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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from _____________ to______________
Commission file number: 001-12189
IMAGE GUIDED TECHNOLOGIES, INC.
(name of small business issuer in its charter)
COLORADO 84-1139082
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5710-B FLATIRON PARKWAY, BOULDER, CO 80301
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 447-0248
Securities registered under Section 12(b) of the Exchange Act:
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Title of Each Class Name of Each Exchange On Which Registered
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Common Stock, no par value The Boston Stock Exchange
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Securities registered under Section 12(g) of the Exchange Act: None
Check whether Image Guided Technologies, Inc. (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $6,432,000.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $4,061,945 as of March 27, 2000.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,061,945 shares of common stock, no
par value, were outstanding on March 27, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check one): Yes ___; No X
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Table of Contents
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Item Page
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Part I 1. Description of Business 1
2. Description of Property 7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security 7
Holders
Part II 5. Market for Common Equity and Related Stockholder 8
Matters
6. Management's Discussion and Analysis or Plan of 9
Operation
7. Financial Statements 14
Part III 8. Changes In and Disagreements With Accountants on 30
Accounting and Financial Disclosure
9. Directors, Executive Officers, Promoters and 30
Control Persons; Compliance With Section 16(a)
of the Exchange Act.
10. Executive Compensation 32
11. Security Ownership of Certain Beneficial Owners 34
and Management
12. Certain Relationships and Related Transactions 36
13. Exhibits and Reports on Form 8-K 37
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Image Guided Technologies, Inc. (the "Company") was incorporated in
Colorado in 1990, and until December 1997, substantially all its revenues were
derived from sales of 3D optical measurement devices ("optical localizers")
manufactured at the Company's Boulder, Colorado facility (the Company's Boulder,
Colorado operations are sometimes referred to as "IGT"). In December 1997, the
Company purchased all the stock of Brimfield Precision, Inc. ("BPI"). BPI
manufactured general instruments and orthopedic implants and orthopedic
instrumentation at its Brimfield, Massachusetts facility and minimally invasive
surgical instruments at its Springfield, Massachusetts facility.
On September 24, 1998 the Company adopted a plan to sell the net assets of
the general instrument and implant business units of Brimfield and to retain the
surgical instruments operation in Springfield, Massachusetts. The plan was
effected on March 30, 1999 with the closing of the sale and changing of the name
of the retained operation to Springfield Surgical Instruments, Inc. ("SSI" or
"Springfield"). The Company has continued the SSI operations with a focus on the
manufacture of minimally invasive surgical instruments. The general instrument
and implant business units of Brimfield represented a separate major line of
business, and, accordingly, are reflected in the accompanying consolidated
financial statements as a discontinued operation.
OPTICAL LOCALIZERS. IGT's optical localizers have both medical and
industrial applications and typically consist of the following: a proprietary
microprocessor-based control system, proprietary software to calculate the
digital coordinate location of light emitting diodes ("LEDs"), a multi-camera
array for detecting the LED emissions, a relative position dynamic reference
device connected to the measured object, and a number of custom-manufactured
LEDs mounted on the device or instrument to be tracked in 3D space.
IGT's FlashPoint-Registered Trademark- localizer is a key component of
the anatomical image display workstation used by physicians to perform image
guided surgery, a specialty procedure in the field of minimally invasive
surgery. When the FlashPoint localizer is combined with the imaging software
provided by IGT's customers, the location of specially designed surgical
instruments can be tracked in relation to the patient's anatomy during
surgical procedures by display as an overlay on a magnetic resonance imaging
("MRI") or computerized tomography ("CT") image. IGT's Pixsys-TM- localizer
is used in industrial applications to measure the position or shape of
objects in 3D space.
Other sources of revenue are from technology licensing fees and Springfield
manufactured instruments used in minimally invasive surgery.
IMAGE GUIDED SURGERY
In image guided surgery, a surgeon tracks the location of specially
designed surgical instruments on the medical image (such as CT or MRI). Image
guided surgery requires a method for registering (i.e., mapping) the points in
the medical image onto the patient's anatomical physical space and a method for
localizing (i.e., determining the position in 3D space) the surgical instrument.
Knowing the exact position of the probe or pointer is key to the successful
completion of a surgical procedure.
Image guided surgery, by allowing the patient's CT, MRI or other medical
image to be used as a map, provides the surgeon with a real-time visual
representation of the surgical probe or pointing device on the interactive
medical image. It allows the spatial position of the instrument to be tracked
during the surgical procedure and to be
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displayed as an overlay on the medical image shown on the workstation. The
medical image may either be historical (i.e., pre-operative), or real-time
(i.e., intraoperative).
PRODUCTS
OPTICAL LOCALIZERS. The FlashPoint and Pixsys localizers consist of a
number of LEDs used as markers mounted on a pointer device or surgical
instrument, a relative position dynamic reference device (the "Dynamic
Reference Frame-Registered Trademark-") connected to the measured object (a
patient in a medical application or a part in an industrial application), a
multi-camera array for detecting the X, Y and Z positions of the LEDs, a
proprietary microprocessor based control system, and a proprietary,
internally developed, software package. IGT's optical localizer is an input
subsystem providing real-time mathematical coordinates to a host computer.
IGT's optical localizer determines the position of the hand-held probe or
surgical instrument and the patient reference device by tracking the X, Y and
Z coordinates of each infrared light emitting diode mounted on the probe or
surgical instrument and reference device. It then communicates this position
in the form of X, Y and Z coordinates to the host computer. Most localizer
models sold by the Company are customized prior to delivery to satisfy
customer requirements.
IGT provides various instruments, such as probes and pointers, containing
LEDs and dynamic reference frames as component parts to its optical localizers.
For both medical and industrial applications, the LEDs are placed on the
instrument, and the distance between the LED and the tip of the instrument is
precisely calibrated. The medical instruments are designed to be reused on a
limited basis, while an industrial instrument can normally be reused until it no
longer fulfills its intended use. The Company began offering cordless
instruments for use with its medical optical localizers in early 1999.
MINIMALLY INVASIVE SURGICAL INSTRUMENTS. Springfield's instruments are
used mainly in minimally invasive surgical procedures. Springfield controls
all aspects of the manufacturing process from machining through finishing,
including in-house passivation and laser marking.
CUSTOMERS AND USE
OPTICAL LOCALIZERS AND IMAGE GUIDED INSTRUMENTS: IGT sells most of its optical
localizers and image guided instruments to original equipment manufacturers
("OEMs"). During 1999, approximately 83% of IGT's total revenues were derived
from its six largest customers. IGT's FlashPoint product is used to determine
the position in 3D space of the surgical probe or instrument. The FlashPoint
5000 medical optical localizer is a component integrated into several medical
devices. Sales of localizers and related instruments to medical customers
constituted approximately 79% of IGT sales in 1999. Some medical customers and
illustrative uses are set forth below:
CARL ZEISS, OBERKOCHEN, GERMANY. The Company's FlashPoint product is an integral
and key component of the Zeiss Stereotactic System. By combining imaging
diagnostic data with powerful computers, precision optics and finely crafted
hand-held instrumentation, Zeiss has created a product enhancement to its
operating microscope line. Recent shipments to Zeiss have been comprised of
image guided instruments and upgrades to previously supplied optical localizers.
GE MEDICAL SYSTEMS (GEMS), MILWAUKEE, WISCONSIN. In 1993, GEMS introduced its
magnetic resonance guided therapy ("MRT") system which provides direct physician
access to the patient during imaging, giving a real-time, internal view of
patients for procedures such as needle biopsies. MRT is currently used to plan,
guide and monitor surgical procedures in a minimally invasive manner. FlashPoint
is being used by GEMS for the guidance system in its MRT device. The Company is
currently providing image guided instruments to previously supplied optical
localizers.
RADIONICS SOFTWARE APPLICATIONS, INC., IN BURLINGTON, MASSACHUSETTS. Radionics
employs the FlashPoint in the Radionics Optical Tracking System for Frameless
Stereotaxy. This real-time, free-hand stereotaxy system is primarily
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used in neurosurgical applications. Radionics was recently purchased by Tyco
International, Inc. No optical localizers have been provided since the purchase.
SOFMAR DANEK-A SUBSIDIARY OF MEDTRONIC, HEADQUARTERED IN MEMPHIS, TENNESSEE.
Sofmar Danek incorporates IGT's Flashpoint system into an image guided system
which is marketed through Xomed, Inc., for use in Functional Endoscopic Sinus
Surgery (FESS).
STRYKER INSTRUMENTS, INC. IN KALAMAZOO, MICHIGAN. Stryker, a new customer to IGT
in 1999, employs the FlashPoint in the Stryker proprietary navigational system.
SURGICAL NAVIGATION NETWORK, INC. (SNN) IN ONTARIO, CANADA. SNN supports
companies who want to avail themselves of a standard image guided surgery
technology/performance platform. IGT pays an annual fee to be a member of this
consortium. SNN purchases a custom instrument set developed by IGT's wholely
owned subsidiary, Springfield Surgical Instruments, Inc. and IGT's optical
localizer system used in Carl Zeiss' Stereotactic System sold in the North
American market.
INDUSTRIAL APPLICATIONS: IGT's Pixsys product is used to determine the shape or
position of an object by rapidly collecting a large number of points on the
object's surface or locating a particular location on the object. Sales of
localizers and related accessories to industrial customers constituted
approximately 21% of IGT's revenues in 1999. A key industrial customer and
illustrative use is set forth below:
NU-TECH INDUSTRIES, INC. ("BREWCO"), CENTRAL CITY, KENTUCKY (A WHOLLY-OWNED
SUBSIDIARY OF SNAP-ON INCORPORATED). In a variation of its standard product
offering for automobile collision repair, Brewco has created the Wolf frame
straightening system. The Wolf incorporates a Pixsys localizer into its system
to measure the extent of damage caused by a collision and indicate to the system
operator the progress of the straightening operation. IGT has granted Snap-On
Technologies an exclusive license to its technology for the automotive, truck
and golf cart field of use. See "Description of Business-Intellectual Property".
MINIMALLY INVASIVE SURGICAL INSTRUMENTS: The two largest customers for minimally
invasive surgical instruments in 1999 were Davol, Inc., a subsidiary of Bard
International, and V. Mueller, a subsidiary of Allegiance Healthcare
Corporation. Both companies are expected to remain significant customers in
2000.
MARKETING AND SALES
IGT's marketing strategy focuses on selling its localizers to OEM
customers. Springfield is a contract manufacturer for medical supply companies.
None of the Company's customers has entered into a long-term minimum purchase
agreement with the Company. Accordingly, purchases from the Company by customers
in any prior period may not be indicative of orders or purchases in any future
period, and there can be no assurance that these companies will remain customers
of the Company.
BACKLOG
At December 31, 1999, the Company's backlog was approximately
$1,047,000. Backlog can fluctuate depending upon how customers order their
products and over what period of time, therefore the Company does not
necessarily consider backlog to be indicative of future sales.
COMPETITION
IGT's primary competitor in the medical OEM localizer market is Northern
Digital Inc. ("NDI"). NDI markets a localizer to the medical OEM marketplace
named the Polaris, an infrared based optical localizer using two two-dimensional
CCD cameras. Medical device companies have also developed their own optical
localization devices
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for their image guided surgery systems. Companies have also attempted to use
other systems as localization devices for medical applications.
The competition for the contract manufacturing of surgical instruments
provided by Springfield is, in general, from other machine shops that can
manufacture product to a customer's design specifications.
The methods of competition for the Company are in general based on quality,
price and delivery.
MANUFACTURING AND SUPPLIERS
IGT's localizer manufacturing activities primarily consist of assembling
and testing components and subassemblies acquired from qualified vendors, as
well as final assembly and testing of the Company's fully-configured systems.
Components are generally available from several sources, although the order
lead-time for the semi-custom isolated power supply used in the FlashPoint 5000
varies from four to six months.
IGT uses a coordinate measurement machine ("CMM") to improve the
calibration process for products being shipped to its customers. The CMM gives
IGT a final calibration capability which is traceable to National Institute of
Standards and Technology standards. The CMM system is also used by IGT for
research and development projects.
Springfield's surgical instruments manufacturing activities primarily
consist of assembling components, machining high quality titanium and cobalt
chrome alloys, or some combination thereof, and finishing the product to include
passivation and laser marking. Raw materials are generally available from many
suppliers.
Springfield utilizes several types of high-technology machine tools in its
manufacturing operations. Its computer numerically controlled ("CNC") machines
are programmable milling and turning machines used to remove metal according to
pre-programmed specifications. CNC machines typically require less machine
operator time and produce less variation in the final product. Its electrical
discharge machines ("EDMs") typically produce contoured shapes to very close
manufacturing tolerances through programmed procedures. EDMs minimize the
secondary finishing operations required on the final product.
INTELLECTUAL PROPERTY
IGT's optical localizer is a complex measuring device. Its software
contains elaborate mathematical modeling and its manufacture requires precise
production and careful calibration. IGT primarily relies on a combination of
trade secret and copyright laws, together with non-disclosure agreements, to
establish and protect proprietary rights in its localizer.
The Company currently has been issued ten patents. See "Management's
Discussion and Analysis or Plan of Operation-Forward Looking Statements".
U.S. Patent #5,987,349 issued in 1999 describes a system for sensing at
least two points on an object for determining the position and orientation of
the object relative to another object.
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U.S. Patent #5,920,395 issued in 1999 provides for locating and displaying
the relative positions of two objects in a three-dimensional space where one
object is a three-dimensional object and the second object has at least three
collinear points, at least two of which are sensible by a detector.
U.S. Patent #5,907,395 issued in 1999 provides for improved point source
electromagnetic radiation emitters including a dispersing element that radiates
electromagnetic radiation over a very wide conical angle approaching about 180
degrees.
U.S. Patent #5,622,170 issued in 1997 describes an optical system for
determining the location and orientation of one object (such as a medical probe)
relative to another object (such as a patient), where the first object has an
invasive portion which is partially inside the second. A display device
connected to a computer graphically indicates the location of a representation
of the probe with respect to a model of the second object.
U.S. Patent #5,617,857 issued in 1997 describes a "smart" 3-D probe (such
as a medical instrument) which contains a memory module which can store its
serial number, calibration data, and similar information in a computer-readable
form. The patent also provides for interchangeable tips or other workpieces
which can be identified electronically.
U.S. Patent #5,263,967 issued in 1993 describes a medical instrument
utilizing a dual action drive mechanism that actuates two jaws or blades that in
turn move rotationally relative to each other and a center pivot point.
U.S. Patent #5,198,877 issued in 1993 is a non-contact, laser based,
hand-held 3D localizer that allows the user to acquire simply and easily a
multitude of points on the surface of an object or anatomy by sweeping a
hand-held scanner over the desired target. U.S. Patent RE35,816 is a reissue of
this patent, which broadens its claims and was issued in 1998.
U.S. Patent #5,054,906 issued in 1991 describes an indirectly illuminating
ophthalmological speculum used for opening the eyelids to permit access to the
eye and for illuminating the eye.
U.S. Patent #4,770,174 issued in 1988 describes rotary cutting scissors
used for surgical procedures in which soft tissue needs to be cut. The inner
blade rotates against the outer blade through the use of a unique helical drive
mechanism.
U.S. Patent #4,499,899 issued in 1985 describes a fiber-optic illuminated
microsurgical scissor used in surgery to illuminate the surgical site so that
the surgeon can more clearly see the site.
In July 1999, IGT granted Snap-on Technologies an exclusive license for its
technology for use in the automotive, truck and golf cart market. Snap-on plans
to set up its own manufacturing arrangements for the optical localizers, but in
the interim IGT is continuing to sell localizers to Brewco. See "Management's
Discussion and Analysis or Plan of Operation-Other Matters".
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GOVERNMENT REGULATION
IGT's FlashPoint localizer is incorporated into medical devices that are
subject to extensive regulation by the United States Food and Drug
Administration (the "FDA") and corresponding foreign organizations in the
countries to which the devices are exported. The FDA regulates the processes of
design, manufacture, labeling, clinical testing, distribution and promotion of
medical devices. Before a new device or significantly modified device can be
introduced into the market, the manufacturer must generally obtain clearance
through either the 510(k) premarket notification process or the more rigorous
premarket approval application process. Medical device customers that
incorporate the Company's products may be subject to regulation by the FDA.
Medical devices which incorporate IGT products, and are sold into the
European Union and other international markets, must comply with additional
standards and regulations. Some of the compliance requirements include the
European Economic Community Medical Device Directive (MDD), International
Electrotechnical Commission (IEC), conformity assessment (CE MARK), and
ISO9000/EN46001 guidelines.
Springfield is registered as an original equipment manufacturer and
contract manufacturer with the FDA. The scope of Springfield manufacturing
includes FDA Class III general surgical instrumentation. Some of the products
sold by Springfield are sold pursuant to a Springfield 510 (k) premarket
notification. Springfield is a certified ISO 9001 organization.
IGT Boulder, Colorado operations became ISO 9001 certified in August, 1999.
