UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended - December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 0-24897
SurgiLight, Inc.
(Name of Small Business Issuer in its charter)
Delaware 35-1990562
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
SurgiLight, Inc. 12001 Science Drive, Suite 140, Orlando, FL 32826
(address of principal executive officer)
(407) 482-4555
(Registrant's Telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock and Common Share Purchase Rights
- ---------------------------------------------------------------
Title of Class Name of Exchange on Which Registered
None N/A
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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.
[X ] Yes [ ] No
Indicate by check mark if the disclosure of delinquent filers to item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form or any
amendment to this form 10-K [ ]
Based on the closing price ($11.25) for the registrant's voting stock on
March 29, 2000, the aggregate market value of such voting stock held by
non-affiliates of the registrant was approximately $73 million on said
date. The number of shares of the registrant's Common Stock, $.01 par
value, outstanding on March 30, 2000 was 21,490,000 shares.
TABLE OF CONTENTS
Part I
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Part II
Item 5 Market for Company's Common Equity and Related
Stockholder Matters
Item 6 Selected Consolidated Financial Data
Item 7 Management Discussion and Analysis of Financial Conditions and
Results of Operations
Item 8 Financial Statements and Supplemental Data
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Part III
Item 10 Directors and Executive Officers
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relations and Related Transactions
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
The Company was incorporated in the State of Delaware in September,
1998 to acquire the technologies and laser centers associated with lasers
for applications in ophthalmology, dermatology, industrial and military.
The Company believes that its products represent substantial improvement
in safety, precision, efficacy, time and cost effectiveness over currently
available laser and non-laser devices. The historical background of the
Company and its acquisitions are described as follows.
In March, 1999 the Company acquired all shares, technologies,
assets and business of Photon Data, Inc. ("PDI"), a Florida company
since 1993, by a stock swap of issuing 8,140,000 shares (pre-split)
of the Company's common shares to the shareholders of PDI.
In March, 1999, the Company acquired all shares of Advanced
Marketing Technology, Inc. ("AMTI") a Florida company by issuing
1,180,000 common stocks (pre-split) which will to be delivered based
on some performance criteria. Mr. Paul Miano, the president of AMTI,
was appointed as V.P. of Cosmetic Laser Centers and Board Member of the
Company. In April, 1999, only 20% of these shares are delivered
to the shareholders of AMTI and the remaining 80% are escrowed by the
Company until AMTI meets certain performance. In January, 2000 TMTI was
spun off from the Company, where Paul Miano and his group bought back
55% of AMTI by returning 750,000 share (pre-split) of the escrowed common
stock to the Company. These shares were then canceled by the Company. By
the spun-off terms, AMTI shall pay 45% of its net quarter profit to the
Company for a unlimited years.
In March, 1999, the Company acquired EMX, Inc. ("EMX"), a Florida
company, by issuing 115,000 common shares (pre-split), where 80,000
shares were delivered at the closing and 20,000 shares are escrowed to
meet certain performance criteria and 15,000 shares are reserved for
key employees. After the acquisition, Mr. Timothy Arion, the president
and sole owner of EMX, Inc. was appointed as the V.P. of Infrared
Systems. In January, 2000 Mr. Arion bought back 85% of EMX by returning
40,000 shares his stock which was also canceled by the Company. By the
spun-off terms, EMS needs to pay the Company 15% of its gross profit until
a total a total payment of $300,000 is completed. EMX main product is
infrared night vision systems.
In March, 1999 the Company entered into an agreement for a 15
years of exclusive licensing rights for all medical applications using
a new infrared laser with GAM Associates, Inc. ("GAM"), a Florida
company. In exchange of these exclusive licensing rights, the Company
had issued 50,000 shares (pre-split) of the Company Common Stocks
to Gordon Murray, the owner of GAM.
On March 31, 1999, the Company entered into a reverse merger agreement
with MAS Acquisition III Corp. As result of the Agreement, the Company
has merged into MAS Acquisition III and MAS Acquisition III has changed
its name to SurgiLight, Inc., where the Company issued a total of
approximately 1.1 millions shares (pre-split) to the existing shareholders
of MAS Acqusition III under the Merger. See the Company's SEC filing 14f-1
filed on March 31, 1999 for greater detail.
On December 28, the Company approved the spun-off AMTI and EMX
(effective from January 1, 2000) in order to focus its business on the
core technology of vision lasers. Persuade to the Agreements, the
Company had canceled 710,000 (pre-split) returned shares from AMTI and
EMX and reserved 82,000 as the Company's stock option and shares for
consultants.
The Company's stock was 2 for 1 forward split effective on
January 27, 2000. As of March 30, 2000 the Company has a total
outstanding and issued (post-split) shares of 21,490,000 shares
including the reserved 164,000 stocks.
The Company currently has two divisions: 1) Laser Technology, and 2)
Laser Eye Centers, In the Laser Technology division, we develop and conduct
research for lasers in the UV and infrared spectra for applications
including vision correction and microsurgery. We also conduct clinical
trials for various new applications including laser skin treatment and the
patent pending device for laser presbyopia reversal. The Company currently
operates 18 Laser Eye Centers (LEC) internationally and one Eye Center and
two Cosmetic Mobile Laser Center (CMLC) in Florida.
The Company is currently conducting clinical trials in Caracas,
Venezuela for the treatment of presbyopia patients using the Company's
patent pending technology. Laser presbyopia correction has a worldwide
potential procedure revenue of over $1,500 billion. The Company believes
that it is the first Company to successfully develop this technology and the
only Company currently conducting clinical trials. The US first clinical
trail for laser presbyopia correction will start at Mt. Sinai Hospital, NY
soon. A royalty fee policy will apply to the users of the Company's new
technology, which will allow the Company to earn long-term recurring income.
The Company also has on-going clinical trials using the UV-laser for skin
disorder treatment at Mt. Sinai Hospital New York City and 510K application
for the EX-308 model was submitted in September, 1999.
The Company's strategy is to focus on recurring revenue and income
from Laser Centers operation and the procedure royalty fees charged to the
users. The Company, however, will continue to develop new products for
markets mainly outside the US prior to the market approval for use of the
Company's products within the US. The Company's revenues will come from
both Laser Center procedure income and the sale of medical systems.
Industrial Background
Lasers have been used in various medical and industrial applications
over the past twenty years. The recent application of lasers with
wavelengths ranging from ultraviolet to infrared have been emphasized in the
areas related to surgeries involved in ophthalmology and dermatology due to
their highest potential growth markets and the significant clinical efficacy
of the laser technologies. For recurring revenues and increased long-term
profits, company-operated Laser Centers have been recognized as a fast
growing industry. In addition to the above-described medical lasers and
centers, the Company also operates a division for the infrared thermal
imaging systems that have applications in security, law enforcement and
military surveillance. Greater details for those industries are described as
follows.
The address of the Company headquarters is: SurgiLight, Inc. 12001
Science Drive, Suite 140, Orlando, Florida 32826, phone number: (407) 482-
4555, Fax number: (407)482-0505,E-mail:[email protected]. Web site:
www.surgilight.com.
Markets Served
Refractive Lasers and Laser Centers
Vision correction is one of the largest medical markets, with
approximately 136 million people in the United States using eyeglasses or
contact lenses. Within this group, approximately 60 million people are
myopic and 30 million are hyperopic. Another 45 million are presbyopic.
Industry sources estimate that Americans spend approximately $13 billion, at
retail prices, on eyeglasses, contact lenses and other vision correction
products and services each year. The international market is approximately
3 to 5 times higher than the US market with at least 500 million people
using eyeglasses or contact lenses.
Refractive Surgery for vision correction is now the most rapidly
growing
surgical procedure in the world in which the market really began in late
1995 with FDA approval of the first excimer laser for Photorefractive
Keratoplasty (or PRK). Prior to 1995 refractive surgery was done by non-
laser techniques known as Radial Keratotomy (or RK), where the surgeon uses
a diamond knife to make radial incisions in the cornea to flatten it. The
problem with this technique and others like it was that it was too dependent
on surgeon skill and gave mixed results.
During late 1996, many surgeons started using a new technique, Laser
In situ Keratomileusis (LASIK), which resolves the negative patient issues,
while preserving the accuracy of PRK. LASIK utilizes a microkeratome, which
is a mechanically driven razor to create a flap in the surface of the
cornea. After creation of the flap, a laser is used on the exposed internal
tissue, called the stroma. After the laser treatment, the flap is laid back
down on the eye to heal in place. The patient is able to return to normal
function the next day, and the LASIK procedures have little pain and no
glare on the corneal surface. At present, over 90% of refractive laser
procedures in the U.S. are LASIK procedures. Obviously, the success of
LASIK in meeting both surgeon and patient needs has been the driving force
behind the refractive market's dramatic growth.
According to "Market Scope Report", by the end of 1998 there were an
estimated 450 excimer lasers in the United States and at least 600 lasers
outside the U.S. At an average price of $500,000, just the installed base
of excimer lasers expected to be operational in the world by the end of 1998
represent over $4.5 billion already spent in just a few years. The Tables
and Charts below illustrate the annual growth of the U.S. market since
market inception in 1996 along with projections until 2002.
TABLE 1. U.S. Laser Refractive Surgery Market (1996-2002)
1996 1997 1998 1999 2000 2001 2002
Laser installed
base 324 370 450 650 800 900 1,000
procedure per
laser 324 581 944 1,000 1,181 1,333 1,500
Refractive
Procedures 105 215 425 650 945 1,200 1,500
(in thousands)
Procedure Revenue 210 430 850 1,300 1,890 2,400 3,000
(in millions)
____________________________________________________________________________
_
* 1996 & 1997 actual, 1998 through 2002 estimated.
** Procedure revenue (in millions) based on an average LASIK fee of
$2,000 per eye.
Source: Market Scope, Dallas, Texas
TABLE 2. Refractive surgery potential market In US and international.
U.S. International
Patients Procedure Patients Procedure
(millions) Income (1) (millions) Income (2)
(billions) (billions)
Myopes 60 $240 100 $100
Hyperopes 13 $ 52 22 $ 22
Presbyopia (3) 40 $160 800 $ 1,600
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Total 113 million $452billion 922 million $1,722 billion
(1) Assuming an average charge of $4,000 per patient in US.
(2) Assuming an average charge of $1,000 per patient internationally.
(3) Assuming estimate 20% of aged patients in US and 10% of aged patients
internationally.
Source: Market Scope (Dallas, Texas) and the Company's analysis.
At the present time most ophthalmologists are charging $1,500 to
$2,000 per eye for LASIK. In addition, since there is currently no insurance
or Medicare coverage for this procedure, the patients are paying cash and
there are no administrative costs dealing with complex paperwork. The
above patient charges may be reduced when competition increases.
The Table and Charts above show the worldwide potential market for
refractive surgery. We note that the presbyopia market shows a much bigger
potential than that of myopia and hyperopia. Presbyopia treatment using
lasers, however, is still in the developing stage.
According to Table 1., we believe the US market for procedure revenue
will grow from $850 million in 1998 to over $3 billion by 2002. We believe
the worldwide potential market for procedure income, see Table 2, will be
about $450 billion in the US and over $1,700 billion internationally. Based
upon a 1% acceptance of the potential patients, the procedure revenue income
will be in the range of $3 billion to $7 billion annually after 2002.
