Annual Report — Form 10-K
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4: EX-27 Financial Data Schedule 1 8K
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S U M M I T 1 9 9 5
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Summit Technology is a worldwide leader in the development, manufacture and sale
of ophthalmic laser systems designed to correct common vision disorders such as
nearsightedness, farsightedness and astigmatism. On October 20, 1995, the
Company's excimer laser system became the first excimer laser system in the
world to be APPROVED BY THE FDA for commercial sale in the United States for
laser correction of nearsightedness. Laser correction of nearsightedness is an
outpatient procedure performed with the excimer laser requiring approximately
15 seconds of laser time. All participants in Summit's U.S. clinical trials,
which were conducted in support of obtaining FDA approval, experienced an
improvement in visual acuity without corrective eyewear. It is estimated that
in excess of 140 million people in the United States use eyeglasses or contact
lenses to correct common vision disorders, with over 60 million of these
individuals suffering from nearsightedness. The Company's strategy is to become
a vertically-integrated vision correction business by (i) manufacturing and
selling laser systems and related products to correct vision disorders; (ii)
operating vision correction centers; and (iii) participating in per procedure
royalty revenues.
Selected Financial Data
[Enlarge/Download Table]
(In thousands, except per share amounts)
Year ended December 31 1995 1994 1993 1992 1991
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Statements of operations data
Net revenue $45,134 $ 24,210 $26,801 $31,130 $22,018
Net income (loss) $(3,512) $(15,381) $(9,154) $ (383) $ 980
Net income (loss) per share of
common stock (1) $ (.14) $ (.62) $ (.39) $ (.02) $ .04
Weighted average number of
common shares outstanding (1) 25,965 24,666 23,379 22,299 22,400
<FN>
(1) All per share data and weighted average share amounts have been restated
to reflect the 3-for-2 stock dividend with a payment date of December 1,
1995
[Download Table]
Balance sheet data
Working capital $106,172 $ 23,351 $26,618 $24,537 $25,615
Total assets $157,135 $ 51,167 $50,548 $38,772 $35,494
Long term obligations,
excluding current portion $ 1,002 $ 1,177 $ 164 $ 729 $ 390
Stockholders' equity $136,875 $ 37,883 $40,384 $29,854 $29,714
1
To Our Shareholders:
FDA Approved! After more than ten years of determination and hard work we can
finally deliver that unqualified message. The power of the message is further
enhanced by the fact that we were the first company approved for excimer
laser vision correction in the United States. There should be no confusion as to
the meaning of this opportunity to set the U.S. standard of excellence and to
continue the market leadership that we first established in the overseas
markets. The clinical results we presented to the FDA Advisory Panel in
obtaining FDA approval are, to the best of our knowledge, better in virtually
every category than all other laser vision correction results presented to the
Panel. These facts speak for themselves. As we go to press with this report,
there are over 150 Summit Apex Lasers in use in the U.S. providing laser vision
correction. In addition, several thousand ophthalmologists have received the
didactic portion of the FDA-required training program and several hundred of
these have completed the clinical hands-on portion, certifying them to treat
patients.
Approval of our laser system for the treatment of nearsightedness is just
the beginning. We are actively engaged in worldwide clinical trials of our Apex
Plus system for the treatment of astigmatism and farsightedness and we are
achieving excellent results. In fact, we believe that we have the most
successful system for the predictable and stable treatment of astigmatism and
farsightedness, and look forward to bringing this product to the U.S. market as
an upgrade to our ever-increasing installed base. Since both astigmatism and
farsightedness treatments require our single-use emphasis[REGISTERED TRADEMARK]
erodible mask technology, the U.S. approval would open up a new recurring
revenue stream. We have been advised in writing by the FDA that it will require
the same type of Advisory Panel review of astigmatism and farsightedness
treatments as it required for our initial nearsightedness approval. This
requirement applies to our competitors as well.
Our patent portfolio continues to play an important role in our strategic
business plans. In 1995, the Federal Trade Commission initiated an inquiry into
Pillar Point Partners, a partnership which has exclusively licensed many of our
U.S. patents. We are confident that the partnership complies with applicable
laws, but it may take a considerable amount of time for the FTC to reach its own
conclusions. Nonetheless, it should be stressed that our ability to collect
royalties on the use of our equipment is based on our patents themselves. We
have licensed all U.S. purchasers of our Apex systems, who in turn purchase
single-treatment magnetic control cards for $250. We believe that this has set
the stage for a very meaningful and sustainable revenue stream.
In 1993, we made a major acquisition of an international patent portfolio
which we believed to cover some of the fundamental concepts incorporated into
state-of-the-art excimer laser vision correction systems. Our belief was
confirmed when, in August of 1995, the German patent court ruled that our two
German based competitors, Chiron/Technolas and Schwind, infringed our patents.
Both companies were ordered to cease and desist from manufacturing and selling
their product.
2
Additionally, we have sued our U.S. competitor, Visx, for patent infringement of
the U.S. counterpart of the European patent. The trial date is set for February,
1997 in the U.S. District Court of Delaware. I would like to emphasize that this
dispute between Summit and Visx does not affect the Pillar Point Partnership but
we believe that a victory will result in substantial benefit to Summit.
I would like to address the confusion surrounding the media-hyped procedure
known as laser assisted in-situ keratomileusis, or LASIK for short. It is
important to understand that from a financial perspective, Summit is essentially
neutral as to the success of this procedure. That is to say, the procedure
requires the use of our equipment and should result in the same royalties being
paid as with laser vision correction. LASIK is a procedure that has had very
limited testing and no long-term studies. Unlike laser vision correction, which
requires minimal surgical instruction, LASIK is a technically demanding surgical
procedure during which the top one-third of the cornea is sliced off to expose
the inner surface of the cornea. While it is true that there have been
satisfactory results using this technique, it is also true that complications
have included the need for patients to undergo corneal transplants. To our
knowledge, there have not been any laser-induced corneal transplants resulting
from the hundreds of thousands of laser vision correction procedures which have
been performed worldwide. So while the LASIK procedure may ultimately be
approved and used for appropriately selected patients, the clinical trials still
need to be conducted and the risk/reward ratio determined.
In 1995, the Summit Vision[TRADEMARK] Center plan coalesced as we began to
get ready for the U.S. launch of our own treatment centers. We spent a
considerable amount of time and money to determine the exact size and
demographics of our target audience in order to prepare the most cost-efficient
consumer marketing program. We formed alliances with some of the most renowned
universities in the U.S. to act as Centers of Excellence. The purpose of these
centers is to enhance our professional image and to provide the consumer with
additional confidence in the potential for laser vision correction. The centers
will, in some cases, conduct advanced clinical trials for new applications of
our system, offer additional refractive surgical procedures, and provide
staffing for our own Summit Vision[TRADEMARK] Centers. To further enhance our
Summit Vision[TRADEMARK] Center offerings, we set up a third-party patient
financing facility to allow our customers to pay for their procedure on a
monthly basis over an extended period.
We are in the process of discontinuing our center operations in the United
Kingdom and consider that our off-shore beta site testing was successful. During
our time operating these clinics, we learned many of the do's and don'ts which
could have only been learned through experience. I feel that this will form the
cornerstone of what I expect to become a very successful part of Summit's
future.
On the corporate side, we had several significant accomplishments. In the
same week that we received FDA approval, we raised $100 million in an equity
offering. This has resulted in additional positive coverage by Wall Street
analysts and increased ownership of Summit stock by institutional investors. On
December 1, 1995, we issued a 3-for-2 stock dividend for our shareholders. This
dividend was intended, among other things, to enhance the ability of our
shareholders to increase their
3
ownership of Summit in a meaningful fashion. To further enhance our capital
flexibility, Summit has obtained a $20 million line of credit for working
capital needs, and a $20 million term loan to finance the development of
our U.S. centers. This has substantially enhanced our balance sheet and allows
us to keep substantial cash reserves on hand. The financial market seems to have
responded well to these events and we believe our goals have been met.
So, what next? While FDA approval has been our Holy Grail, it comes as no
surprise to any of us that the victory in the race to approval has only brought
us to a new starting line. We now expect to be critically and rightfully judged
on our ability to turn once-in-a-lifetime medical innovation into a resounding
business and financial success. We won the race to approval through
determination, intelligence, dedication, and old-fashioned hard work. The spirit
that runs through the Company will be the catalyst for us to continue our
efforts of the last decade to accomplish the goals that our shareholders have
set for us. Over the years, our shareholders, clinical investigators, and
employees have shared in the faith and belief of many promises made, and we have
delivered. I believe the future will be a reflection of our successful past and
your patience as a shareholder will be justly rewarded.
