providing the XTRAC system to targeted dermatologists at no initial capital cost
to them. We believe that this strategy will create incentives for these
dermatologists to adopt the XTRAC system and will increase market penetration.
This strategy will require us to identify and target appropriate dermatologists
and to balance the planned roll-out of our XTRAC lasers during 2004 against
uncertainties in acceptance by physicians, patients and health plans and
constraints on the number of XTRAC systems we are able to provide. Our marketing
force has limited experience in dealing with such challenges. Outside of the
United States, our strategy includes selling XTRAC systems directly to
dermatologists through distributors and, potentially, placing XTRAC systems with
dermatologists to provide us with a usage-based revenue stream. To date, no
units have been placed in international markets that provide a usage-based
revenue stream.
17
In similar fashion, we have growing, but still limited marketing
experience in expanding our surgical services business. The preponderance of
this business is in the southeastern part of the United States. New procedures
and new geographies, customers and different business habits and networks will
likely pose different challenges than the ones we have encountered in the past.
There can be no assurance that our experience will be sufficient to overcome
such challenges.
RESULTS OF OPERATIONS
REVENUES
We generated revenues of $4,025,230 during the three months ended March
31, 2004, of which $2,893,885 were from the products and services operations of
SLT. The balance of revenues were from phototherapy products and services,
including $580,744 from XTRAC international sales of excimer systems and parts
and $550,601 from domestic XTRAC procedures. We generated revenues of $3,473,477
during the three months ended March 31, 2003, of which $3,157,013 were from the
products and services operations of SLT. The balance of revenues was from
phototherapy products and services, including $163,300 from XTRAC international
sales of excimer systems and parts and $153,164 from domestic XTRAC procedures.
In the first quarter of 2003, we implemented a limited program to
support certain physicians in addressing treatments with the XTRAC system that
may be denied reimbursement by private insurance carriers. Following the
requirements of Staff Accounting Bulletin No. 104, we recognize service revenue
during the program from the sale of XTRAC procedures, or equivalent treatment
codes, to physicians participating in this program only if and to the extent the
physician has been reimbursed for the treatments. In the quarter ended March 31,
2004 and 2003, the Company deferred revenues of $143,271 and $122,756 under this
program.
Recognized revenue for the three months ended March 31, 2004 and 2003
for domestic XTRAC procedures was $550,601 and $153,164, respectively. Total
XTRAC procedures for the same periods were approximately 10,700 and 4,000,
respectively, including 1,090 and 85 procedures, respectively, which were
performed by customers without billing from us as the procedures were performed
in connection with customer evaluations of the XTRAC laser as well as for
clinical research. The ramp in procedures in the three months ended March 31,
2004 was related to the first quarter 2003 effective date of reimbursement rates
and CPT codes for Medicare and Medicaid. Increases in these levels are dependent
upon more widespread adoption of these CPT codes and comparable rates by private
healthcare insurers.
International XTRAC sales of our excimer laser system and related parts
were $580,744 for the three months ended March 31, 2004 compared to $163,300 for
the three months ended March 31, 2003. We sold 10 laser systems in the three
months ended March 31, 2004 compared to two laser systems in the three months
ended March 31, 2003. We sell the excimer laser overseas which is different from
the domestic revenue model. Consequently, the international XTRAC operations are
more widely influenced by competition from similar laser technology from other
manufactures and non-laser lamp alternatives for treating inflammatory skin
disorders. Over time, competition has served to reduce the international prices
we charge distributors for our excimer products.. While the average price per
laser was less in the first quarter of 2004 than in the first quarter of 2003,
the number of lasers sold was greater, due to a variety of factors. Conditions
in the Middle East were more settled in the first quarter of 2004, and the XTRAC
laser had been upgraded and made more reliable. In addition, four lasers which
had been shipped before the first quarter of 2004 but not recognized as sales
due to the application of the recognition criteria of Staff Accounting Bulletin
No. 104 were recognized in the first quarter of 2004.