According to the Market Scope report (May 1997), the major Laser
Center companies include the public companies of TLC Laser Centers Inc.,
Laser Vision Centers, LCA Vision, PRG and private companies called Clear
Vision and Vision Correction. The Company believes that it is the only Laser
Center company which has the in-house technology with the advantageous
position of providing up to date technologies at low start-up cost for its
Centers. The Company's competitors buy systems from others which have high
start-up and facility costs for their Centers. Being a laser equipment
manufacturer, the Company's start-up system costs of its international
Centers is about 30% of that of its competitors.
The Company's objectives are multifold: (1) replace the currently used
medical laser systems with the more advanced lasers which represent
substantial improvement in safety, precision, time and cost effectiveness
over the existing laser technologies; (2) maximize profits by offering the
systems based on the 'per procedure' fee which allows the Company to receive
recurring revenues rather than one-time revenue from the sales; and (3)
expand to other areas of medicine for the existing Company's centers. To
achieve these objectives, the Company has the following key elements of its
strategy:
Expand Technology Leadership: The Company will continue to pursue its
leadership position in advanced laser technologies in areas of ophthalmology
and dermatology. In addition to the licensing agreements, the Company will
pursue patents aggressively for any newly-created technologies, adding to
its current pending patent applications.
Focus on High-growth Markets: The Company focuses on what it perceives
as the highest potential growth markets, such as laser resurfacing, laser
vision correction and phototherapy.
Integration of Product Line: The Company has plans to acquire
technologies from its OEM suppliers to increase the vertical integration and
value-added systems products. The Company is also seeking to capitalize on
its advanced manufacturing capability with an assembly factory outside the
country for cost reduction purposes and ease of export.
Expand Worldwide markets: The Company has an established strong
international marketing infrastructure and intends to continue emphasizing
its international marking activities, while its products are waiting for the
approval for domestic sales within the US. The Company has distributors in
most Asian and Latin American countries and intends to add new distributors
in European countries.
International Laser Centers: For recurring revenue and increased long-term
profit, the Company plans to expand its existing Laser Centers in the
Pacific Rim and Latin America. The Company also plans to acquire existing
Laser Centers in North America in addition to establishing new Centers.
New Technologies for Laser Centers: The systems to be used in the Company's
Centers include ophthalmic and cosmetic lasers that will be up-dated to the
newest current technologies to strengthen the market and secure revenue
growth. Being a manufacturer of laser systems, the Company has the
advantageous position of being able to provide system updates and low start-
up costs for its centers.
Product Uses
The Company products include lasers for medical, ophthalmology and
commercial uses. The Company's laser systems cover laser spectra (or
wavelengths) ranging from ultraviolet (UV) to infrared (IR) which are
designed to meet the optimal response and clinical outcome of the surgeries
and the needs for cost efficiency.
Products
Vision Correction Lasers
The Company has developed scanning laser systems for corneal
reshaping, or the correction of myopia, hyperopia and astigmatism. These
systems are much more compact (only 50% in size and weight) than most of its
competitor's systems and they are portable and easy to maintain. Moreover,
the manufacturing cost of this new generation of systems are lower than the
older generation of systems made by others. The Company currently owns
patents pending in both UV and IR laser technologies.
For refractive surgeries, the Company is currently developing two new
systems, Model IR-3000 and IR-3001. The infrared (IR) wavelength of IR-3001
have many advantages over the UV lasers and other existing systems in the
market. The unique features of the IR-3001 system include: (i) a compact
system designed for mobile laser centers; (ii) system operated at high
repetition rate (for fast procedures) and at a short pulse width (for
reduced thermal effects); (iii) wavelength matching the tissue (water)
absorption peak for precise tissue ablation and accurate vision correction;
(iv) system may perform dual-application including LASIK and Presbyopia
correction; and finally, (v) the IR wavelength eliminating the potential
risk of mutanagenic side effects which may be a concern in UV lasers.
New Laser for Presbyopia Corrections
The Company's second new system under clinical trials and in US patent
pending is the model IR-3000 which represents the unique feature of
combining both ablation and coagulation effects for the treatment of
presbyopic patients. This new technology will offer the only system capable
of conducting presbyopia correction based upon the new concept of sclera
expansion to increase the patient's accommodation for both far and near
vision. This new procedure will resolve the cililary muscle relaxation
problems caused by age. The current treatments for presbyopia include
implants (called Scleral Expansion Band, SEB) and diamond-knife incisions
which have drawbacks of being a complex surgical procedure and require a lot
of surgeon's experience. Another method is to use an Ho:YAG laser for
monovision correction, a clinical trial system made by Sunrise Technology.
This method however can only treat one eye for near view and requires that
the second eye remain un-treated for distance viewing.
The IR-3000 and IR-3001 are protected by the Company's three pending
patents. The Company believes that significant recurring revenues may be
generated from the royalty fee collected from the IR systems used for
presbyopic corrections. As shown earlier in Table 2, the presbyopia market
is much bigger than all the other vision corrections (myopia and hyperopia)
with a worldwide potential procedure revenue over $1,500 billion and over
$150 billion in US. The world's first presbyopia-reversal surgeries have
been performed by the Company's laser recently at Caracas, Venezuela and
clinical data were presented in the 1999 Fall World Refractive Surgery
Symposium (Orlando, October 21-23, 1999).
The Company's new method of using laser for presbyopia reversal has
advantages of a precise, fast, and simple procedure that does not
require a surgeon's experience. The LPR procedure will have less
complication and be more stable than the mechanical, non-laser methods. The
Company believes that it is the first and the only company that offers LPR,
which is now limited to the international market prior to US approval.
However there can be no assurance that the Company will be successful in
protecting its proprietary technologies or completing its market approval in
US on schedule.
SmartScan Software
The Company has pioneered the development of software for corneal
topography-assisted, or corneal linked laser systems, for vision correction
since 1995. SmartScan, the Company's patent pending technology was designed
to further extend the precision and flexibility of Laser Systems by
incorporating corneal topography, the eye measurement technology. The
SmartScan software, when integrated into the Company's scanning lasers, will
offer unique, customized corrections. Such corrections offer the promise of
increasing improved night vision, uncorrected visual acuity and the
flexibility beyond what current technology can provide. The customized
correction can also offer great enhancement for second treatments in off-
centered or irregularly corrected patients. Extension of the SmartScan
software will be the "real time" monitoring of the patient topography for
the most accurate vision correction. The Company had reported in several
Ophthalmic Conferences the results based on its SmartScan for pre-operative
computer simulation and post-operative enhancement.
The Company has recently developed and reported a new method of
topography linked computer simulation using the "mesh-point method" (MPM) at
the Summer World Refractive Surgery Symposium (July 16-18, 1999, Miami, FL).
The Company believes that its MPM technology is the first and the only true
topolink software and will offer customized corneal reshaping using a
scanning laser. The Company's competitors, such as LaserSight, Visx, Summit
and Bausch & Lomb, are currently using the "average-methods" which the
Company believes are not accurate and can only apply to a limited small
Market. However there can be no assurance that the Company will
be successful in completing its final development for clinical trials.
Dermatology Lasers
For dermatology uses, the Company has developed the UV excimer
laser, model EX-308, for phototherapy of psoriasis which has the potential
to substitute the conventional UVB light non-laser system, the "PUVB".
Model EX-308 offers the advantages of: (i) fiber-coupled for friendly use
in any portion of the treated areas; (ii) less total dose and numbers of
treatment needed (6 times less) than the UVB light; (iii) safer than UVB
light, only the localized area is treated to eliminate the risk of cancer
on normal skin; (iv) controllable accurate dose applied to the target
unlike the UVB light which may degrade in dose without control; and (v)
cost effective in terms of time spent by the surgeon and patient. In
addition, the Company has on-going clinical trials for the EX-308 model
for the treatment of vitiligo. The Company had submitted 510K application
and expects to obtain the market approval in USA in this year 2000. The
Company's UV-308 model is designed for the treatment of psoriasis and
vitiligo and clinical trails in currently conducting at Mt. Sinai
Hospital, NY.
Other Medical Systems (WaterJet Devise)
In addition to the above described products, the Company has obtained
the exclusive marketing right for China, Hong-Kong, Taiwan, and all Latin
America countries for the WaterJet devices: Model HK-300 and Model CT-300
systems made by VisiJet (CA). Model HK-300 will be replacing the mechanical
microkeratome currently used for corneal reshaping and model CT-300 is
designed for cataract treatment which is believed to be safer and more
efficient than laser or ultrasound devices. Both of these WaterJet devices
will only require a 510(K) approvals and HK-300 had be submitted by VjsiJet
for a 510K approval.
The regulation approval schedules of the Company's products are
outlined as follows. Models UV-200, IR-3000 and IR-3001 will need PMA
approval that typically takes 4-5 years. For other models EX-308 and IR-980,
the Company believes that they will only need 510(K) approvals that
typically take 6-10 months from the date of application. The WaterJet
device, Model HK-300 made by VisiJet will obtain the 510(K) approval in few
months and production for international market will start in 2000.
Laser Centers
The Company's start-up system costs for international Laser Centers,
in which systems were manufactured by the Company, is only 30% of that of
its competitors, which purchase systems from others. However there can be no
assurance that the Company will be successful in operating both types of
Centers without suffering future competition from those that may operate
Centers in both areas and also own in-house technology.
The Company currently has 18 Laser Eye Centers (LEC) in operation
including 15 in Asia, 2 in Latin America and one in Florida. The Company
also gain incomes from its Cosmetic Mobil Laser Centers operated by Advanced
Marketing Technology, Inc. (AMTI), where AMTI shall pay 45% of its net
profit to the Company under an Agreement. The Company intends to establish a
total of 80 worldwide Laser Centers (for both Eye Centers and Cosmetic
Centers) by year 2005. However there can be no assurance that the Company
will be successful in establishing the targeted number of Centers as
scheduled.
For Laser Centers in Asia, the typical terms with the hospitals are:
contracts expire at the completion of about 6,000 eyes, with an averaged 40%
of the gross procedure revenue paid to the Company. Almost all of the
Company's international Laser Centers are using the systems assembled at the
Company's Panama facility. The Company foresees establishing at least 30
Centers in Asian countries by year-end of 2005.
For Centers in Latin America, typical contract terms are as follows.
The Company will produce a net income of about 30% of the gross procedure
revenue for unlimited years. The Company foresees establishing at least 10
Centers in Latin America by year-end of 2005. In addition to the Eye
Centers, the Company has plan to open Cosmetic Laser Centers in certain
countries in Latin America.
The Company's strategy is to expand its Laser Centers mainly
internationally. The Company estimates that a typical US Center will
generate annual revenue of about $1.0 million initially and grow to over
$2.5 million, where the pre-tax net profit will be about 20% - 35% depending
on the number of procedures performed in each month. Currently, the patient
fee is $4,000 for the LASIK procedure, in which approximately 60% of this
gross revenue is paid to the surgeons. A typical Center will have a break
even of approximately 25 patients per month. The Company's Plantation Laser
Eye Center (LEC) currently has over 20 surgeons using the excimer laser
facility. These existing surgeons however may leave the Company if they
decide to operate their own Center or join other Centers offering better
terms than the Company. There can be no assurance, however, that the Company
may charge the patient fees at the current rate due to price competitions.
All of these factors may influence the Company's income from laser centers.