Very truly yours,
/s/ David F. Muller
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David F. Muller, Ph.D.
President and Chairman of the Board
4
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"The spirit that runs through the Company will be the catalyst for us to
continue our efforts of the last decade to accomplish the goals that our
shareholders have set for us."
David F. Muller, Ph.D.
President and
Chairman of the Board
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In excess of 140 million people in the United States use eyeglasses or contact
lenses to correct common vision disorders, with over 60 million of these
individuals suffering from nearsightedness. In 1995, approximately $13.8 billion
were spent on eyeglasses and contact lenses by U.S. consumers. In addition, an
estimated 250,000-300,000 radial keratotomy procedures were performed in the
U.S. in 1995. The results of a survey conducted in 1995 among a nationally
representative cross sample of U.S. households indicated that 25% of nearsighted
people between the ages of 21 - 49 years of age would be interested in having
their nearsightedness corrected with excimer laser vision correction. This
projects to approximately 13 million people.
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In excess of 140 million people in the United States use eyeglasses or contact
lenses to correct common vision disorders, with over 60 million of these
individuals suffering from nearsightedness. In 1995, approximately $13.8
billion were spent on eyeglasses and contact lenses by U.S. consumers. In
addition, an estimated 350,000 radial keratotomy procedures were performed in
the U.S. in 1995. The results of a survey conducted in 1995 among a nationally
representative cross sample of U.S. households indicated that 25% of
nearsighted people between the ages of 21-49 years of age would be interested
in having their nearsightedness corrected with excimer laser vision correction.
This projects to approximately 13 million people.
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The principal purchasers of Summit's products are ophthalmologists,
universities, clinics and hospitals, as well as enterprises formed to deliver
laser correction of nearsightedness to consumers. The Company believes that the
demand for its excimer laser systems will be driven by the public demand for
laser correction of nearsightedness. Accordingly, Summit has implemented a
multi-tiered professional and consumer marketing strategy. The Company's efforts
to promote laser correction of nearsightedness directly to the consumer are
being conducted through a comprehensive marketing program utilizing television,
radio and print advertising. This campaign is intended to benefit all Summit
laser owners and the Company's vision correction centers.
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"Summit is proud to offer the only excimer laser system approved in the U.S.
to treat nearsightedness. We are committed to creating programs which will
reduce the barrier to capital equipment acquisitions and to help our customers
promote the profitable use of their equipment."
John Frantzis,
Vice President, Sales
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"Early response to our direct response consumer advertising efforts confirms
that consumers have a tremendous amount of interest in laser correction of
nearsightedness. Our commitment to the highest level of quality patient care and
our investment in state-of-the-art telemarketing and database management systems
give us a competitive advantage in this exciting new vision correction market."
David Applegate,
Vice President, Marketing - Summit Vision[TRADEMARK] Centers
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"Summit's priority is to meet or exceed customer expectations in all facets of
our business. FDA approval has challenged our customer support organization to
grow rapidly to meet the needs of the U.S. market while maintaining strong
support for our international customers. Summit will continue to meet this
challenge in 1996."
Ray Krauss,
Executive Vice President,
Chief of Operations
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Summit's success is clearly demonstrated by the growing size of its customer
base. Since its inception, the Company has sold over 400 laser systems in over
50 countries. Since receiving FDA approval, the Company has increased its
production capabilities and substantially increased its field service
operations. The Company manufactures its products at its headquarters in
Waltham, Massachusetts, and its manufacturing facility in Cork, Ireland.
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"Our ISO 9002 approved facility in Cork reflects Summit's commitment to quality.
However, quality is a journey which never ends. We are continuously developing
our people, our manufacturing processes and our quality systems to ensure that
we meet the challenges and demands of the marketplace with the highest quality
products."
Andy Jones,
Managing Director, Operations - Summit Ireland.
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Summit intends to maintain its leadership position in the development,
manufacture and sale of state-of-the-art laser technologies for the treatment of
common vision disorders. The Company expects to continue to devote a significant
amount of its resources in the areas of research, engineering and product
development, including regulatory and clinical affairs. Outside the U.S., Summit
has introduced its newest product, the Apex Plus excimer laser system. In
addition to treating nearsightedness, this system is providing physicians with
outstanding results in treating astigmatism and farsightedness.
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"1995 represented the culmination of Company-wide efforts to obtain U.S.
approval for our excimer laser technology, reinforcing Summit's leadership in
the refractive care field. As the first company to receive both therapeutic and
laser vision correction approval, Summit is at the forefront of ophthalmology
and is committed to continue offering revolutionary breakthroughs in the years
to come."
Kimberley Doney,
Executive Vice President, Regulatory, Clinical & Quality Affairs
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"In addition to being the leader in treating nearsightedness, we have completed
our astigmatism and farsightedness product development. The Apex Plus laser
system uses our patented erodible mask technology which we believe provides the
surgeon with the most advanced, state-of-the-art technology to treat common
vision disorders."
Howard Apple, Ph.D.
Vice President, R&D
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"Research continues to be the engine that drives Summit. The Company prides
itself on having a scientific team that continually monitors new and existing
technologies so that we can continue to make procedural refinements/enhancements
and remain a world leader in ophthalmic laser surgery."
Peter Klopotek, Ph.D.
Vice President, Science & Technology
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Summit is proud of its affiliations with prominent teaching hospitals located
throughout the United States. The vast majority of the Summit Vision[TRADEMARK]
Centers are being developed using a hub and spoke concept. The hub in each
geographic region is a prestigious national teaching hospital serving as a
Center of Excellence for teaching and training purposes. The spokes in each
region will be Summit Vision[TRADEMARK] Centers where laser correction of
nearsightedness is performed, offering local physicians access to the
facilities to treat their own patients. The following Centers of Excellence
are currently operating and treating patients: Jules Stein Eye Institute at the
UCLA Medical Center, Los Angeles; Stanford University Medical Center, Palo
Alto, California; Rush Presbyterian - St. Lukes Medical Center, Chicago; New
England Eye Center at the Tufts University School of Medicine, Boston; George
Washington University Medical Center, Washington, D.C.; and Cleveland Clinic
Foundation Eye Institute, Cleveland, Ohio.
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"Our Centers of Excellence strategy represents a significant milestone in the
integration of laser vision correction into the vision correction market. We
are confident that the imperatives of physician education, high quality patient
care and access to the technology for community providers will be met, resulting
in the adoption of laser vision correction as an accepted method of vision
correction."
Ron Herskowitz, O.D.
Executive Vice President,
Professional Business Development
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"Bringing laser vision correction to patients in a consistent, predictable and
professional manner has required the development of innovative approaches to
clinical data management and medical education."
Maureen O'Connell,
Vice President,
Compliance & Quality Assurance - Summit Vision[TRADEMARK] Centers
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"Predictability, stability, success... laser vision correction qualities
that we want our staff and facilities to convey to consumers."
Bruce Garcia,
Vice President,
Operations - Summit Vision[TRADEMARK] Centers
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Summit's objective is to maximize shareholder value by being the leader in every
aspect of its business. Summit is uniquely positioned to generate its revenue
from multiple sources including laser system sales, per procedure royalties, and
operating vision correction centers. In addition, Summit offers an array of
value-added services such as flexible equipment leasing and service programs for
laser customers, consumer finance programs, marketing programs including
education, research and telemarketing, and outcomes analysis and database
management programs.
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"Summit's financial performance improved substantially throughout 1995 as we
increased revenues 86% from 1994 and succeeded in controlling operating
expenses, which increased only 8% over last year. Our successful $100 million
equity offering in 1995 substantially strengthened our balance sheet and
established the capital required to maximize growth and expansion
opportunities."
Rajiv Bhatt,
Executive Vice President,
Treasurer and Chief Financial Officer
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"We have had considerable success in designing and implementing novel solutions
to the complex and ever-changing legal challenges that arise as we build new
businesses in a new industry. These are the building blocks for future success."