RESEARCH AND DEVELOPMENT
For the fiscal years ended December 31, 1999 and 1998, the Company expended
$1,272,000 and $1,470,000, respectively, on research and development activities.
Some of the Company's customers may, at times, pay for research and development
activities related to specific applications of the Company's localizer
technology.
IGT has developed core competencies in software development, mathematical
modeling of the 3D measurement process, digital signal processing, circuit
design, computer system integration, and 3D optical sensor system development.
Outside consultants and contract engineering are employed, when needed, for
optical system design, surgical instrument development and safety engineering.
IGT's engineers work closely with its OEMs to assist in the integration of IGT's
products with customer systems and to identify new applications for IGT's
products.
In addition to improving functionality, IGT's product development
engineering staff continues to refine the overall accuracy of its localizer.
Improvements in the sensor array design, emitter technology, calibration and
position calculation algorithms are expected to continue to improve the accuracy
of the system.
EMPLOYEES
At December 31, 1999, the Company had 47 employees, of which 45 were
full-time and 2 part-time. IGT employs thirty-four employees and Springfield
employs thirteen employees.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 18,000 square feet within a 133,000 square
foot multi-tenant facility in Boulder, Colorado, where it performs all
development, manufacturing and marketing activities related to its optical
localizers. In addition to base rent, the Company pays its pro-rata share of
building operating expenses, insurance and taxes and its own utilities. Monthly
base rent is as follows: $16,406 from May 1999 through April 2000, $15,356 from
May 2000 through April 2001, and $16,124 from May 2001 through April 2002.
Springfield leases approximately 14,000 square feet in a facility in
Springfield, Massachusetts. The current lease for the Springfield facility has
approximately 2 years remaining. In addition to base rent, Springfield pays its
pro-rata share of building operating expenses, taxes and utilities. Monthly base
rent is $4,927 through December 2001.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to one pending legal proceeding. This case was filed
in the Chancery Court for the State of Tennessee in Davidson County on October
27, 1998. Plaintiff was an exclusive sales representative for Defendant,
Springfield Surgical Instruments, Inc. f/k/a Brimfield Precision, Inc., for
certain products in Defendant's Principle and Principle Advantage line of
surgical instruments. Plaintiff claims the products were defective and sued
Defendant for breach of contract, breach of express and implied warranties,
negligent misrepresentation, fraud and violations of the Tennessee Consumer
Protection Act. In January 2000, Plaintiff filed a Motion for Summary Judgment
claiming the instruments sold by Defendant were defective and seeking to return
the instruments in its possession and to obtain, in addition to other damages, a
refund of the purchase price paid of $101,186.71. Defendant filed a motion
opposing Plaintiff's Motion of Summary Judgment claiming, among other things,
that the instruments were not defective. The judge denied Plaintiff's Motion,
and the trial is currently scheduled for June 26, 2000. The Company is currently
unable to determine (i) the ultimate outcome or resolution of this legal
proceeding, (ii) whether resolution of this matter will have a material adverse
impact on the Company's financial position or results of operations, or (iii) a
reasonable estimate of the amount of loss, if any, that may result from
resolution of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 1999, no matters were submitted to a vote of
security holders.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock currently trades on the over-the-counter market
under the symbol "IGTI" and on the Boston Stock Exchange under the symbol "IGK."
The Company's common stock was delisted from the Nasdaq SmallCap Market on
December 28, 1998 because the Company did not meet the requirement of at least
$2,000,000 in net tangible assets and a minimum bid stock price of $1.00 per
share.
The following table sets forth, for the quarters indicated, the range of high
and low bid prices of the shares of the Company's common stock as reported by
Nasdaq, for 1998 except the "low" for the fourth quarter of 1998 is from the
over-the-counter market. The prices for 1999 are from the over-the-counter
market. Such bid prices reflect inter-dealer quotations, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
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HIGH LOW
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1998
First quarter........................... $ 3.63 $ 2.00
Second quarter.......................... $ 3.13 $ 1.63
Third quarter........................... $ 2.56 $ 0.50
Fourth quarter.......................... $ 0.88 $ 0.09
1999
First quarter........................... $0.75 $0.13
Second quarter.......................... $0.63 $0.22
Third quarter........................... $0.47 $0.19
Fourth quarter.......................... $1.50 $0.38
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No dividends were declared on the Company's Common Stock during the fiscal
years ended December 31, 1999 and 1998. The Company expects that it will retain
any available earnings generated by its operations for the development and
growth of its business and does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Any future determination as to dividend
policy will be made at the discretion of the Company's Board of Directors and
will depend on a number of factors, including the future earnings, capital
requirements, financial condition and business prospects of the Company.
On December 31, 1999, the Company had approximately 85 shareholders of
record.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
The following table sets forth for the periods indicated certain line items
derived from the Company's statement of operations as a percentage of the
Company's revenues.
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YEAR ENDED
DECEMBER 31,
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1999 1998
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Revenue 100.0% 100.0 %
Cost of Goods Sold 59.9% 61.4 %
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Gross Profit 40.1% 38.6 %
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Operating Expenses:
Research and Development 19.8% 20.6%
Selling and Marketing 15.9% 10.1%
General and Administrative 26.4% 25.4%
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Total Operating Expenses 62.0% 56.1%
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Operating Loss (21.9%) (17.5%)
Other Expense (4.8%) (8.3%)
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Loss from Continuing Operations (26.7%) (25.8%)
Income from Discontinued Operations 2.5% 2.6%
Income, (Loss) on disposal of Discontinued 10.4% (61.6%)
Operations
Extraordinary item - loss on early 0.0% (3.5%)
extinguishment of debt
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Net Loss (13.8%) (88.3%)
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RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998. Revenue decreased by $722,000, or
approximately 10%, to $6,432,000 for the year ended December 31, 1999, as
compared to $7,154,000 for the year ended December 31, 1998. The increases in
revenue associated with higher sales of optical localizer products and the
recognition of technology licensing and non-recurring engineering fees were more
than offset by a decrease in surgical instrument sales due to the loss of a
major customer.
The cost of goods sold decreased by $545,000, or approximately 12%, to
$3,850,000 for the year ended December 31, 1999, compared to $4,395,000 for the
year ended December 31, 1998. The cost of goods sold as a percentage of revenue
decreased to 60% for the year ended December 31, 1999, as compared to 61% for
the year ended December 31, 1998. The decrease in cost of goods sold was
primarily attributable to a change in the revenue mix as 12% of the annual
revenue in 1999 resulted from technology licenses and non-recurring engineering
fees where the cost of the revenue is lower than product/systems sales.
Partially offsetting the favorable revenue mix was a relatively high cost of
sales ratio for Springfield which provided a lower gross margin compared to the
other Company products.
Gross profit decreased by $177,000, or approximately 6%, to $2,582,000 for
the year ended December 31, 1999, compared to $2,759,000 for the year ended
December 31, 1998.
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Research and development expenses decreased by $198,000, or approximately
13%, to $1,272,000 for the year ended December 31, 1999, compared to $1,470,000
for the year ended December 31, 1998. The impact of the reduction in engineering
personnel in the third quarter of 1998 partially offset the spending incurred
for base technology enhancement and product/software customization required to
satisfy customer requirements.
Selling and marketing expenses increased by $300,000, or approximately 41%,
to $1,023,000 for the year ended December 31, 1999, compared to $723,000 for the
year ended December 31, 1998. This increase was primarily attributable to the
addition of two sales personnel in 1999 coupled with increased spending to
broaden the customer base.
General and administrative expenses decreased by $120,000, or approximately
7%, to $1,696,000 for the year ended December 31, 1999, compared to $1,816,000
for the year ended December 31, 1998. The decrease was primarily due to a
decrease in the number of personnel during 1999 utilized to support this
functional activity.
The operating loss increased by $159,000 to ($1,409,000) for the year ended
December 31, 1999, compared to ($1,250,000) for the year ended December 31,
1998. This decrease was primarily attributable to reduced revenue partially
offset by lower cost of sales and a 2% increase in the spending for operating
expenses.
Other income, (expense), net, decreased by $282,000 to ($309,000) for the
year ended December 31, 1999, compared to ($591,000) for the year ended December
31, 1998. This change was primarily due to reduced interest expense to support
the debt associated with continuing operations.
As a result of the foregoing, the loss from continuing operations decreased
to ($1,718,000) for the year ended December 31, 1999 (a reduction of $123,000 or
7%), compared to ($1,841,000) for the year ended December 31, 1998.
The income (loss) from discontinued operations represents the results of
operations and loss on disposal of the general surgical instruments, orthopedic
implants and orthopedic instrumentation business which the Company sold in March
1999. The Company recorded an estimated net loss of $(4,411,000) for 1998 on the
disposal of this business. The gain for 1999 resulted from a reduction of the
loss on the disposal of assets compared to the previously estimated loss
recognized in 1998.
The Company realized an extraordinary loss of $253,000 during 1998 related
to warrant costs associated with the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
IGT has incurred a deficit of $9,974,000 from its inception through
December 31, 1999 and had a working capital deficit of $571,000 at December 31,
1999.
During the past year, the Company has paid down its bank obligations and
financed its losses from continuing operations through a combination of the sale
of BPI's business units located in Brimfield, Massachusetts, the technology
license fees received from Snap-on Technologies and other methods set forth
below.
In June, 1999 the Company sold certain of its equipment pursuant to a sale
and leaseback agreement for $200,000. Also, in June, 1999 the Company entered
into lease based financing agreements for the purchase of equipment for
approximately $125,000. Pursuant to these lease based financing agreements, the
Company committed to make monthly lease payments of approximately $8,400 for a
period of 60 months. At the conclusion of the lease period, the ownership of the
leased equipment will revert to the Company for a nominal charge.
In the third quarter of 1999, the Company entered into a development and
supply agreement with a customer pursuant to which the customer funded the
customization required to incorporate the Company's optical localizer into the
customer's product. The Company intends to continue to pursue this program with
selected
10
<PAGE>
customers who request unique customization of the Company's core technology. All
resource requirements will be funded directly by the customer. It is anticipated
that the ownership of the unique technology adaptation/customization will be
transferred to the customer with the ownership of the core technology retained
by the Company.
In February 2000, a customer made a partial prepayment on an order in the
amount of $250,000. IGT agreed to pay interest on the prepayment at the rate of
10% per annum until the product is shipped and, in the event of default, such
customer will be granted an exclusive royalty-free license to certain of its
patents and patent applications until the product has been shipped or the
prepayment repaid.
The Company is currently in default under its $500,000 12% subordinated
promissory note payable to Cruttenden Roth, Inc. While interest has been paid to
date, the Company owes the $500,000 principal in full. The note is subordinated
to the Company's bank debt and the holders of the note are not permitted under
the terms of the subordination agreement with the bank to sue upon or collect,
nor to make any demand for, nor to exercise any rights or remedies to enforce,
the note so long as any bank obligation remains outstanding.
The Company is pursuing various alternatives to raise cash to fund
operations and pay its obligations to suppliers and for other corporate
purposes.
ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires the recognition of all
derivatives as either assets or liabilities in the statement of financial
position at fair value. This statement is effective for the Company's financial
statements for the year ending December 31, 2000 and the adoption of this
standard is not expected to have a material effect on the Company's financial
statements.
OTHER MATTERS
On December 12, 1997, the Company finalized the acquisition of all the
outstanding stock of Brimfield Precision, Inc. ("BPI") for a purchase price of
approximately $9,844,000 (including expenses related to the acquisition),
consisting of approximately $8,069,000 in cash, $500,000 in a subordinated note
payable to Cruttenden Roth, Inc. ("Cruttenden") and 579,710 shares of the
Company's common stock. BPI sold surgical instruments and implants to medical
supply companies. Prior to its sale to the Company, BPI was owned by William and
Matthew Lyons. William Lyons had a one-year employment contract, which expired
in December 1998, with BPI as its President and is a director of the Company.
To finance the acquisition, the Company entered into a secured loan
agreement with Imperial Bank under which Imperial Bank loaned the Company
$4,000,000 pursuant to a three-year term loan and up to $2,000,000 pursuant to a
revolving loan payable on or before June 30, 1999. The Company paid Cruttenden a
$300,000 finder's fee for introducing the Company to, and advising the Company
in negotiations with, Imperial Bank. The Company issued a one-year $500,000
subordinated note to Cruttenden to pay the finder's fee and an additional
$200,000 advisory fee owed to Cruttenden. In connection with the loan and
subordinated note, the Company issued a seven-year warrant for 160,000 shares of
the Company's common stock with an exercise price of $2.92 per share to Imperial
Bank and an one-year warrant for 100,000 shares of the Company's common stock
with an exercise price of $2.92 per share to Cruttenden. On March 15, 1998, the
Company issued to Imperial Bank an additional seven-year warrant for 80,000
shares of the Company's common stock with an exercise price of $2.65 per share
and on March 31, 1998 a seven-year warrant for 10,000 shares of the Company's
common stock with an exercise price of $2.86 per share.
11
<PAGE>
On April 3, 1998, Imperial Bank assigned its loan to BankBoston. After the
assignment, BankBoston and the Company amended and restated the loan to provide
for a $2,700,000 sixty-month term loan.
On September 24, 1998, the Company adopted a plan to sell the net assets of
BPI's general surgical instrument, orthopedic implant and orthopedic
instrumentation businesses located at Brimfield, Massachusetts. The Company sold
the businesses on March 30, 1999. The sale price was $6,158,000 in cash plus
assumption of certain trade payables and accrued liabilities, totaling $449,000.
As a result of the sale of BPI's general surgical instrument, orthopedic
implant and orthopedic instrumentation businesses located at Brimfield,
Massachusetts, the Company paid off amounts outstanding under its equipment
leases, paid off its term loan with BankBoston and paid down its revolving loan
with BankBoston. On April 9, 1999, the Company owed BankBoston $505,000 on its
revolving loan.
On April 9, 1999, BankBoston assigned its loan to Silicon Valley Financial
Services, a division of Silicon Valley Bank. After the assignment, Silicon and
the Company amended and restated the loan to provide for a loan facility under
which Silicon would purchase certain of the Company's receivables, initially at
rates of 90% and subsequently decreasing to 80% of their face amount. Under the
facility, the Company will repurchase from Silicon any uncollected receivables
and pay Silicon a finance charge equal to 2% per month on the face amount of all
purchased receivables and an administrative fee of 1.5% of the face amount of
each purchased receivable. Silicon has no obligation to purchase any receivable
under the facility and in no event shall the aggregate amount of all purchased
receivables outstanding exceed $650,000.
In July 1999, the Company entered into an exclusive licensing agreement
with Snap-on Technologies for the automotive, truck, and golf cart market. Under
the terms of the agreement, the Company was to receive three equal payments
totaling $500,000 as a license fee. As a result of a settlement of issues
between the parties, the final payment was reduced from $166,667 to $112,000.
FORWARD-LOOKING STATEMENTS
The Company may, in discussions of its future plans, objectives and
expected performance in periodic reports filed by the Company with the
Securities and Exchange Commission (or documents incorporated by reference
therein) and in written and oral presentations made by the Company, include
projections or other forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act
of 1934, as amended. Such projections and forward-looking statements are based
on assumptions which the Company believes are reasonable, but are by their
nature inherently uncertain. In all cases, there can be no assurance that such
assumptions will prove correct or that projected events will occur, and actual
results could differ materially from those projected. Some of the important
factors that could cause actual results to differ from any such projections or
other forward-looking statements follow.
LOSSES DURING 1998 AND 1999; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS.
The Company lost ($1,718,000) in 1999 and ($1,841,000) in 1998 from continuing
operations. There can be no assurance the Company will generate sufficient
revenue to attain profitability. In addition, because the Company generally
ships its products on the basis of purchase orders, operating results in any
quarter are highly dependent on orders booked and shipped in that quarter and,
accordingly, may fluctuate materially from quarter to quarter. The Company's
operating expense levels are based on the Company's internal forecasts of future
demand and not on firm customer orders. Failure by the Company to achieve these
internal forecasts could result in expense levels which are inconsistent with
actual revenues. Moreover, the Company's results may also be affected by
fluctuating demand for the Company's products, declines in the average selling
prices for its products, by changes in product mix sold, by increases in the
costs of the components and subassemblies acquired by the Company from vendors,
and by availability of such component and subassemblies from vendors.
12
<PAGE>
BANK DEBT. The Company is currently borrowing money from Silicon Valley
Financial Services, a division of Silicon Valley Bank through an arrangement by
which it sells its outstanding accounts receivable to Silicon. The arrangement
is expensive and Silicon has no obligation to purchase any receivable. While the
Company hopes to be able to obtain a more favorable banking arrangement, there
can be no assurance that it will be successful.
NEED FOR ADDITIONAL CAPITAL. The Company will need additional capital to
satisfy its obligations to Cruttenden Roth, Inc. and to meet its other capital
requirements. There can be no assurance that such capital will be available on
reasonable terms, or at all.
