<PAGE> 1
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: June 30, 1995
----------------------------------------------
Commission File Number: 0-16937
-------------------------------------------------------
Summit Technology, Inc.
- --------------------------------------------------------------------------------
(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 June 30, 1995, 16,821,013 shares of common stock, par value $0.01 per share
were outstanding.
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1995 1994
- -----------------------------------------------------------------------------------------------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,902 $ 8,656
Short-term investments 6,219 8,495
Accounts receivable, net 10,041 9,535
Inventories, net 8,323 7,028
Prepaid expenses and other current assets 1,868 1,079
Notes receivable from officers 689 665
-------- --------
Total current assets 32,042 35,458
-------- --------
Property and equipment, net 6,598 6,398
Patents, net 6,852 6,925
Other assets 2,534 2,386
-------- --------
Total assets $ 48,026 $ 51,167
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,485 $ 2,749
Accrued expenses 5,549 5,860
Current maturities of capital lease obligations 452 516
Deferred revenue 4,029 2,982
-------- --------
Total current liabilities 12,515 12,107
Capital lease obligations, less current maturities 1,228 1,177
Stockholders' equity:
Common stock, $.01 par value. Authorized 60,000,000 shares;
Issued 16,823,994 in 1995 and 16,790,065 shares in 1994 168 168
Additional paid-in capital 68,194 67,760
Accumulated deficit (33,973) (30,002)
-------- --------
34,389 37,926
Treasury stock, at cost, 2,981 shares in 1995 and 1,166 shares in 1994 (106) (43)
-------- --------
Total stockholders' equity 34,283 37,883
-------- --------
Total liabilities and stockholders' equity $ 48,026 $ 51,167
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES THREE MONTHS SIX MONTHS
CONSOLIDATED STATEMENTS OF OPERATIONS ENDED JUNE 30, ENDED JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED) 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 9,261 $ 5,862 $16,368 $ 9,524
Cost of revenues 6,523 4,736 11,249 7,864
------- ------- ------- -------
Gross profit 2,738 1,126 5,119 1,660
Operating expenses 4,857 5,455 9,424 10,269
------- ------- ------- -------
Operating loss (2,119) (4,329) (4,305) (8,609)
Other Income 141 57 334 119
------- ------- ------- -------
Net loss $(1,978) $(4,272) $(3,971) $(8,490)
======= ======= ======= =======
Net loss per share $ (.12) $ (.26) $ (.24) $ (.52)
======= ======= ======= =======
Weighted average number of common
shares and common share
equivalents outstanding 16,819 16,360 16,809 16,349
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES SIX MONTHS
CONSOLIDATED STATEMENTS OF CASH FLOWS ENDED JUNE 30,
(IN THOUSANDS; UNAUDITED) 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows used by operating activities:
Net loss $(3,971) $(8,490)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,252 1,087
Changes in operating assets and liabilities:
Accounts receivable, net (506) 5,014
Inventories (1,295) (51)
Prepaid expenses and other current assets (813) (19)
Accounts payable (265) (295)
Accrued expenses (311) 404
Deferred revenue 1,047 (293)
------- -------
Net cash used by operating activities (4,862) (2,643)
------- -------
Cash flows from investing activities:
Decrease in short-term investments 2,276 1,842
Additions to property and equipment (1,057) (200)
Change in other assets (329) -
Note receivable to officer - (100)
------- -------
Net cash provided (used) by investing activities 890 1,542
------- -------
Cash flows from financing activities:
Repayments of capital lease obligations (289) (284)
Proceeds from capital lease obligations 136 1,279
Increase in short-term bank debt - 1,000
Proceeds from exercise of stock options 371 155
------- -------
Net cash provided by financing activities 218 2,150
------- -------
Decrease (increase) in cash and cash equivalents (3,754) 1,049
Cash and cash equivalents at beginning of period 8,656 2,819
------- -------
Cash and cash equivalents at end of period $ 4,902 $ 3,869
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
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. In addition, the Company
through its wholly-owned subsidiary, Refractive Centers International,
Inc., 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 June 30, 1995 and the results of operations for the three and six
month periods ended June 30, 1995 and 1994 and cash flows for the six month
periods ended June 30, 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
and six month periods ended June 30, 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.
<TABLE>
(3) Inventories (in thousands)
--------------------------
Inventories consist of the following:
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Raw materials and
subassemblies (net) $4,798 $4,370
Work in process 2,267 1,815
Finished goods 1,258 843
------ ------
$8,323 $7,028
====== ======
</TABLE>
(4) Reclassifications
-----------------
Certain reclassifications were made to the 1994 consolidated financial
statements to conform to the 1995 presentation.
-5-
<PAGE> 6
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 July, 1995 VISX asserted that the Company's excimer laser system
infringed certain Canadian patents held by VISX and demanded damages for
past infringement as well as on-going royalties. The Company is currently
evaluating VISX's assertions. The Company does not consider the Canadian
market to be material to its long term business prospects.
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.
-6-
<PAGE> 7
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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 approved 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 ("PMA") application 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
Laser Vision Correction ("LVC"), known medically as Photorefractive
Keratectomy ("PRK") to treat nearsightedness.
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 LVC 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 LVC. 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 has not received approval for this PMA application and
there can be no assurance that such approval will be obtained.
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 LVC and the absence of such FDA approval will continue
to be an impediment to sales. FDA approval for LVC, 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.
-7-
<PAGE> 8
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
1995 as Compared with 1994
--------------------------
Revenues
Revenues for the three months ended June 30, 1995 increased 58.0% to $9.3
million from $5.9 million for the three months ended June 30, 1994.