Peter Litman,
Executive Vice President and General Counsel
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[Enlarge/Download Table]
Financial Section
Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Consolidated Balance Sheets 20
Consolidated Statements of Operations 21
Consolidated Statements of Stockholders' Equity 22
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
Independent Auditor's Report 35
Market for the Registrant's Common Stock and Related Securityholder Matters 36
17
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The Company is a worldwide leader in the development, manufacture and sale of
ophthalmic laser systems designed to correct common refractive vision disorders
such as nearsightedness, farsightedness and astigmatism. On October 20, 1995,
the Company's excimer laser system (Excimer System) became the first excimer
laser system in the world to be approved by the Food and Drug Administration for
commercial sale in the United States for laser correction of nearsightedness.
The Company's strategy is to become a vertically integrated vision
correction business by (i) manufacturing and selling laser systems and related
products to correct vision disorders; (ii) participating in per procedure
royalties from its ownership in Pillar Point Partners; and (iii) operating
vision correction centers. The Company believes that this strategy will position
it to participate in revenues derived from the sale of Excimer Systems and
revenues generated from laser correction of nearsightedness. There can be no
assurance, however, that the Company will be successful in achieving these
goals.
Results of Operations
1995 as compared with 1994
Revenues
Revenues for the year ended December 31, 1995 increased 86.4% to $45.1 million
from $24.2 million for the year ended December 31, 1994. The increases were
primarily attributable to higher sales of laser systems in the U.S. and product
upgrade revenue.
Due to uncertainty regarding acceptance of laser correction of
nearsightedness by the ophthalmic community and the general population,
uncertainty regarding the success of the Company's U.S. vision correction
centers, the long sales cycle for laser systems and continued competition,
quarterly revenues are likely to remain unpredictable. In addition, if U.S. FDA
approval of Visx's excimer laser system for laser correction of nearsightedness
occurs in 1996, the resulting increased competition may have a negative impact
on laser system sales.
Cost of revenues
Cost of revenues as a percentage of revenues for the year ended December 31,
1995 decreased to 62.4% from 80.0% for the year ended December 31, 1994. This
improvement was primarily attributable to the absorption of fixed overheads over
higher sales volumes.
Operating Expenses
Operating expenses for the year ended December 31, 1995 increased 8.1% to $22.0
million from $20.3 million for the year ended December 31, 1994. The increase is
primarily related to legal and start up costs related to the Company's U.S.
vision correction centers. Operating expenses as a percentage of revenues for
the year ended December 31, 1995 decreased to 48.7% from 84.0% for the year
ended December 31, 1994.
In the next twelve months the Company intends to open 20 to 30 Vision
Correction Centers in the U.S. and anticipates incurring significant ongoing
expenses including marketing, public relations, leasing, personnel hiring
and training costs. Advertising and telemarketing commitments as of December 31,
1995 are approximately $1.7 million. The Company is in the process of
discontinuing its vision correction centers in the U.K. as it concentrates on
the opening of its U.S. vision correction centers.
Net Loss
Net loss for the year ended December 31, 1995 was $3.5 million. Net loss for the
year ended December 31, 1994 was $15.4 million. The net loss related to the
vision correction centers segment was $5.3 million for the year ended December
31, 1995 and $3.2 million for the year ended December 31, 1994. There can be no
assurance that the Company will achieve profitability in 1996.
Income Taxes
Due to the uncertainties noted above, the Company has continued to provide a
100% valuation allowance against its net deferred tax asset of approximately
$15.1 million.
18
1994 as compared with 1993
Revenues
Revenues for the year ended December 31, 1994 decreased 9.7% to $24.2 million
from $26.8 million for the year ended December 31, 1993. The decrease was
primarily attributable to lower international sales. The decrease was offset in
part by increases in U.S. sales of Holmium Systems, service revenues and
revenues from the Company's outpatient clinics. The decrease in international
sales was due to increased competition. The Company's upgrade program continued
to impact the Company's average selling price as early versions of its laser
workstations were exchanged, on a limited basis, for new laser workstations at a
reduced price.
Regulatory delays in the U.S. continue to negatively impact the Company's
revenues in 1994. In addition, increased competition in internal markets, a long
sales cycle and the absence of a significant backlog may make quarterly revenues
unpredictable.
Cost of revenues
Cost of revenues for the year ended December 31, 1994 as a percentage of
revenues increased to 80.0% from 61.5% for the year ended December 31, 1993. The
increase was primarily attributable to unabsorbed overheads due to a decline in
production volumes, increases in costs incurred for product upgrades and
revisions, and to a substantially lesser extent costs related to the development
of the erodible mask.
Operating expenses
Operating expenses for the year ended December 31, 1994 increased 4.2% to $20.3
million from $19.5 million for the year ended December 31, 1993. The increases
were primarily attributable to expenses related to regulatory affairs and
research and development.
Liquidity and Capital Resources
The Company's liquidity requirements have been met through external financing.
As of December 31, 1995, the Company's cash, cash equivalent balances and
short-term investments increased $78.7 million to $95.9 million from $17.2
million as of December 31, 1994. The Company's net loss decreased to $3.5
million for the year ended December 31, 1995 from $15.4 million for the year
ended December 31, 1994. The Company's inventories and accounts receivable
increased $3.3 million and $5.9 million, respectively. Cash used from operations
increased to $5.1 million for the year ended December 31, 1995 from $4.7 million
for the year ended December 31, 1994.
Cash used by investing activities of $31.4 million resulted primarily from
an increase of $26.6 million in short and long term investments and additions to
property and equipment of $4.1 million.
Cash provided by financing activities of $102.1 million resulted from net
proceeds from the sale of common stock of $99.9 million, and proceeds from the
exercise of stock options of $2.6 million offset in part by net repayments of
capital lease obligations of $0.5 million.
In March of 1996, the Company obtained a $20.0 million unsecured revolving
credit facility. The facility expires in March 1999 and allows the Company to
borrow at LIBOR plus 75 basis points or Prime Rate. Also in March 1996, the
Company's wholly-owned subsidiary, Refractive Centers International Inc.,
obtained a $20.0 million unsecured term loan. The term loan is payable over 16
equal quarterly installments at LIBOR plus 125 basis points or Prime Rate. The
term loan is guaranteed by the Company. The Company intends to use this facility
to fund working capital requirements and purchase equipment related to the
opening of its U.S. vision correction centers.
In October, the Company received net proceeds of $99.9 million from the
sale of 3,795,000 shares of common stock. The Company intends to continue to
expand its business through development and marketing of the Company's Vision
Correction Centers, development of consumer acceptance of and demand for laser
correction of nearsightedness, the expansion of manufacturing capabilities and
further research and development. Management believes current cash resources and
internally generated funds will be adequate to satisfy the Company's cash
requirements, including current anticipated expenditures, for at least
twenty-four months.
19
[Enlarge/Download Table]
Consolidated Balance Sheets
December 31,
(In thousands, except share and per share amounts) 1995 1994
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Assets
Current assets:
Cash and cash equivalents $ 74,285 $ 8,656
Short-term investments 21,607 8,495
Receivables, net of allowance of $974 in 1995 and $1,049 in 1994 15,520 9,535
Inventories (note 3) 10,265 7,028
Prepaid expenses and other current assets 3,372 1,079
Notes receivable from officers (note 4) 381 665
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Total current assets 125,430 35,458
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Property and equipment, net (note 5) 8,431 6,398
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Other assets:
Long-term investments 13,531 -
Patents, net (note 6) 6,795 6,925
Other assets, net 1,413 2,386
Restricted cash (note 10) 1,535 -
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Total Assets $157,135 $ 51,167
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,781 $ 2,749
Accrued expenses (note 7) 9,637 5,860
Current maturities of capital lease obligations (note 8) 429 516
Deferred revenue 3,411 2,982
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Total current liabilities 19,258 12,107
Capital lease obligations, less current maturities (note 8) 1,002 1,177
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Total liabilities 20,260 13,284
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Commitments and contingencies (notes 8 and 10)
Stockholders' equity (note 9):
Preferred stock, $.01 par value. Authorized 5,000,000 shares. - -
Common stock, $.01 par value. Authorized 60,000,000 shares;
issued 29,226,327 shares in 1995 and 25,185,973 shares in 1994 292 252
Additional paid-in capital 170,229 67,676
Accumulated deficit (33,514) (30,002)
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137,007 37,926
Treasury stock, at cost, 5,284 shares in 1995 and 1,749
shares in 1994 (132) (43)
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Total stockholders' equity 136,875 37,883
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Total Liabilities and Stockholders' Equity $157,135 $ 51,167
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See accompanying notes to consolidated financial statements.