In the three months ended March 31, 2004 and 2003, surgical service
revenues were $1,639,604 and $1,405,801, respectively. Revenues in surgical
services grew, but in a restrained fashion in that we limited the funds we
expended for capital equipment. In the three months ended March 31, 2004 and
2003, surgical product revenues were $1,254,281 and $1,751,212, respectively.
Revenues from surgical products were reasonably stable in disposables, although
there was a decline in surgical laser sales which vary from quarter to quarter.
18
COST OF REVENUES
Product cost of revenues for the three months ended March 31, 2004 were
$832,483, compared to $944,882 for the three months ended March 31, 2003.
Included in these costs were $462,103 and $819,750, respectively, related to SLT
product revenues, for the three months ended March 31, 2004 and 2003. The
remaining product cost of revenues during these periods of $370,380 and
$125,132, respectively, related primarily to the production costs of the XTRAC
laser equipment sold outside of the United States.
Services cost of revenues was $1,661,583 and $1,465,376 in the three
months ended March 31, 2004 and 2003, respectively. Included in these costs were
$1,175,297 and $883,417, respectively, related to SLT service revenues, for the
three months ended March 31, 2004 and 2003. The remaining services cost of
revenues of $486,286 and $581,959 during the periods ended March 31, 2004 and
2003, respectively, represented manufacturing, depreciation and field service on
the lasers in service.
The increase in the services cost of sales for SLT service costs
relates to an increase in technician costs of $92,000, depreciation costs of
$42,000 and operating costs of $37,000, which are all due to the increases in
service revenue. There was also a change in the mix of services provided,
increasing the product costs by $95,000.
GROSS MARGIN ANALYSIS
Overall, revenues increased by $550,000 with the cost to produce those
revenues only increasing by $85,000. The largest contributing factor to the
increased gross margin was an increase in the XTRAC revenues as well as
manufacturing efficiencies and cost reductions at the California facility. The
domestic XTRAC gross margin improved from the first quarter 2003 to the first
quarter 2004 by approximately $500,000. This was accomplished by revenues
increasing by $400,000 while the cost of revenues decreased by $95,000. The
international XTRAC gross margin improved from the first quarter 2003 to the
first quarter 2004 by $170,000 driven mostly by an increase in revenue of over
$400,000. These margin improvements were offset by a margin reduction of
$160,000 in the surgical products segment even though this segment's gross
profit percentage increased by 8%. This segment includes surgical laser system
sales and surgical disposables. This margin reduction was driven by a sales
reduction of approximately $500,000 mostly in the less profitable laser systems
rather than the more profitable disposables. In the first quarter 2004 there
were three surgical laser systems sold compared to thirteen in the same period
of 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
March 31, 2004 were $2,470,424, compared to $2,294,592 for the three months
ended March 31, 2003, an increase of 8%. This increase was due to the fees of
$263,600 related to the lawsuits in the first quarter 2004, as compared to no
such expenses in the first quarter of 2003. Selling, general and administrative
expenses, excluding lawsuit-related expenses, decreased by $87,768 between the
first quarter of 2004 and 2003.
Regarding specifically allocated selling, general and administrative
expenses by business segment, the domestic XTRAC segment, in first quarter 2004,
included higher commission expense on increased revenues, one additional sales
person, and increased marketing expenses to advance our insurance reimbursement
initiatives, as compared to the same period in 2003. Selling, general and
administrative expenses allocated to the international XTRAC segment increased
in the first quarter 2004 compared to the first quarter 2003 due to accrued
warranty expenses which were driven by the increase in revenues in that segment.
In the surgical products segment the reduction in specifically allocated
selling, general and administrative expenses from the first quarter 2003 to 2004
is largely related to a decrease in distributor commissions due to the reduced
laser system sales between the periods.
ENGINEERING AND PRODUCT DEVELOPMENT
Engineering and product development expenses for the three months ended
March 31, 2004 increased to $415,950 from $411,932 for the three months ended
March 31, 2003. The expenses remained consistent from period to period.
