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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended: March 31, 1995
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Commission File Number: 0-16937
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Summit Technology, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2897945
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 Hickory Drive Waltham, MA 02154
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(Address of principal executive offices) (Zip Code)
617-890-1234
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
On March 31, 1995, 16,815,051 shares of common stock, par value $0.01 per share
were outstanding.
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1995 1994
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(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,847 $ 8,656
Short-term investments 7,820 8,495
Accounts receivable, net 7,766 9,535
Inventories, net 8,233 7,028
Prepaid expenses and other current assets 1,463 1,079
Notes receivable from officers 677 665
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Total current assets 33,806 35,458
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Property and equipment, net 6,448 6,398
Patents, net 6,894 6,925
Other assets 2,336 2,386
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Total assets $ 49,484 $ 51,167
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,057 $ 2,749
Accrued expenses 5,527 5,860
Current maturities of capital lease obligations 417 516
Deferred revenue 3,914 2,982
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Total current liabilities 11,915 12,107
Capital lease obligations, less current maturities 1,367 1,177
Stockholders' equity:
Common stock, $.01 par value. Authorized 60,000,000 shares;
Issued 16,816,519 in 1995 and 16,790,065 shares in 1994 168 168
Additional paid-in capital 68,082 67,760
Accumulated deficit (31,995) (30,002)
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36,255 37,926
Treasury stock, at cost, 1,468 shares in 1995 and 1,166 shares in 1994 (53) (43)
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Total stockholders' equity 36,202 37,883
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Total liabilities and stockholders' equity $ 49,484 $ 51,167
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES THREE MONTHS
CONSOLIDATED STATEMENTS OF OPERATIONS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED) 1995 1994
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<S> <C> <C>
Net revenues $ 7,107 $ 3,662
Cost of revenues 4,726 3,128
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Gross profit 2,381 534
Operating expenses 4,568 4,814
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Operating loss 2,187 4,280
Other Income 194 62
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Net loss $ 1,993 $ 4,218
========= ==========
Net loss per share $ .12 $ .26
========= ==========
Weighted average number of common
shares and common share
equivalents outstanding 16,801 16,338
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES THREE MONTHS
CONSOLIDATED STATEMENTS OF CASH FLOWS ENDED MARCH 31,
(IN THOUSANDS; UNAUDITED) 1995 1994
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<S> <C> <C>
Cash flows used by operating activities:
Net loss $ (1,993) $ (4,218)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 612 513
Bad debt expense (recovery) (75) 60
Changes in operating assets and liabilities:
Accounts receivable, net 1,844 4,615
Inventories (1,204) (1,008)
Prepaid expenses and other current assets (397) (242)
Accounts payable (692) 229
Accrued expenses (333) 53
Deferred revenue 932 (6)
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Net cash used by operating activities (1,306) (4)
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Cash flows from investing activities:
Decrease (increase) in short-term investments 674 (93)
Additions to property and equipment (398) (297)
Change in other assets (43) 156
Issuance of note receivable to officer - (100)
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Net cash provided (used) by investing activities 233 (334)
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Cash flows from financing activities:
Repayments of capital lease obligations (185) (126)
Proceeds from capital lease obligations 136
--
Proceeds from exercise of stock options 313 89
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Net cash provided (used) by financing activities 264 (37)
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Decrease in cash and cash equivalents (809) (375)
Cash and cash equivalents at beginning of period 8,656 2,819
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Cash and cash equivalents at end of period $ 7,847 $ 2,444
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(1) Nature of Business
Summit Technology, Inc. (the "Company") (NASDAQ symbol BEAM) designs,
manufactures and markets ophthalmic laser systems for the treatment of
vision disorders such as nearsightedness, farsightedness, astigmatism,
glaucoma and certain corneal irregularities due to disease or injury.
In addition, the Company through its wholly-owned subsidiary, RCII,
owns and operates three outpatient centers in the United Kingdom.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared
by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of the
Company, these consolidated financial statements contain all
adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the consolidated financial position of
Summit Technology, Inc. and subsidiaries as of March 31, 1995 and the
results of operations and cash flows for the three month periods
ended March 31, 1995 and 1994.
The accompanying consolidated financial statements and related notes
should be read in conjunction with the Company's Annual Report on Form
10-K for the year ended December 31, 1994. The results of operations
for the three month period ended March 31, 1995 are not necessarily
indicative of the results to be expected for the full year.
Loss Per Share
Loss per share is computed based on the weighted average number of
common shares outstanding.
(3) Inventories (in thousands)
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
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Raw materials and
subassemblies (net) $ 4,130 $ 4,370
Work in process 2,585 1,815
Finished goods 1,518 843
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$ 8,233 $ 7,028
============= ============
</TABLE>
(4) Reclassifications
Certain reclassifications were made to the 1994 Consolidated Financial
Statements to conform to the 1995 presentation.