Revenues for the six months ended June 30, 1995 increased 71.9% to $16.4
million from $9.5 million for the six months ended June 30, 1994.
The increases were primarily attributable to higher sales of laser systems
in the U.S. and product upgrade revenue.
Regulatory delays in the U.S. will continue to negatively impact the
Company's revenues. 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 as a percentage of revenues for the three months ended
June 30, 1995 decreased to 70.4% from 80.8% for the three months ended June
30, 1994. Cost of revenues as a percentage of revenues for the six months
ended June 30, 1995 decreased to 68.7% from 82.6% for the six months ended
June 30, 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
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 June 30, 1995 decreased 11.0%
to $4.9 million from $5.5 million for the three months ended June 30, 1994.
Operating expenses for the six months ended June 30, 1995 decreased 8.2% to
$9.4 million from $10.3 million for the six months ended June 30, 1994.
Operating expenses for the three months ended June 30, 1995 as a
percentage of revenues decreased to 52.4% from 93.1% for the three months
ended June 30, 1994. Operating expenses for the six months ended June 30,
1995 as a percentage of revenues decreased to 57.6% from 107.8% for the six
months ended June 30, 1994. The decrease was primarily attributable to
lower commissions paid to independent sales representatives.
Net Loss
The net loss for the three months ended June 30, 1995 decreased 53.7% to
$2.0 million from $4.3 million for the three months ended June 30, 1994.
The net loss related to outpatient clinics was $0.9 million for the three
months ended June 30, 1995 and $0.7 million for the three months ended June
30, 1994. The net loss of the six months ended June 30, 1995 decreased
53.2% to $4.0 million from $8.5 million for the six months ended June 30,
1994. The net loss related to outpatient clinics was $1.7 million for the
six months ended June 30, 1995 and $1.5 million for the six months ended
June 30, 1994.
-8-
<PAGE> 9
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity requirements have been met through external
financing. As of June 30, 1995, the Company's cash, cash equivalent
balances and short-term investments decreased $6.1 million to $11.1
million from $17.2 million as of December 31, 1994. The net loss of
$4.0 million for the six month period ended June 30, 1995 was offset
by depreciation and amortization of $1.3 million and an increase in
deferred revenue of $1.0 million. Accounts receivable and inventories
increased $0.5 million and $1.3 million, respectively.
Cash provided by investing activities of $0.9 million resulted primarily
from a decrease of $2.3 million in short term investments which was
offset in part by additions to property and equipment of $1.1 million.
Cash provided by financing activities of $0.2 million resulted from
proceeds from the exercise of stock options of $0.4 million offset in
part by repayments of capital lease obligations of $0.3 million.
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 June 30,
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 Rate per annum. At June 30, 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 LVC and broad market acceptance occurs.
Future expansion of the outpatient centers will require external
financing and the Company is currently exploring alternatives. If demand
for the Company's product does not increase or if the Company
experiences any substantial delay in the approval process for LVC, 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 not experience such
delays or that it will be able to obtain such financing at all or 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 DYsseldorf,
Germany seeking damages and injunctive relief for infringement
of one of the Company's patents by Schwind's ophthalmic excimer
laser system.
-9-
<PAGE> 10
PART II: OTHER INFORMATION
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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.
In August, 1995 the court determined that the Schwind Keratom
ophthalmic excimer laser system (distributed by Coherent) and the
Chiron Technolas Keracor 116 ophthalmic excimer laser system
(distributed by Chiron) infringe the Company's patent. The
court ordered Chiron/Technolas and Schwind to pay damages to Summit
for past infringements as well as 90% of court costs and attorney's
fees.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The following matters were approved at the Company's annual meeting
held on May 25, 1994:
Proposal 1. Jeffrey A. Bernfeld and Richard M. Traskos were
reelected to the Board of Directors for three year
terms. David F. Muller, Richard F. Miller and John A.
Norris were renamed as Directors of the Company.
Proposal 2. An additional 250,000 shares were authorized and
reserved under the 1987 Stock Option Plan.
<TABLE>
The following table summarizes the election results:
<CAPTION>
For Against or Withheld Not Voting
--- ------------------- ----------
<S> <C> <C> <C>
Proposal 1
Jeffrey A. Bernfeld 15,985,555 128,434 700,262
Richard M. Traskos 15,987,788 126,201 700,262
Proposal 2 14,780,220 1,306,719 727,312
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits.
---------
None
b. Reports on Form 8-K.
--------------------
None
-10-
<PAGE> 11
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
------------------ --------------------------------------------
David F. Muller, Ph.D.
President and Chairman of the Board
Date: By: /s/ Rajiv Bhatt
------------------ --------------------------------------------
Rajiv Bhatt
Executive Vice President, Chief Financial Officer
-11-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 1995 FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 4,902
<SECURITIES> 6,219
<RECEIVABLES> (1) 11,015
<ALLOWANCES> 974
<INVENTORY> 8,323
<CURRENT-ASSETS> 32,042
<PP&E> 13,128
<DEPRECIATION> 6,530
<TOTAL-ASSETS> 48,026
<CURRENT-LIABILITIES> 12,515
<BONDS> 1,228
<COMMON> 0
0
168
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,026
<SALES> 0
<TOTAL-REVENUES> 16,368
<CGS> 0
<TOTAL-COSTS> 11,249
<OTHER-EXPENSES> (2) 8,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> (3,971)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,971)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (3) (.12)
<FN>
(1) Does not include allowance for doubtful accounts.
(2) Not of other income, except interest expense.
(3) Does not include anti-dilutive effect of common stock equivalents.
</TABLE>