DEPENDENCE ON FEW CUSTOMERS. The Company realizes a majority of its
revenues by sales to relatively few customers. None of these customers has
entered into any long term minimum purchase agreements with the Company. The
loss of, or substantial diminution of purchases from the Company by, any of
these customers could have a material adverse effect on the Company.
TECHNOLOGICAL CHANGE IN THE MEDICAL INDUSTRY AND IN THE COMPANY'S PRODUCT.
There can be no assurance that the Company's competitors will not succeed in
developing or marketing products or technologies that are more effective and/or
less costly and which render the Company's products obsolete or non-competitive.
In addition, new technologies and procedures could be developed for medical and
other industries that replace or reduce the value of the Company's products. The
Company's success will depend in part on its ability to respond quickly to
technological changes through the development and improvement of its products.
The Company believes that a substantial amount of capital will be required to be
allocated to such activities in the future.
INTELLECTUAL PROPERTY RIGHTS. The Company does not have any patents which
directly cover its FlashPoint or Pixsys optical localizers. The Company
primarily relies on a combination of trade secret and copyright laws, together
with nondisclosure agreements to protect its know-how and proprietary rights.
There can be no assurance that such measures will provide adequate protection
for the Company's intellectual property rights, that disputes with respect to
ownership of its intellectual property rights will not arise, that the Company's
trade secrets or proprietary technology will not otherwise become known or be
independently developed by competitors or that the Company can otherwise
meaningfully protect its intellectual property rights. Furthermore, there can be
no assurance that others will not develop similar products or software,
duplicate the Company's products or software or that third parties will not
assert intellectual property infringement claims against the Company . Moreover,
there can be no assurance that any patent owned by, or issued to, the Company
will not be invalidated, circumvented or challenged, or that the rights granted
thereunder will provide meaningful competitive advantages to the Company.
A patent granted to St. Louis University ("SLU Patent"), and subsequently
licensed to a company acquired by Sofamor Danek, one of the Company's major
customers, covers, in general, a particular technique for determining the
position of a surgical probe within a patient's body on a historical image of
that body. Sofamor Danek has sued BrainLab GmbH for infringement of this patent.
The Company's documents have been subpoenaed and Waldean Schulz, Ph.D. Vice
President-Technology of the Company, has had his deposition taken in connection
with such lawsuit. In 1995, the Company assigned to St. Louis University all
right, title and interest it had in the SLU Patent. There can be no assurance
that Sofamor Danek may not challenge the Company's ownership of certain of its
patents based on such assignment. The Company is not in a position to evaluate
what effect this lawsuit, or any further lawsuits, will have on its customers or
whether it will become a defendant in any lawsuit involving this patent or any
of the Company's patents.
Litigation may be necessary to protect the Company's intellectual property
rights and trade secrets, to determine the validity and scope of the proprietary
rights of others or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources,
regardless of the outcome of the litigation. If any claims are asserted against
the Company, the Company may be required to obtain a license under a third
party's intellectual property rights. However, such a license may not be
available on reasonable terms or at all.
13
<PAGE>
CLAIM BY DANIEL HANNIFY. The Company and Springfield have received a notice
of claim pursuant to a December 1, 1997 Employment Agreement between Brimfield
Precision, Inc. and Daniel T. Hannify. Mr. Hannify is claiming that he is
entitled to payment of $200,000 per year plus benefits for two years and eight
months.
COMPETITION BY EXISTING COMPETITORS AND POTENTIAL NEW ENTRANTS INTO THE
MARKETPLACE. Companies with substantially greater financial, technical,
marketing, manufacturing and human resources, as well as name recognition, than
the Company may enter markets currently serviced by the Company. Additionally,
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote substantially greater
resources to the development, marketing and sale of their products than the
Company. The Company's customers may develop their own products to be able to
differentiate their product or for other reasons. Furthermore, such competitors
may develop technologies and/or products other than that currently offered by
the Company that are more effective or economical.
REGULATION BY THE FDA. Noncompliance with applicable requirements of FDA
can result in, among other things, fines, injunctions, civil penalties, recall
or seizure of products, total or partial suspension of production, failure of
the government to grant premarket clearance or premarket approval for medical
devices, withdrawal of marketing approvals and criminal prosecution. The FDA
also has the authority to request repair, replacement or refund of the cost of
any medical device. In addition, international sales of medical devices are
subject to foreign regulatory requirements, which vary from country to country.
THE RISK OF PRODUCT LIABILITY CLAIMS. The Company faces an inherent
business risk of exposure to product liability claims in the event that the use
of its products is alleged to have resulted in adverse effects. To date, no
product liability claims have been asserted against the Company. The Company
maintains a product liability and commercial general liability insurance policy
with coverage of $1,000,000 per occurrence and an annual aggregate maximum
coverage of $2,000,000 with a commercial umbrella excess liability policy of
$3,000,000. The Company's product liability and general liability policy is
provided on an occurrence basis and is subject to annual renewal. There can be
no assurance that liability claims will not exceed the coverage limits of such
policy or that such insurance will continue to be available on commercially
reasonable terms or at all. If the Company does not or cannot maintain
sufficient liability insurance, its ability to market its products could be
significantly impaired.
THE COMPANY'S DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL PERSONNEL AND ITS
ABILITY TO ATTRACT NEW PERSONNEL. The Company's success depends in significant
part on the continued contribution of certain key management and technical
personnel. The loss of services of any of these individuals could have a
material adverse effect on the Company. The Company's growth and profitability
also depend on its ability to attract and retain other management and technical
personnel.
ITEM 7. FINANCIAL STATEMENTS.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants ........................................ 15
Consolidated Balance Sheet as of December 31, 1999 and 1998............... 16
Consolidated Statement of Operations for the Years Ended December 31,
1999 and 1998....................................................... 17
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for the Years Ended December 31, 1999 and 1998...................... 18
Consolidated Statement of Cash Flows for the Years Ended December 31,
1999 and 1998 ...................................................... 19
Notes to Consolidated Financial Statements................................ 21
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Image Guided Technologies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Image Guided Technologies, Inc. and its subsidiary at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Broomfield, Colorado
March 27, 2000
15
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
ASSETS 1999 1998
- ------ ------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,000 $ 23,000
Accounts receivable, net of allowance for doubtful
accounts of $80,000 and $76,000 respectively 508,000 1,710,000
Inventories, net 832,000 921,000
Investment - discontinued operations - 1,187,000
Other current assets 101,000 174,000
------------ -----------
Total current assets 1,454,000 4,015,000
Property and equipment, net of accumulated
depreciation of $847,000 and $602,000 respectively 643,000 650,000
Goodwill, net of accumulated amortization of
$60,000 and $31,000 respectively 521,000 550,000
Investment - discontinued operations - 4,076,000
Other assets 213,000 222,000
------------ -----------
Total assets $ 2,831,000 $9,513,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 914,000 $ 860,000
Accrued liabilities 482,000 403,000
Line of credit 42,000 2,524,000
Current portion of capital lease obligations 87,000 1,332,000
Notes payable 500,000 2,986,000
------------ -----------
Total current liabilities 2,025,000 8,105,000
Capital lease obligations 253,000 38,000
------------ -----------
Total liabilities 2,278,000 8,143,000
Shareholders Equity:
Common Stock, no par value; 10,000,000 shares
authorized; 4,061,945 and 3,705,222 shares
issued and outstanding respectively 10,527,000 10,456,000
Accumulated deficit (9,974,000) (9,086,000)
------------ -----------
Total shareholders' equity 553,000 1,370,000
------------ -----------
Total liabilities and shareholders' equity $ 2,831,000 $9,513,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998
--------------- ------------------
<S> <C> <C>
Revenue $6,432,000 $7,154,000
Cost of goods sold 3,850,000 4,395,000
--------------- ------------------
Gross profit 2,582,000 2,759,000
--------------- ------------------
Operating expenses:
Research and development 1,272,000 1,470,000
Selling and marketing 1,023,000 723,000
General and administrative 1,696,000 1,816,000
--------------- ------------------
Total operating expenses 3,991,000 4,009,000
--------------- ------------------
Operating loss (1,409,000) (1,250,000)
Other income (expense):
Interest and other expense (311,000) (681,000)
Other income 2,000 90,000
---------------- ------------------
Loss from continuing operations before taxes (1,718,000) (1,841,000)
Income taxes - -
---------------- ------------------
Loss from continuing operations (1,718,000) (1,841,000)
Discontinued operations
Income from discontinued operations 162,000 185,000
Gain (loss) on disposal 668,000 (4,411,000)
Extraordinary item--loss on early extinguishment
of debt - (253,000)
---------------- ------------------
Net loss $(888,000) $(6,320,000)
================ ==================
Loss per share from continuing operations
Basic $(0.45) $(0.50)
Diluted $(0.45) $(0.50)
Earnings (loss) per share-discontinued operations
Basic $0.22 $(1.14)
Diluted $0.22 $(1.14)
Loss per share from extraordinary item
Basic $------ $(0.07)
Diluted $------ $(0.07)
Net Loss per share
Basic $(0.23) $(1.71)
Diluted $(0.23) $(1.71)
Weighted average common shares outstanding
Basic 3,852,570 705,222
Diluted 3,852,570 705,222
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------- TOTAL
COMMON ACCUMULATED SHAREHOLDERS
SHARES AMOUNT DEFICIT EQUITY
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 31,
1997 3,693,822 $10,273,000 $(2,766,000) $7,507,000
Exercise of stock options 11,400 14,000 14,000
Warrants issued 169,000 169,000
Net loss (6,320,000) (6,320,000)
---------------- --------------- ---------------- ---------------
Balance at December 31,
1998 3,705,222 $10,456,000 $(9,086,000) $1,370,000
Exercise of stock options 3,875 1,000 1,000
Common Stock issued 352,848 70,000 70,000
Net loss (888,000) (888,000)
---------------- --------------- ---------------- ---------------
Balance at December 31,
1999 4,061,945 $10,527,000 $(9,974,000) $553,000
================ =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(888,000) $(6,320,000)
Net income (loss) from discontinued operations 830,000 (4,226,000)
--------------- ----------------
Loss from continuing operations (1,718,000) (2,094,000)
Adjustments to reconcile loss from continuing operations to net
cash provided by (used in) operating activities:
Extraordinary loss, net of tax - 253,000
Depreciation and amortization 269,000 440,000
Provision for doubtful accounts 4,000 (100,000)
Net loss on disposition of assets - (14,000)
Provision for inventory obsolescence 84,000 70,000
Changes in operating assets and liabilities, net of acquired
assets and liabilities:
Accounts receivable 1,198,000 (270,000)
Inventories 5,000 119,000
Other current assets and other assets 106,000 13,000
Accounts payable 55,000 322,000
Accrued liabilities 79,000 78,000
--------------- ----------------
Net cash provided by, (used in) operating activities 82,000 (1,183,000)
--------------- ----------------
Net cash provided by discontinued operations 161,000 587,000
--------------- ----------------
INVESTING ACTIVITIES:
Additions to property and equipment (238,000) (165,000)
Proceeds from sales/lease back arrangements 325,000 -
Proceeds from sale of discontinued operations 5,931,000 -
Cash received from sales of property - 64,000
Investment in patents & trademarks (19,000) -
--------------- ----------------
Net cash provided by, (used in) investing activities 5,999,000 (101,000)
--------------- ----------------
FINANCING ACTIVITIES:
Proceeds from stock option exercise 1,000 14,000
Proceeds from debt - 2,700,000
Principal payments on term loans (2,486,000) (587,000)
19
<PAGE>
Principal payments on line of credit (2,524,000) (194,000)
Proceeds from sale of stock 70,000 ------
Proceeds from line of credit 42,000 2,524,000
Payments on capital lease obligations (1,355,000) 75,000
Principal payments to extinguish term loan ------ (5,028,000)
--------------- ----------------
Net cash used in financing activities (6,252,000) (496,000)
--------------- ----------------
Net decrease in cash and cash equivalents (10,000) (1,193,000)
Cash and cash equivalents at beginning of period 23,000 1,216,000
--------------- ----------------
Cash and cash equivalents at end of period $13,000 $23,000
=============== ================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $311,000 $512,000
Equipment acquired under capital lease $325,000 ------
Warrants issued ------ 169,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Image Guided Technologies, Inc. (the "Company") designs, develops,
manufactures and markets proprietary, hand-held electro-optical 3-dimensional
position input devices for medical and industrial applications as well as
minimally invasive surgical instruments.
As more fully described in Note 11, the Company adopted a plan to sell the
net assets of the general instrument and implant business units of its wholly
owned subsidiary, Brimfield Precision, Inc. ("BPI"). Management believes that
the general instrument and implant business units represent a separate and major
line of business.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. The consolidated financial statements of the
Company have been adjusted and restated to reflect the results of operations and
net assets of the general instrument and implant business units of BPI as
discontinued operations for the years ended December 31, 1999 and 1998. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION AND WARRANTY
Revenue is recognized upon shipment of product to the customer. The Company
offers a one-year warranty on certain of its products. The costs of product
warranties are accrued at the time sales are recorded based upon estimates of
costs to be incurred to repair or replace items under warranty. Such cost
estimates are based on the Company's historical warranty experience.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method. Cost includes materials, labor
and manufacturing overhead.
GOODWILL
Goodwill represents the excess of cost over the fair value of those net
assets acquired in the BPI purchase that are to be retained by the Company. The
goodwill is being amortized on a straight-line basis over 20 years. Amortization
expense of goodwill related to continuing operations was $28,960 in both 1999
and 1998, respectively. The Company analyzes the recoverability of the goodwill
based on the estimated future undiscounted cash flows of the acquired company.
If the Company determines that the goodwill is impaired, the goodwill is then
written down to its estimated fair value based on discounted cash flows.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are carried at cost which approximates fair value.
21
<PAGE>
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 certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, short-term trade receivables and payables, and notes payable approximate
their fair values.
CONCENTRATION OF CREDIT RISK
The majority of the Company's revenues during 1999 and 1998 resulted from sales
of a single product which is used to determine the location of a surgical
instrument in a three dimensional space. Customers accounting for 10% or more of
total revenues during 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Customer A 21 % 10 %
Customer B 20 % 32 %
Customer C 15 % 11 %
Customer D 9 % 15 %
</TABLE>
At December 31, 1999, 24%, 20%, 0%, and 18% of accounts receivable were
with customers A, B, C and D respectively. At December 31, 1998, 14%, 25%, 31%
and 8% of accounts receivable were with customers A, B, C, and D respectively.
EXPORT REVENUE
The Company had export revenue totaling approximately $1,727,000 and
$1,679,000 for the years ended December 31, 1999 and 1998, respectively,
principally to Germany, Israel and Canada.
EARNINGS PER SHARE
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") for all periods presented. Basic earnings per share excludes any dilution
from common stock equivalents and is based on the weighted average common shares
outstanding. Diluted earnings per share includes dilution from the Company's
stock options and warrants, calculated under the treasury stock method. Due to
the Company's net loss in 1999 and 1998, basic and diluted earnings per share
amounts are equal so as to exclude anti-dilutive effects.
22
<PAGE>
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Raw materials $725,000 $410,000
Work-in-process 181,000 214,000
Finished goods 141,000 428,000
--------------- ---------------
1,047,000 1,052,000
Less allowance for obsolescence (215,000) (131,000)
--------------- ---------------
$832,000 $921,000
=============== ===============
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis over their estimated useful lives of one to twenty years. Property and
equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
ESTIMATED USEFUL LIFE 1999 1998
-------------------------- ----------------- --------------
<S> <C> <C> <C>
Building and Building Improvements 3 - 20 years $ 63,000 $77,000
Production equipment 1 - 10 years 816,000 592,000
Computer equipment 1 - 5 years 318,000 281,000
Furniture and fixtures 2 - 7 years 129,000 134,000
Other 1 - 5 years 164,000 169,000
----------------- ----------------
1,490,000 1,253,000
Less accumulated depreciation (847,000) (603,000)
----------------- ----------------
$643,000 $650,000
================= ================
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Employee accruals $179,000 $187,000
Warranty reserves 85,000 56,000
Other accrued liabilities 218,000 160,000
------------ ------------
Total accrued liabilities $482,000 $403,000
============ ============
</TABLE>
23
<PAGE>
5. DEBT
NOTES PAYABLE
Notes payable consist of the following at December 31, 1999:
<TABLE>
<S> <C>
Subordinated note payable due December 12, 1998, interest at a rate of
12%, interest paid monthly and principal at maturity, secured by all
assets of the Company; junior to the senior note payable to bank. $500,000
-------------
The Company is currently in default under this note payable to
Cruttenden Roth, Inc. While interest has been paid to date, the
Company owes the $500,000 principal in full. The note is subordinated
to the Company's bank debt and the holders of the note are not
permitted under the terms of the subordination agreement with the bank
to sue upon or collect, nor to make any demand for, nor to exercise
any rights or remedies to enforce, the note so long as any bank
obligation remains outstanding.
Notes payable consist of the following at December 31, 1998:
Senior note payable due April 3, 2003 interest at rate equal to the bank's
base rate plus one-half of one percent, payable in monthly installments of
$40,000 plus interest, secured by all assets of the Company. The interest $2,380,000
rate at December 31, 1998 was 10.25%.