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(5) Contingencies
Patents and Royalties
There are a number of United States patents covering methods and
apparatus for performing corneal surgery with excimer lasers,
including several owned by the Company and VISX Incorporated ("VISX")
(one of the Company's competitors), which have been exclusively
licensed to Pillar Point Partners, a partnership owned jointly by the
Company and VISX. All U.S. patents now or hereafter granted to the
Company or VISX which could preclude either company from making,
using, or selling in the U.S. its excimer laser corneal surgery
systems as designed on June 3, 1992, have been or are required to be
exclusively licensed to Pillar Point Partners.
There are also several foreign patents covering apparatus for
performing excimer laser corneal surgery, including patents or patent
rights held by the Company, VISX, and others. If the foreign patents
held by VISX and others were considered valid and interpreted broadly
in an adversarial proceeding, they could be deemed to cover one or
more aspects of certain of the Company's excimer-based products
manufactured or sold abroad.
Further, the Company believes that Sunrise Technologies, Inc. holds
U.S. patents covering methods and apparatus, and has submitted
European patent applications covering apparatus, for performing Laser
Thermokeratoplasty and for certain specific methods of performing
Laser Sclerostomy with a holmium laser. Although the Company has not
sought or received an opinion of counsel, the Company believes, based
on due inquiry, that its Holmium Laser System either does not infringe
or that it has valid defenses against the patents of Sunrise
Technologies, Inc.
There can be no assurance that patent infringement claims in the U.S.
or in other countries will not be asserted against the Company by
VISX (limited in the U.S. to technology not included in Pillar Point
Partners) or others, or, if asserted, that the Company will be
successful in defending against such claims. In the event one of the
Company's products is adjudged to infringe patents of others with the
likely consequence of a damage award, the Company and its customers
may be enjoined from using and selling such products or be
required to obtain a royalty-bearing license, if available on
acceptable terms. Alternatively, in the event a license is not
offered, the Company might be required to redesign those aspects of
the products held to infringe so as to avoid infringement. Any
redesign efforts undertaken by the Company might be expensive and
could necessitate FDA review. Furthermore, they could delay the
re-introduction of the Company's products into certain markets, or may
be so significant as to be impractical.
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PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company derives revenues primarily from sales of laser systems, and to a
substantially lesser extent from service, single-use products, physician
education programs, and outpatient center fees. The Company's laser
workstation is available with an excimer laser system ("Excimer System") or
with a holmium laser system ("Holmium System") or both ("Combo System"). In
June 1992, the FDA cleared the Holmium System for commercial sale in the U.S.
for the treatment of the symptoms of glaucoma. On March 10, 1995, the FDA
approved the Company's PreMarket Approval application ("PMA") to market and
sell commercially its Excimer System in the U.S. for Phototherapeutic
Keratectomy ("PTK"). PTK is a therapeutic procedure for treatment of certain
corneal pathologies such as corneal opacities, growths and scars, which can
interfere with vision. In addition, the Company sells Excimer Systems and Combo
Systems outside the U.S. in countries that have approved these devices for
commercial sale. As part of its strategy to participate in all major facets of
the market for laser treatment of vision disorders, the Company owns and
operates three outpatient centers in the United Kingdom. The Company intends
to open similar centers in the U.S. if and when it receives FDA approval for
Photorefractive Keratectomy ("PRK") to treat nearsightedness which will require
additional expenditures.
On October 20, 1994, the FDA Ophthalmic Advisory Panel recommended conditional
approval of the Company's PMA application to market and sell commercially its
Excimer System in the U.S. for PRK to treat nearsightedness. The
recommendation was subject to several conditions regarding labeling,
post-approval follow-up, and additional data collection on patients already
treated in the Phase III trials. On December 12, 1994, the Company received a
post-panel letter from the FDA clarifying additional data required to complete
its evaluation of Summit's PMA application to market and sell commercially its
Excimer System for performing PRK. On February 17, 1995, the Company submitted
to the FDA all clinical data requested in the post-panel letter. The Company
believes that the submitted data satisfies the criteria outlined in the
post-panel letter.
The Company's long-term success remains dependent upon its receiving approval
from the FDA to market and sell its Excimer Systems in the U.S. for performing
PRK and the absence of such FDA approval will continue to be an impediment to
sales. FDA approval for PRK, if granted, is not expected before late 1995.
In light of the risks associated with the Company's business and, in
particular, the FDA approval process, historical financial performance should
not be considered as a reliable indicator of future performance, and past
financial trends are not necessarily indicative of results or trends in future
periods. In addition, the Company's manufacturing and research and development
departments often combine efforts related to the ongoing development of the
Company's laser systems and erodible masks. This blended effort makes the
classification of manufacturing and research and development expenses and
consequently gross profit analysis difficult. The Company's current gross
profit should, therefore, not be considered predictive of future trends.