Technology, Patents and Licensing Rights
The Company intents to protect its development work and products by
means of proprietary technology, licensing rights, trademark and patents
pending, covering various phases of the products in ophthalmology, and
dermatology applications. The Company currently has three patents in
pending status and plans to file more patents to protect its new
technologies. The Company believes its international sales of vision
correction systems assembled in our Panama facility will not require a
license from a third party. The Company also believes that its proprietary
technology and the pending patents in the following subjects will protect
many of its newly developing products:
* Apparatus for efficient laser corneal ablation.
* Apparatus and methods for dual beam laser treatment of presbyopia.
* New infrared lasers for vision correction and presbyopia
There are several patents involving the uses of UV lasers in
refractive surgeries including the IBM patents, LaserSight scanning patents,
patents owned by Visx and Summit. These prior patents, however, all are
limited to lasers using a UV wavelength. The Company believes that its
systems, models IR-3000, IR-3001, and IR-980 using infrared wavelengths
would not be covered by any of the prior patents and will be protected by
the Company's pending patents. In addition, the Company believes that its
system, Model EX-308, for psoriasis phototherapy and IR-980 for microsurgery
will be able to get 510(K) approval within few months.
Process and apparatus patents relating to shaping the cornea with
various lasers have also been issued to others. Because patent applications
are maintained in secrecy in the United States until such patents are
issued, and are maintained in secrecy for a period of time outside the
United States, the Company can conduct only limited searches to determine
whether its technology infringes any patent or patent applications. Any
claims for patent infringement could be time-consuming, result in costly
litigation, divert technical and management personnel, or require the
Company to develop non-infringing technology or to enter into royalty or
licensing agreements. There can be no assurance that the Company will not
be subject to one or more claims for patent infringement, that the Company
would prevail in any such action or that its patents will afford protection
against competitors with similar technology. In the event the Company's
systems are judged to infringe a patent in a particular market, the Company
and its customers may be enjoined from making, selling and using such system
or be required to obtain a royalty-bearing license, if available, on
acceptable terms.
Although the Company believes that the use of a scanning device for
IR lasers in vision correction will be protected by its pending patents.
From time-to-time the Company may receive in the future, notice of claims
of infringement of other parties' proprietary rights. The resolution of
intellectual property disputes is often fact intensive and, therefore,
inherently uncertain. If any claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third party
intellectual property rights. There can be no assurance, however, that
under such circumstances, a license would be available on reasonable terms,
or at all. Alternatively, in the event a license is not offered or
available, the Company might be required to redesign those aspects of the
Company's systems held to infringe so as to avoid infringement. The failure
to obtain a license to a third party intellectual property right on
commercially reasonable terms could have a material adverse effect on the
Company's business and results of operations.
Sales and Marketing
The Company sells its products through direct sales in North America
and representatives and distributors throughout the world. For those
products that require US government approval prior to marketing in the US,
the Company had an advantage in that it can begin marketing and sales
efforts through its international distribution chain prior to US approvals.
The Company supports its sales and marketing efforts by actively
participating in medical trade shows and conferences. The Company seeks
to increase the market visibility of its products by serving with customers
on technical and organizing committees for such conferences and trade shows,
presenting technical papers at such conferences, and publishing in technical
and trade journals. The Company distributes new product announcements and
literature through direct mailings as well as advertising in trade journals.
The Company maximizes profits by offering system based on the per procedure
fee which allows the Company to receive recurring revenues rather than one-
time revenue from sales.
The Company has established a strong international marketing
infrastructure and intends to continue emphasizing its international
marking activities, while some of its products are waiting for the approval
for domestic sales. The Company has distributors in most Asian and Latin
American countries and intends to add new distributors in European
countries.
For recurring revenues and increased long-term profit, the Company
has plans to expand its existing Laser Centers in the Pacific Rim and Latin
America. The Company also plans to acquire existing Centers in North America
in addition to establishing new Centers. In addition to the Company-owned
Laser Centers, the Company also partially finances some customers who
require financing where a typical annual interest rate of 10%- 15% is
charged to the customers.
The Company's international distributors and representatives are
generally operating under letter agreements that allow for termination by
either party upon 90 days' notice. There can be no assurance that such
distributors and representatives will not terminate any formal or informal
agreement, or that the Company would be able to find an acceptable
replacement distributor or representative on acceptable terms.
Research and Product Development
The Company currently has several new products under R&D and
clinical trials: (a) IR-3000 for presbyopia correction, (b) IR-5000 for
Lasik procedures, (c)Ir-3001 for Lasik and presbyopia, (d) EX-308 for skin
treatment, (e) other new diode lasers with wavelength range of (980 - 2100)
nm for microsurgeries. The Company will be continuing the R&D for these new
products improvement in both system design, software and hardware aspects.
The Company will also invest efforts relating to the clinical aspects for
the uses of these products. The Company currently has three (3) Labs which
are used as R&D and systems testing for prototypes.
Competition
The Company faces current or potential competition from direct
competitors, suppliers of potential new and alternative technologies and
existing domestic and international joint ventures for laser centers.
While the Company believes that its IR products for vision correction
offer several distinct advantages over the use of excimer lasers for
treating hyperopia and presbyopia, its competitors such as Visx and Summit
have significantly greater financial resources than the Company and have
received FDA approval for their excimer lasers. In addition, certain of
the Company's competitors such as Sunrise Technology International, have
developed a laser device for the treatment of hyperopia using an IR laser.
Another company in Taxas, Preby Corp, has been using mechanical device
(SEB) for corneal implantation to achieve presbyopia corrections.
The Company believes that its Laser Centers have lower operating
overhead and system start-up costs than its competitors such as TLC Laser
Centers, LCA Vision and Laser Vision Centers, which however, have
significantly greater financial resources than the Company. Furthermore,
there can be no assurance that the Company will be successful in expanding
its Laser Centers and continuing profitable operation.
The Company believes that it is the only company that currently owns
both the ultraviolet (UV) and infrared (IR) laser technologies for vision
correction. For vision correction using UV lasers, there are several
existing patents which may prohibit our sales of the UV lasers without
obtaining a license. The Company has two pending patents for the use of
IR lasers which has the potential to replace the existing UV lasers used
by most of its competitors, including Visx, Summit, Bausch & Lomb,
LaserSight, Nidek, Schwind and Meditec. The IRlasers, the Company believes,
will be safer than the UV lasers, which may have potential risk of long-term
mutanagenic complication. However, prior to market approval in US the
Company's new products will be limited to international sales.
The Company believes that its Infrared (IR) lasers for vision
correction will be protected by its proprietary technology and its pending
patents. In addition, the users of the Company's IR lasers will not have to
pay the license fee or royalty fee, which are required for the use of UV
lasers. Currently, the UV laser royalty fee in US is about $250 per case
paid to the patent owners Visx and Summit. The UV laser manufacturers also
need to pay the IBM-patent fee of about 3%-7% of their sale price. Without
paying these fees, the Company believes that its IR lasers will have
advantages in both profit margin and market competition. However there can
be no assurance that the Company will be successful in protecting its
proprietary pending patents to avoid these license and or royalty fees. In
addition, the Company has recently sued by Preby Corp. for a potential
patent infringement of its patents. The Company believes that this lawsuit
has no basis, however, the Company may need to pay a licensing fee to Preby
Corp., if the Company can not defend this lawsuit.
To strengthen the Company's patent positions in the IR laser technologies,
the Company expects to conclude the acquisition of IR Vision, Inc. in April,
2000. IR Vision currently had two patents granted and 4 to 5 patents in
pending.
The Company believes the potential use of its patent pending laser
sclera expansion is more attractive than competitive methods of treating
presbyopia. There can be no assurance, however, that the method can be
reduced to practice using a reliable laser system, or that the Company
will receive regulatory approvals or successfully market such a product.
There can be no assurance the FDA will approve the pre-market approval
application ("PMA") which summarizes the results of continued clinical
trials, or that the Company will successfully develop or market the
refractive lasers systems.
Competitive Edge
The Company views its competitive edge as follows:
High Operating Profit in Centers: As a manufacturer of the laser
systems, the Company has a lower start-up and system cost for its
international Centers than its competitors.
New Technology & New Procedures: The Company is in a unique position
using its in-house technologies for system upgrades for new procedures to
increase recurring revenue and profit for its Centers. These new procedures
are not available to most of the Company's competitors.
Sales Growth from New Products: The Company foresees the introduction
of at least two new products every two years to increase sales growth and
reduce competition. In addition, most of the software and system control
developed by the Company are "multiple-use" and can be cost effectively
integrated to various of the Company's existing and future systems for eye
surgeries (vision correction, cataract treatment).
Government Regulations
The Company's products are subject to significant government
regulation in the United States and other countries. In order to test
clinically, produce and market products for human diagnostic and
therapeutic use, the Company must comply with mandatory procedures and
safety standards established by the U.S. Food and Drug Administration(FDA)
and comparable state and foreign regulatory agencies. Typically, such
standards require products to be approved by the government agency as
safe and effective for their intended use before being marketed for human
applications. The clearance process is expensive and time consuming, and no
assurance can be given that any agency will grant clearance to the Company
to sell its products for routine clinical applications or that the time
for the clearance process will not be extensive.
There are two principal methods by which FDA-regulated products
may be marketed in the United States. One method is an FDA pre-market
notification filing under Section 510(k) of the Food, Drug and Cosmetics
Act. Applicants under the 510(k) procedure must demonstrate the device
for which clearance is sought is substantially equivalent to devices on
the market before May 1976. The review period for a 510(k) application
is 90 days from the date of filing the application. Applications filed
pursuant to 510(k) are often subject to questions and requests for
clarification that often extend the review period beyond 90 days.
Marketing of the product must be deferred until written clearance is
received from the FDA. In some instances, an Investigational Device
Exemption (IDE)is required for clinical trials for a 510(k) notification.
The alternate method, when Section 510(k) is not available, is to
obtain a Pre-Market Approval (PMA) from the FDA. Under the PMA procedure,
the applicant must obtain an IDE before beginning the substantial clinical
testing required to determine the safety, efficacy and potential hazards
of the products. The preparation of a PMA is significantly more complex
and time consuming than the 510(k) application. The review period under a
PMA is 180 days from the date of filing. The FDA often responds with
requests for additional information or clinical reports that can extend
the review period substantially beyond 180 days.
FDA also imposes various requirements on manufacturers and sellers
of products under its jurisdiction, such as labeling, manufacturing
practices, record keeping and reporting requirements. The FDA also may
require post-market testing and surveillance programs to monitor a
product's effects. All of the Company's products will require filing of
an IDE, and a 510(k) application or PMA. There can be no assurance that
the appropriate approvals from the FDA will be granted for the Company's
products, the process to obtain such approvals will not be excessively
expensive or lengthy or the Company will have sufficient funds to pursue
such approvals. The failure to receive requisite approvals for the
Company's products or processes, when and if developed, or significant
delays in obtaining such approvals, will prevent the Company from
commercializing its products as anticipated and will have a material,
adverse effect on the business of the Company.
The Company is also subject to regulation under the Radiation
Control for Health and Safety Act administered by the FDA which requires
laser manufacturers: (i) to file new product and annual reports; (ii) to
maintain quality control, product testing and sales records; (iii) to
incorporate certain design and operating features in lasers sold to end-
users; and (iv) to certify and label each laser sold to an end-user as
belonging to one of four classes based on the level of radiation from the
laser that is accessible to users. Various warning labels must be affixed
and certain protective devices installed, depending on the class of the
product. The Center for Devices and Radiological Health is empowered to
seek fines and other remedies for violations of the regulatory requirements.
Foreign sales of the Company's medical laser systems are subject, in each
case, to clearance by the FDA for export to the recipient country.