Subordinated note payable to Cruttenden Roth, Inc. due December 12, 1998,
interest at a rate of 12%, interest paid monthly and principal at maturity,
secured by all assets of the Company; junior to the senior note payable to
bank. 500,000
Note payable, at one-quarter percent in excess of the Prime Rate, payable in
monthly installments of $2,167 plus interest, secured by machinery, maturing
in August 2000. The interest rate at December 31, 1998 was 8.5%. 44,000
Note payable, at one-quarter percent in excess of the Prime Rate,
payable in monthly installments of $2,833 plus interest, secured by
machinery, maturing in October 2000. The interest rate at December 31,
1998 was 8.5%. 62,000
-------------
Total notes payable, December 31, 1998 $2,986,000
=============
</TABLE>
LINE OF CREDIT/ACCOUNTS RECEIVABLE FACTORING
In December of 1997, the Company entered into an agreement with a bank for
a $2,000,000 revolving line of credit secured by all assets of the Company,
maturing on June 30, 1999, and bearing interest at the rate of three quarters of
one percent in excess of the bank's prime lending rate. In April 1998, the
Company assigned its $2,000,000 revolving line of credit to BankBoston pursuant
to a twenty-four month revolving loan of up to $3,000,000 at an interest rate
initially equal to the Bank's base rate plus one-quarter of one percent. Due to
various loan covenant violations at December 31, 1998, the $3,000,000 revolving
loan was capped at $2,250,000 with an interest rate of 10% which included an
interest rate increase of one-quarter of a percent over the original interest
rate on revolving loan. As of December 31, 1998, the balance on the revolving
loan was $2,524,000.
On April 9, 1999, BankBoston assigned its loan to Silicon Valley Financial
Services, a division of Silicon Valley Bank. After the assignment, Silicon and
the Company amended and restated the loan to provide for a loan facility under
which Silicon would purchase certain of the Company's receivables, initially at
the rates of 90% and subsequently decreasing to 75% of their face amount. Under
the facility, the Company will repurchase from Silicon
24
<PAGE>
any uncollected receivables and pay Silicon a finance charge equal to 2% per
month on the face amount of all purchased chased receivables and an
administrative fee of 1.5% of the face amount of each purchased receivable.
Silicon has no obligation to purchase any receivable under the facility and in
not event shall the aggregate amount of all purchased receivables outstanding
exceed $650,000. As of December 31, 1999, approximately $42,000 of the Company's
account receivables had been purchased by Silicon.
6. INCOME TAXES
There is no provision for income taxes in 1999 or 1998 because the Company
incurred losses in each year. The components of the Company's deferred income
tax assets and liabilities under FAS 109 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Net operating loss carryforwards $1,162,000 $1,446,000
Business and minimum tax credits 144,000 141,000
Reserves and Allowances 146,000 96,000
Depreciation (21,000) (347,000)
Deferred revenue - (18,000)
Refinancing Costs 3,000 (118,000)
Other 57,000 31,000
Less valuation allowance (1,491,000) ( 1,231,000 )
Net deferred tax asset --- ---
</TABLE>
The Company has recorded a valuation allowance against its carryforward tax
benefits to the extent that it believes that it is more likely than not all of
such benefits will not be realized in the foreseeable future. The Company's
assessment of this valuation allowance was made using all available evidence,
both positive and negative. In particular, the Company considered both its
historical results and its projections of profitability for only the reasonably
foreseeable future periods. The Company's realization of its recorded net
deferred tax assets is dependent on future taxable income and therefore, the
Company is not assured that such benefits will be realized.
The following is a reconciliation of the statutory U.S. Federal income tax
rate to the Company's effective income tax rate of continuing operations:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Federal income tax rate 34.0 34.0 %
State income tax, net of federal benefit 3.7 3.7 %
Warrant Expense (1.1) (0.6) %
Goodwill amortization (1.1) (1.3) %
Meals and entertainment (0.7) (0.2) %
Effect of change in valuation allowance and other items (34.8) (35.6) %
Effective income tax rate -- ---
</TABLE>
No tax benefit is recorded related to the discontinued operations and the
extraordinary item because any benefit is completely offset by nondeductible
goodwill and the change in valuation allowance.
At December 31, 1998, and December 31, 1999, the Company had net operating
loss carryforwards of approximately $3,878,000 and $ 3,116,000, respectively,
which expire from 2008 to 2019. As a result of certain changes in the Company's
ownership, the future utilization of these net operating loss carryforwards will
be limited.
25
<PAGE>
The Company also has research and development tax credit carryforwards for
federal income tax purposes of approximately $141,000, which begin to expire in
2006.
7. SHAREHOLDERS' EQUITY
COMMON STOCK
At December 31, 1999, the Company has reserved an aggregate of 1,880,036
shares of its common stock for stock issuable upon exercise of outstanding
options and warrants.
STOCK OPTIONS AND WARRANTS
At December 31, 1999, the Company has two stock option plans, one adopted
in 1994 and one adopted in 1997.
The company has authorized 1,440,000 options to be granted pursuant to its
stock option plans. As of December 31, 1999, there were 149,964 options
available for grant under the plans. Options are generally granted at fair
market value as determined by the Board of Directors at the date of grant and
vest over a three-year period. At December 31, 1999, there were 918,444 options
exercisable. During 1999, the Company granted 200,000 nonqualified stock options
to the Company's C.E.O. which were not included in either the 1994 nor 1997
plans.
In connection with the acquisition of Brimfield Precision Inc., the Company
financed a portion of the purchase priced with debt and detachable warrants. The
Company issued 260,000 warrants with an exercise price of $2.92. The warrants
are exercisable over seven years. In 1998, the Company issued 75,000, 80,000,
and 10,000 additional warrants of $2.28, $2.65 and $2.86, respectively, with
terms of 5, 7 and 7 years, respectively.
A summary of the changes in options and warrants during the three years
ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WARRANTS EXERCISE PRICE OPTIONS EXERCISE PRICE
-------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1997 425,000 2.74 810,951 2.45
Granted 165,000 2.50 728,700 1.32
Exercised --- --- (11,400) .99
Forfeited --- --- (141,388) 2.79
Outstanding December 31, 1998 590,000 3.92 1,386,863 1.38
Granted --- --- 521,000 .43
Exercised --- --- (3,875) .38
Forfeited --- --- (613,952) 1.38
Outstanding December 31, 1999 590,000 3.92 1,290,036 .95
</TABLE>
26
<PAGE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------------
RANGE OF AVERAGE WEIGHTED WEIGHTED
EXERCISE PRICE NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------ ---------------- ----------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
$0.25 - 1.00 626,775 4.49 $ 0.47 440,465 $ 0.51
$1.24 - 1.67 282,095 1.56 $ 1.26 274,415 $ 1.24
$2.00 - 2.94 381,166 4.16 $ 2.25 203,564 $ 2.21
---------------- --------------
1,290,036 918,444
================ ==============
</TABLE>
The following table summarizes information concerning outstanding warrants
at December 31, 1999:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
----------------------------------------------------------
AVERAGE
NUMBER REMAINING
EXERCISE PRICE OUTSTANDING CONTRACT LIFE
------------------- -------------------- -----------------
<S> <C> <C>
$ 1.25 40,000 1.00
$ 2.28 75,000 1.00
$ 2.83 350,000 5.00
$ 5.75 125,000 1.00
--------------------
590,000
====================
</TABLE>
All warrants are exercisable at December 31, 1999.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), issued in October 1995, established
financial accounting and reporting standards for stock-based employee
compensation plans. As permitted by SFAS 123, the Company elected to continue to
use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations, in accounting for its Stock Option Plan.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as well as the vesting provisions
under the Stock Option Plan, the net loss from continuing operations for 1999
would have been $(1,932,000) or $(0.50) per basic and diluted share. For 1998
net loss from continuing operations for 1998 would have been $(2,021,000), or
$(0.55) and $(0.55) per basic and diluted share, respectively. The weighted
average fair value of the options granted during 1999 and 1998 is estimated at
$0.15 and $0.69 per share, respectively. The average fair value of the warrants
granted during 1998 is estimated at $.66.
The options were valued on the date of grant using the Black-Scholes option
pricing model with the following assumptions: volatility of 15% and 29% in 1999
and 1998, respectively; risk free interest rates of 5.3% and 5.2% for 1999 and
1998, respectively; expected terms of five years, and no dividend yield rate.
27
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under capital leases expiring in
various years through 2004. Future minimum payments under equipment leases are
as follows:
<TABLE>
<S> <C>
FISCAL YEAR
2000 $ 135,000
2001 95,000
2002 95,000
2003 94,000
2004 39,000
-------------
Total minimum future lease payments $ 458,000
Less amount representing interest 118,000
-------------
Present value of minimum lease payments $ 340,000
Less current portion of capital lease obligations 90,000
-------------
Non-current portion of capital lease obligations $ 250,000
=============
</TABLE>
The Company leases office space under non-cancelable operating leases. The
Company has required future minimum rental payments of $203,000, and $212,000
for the years ended December 31, 1999 and 2000 respectively.
The Company subleases a facility in Springfield, Massachusetts from an
entity, the same stockholders of which had owned Brimfield Precision, Inc. The
lease agreement requires payments of $6,000 per month until December 2001.
9. LEGAL PROCEEDINGS
The Company is a party to one pending legal proceeding. This case was filed
in the Chancery Court for the State of Tennessee in Davidson County on October
27, 1998. Plaintiff was an exclusive sales representative for Defendant,
Springfield Surgical Instruments, Inc. f/k/a Brimfield Precision, Inc., for
certain products in Defendant's Principle and Principle Advantage line of
surgical instruments. Plaintiff claims the products were defective and sued
Defendant for breach of contract, breach of express and implied warranties,
negligent misrepresentation, fraud and violations of the Tennessee Consumer
Protection Act. In January 2000, Plaintiff filed a Motion for Summary Judgment
claiming the instruments sold by Defendant were defective and seeking to return
the instruments in its possession and to obtain, in addition to other damages, a
refund of the purchase price paid of $101,186.71. Defendant filed a motion
opposing Plaintiff's Motion of Summary Judgment claiming, among other things,
that the instruments were not defective. The judge denied Plaintiff's Motion,
and the trial is currently scheduled for June 26, 2000. The Company is currently
unable to determine (i) the ultimate outcome or resolution of this legal
proceeding, (ii) whether resolution of this matter will have a material adverse
impact on the Company's financial position or results of operations, or (iii) a
reasonable estimate of the amount of loss, if any, that may result from
resolution of this matter.
In addition, the Company has received a notice of a claim pursuant to an
employment agreement between Brimfield Precision, Inc. and an individual
claiming that he is entitled to payment of $200,000 per year plus benefits
for two years and eight months. While the outcome of this matter cannot be
predicted with certainty, management expects it will not have a material
adverse affect on the consolidated financial position or results of
operations of the Company.
10. RETIREMENT PLAN
In 1996, the Company adopted the Image Guided Technologies, Inc. 401(k)
Profit Sharing Plan covering substantially all employees of Image Guided
Technologies, Inc. Employees may contribute up to 15% of compensation not to
exceed Internal Revenue Service limits. In connection with the Brimfield
Precision Inc. acquisition, the Company also has the Brimfield Precision, Inc.
401(k) Savings and Retirement Plan covering substantially all employees of
Brimfield Precision, Inc. Employees may contribute from 2% to 15% of
compensation not to exceed the Internal Revenue Service limits. The Company has
not made a matching contribution for the Brimfield Precision, Inc. 401(k)
Savings and Retirement Plan to date.
28
<PAGE>
11. DISCONTINUED OPERATIONS
On September 24, 1998, the Company adopted a plan to sell the net assets of
the general instrument and implant business units of its wholly owned
subsidiary, Brimfield Precision, Inc. Management believes that the general
instrument and implant business units represent a separate and major line of
business. Accordingly, the consolidated financial statements of the Company have
been adjusted and restated to reflect the results of operations and net assets
of the general instrument and implant business units as a discontinued operation
for the years ended December 31, 1999 and 1998. Net assets of the discontinued
operations are carried at estimated net realizable value and are included in the
accompanying balance sheet as an Investment in Discontinued Operations, net of
liabilities to be assumed by the buyer. Such net assets consist primarily of
accounts receivable, inventories and property, plant, and equipment. The
original estimated loss on the disposal of the net assets was $4,411,000,
consisting of an estimated loss on disposal of the business of $4,348,000 and a
provision of $63,000 for anticipated operating losses until disposal.
On March 30, 1999, BPI sold substantially all the assets of its general
surgical instruments, orthopedic implants and orthopedic instrumentation
business. The sales price was $5,931,000 in cash plus assumption of certain
trade payables and accrued liabilities. The sale of such assets, as consummated,
resulted in a loss on disposal of $3,743,000 compared to the originally
estimated loss of $4,411,000 reflected in the 1998 statement of operations. The
$668,000 reduction in the actual loss on disposal is reflected as a gain in the
1999 statement of operations.
The funds received from the sale were used to pay off amounts outstanding
under the BPI's equipment leases (most of which equipment was sold in the sale
noted above), pay off the Company's term loan from BankBoston and pay down the
Company's revolving loan with BankBoston.
12. SEGMENT INFORMATION
The Company is organized into two reportable segments based on the
definitions of segments provided under SFAS 131: optical localizers and surgical
instruments. The optical localizer segment typically sells a system which
consists of the following: a proprietary microprocessor-based control system,
proprietary software to calculate the digital coordinate location of light
emitting diodes ("LEDs"), a multi-camera array for detecting the LED emissions,
a relative position dynamic reference device connected to the measured object,
and a number of custom-manufactured LEDs mounted on the device or instrument to
be tracked in 3D space. The surgical instrument segment sells stainless steel
surgical instruments used for minimally invasive surgery and other surgical
procedures.
The accounting policies utilized in reporting these segments are the same
as those described in Note 1, `Summary of Significant Accounting Policies." The
Company does not have any intersegment revenue and evaluates segment performance
based upon revenue and gross profit. The segment gross profit equals
consolidated gross profit and the Company does not allocate research and product
development costs; selling, general, administrative and other income and
expense; interest income; interest expense; provision for income taxes; or
extraordinary items to the segments. The revenue and gross profit by segment is
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
REVENUE
Optical localizers $5,266,000 $4,712,000
Surgical instruments 1,166,000 2,442,000
--------------- --------------
Total Revenue $6,432,000 $7,154,000
=============== ==============
1999 1998
--------------- --------------
GROSS PROFIT
Optical localizers $2,840,000 $2,300,000
Surgical instruments (258,000) 459,000
--------------- --------------
Total Revenue $2,582,000 $2,759,000
=============== ==============
</TABLE>
29
<PAGE>
PART III
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The Company currently has five Directors, one of whom was an officer and
employee of the Company or its subsidiaries during 1999. The Directors are:
<TABLE>
<CAPTION>
Name & Age of Director Principal Occupation During Past Five Years Director Since
And Other Directorships
- ---------------------------------------- --------------------------------------------------- -----------------
<S> <C> <C>
Paul L. Ray, 53 Chief Executive Officer and Chairman of the 1992
Company since January 1994; President of the
Company from January 1994 through November 1995
and since March 1998; Chief Financial Officer of
the Company since February 1999; Managing Partner
and Director of Paradigm Partners, LLC, a venture
investment firm, from 1992 to January 1994;
Chairman of the Board of Commissioners of the
Colorado Advanced Technology Institute, from
January 1998 to June 1999; Director of the
University of Colorado Technology Corporation from
1995 to February, 2000, Vice Chairman of the
Governor's Commission of Science and Technology
(State of Colorado).
- ---------------------------------------- --------------------------------------------------- -----------------
Clifford F. Frith, 61 General Manager, Filtration and Instrumentation 1994
Global Business Unit, a fluid separations and
control division of Osmonics, Inc.; Vice President
of American Business Advisors, Inc. from November
1993 until January 1996; President and Director of
Boulder Intertec, Inc., a business management
advising service, from June 1992 through December
1996.
- ---------------------------------------- --------------------------------------------------- -----------------
William G. Lyons, 44 President of Brimfield Precision, Inc. from 1987 1997
until December 1998; Co-Founder of Mechtech of
Western Massachusetts, a non-profit apprenticeship
and training organization; Director of The
Infinite Group, Inc.
30
<PAGE>
<CAPTION>
Name & Age of Director Principal Occupation During Past Five Years Director Since
And Other Directorships
- ---------------------------------------- --------------------------------------------------- -----------------
<S> <C> <C>
Terry R. Knapp, M.D., 56 Chairman and Chief Executive Officer, PrivaComp, 1998
Inc., an e-health company; from 1997-1999; C.E.O.
and Medical Director of Conception Technology,
Inc., a woman's healthcare company in the field of
reproductive medicine; from 1995 to 1996 Chief
Medical Officer of Collagen Corporation; from 1992
to 1995, Chairman, CEO and Medical Director of
LipoMatrix, Inc., a breast implant company; from
1975 to 1992 Dr. Knapp practiced plastic and
reconstructive surgery.