Allocations of the California facility engineering and product
19
development expenses between domestic and international XTRAC are based upon the
planned manufactured output of XTRAC laser for the year.
INTEREST EXPENSE, NET
Net interest expense during for the three months ended March 31, 2004
decreased to $7,872, as compared to $31,023 for the three months ended March 31,
2003. The decrease in net interest expense in the comparable periods relates to
two factors; one factor is that the line of credit balance decreased due to the
amendments reducing the total line from $3 million to $1 million. The second
factor is due to our larger average balance of cash and cash equivalents in the
current period compared to the corresponding period in the prior year.
NET LOSS
The aforementioned factors resulted in a net loss of $1,363,082 during
the three months ended March 31, 2004, as compared to a net loss of $1,674,328
during the three months ended March 31, 2003, a decrease of 19%. This decrease
was primarily the result of the increase in revenues and resulting gross margin.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations through the use of working capital
provided from equity financing. From September 1997 through May 2003, we issued
certain securities, including shares of our common stock and other securities
convertible or exercisable into shares of common stock, in order to finance our
business operations.
On May 28, 2003, we closed on a private placement for 5,982,352 shares
of common stock at $1.70 per share resulting in gross proceeds of $10,170,000.
The closing price of our common stock on May 28, 2003 was $2.07 per share. In
connection with this private placement, we paid commissions and other expenses
of $692,454, resulting in net proceeds of $9,477,546. In addition, the investors
received warrants to purchase 1,495,588 shares of common stock at an exercise
price of $2.00 per share. The warrants have a five-year term and became
exercisable on November 29, 2003. We have used, and will continue to use, the
proceeds of this financing to pay for working capital and other general
corporate purposes.
On December 27, 2002, we acquired SLT. The surgical products and
services provided by SLT increased revenues for 2003 and into 2004. We also
saved costs from the consolidation of the administrative and marketing
infrastructure of the combined company. Additionally, with the consolidated
infrastructure in place, our revenues, both in phototherapy and surgical
products and services, grew, without commensurate growth in our fixed costs. The
established revenues from surgical products and services helped to absorb the
costs of the infrastructure of the combined company.
At March 31, 2004, the ratio of current assets to current liabilities
was 2.25 to 1.00 compared to 2.37 to 1.00 at December 31, 2003. As of March 31,
2004, we had $7,992,322 of working capital. Cash and cash equivalents were
$5,825,956 as of March 31, 2004, as compared to $6,633,468 as of December 31,
2003.
We believe that our existing cash balance together with our other
existing financial resources, including access to lease financing for capital
expenditures, and any revenues from sales, distribution, licensing and
manufacturing relationships, will be sufficient to meet our operating and
capital requirements through the first quarter of 2005. The 2004 operating plan
reflects anticipated revenue growth from an increase in per-treatment fees for
use of the XTRAC system based on the recent approval of applicable reimbursement
codes and wider insurance coverage in the United States and continuing costs
savings from the integration of the combined companies. However, the projected
cost of our business plan may require us to obtain additional equity or debt
financing to meet our working capital requirements or capital expenditure needs.
Similarly, if our growth outstrips the business plan, we may require additional
equity or debt financing. There can be no assurance that additional financing,
if needed, will be available when required or, if available, will be on terms
satisfactory to us. In such an event, we would further rationalize our plans and
operations to seek to balance cash inflows and outflows.
As discussed in Note 7 to the financial statements, concurrent with the
SLT acquisition, we assumed a $3,000,000 credit facility from a bank,
subsequently amended on February 27, 2003 and March 26, 2003 to $1,400,000 and
on May 13, 2003 to $1,000,000. The credit facility had a commitment term
expiring May 31, 2004, permitted deferment of principal payments until the end
20
of the commitment term, and was secured by SLT's business assets, including
collateralization (until May 13, 2003) of $2,000,000 of SLT's cash and cash
equivalents and short-term investments. The bank allowed us to apply the cash
collateral to paydown of the facility in 2003. The credit facility has an
interest rate equal to the 30-day LIBOR plus 2.25%. The rate at March 31, 2004
was 3.34%.