Regulatory requirements vary widely among the countries, from electrical
approvals to clinical applications similar to the PMA filed with the FDA
for sales in the United States.
The Company is currently conducting clinical trials in Caracas,
Venezuela for the treatment of presbyopia patients using the Company's
patent pending technology. The Company believes that it is the first
Company to successfully develop this technology and the only Company
that has begun clinical trial treatment using lasers for presbyopia.
The clinical results were reported at the World Refractive Surgery
Symposium in October 1999 to be held in Orlando, Florida.
The Company has another on-going clinical trial at Mt. Sinai
Hospital, New York, using a UV-laser for the treatment of psoriasis and
vitiligo which affect a worldwide population of about 2%, or 100 million,
according to the report by Dr. Spencer at Mt. Sinai Hospital, NY.
The regulation approval schedules for the Company's products are
outlined as follows. For models UV-200, IR-3000 and IR-3001, the Company
will need PMA approval which typically will take 4-5 years. For other
models EX-308 and IR-980, the Company believes that only 510(K) approvals
will be required that typically will take 6-10 months from the date of
application. The Company had submitted the 510K application for its EX-308
model in September, 1999 and expects to obtain the approval in a few months.
The WaterJet devices, made by VisiJet, will also obtain 510(K) approval in
a few months and will be marketed by the Company in certain countries.
However there can be no assurance that the Company will be successful in
obtaining these market approvals as scheduled. The Company also expects
to start the clinical trails for the IR-3000 system in US (in June, 2000),
in Europe (in May, 2000) and in Japan (in July, 2000).
EMPLOYEES
The Company has eighteen full-time employees, including 8 at the
technology division in Orlando, Florida, 3 at the Laser Centers and 3 in
China. In addition, the Company has approximately 20 ophthalmologists
using the Company's laser facilities. The Company also hires, from time-
to-time, part-time employees for system assembly tasks, delivery and
consultants on a contract basis for regulatory clinical trials, and
system maintenance. None of the Company's employees is represented by
a labor union. The Company has very good relations with its employees.
BACKLOG
As of March 25, 2000 the Company had no significant backlog, other than
two new Centers in China in which systems needed to be installed before
May, 2000.
Recent Developments
In December, the Company submitted 510(k) Premarket Notification
for the EX-308 UV laser for the phototherapy treatment of psoriasis and
vitiligo. The Company's system is currently treating patients under an
approved IRB at Mt. Sinai Medical Center in New York. In addition the
Company had also obtained a second IRB approval form Mt. Sinai for the
laser persbyopia protocol and waiting for a pre-IDE clinical trial
approval from FDA. The Company had also initiated additional clinical
trials to be performed in Europe and Japan during June to July of 2000.
A letter of Intent for joint venture with MicraUSA was signed for the
market approvals in Europe.
We have made two significant acquisitions since 1999, including EMX
and AMT, both of which were spun off in January 2000, to focus our
business on medical laser systems. Although we are currently focusing on
our existing operations, we may in the future selectively pursue strategic
acquisitions of, investments in, or enter into joint ventures or other
strategic alliances with, companies whose business or technology
complement our business. Greater details for recent developments may be
found in the Company's Press Releases.
ITEM 2. PROPERTIES
MANUFACTURING AND FACILITIES
Using proprietary technology, the Company designs and manufactures
the electronic boards, circuits and system control assemblies, in-house.
The Company also develops all the software used in its products. System
mechanical parts and frames are supplied by local subcontractors. The light
sources, laser heads, small parts, and small optics parts are purchased
from various sources. The Company performs system final integration,
testing, and quality control. For new product developments, the Company
designs and produces prototypes for evaluation and product improvement.
For medical lasers, the Company currently has an assembly facility in
Panama, the ZPED (a free zone in Colon), where laser systems are integrated,
tested, and packed for delivery to customers. There is no import duty for
goods imported to ZPED when they are intended for export. The Company
believes that the ZPED facility is beneficial for the Company in terms of
labor cost, customs duty, and regulatory requirements for its international
market.
The Company has plans to establish a "good manufacturing production"
(GMP) environment to meet the US Federal and State regulations. Prior to
the GMP environment, the Company needs to assemble its products outside the
country. In addition to the ZPED facility, the Company is seeking other
manufacturing facilities in Taiwan and European countries to explore its
market in Asia and Europe.
Facilities
The Company leases headquarters space comprising approximate 4,200
square feet of office and new product development space in Research Park,
Orlando, FL. For Laser Centers, the Company currently operates one Laser
Vision Correction Center and two Mobile Cosmetic Laser Centers in Florida.
The Plantation Laser Eye Center has a leased space of approximately 5,200
square feet. The total rental fee paid by the Company in both Orlando and
Plantation offices is about $11,000. For the mobile cosmetic lasers, the
Company has two vans to deliver the lasers to the clinic locations. The
Company also has a maintenance facility in Beijing, PRC owned by its
contractor who supplies the spare parts and gas tanks for the Company's
users in China.
ITEM 3. LEGAL PRECEDINGS
On March 15, 2000 the Company was notified that Presby Corp of Dallas,
Texas had filed suit in the United States Court for the Middle District of
Florida Orlando Division. Presby Corp and its parent company RAS Holding
Corp own multiple patents directed to methods, devices and systems for the
treatment of presbyopia and alleges that the Company is violating their
patents. The Company believes that there is no basis for this suit and
that these allegations are without merit and completely false. However,
there can be no assurance that the Company will successfully defend this
lawsuit or may have to negotiate a licensing fee payable to Presby Corp.
The Company had hired a lawyer and will start to negotiate and investigate
the validity of the patents claimed by Presby Corp. The first meeting with
the lawyer of Preby Corp is expected in mid of April, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock $0.001 par value (Common Stock) is traded on
OTC:BB under the symbol "SRGL". The following chart sets forth the high
and low closing price for the Common Stock during the indicated periods.
Note all prices have been adjusted for 2 for 1 forward split effective
date 1/27/00.
High Low
4-th Quarter of 1999 11 2 1/4
first Quarter of 2000 25 10 3/4
The Company's stock started to trade on OTCBB on November 1, 1999
and was split on January 27, 2000.
?
The foregoing quotations represent prices between dealers and do not
include retail mark up, mark down, or commission and may not necessarily
represent actual transactions. As of March 30, 2000 the Common Stock was
held of record by approximate 1,200 persons and entities, including
significant amounts of stock held in "street name."
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below, for and as
of the end of, each of the years in the 3 year period ended December 31,
1999 are derived from the Company's un-audited financial statements. This
selected consolidated financial data should be read in conjunction with the
Company's audited consolidated financial statements and notes and the
related "Management's Discussion and Analysis of Financial Condition and
results of the "Operations".
CONDENSED STATEMENT OF OPERATION
(in 000s except per share data)
Twelve Months Ended
12/31/99 12/31/98 12/31/97
Total Revenue $ 2,858 $ 842 $ 1,057
Cost of Revenue 1,118 238 707
Gross Profit 1,740 604 350
Total Operating Expenses 1,743 943 1,079
Operating Income (Loss) 69 (146) (729)
Other Income (Expenses) (4) (7) (55)
Net Income(Loss) $ 66 $ (154) 1,176
Net Income(Loss) $ 0.01 $(0.24) (1.88)
per share
Weighted Average
Share outstanding 10,396 624 624
SELECTED BALANCE SHEET DATA (in 000s)
12/31/99 12/31/98 12/31/97
-------- -------- ------
Cash $ 578 $ 38 $ 81
Accounts Receivables,Net 348 142 -
Inventory 837 776 1,195
------- -------- ------
Total Current Assets 1,782 938 1,276
Total Assets $ 3,561 $ 2,200 $ 1,956
Total Current Liabilities 514 428 1,179
Long-term Liabilities 146 - -
------- -------- ------
Total Liabilities 660 428 1,179
Total Stockholders' Equity 2,901 1,772 777
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
GERERAL
The Company was incorporated in the State of Delaware in September, 1998 to
acquire the technologies and laser centers associated with lasers for
applications in ophthalmology, dermatology, industrial and military. The
Company pioneered the first topography-assisted scanning laser, the first
infrared laser for vision correction, and the first laser device for the
treatment of presbyopia. The Company believes that its products represent
substantial improvement in safety, precision, efficacy, time and cost
effectiveness over currently available laser and non-laser devices.
The Company currently has two divisions: 1) Laser Technology, and 2) Laser
Eye Centers, In the Laser Technology division, we develop and conduct
research for lasers in the UV and infrared spectra for applications
including vision correction and microsurgery. We also conduct clinical
trials for various new applications including laser skin treatment and the
patent pending device for laser presbyopia reversal. The Company currently
operates 18 Laser Eye Centers (LEC) internationally and one Eye Center and
two Cosmetic Mobile Laser Center (CMLC) in Florida. The Company plans to
operate a total of 80 Laser Centers combining both LEC and CMLC. The
Company plans to expand its Laser Centers through acquisition of existing
centers and establishment of new centers. The Company currently has several
new products which are under clinical trials. See ITEM I in Part I for
greater detail about the Company's Business.
RESULTS OF OPERATION
In the above selected financial data, the 1997 revenue was attributed to
the business of Photon Data, Inc. which was acquired by the Company in
March, 1999. The 1998 data was the consolidated data of Photon Data, Inc.
and SurgiLight. The 1999 data was the consolidated data for all its
acquired divisions, excluding the first quarter of AMTI and EMX.
1999 as compared with 1998
Revenues: Revenues in 1999 increased 139% to $2,858,089 from
$842,005 in 1998. The increase of revenue of 1999 mainly due to the revenue
increase of Plantation Laser Eye Center and the revenue from two new
division of Advanced Market Technology (AMT, for cosmetic lasers) and EMX
(for night vision sales). The revenue of 1999 excluding the first quarter
revenue generated from EMX and AMT, approximately $90,000, where these two
divisions were acquired with an effective date of April 1, 1999.
Cost of Revenue: Cost of revenues as a percentage of revenues
increased to 39% in 1999 from 28.3% in 1998. This increase was mainly
attributable to the cost of revenue of Plantation Laser Eye Center which had
a profit margin approximately 25% based on a facility fee of $900 per eye
collected from surgeons. The cost of revenue for laser system sales is lower
than 30%.
Operating Expenses: Selling, general and administrative (GNA)
expenses in 1999 were $1,1,670,478 compared to $750,519 in 1998. The GNA as
a percentage of revenues were 58.4% and 89% in 1999 and 1998. The increase
of GNA in 1999 were mainly attributable to higher payroll costs associated
with new employees in the acquired AMT, EMX and Plantation Center.
Research, development and regulation expenses increased to approximate
$65,000 in 1999 from $30,000 in 1998, primarily as result of increase
spending in the new products development and the regulatory efforts for the
clinical trials in Mt. Sinai Hospital and in Caracas, Venezuela for the UV-
laser for psoriasis and laser for presbyopia correction, respectively.
Net Income: Income from operation, prior to the depreciation and
amoritization (DNA) were $322,605 and the net income after DNA , was
$65,705, or $0.01 per basic and diluted share compared to a net loss of
$154.343, or $0.24 per share in 1998.
Income Taxes: The Company will not need to pay tax in 1998 and 1999.
Segment information: Below are the distribution of revenues in various
areas and each of the business of Centers and systems. See also Notes
to Financial Statement.