- ---------------------------------------- --------------------------------------------------- -----------------
Tibor L. Foldvari, Ph.D., 63 Senior Vice President of Physiometrix, Inc. from 1999
1997 to 1999; Director, Advanced Technology and
Vice President, Research and Development, Johnson
& Johnson Professional, Inc. and Codman and
Shurtleff, Inc. from 1990-1997; Director of
Corlogix Corporation since 1997.
</TABLE>
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<S> <C>
Paul L. Ray, age 53 Chief Executive Officer and Chairman of the Company since January 1994;
President of the Company from January 1994 through November 1995 and
since March 1998; Chief Financial Officer of the Company since February
1999; Managing Partner and Director of Paradigm Partners, LLC, a venture
investment firm, from 1992 to January 1994; Chairman of the Board of
Commissioners of the Colorado Advanced Technology Institute. Director
of the University of Colorado Technology Corporation from 1995 to
February, 2000; Vice Chairman of the Governor's Commission of Science
and Technology (State of Colorado).
William J. O'Connor, DB.A., age 57 Vice President of the Company and Chief Operating Officer of the
Boulder, Colorado operations since March 1998 and of all operations
since April 1999; Treasurer of the Company since April 1999; Executive
Vice President and Chief Operating Officer of Erbtec Engineering, Inc.,
a division of Colorado MEDtech, Inc., a medical electronics OEM company,
from July 1995 through February 1998; Vice President of Sales and
Marketing, Medgraphics, Inc., from July 1994 through June 1995; Senior
Vice President of Sales and Marketing, Valleylab, Inc., a division of
Pfizer, Inc., April 1989 through June 1994; Adjunct Professor of
Marketing and Strategy, University of Phoenix, June 1994 through March
1998; Director of the Company from November 1996 until May 1999.
Waldean A. Schulz, Ph.D, age 54 Vice President of Technology and Secretary of the Company since December
1990; founded the Company and served as its President from inception
until December 1990; Director of the Company 1990-1998.
</TABLE>
31
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Such persons are also required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the best of the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, its officers, directors and stockholders
beneficially owning greater than ten percent of the Company's stock have
complied with all Section 16(a) filing requirements applicable to transactions
during 1999, except as follows: Dr. Foldvari inadvertently failed to timely file
an initial statement of beneficial ownership on Form 3.
ITEM 10. EXECUTIVE COMPENSATION.
DIRECTOR AND EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid $1,000 for each
Board meeting physically attended plus $500 annually for each Committee on which
the director serves. Each outside director at the time was also granted a
nonqualified stock option for shares of the Company's Common Stock in October
1999; Dr. Foldvari's option and Mr. Lyon's option are for 10,000 shares, Mr.
Frith's option is for 20,000 shares, and Dr. Knapp's option is for 15,000
shares. Directors are also reimbursed for expenses incurred in attending Board
of Committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned for services rendered in all capacities to the Company by
the Company's Chief Executive Officer and each of the other executive officers
whose compensation from the Company exceeded $100,000 for such fiscal year (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying All Other
Name and Principal Options Compensation
Position Year Salary ($) Bonus ($) Other ($) Granted (#) ($) (1)
---- ------ --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul L. Ray.......... 1999 180,386 0 None 200,000 0
Chief Executive Officer, 1998 170,000 0 None 276,400 0
Chief Financial Officer, 1997 150,693 0 None 70,000 2,260
Chairman
William O'Connor..... 1999 140,198 0 None 35,000 0
Chief Operating Officer 1998 114,019 0 None 111,000(2) 0
Waldean Schulz....... 1999 100,000 0 None 17,500 0
Vice President, and 1998 100,000 0 None 41,680(3) 0
Secretary 1997 95,530 0 None 20,000 0
- ----------------------------- ------------ ------------ ----------- ----------- --------------- ----------------
</TABLE>
32
<PAGE>
(1) Represents the matching contributions made to 401(k) plan account.
(2) Does not include 100,000 shares underlying options that were cancelled
December 14, 1998 in connection with the issuance of options for
100,000 shares of the Company's Common Stock.
(3) These options were issued in connection with the cancellation of
options for 41,680 shares on December 14, 1998.
OPTION GRANTS
The following table contains information concerning stock options granted
to the Named Executive Officers during the fiscal year ended December 31, 1999.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------------
Number of Percent of Total
Securities Options Granted to
Underlying Employees in Exercise or Base Expiration
Name Options Granted Fiscal Year Price/share Date
---- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Paul L. Ray............. 200,000 45.4% $0.5600 2/24/2006
William O'Connor........ 10,000 2.3% $0.2500 7/21/2004
25,000 5.7% $0.4531 10/13/2004
Waldean Schulz.......... 7,500 1.7% $0.2500 7/21/2004
10,000 2.3% $0.4531 10/13/2004
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1999, with respect to the
Named Executive Officers.
AGGREGATE OPTIONS EXERCISED IN THE LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares
Number of Underlying Unexercised Options Value of Unexercised, In-the-Money
Shares Held At December 31, 1999 Options At December 31, 1999(1)
Acquired Value ------------------------------ ----------------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul L. Ray .............. None N/A 279,999 176,400 $6,375 $19,125
William O'Connor.......... None N/A 67,904 78,096 $21,220 $23,702
Waldean Schultz........... None N/A 25,013 24,167 $0 $5,625
</TABLE>
(1) Based on the fair market value of the underlying shares of Common
Stock of $0.6875 per share, the closing price per share on December
31, 1999, as reported on the over the Counter Bulletin Board, less the
per share exercise price.
33
<PAGE>
EMPLOYMENT AGREEMENTS
Paul L. Ray, Chief Executive Officer, Chairman of the Board and President
of the Company, has an employment agreement (the "Ray Agreement") with the
Company that terminates on December 31, 2000, subject to a provision that will
automatically extend the term of the agreement for an additional year. Mr. Ray's
current annual salary is $195,000. Under the Ray Agreement, options granted
prior to 1999 to Mr. Ray expire seven years from the date of grant and remain
exercisable for a seven-year period regardless of whether Mr. Ray's employment
with the Company terminates earlier. In the event of a Change in Control of the
Company (as defined in the Ray Agreement), all options previously granted to Mr.
Ray which remain unvested will vest immediately. If Mr. Ray's employment is
terminated (i) upon his death, (ii) following a Change in Control, (iii) by the
Company due to various described disability circumstances, (iv) by the Company
without cause or (v) by Mr. Ray voluntarily upon the Company's default or
unremedied Adverse Change in Duties (as defined in the Ray Agreement), then the
Company will pay Mr. Ray severance pay equal to the product of the number of
complete years of service times three times Mr. Ray's then current monthly
salary (but not more than 20 times his monthly salary). Such severance pay may
be made, at the Company's option, in one lump sum or in monthly installments,
each equal to Mr. Ray's then current monthly salary. Mr. Ray may terminate his
employment at any time upon at least thirty days written notice to the Company.
William O'Connor, Vice President and Chief Operating Officer of the
Company, has a one-year employment agreement with the Company which expires on
February 28, 2000, subject to a provision that will automatically extend the
term of the agreement until February 28, 2001 (the "O'Connor Agreement"). Mr.
O'Connor's current annual salary is $145,000. The O'Connor Agreement provides
for vesting of stock options and severance pay upon terms similar to the Ray
Agreement, except the Company would pay O'Connor severance of $11,250 per month
for one year. Mr. O'Connor may terminate his employment at any time upon at
least thirty days written notice to the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock as of December 31, 1999 by
(i) each director and director-nominee, (ii) each Named Executive Officer, (iii)
each shareholder known by the Company to own beneficially five percent or more
of the outstanding shares of Common Stock and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of
Beneficial Owner(1) of Common Stock Outstanding Common
------------------- Beneficially Stock Beneficially
Owned(2) Owned
----------------- ------------------
<S> <C> <C>
Paul L. Ray(3)............................................. 463,332 10.7%
Ray L. Hauser, Ph.D.(4).................................... 299,676 7.5%
Clifford F. Frith(5)....................................... 45,081 1.1%
William O'Connor(6)........................................ 85,104 2.1%
William G. Lyons(7)........................................ 333,460 8.3%
Tibor Foldvari(8).......................................... 10,000 *
34
<PAGE>
<CAPTION>
Name and Address of Number of Shares Percentage of
Beneficial Owner(1) of Common Stock Outstanding Common
------------------- Beneficially Stock Beneficially
Owned(2) Owned
----------------- ------------------
<S> <C> <C>
Terry R. Knapp, M.D(9)..................................... 34,750 *
Waldean Schultz(10)........................................ 209,038 4.9%
John Pappajohn............................................. 232,820 5.8%
2116 Financial Center
Des Moines, Iowa 50309
Equitable Investment Management Services, Inc. ............ 208,685 5.2%
5400 University Avenue
West Des Moines, IA 50266
Matthew Lyons.............................................. 226,655 5.7%
90 Brookdale Drive
Springfield, MA 01104
Imperial Bank(11).......................................... 250,000 6.3%
225 Franklin Street, 29th Floor
Boston, MA 02110
Austin W. Marxe and David Greenhouse(12)................... 552,700 13.8%
153 East 53rd Street
New York, NY 10022
All executive officers and directors....................... 1,170,007 25.9%
as a group (7 persons)(15)
</TABLE>
*Less than one percent.
(1) Unless otherwise noted, the address for each beneficial owner is c/o the
Company, 5710-B Flatiron Parkway, Boulder, Colorado 80301.
(2) Except as indicated by footnote, and subject to community property laws
where applicable, the persons or entities named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission ("SEC")
and generally includes voting or investment power with respect to
securities. In accordance with SEC rules, shares of the Common Stock which
may be acquired upon exercise of stock options and warrants which are
currently exercisable or which become exercisable within 60 days of
December 31, 1999, are deemed beneficially owned by the optionee and each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by such person (but not those held by any
other person) and which are exercisable within 60 days of December 31,
1999, have been exercised.
(3) Includes 313,332 shares which Mr. Ray has a right to acquire upon exercise
of stock options currently exercisable or exercisable within 60 days of
December 31, 1999. Does not include (i) 5,318 shares of Common Stock held
by Paradigm Partners ("Paradigm"), a limited liability company of which Mr.
Ray is a member, but not a manager, (ii) 10,000 shares Paradigm has a right
to acquire upon exercise of stock options currently exercisable, and (iii)
14,070 shares of Common Stock held by Paradigm Capital Network, Ltd., a
Colorado limited partnership of which Paradigm is the general partner.
35
<PAGE>
(4) Includes 8,956 shares of Common Stock Dr. Hauser has a right to acquire
upon exercise of stock options currently exercisable or exercisable within
60 days of December 31, 1999, and excludes 2,560 shares of Common Stock
owned by Dr. Hauser's wife of which Dr. Hauser disclaims beneficial
ownership.
(5) Includes 41,206 shares of Common Stock Mr. Frith has a right to acquire
upon exercise of stock options currently exercisable or exercisable within
60 days of December 31, 1999.
(6) Includes 78,404 shares of Common Stock Mr. O'Connor has a right to acquire
upon exercise of stock options currently exercisable or exercisable within
60 days of December 31, 1999.
(7) Includes 17,750 shares of Common Stock Mr. Lyons has a right to acquire
upon exercise of stock options currently exercisable or exercisable within
60 days of December 31, 1999.
(8) Includes 10,000 shares of Common Stock Dr. Foldvari has a right to acquire
upon exercise of stock options currently exercisable or exercisable within
60 days of December 31, 1999.
(9) Includes 34,750 shares of Common Stock Dr. Knapp has a right to acquire
upon exercise of stock options currently exercisable or exercisable within
60 days of December 31, 1999.
(10) Includes 27,930 shares of Common Stock Mr. Schulz has a right to acquire
upon exercise of stock options currently exercisable or exercisable within
60 days of December 31, 1999.
(11) Includes 250,000 shares of Common Stock which Imperial Bank has the right
to acquire upon exercise of warrants currently exercisable.
(12) Includes 425,700 shares held by Special Situations Fund III, L.P. and
127,000 shares held by Special Situations Cayman Fund, L.P. The investment
advisor of both funds is controlled by Mr. Marxe and Mr. Greenhouse. Mr.
Marxe and Mr. Greenhouse have shared voting power and shared dispositive
power over all such shares.
(13) Includes 523,372 shares of Common Stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company subleases 13,821 square feet of a manufacturing facility in
Springfield, Massachusetts from Blackstone Medical, Inc., a corporation
controlled by Matthew Lyons. The lease agreement requires rental payments of
approximately $5,000 per month and expires in December 2001. The Company also
leases equipment and computer network and telephone services to Blackstone
Medical on a month-to-month basis. Blackstone Medical, Inc. also purchased
products from, and sold products to Springfield Surgical Instruments, Inc.
("SSI"), f/k/a Brimfield Precision, Inc. in the ordinary course of its business.
In 1998 and 1999, the volume of such sales and purchases aggregated
approximately $903,000 and $345,000, respectively. SSI no longer sells products
to Blackstone, Medical, Inc. William G. Lyons owns an equity interest in, and
was a director of, Blackstone Medical, Inc. William G. Lyons is an executive
officer and is a director of the Company.
Effective March 2, 1998, the Company entered into a one-year Consulting
Agreement with A. C. Allen & Company, a company controlled by A. Clinton Allen,
who was then a director of the Company, for advise regarding strategic planning
issues. Pursuant to that agreement, the Company paid A. C. Allen & Company
$4,000 per month until May 1999, at which time the agreement was terminated.
Effective May 19, 1998, the Company issued to A.
36
<PAGE>
C. Allen & Company a five-year warrant to purchase up to 75,000 shares of the
Company's Common Stock at any time at $2.281 per share.
William G. Lyons, the former President of BPI and currently a director of
the Company, was under a one-year employment contract with BPI which expired on
December 11, 1998. Mr. Lyon's annual salary was $150,000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- -------- -----------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company and
Articles of Amendment and Certificate of Correction thereto
(incorporated herein by reference to Exhibit 3.1 of the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09103)). *
3.2 Bylaws of the Company (incorporated herein by reference to Exhibit 3.2
of the Company's Registration Statement on Form SB-2 (SEC File No.
333-09103)). *
4.1 Specimen Common Stock Certificate (incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on Form SB-2 (SEC
File No. 333-09103)). *
10.1 1994 Stock Option Plan of the Company, as amended, and after the
Company's December 1994 four-for-one stock split (incorporated herein
by reference to Exhibit 10.1 of the Company's Registration Statement
on Form SB-2 (SEC File No. 333-09103)). *
10.2 1997 Stock Option Plan of the Company (incorporated herein by
reference from the Company's Proxy Statement for its 1998 Annual
Meeting of Shareholders). *
10.3 Strategic Alliance Agreement dated as of February 27, 1995, between
the Company and Surgical Navigation Technologies, Inc. and letters
regarding termination of such agreement (incorporated herein by
reference to Exhibit 10.10 of the Company's Registration Statement on
Form SB-2 (SEC File No. 333-09103)). *
10.4 Equipment Lease Agreement between the Company and Machinery Systems,
Inc., for a refurbished Zeiss Coordinate Measuring Machine
(incorporated herein by reference to Exhibit 10.11 of the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09103)). *