20
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Consolidated Statements of Operations
Years Ended December 31,
(In thousands, except per share amounts) 1995 1994 1993
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Net revenues $45,134 $ 24,210 $26,801
Cost of revenues 28,181 19,363 16,480
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Gross profit 16,953 4,847 10,321
Operating expenses 21,981 20,331 19,503
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Operating loss (5,028) (15,484) (9,182)
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Other income 1,516 103 28
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Net loss $(3,512) $(15,381) $(9,154)
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Net loss per share $ (.14) $ (.62) $ (.39)
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Weighted average number of
common shares outstanding 25,965 24,666 23,379
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See accompanying notes to consolidated financial statements.
21
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Consolidated Statement's of Stockholders' Equity
Years Ended December 31, 1995, 1994 and 1993
Notes
Preferred stock Common Stock Additional receivable for Total
----------------- ---------------- paid-in Accumulated Treasury common stock stockholders'
In thousands Shares Par value Shares Par value capital deficit stock purchase equity
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Balance at December 31, 1992 - $ - 22,907 $230 $ 35,659 $ (5,467) $(564) $(3) $ 29,855
Sale of common stock, net of
issuance costs - - 1,725 17 19,011 - - - 19,028
Retirement of treasury stock - - (347) (3) (561) - 563 - (1)
Repayment of note receivable - - - -- - - - 3 3
Other shares issued - - 15 -- 202 - 1 - 203
Exercise of stock options - - 156 1 453 - (5) - 449
Net loss - - - -- - (9,154) - - (9,154)
----- ----- ------ ---- -------- -------- ----- --- --------
Balance at December 31, 1993 - $ - 24,456 $245 $ 54,764 $(14,621) $ (5) $ - $ 40,383
===== ===== ====== ==== ======== ======== ===== === ========
Sale of common stock, net of
issuance costs - - 525 6 11,112 - - - 11,118
Retirement of treasury stock - - (13) - (305) - 305 - -
Other shares issued - - 75 - 1,082 - - - 1,082
Exercise of stock options - - 143 1 1,023 - (343) - 681
Net loss - - - - - (15,381) - - (15,381)
----- ----- ------ ---- -------- -------- ----- --- --------
Balance at December 31, 1994 - $ - 25,186 $252 $ 67,676 $(30,002) $ (43) $ - $ 37,883
===== ===== ====== ==== ======== ======== ===== === ========
Sale of common stock, net of
issuance costs - - 3,795 38 99,819 - - - 99,857
Other shares issued - - 2 - 18 - - - 18
Exercise of stock options - - 243 2 2,716 - (89) - 2,629
Net loss - - - - - (3,512) - - (3,512)
----- ----- ------ ---- -------- -------- ----- --- --------
Balance at December 31, 1995 - $ - 29,226 $292 $170,229 $(33,514) $(132) $ - $136,875
===== ===== ====== ==== ======== ======== ===== === ========
See accompanying notes to consolidated financial statements.
This statement retroactively reflects the issuance of a dividend of one share of
the Company's common stock for every two shares of outstanding common stock to
shareholders paid on December 1, 1995.
22 23
[Enlarge/Download Table]
Consolidated Statements of Cash Flows
Year Ended December 31,
In thousands 1995 1994 1993
-------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (3,512) $(15,381) $ (9,154)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 2,493 2,253 1,710
Provision (recovery) for losses on
accounts receivable (75) 357 985
Changes in operating assets and liabilities:
Accounts receivable, net (5,910) 3,688 521
Inventories (3,341) 2,166 (3,824)
Prepaid expenses and other current assets (2,292) (125) 167
Accounts payable 3,032 1,439 5
Accrued expenses 4,064 1,100 1,271
Deferred revenue 429 (176) 669
-------- -------- --------
Net cash used by operating activities (5,112) (4,679) (7,650)
-------- -------- --------
Cash Flows from Investing Activities:
Increase in short-term investments (13,112) (374) (2,244)
Purchase of long-term investments (13,531) - -
Additions to property and equipment (4,099) (1,180) (3,063)
Purchase of patents (245) (317) (5,470)
Change in other assets 876 177 (994)
Repayment (issuance) of notes receivable from officers 284 (100) 381
Increase in restricted cash (1,535) - -
Proceeds from sale of property - - 162
-------- -------- --------
Net cash used by investing activities (31,362) (1,794) (11,228)
-------- -------- --------
Cash Flows from Financing Activities:
Repayments of long-term debt and capital lease
obligations (537) (617) (616)
Proceeds from long-term debt and capital lease
obligations 136 1,279 -
Proceeds from sale of common stock 99,857 11,118 19,029
Proceeds from exercise of stock options 2,629 476 420
Proceeds from shares sold under Employee
Stock Purchase Plan 18 54 130
-------- -------- --------
Net cash provided by financing activities 102,103 12,310 18,963
-------- -------- --------
Increase in cash and cash equivalents 65,629 5,837 85
Cash and cash equivalents at beginning of year 8,656 2,819 2,734
-------- -------- --------
Cash and cash equivalents at end of year $ 74,285 $ 8,656 $ 2,819
======== ======== ========
Supplemental disclosures:
Interest paid $ 309 $ 185 $ 93
======== ======== ========
Income taxes paid $ 5 $ 5 $ 15
======== ======== ========
See accompanying notes to consolidated financial statements.
24
Notes to Consolidated Financial Statements
In thousands, except share and per share amounts
December 31, 1995, 1994, and 1993
1. Nature of Business
Summit Technology, Inc. (the "Company") develops, manufactures and sells
ophthalmic refractive laser systems and related products to correct vision
disorders. The Company participates in per procedure royalties payable to Pillar
Point Partners, a partnership, formed by the Company and VISX to hold certain
U.S. patents covering excimer laser systems and procedures. Through its
wholly-owned subsidiary, RCII, the Company owns and operates vision correction
centers. The Company is in the process of discontinuing its vision correction
centers in the U.K. as it concentrates on the opening of a signifigant number of
U.S. vision correction centers ("Summit VisionTM Centers") in 1996. The vast
majority of the Summit VisionTM Centers are being developed in affiliation with
prestigious national teaching hospitals.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries after elimination of material intercompany
accounts and transactions.
Revenue Recognition
The Company recognizes revenue on product sales when the products are
shipped and the customer takes ownership. The Company recognizes revenue on
physician education programs when the services are performed. The Company
records any advance payments for products or services as deferred revenue. The
Company accrues the cost of warranty and product upgrade obligations when the
product is shipped. The Company recognizes service contract revenue ratably over
the length of the contract. The Company recognizes vision correction of
nearsightedness treatment revenue at Summit Vision Centers when the procedure is
performed. The Company recognizes per procedure royalty revenue and its payment
obligation to Pillar Point Partners upon shipment of Omnicards to its customers.
Omnicards are required to perform laser vision correction procedures.
Cash Equivalents
Cash equivalents consist of certificates of deposit and highly liquid investment
grade corporate bonds with a maturity of three months or less.
Short and Long-term Investments
The Company's investments consist of short-term investments with original
maturities between three and twelve months and long-term investments with
original maturities greater than twelve months. The Company has the intent and
the ability to hold these investments to maturity. Investments are carried at
cost plus accrued interest, which approximates market. These investments consist
of U.S. Government Securities and investment grade corporate bonds.
Financial Instruments
The carrying amount of cash and cash equivalents, accounts payable and accrued
expenses approximates fair value because of the maturity of these items. The
carrying amount of long-term capital lease obligations approximates fair value.
25
Concentration of Credit Risk
The Company's trade receivables can potentially subject it to credit risk. The
Company limits its credit risk of U.S. receivables by obtaining advance deposits
and commitments from customers and third-party leasing companies. The Company
limits its credit risk of international receivables by using distributors with
proven credit history or by requiring irrevocable letters of credit. In
addition, all sales are made in U.S. dollars.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost. Property and equipment under capital
leases is stated at the lower of the present value of future minimum lease
payments or fair market value at the beginning of the lease term. Depreciation
on property and equipment is calculated using the straight-line method over the
estimated useful lives of the assets ranging from five to ten years.