1999 1998
Revenue (% of total)
Plantation Center (USA) 60% 27%
China Centers 19% 2%
Laser System sales 6% 35%
Advanced Market Tech, 9% -
EMX, Inc. 11% -
Other Centers 2% 5%
As shown above, the system sales changed from 35% in 1998 to 6%
in 1999. This resulted from the emphasis of Centers in 1999 in which
the China Center revenue increased to 19% in 1999 from 2% of 1998. The
Plantation Center revenue for 1998 was only counted for 4 months of
operation, since it started in September, 1998. Both revenues of
Advanced Market Tech and EMX were only for 1999, since these two
divisions were acquired by the Company in March 1999. The Company
believes that the systems sales will increase when its EX-308 laser
for psoriasis receives the 510K approval for market in US. The Company
also expects to have more revenue in its Centers in 2000 by the
increase the number of Laser Centers internationally.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have been met through external
debt and financing. During August, 1998 to March 8, 2000, the Company has
raised a gross cash proceeds of approximately $2.28 millions by private
placements offered to accredited investors. The prices offered for these
private placements were from $1.50 to $11.20 per share after the 2-for-1
split adjustment. All the Common Stock issued by these private placements
were non-registered restricted shares and had a 12 months restriction
starting from the date of stock certificates were printed, April 1, 1999. As
of December 31, 1999, the Company has cash increase to $577,594 from $38,366
as of December of 1998. The net increase of $539,258 as of December, 1999
was mainly resulted from the proceeds from sale of stock. However, net cash
decrease of $554,343 was reported in December 31, 1999 for purchasing of
equipment. The Company believes that its existing corporate resources are
adequate for at least the next twelve months to meet working capital needs
and to fund corporate requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently has no investments in securities.
YEAR 2000 READINESS DISCLOSURE
The Company's system software had met the year 2000 compliance. The
system software had used 4 digits for years to avoid the Y2K problems.
FORREIGN CURRENCY CONVERSION
The Laser Centers incomes from China were converted by a conversion
rate of approximate 9.0 to 1.0 from Chinese to US dollars. This rate may
change from time to time and may affect our incomes from China Centers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENT DATA
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
SURGILIGHT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Comprehensive Income (Loss)
Of the Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
SURGILIGHT, INC.
BALANCE SHEET
DECEMBER 31, 1999 AND 1998
ASSETS
Current Assets: 1999 1998
Cash $ 577,594 $ 38,336
accounts receivables, less allowances for doubt-full
accounts of $5,000 and $12,000 347,676 141,829
Inventories (note 3) 837,489 757,792
Other Current Assets 20,000 -
---------- -----------
Total currents assets 1,782,759 937,957
---------- -----------
Property and equipment, net (note 4) 1,613,626 1,009,380
Other assets:
Deposit (note 5) 27,366 102,671
Intangible assets, net
of accumulated amortization
of $63,433 and $50,000 137,258 150,027
---------- ----------
Total Assets $ 3,561,009 2,200,035
========== ==========
Liabilities and Stockholders Equity
Current liabilities:
Account payable $ 309,025 74,190
Accrued Interest 22,493 19,938
Current portion of long-term
debt (note 6) 156,132 102,500
Loans from shareholders
(note 8) 26,000 231,000
----------- -----------
Total current liabilities 513,650 427,628
----------- -----------
Long-term debt less
current installments (note 6) 146,132 -
----------- ------------
Total liabilities 659,782 427,628
Stockholders' equity:
Common stock 1,140 4,048,301
Additional paid in capital 5,110,276 -
Retained earnings (2,210,189) (2,275,894)
------------ ------------
Total stockholders' equity 2,901,227 1,772,407
------------ ------------
Total liabilities
and stockholders equity $ 3,561,009 2,200,035
============ =============
See accompanying note to financial statements.
SURGILIGHT, INC.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998, 1997
1999 1998 1997
Sales $ 2,858,089 842,005 1,057,139
Cost of Sales 1,118,344 238,419 707,232
----------- ----------- ----------
Gross profit 1,739,745 603,586 349,907
General and administrative
expenses 1,670,478 750,519 1,078,615
----------- ----------- ---------
Operating income
(loss) 69,267 (146,933) (728,708)
Other income/expenses
Loss on closing of
Centers and forfeiture - - (391,985)
Interest income 13,971 3,375 3,420
Interest expense (17,533) (10,785) (58,886)
----------- ----------- --------
Net income (loss)
before income taxes 65,705 (154,343) (1,176,159)
Income tax expense
(note 7) - - -
Net income (loss) $ 65,705 (154,343) (1,176,159)
=========== =========== ===========
Net Income (loss)
Per share $ 0.01 (0.24) (1.88)
=========== =========== ===========
Weighted average
number of shares
outstanding 10,395,724 623,630 623,630
=========== =========== =========
See accompanying notes to financial statements.
SURGILIGHT, INC.
STATEMENT OF CASH FLOWS
YEARS ENEDED DECEMBER 31, 1999, 1998, 1997
1999 1998 1997
Cash flows from operating
activities:
Net income (loss) $ 65,705 (154,353) (1,176,159)
Adjustments to reconcile
net operating (loss) to net
cash provided by (used in)
operating activities:
Depreciation 244,139 125,574 43,047
Amoritization 12,769 13,357 13,358
Loss on disposal of
Equipment 16,629 - -
Increase (decrease) in:
Receivables (205,847) (141,829) 221,777
Inventories (79,697) 437,581 139,092
Other assets (20,000) - -
Deposits 75,305 (100,000) (230)
Accounts payable 234,835 (16,518) 26,296
Accrued interest 2,555 (32,997) 41,048
---------- ---------- ---------
Net cash provided
by (used in)
operating
activities 346,393 130,825 (691,771)
---------- ---------- ---------
Cash flows from investing
activities:
Purchases of equipment (554,343) (620,982) (532,321)
Loss on closing of
3 centers - - 265,000
---------- ---------- ----------
(554,343) (620,982) (276,321)
Cash flows from financing
activities:
Proceeds from long-term
debt 223,961 15,000 614,253
Repayment of long-term
debt (24,197) (948,251) -
Loans from shareholders (205,000) 231,000 -
proceeds from sale of
stock 789,482 1,149,853 418,062
Stock issuance cost (37,038) - -
---------- ---------- ----------
Net cash provided
by financing
activities 747,208 447,602 1,032,315
---------- ---------- ----------
Net increase (decrease)
in cash 539,258 (42,555) 73,223
Cash, beginning of year 38,336 80,891 7,668
---------- ----------- -----------
Cash, end of year $ 577,594 38,336 80,891
========== =========== ===========
Cash paid during the
year for interest $ 14,978 43,782 10,951
========== =========== ===========
Noncash financing activities and supplemental information:
During the year, the Company acquired businesses valued at $310,648 in
exchange for shares of the Company's common stock.
See accompanying notes to financial statements.
SURGILIGHT, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Additional Total
Common Paid-in Accumulated Stockholder's
Shares Stock Capital Deficit Equity
Balances at
12/31/96 623,630 $ 2,480,386 - (945,392) 1,534,994
Net loss - - - (1,176,159) (1,176,159)
Capital con-
tributions - 418,062 - - 418,062
---------- ----------- ---------- ---------- ----------
Balances at
12/31/97 623,630 2,898,448 - (2,121,551) 776,897
Net loss - - - (154,343) (154,343)
Capital con-
tributions - 1,149,853 - - 1,149,853
---------- ---------- ---------- ----------- -----------
Balances at
12/31/98 623,630 4,048,301 - (2,275,894) 1,772,407
Recapitalization,
including impact of
reversal
acquisition 1,105,670 (4,048,128) 4,048,128 - -
Acquisition
of SLI 8,145,000 815 193,655 - 194,470
Acquisition
of AMTI 1,180,000 118 93,393 - 93,511
Acquisition
of EMX 115,000 11 22,656 - 22,667
Sale of Common
stock thru
private
placement 230,700 23 494,977 - 495,000
Stock Issuance
Costs - - 37,038) - (37,038)
Common stock
subscribed - - 294,505 - 294,505
Net income - - - 65,705 65,705
---------- ---------- ------------ ---------- ---------
Balances at
12/31/99 11,400,000 $ 1,140 5,110,276 (2,210,189) 2,901,227
========== ========== ============ ========== =========
See accompanying notes to financial statements.
SURGILIGHT, INC.
Notes to Financial Statements
Years ended December 31, 1999, 1998 and 1997
(1) Organization and Summary of Significant Accounting Policies
(a) Organization
SurgiLight, Inc. (SLI or the Company) and its wholly-owned subsidiaries
develop, manufacturer and sell ophthalmic lasers and related products
primarily for use in photorefractive keratectomy (PRK) and laser in-situ
keratomileusis (LASIK) procedures. The Company also operates a laser
vision correction center in Plantation, Florida.
MAS Acquisition Corp. was incorporated in Delaware on July 31, 1996.
SurgiLight, Inc. (formerly known as Photon Data, Inc.) was incorporated
under the laws of the State of Florida in October 1998.
On March 31, 1999, SLI agreed to exchange shares with MAS Acquisition
Corp., a Delaware public company. Accordingly, SLI exchanged 10,394,330
shares of the company stock for 10,394,330 shares of MAS Acquisition Corp.
stock in a business combination accounted for as a reverse acquisition.
During the period MAS Acquisition Corp. was in existence, prior to the
reverse acquisition, its only activity was to raise equity capital. For
accounting purposes, the reverse acquisition is reflected as if SLI issued
its stock (10,394,330 shares) for the net assets of MAS Acquisition Corp.
The nets assets of MAS Acquisition Corp. adjusted in connection with the
reverse acquisition since they were monetary in nature. Coincident with
the reverse acquisition, MAS changed its name to SurgiLight, Inc.
(b) Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(d) Cash and Cash Equivalents
For financial reporting purposes, the Company considers short-term, highly
liquid investments with original maturities of three months or less to be
cash equivalents.
(e) Marketable Securities
The Company classifies all of its marketable securities as available-for-
sale. Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of income taxes, reported as a component
of stockholders' equity.
(f) Credit Risks
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts and
notes receivable. The Company sells its products to customers, at times
extending credit for such sales. Exposure to losses on receivable is
principally dependent on each customer's financial condition and their
ability to generate revenue from the Company's products. The Company
monitors its exposure for credit losses and maintains allowances for
anticipated losses.
(g) Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Deferred tax liabilities
and assets are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse.
(h) Inventory
Inventory, which consists primarily of laser systems parts and components,
is stated at the lower of cost or market. Cost is determined using the
first-in first-out method.
(i) Property and Equipment
Property and equipment are stated at cost. Furniture and equipment are
depreciated using the straight-line method over the estimated lives (three
to seven years) of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term of the useful life
of the asset. Such depreciation and amortization is included in other
general and administrative expenses on the consolidated statements of
operations.
(j) Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over estimated useful
lives up to 20 years. Management evaluates the carrying value of goodwill
using projected future undiscounted operating cash flows of the acquired
businesses.
(k) Research and Development
Research and development costs are charged to operations in the year
incurred. The cost of certain equipment used in research and development
activities which have alternative uses is capitalized as equipment and
depreciated using the straight-line method over the estimated lives (five
to seven years) of the assets.
(l) Product Warranty Costs
Estimated future warranty obligations related to the Company's products,
typically for a period of one year, are provided by charges to operations
in the period in which the related revenue is recognized.