10.5 Commercial Industrial Lease dated January 11, 1996, between the
Company and Life Investors Company of America (incorporated herein by
reference to Exhibit 10.12 of the Company's Registration Statement on
Form SB-2 (SEC File No. 333-09103)). *
10.6 Amendment dated March 7, 1998 to the Commercial Industrial Lease dated
January 11,1996, between the Company and Life Investors Insurance
Company of America (incorporated herein by reference to Exhibit 10.10
of the Company's Form 10-QSB report filed May 12, 1998). *
10.7 Form of Representative's Warrants (incorporated herein by reference to
Exhibit 10.20 of the Company's Registration Statement on Form SB-2
(SEC File No. 333-09103)). *
10.8 Agreement of Purchase and Sale Among Image Guided Technologies, Inc.
and Stockholders of Brimfield Precision, Inc. dated 11/25/97
(incorporated herein by reference to Exhibit 2.1 of the Company's Form
8-K report filed December 29, 1998). *
10.9 Amendment dated December 12, 1998 to Agreement of Purchase and Sale
Among Image
37
<PAGE>
Guided Technologies, Inc. and Stockholders of Brimfield Precision,
Inc. dated November 25, 1998 (incorporated herein by reference to
Exhibit 2.2 of the Company's Form 8-K report filed December 29,
1998).*
10.10 Loan Agreement between Image Guided Technologies, Inc. and Imperial
Bank, dated December 12, 1998 (incorporated herein by reference to
Exhibit 2.3 of the Company's Form 8-K report filed December 29,
1998).*
10.11 Subordinated Note from Image Guided Technologies, Inc. payable to
Cruttenden Roth, dated December 12, 1998 (incorporated herein by
reference to Exhibit 2.4 of the Company's Form 8-K report filed
December 29, 1998). *
10.12 Warrant from Image Guided Technologies, Inc. to Imperial Bank, dated
December 12, 1998 (incorporated herein by reference to Exhibit 2.5 of
the Company's Form 8-K report filed December 29, 1998). *
10.13 Warrant from Image Guided Technologies, Inc. to Cruttenden Roth, dated
December 12, 1998 (incorporated herein by reference to Exhibit 2.6 of
the Company's Form 8-K report filed December 29, 1998). *
10.14 Warrant from Image Guided Technologies to Imperial Bank, dated 3/15/98
(incorporated by reference to Exhibit 10.24 of the Company's Form
10-KSB filed 4/14/98).*
10.15 Warrant from Image Guided Technologies to Imperial Bank, dated 3/31/98
(incorporated by reference to Exhibit 10.25 of the Company's Form
10-KSB filed 4/14/98).*
10.16 Bill Lyons Employment Agreement (incorporated by reference to Exhibit
10.26 of the Company's Form 10-KSB filed 4/14/98).*
10.17 Springfield lease (incorporated by reference to Exhibit 10.27 of the
Company's Form 10-KSB filed 4/14/98).*
10.18 Employment agreement between the Company and Robert E. Silligman,
dated February 21, 1998 (incorporated by reference to Exhibit 10.29 of
the Company's Form 10-KSB filed 4/14/98).*
10.19 Amended and Restated Loan Agreement dated 4/3/98 between Image Guided
Technologies, Inc. and BankBoston, N.A. (incorporated by reference to
Exhibit 10.30 of the Company's Form 10-KSB filed 4/14/98).*
10.20 Common Stock Purchase Warrant issued to A.C. Allen & Company
(incorporated herein by reference to Exhibit 10.31 if the Company's
Form 10-QSB filed 8/14/98).*
10.21 Consulting Agreement between Image Guided Technologies, Inc. and A.C.
Allen & Company (incorporated herein by reference to Exhibit 10.32 of
the Company's Form 10-QSB filed 8/14/98).*
10.22 Employment Agreement dated 12/15/98 between the Company and Jeffrey J.
Hiller. (incorporated by reference to Exhibit 10.30 to the Company's
Form 10-KSB filed 4/14/99).*
10.23 Employment Agreement dated 1/1/99 between the Company and Paul L. Ray.
(incorporated by reference to Exhibit 10.31 to the Company's Form
10-KSB filed 4/14/99).*
38
<PAGE>
10.24 Asset Purchase Agreement among Brimfield Acquisition Corp. and
Brimfield Precision, Inc. and Image Guided Technologies (incorporated
herein by reference to Exhibit 2.1 of the Company's Form 8-K filed
4/14/99).*
10.25 Employee Stock Purchase Plan (incorporated herein by reference to the
Appendix of the Company's proxy materials filed 4/23/98).*
10.26 Daniel Hannify Employment Agreement (incorporated by reference to
Exhibit 2.36 of the Company's Form 10-QSB filed May 24, 1999).*
10.27 William O'Connor Employment Agreement dated 3/1/98 (incorporated by
reference to Exhibit 10.32 of the Company's Form 10-QSB filed August
13, 1999).*
10.28 Stock Option Agreement for Paul L. Ray (incorporated by reference to
Exhibit 10.35 of the Company's Form 10-QSB filed August 13, 1999).*
10.29 Second Amended and Restated Loan Agreement, dated as of April 3, 1998,
with Silicon Valley Financial Services (incorporated by reference to
Exhibit 10.36 of the Company's Form 10-QSB filed August 13, 1999).*
10.30 Modification to Second Amended and Restated Loan Agreement with
Silicon Valley Financial Services dated July, 1999 (incorporated by
reference to Exhibit 10.37 of the Company's Form 10-QSB filed August
13, 1999).*
10.31 Definitive Agreement between Snap-on Technologies, Inc. and Image
Guided Technologies, Inc.
10.32 Executive Compensation Policy
21.0 Subsidiaries of the Company (incorporated by reference to Exhibit 21.0
to the Company's Form 10-KSB filed 4/14/99).*
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------------
* Incorporated herein by reference.
(b) Form 8-K Reports
None.
39
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IMAGE GUIDED TECHNOLOGIES, INC.
Date: March 27, 2000 By: /s/ Paul L. Ray
---------------------------------
Paul L. Ray
Chairman of the Board, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C>
Date: March 27, 2000 /s/ Paul L. Ray
---------------------------------
Paul L. Ray
Chairman of the Board, President, Chief
Executive Officer and Chief Financial Officer
Date: March 27, 2000 /s/ Francis E. Lefler
Francis E. Lefler
---------------------------------
Principal Accounting Officer
Date: March 27, 2000 /s/ Terry Knapp
---------------------------------
Terry Knapp
Director
Date: March 27, 2000 /s/ Clifford Frith
---------------------------------
Clifford Frith
Director
Date: March 27, 2000 /s/ William Lyons
---------------------------------
William Lyons
Director
Date: March 27, 2000 /s/ Tibor Foldvari
---------------------------------
Tibor Foldvari
Director
</TABLE>
40
<PAGE>
Exhibit 10.31
DEFINITIVE AGREEMENT
BETWEEN
SNAP-ON TECHNOLOGIES, INC.
(SNAP-ON)
AND
IMAGE GUIDED TECHNOLOGIES, INC.
(IGT)
Dated: June 30, 1999
<PAGE>
DEFINITIVE AGREEMENT
SIGNATURE PAGE
ACKNOWLEDGEMENT
Each party acknowledges that it has read these Agreements, understands them,
and agrees to be bound by their terms.
In witness whereof, the parties have caused this Definitive Agreement to be
executed as of this 30th day of June, 1999.
IMAGE GUIDED TECHNOLOGIES, INC. SNAP-ON TECHNOLOGIES, INC.
By By
----------------------------- ------------------------------
Typed Name Typed Name
--------------------- ----------------------
Title Title
-------------------------- ---------------------------
Contact Contact
------------------------ -------------------------
Phone # ( ) Phone # ( )
2
<PAGE>
DEFINITIVE AGREEMENT
GENERAL TERMS
This definitive agreement ("Definitive Agreement") is entered into this 30th
day of June, 1999 and is by and between Snap-on Technologies, Inc.
("Snap-on") and Image Guided Technologies, Inc. ("IGT") and is intended to
establish a new relationship between the parties for the purposes of having
IGT transition to Snap-on, manufacturing and use rights to certain
intellectual property defined herein, exclusively, within a defined field of
use, so as to allow Snap-on to internalize the manufacture of certain IGT
localizers currently manufactured by IGT for Snap-on.
This document is intended as the Definitive Agreement between the parties and
will include a "Defined Field Patent License Agreement", a "Software License
Agreement", a "Manufacturing Agreement", and a "Consulting Agreement" to
allow IGT to provide maintenance services to Snap-on from date of execution
hereof, through December 31, 1999.
This Definitive Agreement contains general terms and conditions applicable to
each above referenced agreement and each agreement, intended to be a part of
the Definitive Agreement, is herein incorporated by reference (the Definitive
Agreement, and each of the above referenced agreements are sometimes
collectively herein referred to as the "Agreements"), and execution of the
signature cover page hereof is evidence of acceptance of all terms and
conditions of these Agreements.
In the event of any conflict between the terms of this Definitive Agreement
and the individual terms set forth in any of the above referenced single
agreements the terms of the Definitive Agreement shall govern. Any questions
or matters arising under these Agreements as to the validity, construction,
or performance hereof shall be determined in accordance with the laws of the
State of Illinois, without regard to its conflict of laws principles.
1. COLLECTIVE DEFINITIONS
Each agreement contained within this Definitive Agreement contains
definitions specific to that agreement. The parties agree that the following
definitions shall apply to all the Agreements.
1.1 "Associated Documentation" shall mean the IGT documentation listed in
Schedule "B" hereof.
1.2 "Licensed Field" shall mean uses directly and exclusively pertaining
to design, manufacture, maintenance and repair of automobiles, trucks and
golf carts.
1.3 "Licensed Products" shall mean any and all products that are within
the scope of the Patents and/or Programs, and/or the Technology defined
hereinbelow, but limited to use within the Licensed Field.
3
<PAGE>
1.4 "Patents" shall mean those patents recited in the DEFINED PATENT
LICENSE AGREEMENT (EXCLUSIVE), and as more fully set forth in Schedule "B"
hereof.
1.5 "Programs" shall have the meaning set forth in the SOFTWARE LICENSE &
DISTRIBUTION AGREEMENT and as more fully set forth in Schedule "B" hereof.
1.6 "Technology" shall mean all components of the technology (including,
software Programs, firmware, copyrighted materials, trade secrets, mask
works, mechanical designs, subassemblies, circuit designs, hardware, and/or
technical information) licensed hereunder and as more fully set forth in
Schedule "B" hereof.
2. TERM OF AGREEMENT
These Agreements shall terminate at such time as Snap-on shall cease making
or selling Licensed Products.
3. TERMINATION FOR BREACH
Either party may terminate any single Agreement herein, for material breach
of such Agreement, upon sixty (60) days prior written notice, if said breach
is not cured by the other party within such period (or longer period if the
parties agree in writing). It is understood that if Snap-on fails to pay IGT
$500,000 within thirty days of Acceptance of the Programs or commercial use
by Snap-on, pursuant to the Software License and Distribution Agreement,
regardless of cause, IGT shall have the right, in addition to any other
rights and remedies it may have under the Agreements, to return any payments
it received to Snap-on and terminate the Agreements.
4. CONFIDENTIALITY
The parties agree that each of them shall, during the term of these
Agreements and for three (3) years thereafter, take all reasonable steps
necessary to safeguard the secrecy and confidentiality of, and proprietary
rights to, the confidential information of the other party disclosed
hereunder (including, without limitation, the Programs, Associated
Documentation, product plans, marketing and/or other business plans,
technical specifications, marketing information and/or customer lists),
provided such information is in written or other tangible form and is
designated as confidential in writing or, if disclosed orally or visually, is
identified as confidential at the time of disclosure and is described in
writing delivered to the other party within thirty (30) business days after
disclosure. Each party will use all commercially reasonable efforts to
prevent the disclosure of confidential information to any third party
(excluding third parties permitted access to the Source Code under Section
3.2.1 below); provided, however, that this provision shall not be construed
to restrict the disclosure of information which (i) is or becomes publicly
known or readily ascertainable by the public; or (ii) is received by the
recipient from a third party without breaching any obligation owed to the
disclosing party to the extend that disclosure by such recipient is not
restricted by the third party; or (iii) is independently developed by or for
the recipient; or (iv) is lawfully required or requested for use by a
governmental agency or in a court proceeding, or must be disclosed by
operation of law.
4
<PAGE>
5. CONTINUING OBLIGATIONS
The termination of these Agreements for any reason shall not relieve any
party of (i) its obligations to make payments to the other party which may
have accrued hereunder, but which remained unpaid as of the date of
termination; (ii) to maintain its confidentiality obligations hereunder; and
(iii) to indemnify against certain actions. The termination of these
Agreements shall not in any manner terminate, abrogate, or otherwise limit or
curtail the rights and licenses previously granted to Sublicensees pursuant
to these Agreements, including Snap-on's right to continue to support its
customers for the applications that include or access the Technology.
6. LATE PAYMENTS
Interest shall be assessed on any past due amounts under the Agreements and
shall accrue at the rate of 1.5% per month or the maximum rate permitted by
applicable law.
7. FORCE MAJEURE
Neither party shall be liable for any delays in the performance of any of its
obligations hereunder due to causes beyond its control, including but not
limited to, fire, strike, war, riots, acts of any civil or military
authority, judicial action, acts of God, or other casualty or natural
calamity.
8. INDEPENDENT CONTRACTOR
In making and performing these Agreements, the parties act and shall act at
all times as independent contractors and nothing contained in these
Agreements shall be construed or implied to create an agency, partnership or
employer and employee relationship between Snap-on and IGT, or between any
party hereto and any officer or employee of the other party. At no time shall
either party make commitments or incur any charges or expenses for or in the
name of the other party.
9. SEVERABILITY
The invalidity or unenforceability of one or more provisions of these
Agreements shall not affect the validity or enforceability of any of the
other provisions hereof, and these Agreements shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.
10. ARBITRATION
Except as provided below in the section entitled "Injunctive Relief," all
differences or disputes between the parties hereto pertaining to, relating to
or arising out of these Agreements or the breach thereof shall be finally
settled by arbitration before a single arbitrator knowledgeable in the field
of data processing and software, in accordance with the then-current rules of
the American Arbitration Association ("Rules"). The place of arbitration will
be Chicago, Illinois, by mutual
5
<PAGE>
consent of the parties hereto. Any judgement rendered by the arbitrators may
be entered in any court having jurisdiction hereof.
11. INJUNCTIVE RELIEF
Each party acknowledges that the other believes that its confidential
information is unique property of extreme value to the other party, and the
unauthorized use or disclosure thereof would cause the other party
irreparable harm that could not be compensated by monetary damages.
Accordingly, each party agrees that, in addition to any other rights and
remedies the aggrieved party may have, the other may seek injunctive and
preliminary relief to remedy any actual or threatened unauthorized use or
disclosure of the other party's confidential information. Each party may also
seek injunctive relief for Patent or copyright infringement.
12. HEADINGS
The heading of the articles and sections used in these Agreements are
included for convenience only and are not used in construing or interpreting
this Agreement.
13. ADVERTISING
It is herein agreed that Snap-on's name will not be used in any written
advertising or marketing promotion of IGT except with Snap-on's prior written
consent. Nothing herein shall prohibit IGT from making appropriate
disclosures for securities law purposes.
14. CONSENT TO BREACH NOT A WAIVER
No terms or provisions hereof shall be deemed waived and no breach excused,
unless such waiver or consent shall be in writing and signed by the party
claimed to have waived or consented. Any consent by any party to, or waiver
of, a breach by the other, whether express or implied, shall not constitute a
consent to, waiver of, or excuse for any other different or subsequent breach.
15. SURVIVAL OF TERMS
The terms, provisions, representations and warranties contained in these
Agreements that by their sense and context are intended to survive the
performance thereof by either or both parties hereunder, shall so survive the
completion of performance and termination of these Agreements, including the
making of any and all payments due hereunder.
16. REPRESENTATIONS AND WARRANTIES OF IGT
Except as may be set forth on a schedule hereto, IGT hereby represents and
warrants to Snap-on that (i) IGT has no knowledge of any threatened or
pending claim alleging the use of Technology, within the scope of any claim
of any IGT Patent, infringes any patent or copyright, or that the Technology
includes one or more trade secrets, or any other proprietary right of any
third party, within the Licensed Field; (ii) IGT owns all right, title and
interest in and to the Technology
6
<PAGE>
within the Licensed Field, free and clear of all liens, security interests,
charges or encumbrances by third parties; and (iii) IGT has full right, power
and authority to enter into this Agreement and to carry out its obligations
hereunder.
17. LIMITATION OF WARRANTIES
OTHER THAN THE REPRESENTATIONS SET FORTH IN THIS AGREEMENT, IGT MAKES NO
WARRANTIES EXPRESS OR IMPLIED, CONCERNING THE TECHNOLOGY, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
IT IS EXPRESSLY AGREED THAT IGT SHALL NOT BE LIABLE, OR IN ANY WAY
RESPONSIBLE FOR THE COMMERCIAL SUCCESS OF THE PROGRAM OR ANY ENHANCEMENT
THEREOF.
18. LIMITATION OF LIABILITY
18.1. EXCEPT FOR VIOLATIONS OF THE LICENSES AND RIGHTS GRANTED HEREUNDER
(INCLUDING, WITHOUT LIMITATION, UNAUTHORIZED DISCLOSURE, COPYING, OR USE OF
THE SOURCE CODE, EACH PARTY AGREES THAT ITS LIABILITY HEREUNDER FOR DAMAGES
OF ANY KIND, WHETHER DIRECT OR INDIRECT AND REGARDLESS OF THE FORM OF ACTION
OR THEORY OF LIABILITY SHALL NOT EXCEED, AS THE CASE MAY BE, THE CHARGES
ACTUALLY PAID OR DUE (OR TO BE DUE UNDER THE APPLICABLE AGREEMENT) AND OWING
HEREUNDER WITH RESPECT TO THE APPLICABLE AGREEMENT. IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
HOWEVER INCURRED OR DESIGNATED.
18.2. Notwithstanding the foregoing, each party shall be responsible for
bodily injury or damage to the other party's personnel and physical property
resulting from negligent or intentional acts or omissions of its employees,
agents, or representatives.
19. TRADEMARKS
IGT hereby licenses Snap-on to use it's the IGT mark Pixsys-TM- in Snap-on
product and marketing literature only on Products obtained from IGT, provided
Snap-on shall adequately acknowledge and publish IGT ownership of said
trademark. IGT makes no representations or warranties as to it Pixsys-TM-
trademark or the title thereto, the rigHt granted hereunder to use such
trademark is "as is".
Snap-on may license and sell products under any name it deems appropriate
without requirement to acknowledge any IGT orgin.
