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Lumenis yesterday announced growth in sales and revenues, a return to profit and a positive cash flow from operating activities. The hard work the company has been investing in revamping its fortunes is starting to pay off, it would seem. But the negative equity, high levels of goodwill, and enormous debt to Bank Hapoalim - its only financial backer - are still a drag on any future hopes.

Lumenis CEO Avner Raz is not letting the good results confuse him, as the road to overall company stability is still long and treacherous.

The firm yesterday announced its preliminary unaudited financial results for the second quarter and six months ended June 30.

The company, which makes laser technology for surgical and cosmetic applications, reported second-quarter revenues of $70.3 million, up 3.2 percent from $68.1 million in the parallel quarter, and an increase of 7.9 percent from the first quarter of this year.

It netted $1.1 million, or 3 cents per share, which is the first net profit it has posted since the third quarter of 2001. In the parallel quarter of 2003, Lumenis lost a net $33.3 million, including $8.9 million in charges for inventory adjustments and a $3.8 million loss related to selling Spectron, its industrial laser business.

Raz said the second-quarter results are encouraging, as they reflect the benefits of Lumenis' new organization. "We are particularly encouraged by the reduced operating costs, good operating cash flow and modest improvement in revenue, which allowed us to report positive operating income for the second quarter," Raz said.

Net cash flow from operating activities was a positive $6.6 million in the second quarter of this year, compared with $6 million in the corresponding quarter of last year.

Operating income for the second quarter of 2004 was $4.4 million and included expenses related to the implementation of Lumenis' "turnaround plan" of $500,000 and a gain in cost of sales of $900,000 from the settlement of two patent disputes.

Operating costs in the quarter were $31.4 million, compared with $41.8 million in the second quarter 2003. The costs last year included provisions of $2.2 million for severance and litigation expenses.

One point of light was that net cash flow from operating activities was $6.6 million in the second quarter of 2004. At the end of the quarter, Lumenis' cash position was $16.7 million. Total debt was $200.5 million.

The company said its backlog of orders was $15 million at the end of the second quarter, down from $20 million at the end of the first quarter.

The company is in compliance with its covenants under its bank agreements, it took care to note.

The investigation

An internal investigation had concluded that the timing of Lumenis's revenue recognition had been inappropriate in certain cases. The upshot was that it overstated revenues in 2001 and 2002 while understating revenues in 2003.

For the first quarter and first half of 2003, Lumenis understated turnover by $3.1 million, or 4.6 percent, and $1.5 million, or 1 percent, respectively, it said.

Ultimately, the mistake decreases its net loss as reported for those terms by about $2 million and $900,000, respectively, it said. These adjustments have not been reflected in the financial statements released yesterday. The final financial statement remains, pending completion of the audit by the company's newly appointed independent accountants, BDO Ziv Haft.

Syneron lowers its price

Syneron Medical, an Israeli skin and hair care medical device company, raised $60 million on Wall Street over the weekend. The price reflected a company value of $263 million, while present shareholders used the opportunity to sell an additional $6 million of their shares.

Syneron's largest shareholder and founder is Shimon Eckhous, who was forced out of Lumenis five years ago. Syneron's market value is now five times the market cap of Lumenis.

Syneron has applied for a listing on the Nasdaq market under the stock symbol ELOS.

The company said it planned to use the proceeds for sales and marketing, research and development, and general corporate purposes.