(m) Extended Service Contracts
The Company sells product service contracts covering periods beyond the
initial warranty period. Revenues from the sale of such contracts are
deferred and amortized on a straight-line basis over the life of the
contracts. Service contract costs are charged to operations as
incurred.
(n) Revenue Recognition
The Company recognizes revenue from the sale of its products in the period
that the products are shipped to the customers.
Royalty revenues from the license of patents owned are recognized in the
period earned.
Service revenues from consulting clients are recognized in the period that
the services are provided.
(o) Cost of Revenues
Cost of revenues consist of product cost and cost of services. Product
cost relates to the cost from the sale of its product in the period that
the products are shipped to the customers.
Cost of services consists of the costs related to servicing consulting
clients, managing an ophthalmic practice and an ambulatory surgery center
and provider payments. Provider payments consist of benefit claims and
capitation payments made to providers.
(p) Loss per Share
Basic loss per common share is computed using the weighted average number
of common shares and contingently issuable shares (to the extent that all
necessary contingencies have been satisfied), if dilutive. Diluted loss
per common share is computed using the weighted average number of common
shares, contingently issuable shares, and common share equivalents
outstanding during each period. Common share equivalents include options,
warrants to purchase common stock, and convertible preferred stock and are
included in the computation using the treasury stock method if they would
have a dilutive effect. Diluted loss per share for the years ended
December 31, 1999, 1998 and 1997 is the same as basic loss per share.
(q) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to the future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
(r) Stock Option Plans
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employees stock option grants
made in 1995 and future years as if the fair-valued based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure pursuant to the provisions of SFAS No. 123.
(s) Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income", on January 1, 1998. SFAS No. 130 requires companies
to classify items defined as "other comprehensive income" by their nature
in a financial statement and to display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the consolidated balance sheet.
(t) Operating Segments
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", on December 31, 1998.
SFAS No. 131 requires companies to report financial and descriptive
information about its reportable operating segments. Operating segments
are components of an enterprise for which separate financial information
is available that is evaluated regularly by the chief operating decision
maker in assessing performance. This statement also requires that public
companies report certain information about their products and services,
the geographic areas in which they operate and their major customers.
(u) Foreign Currency Translations
Translation gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than U.S. dollars are
included in the results of operations as incurred.
(2) Acquisitions
Photon Data, Inc., Inc.
In February 1999, the Company acquired 100% of the stock of Photon Data,
Inc. in exchange for 8,145,000 shares of the Company's common stock.
The value of the acquisition was $194,470. SurgiLight, Inc. owned and
operated the laser vision correction center located in Plantation,
Florida. The acquisition was accounted for using the purchase method.
Accordingly, SurgiLight's results of operations are included in the
Company's consolidated financial statements subsequent to the acquisition
date.
AMTI
In March 1999, the Company acquired 100% of the stock of Advanced Marketing
Technologies, Inc. (AMTI) in exchange for 1,180,000 shares of the Company's
common stock. The value of the acquisition was $93,511. The acquisition
was accounted for using the purchase method. Accordingly, AMTI's results
of operations are included in the Company's consolidated financial
statements subsequent to the acquisition date.
EMX
In March 1999, the Company acquired 100% of the stock of EMX, Inc. in
exchange for 115,000 shares of the Company's common stock. The value
of the acquisition was $22,667. The acquisition was accounted for using
the purchase method. Accordingly, EMX's results of operations are
included in the Company's consolidated financial statements subsequent
to the acquisition date.
(3) Inventories
The components of inventories at December 31, 1999 and 1998 are
summarized as follows:
1999 1998
Raw materials $ 554,489 $ 225,392
Finished goods 190,000 487,400
Test equipment-clinical Trials 105,000 45,000
--------- ---------
$ 837,489 757,792
========= =========
As of December 31, 1999, the Company had two laser systems being used
under arrangements for clinical trials in various countries.
At December 31, 1998, one laser system was in use under similar
arrangements.
(4) Property and Equipment
Property and equipment at December 31, 1999 and 1998 are as follows:
1999 1998
Laser equipment in remote locations $ 1,553,225 $ 1,146,860
Laser equipment 238,189 -
Furniture and equipment 72,527 25,836
Laboratory equipment 146,735 9,327
Vehicles 16,961 -
----------- ----------
2,027,637 1,182,023
Less accumulated depreciation 414,011 172,643
----------- -----------
$ 1,613,626 1,009,380
=========== ==========
(5) Other Assets
The Federal Food and Drug Administration (FDA) requires that all lasers
must receive FDA approval before they can be used in the United States.
The Company has not yet received this certification. Consequently, all
systems produced in the United States by the Company prior to September,
1997 were surrendered to the FDA.
In December 1998, the Company entered into a Consent Decree with the FDA
to post a bond in the amount of $100,000 to secure the destruction of the
laser devices and compliance with regulations. In addition, the Company
deposited $100,000 into an escrow account to be maintained for a period
of five years. The escrow funds will be returned to the Company after
that time if no violations of the Federal Food, Drug & Cosmetic Act occur
during the five years. The bond was returned during 1999 and the escrow
account is included in deposits and other assets in the accompanying
balance sheet. In order to sell their products, the Company started a
plant in Panama to assemble laser systems in late 1997.
(6) Notes Payable
Notes payable consist of the following at December 31, 1999 and 1998:
1999 1998
Notes payable to individual,
bearing interest at 8% to 12%,
due in demand $ 102,500 $ 102,500
Notes payable to finance company,
due in monthly payments of
$838 including interest at
13% through December 2000.
Collateralized by vehicles. 8,639 -
Notes payable to equipment
finance company, due in
monthly installments of $2,412
including interest at 15%
through January 2002. 53,217 -
Notes payable to equipment
finance company, due in
monthly installments of
2,788, including interest at
10% through 2005.
Collateralized by laser equipment. 134,008 -
Other 3,900 -
--------- ---------
Total long-term debt 302,264 102,500
Less current portion 156,132 102,500
--------- ----------
Long-term debt, less current portion $ 146,132 $ -
========== =========
(7) Income Taxes
Income tax expense (benefit) attributable to income from continuing
operations differed from the amount computed by applying the U.S. federal
income tax rate of 34% to income (loss) from continuing operations before
income taxes primarily as a result of utilization of a net operating loss
carry forward, and changes in the valuation allowance.
The Company has available net operating loss carry forwards totaling
approximately $150,000 which expire in the year 2012.
Realization of deferred tax assets is dependent upon generating
sufficient taxable income prior to their expiration. Management believes
that there is a risk that certain of these deferred tax assets
may expire unused and, accordingly, has established a valuation allowance
against them.
(8) Related Party Transactions
At December 31, 1999, the Company was indebted to one of its controlling
shareholders in the amount of $126,000. These notes are non interest
bearing and are due on demand.
(9) Net Income Per Share
Net income per share is based on the weighted average shares outstanding
of 10,395,724, 623,630 and 623,630 at December 31, 1999, 1998 and 1997,
respectively.
(10) Segment Information
The following table presents the Company's technology related net
revenues and assets by geographic area for the years ended December 31,
1999 and 1998. The individual countries shown generated net revenues of
at least ten percent of the total segment net revenues for at least one
of the years presented.
1999 1998 1997
Geographic area:
Revenue:
China $ 543,000 780,000 980,000
Venezuela 42,000 60,000 60,000
1999 1998
Assets:
China $ 1,259,000 1,006,680
Venezuela 130,000 80,000
Panama 190,000 40,000
Japan 140,000 340,000
(11) Commitments and Contingencies
Lease Obligations
The Company leases office space and certain equipment under operating
lease arrangements.
Future minimum payments under non-cancelable operating leases, with
initial or remaining terms in excess of one year, as of December 31,
1999, are approximated as follows:
2000 $ 57,448
2001 59,172
2002 60,947
2003 62,775
2004 64,658
Thereafter 66,592
Rent expense during 1999, 1998 and 1997 was $86,185, $28,809 and 30,231,
respectively.
(12) Subsequent Event
Stock Split
In January 2000, the Company effected a 2 for 1 stock split for
shareholders of record as of January 25, 2000.
Adjustments
In February, 2000 the Company discovered that it had improperly
consolidated the acquired companies (AMT and EMX) mentioned in Note 2 by
including in the Company's financial statement the results of operations
of the acquired companies for the entire year. Therefore, a fourth
quarter adjustment has been made to correct the reporting of the
acquired companies and to include their results of operations from the
date of acquisition. The result of this adjustment was to decrease
revenue by approximately $ 100,000. The earlier announced un-audited
results included the first quarter results of AMTI and EMX.
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
In January, 2000 the Company dismissed its independent accountant Rachel
Siu, CPA (who did the auditing for the Company in 1997 and 1998).
The Company engaged PARKS, TSCHOPP, WHITCOMBAND ORR,P.A. as its new
principal accountant to audit its financial effective February, 2000.
There was no disagreements with the former accountant on any matter of
accounting principle or practices, financial statement disclosure, or
auditing scope or procedure. The decision to change accountants was
recommended and approved by the Company's Board of Directors.
PART III
ITEM 10. Directors and Executive Officers
The current executive officers and directors of the Company are as follows:
Name Age Position
J. T. Lin, Ph.D. 51 Chairman of the Board, CEO and President
Timothy J. Shea 42 Senior VP, COO, Secretary Board Director
Deborah Adkins 42 Chief Financial Officer
Richard Reffner 53 VP of Laser Vision Centers & Director
Ming-yi Hwang, Ph.D. 43 Vice President of R&D
Robert Clements, P.A. 39 Board Director
J.S. Yuan, Ph.D. 42 Board Director
Robert Meherg 69 Board Director
Lee Chow, Ph.D 50 Board Director
Raymond Gailitis, MD 39 Medical Director
J.T. Lin , Ph.D. Dr. Lin is the founder of the Company and has been
the Chairman of the Board, President and CEO of the Company since it
was founded in 1998. Dr. Lin was also the co-founder of LaserSight,
Inc. (public company traded in NASDAQ) and served as its Chairman,
President and CEO (1991-94). He is a US citizen and obtained a Ph.D.
in Chemical Physics from the University of Rochester, NY in 1981. He
became the R&D Director for Quantum Technology for the development of
nonlinear crystals before he joined the Center for Research in Electro-
optics and Lasers (CREOL), University of Central Florida as an
Associate Professor (1987-91). He was the inventor of the world's most
compact refractive excimer laser, the "Mini-Excimer" and the pioneer of
the scanning laser (US patented) which now has been used in more than
400 hospitals worldwide. He has more than 25 years experience in laser
technologies and 12 years experience in marketing in Asian and Latin
American. Dr. Lin has published more than 70 scientific papers and book
chapters and has 3 US patents granted and many in pending. He is a
member of AAO, ASCRS, ISRS, ASD and Honor Member of Who's Who of the
Leading American Executives (1993). Dr. Lin was elected as the 1997
Model of Oversea Chinese Young Entrepreneur, the highest honor for
oversea Chinese awarded by President Lee of R.O.C. Taiwan.