Snap-on shall use IGT product and corporate name (i) on the documentation it
provides for the Programs; and (ii) on the title screen for the various
application platforms covered under this Agreement.
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20. COPYRIGHTS
Subject to the limitations and agreements contained herein, and to the rights
and licenses granted to Snap-on by these Agreements, IGT shall have sole and
exclusive right, title, and interest in and to its copyright for any and all
elements of the Technology, EXCLUDING specifically any improvements, updates,
enhancements and copies of such improvements, updates, or enhancements made
by or for Snap-on. Snap-on shall reproduce an appropriate IGT copyright
notice on the documentation for the applications covered under these
Agreements and the package and/or media containing the non-excluded
Technology. Snap-on agrees not to delete any IGT copyright notices from any
of the Technology. Snap-on agrees to protect IGT copyrights in the Technology
by taking all reasonable safeguards to protect them as well as its own
copyrights in its application software contemplated hereunder.
IGT agrees to enable Snap-on to register IGT's copyrightable materials
(including maskworks) in IGT's name in the United States of America; provided
the method of such registration is reasonably acceptable to IGT and does not
disclose any confidential or proprietary information of IGT.
21. SALE OR ASSIGNMENT
Except in the case of an assignment to a parent or subsidiary, or purchaser
of all or substantially all of its business assets, or in the case of an
assignment by IGT to a purchaser of all or substantially all its localizer
business, or in the case of a merger between one party and another business
entities neither party may assign, delegate or transfer these Agreements or
any or all of its rights or obligations hereunder, without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
22. ENTIRE AGREEMENT
These Agreements sets forth the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes any and all prior
agreements, understandings, promises and representations made by either party
to the other concerning the subject matter hereof and the terms applicable
hereto. These Agreements may not be released, discharged, amended or modified
in any manner except by an instrument in writing signed by both parties
hereto.
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II. DEFINED FIELD PATENT LICENSE AND TECHNOLOGY AGREEMENT
(EXCLUSIVE)
THIS AGREEMENT is effective as of June 30, 1999 between a Snap-on
Technologies, Inc. ("Snap-on") and Image Guided Technologies, Inc. ("IGT")
and is appended and incorporated within the Definitive Agreement between the
parties of equal date.
2.1 Background of Agreement
IGT represents that it owns certain U.S. patents as recited herein, and is
prepared to grant an exclusive license thereunder to Snap-on within the
Licensed Field; and
Snap-on wishes to acquire an exclusive license under said Patents and
Technology of IGT for purposes of selling products and services within the
Licensed Field.
2.2 Definitions
As used herein, the following terms shall have the meanings set forth below:
2.2.1 "Patent or Patents" means the following listed patents and/or patent
applications, patents to be issued pursuant thereto, and all divisions,
continuations, and reissues, thereof (see Schedule "W" hereof).
A list of documents reciting Technology owned by IGT, and to be licensed to
Snap-on is attached hereto as Schedule "B".
For purposes of this document, "Technology" shall mean those trade secrets
and know how recited at said Schedule "B".
2.2.2 "Effective Date" shall be the 30th day of June 1999.
2.2.3 "Licensed Territory" means worldwide, meaning anywhere in the world.
2.3 License Grant
IGT hereby grants to Snap-on, only within the Licensed Field and within the
Licensed Territory, a license under said Patents and Technology to make, use,
and sell Licensed Products in any manner deemed appropriate by Snap-on,
including, but not limited to, use in any Snap-on product or service. No
license under said Patents or Technology is granted, and no license should be
implied with respect to activities of Snap-on outside either the Licensed
Field or the Licensed Territory.
The license granted pursuant to this paragraph shall be exclusive within the
Licensed Field, with the right to grant sub-licenses for the term of this
Agreement.
2.4 License Fees and Royalty
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Snap-on shall, as a license fee, pay to IGT, as defined below, the sum of
$500,000 as a one time only fully paid-up license fee. No further payments or
royalties of any kind shall be due to IGT after the above described license
fee has been paid in full as set forth below.
2.5 Sub-licensing
Sub-licensing in the Licensed Field and within the Licensed Territory shall
be the exclusive right of Snap-on. It is the intent of the parties that
sub-licenses shall be available to qualified third parties under fair and
reasonable terms as deemed appropriate by Snap-on in its sole discretion. Any
such Sub-license shall be a non-exclusive license that is licensed only from
Snap-on to third parties in accordance with appropriate license terms.
Snap-on shall supply IGT with a master copy of the license agreement to be
used with Licensed Product licensed by Snap-on to any third party. Any
license agreement entered into between Snap-on and a third party licensee
shall include terms substantially in conformance with the master copy of the
license agreement.
Income received by Snap-on from any said licensed third party shall remain
the sole property of Snap-on.
2.6 Intellectual Property Indemnification
2.6.1 IGT Indemnification. IGT shall defend any suit or proceeding brought
against Snap-on to the extent it is based on a claim that the IGT Product or
any modification of the IGT Product by Snap-on which is within the scope of
any IGT patent claim issued on or prior to the date of these Agreements and
licensed hereunder directly infringes within the Licensed Field a patent or
copyright issued by the United States; provided IGT is notified promptly in
writing and given authority, information and assistance for the defense of
the suit or proceeding. IGT shall pay all damages and costs awarded against
Snap-n in such suit or proceeding or settlement, if IGT has been given full
control of the defense and the negotiations for settlement, if any, of the
suit or proceeding (any settlement shall require the consent of Snap-on which
shall not be unreasonably withheld). If the IGT Product or said modification
is held in such suit or proceeding to directly infringe a patent or copyright
of the United States or is, in IGT's opinion, likely to be held to directly
infringe such a patent or copyright, IGT may, at its option and expense,
either (a) procure for Snap-on the right to continue using the IGT Product,
(b) replace the IGT Product with non-infringing product, (c) modify the IGT
Product so that it becomes a non-infringing product, or (d) require return of
the IGT Product and refund the purchase price for the IGT Product. IGT shall
have no liability to Snap-on if the infringement or claim thereof is based
upon the use of the IGT Product in combination with other products, devices
or software outside the terms of these Agreements. IN NO EVENT SHALL IGT's
OBLIGATIONS UNDER THIS PARAGRAPH EXCEED THE TOTAL ROYALTY DUE FROM SNAP-ON
HEREUNDER. THIS SECTION STATES THE ENTIRE LIABILITY OF IGT FOR PATENT OR
COPYRIGHT INFRINGEMENT UNDER THESE AGREEMENTS.
2.6.2 Snap-on's Indemnification. Except as set forth above, Snap-on shall
defend any suit or proceeding brought against IGT to the extent it is based on a
claim that Snap-on's product (i.e., a
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product other than the IGT Product or said modification) infringes a patent
or copyright issued by the United States; provided that Snap-on is notified
promptly in writing and given authority, information and assistance for the
defense of the suit or proceeding. Snap-on shall pay all damages and costs
awarded against IGT in such suit or proceeding or settlement, if Snap-on has
been given full control of the defense and of the negotiations for the
settlement, if any, of the suit or proceeding (any settlement shall require
the consent of IGT which shall not be unreasonably withheld). IN NO EVENT
SHALL SNAP-ON'S OBLIGATIONS UNDER THIS PARAGRAPH EXCEED THE TOTAL ROYALTY
PAID TO IGT HEREUNDER. THIS SECTION STATES THE ENTIRE LIABILITY OF SNAP-ON
FOR PATENT OR COPYRIGHT INFRINGEMENT UNDER THESE AGREEMENTS WITHIN THE
LICENSED FIELD.
2.6.3 Enforcement of Patent and Copyright. If Snap-on has reason to believe
there exists a bona fide claim against any third party for infringement of
any IGT Patent or copyright licensed hereunder within the Licensed Field,
and, in the event IGT does not agree to prosecute such infringement claim
within sixty days after notice from Snap-on, then Snap-on at its own expense
shall have the right to prosecute such claim in IGT's name if necessary,
subject to consultation with IGT and any decision to settle or abandon the
prosecution shall be made only on consent of both IGT and Snap-on, which
consent shall not be unreasonably withheld.
2.7 Payments
The following schedule shall be used to define the delivery schedule and
payment schedule between the parties.
Payments provided for in this Agreement, when overdue, shall bear interest at
a rate, per annum, equal to two percent (2%) in excess of the Prime Rate
published by the Wall Street Journal at the time such payment is due, and for
the time period until payment is received by IGT.
2.8 Expiration of Patent Rights
The Patent licenses granted hereunder shall be eligible to be bought back
from Snap-on by IGT, at a price to be negotiated, separately as to each
Patent licensed hereunder, after five years from the execution of the
Definitive Agreement, or five years from the issue date thereof, which ever
is later, if Snap-on has not commercialized that Patent within that five-year
period within the Licensed Field. A Patent shall be deemed to have been
commercialized if Snap-on has created a commercial product with such Patent.
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III. SOFTWARE LICENSE & TECHNOLOGY DISTRIBUTION AGREEMENT
THIS AGREEMENT is effective as of June 30, 1999 between a Snap-on
Technologies, Inc. ("Snap-on") and Image Guided Technologies, Inc. ("IGT")
and is appended to and incorporated with that certain Definitive Agreement
between the parties of equal date.
WITNESSETH
WHEREAS IGT is engaged in the business of designing and developing software
and other works of authorship and has developed proprietary software products
and related Technology, collectively called ("Program(s)"); and
WHEREAS, Snap-on wishes to market one or more Programs within the Licensed
Field, in conjunction with various applications and platforms as set forth
herein; and
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, Snap-on and IGT hereby agree as follows:
3.1. DEFINITIONS
As used in this Agreement, the following words and phrases shall be defined
as follows:
3.1.1 "Program(s)"
Shall mean IGT proprietary software Programs and Associated Documentation as
defined in Schedule B.
3.1.2 "Copy"
Shall mean a single copy of a Program covered under this Agreement.
3.1.3 "Snap-on"
Shall mean Snap-on or any wholly or majority-owed subsidiary or any other
companies in which Snap-on holds a fifty percent (50%) or greater controlling
interest. IGT agrees that Snap-on may, at its option, designate that any such
subsidiary or controlled corporation may exercise the rights granted Snap-on
under this Agreement.
3.1.4 "Distributor"
Shall mean any entity, which is duly authorized by Snap-on to sublicense
and/or manufacture or otherwise reproduce the Programs.
3.1.5 "Sublicensee"
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Shall mean any entity that has been sublicensed by Snap-on or by a
Distributor to use the Programs.
3.1.6 "Transition Plan"
Shall mean the agreed-on transition plan for transfer of the source code and
Technology to Snap-n found in Schedule "A" including timetables, milestones,
and dependencies known to Snap-on and IGT at the time of this Agreement. The
parties may modify the Transition Plan from time-to-time to reflect changes
in timing or additional dependencies upon agreement.
3.1.7 "Acceptance"
Shall mean the process detailed in Section 3.3.1 and 3.3.2 below whereby
Snap-on verifies that the Programs and related Technology as delivered to
Snap-on by IGT (i) substantially conform to the published specifications as
found in the Associated Documentation and/or (ii) provide substantially
equivalent functional access as found in an equivalent Program as marketed by
IGT under the Windows 95 operating system.
3.1.8 "Source Code"
Shall mean the underlying source program listings, algorithms and internal
documentation that are used to generate the Programs in object code form.
3.2. GRANT OF RIGHTS
3.2.1 "SOURCE CODE LICENSE"
(i) Upon execution of this Agreement, subject to Snap-on making payment of
the Source Code License Fee as specified in Schedule "C", IGT grants to
Snap-on a personal, exclusive, non-transferable, fully paid-up license to
use, copy and modify (or have copied and have modified) the Source Code for
the Program solely in connection with the Licensed Products solely for use
within the Licensed Field, including, but not limited to porting, maintenance
and support of the Programs.
Snap-on shall be responsible for preventing the unauthorized disclosure,
copying or use of the Source Code or any part thereof to an unauthorized
third party, and shall be liable for any damages IGT incurs or suffers from
any such unauthorized disclosure, copying or use. Said damages to be limited
to the Source Code license fee as recited herein. Snap-on shall have no
obligation to deliver any enhancement to the Source Code to IGT. It will
further limit the distribution of such Source Code within its organization
too only those with a need to know, will allocate the source code to groups
within its organization to limit any one individual having access to the
source code, and will take all commercially reasonable steps necessary to
prevent its unauthorized disclosure.
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The delivery of Source Code to Snap-on under this Agreement shall be the
version(s) of the Programs current as of the effective date of this
Agreement, and as more fully defined in Schedule "B" hereof.
The Source Code and other deliverables from IGT, including supported
environments as detailed in Schedule "B".
The Programs Source Code, and all modifications made to it (subject to the
limitations in Section 3.2.1), shall at all times remain the trade secret,
confidential and exclusive property of IGT, and the confidentiality
restrictions as to such Program Source Code shall survive during the term of
these Agreements and for five (5) years thereafter.
3.2.2 "INITIAL TRANSITION PROJECT"
Upon execution of this Agreement IGT shall begin the Transition Plan work
specified in the Transition Plan to transfer the Programs to Snap-on. IGT
will supply to Snap-on, at Snap-on's expense, the necessary hardware and
software specified in the Transition Plan or as may be reasonably required by
Snap-on during the course of such Transition work (under the terms of an
appropriate Equipment Loan Agreement).
Snap-on agrees to make the payments specified in Schedule "C" for each
milestone upon Acceptance by Snap-on of the source code version of the
Programs that represent the results of the Transition work to that milestone.
3.2.3 "SUBLICENSING RIGHTS"
IGT grants to Snap-on during the term of this Agreement, a personal,
exclusive right and license to sublicense, manufacture (copy and have
copied), distribute, and market only in conjunction with sales of an Licensed
Product (as defined above), for use exclusively within the Licensed Field:
(a) Snap-on versions of IGT software (in Object Code only) and/or (b) the
Programs (in Object Code only), provided that IGT has performed the
Transition under the rights granted to it under this Agreement. Any such
license or sublicense shall take place (or have previously taken place)
evidenced by a writing (which need not specifically relate to the Programs,
but must conform substantially to the terms of Schedule "H") between Snap-on
and each of such third parties.
3.2.4 "DISTRIBUTORS"
IGT further grants to Snap-on, during the term of this Agreement, the right
to appoint authorized third parties to exercise on behalf of Snap-on the
rights and licenses as set forth in Section 3.2.3 above as to the Programs.
3.2.5 "ASSOCIATED DOCUMENTATION"
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IGT further grants to Snap-on, during the term of this Agreement, a personal,
exclusive, non-transferable, fully paid-up license to use, distribute, copy
and modify (or have copied and have modified), solely in connection with the
distribution of the Licensed Products, only within the Licensed Field, the
Associated Documentation as defined herein).
3.3. DELIVERY AND ACCEPTANCE
3.3.1 "ACCEPTANCE"
Within five (5) business days after IGT sends a notice to Snap-on that it
wishes to begin to achieve the final Transition milestones recited in the
Transition Plan for each of the Programs, IGT shall deliver (a) the relevant
Program to Snap-on in object code form, and (b) the Source Code to the
relevant Program that corresponds to said object code. Thereafter, Snap-on
shall perform such tests as it deems necessary to verify that the specific
Program provides substantially equivalent functionality as does the
equivalent Program as developed and marketed by IGT and substantially
conforms to its published specifications.
When Snap-on verifies that the Transitioned Program provides substantially
equivalent functionality as does the equivalent Program developed and
marketed by IGT, and when Snap-on verifies that it is able to rebuild object
code versions from the Source Code for such Programs, then Snap-on shall
submit to IGT a written Acceptance notice for the specific Program. Upon
acceptance hereunder of all Program(s) source code, payment shall be due from
Snap-on as defined in Schedule "C". If, as a result of such tests Snap-on
finds that the specific Program does not provide such substantially
equivalent functionality, Snap-on shall provide to IGT a written rejection
notice reciting said deficiencies in such functionality.
Unless IGT consents in writing beforehand, such consent not to be
unreasonably withheld, should Snap-on ship or sublicense one or more Programs
to a Sublicensee or Distributor, then Acceptance of the Programs shall be
deemed to have occurred.
A similar process shall be applied as Snap-on verifies that the Transitioned
Technology provides substantially equivalent functionality as does the
equivalent Technology developed and marketed by IGT, and this Acceptance
shall be completed when Snap-on verifies that it is able to build the
Technology in-house.
3.3.2 "CORRECTED VERSIONS"
As soon as reasonably possible following the receipt by IGT of any rejection
notice under 3.3.1 above, IGT shall provide Snap-on with a corrected version
of the specific Program that cures any deficiencies noted in such rejection
notice, at which the Acceptance testing process by Snap-on described in
Section 3.3.1 above shall be reiterated. If after such additional Acceptance
testing, Snap-on again submits a rejection notice to IGT as provided above,
IGT will again submit as soon as reasonably possible another corrected
version of the Programs.