Amortization on property and equipment held under capital leases and leasehold
improvements is calculated using the straight-line method over the shorter of
the lease term or estimated useful life of the asset.
Research and Development Expenses
Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred. These expenses were
approximately $5,579, $6,186 and $5,682 for the years ended December 31, 1995,
1994 and 1993, respectively.
Patents and Organization Costs
Patents consist of patents and patent application costs. Patents are amortized
over the patent's economic life using the straight-line method. Other assets
include deposits, organization costs, and long-term trade receivables.
Organization costs are amortized over five years using the straight-line method.
Income Taxes
Deferred tax assets and liabilities have been established for the expected
future tax consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns. These deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using
currently enacted tax rates that are expected to be in effect during the years
in which the differences are anticipated to reverse. Deferred tax provision
(benefit) represents the change in the deferred tax asset balance. Tax credits
are treated as reductions of income taxes in the year in which the credits
become available for income tax purposes.
Impairment of Long-lived Assets
The Company continually evaluates the recoverability of long-lived assets by
assessing whether the amortization of the asset balance can be recovered through
expected future results. Future operations of the Company may be impacted by the
various legal proceedings related to the patents associated with the Company's
product discussed in note 10. As of December 31, 1995 and 1994, the Company had
not experienced any impairment of its long-lived assets.
Foreign Currency Translation
Assets, liabilities and expenses related to foreign operations are remeasured in
U.S. dollars at the appropriate exchange rates. Gains and losses resulting from
remeasurement are included in other income and expense.
Advertising Expenses
The Company expenses the production costs of advertising when the advertising
takes place. At December 31, 1995, $1.8 million of advertising and telemarketing
26
3. Inventories
[Download Table]
Inventories consist of the following:
December 31,
1995 1994
-------------------------------------------------------------------------------
Raw materials and subassemblies $ 5,802 $ 4,370
Work in process 2,231 1,815
Finished goods 2,232 843
------- -------
$10,265 $ 7,028
======= =======
4. Notes Receivable From Officers
Notes receivable from officers at December 31, 1995 consists of a demand note
receivable including accrued interest with an interest rate of 7.25%. Notes
receivable from officers at December 31, 1994 consists of demand notes
receivable with interest rates ranging from 7.0% to 8.0%.
5. Property and Equipment
[Download Table]
Property and equipment consists of the following:
December 31,
1995 1994
-------------------------------------------------------------------------------
Leasehold improvements $ 1,669 $ 1,406
Manufacturing and test equipment 6,703 5,689
Furniture, fixtures and office equipment 4,575 3,347
Laser and medical equipment 2,106 1,633
Software development 837 -
------- -------
$15,890 $12,075
Less Accumulated Depreciation (7,459) (5,677)
------- -------
Net Property and Equipment $ 8,431 $ 6,398
======= =======
6. Patents
[Download Table]
Patents consist of the following:
December 31,
1995 1994
-------------------------------------------------------------------------------
Patents $7,381 $7,136
Patent Amortization (586) (211)
------ ------
Net Patents $6,795 $6,925
------ ------
7. Accrued Expenses
[Download Table]
Accrued expenses consist of the following:
December 31,
1995 1994
-------------------------------------------------------------------------------
Accrued commissions $ 191 $ 888
Accrued payroll and vacation 903 851
Accrued warranty costs 2,623 873
Accrued product upgrade costs 1,058 1,155
Accrued sales tax 1,031 237
Other accrued expenses 3,831 1,856
------ ------
$9,637 $5,860
------ ------
27
8. Financing and Leasing Arrangements
Leases
Capital lease obligations consist of amounts due under equipment lease
agreements. At December 31, 1995, the cost and accumulated depreciation of the
related equipment was $2,245 and $ 1,011, respectively.
The Company leases office, manufacturing and vision correction center
facilities in the U.S. under operating leases expiring in 2001. The Company
leases office space for its vision correction centers in the U.K. under
operating leases expiring in 2000. The Company leases an office and
manufacturing facility in Ireland under an operating lease expiring in 2026.
Rent expense was approximately $796, $675 and $576, for the years ended December
31, 1995, 1994, and 1993, respectively.
[Download Table]
At December 31, 1995, future minimum payments for capital leases and
minimum rental payments under noncancellable operating leases were as follows:
Capital Leases Operating Leases
-------------------------------------------------------------------------------
Year ending December 31:
1996 581 1,245
1997 510 1,242
1998 383 1,222
1999 270 925
2000 12 667
Thereafter - 3,387
------ ------
Minimum future lease payments 1,756 $8,688
======
Less amounts representing interest 325
Present value of minimum future lease payments 1,431
Less current maturities 429
------
Capital leases, less current maturities $1,002
======
Financing Arrangements
In March 1995, the Company received a renewal of its working capital line of
credit agreement. The agreement expires in March of 1996. The line of credit
agreement allows the Company to borrow up to $8.0 million against eligible
accounts receivable at LIBOR plus 150 basis points or Prime Rate per annum. At
December 31, 1995 the Company had no borrowings under this facility.
In March of 1996, the Company obtained a $20.0 million unsecured revolving
credit facility. The facility expires in March 1999 and allows the Company to
borrow at LIBOR plus 75 basis points or Prime Rate. Also in March 1996, the
Company's wholly-owned subsidiary, RCII, obtained a $20.0 million unsecured
term loan. The term loan is payable over 16 equal quarterly installments at
LIBOR plus 125 basis points or Prime Rate. The term loan is guaranteed by the
Company.
9. Stockholders' Equity
Common and Preferred Stock
As of December 31, 1995, the Company has authorized 5,000,000 shares of
preferred stock of $.01 par value and 60,000,000 shares of common stock at $.01
par value. The terms and conditions of the preferred stock, including any
preferences and dividends, will not be established until such time, if ever, as
such shares are in fact issued by the Company.
During the year ended December 31, 1995, the Company received net proceeds
of $99.9 million from the sale of 3, 795,000 shares of Common Stock.
On November 14, 1995, the Company announced the issuance of a dividend of
one share of the Company's common stock for every two shares of outstanding
common stock which has been retroactively reflected in the financial statements.
The record date was November 24, 1995 and the payment date was December 1, 1995.
28
Stock Options
[Enlarge/Download Table]
In March 1987, the Company adopted a Stock Option Plan (the "Plan"). The Plan
permits the Company to grant both incentive and nonincentive stock options.
The stock options are generally exercisable one year after grant in equal
installments over three to ten years. The Company has reserved 2,824,923 shares
of Common Stock for issuance under this Plan.
Options available Options outstanding Option price
----------------------------------------------------------------------------------------------------------
Balances, December 31, 1992 197,641 1,033,717 $ 1.17-19.83
Options granted (185,494) 185,494 0.67-16.83
Options exercised - (156,749) 1.17-16.17
Options canceled 161,180 (161,180) 6.75-19.83
-------- --------- -----------
Balances, December 31, 1993 173,327 901,282 0.67-19.83
-------- --------- -----------
Options granted (179,423) 179,423 0.67-22.83
Options exercised - (142,307) 1.63-19.83
Options canceled 73,281 (73,281) 4.15-22.83
-------- --------- -----------
Balances, December 31, 1994 67,185 865,117 0.67-22.83
-------- --------- -----------
Increase in shares reserved 375,000
Options granted (98,661) 98,661 19.17-33.75
Options exercised - (242,314) 0.67-22.83
Options canceled 46,763 (46,763) 13.33-29.33
-------- --------- -----------
Balances, December 31, 1995 390,287 674,701 $4.33-33.75
======== ========= ===========
At December 31, 1995, 385,738 shares were exercisable under the Plan at exercise
prices ranging from $4.33 to $22.83.
In February 1989, the Company granted an officer options to purchase
225,000 shares of Common Stock at $1.00 per share. The options are restricted,
nonincentive, and were granted outside of the Company's Plan. At December 31,
1995, all 225,000 shares were exercisable.
In May 1992, the Company adopted a Stock Option Plan for Outside Directors
(the Directors Plan) and reserved 75,000 shares of Common Stock for issuance
under the Directors' Plan. At December 31, 1995, 30,000 options were outstanding
at option prices ranging from $10.50 to $14.87 and 24,000 options were
exercisable at prices ranging from $10.50 to $14.87.