Timothy J. Shea. Mr. Shea was appointed to the Senior VP and COO and
Board of Director in January 2000. He was the Board of Director and
President of the Medical and Research & Development Divisions of Laser
Analytics, Inc. From 1995 to 1998 he was the Director of Business
Development at Schwartz Electro-Optics, Inc. (SEO). Prior to 1997,
Mr. Shea was the Senior Director of the at SEO for product development
and design, all FDA submissions, implementation of Good Manufacturing
Practices (GMP), all division operations, sales and marketing
activities, clinical support and procedures and authored the SOP
manual. From 1993 to 1995 he was Director of Clinical Design and
Development at SurgiLase, Inc. He was the Director of Clinical Design
and Development and a member of the senior staff at Laser Photonics,
Inc. (1989-93) and at SurgiLase, Inc. (1986-89). From 1983 to 1986 he
was a Senior Director and Principal Partner of Inframed, Inc. From
1980 to 1983 he was a Clinical Design Engineer at Advanced Biomedical
Instruments, Inc. He owns one U.S. patent on medical device and has
more than 15 publications in the area of medical laser research and
application in medicine. Mr. Shea has over 10 years experience in
medical systems and their clinical approvals.
Deborah S. Adkins, CPA. Chief Financial Officer. Ms. Adkins joined the
Company as CFO in March, 2000. She is a partner with Tatum CFO
Partners, LLP, a national partnership of career chief financial
officers. Prior to joining Tatum in 1998, she served as Controller of
Calibron, Inc. (1980-1989) and served as Vice President and Controller
of Recoton Corporation (1989-1998). Recoton is a public traded company
on NASDAQ having revenue over $600 million and has international
facilities in Canada, England, Germany, Italy, Hong-Kong, China and
Japan as a developer and manufacturer of consumer electronics products
for aftermarket use. Ms. Adkins holds a BS degree in Business
Administration and a Master of Science (MS degree) in Accounting from
the University of Central Florida (Orlando, FL). She is a licensed
Certified Public Accountant in the State of Florida. She had more than
20 years experience in financial analysis, SEC reporting, merger and
acquisition, banking relationship, human resources and budgeting
management. Her memberships include the American Institute of Certified
Public Accountants, the Florida Institute of Certified Public
Accountants, and currently serves as Treasurer for the Orlando chapter
of the Financial Executives Institute.
Richard Reffner. Mr. Reffner jointed the Company as the Clinic
Director of the Plantation Vision Center and as the V.P of the Laser
Centers in September, 1998. He is responsible for the day-to-day
operation of the Plantation Center, FL. Clinic. His duties include
laser room operation and maintenance, oversee of clinical operations,
management of staff, and develop and implementation of surgical
training programs for physicians. Prior to his position with the
Company, he was the Clinic director of LCA-Vision, Plantation, FL
(April-September, 1998); Assistant Administrator at Tampa Eye Clinic
(1997-98); Director of Technical Service at Hawaiian Eye Center (1985-
1997); The Ophthalmic Technician at Mary Imogene Bassett Hospital
(1975 -1985); Refractionist at Donald L. Praeger, MD, PC (1973 -
1976); Physicians' Specialist at Mary Imogene Hospital (1971-73).
Ming-yi Hwang, Ph.D. Dr. Hwang, has served as the R&D Director for the
Company since May, 1998. He obtained his Ph.D in Electrical
Engineering from the Univ. of Central Florida in 1992. He has more
than 15 years experience in laser systems (hardware and software).
Previously he was also R&D Director of LaserSight (1992-95) and PDI
(1995-98). He is one of the key persons involved in the development of
the Mini-Excimer, Compak-300, LaserScan-2000 for LaserSight. At
SurgiLight he provides technical support for SurgiLight's Laser Centers
and also develops new IR lasers using the Company's proprietary
technologies. Dr. Hwang and Dr. J.T. Lin designed the world's first
software which can perform presbyopia reversal using the Company's
lasers. In addition to new product development , he is also responsible
for all software aspects and system control of the Company's products.
J.S. Yuan, Ph.D. Dr. Yuan was appointed to the Board of Director in
October, 1999. Prof. Yaun is currently an Associate professor at the
Univ. of Central Florida. He obtained his Ph.D in E.E. from the Univ.
of Florida in 1988 and he was the employee of Texas Instruments(1988-
91) and Visiting Researcher of Motorola (1991). He has been consulting
many high-tech companies including National Semiconductor Corp.,
Healthydyne Tech, Grasby Infrared, Harris Semiconductors and NEC. Dr.
Yuan was awarded as Gradauate Teaching and Distinguished Researcher by
UCF and listed in Who's Who in American Education, Who's Who in Science
and Engineering. Dr. Yuan has more than 100 publications in the areas
of semiconductor device and modeling, digital and analog IC design
and analysis.
Lee Chow, Ph.D. Dr. Chow joined the Company as a Board Director in
March, 2000 and is currently a Professor at the Physics Department,
University of Central Florida (UCF). He obtained his Ph.D degree in
Physics from Clark University in 1981. He was also faculty at the Univ.
of North Carolina prior to a faculty at UCF. Dr. Chow has been the
Technical Member of American Physical Society, Material Research Society,
and American Association for the Advancement of Science. He served as the
President of Chinese-American Association of Central Florida (1985-1986),
Chinese-American Scholar Association of Florida (1997-1998). His have
received many research awards including the Teaching Incentive
Award(1996), NSF Grant(1991-93), Florida High Tech Research Council Grant
(1989-91) and I-4 Florida Research Council Grant (1997-2000). He is
serving in the Committee of Radiation and Safety, College Personal and
Promotion (UCF). Dr. Chow also served as Technical Consultant for KEI,
Inc., Quantum Nuclearnic, Inc. and the Board Director of LaserSight
(1991-92). Dr. Chow has published more than 50 papers in professional
refereed research journals.
Raymond Gailitis, MD. Dr. Gailitis, joined the Company as Medical
Director of the Plantation Vision Center in September, 1998. Dr.
Gailitis received his M.D. from Northwestern University followed by
internship and residency at Northwestern University Medical Center and
University of Minnesota Hospital and Clinics of Department of
Ophthalmology, Fellowship at Department of Ophthalmology of Emory
University. He has been Chief of Ophthalmology at LBJ Tropical Medical
Center, Director of Corneal and Refractive Surgery at Eye Care and
Surgery Center, Medical Director of New Vision Refractive Surgery
Center. He is currently the President and Medical Director of LCA
Vision Center at Fort Lauderdale, Florida. Dr. Gailitis is a Board
Certified Ophthalmologist. He is a member of ASCRS, AAO, ISRS. He has
been elected the President of Broward County Ophthalmologic Society.
Dr. Gailitis has more than 16 important publications in the
ophthalmology field. He is in charge of the Company's Centers in the
Eastern Coast.
Robert Clements, PA. Mr. Clements was appointed to the Board of
Director in October,1999. He obtained his BS degree Business and a
Doctorate and Master degree in Business Administration from Samford
University. He also obtained his Diploma in Advanced International
Legal Studies from the McGeorge School of Law in Austria. Mr. Clements
is currently an attorney at law and a member of Florida and District of
Columbia Bar Association.
Robert Meherg, CPA. Mr. Meherg joined the Company as a Board Director in
March, 2000. He is a certified public accountant, retired partner of the
international public accounting firm, Ernst and Young. Mr. Meherg
served as Partner in charge of Tax Services for the Southeastern US (17
Offices), and also served as a member of the firm's National Tax and
National Family Financial Planning Committees. Over his career, Mr.
Meherg has been an advisor to many Fortune 500 Companies, including The
Coca Cola Company, Fuqua Industries, Life Insurance Company of Georgia,
Capital Holding Company, Harris Corporation, Sun Bank, etc. Mr. Meherg
presently serves as Chairman and CEO of Commonwealth Physicians, Inc.
He presently serves on the Board of Directors of ABC Liquors (150+
stores) and Board of advisors of InSync Press, a Medical Key trust
Company of Florida. He was Chairman, President and for eighteen years,
Trustee of the Southern Federal Tax Institute (Atlanta). He was a
Founder, Trustee, President and Chairman of the Ivanhoe Foundation,
Inc. for 8 years while its financed and built the Dr. Phillips Center
for Performing Arts. Mr. Meherg graduated from the University of
Alabama with BS and MS Degree and a major in accounting.
None of the above Officers or Directors had failed to report the
compliance with Section 16(a)during the past years and in 1999. None of
the above Officers or Directors had committed bankruptcy or criminal
convictions. One Officer of the Company, J. T. Lin had a "Consent" with
SEC in 1998 regarding to certain matters which Lin, without admitting or
denying the allegations of the Complaint, had paid a settlement amount of
$210,000. In addition, Photon Data, Inc. had a settlement with FDA
regarding to its medical systems made in US. The Company believes that the
previous Consent and Settlement will not have business or financial impact
on the Company. The Company currently had a Director & Officer insurance
policy to cover up to one million dollar effective March 1, 2000.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the
company with respect to beneficial ownership of the Company's Common Stock
as of March 28, 2000. Regarding the beneficial ownership of the Company's
Common Stock the table lists: (i) each stockholder known by the Company to
be the beneficial owner of more than five percent (5%) of the Company's
Common Stock, (ii) each Director and Executive Officer and (iii) all
Directors and Executive Officer(s), of the Company as a group. Each of the
persons named in the table has sole voting and investment power with
respect to Common Stock beneficially owned. All shares listed below are
restricted.
Percentage of Shares
Beneficially
Owned
Name and Address Number of Shares
J. T. Lin (1) 15,064,000 70 %
President, CEO and Chairman
Timothy Shea (2) 35,000 *
Senior V.P. and COO
Deborah S. Adkins(3) 1,000 *
CFO
Ming-yi Hwang (4) 16,000 *
V.P. - R&D
Richard L. Reffner (5) 24,000 *
V.P. - Laser Vision Centers
J.S. Yuan (6) 16,000 *
Board Director
Lee Chow (7) 2,000 *
Board Director
Robert G. Clements (8) 4,000 *
Board Director
Robert W. Meherg (9) 4,000 *
Board Director
All Officers and Directors (10) 15,166,000 70.5%
(9 persons) * Less than 1%
(1)Includes: (a) 1,064,000 shares owned by Dr. J.T. Lin, Chairman,
President and CEO of the Company, (b) 4,000,000 shares owned by Lin Family
Partners, Ltd., and (c) 10,000,000 shares owned by other members of Dr.
Lin's family. Dr. Lin has the sole power and discretion to act as, and to
exercise the voting rights and powers of the Company's common stock held
by his family members. In addition, Dr. Lin's address is 4532 Old Carriage
Tr, Oviedo, FL 32765
(2) Includes 26,000 shares of restricted common stock and 9,000 shares of
stock option. Mr. Shea's address is 189 Winding Oaks Lane, Oviedo, FL
32765
(3) Mrs. Adkins' address is 20 N. orange Ave., Suite 1400, Orlando, FL
323801.
(4) Dr. Hwang's address is 5366 Goldenwood Dr., Orlando, FL 32817.
(5) Includes 20,000 shares owned by Mr. Reffner and 4,000 shares owned by
his wife, Georgeann Reffner. Mr. And Mrs. Reffner's address is 1101 N.W.
94th Ave. Plantation, FL 33322.
(6) Dr. Yuan's address is 8227 Riviera Shore Ct., Orlando, FL 32817.
(7) Dr. Chow's address is 8603 Butternut Blvd., Orlando, FL 32817
(8) Mr. Clements' address is 37 North Orange avenue, Suite 500, Orlando,
FL 32801
(8) Mr. Meherg's address is 1607 Barcelona Way, Winter Park, FL 32789
(9) Based on a total outstanding of 21,490,000 shares, including the
reserved Stock of 164,000 shares.
