SEC Filing - The Arena Group

1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (MARK ONE) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Period Ended March 31, 1997. [ ] 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 1-12471 INTEGRATED SURGICAL SYSTEMS, INC. (Exact Name of registrant as specified in its charter) Delaware 68-0232575 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 829 West Stadium Lane Sacramento, CA 95834 (Address of principal executive offices) (Zip Code) 916-646-3487 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) 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 Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ___ Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes ___ No ___ Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock $.01 Par Value - 3,366,028 shares as of May 1, 1997.

2 INTEGRATED SURGICAL SYSTEMS, INC. Index Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Balance Sheet - March 31, 1997 Consolidated Statements of Operations - Three months ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows - Three months ended March 31, 1997 and 1996 Notes to Consolidated Financial Statements - March 31, 1997 Item 2. Management's Discussion and Analysis or Plan of Operation Part II. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures

3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTEGRATED SURGICAL SYSTEMS, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) ASSETS March 31, 1997 Current assets: (unaudited) ------------ Cash and cash equivalents $ 5,318,491 Accounts receivable 18,124 Inventory 1,372,592 Other current assets 173,048 ------------ Total current assets 6,882,255 Net property and equipment 252,015 Other assets 17,423 ------------ $ 7,151,693 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 602,587 Value added taxes payable 272,139 Accrued payroll and related expenses 100,975 Customer deposits 250,000 Accrued product retrofit costs 135,348 Payable to subcontractor -- Other current liabilities 203,732 ------------ Total current liabilities 1,564,781 Commitments Stockholders' equity: Preferred stock, $0.01 par value 1,000,000 shares authorized; no shares issued and outstanding -- Common stock, $0.01 par value, 15,000,000 shares authorized; 3,366,028 shares issued and outstanding 33,660 Additional paid-in capital 25,823,422 Deferred stock compensation (381,417) Accumulated translation adjustment 14,472 Accumulated deficit (19,903,225) ------------ Total stockholder's equity 5,586,912 ------------ $ 7,151,693 ============ See notes to consolidated financial statements.

4 INTEGRATED SURGICAL SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, ------------------------------ 1997 1996 ----------- ----------- Net Sales $ 641,989 $ 411,841 Cost of Sales 215,458 192,154 ----------- ----------- 426,531 219,687 Operating expenses: Selling, general and administrative 624,664 448,875 Research and development 645,354 532,607 Stock compensation 45,000 225,000 ----------- ----------- 1,315,018 1,206,482 Other income (expense): Interest income 71,342 18,819 Other 23,731 (25,199) ----------- ----------- Loss before provision for income taxes (793,414) (993,175) Provision for income taxes 9,000 2,000 ----------- ----------- Net loss $ (802,414) $ (995,175) =========== =========== Net loss applicable to common stockholders $ (802,414) $ (995,175) Net loss per share $ (0.24) $ (0.23) Shares used in per share calculations 3,362,513 4,315,260 See notes to consolidated financial statements

5 INTEGRATED SURGICAL SYSTEMS, INC. Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (Unaudited) THREE MONTHS ENDED MARCH 31 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING EXPENSES Net loss $ (802,414) $ (995,175) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 40,868 48,147 Stock compensation 45,000 225,000 Changes in operating assets and liabilities Accounts receivable 582,444 50,656 Inventory (342,330) 53,199 Other current assets (43,985) 65,334 Note payable -- (201,513) Accounts payable (73,614) (90,505) Value added taxes payable (457) -- Accrued payroll and related expenses (94,767) (9,600) Customer deposits 125,000 116,447 Accrued product retrofit costs -- (24,652) Payable to subcontractor (110,176) -- Other current liabilities 11,668 (56,257) Translation adjustment 5,815 5,781 ----------- ----------- Net cash used in operating activities (656,948) (813,138) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (41,847) 32,679 Decrease (increase) in other assets -- 108 ----------- ----------- Net cash provided by (used in) investing activities (41,847) 32,787 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of convertible preferred stock -- 1,000,000 Proceeds from exercise of stock options 16,207 -- ----------- ----------- Net cash provided by financing activities 16,207 1,000,000 Net increase (decrease) in cash and cash equivalents (682,588) 219,649 Cash and cash equivalents at beginning of period 6,001,079 2,339,823 ----------- ----------- Cash and cash equivalents at end of period $ 5,318,491 $ 2,559,472 =========== =========== See notes to consolidated financial statements.