Refractive Centers International, Inc. Stock Option Plan
In August 1993, the Company adopted a Stock Option Plan to grant options to
purchase shares of its wholly-owned subsidiary, Refractive Centers
International, Inc. ("the RCII Plan") and reserved 2,500,000 shares of
Refractive Centers International, Inc. for issuance under the RCII Plan. In
September of 1995, the Company decreased the number of shares reserved from
2,500,000 to 800,000. At December 31, 1995, 711,250 options were outstanding at
an option price of $0.50 and 213,250 were exercisable.
Employee Stock Purchase Plan
In May 1991, the Company adopted an Employee Stock Purchase Plan ("the Purchase
Plan"). The Purchase Plan is available to all eligible full-time employees,
excluding those owning 5% or more of the Companys Common Stock. Pursuant to
the Purchase Plan, employees can purchase the Companys Common Stock, at 85% of
fair market value, in an amount up to 5% of the employees wages during the
semi-annual plan purchase period. At December 31, 1995, 375,000 shares of Common
Stock were reserved under the Purchase Plan and 19,605 shares were issued.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" which permits either the recording of the estimated value of stock
based compensation over the applicable vesting period or disclosing the
unrecorded cost and the related effect on earnings per share in the Notes to the
Consolidated Financial Statements. At this time, the Company does not intend to
adopt the new standard, however, compliance with the new disclosure requirements
will be made for the year ended December 31, 1996.
29
Shareholder Rights Plan
In March 1990, the Board of Directors adopted a Shareholder Rights Plan ("Rights
Plan") pursuant to which each stockholder of the Company holds one currently
non-exercisable right ("Right") for each share of Common Stock beneficially
held. The Rights become exercisable upon the occurrence of a "Distribution
Date," whereupon the holder is entitled to purchase from the Company one-quarter
of a share of Common Stock at the exercise price of $8.33, subject to
adjustment. Generally, a Distribution Date occurs if (a) a person or group
becomes a beneficial owner of 15% or more of the Company's outstanding shares
of Common Stock without the prior approval of the Board ("Acquiring Plan"), or
(b) ten business days lapse following the commencement of, or announcement of an
intention to make, a tender or exchange offer for the Common Stock not approved
by the Board, which, if consummated, would result in a person or group becoming
a beneficial owner of 15% or more of the CompanyAEs outstanding shares of Common
Stock.
If a person or group becomes an Acquiring Person, a "Flip-In Event" thereby
occurs concurrently with the Distribution Date, with the effect that each Right
(other than those owned by such Acquiring Person) will entitle its holder to
obtain Common Stock having a market value of eight times the Right's exercise
price for a purchase price equal to four times the exercise price of the Rights,
in effect allowing a Rights holder to purchase a fixed amount of the Company's
Common Stock at a discount of 50% off the market price. If a person or group
becomes an Acquiring Person (hence triggering a Flip-In Event), and thereafter
the Company is involved in a merger or other business combination with the
Acquiring Person where the Company is not the surviving entity and the holders
of the Company's Common Stock are not the holders of all of the surviving
entitys Common Stock, or the sale of 50% or more of the Company's assets and
earning power to the Acquiring Person occurs a "Flip-Over Event", each Right
(other than those owned by the Acquiring Person) will then entitle the holder to
obtain eight times the Right's exercise price for a purchase price equal to four
times the exercise price of the Rights.
10. Commitments and Contingencies
Commitments
During 1991, the Irish Development Authority ("IDA") agreed to reimburse the
Company up to approximately $740 for rent, training and fixed asset acquisition
costs incurred in conjunction with the opening of its manufacturing facility in
Cork, Ireland. The Company may be required to repay the grants if the facility
is closed within eight years of the final grant drawdown. As of December 31,
1995, the Company has received approximately $595 from the IDA under these
agreements.
In February 1992, the Company entered into a licensing agreement with IBM
pursuant to which IBM granted the Company a license to its patent covering
excimer laser ablation of tissue and the Company agreed to pay IBM a royalty of
2% of the net selling price of its Excimer Systems sold or leased in the U.S.
and certain other countries. The Company also licenses certain laser patents
from Patlex Corporation and has agreed to pay royalties, not to exceed $100 per
year, with respect to laser sales.
Contingencies
There are a number of U.S. and foreign patents covering methods and apparatus
for performing corneal surgery with excimer lasers and holmium lasers that are
not owned by the Company. If patents held by others were considered valid and
interpreted broadly in an adversarial proceeding, they could be deemed to cover
one or more aspects of the excimer laser systems ("Excimer System") or the
Company's holmium laser systems ("Holmium System") or their use to perform one
or more procedures. While the Company either owns or has obtained from Pillar
Point Partners (a partnership formed by the Company and VISX to hold certain
U.S. patents) a license to what it believes are the important U.S. patents on
laser vision correction to treat nearsightedness, also known as photorefractive
keratectomy, or PRK patents, there can be no assurance that the Company will not
be subject to one or more claims for infringement.
In the event one of the Company's products is adjudged to infringe a patent
in a particular market with the likely consequence of a damage award, the
Company and its customers may be enjoined from making, using and selling such
products in such market or be required to obtain a royalty-bearing license, if
available on acceptable terms. Alternatively, in the event a license is not
offered, the Company might be required to redesign those aspects of the products
held to infringe so as to avoid infringement. Any redesign efforts undertaken by
the Company might be expensive and could necessitate FDA review. Furthermore,
they could delay the re-introduction of the Company's products into certain
markets, or may be so significant as to be impractical. If redesign efforts were
impractical, the Company could be prevented from manufacturing and selling the
infringing products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
30
Failure to maintain the protection afforded by certain of the Companys
patents and the patents licensed to the Company and VISX by Pillar Point
Partners would have a material adverse effect on the Company's future revenues
and earnings. Further, there can be no assurance that the Company's patents (or
those licensed from Pillar Point Partners) will ultimately be found to be valid,
or that the Companys patent rights (or those licensed from Pillar Point
Partners) will deter others from developing substantially equivalent or
competitive products. Even if an unlicensed competitor's products infringe upon
the Company's patents or those of Pillar Point Partners, it may be costly to
enforce such rights. An infringement action may require the diversion of funds
from the Company's operations and may require management to expend effort that
might otherwise be devoted to the Company's operations. Furthermore, there can
be no assurance that the Company or Pillar Point Partners will be successful in
enforcing its patent rights. Any failure by the Company or Pillar Point Partners
to prevail in patent infringement actions against others, or any success by
another company in enforcing a patent infringement claim against the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations.
U.S. Patent Litigation against VISX
On August 29, 1995, the Company filed suit in the U.S. District Court for the
District of Delaware against VISX for infringement of a certain U.S. patent with
a priority date of 1995, which was purchased by the Company in 1993 ("the Azema
Patent"). The Company is seeking damages for past infringement for all excimer
lasers manufactured by VISX in the U.S. for use outside the U.S. In addition,
the Company is seeking to enjoin VISX from manufacturing and selling excimer
lasers for any purpose other than U.S. clinical trials. On October 10, 1995,
VISX filed an answer to the Company's complaint. There can be no assurance that
the Company will prevail in this proceeding.
German Patent Litigation
On August 3, 1995, a German court determined that the Schwind Keratom ophthalmic
excimer laser system distributed by Coherent, and the Chiron Technolas Keracor
116 ophthalmic excimer laser system distributed by Chiron Technolas, infringe
the German counterpart of the Azema Patent. The court has entered cease and
desist orders against Schwind and Chiron Technolas and has ordered them to pay
damages to the Company for past infringements. Both the Schwind and Chiron
Technolas excimer laser systems are manufactured in Germany. On September 5,
1995, the Company posted the requisite bond in Germany to enforce the injunction
issued against Chiron Technolas by the German court, as a result of which Chiron
Technolas is now prohibited from manufacturing, selling or using its Keracor 116
ophthalmic excimer laser systems in Germany, where its production facility is
located. Chiron Technolas and Schwind have appealed the judgment and Chiron
Technolas has also filed a nullity action with the German Patent Office.
Although the Company believes it will prevail in this nullity action, there can
be no assurance that the German Azema patent will survive the proceeding. If the
nullity action or Chiron's appeal is decided against the Company, its
infringement verdict in Germany will be overturned and it will be liable for
damages which may or may not exceed the amount of the bond. This bond is
recorded as restricted cash of $1.5 million at December 31, 1995.