THE RECAPITALIZATION
During August, 1998 to March 8,2000 the Company has raised a gross
cash proceeds of approximately $2.28 millions by private placements offered
to accredited investors. The prices offered for these private placements
were from $1.50 to $11.20 per share after the 2-for-1 split adjustment. All
the Common Stock issued by these private placements are restricted shares
and had a minimum of 12 months restriction starting from the date of stock
certificates were printed, April 1, 1999. The Company's stock was 2-for-1
forward split effective on January 27, 2000. As of March 30, 2000, the
Company has a total outstanding and issued (post-split) shares of 21,490,000
shares including the reserved 164,000 stocks.
ITEM 11. Executive Compensation
The Company may award stock options and cash bonus to key
employees, directors, officers and consultants under a stock option plan not
yet adopted as bonus based on service and performance. The annual salaries
of executive officers are listed as follows. There was no stock options or
other compensation granted to Executives in 1999.
Name and Principal Position Annual Salary
- ----------------------------- -------------
J. T. Lin, Chairman, President & CEO $120,000
Timothy Shea, Senior VP and COO $65,000
Deborah S. Adkins, CFO $42,000
M. Y. Hwang, V.P. of R&D $63,000
Richard L. Reffner, V.P. of Laser Centers $51,000
Employment Agreements
In October, 1999 the Company entered into an agreement, Chief Executive
Officer, President and Chairman of the Board, at an initial annual base
salary of $120,000. If the Company terminates Dr. Lin's employment without
cause, as defined in the agreement, he is entitled to receive a lump sum
payment equal to 12 months of his current base salary and an amount payable
monthly for 12 months equal to 30 % of his current base salary. Additional
compensation in Common Stock Options and cash bonus of 15% of the gross
royalty collected will be paid to Dr. Lin for his contributions in patented
technologies and the royalty income generated from these technologies. In
January, 20000 the Company also entered into employment agreements with the
Mr. Tim Shea receive bonuses of up to 3% of the pre-tax net profit generated
from the EX-308 system for two years (2000-2001). Each of the Company's
officers have executed a two to five year employment agreements and all of
the Company key employees had agreed a five-year non-competing agreements.
The Company's officers also agreed the "lock-up" agreements for their 144
restricted Common Stocks.
2000 Stock Option Plan
In December, 1999 the Company approved an aggregate of 164,000 shares of
the Company's Common Stock reserved for issuance pursuant to the 2000 Stock
Option Plan and for shared to be issued for the Company's consultants. The
Stock Option Plan Committee has approved the terms and distribution of these
shares. The exercise price for this option will be the fair market price at
the time the option is granted.
Limitation of Liability and Indemnification.
The Company reincorporated in Delaware in September, 1998, in part,
to take advantage of certain provisions in Delaware's corporate law relating
to limitations on liability of corporate officers and directors. The
Company believes that the re-incorporation into Delaware, the provisions of
its Certificate of Incorporation and Bylaws and the separate indemnification
agreements outlined below are necessary to attract and retain qualified
persons as directors and officers. The Company's Certificate of
Incorporation limits the liability of directors to the maximum extent
permitted by Delaware law. This provision is intended to allow the
Company's directors the benefit of Delaware General Corporation Law which
provides that directors of Delaware corporations may be relieved of monetary
liabilities for breach of their fiduciary duties as directors, except under
certain circumstances, including breach of their duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, unlawful payments of dividends or unlawful stock
repurchases or redemption or any transaction from which the director derived
an improper personal benefit. The Company's Bylaws provide that the Company
shall indemnify its officers and directors to the fullest extent provided by
Delaware law. The Bylaws authorized the use of indemnification agreements
and the Company has entered into such agreements with each of its directors
and executive officers.
THE RECAPITALIZATION
During August, 1998 to March 10, 2000, the Company has raised net
capital of approximately $2.3 millions by private placements offered to
accredited investors. The prices offered for above private placements are
from $1.50 to $11.50 per share. All the Common Stock issued by these
private placements are restricted shares.
Item 13 Certain Relations and Related Transactions
The Company was incorporated in the State of Delaware in September,
1998 to purchase the assets of a Laser Eye Laser at Plantation, Florida
and signed an agreement to sub-lease one Excimer laser system from LCA
Visions, Inc. The Plantation Vision Centers has two full time employees
and has more 20 ophthalmologists performing the surgeries. Dr. Raymond
Gailitis was appointed as the Medical Director of the Center.
In February, 1999 the Company acquired all shares, technologies,
assets and business of Photon Data, Inc. ("PDI"), a Florida company since
1993, by a stock swap of issuing 8,140,000 shares (pre-split, adjusted
shares) of the Company's common shares to the shareholders of PDI.
In March, 1999, the Company acquired all shares of Advanced
Marketing Technology, Inc. ("AMTI") a Florida company by issuing
1,180,000 common stocks (pre-split) which will to be delivered based
on some performance criteria. Mr. Paul Miano, the president of AMTI,
was appointed as V.P. of Cosmetic Laser Centers and Board Member of the
Company. As of January 15, 1999, only 20% of these shares are delivered
to the shareholders of AMTI and the remaining 80% are escrowed by the
Company until AMTI meets certain performance. In January, 2000 TMTI was
spun off from the Company, where Paul Miano and his group bought back
55% of AMTI by returning 750,000 share of the escrowed common stock to
the Company. These shares were canceled.
In March, 1999, the Company acquired EMX, Inc. ("EMX"), a Florida
company, by issuing 115,000 common shares (pre-split), where 80,000
shares were delivered at the closing and 20,000 shares are escrowed to
meet certain performance criteria and 15,000 shares are reserved for
key employees. After the acquisition, Mr. Timothy Arion, the president
and sole owner of EMX, Inc. was appointed as the V.P. of Infrared
Systems. In January, 2000 Mr. Arion bought back 85% of EMX by returning
40,000 shares his stock which was also canceled by the Company.
In March, 1999 the Company entered into an agreement for a 15
years of exclusive licensing rights for all medical applications using
a new infrared laser with GAM Associates, Inc. ("GAM"), a Florida
company. In exchange of these exclusive licensing rights, the Company
agreed to issue 50,000 shares (pre-split) of the Company Common Stocks
to Gordon Murray, the owner of GAM.
On March 31, 1999, the Company entered into a merger agreement
with MAS Acquisition III Corp. As result of the Agreement, the Company
has merged into MAS Acquisition III and MAS Acquisition III has changed
its name to SurgiLight, Inc., where the Company issued a total of
approximately 1.1 millions shares (pre-split) to the existing
shareholders of MAS Acquisition under the Merger. See the Company's
SEC filing 14f-1 filed on March 31, 1999 for greater detail.
On December 28, the Company's approved the spun-off AMTI and EMX
(effective from January 1, 2000) in order to focus its business on the
core technology of vision lasers. Persuade to the Agreements, the
Company had canceled 710,000 (pre-split) returned shares from AMTI and
EMX and reserved 82,000 (pres-split) of the Company's stock option and
shares for consultants.
The Company's stock was 2 for 1 forward split effective on
January 27, 2000. As of March 30, 2000 the Company has a total
outstanding and issued (post-split) shares of 21,490,000 shares
including the reserved 164,000 stocks.
On February 10, the Company signed a letter of Intent to acquire IR
Vision at a total amount of $3.5 million paid all by the Company's common
stock. The final terms will be concluded in April, 2000 and will be
reported in the 2000 first quarter filing.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock
at $0.001 par value per share. Immediately prior to this Offering
approximate 21,490,000 shares of Common Stock were issued and outstanding,
including the reserved 164,000 shares for the Stock Option Plan and
consultants.
Common Stock
The holders of Common Stock have one vote per share on all matters
(including election of directors) without provision for cumulative voting.
Thus, holders of more than 50% of the shares voting for the election of
directors can elect all of the directors, if they choose to do so. The
Common Stock is not redeemable and has no conversion or pre-emptive
rights. There are no sinking fund provisions. The Common Stock currently
outstanding and the Common Stock to be issued pursuant to this Offering
will be validly issued, fully paid and non-assessable. In the event of
liquidation of the Company, the holders of Common Stock will share equally
in any balance of the Company's assets available for distribution to them
after satisfaction of creditors and Preferred shareholders. The Company
may pay dividends, in cash or in securities or other property when and as
declared by the Board of Directors from funds legally available therefore,
but has paid no cash dividends on its Common Stock to date.
The Common Stocks is listed on the OTC:BB under the symbol SRGL.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock of the Company is
the Signature Stock Transfer, Inc. in Dallas, Texas.
SHARES ELIGIBLE FOR FUTURE SALE
Approximate 70% of the 21,490,000 shares of the Common Stock currently
outstanding have not been registered under the Securities Act of 1933, as
amended, (the "Securities Act), and will be eligible for future sale under
Rule 144 of the Securities Act. Future sales of the Common Stock under
Rule 144 may have a depressive effect on the market price of the Common
Stock if a public market develops for such stock and could impair the
Company's ability to raise capital through the sale of its equity
securities.
All executive officers and directors of the Company and stockholders
beneficially owning greater than 5% of the Company's Common Stock prior to
the offering are subject to "lock-up" agreements providing that they will
not, directly or indirectly, offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for such Common
Stock or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of any such securities.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including an affiliate, who has
beneficially owned restricted shares for at least two years is entitled to
sell, within any three-month period commencing 90 days after the Effective
Date, a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale and
certain other limitations and restrictions. In addition, a person who is
not deemed to have been an affiliate of the Company at any time during the
90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above.
<PAGE>
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. Financial statements
Not applicable.
2. Financial statement schedules
Not applicable.
3. Exhibits
Certain exhibits listed below will be filed by Hard Copy and not
Electronically and are not contained herein.
1. Merger Agreement with Photon Data, Inc: Sent Hard Copy
2. Merger Agreement with
Adv. Market Technology, Inc. (AMTI): Sent Hard Copy
3. Merger Agreement with EMX, Inc.: Sent Hard Copy
4. Merger Agreement with MAS Acquisition III: Sent Hard Copy
5. Spun off Agreement with AMTI and EMX, See 8-K, January 18, 2000
6. Key Employee Agreements: Sent Hard Copy
7. Key Stockholder "Lock-up" Agreements: Sent Hard Copy
8. Terms of three (3) Acquisitions March, 2000: Sent Hard Copy
9. New CFO and Board Members, See 8-K, March 31, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SurgiLight, Inc.
Date: March 30, 2000
By: /s/ J. T. Lin
- --------------------
J. T. Lin
President, Chief Executive Officer,
and Chairman of the Board Director
/s/ J. T. Lin, Ph. D.
- -------------
J. T. Lin, President, CEO, Chairman
/s/ Timothy Shea
- -------------
Timothy J. Shea, COO and Director
/s/ Richard Reffner
- --------------------
Richard L. Reffner, VP and Director
Robert Clements
- -------------------
Robert Clements, Director
/s/ J.S. Yuan
- --------------
J.S. Yuan, Director
/s/ Lee Chow
- -------------
Lee Chow, Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Audited Balance Sheet on Dec. 31, 1999 and the Statement of
Operations for the 12 months ended Dec. 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 578,000
<SECURITIES> 0
<RECEIVABLES> 348,000
<ALLOWANCES> 0
<INVENTORY> 837,000
<CURRENT-ASSETS> 1,782,000
<PP&E> 1,641,000
<DEPRECIATION> 137,000
<TOTAL-ASSETS> 3,561,000
<CURRENT-LIABILITIES> 513,650
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0
0
<COMMON> 11,400,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,561,000
<SALES> 2,858,000
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<CGS> 1,118,000
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<OTHER-EXPENSES> 0
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