The credit facility was subject to certain restrictive covenants at the
SLT level and at the group level and borrowing base limitations. At December 31,
2003, the group did not meet the covenants set by the bank. On March 10, 2004,
the bank waived the non-compliance with the covenants at that date and will
allow the line to continue until it expires on May 31, 2004.
We intend to replace the $1,000,000 line of credit with a $2,500,000
lease line of credit for which we have obtained a letter of intent. If
we take on this lease line of credit, we should be able to finance in part our
placements of XTRAC lasers in the United States and also to fund more easily
such capital expenditures as we deem appropriate in our surgical services
business segment.
Operating cash flow for the three months ended March 31, 2004 compared
to the three months ended March 31, 2003 improved mostly due to a $550,000
increase in revenues with only a $85,000 increase in costs of producing those
revenues. This resulted in net cash used in operating activities of $989,034,
for the three months ended March 31, 2004, compared to $1,218,505 for the same
period in 2003. In the three months ended March 31, 2004, changes in operating
assets and liabilities used $169,000 of cash compared to the $109,000 usage of
cash for the same period in 2003.
Net cash used in investing activities was $492,535 and $314,537 for the
three months ended March 31, 2004 and 2003, respectively. During the three
months ended March 31, 2004 and 2003, we utilized $481,398 and $293,401,
respectively, for production of our lasers in service.
Net cash provided by financing activities was $674,057 and $75,494 for
the three months ended March 31, 2004 and 2003, respectively. In the three
months ended March 31, 2004 we received $814,231 from the exercise of warrants
which were set to expire on March 31, 2004, which was partially offset by
$151,373 for the payment of certain debts. In the three months ended March 31,
2003, we received $1,637,183 from the release of restricted cash, cash
equivalents and short-term investments, which was offset by a net payment of
$1,407,451 on the line of credit, and $154,238 for the payment of certain debts.
Our ability to expand our business operations is currently dependent in
significant part on financing from external sources. There can be no assurance
that changes in our manufacturing and marketing, engineering and product
development plans or other changes affecting our operating expenses and business
strategy will not require financing from external sources before we will be able
to develop profitable operations. There can be no assurance that additional
capital will be available on terms favorable to us, if at all. To the extent
that additional capital is raised through the sale of additional equity or
convertible debt securities, the issuance of such securities could result in
additional dilution to our stockholders. Moreover, our cash requirements may
vary materially from those now planned because of results of marketing, product
testing, changes in the focus and direction of our marketing programs,
competitive and technological advances, the level of working capital required to
sustain our planned growth, litigation, operating results, including the extent
and duration of operating losses, and other factors. In the event that we
experience the need for additional capital, and are not able to generate capital
from financing sources or from future operations, management may be required to
modify, suspend or discontinue our business plan.
We expect to incur operating losses in fiscal 2004 because we plan to
spend substantial amounts on securing broader reimbursement for psoriasis by
private healthcare plans and in expanding, in controlled fashion, our
operations, both in phototherapy and in surgical services. We expect, based on
our current business plan, and our present outlook, that we will have the
resources to market our current products and services through the first quarter
of 2005. Nevertheless, we cannot assure you that we will market any products
successfully, operate profitably in the future, or that we may not require
significant additional financing in order to accomplish our business plan.
During the three months ended March 31, 2004, there have been no items
that significantly impact our commitments and contingencies as discussed in the
notes to the 2003 annual financial statements as filed on Form 10-K. In
addition, we have no significant off-balance sheet arrangements.