Canadian Patent Litigation
On September 5, 1995, VISX sued the Company and eight Canadian ophthalmologists
who use or have used the Company's Excimer System, the Federal Court of Canada,
Trial Division, asserting that the Excimer System infringed certain Canadian
patents held by VISX. In such suit, VISX seeks, among other things, damages for
past infringement and a permanent injunction preventing the Company and the
other defendants from manufacturing, marketing, selling, using and inducing
others to use the Excimer System in Canada. The Company believes that it has
valid defenses to VISX's suit and intends to defend such action vigorously;
however, there can be no assurance that the Company will be successful. The
Company does not believe that the Canadian market is material to its business.
There can be no assurance that additional patent infringement claims in the
United States or in other countries will not be asserted against the Company,
or, if asserted, that the Company will be successful in defending against such
claims.
Pillar Point Partners
There can be no assurance that the agreements between the Company and VISX
relating to Pillar Point Partners will preclude patent disputes with VISX with
respect to technology not included in Pillar Point Partners in the U.S. or with
respect to any technology outside the U.S., or that the Company's activities
will not infringe patents held by other parties. Under the agreements
establishing Pillar Point Partners, the
31
Company must pay Pillar Point Partners a royalty fee each time its Excimer
System is used to perform laser vision correction in the U.S., regardless of
whether the Company performs the procedure. The Company intends to maintain
contractual arrangements permitting it to collect such royalty fees from
purchasers of its Excimer Systems, but, there can be no assurance that it will
be able to collect such fees.
FTC Investigation
On October 13, 1995, the Company received notice that the Federal Trade
Commission ("FTC") initiated an investigation to determine whether Pillar Point
Partners, VISX, and the Company or any of their predecessors, alone or in
conjunction with others, is engaging or has engaged in any unfair methods of
competition in violation of the Federal Trade Commission Act, relating to
certain arrangements concerning patents of devices and procedures, and/or
practices relating to the sale or distribution of certain ophthalmic surgical
devices. The FTC issued a subpoena requiring the Company to produce certain
materials and information relating to the subject matter of the investigation.
In forming Pillar Point Partners, the Company has taken measures to structure
the partnership in a manner consistent with U.S. antitrust laws. The compliance
of Pillar Point Partners with these laws will depend upon the activities of the
partners, a determination of what constitutes the relevant market for purposes
of such laws, the number and relative strength of competitors in such markets
and numerous other factors, many of which are presently unknown or are beyond
the control of Pillar Point Partners. There can be no assurance that the FTC's
investigation will ultimately lead the FTC to agree that Pillar Point Partners
complies with the U.S. antitrust laws. The Company is accordingly unable to
predict whether or not, or when, any proceeding may be brought by the FTC
following such investigation, or the scope of relief, if any, that may
ultimately be ordered in the event that any such proceeding were determined
adversely to the Company and/or Pillar Point Partners.
LaserSight Litigation
In March 1995, Pillar Point Partners sued LaserSight, Inc. for patent
infringement in the Federal District Court for Delaware. Although the suit is
based on a patent licensed to Pillar Point Partners by VISX, the Company will
share in the expenses of this litigation. In addition, the defendant,
LaserSight, Inc. has entered a declaratory judgment counterclaim challenging
Pillar Point Partners' ability to enforce its rights under one of its patents,
which counterclaim asserts, among other things, that the alleged pooling of
patents by Pillar Point Partners constitutes patent misuse. Any successful
challenge to the structure and operation of Pillar Point Partners or to its
patents could have a material adverse effect on the Company's business,
financial condition and results of operations.
11. Income Taxes
[Download Table]
The appropriate tax effect of each type of temporary difference and carryforward
that gives rise to significant portions of the deferred tax assets and
liabilities are as follows:
December 31,
1995 1994
-------------------------------------------------------------------------------
Deferred tax asset:
Net operating loss $ 12,214 $ 11,682
Research and development credit 761 685
Inventory adjustments 856 591
Warranty/other reserves 1,623 786
Other temporary differences 426 199
-------- --------
Subtotal $ 15,880 $ 13,943
Valuation allowance (15,057) (13,759)
-------- --------
$ 823 $ 184
Deferred tax liability:
Patent costs 689 76
Other temporary differences 134 108
-------- --------
$ 823 $ 184
Net deferred tax asset $ 0 $ 0
======== ========
32
Due to the uncertainty of future taxable income being generated, the
Company has recorded a valuation allowance against its deferred tax assets. The
valuation allowance for deferred tax assets as of December 31, 1993, was $8,638.
The net change in the total valuation allowance for the years ended December 31,
1995 and December 31, 1994 was $1,298 and $5,121, respectively.
At December 31, 1995, the Company had an operating loss carryforward of
approximately $32,142 available to offset future federal taxable income. The net
operating loss amount includes approximately $5,839 of employee stock option
compensation deductions which will be credited to additional paid-in capital
when realized. In addition, the Company has research and experimentation tax
credit carryforwards of approximately $761. The operating loss and tax credit
carryforwards expire in varying amounts through 2010. Pursuant to Section 382 of
the Internal Revenue Code, if there is a change in stock ownership of the
Company exceeding 50% during a three-year period, the utilization of the
Company's net operating loss may be limited. As of December 31, 1995,
utilization of the Company's net operating loss carryforward is not limited by
Section 382.
There are no unremitted earnings in the Company's subsidiaries.
12. Segment Information
During 1992, the Company classified its operations into two business segments:
medical equipment and vision correction centers. During the fourth quarter of
1995, the Company recorded an estimated $400 charge related to the closing of
its U.K. centers.
[Download Table]
Segment Information
Medical Vision
Year Ended December 31, 1995 Equipment Correction Centers Consolidated
-------------------------------------------------------------------------------
Sales $ 44,310 $ 824 $ 45,134
Loss from operations (624) (4,404) (5,028)
Depreciation and amortization 2,078 415 2,493
Identifiable assets 151,525 5,610 157,135
Capital expenditures 2,412 1,687 4,099
Year Ended December 31, 1994
-------------------------------------------------------------------------------
Sales $ 23,371 $ 839 $ 24,210
Loss from operations (13,205) (2,279) (15,484)
Depreciation and amortization 1,828 425 2,253
Identifiable assets 49,085 2,082 51,167
Capital expenditures 1,139 41 1,180
Year Ended December 31, 1993
-------------------------------------------------------------------------------
Sales $ 26,740 $ 61 $ 26,801
Loss from operations (7,502) (1,680) (9,182)
Depreciation and amortization 1,447 221 1,668
Identifiable assets 48,494 2,054 50,548
Capital expenditures 1,332 1,731 3,063
33
[Download Table]
Geographic Area
The following table summarizes financial information by geographic area:
Year Ended December 31, 1995: United States Europe Eliminations Consolidated
----------------------------------------------------------------------------------
Total revenues:
Unaffiliated customers $ 38,421 $ 6,713 $ - $ 45,134
Intercompany transfers 3,745 11,931 (15,676) -
-------- -------- -------- --------
Total $ 42,166 $ 18,644 $(15,676) $ 45,134
======== ======== ======== ========
Loss from operations $ (3,391) $ (1,255) $ (382) $ (5,028)
======== ======== ======== ========
Identifiable assets $172,365 $ 10,093 $(25,323) $157,135
======== ======== ======== ========
Year Ended December 31, 1994:
Total revenues:
Unaffiliated customers $ 19,475 $ 4,735 $ - $ 24,210
Intercompany transfers 2,426 2,364 (4,790) -
-------- -------- -------- --------
Total $ 21,901 $ 7,099 $ (4,790) $ 24,210
======== ======== ======== ========
Loss from operations $ (9,092) $ (6,493) $ 101 $(15,484)
======== ======== ======== ========
Identifiable assets $ 57,750 $ 9,109 $(15,692) $ 51,167
======== ======== ======== ========
Year Ended December 31, 1993:
----------------------------------------------------------------------------------
Total revenues:
Unaffiliated customers $ 13,965 $ 12,836 $ - $ 26,801
Intercompany transfers 6,925 2,870 (9,795) -
-------- -------- -------- --------
Total $ 20,890 $ 15,706 $ (9,795) $ 26,801
======== ======== ======== ========
Loss from operations $ (8,175) $ (1,007) $ - $ (9,182)
======== ======== ======== ========
Identifiable assets $ 51,659 $ 15,930 $(17,040) $ 50,548)
======== ======== ======== ========
Intercompany transfers represent shipments of parts and subassemblies between
the Company and its European subsidiary. These shipments are made at transfer
prices which approximate prices charged to unaffiliated customers and have been
eliminated from consolidated net revenues.