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This submission and correction process shall continue until (i) the specific
Program is Accepted by Snap-on or (ii) until ninety (90) days have passed
after the initial submission of the specific Program for Acceptance, unless,
prior to the expiration of such ninety (90) day period, the parties agree in
writing to extend such period.
At the end of such ninety (90) day period, if the Programs are not Accepted
by Snap-on, and Snap-on has not commercialized a Product incorporating such
Program(s), and the parties have not agreed to extend the period, then, the
parties agree to submit to arbitration as identified in this Agreement. Such
arbitration shall determine the party's rights to return or retain Source
Code for the Program(s), and the other licenses granted under these
Agreements.
3.4. FEES AND PAYMENTS
3.4.1 "FEES"
In consideration for the rights granted Snap-on under this Agreement, Snap-on
agrees to pay the fees specified in Schedule "C".
3.4.2 "PAYMENTS"
Payment by Snap-on of the Source Code License Fee shall be made as specified
in Schedule "C".
All payments shall be made in U.S. dollars.
3.5. SUPPORT AND MAINTENANCE
3.5.1 "TECHNICAL SUPPORT"
For the period from effective date through December 31, 1999 (or any extended
period mutually agreed to by the parties, for IGT to manufacture localizers
for Snap-on), IGT shall provide Snap-on with Extended Support for the
Programs consistent with IGT's Product Support Policy (Schedule "I'"). IGT's
Extended Support obligations to Snap-on may be modified upon mutual written
consent of the parties. These obligations shall not extend to any of the
Programs that are not Accepted by Snap-on as provided hereinabove.
IGT agrees, during the period ending December 31, 1999 (and any extension
thereof as provided herein) to update (in the form of Maintenance Releases)
the Programs, provided that the appropriate Maintenance Fees as per Schedule
"F", have been paid by Snap-on.
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IV.
AGREEMENT FOR CONSULTING SERVICES
BY AND BETWEEN
Image Guided Technologies, Inc.
(Consultant)
AND
Snap-on Technologies, Inc.
(Snap-on)
Dated: June 30, 1999
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AGREEMENT FOR CONSULTING SERVICES
THIS AGREEMENT is effective as of June 30, 1999 between a Snap-on
Technologies, Inc. ("Snap-on") and Image Guided Technologies, Inc. ("IGT")
and is appended to and incorporated within that certain Definitive Agreement
between the parties of equal date.
Subject to the terms and conditions of this Agreement, IGT agrees to provide
and Snap-on agrees to accept the Services recited hereinbelow.
4.1. Definitions
4.1.1. "Services" mean those software maintenance and/or consulting services,
which are more fully described in Work Specifications issued hereunder, for
the fees set forth herein.
4.1.2. "Work Specifications" mean those documents substantially in the form
attached hereto as Exhibit IV-A, with appropriate insertions, issued by
Snap-on and accepted by IGT in reference to this Agreement. Said Work
Specifications are hereby incorporated from time to time into and made a part
of this Agreement by reference, when executed by the parties.
4.2. Scope of Services
No Services shall be provided by virtue of this Agreement alone, but shall
require the issuance and acceptance of one or more said Work Specification.
As appropriate, said Work Specifications shall identify without limitation,
the Services to be performed, results to be achieved the cost, the start
date, and the criteria for completion.
4.3. Term
4.3.1. This Agreement shall be effective when signed by both parties and
thereafter shall remain in effect until December 31, 1999, unless earlier
terminated by either party as provided herein.
4.3.2. Each Work Specification shall be effective when signed by both parties
and thereafter shall remain in effect until terminated as provided herein,
4.4. Personnel, Staffing and Direction
IGT shall provide all necessary personnel, adjudged by IGT and acceptable to
Snap-on as qualified to perform the Services defined in a Work Specification.
The daily activities of IGT's personnel assigned to work with Snap-on in
accordance with the requirements set forth in a Work Specification shall be
directed by Snap-on or by IGT's supervisor acting at the direction of Snap-on.
4.5. Working Arrangement
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4.5.1. The Services provided hereunder shall be performed at either Snap-on's
or IGT's premises, as mutually agreed by the parties.
4.5.2. Snap-on agrees to provide reasonable working space, computer related
resources, materials (i.e. ribbons, paper, etc.), and any other services and
materials which may be necessary in connection with the performance of
Services, including particularly a desk, a phone, and other office and
support services normally provided by Snap-on to Snap-on's own employees of
similar status. Snap-on shall not unreasonably alter the working environment
once established, nor substitute other working arrangements unreasonably
often regardless of relative quality.
4.6. Compensation
Snap-on shall pay IGT for Services provided under each Work Specification (i)
at an hourly rate; (ii) at a flat rate per project, task, or Work
Specification; or (iii) at any other rate mutually agreed upon by Snap-on and
IGT and set forth in the applicable Work Specification. In the event that
payment is based on an hourly rate, Snap-on shall pay IGT for actual hours
spent engaged in providing the Services contemplated by a Work Specification
or actual hours spent engaged in providing support services necessary for the
successful performance of the Product(s) contemplated under a Work
Specification.
4.7. Travel and Other Expenses
4.7.1. Snap-on shall reimburse IGT for all reasonable travel and other
expenses (over and above the normal daily expenses of working and commuting)
in connection with Services furnished under a Work Specification.
4.7.2. All travel and other expenses must be authorized in writing by an
authorized representative of Snap-on prior to same being incurred.
4.8. Taxes
Snap-on shall reimburse IGT for any sales tax, use tax, or any similar fee
levied on Services provided hereunder by IGT, provided said taxes or fees are
paid by IGT and imposed by state or federal law.
4.9. Invoicing and Payment
IGT shall invoice Snap-on for the Services furnished and for the approved
travel and other expenses incurred under a Work Specification during the
preceding month, week or other invoicing period described in the applicable
Work Specification. Snap-on shall pay invoices issued pursuant to this
Agreement within thirty (30) days after the receipt thereof.
4.10. Intentionally Left Blank.
4.11. Confidential Information
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4.11.1 Each party acknowledges that all material and information marked as
"Confidential", "Secret" or containing such other reasonable marking showing
that the materials are to be protected, and which has or will come into the
possession or knowledge of each in connection with this Agreement or the
performance hereof, consists of confidential and proprietary information,
whose disclosure to or use by third parties will be damaging. Both parties,
therefore, agree to hold such material and information in strictest
confidence, not to make use thereof other than for the performance of this
Agreement, nor to release or disclose such information or material to any
persons who have not been officially notified in writing that they are
expressly binding themselves not to improperly use or disclose said
information, provided that such verification shall not relieve the party of
any liability for unauthorized disclosure or use of the confidential
information.
4.11.2. Snap-on and IGT further agree that this Agreement shall not restrict
the rights of IGT, except as specifically acknowledged in writing, to
undertake similar work for other clients either concurrently or in the
future, provided that Snap-on's rights of proprietary information as provided
above are preserved.
4.12. Guarantees
IGT warrants that all Services performed under a Work Specification shall be
performed to the best of its, and its personnel's, ability and in a good
workmanlike manner.
4.13. Excusable Delays
4.13.1. Neither party to this Agreement shall be held liable for failure to
comply with any of the terms of this Agreement when such failure has been
caused solely by fire, war, insurrection, government restrictions, force
majeure (Acts of God) or other causes, beyond the control and not due to the
fault of either party involved, provided such party uses due diligence to
remedy such delay.
4.13.2 It is understood and agreed that the Services provided by IGT
hereunder will be based entirely upon the Snap-on's direction and/or Snap-on
determined specifications, therefore, the Snap-on understands that changes,
including but not limited to changes either in data supplied, requirements,
specifications, or objectives; will cause delays and affect estimates, if
any, of the amount of Services required and their completion dates.
4.14. Termination
4.14.1. This Agreement may be terminated as follows:
(i) By either party, without cause, upon thirty (30) days prior
written notice to the other party on or before December 31, 1999;
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(ii) By either party, in the event that the other party fails to
comply with any material term or condition hereof and such failure is not
remedied within thirty (30) days, after written notice thereof has been given
to the other party;
(iii) By either party, in the event that the other party becomes
insolvent, makes an assignment for the benefit of creditors, suffers or
permits the appointment of a receiver or trustee in bankruptcy or similar
officer for all or parts of its business or assets; or
(iv) By either party, in the event that the other party avails
itself of or becomes subject to any bankruptcy proceeding under federal law
or any statute of any state relating to insolvency or the protection of
rights of creditors.
4.14.2. Each Work Specification may be terminated as follows:
(i) As provided in the applicable Work Specification;
(ii) By either party, upon thirty (30) days prior written notice to
the other party; or
(iii) Automatically, upon completion of the Services and/or delivery
of the Product(s) specified in the applicable Work Specification.
4.14.3. Termination shall in no way relieve either party of duties or
obligations incurred prior to such termination.
4.14.4. Upon termination of this Agreement, each party shall immediately
return to the other, all papers, materials, programs, documentation,
equipment and other property of the other party held by each party for the
purpose of carrying out its obligations hereunder. Each party shall assist
the other party in the orderly termination of this Agreement as may be
necessary for the non-disrupted business continuation of each party.
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Exhibit 10.32
1 December 1999
MEMORANDUM
TO: Image Guided Technology, Inc., Board of Directors; William Tanis,
Corporate Counsel
FROM: Terry Knapp, MD, Chairman, Compensation Committee
RE: REVISED EXECUTIVE COMPENSATION POLICY RECOMMENDATIONS
BACKGROUND
It has come to the attention of the Compensation Committee that IGTI does not
have a guiding policy for executive compensation. This memorandum consists of
rationale and recommendations for the adoption of a formal Executive
Compensation Policy to guide future deliberations of the Board and its
Compensation Committee as it approves compensation packages for newly hired
executives, and as it reviews executives against performance on an annualized or
otherwise periodic basis. The recommendations are based on both accepted
industry ranges, with due consideration to the stage of the Company, for base
salary, benefits and bonuses, as well as generally acceptable equity positions
to be provided for senior executives in the course of compensation.
EXECUTIVES TO WHOM POLICY MAY APPLY:
For purposes of this recommendation memorandum, the term "executive" is meant to
refer to senior executives in the Company for whom the Board ordinarily is
involved in approving compensation packages, stock options or grants, and annual
review. THE COMMITTEE RECOMMENDS that, in general, such executives include Chief
Executive Officer, President, Chief Operating Officer, Chief Technical Officer,
Chief Financial Officer, and other Officers or Vice Presidents whose performance
the Board may wish to judge.
For others in management, THE COMMITTEE RECOMMENDS that compensation policy and
review be left to the Chief Executive Officer, provided that his/her policy is
in accord with the general guidelines adopted by the Board for executive
compensation.
PERIODIC REVIEW:
New executive hires will be reviewed and presented to the Board by the CEO for
confirmation, as currently is the custom.
THE COMMITTEE RECOMMENDS that a formal annual performance review be conducted
each January by the CEO for each of his/her senior executive reports, and that
the CEO's review and recommendations be presented to the Compensation Committee
for subsequent action.
THE COMMITTEE RECOMMENDS that the Compensation Committee conduct a formal
performance review of the CEO on an annual basis in January.
PAGE 1 OF 4
<PAGE>
REVIEW CRITERIA AND PROCESS:
THE COMMITTEE RECOMMENDS that all executives be reviewed on performance-based
milestones that were set for the current year-in-review on or about the time of
the prior year's review.
THE COMMITTEE RECOMMENDS that the CEO set OVERALL CORPORATE MILESTONES that are
reviewed and accepted by the executive team that reports to him/her at the
commencement of each annual review period.
THE COMMITTEE RECOMMENDS that the CEO set INDIVIDUAL PERFORMANCE MILESTONES--in
the context of the corporate milestones--for each of his/her reports
(interactively with the executive involved), and for himself/herself.
THE COMMITTEE RECOMMENDS that the CEO then submit those pre-set milestones,
corporate and individual, to the Compensation Committee for approval as criteria
for next annual review.
THE COMMITTEE RECOMMENDS that the CEO submit his annual review of his direct
reports and suggested compensation adjustments to the Compensation Committee at
the time of the annual review of executive performance by the Compensation
Committee.
THE COMMITTEE RECOMMENDS that it meet privately with the CEO for his/her annual
review and that the Committee's recommendations for compensation adjustment be
conveyed to the Board for action.
COMPENSATION CATEGORIES:
- - BASE COMPENSATION:
The salary base for IGTI executives should reflect the levels necessary to
attract and retain executives on a competitive basis with other companies
in the industry operating within the geographical region. This is often
best judged by assigning the Human Resources department with the task of
obtaining annual survey results of executive compensation levels that
reflect the range that is competitive in the region. This provides guidance
to the Board and prevents distortion of base income expectations or awards.
THE COMPENSATION COMMITTEE RECOMMENDS that executive compensation policy
require HR, or other designee of the Board, to provide a yearly update of
geographically adjusted industry sector executive compensation ranges to
the Committee prior to annual review of executive compensation.
- - BENEFITS
Like the base compensation, benefits package for employees should reflect
the practices of the industry sector in the geographical region. To comply
with labor law,
PAGE 2 OF 4
<PAGE>
the Company should not extend selective benefits to individual executives
that may be construed as discriminatory.
THE COMMITTEE RECOMMENDS that HR, or other designee of the Board, develop a
consistent benefits policy, and avoid such controversial benefits as
automobiles and other highly personal perquisites.
- - BONUSES
The Committee believes that a bonus structure for senior executives
provides SHORT-TERM recognition, incentive and reward for tangible
corporate goals and milestones met.
THE COMMITTEE RECOMMENDS that no bonuses be awarded unless the Company is
profitable, unless the Board, at its discretion, chooses to award bonuses
for extraordinary service.
THE COMMITTEE RECOMMENDS that the bonus structure be formally tied to
annual pre-set corporate and personal milestones for each executive, that
the bonus be pre-determined (as a % of base salary from a range approved by
the Board) as a maximum potential dollar amount, and that the bonus awarded
to an executive, partially or entirely, be based on annual review of the
executive's milestone-driven performance.
- - EQUITY INCENTIVES
The Committee believes that an equity stake in the Company serves to
incentivize executives and tie them to the Company for the LONG-TERM. All
executives should have beneficial ownership in the Company, and not simply
possess stock options. (Although ISO's are a meaningful tool for continuing
retention of all employees.)
The ranges generally observed in smaller companies in the medical device
industry for levels of salary, bonus and ownership (including options that,
if exercised, would cumulatively create the desired ownership) are
reflected in the following table:
<TABLE>
<CAPTION>
MANAGEMENT BASE SALARY ANNUAL PERFORMANCE LONG TERM EQUITY
POSITION BONUS (% SHARES OUTSTANDING)*
<S> <C> <C> <C>
CEO $175 - 200 K 30 - 50+% 6 - 8%++
COO $150 - 175K 30 - 50% 3 - 4%++
CTO $130 - 160 K 20 - 40% 1.5 - 3%++
CFO $110 - 130 K 20 - 40% 1 - 1.5%++
Vice Presidents $90 - 110 K 15 - 30% 0.5 - 1%
Directors $70 - 90 K 15 - 25% Less than 0.5%
PAGE 3 OF 4
<PAGE>
Managers $50 - 80 K 10 - 20% Less than 0.5%
</TABLE>
* Management as a group should own 20 - 25% of the Company
++ May be higher depending on founder status, stage of the Company at the time
that the executive joins, etc.
THE COMMITTEE RECOMMENDS that HR verify these metrics and undertake a review of
IGTI compensation and executive ownership of the Company relative to the
parameters reflected in the Table. The adjusted (updated) Table will be
presented to the Board each November.
THE COMMITTEE RECOMMENDS that the Board structure a means to generate executive
ownership of the Company for existing executives, including stock purchase
opportunities and/or requirements, using discounted restricted stock, etc.
THE COMMITTEE RECOMMENDS that new executive hires be provided with a means of
some immediate beneficial ownership, coupled with long-term vesting of options
to allow the appropriate potential percentage stake reflective of the
executive's title and responsibilities.
PAGE 4 OF 4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (file numbers 333-32435, 333-57477 and 333-87831) of
Image Guided Technologies, Inc. of our report dated March 27, 2000, appearing
on page 15 of this Annual Report on Form 10-KSB.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Broomfield, Colorado
March 30, 2000
41
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,000
<SECURITIES> 0
<RECEIVABLES> 588,000
<ALLOWANCES> (80,000)
<INVENTORY> 832,000
<CURRENT-ASSETS> 1,454,000
<PP&E> 1,490,000
<DEPRECIATION> (847,000)
<TOTAL-ASSETS> 2,831,000
<CURRENT-LIABILITIES> 2,025,000
<BONDS> 0
0
0
<COMMON> 10,527,000
<OTHER-SE> (9,074,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,831,000
<SALES> 6,432,000
<TOTAL-REVENUES> 6,432,000
<CGS> 3,850,000
<TOTAL-COSTS> 3,850,000
<OTHER-EXPENSES> 3,991,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311,000
<INCOME-PRETAX> (1,718,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,718,000)
<DISCONTINUED> 830,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (888,000)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