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IMPACT OF INFLATION
We have not operated in a highly inflationary period, and we do not
believe that inflation has had a material effect on sales or expenses.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 (revised December 2003), "Consolidation of
Variable Interest Entities," ("VIEs") which addresses how a business enterprise
should evaluate whether it has a controlling financial interest in an entity
through means other than voting rights and accordingly should consolidate the
entity. FIN 46R replaces FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities," which was issued in January 2003. We will be required to
apply FIN 46R to variable interests in VIEs created after December 31, 2003. For
variable interests in VIEs created before January 1, 2004, the Interpretation
will be applied beginning on January 1, 2005. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and noncontrolling interests of the VIE initially would be measured
at their carrying amounts with any difference between the net amount added to
the balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure the assets, liabilities and noncontrolling interest of the VIE. At this
time, the adoption of FIN 46R is not expected to have an effect on the
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective July 1, 2003. The
adoption of SFAS No. 150 did not have a material impact on our consolidated
financial statements, as we do not have the types of financial instruments which
would require consideration under this Statement.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations in this Report are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expense and disclosures at the date of the
financial statements. On an on-going basis, we evaluate our estimates,
including, but not limited to, those related to revenue recognition, accounts
receivables, inventories, impairment of property and equipment and of
intangibles and accruals for warranty claims. We use authoritative
pronouncements, historical experience and other assumptions as the basis for
making estimates. Actual results could differ from those estimates. Management
believes that the following critical accounting policies affect our more
significant judgments and estimates in the preparation of the Company's
consolidated financial statements. These critical accounting policies and the
significant estimates made in accordance with them have been discussed with our
Audit Committee.
REVENUE RECOGNITION.
We have two distribution channels for our phototherapy treatment
equipment. We will either (i) sell the laser through a distributor or directly
to a physician or (ii) place the laser in a physician's office (at no charge to
the physician) and charge the physician a fee for an agreed upon number of
treatment cards or equivalent access codes. When we sell a laser to a
distributor or directly to a physician, revenue is recognized when the product
is shipped and the Company has no significant remaining obligations, persuasive
evidence of an arrangement exists, the price to the buyer is fixed or
determinable, and collection is probable. At times, units are shipped but
revenue is not recognized until all of the criteria are met. Under the terms of
the distributor agreements, the distributors do not have the right to return any
unit. However, we do allow products to be returned by our distributors in
redress of product defects or other claims. When we place a laser in a
physician's office, service revenues are recognized based on an estimate of
patient treatments. To use the laser, the physician purchases a treatment card
or an access code that allows performance of a specified number of treatments.
22
This amount is included in deferred revenues on the accompanying consolidated
balance sheets until the treatment occurs or is estimated to have occurred.
In the first quarter of 2003, we implemented a limited program to
support certain physicians in addressing treatments with the XTRAC system that
may be denied reimbursement by private insurance carriers. We recognize service
revenue during the program for the sale of treatment codes, or equivalent
treatment cards, to physicians participating in this program only if and to the
extent the physician has been reimbursed for the treatments. In the quarter
ended March 31, 2004, we deferred revenues of $143,271 under this program.
Through our surgical businesses, we generate revenues
primarily from three channels. The first is through sales of recurring laser
delivery systems and accessories; the second is through the per-procedure
surgical services; and the third is through the sale of laser systems and
related maintenance service agreements. We recognize revenues from product
sales, including sales to distributors, when products are shipped and we have no
significant remaining obligations, persuasive evidence of an arrangement exists,
the price to the buyer is fixed or determinable, and collection is probable. At
times, units are shipped but revenue is not recognized until all of the criteria
are met.
For per-procedure surgical services, we recognize revenue upon the
completion of the procedure. Revenue from maintenance service agreements is
deferred and recognized on a straight-line basis over the term of the
agreements. Revenue from billable services, including repair activity, is
recognized when the service is provided.
Our independent auditors issued a material weakness in internal control
letter as a result of the 2003 audit. That material weakness arises under the
revenue recognition criteria of Staff Accounting Bulletin No. 104 as it relates
to collectibility analysis of laser shipments. While we believe that we have
adequate policies for proper recognition of revenue, we agree with our
independent auditors that our implementation of those policies, especially in
evaluating the collectibility of discrete sales of laser units, needed to be
improved. We have re-evaluated the various factors, and the relative weights we
ascribe to the factors, which we take into account in determining
collectibility. We have implemented in the first quarter of 2004 these and
additional procedures to evaluate not only new distributors and customers, but
past customers as well.