6 INTEGRATED SURGICAL SYSTEMS, INC. Notes to Consolidated Financial Statements (unaudited) March 31, 1997 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in Integrated Surgical Systems, Inc.'s annual report on Form 10-KSB for the year ended December 31, 1996. NOTE B - INVENTORIES The components of inventory consist of the following: March 31, 1997 -------------- Raw Materials $ 620,796 Work in process 434,474 Finished goods 317,322 ---------- $1,372,592 =========== NOTE C - EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement 128 on the calculation of earnings per share is not expected to be material.

7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 Net Sales. The Company reported net sales of $642,000 in the first quarter of 1997, approximately $230,000 higher than the same period in 1996. The increase is attributable to sales at a higher selling price in the first quarter of 1997. Sales in the first quarter of 1996 were discounted. Cost of Sales. Cost of sales were $215,000, approximately $23,000 higher than the same period in 1996 due to increased manufacturing staffing in 1997. Selling, General and Administrative. Selling, general and administrative expenses were $625,000 in the first quarter of 1997, approximately $176,000 higher than the same period in 1996 due primarily to increased sales and marketing activity. A European based sales manager, trainer, and service technician were added during the period. General and administrative costs also increased to support the increased growth and investor relations cost. Research, and Development. Research and Development expenses were $645,000 in the first quarter of 1997, approximately $112,000 higher than the same period in 1996 primarily due to additional engineering staff required to support new product development projects. Stock Compensation. Stock compensation expense during the first quarter of 1997 was $45,000, approximately $180,000 lower than the first quarter of 1996. This decrease is due to the immediate vesting of a portion of a large grant of stock options in the first quarter 1996. The Company charged to operations in 1996 deferred stock compensation relating to stock options granted during 1996 with exercise prices less than the estimated fair value of the Company's Common Stock, as determined by an independent valuation analysis, on the date of grant. Deferred compensation for the non-vested portion is being amortized into expense over the vesting period of the stock options, which generally range from three to five years. Stock compensation expense in the first quarter of 1997 represents the additional vesting which occurred in the first quarter of 1997. Interest Income. Interest income for the first quarter of 1997 was $71,000, approximately $53,000 higher than the first quarter of 1996 due to higher than average cash balances resulting from the issuance of Common Stock in the Company's initial public offering in the fourth quarter of 1996. Other Income and Expense. Other income for the first quarter was $24,000 compared to an expense of $25,000 in the first quarter of 1996. The primary reason for the difference is the strengthening of the Dutch Guilder against the U.S. Dollar during 1996, as compared to a weakening of the Dutch Guilder against the dollar in the first quarter of 1997. This resulted in currency transaction gains and losses on the U.S. currency obligations of the Company's wholly owned subsidiary in The Netherlands, Integrated Surgical Systems B.V. Liquidity and Capital Resources. The Company used $657,000 in cash from the operating activities in the first quarter of 1997 compared to $813,000 usage in the first quarter of 1996. Net cash used for operations in each of these periods resulted primarily from the net loss. The Company used $42,000 in cash in the first quarter of 1997 for the purchase of equipment to support the increase in the number of employees. The Company received $16,207 in the first quarter of 1997 on the exercise of common stock options (4,867 shares). The Company expects to incur additional operating losses at least through 1997. These losses will be as a result of expenditures related to product development projects and the establishment of

8 marketing, sales, service and training organizations. The timing and amounts of these expenditures will depend on many factors, some of which are beyond the Company's control, such as the requirements for and time required to obtain FDA authorization to market the ROBODOC System in the United States, the progress of the Company's product development projects and market acceptance of the Company's products. The Company expects that its cash and cash equivalents as of March 31, 1997, will be sufficient to finance its operations through 1997. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports The Company did not file any reports on Form 8-K during the quarter ended March 31, 1997.

9 Signatures In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTEGRATED SURGICAL SYSTEMS, INC. Date: May 13, 1997 by: /s/ Michael J. Tomczak ------------------------------------------ Michael J. Tomczak, Vice President and CFO

5 YEAR DEC-31-1996 MAR-31-1997 5,318,491 0 18,124 0 1,372,592 6,882,255 1,298,087 1,046,072 7,151,693 1,564,781 0 0 0 33,660 5,553,252 7,151,693 641,989 641,989 215,458 1,315,018 (95,073) 0 0 (793,414) 9,000 (802,414) 0 0 0 (802,414) (0.24) (0.24)