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<PAGE> 8
RESULTS OF OPERATIONS
1995 as Compared with 1994
Revenues
Revenues for the three months ended March 31, 1995 increased 94.1% to $7.1
million from $3.7 million for the three months ended March 31 1994. The
increase was primarily attributable to higher U.S. sales of the Company's
Excimer System, and to a substantially lesser extent, increases in service
revenues and revenues from the Company's outpatient centers. The Company's
upgrade program continued to impact the Company's average selling price as
early versions of its laser systems were exchanged, on a limited basis, for new
Excimer Systems at reduced prices.
Regulatory delays in the U.S. will continue to negatively impact the Company's
revenues in 1995. In addition, increased competition in international markets,
a long sales cycle and the absence of a significant backlog may make quarterly
revenues unpredictable.
Cost of revenues
Cost of revenues for the three months ended March 31, 1995 as a percentage of
revenues decreased to 66.5% from 85.4% for the three months ended March 31,
1994. The decrease was primarily attributable to the absorption of fixed
overheads over higher sales volumes. This decrease was offset by increases in
costs incurred for product upgrades and revisions, and to a substantially
lesser extent costs related to the development of the erodible mask. The
Company recognizes a lower gross margin percentage on Holmium System to Combo
System upgrades than on new sales of laser systems and expects this trend to
continue as it satisfies orders for these upgrades which have increased
significantly in the second quarter of 1995 and will continue at least through
the remainder of 1995.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 1995 decreased 5.1% to
$4.6 million from $4.8 million for the three months ended March 31, 1994.
Operating expenses for the three months ended March 31, 1995 as a percentage of
revenues decreased 66.7% to 64.3% from 131% for the three months ended March
31, 1994. The decrease was primarily attributable to lower commissions paid to
independent sales representatives.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have been met through external financing.
As of March 31, 1995, the Company's cash, cash equivalent balances and
short-term investments decreased $1.5 million to $15.7 million from $17.2
million as of December 31, 1994. The net loss of $2.0 million was offset by
depreciation and amortization of $.6 million and reductions in accounts
receivable of $1.8 million. These increases in working capital were offset in
part by increases in inventories of $1.2 million.
Cash provided by investing activities of $.2 million resulted primarily from a
decrease of $.7 million in short term investments which was offset in part by
additions to property and equipment of $.4 million.
Cash provided by financing activities of $.3 million resulted primarily from
proceeds from the exercise of stock options of $.3 million.
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<PAGE> 9
The Company has a $3.0 million leasing facility for capital asset purchases in
the U.S. and the U.K. for up to five years. At March 31, 1995 the Company had
$ 1.5 million of borrowings under this facility. In March 1995, the Company
received a renewal of its working capital line of credit agreement. The
agreement expires in March of 1996. The line of credit agreement allows the
Company to borrow up to $8.0 million against eligible accounts receivable at
LIBOR plus 150 basis points or prime per annum. At March 31, 1995 the Company
had no borrowings under this facility.
In light of the effect of FDA and other regulatory requirements on the
Company's sales, the costs that the Company is incurring in pursuit and
anticipation of FDA approval, as well as development costs of its outpatient
centers, the Company expects that it will continue to incur losses until it is
permitted by the FDA, if ever, to sell Excimer Systems in the U.S. to perform
PRK and broad market acceptance occurs. Future expansion of the outpatient
centers will require external financing. If demand for the Company's product
does not increase or if the Company experiences any substantial delay in the
approval process for PRK, the Company will be required to adjust operations in
light of its current liquidity and capital resources, and to seek additional
financing. There can be no assurance that the Company will be able to obtain
such financing, or that the financing would be available on terms favorable to
the Company.
Part II Other Information
Item 1. Legal Proceedings
On July 1, 1994, the Company filed suit against Herbert Schwind GmbH &
Co. and related parties in the Landgerliht of Dusseldorf, Germany
seeking damages and injunctive relief for infringement of one of the
Company's patents by Schwind's ophthalmic excimer laser system. A
hearing is scheduled in June 1995.
On September 30, 1994, the Company filed suit against Technolas Laser
Technik GMBH and related parties in the Landgerliht of Dusseldorf,
Germany seeking damages and injunctive relief for infringement of one
of the Company's patents by Technolas' ophthalmic excimer laser
system. A hearing is scheduled in June 1995.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
None
b. Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SUMMIT TECHNOLOGY, INC.
Date: By: /s/ David F. Muller
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David F. Muller, Ph.D.
President and Chairman of the Board
Date: By: /s/ Rajiv Bhatt
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Rajiv Bhatt
Executive Vice President, Chief Financial
Officer
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 7,847
<SECURITIES> 7,820
<RECEIVABLES> 8,740
<ALLOWANCES> 974
<INVENTORY> 8,233
<CURRENT-ASSETS> 33,806
<PP&E> 12,469
<DEPRECIATION> 6,021
<TOTAL-ASSETS> 49,484
<CURRENT-LIABILITIES> 11,915
<BONDS> 1,367
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0
168
<OTHER-SE> 36,034
<TOTAL-LIABILITY-AND-EQUITY> 49,484
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