INVENTORY. We account for inventory at the lower of cost (first-in,
first-out) or market. Cost is determined at latest cost for raw materials and at
production cost (materials, labor and indirect manufacturing cost) for
work-in-process and finished goods. We perform full physical inventory counts
for XTRAC and cycle counts on all the other inventory to maintain controls and
to have accurate data. Reserves for slow moving and obsolete inventories are
provided based on historical experience and product demand. Management evaluates
the adequacy of these reserves periodically based on forecasted sales and market
trend.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. Accounts receivable are reduced by an
allowance for amounts that may become uncollectible in the future. The majority
of receivables, related to phototherapy sales, are due from various distributors
located outside of the United States. The majority of receivables, related to
surgical product sales, are due from various customers and distributors located
inside the United States. From time to time, our clients dispute the amounts due
to us, and, in other cases, our clients experience financial difficulties and
cannot pay on a timely basis. In certain instances, these factors ultimately
result in uncollectible accounts. The determination of the appropriate reserve
needed for uncollectible accounts involves significant judgment. A change in the
factors used to evaluate collectibility could result in a significant change in
the reserve needed. Such factors include changes in the financial condition of
our customers as a result of industry, economic or customer specific factors.
PROPERTY AND EQUIPMENT. As of March 31, 2004 and December 31, 2003, we
had net property and equipment of $4,163,898 and $4,005,205, respectively. The
most significant component of these amounts relates to the lasers placed by us
in physicians' offices. We own the equipment and charge the physician on a
per-treatment basis for use of the equipment. The realizability of the net
carrying value of the lasers is predicated on increasing revenues from the
physicians' use of the lasers. We believe that such usage will increase in the
future based on the recently approved CPT codes and expected increases in
insurance reimbursement.
INTANGIBLES. Our balance sheet includes goodwill and other intangible
assets which affect the amount of future period amortization expense and
possible impairment expense that we will incur. Management's judgments regarding
23
the existence of impairment indicators are based on various factors, including
market conditions and operational performance of its business. As of March 31,
2004 and December 31, 2003, we had $3,659,070 and $3,703,078, respectively, of
goodwill and other intangibles, accounting for 16% of our total assets at the
respective dates. The determination of the value of such intangible assets
requires management to make estimates and assumptions that affect our
consolidated financial statements.
WARRANTY ACCRUALS. We establish a liability for warranty repairs based
on estimated future claims for XTRAC systems and based on historical analysis of
the cost of the repairs for surgical laser systems. However, future returns on
defective laser systems and related warranty liability could differ
significantly from estimates and historical patterns, which would adversely
affect our operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are not currently exposed to market risks due to changes in interest
rates and foreign currency rates and therefore, we do not use derivative
financial instruments to address treasury risk management issues in connection
with changes in interest rates and foreign currency rates.
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures as of March 31, 2004. To remedy a material weakness in
our internal controls dealing with proper recognition of revenue from the sale
of laser units, we have implemented in the first quarter 2004 modified
procedures for evaluating the recognizability of revenue from such sales, and in
particular in evaluating the collectibility of such sales. We have also
implemented additional procedures to evaluate new distributors and customers as
well as past customers. Based on this evaluation of our controls and procedures
as improved and implemented, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective for
gathering, analyzing and disclosing the information we are required to disclose
in the reports we file under the Securities Exchange Act of 1934, within the
time periods specified in the SEC's rules and forms. Such evaluation did not
identify any unaddressed change in the quarter ended March 31,2004 that has
materially affected, or is reasonable likely to materially affect, our internal
control over financial reporting.
..
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3, Legal Proceedings, in our Annual Report on
Form 10-K for the year ended December 31, 2003 for descriptions of our legal
proceedings.
In March 2004, the Company entered a settlement agreement in the
employment-related action brought by Barbara Tandon in the Court of Common Pleas
for the Ninth Judicial Circuit in the State of South Carolina. The Court has
dismissed the action. The Company's insurance carrier supported the terms of the
settlement, which management viewed as reasonable.