Significant Customers
For the year ended December 31, 1993, a customer accounted for 11% of total net
revenues. There were no significant customers for the years ended December 31,
1995 and December 31, 1994.
Export Sales
[Download Table]
Export sales from the Company's U.S. operation to unaffiliated customers by
geographic area were as follows:
1993
--------------------------------------------------------------------------------
Pacific Rim & Far East 20%
Europe & Mideast 8%
North and Latin America 9%
The above percentages do not include sales to unaffiliated customers made from
the Company's European subsidiary. Export sales in 1995 and 1994 were
immaterial.
34
13. Retirement Plan
In 1991, the Company established a Retirement Plan ("the Plan") for all domestic
employees under Section 401(k) of the Internal Revenue Code. Employees may
contribute from 2% to 18% of their salary subject to contribution limits defined
by the Internal Revenue Code. The Company may, at its discretion, match in cash
or its common stock 50% of an employee's contribution up to 4% of the
employee's salary. For the year ended December 31, 1995, $76 of common stock
was subscribed. For the years ended December 31, 1994 and 1993, the Company
issued common stock valued at $62 and $76, respectively representing its
matching contribution to the Plan.
14. Pillar Point Partnership
Pursuant to a partnership and licensing arrangement with VISX, the Company and
VISX are obligated to pay royalties on U.S. equipment sales and procedures
performed with such equipment in the U.S. to Pillar Point Partners. Pillar Point
Partners is jointly owned by the Company and VISX. The Company records the net
royalty liability owed to Pillar Point Partners as Cost of Revenues.
Administrative expenses paid to Pillar Point Partners are classified as
operating expenses as incurred.
15. Supplemental Cash Flow Information
For the years ended December 31, 1995, 1994, and 1993, the Company recorded the
following non cash transactions:
1995
--------------------------------------------------------------------------------
None.
1994
--------------------------------------------------------------------------------
Shares issued for patent rights of $966. Retirement of treasury stock of $305.
Notes receivable for common stock purchase of $205. Shares issued under
Retirement Plan of $62.
1993
--------------------------------------------------------------------------------
Retirement of treasury stock of $563.
Shares issued under Retirement Plan of $76.
Independent Auditors' Report
The Board of Directors and Stockholders
Summit Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Summit
Technology, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Summit
Technology, Inc. and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
February 6, 1996
35
Market for the Registrant's Common Stock and Related Security Holder Matters
[Download Table]
The Companys common stock $.01 par value ("Common Stock") is traded on the Nasdaq
National Market System, under the symbol "BEAM". The following chart sets forth
the high and low closing price for the Common Stock during the indicated
periods. This chart retroactively reflects the issuance of a dividend of one
share of the Company's common stock for every two shares of outstanding common
stock with a payment date of December 1, 1995.
Period High Low
--------------------------------------------------------------------------------
January 1 - March 31, 1995 21 21/64 19
April 1 - June 30, 1995 25 11/64 20 43/64
July 1 - September 30, 1995 33 53/64 28 53/64
October 1 - December 31, 1995 33 3/4 29 43/64
January 1 - March 31, 1994 23 53/64 18
April 1 - June 30, 1994 18 16 1/2
July 1 - September 30, 1994 22 53/64 19 11/64
October 1 - December 31, 1994 20 21/64 18 53/64
The foregoing quotations represent prices between dealers and do not include
retail mark up, mark down, or commission and may not necessarily represent
actual transactions. The actual closing price for the Common Stock on March 5,
1996 was 30 1/4. On March 5, 1996, the Common Stock was held of record by 3,902
persons and entities, including significant amounts of stock held in "street
name".
Dividend Policy
The Company has paid no cash dividends on its Common Stock since incorporation,
and does not intend to pay cash dividends to holders of its Common Stock in the
foreseeable future. It is the present policy of the Company to retain earnings,
if any, to finance expansion and growth. Payments of dividends will rest within
the discretion of the Board of Directors and will depend upon, among other
factors, the Company's earnings, capital requirements, and financial condition.
Cautionary Statements Under "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995
This Report contains information about the Companys future business prospects
including, without limitation, statements about the size of the potential
markets for laser vision correction and the Company's excimer laser systems,
the potential for significant royalty revenues, and the success of the
Company's vision correction center business. Some of these statements may be
considered "forward-looking". The following cautionary statements identify
important factors that may cause actual results to differ materially from those
reflected in, or implied by, any such forward-looking statements. The Company's
profitability and growth depend upon broad acceptance of laser vision correction
in the U.S. and there can be no assurance that laser vision correction will be
accepted by either the ophthalmic community or the general population as an
alternative to existing methods of treating refractive vision disorders.
Acceptance of laser vision correction may be affected adversely by its cost,
concerns relating to its safety and efficacy, the lack of third party
reimbursement, general resistance to surgery, the effectiveness of alternative
methods of correcting refractive vision disorders, the lack of long-term
follow-up data, the possibility of unknown side effects and the cost of the
Excimer System. Laser system sales may be negatively impacted by competition,
patent disputes, changing technologies and delays in regulatory approvals.
Participation in per-procedure royalties may be negatively impacted by
challenges to Pillar Point Partners, the Company's patents and/or the FTC's
investigation regarding Pillar Point Partners, VISX and the Company. The
Company's financial position and results of operations are likely to be
negatively impacted if the Company is unsuccessful in any of these areas.
For additional information about the risks associated with the Companys
business, please review the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, a copy of which is available from the Company without
charge.
36
Board of Directors
David F. Muller, Ph.D.
President and Chairman of the Board
Summit Technology, Inc.
Jeffrey A. Bernfeld, J.D.
Vice President and General Counsel
American Science and Engineering,
a manufacturer of x-ray based detection equipment
Richard F. Miller
Investment Executive
First Albany Corporation,
a financial services firm
John A. Norris, J.D.
John A. Norris, Esq., P.C.,
a law and public affairs consulting firm
Richard M. Traskos
Vice President
Arthur A. Watson & Co., Inc.,
a business insurance brokerage and consulting firm
Executive Officers
David F. Muller, Ph.D.
President and Chairman of the Board
Howard P. Apple, Ph.D.
Vice President, Research and Development
Rajiv P. Bhatt
Executive Vice President, Treasurer and
Chief Financial Officer
Kimberley A. Doney
Executive Vice President, Regulatory, Clinical
and Quality Affairs
John B. Frantzis
Vice President, Sales
Ron Herskowitz, O.D.
Executive Vice President, Professional Business
Development
Peter J. Klopotek, Ph.D.
Vice President, Science and Technology
Ray H. Krauss
Executive Vice President, Chief of Operations
Peter E. Litman
Executive Vice President and General Counsel
Shareholder Services
Shareholders of Summit Technology, Inc. who desire information about the Company
are invited to contact Paula Elliott, Manager of Investor Relations, Summit
Technology, Inc., 21 Hickory Drive, Waltham, MA 02154, by letter or telephone at
617-672-0518. A mailing list is maintained to enable shareholders whose stock is
held in street name, and other interested individuals, to receive quarterly and
annual reports as quickly as possible. If you would like your name added to the
list, please notify this office.
Annual Meeting
The annual meeting
of shareholders will be held on Wednesday, May 29, 1996, at 9:00 a.m. at:
Omni Parker House Hote
l60 School Street
Boston, Massachusetts
Form 10-K Report
A copy of the Annual Report on Form 10-K and other financial reports filed with
the Securities and Exchange Commission are available without charge by writing
or calling:
Investor Relations
Summit Technology, Inc.
21 Hickory Drive
Waltham, MA, 02154
Phone: 617-672-0518
Transfer Agent
The transfer agent is responsible for shareholder records and issuance of stock
certificates. Shareholder requests concerning these matters are most efficiently
answered by corresponding directly with American Stock Transfer at the following
address:
American Stock Transfer and Trust Co.
40 Wall Street
New York, NY 10005
212-936-5100
Summit Technology, Inc.
21 Hickory Drive
Waltham, Massachusetts 02154
Dates Referenced Herein and Documents Incorporated by Reference
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