In the action brought by the Company against RA Medical Systems, Inc.
and Dean Stewart Irwin in the Superior Court for San Diego County, California,
the Court awarded, in addition to statutory costs of $9,976, Defendants'
attorney's fees and costs in the amount of $83,129, although Defendants had
requested an award of $213,124. This award was based on a California statute
providing for reciprocity where one party alleges a contractual right to an
award of attorney's fees. The Company intends to appeal the award. The Court
also denied Defendants' request based on a California statute for claims made in
bad faith of trade secret misappropriation.
In the action brought by the Company against Edwards Lifesciences
Corporation and Baxter Healthcare Corporation in the Superior Court for Orange
County, California, the Defendants demurred to the Company's complaint, seeking
dismissal on several grounds. The Company has filed its opposition to the
demurrer with the Court. The Court has not yet ruled on the demurrer.
24
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Issuances of Unregistered Securities
During the three months ended March 31, 2004, we granted options to
purchase up to an aggregate of 801,000 shares of common stock to various of our
directors and employees as follows: (i) options to purchase up to 561,000 shares
of common stock under our 2000 Stock Option Plan at a weighted average exercise
price of $2.14 per share; (ii) options to purchase up to 210,000 shares of
common stock under our Non-Employee Director Stock Option Plan at a weighted
average exercise price of $2.44 per share and (iii) options to purchase up to
30,000 shares of common stock to members of our Scientific Advisory Board and
similar consultants. Those grants were at an exercise price of $2.14, and were
made under the 2000 Stock Option Plan.
On April 2, 2004, we filed a Form S-8 with the SEC, thereby registering
virtually all shares of common stock which underlie stock options issued or
issuable under our two active option plans, namely the 2000 Stock Option Plan
and the 2000 Non-Employee Director Stock Option Plan. Also registered under the
Form S-8 were 272,000 shares underlying certain options which had been granted
outside of our two active option plans.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Reports on Form 8-K
On February 27, 2004, we filed a Report on Form 8-K with respect to our
press release, dated February 24, 2004, with respect to our 2003 earnings.
On April 15, 2004, we filed a Report on Form 8-K with respect to our
press release, dated April 12, 2004, with respect to Regence Group, a private
health plan, which had approved for reimbursement procedures using the
XTRAC(R)excimer laser to treat psoriasis.
On April 21, 2004, we filed a Report on Form 8-K with respect to our
press release, dated April 20, 2004, with respect to WellPoint, a group
comprised in part of private health plans, which had approved for reimbursement
procedures using the XTRAC(R) excimer laser to treat psoriasis.
On May 4, 2004, we filed a Report on Form 8-K with respect to our press
release, dated April 29, 2004, with respect to our first quarter 2004 earnings.
B. Other Exhibits
31.1 Rule 13a-14(a) Certificate of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C.Section
1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C.Section
1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
25
DOCUMENTS INCORPORATED BY REFERENCE
We are currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith file reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549; at its New York
Regional Office, 233 Broadway, New York, New York 10297; and its Chicago
Regional Office, 175 West Jackson Boulevard, Suite 900, Chicago, Illinois 60604,
and copies of such materials can be obtained from the Public Reference Section
of the Commission at its principal office in Washington, D.C., at prescribed
rates. In addition, such materials may be accessed electronically at the
Commission's site on the World Wide Web, located at http://www.sec.gov. We
intend to furnish our stockholders with annual reports containing audited
financial statements and such other periodic reports as we determine to be
appropriate or as may be required by law.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHOTOMEDEX, INC.
Date: May 10, 2004 By: /s/ Jeffrey F. O'Donnell
--------------------------------
Jeffrey F. O'Donnell
President and Chief Executive Officer
Date: May 10, 2004 By:/s/ Dennis M. McGrath
--------------------------------
Dennis M. McGrath
Chief Financial Officer
26