<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: September 30, 1995
------------------------------------------------
Commission File Number: 0-16937
-------------------------------------------------------
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 September 30, 1995, 16,847,378 shares of common stock, par value $.01 per
share were outstanding.
<PAGE> 2
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES SEPTEMBER 30, 1995
<CAPTION>
CONSOLIDATED BALANCE SHEETS PROFORMA SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (NOTE 6) 1995 1994
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 105,107 $ 4,742 $ 8,656
Short-term investments 1,935 1,935 8,495
Restricted cash 1,497 1,497 -
Accounts receivable, net 14,790 14,790 9,535
Inventories, net 7,307 7,307 7,028
Prepaid expenses and other current assets 1,659 1,659 1,079
Notes receivable from officers 591 591 665
--------- -------- --------
Total current assets 132,886 32,521 35,458
--------- -------- --------
Property and equipment, net 6,828 6,828 6,398
Patents, net 6,825 6,825 6,925
Other assets 3,215 3,215 2,386
--------- -------- --------
Total assets $ 149,754 $ 49,389 $ 51,167
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,116 $ 2,116 $ 2,749
Accrued expenses 6,856 6,856 5,860
Current maturities of capital lease obligations 441 441 516
Deferred revenue 3,733 3,733 2,982
--------- -------- --------
Total current liabilities 13,146 13,146 12,107
Capital lease obligations, less current maturities 1,101 1,101 1,177
Stockholders' equity:
Common stock, $.01 par value. Authorized 60,000,000
shares; Issued 19,380,823 proforma, 16,850,823 in
1995 and 16,790,065 shares in 1994 194 169 168
Additional paid-in capital 169,141 68,801 67,760
Accumulated deficit (33,700) (33,700) (30,002)
--------- -------- --------
135,635 35,270 37,926
Treasury stock, at cost, 3,445 shares in 1995 and 1,166
shares in 1994 (128) (128) (43)
--------- -------- --------
Total stockholders' equity 135,507 35,142 37,883
--------- -------- --------
Total liabilities and stockholders' equity $ 149,754 $ 49,389 $ 51,167
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 3
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
<CAPTION>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES THREE MONTHS NINE MONTHS
CONSOLIDATED STATEMENTS OF OPERATIONS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED) 1995 1994 1995 1994
- - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $13,808 $ 6,498 $30,175 $ 16,021
Cost of revenues 8,261 4,548 19,510 12,413
------- ------- ------- --------
Gross profit 5,547 1,950 10,665 3,608
Operating expenses 5,355 5,164 14,780 15,458
------- ------- ------- --------
Operating income (loss) 192 (3,214) (4,115) (11,850)
Other Income 81 23 417 169
------- ------- ------- --------
Net income (loss) $ 273 $(3,191) $(3,698) $(11,681)
======= ======== ======== ========
Net income (loss) per share $ .02 $ (.19) $ (.22) $ (.71)
======= ======== ======== ========
Weighted average number of common
shares and common share
equivalents outstanding 17,093 16,368 16,818 16,355
======= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
<CAPTION>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES NINE MONTHS
CONSOLIDATED STATEMENTS OF CASH FLOWS ENDED SEPTEMBER 30,
(IN THOUSANDS; UNAUDITED) 1995 1994
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<S> <C> <C>
Cash flows used by operating activities:
Net loss $(3,698) $(11,681)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,921 1,669
Changes in operating assets and liabilities:
Accounts receivable, net (5,255) 4,404
Restricted cash (1,497) -
Inventories, net (384) 741
Prepaid expenses and other current assets (580) 19
Accounts payable (634) 690
Accrued expenses 996 271
Deferred revenue 751 64
------- --------
Net cash used by operating activities (8,380) (3,823)
------- --------
Cash flows from investing activities:
Decrease in short-term investments 6,560 3,600
Additions to property and equipment (1,672) (339)
Other (1,089) (404)
------- --------
Net cash provided by investing activities 3,799 2,857
------- --------
Cash flows from financing activities:
Net proceeds (repayments) of capital lease obligations (290) 823
Increase in short-term bank debt - 1,000
Proceeds from exercise of stock options 957 202
Proceeds from shares sold under
employee stock purchase plan - 21
------- --------
Net cash provided by financing activities 667 2,046
------- --------
Increase (decrease) in cash and cash equivalents (3,914) 1,080
Cash and cash equivalents at beginning of period 8,656 2,819
------- --------
Cash and cash equivalents at end of period $ 4,742 $ 3,899
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<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)
develops, manufactures and markets ophthalmic refractive laser systems
for the treatment of vision disorders such as nearsightedness,
farsightedness, astigmatism, glaucoma and certain corneal
irregularities. In addition, the Company owns and operates three
laser vision correction 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 at September 30, 1995 and the
results of operations for the three and nine month periods ended
September 30, 1995 and 1994 and cash flows for the nine month periods
ended September 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 nine
month periods ended September 30, 1995 are not necessarily indicative
of the results to be expected for the full year.
Net Income (Loss) Per Share
---------------------------
Net income per share is computed on the weighted average number of
common shares outstanding adjusted for the dilutive effect of stock
options. Net 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>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Raw materials and
subassemblies (net) $4,740 $4,370
Work in process 1,788 1,815
Finished goods 779 843
------ ------
$7,307 $7,028
====== ======
</TABLE>
(4) Reclassifications
-----------------
Certain reclassifications were made to the 1995 consolidated financial
statements to conform to the 1994 presentation.
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<PAGE> 6
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL INFORMATION (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(5) Contingencies
-------------
There are a number of U.S. and foreign patents covering methods and
apparatus for performing corneal surgery with excimer lasers and
holmium lasers that are not owned by the Company. If patents held by
others were considered valid and interpreted broadly in an
adversarial proceeding, they could be deemed to cover one or more
aspects of the excimer laser systems ("Excimer System") or the
Company's holmium laser systems ("Holmium System") or their use to
perform one or more procedures. While the Company either owns or has
obtained from Pillar Point Partners (a partnership formed by the
Company and VISX to hold certain U.S. patents) a license to what it
believes are the important U.S. laser vision correction to treat near
sightedness ("LVC"), also known as photorefractive keratechtomy or PRK
patents, there can be no assurance that the Company will not be subject
to one or more claims for infringement.
In the event one of the Company's products is adjudged to infringe a
patent in a particular market with the likely consequence of a damage
award, the Company and its customers may be enjoined from making, using
and selling such products in such market or be required to obtain a
royalty-bearing license, if available on acceptable terms.
Alternatively, in the event a license is not offered, the Company might
be required to redesign those aspects of the products held to infringe
so as to avoid infringement. Any redesign efforts undertaken by the
Company might be expensive and could necessitate FDA review.
Furthermore, they could delay the re-introduction of the Company's
products into certain markets, or may be so significant as to be
impractical. If redesign efforts were impractical, the Company could be
prevented from manufacturing and selling the infringing products,
which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Failure to maintain the protection afforded by certain of the
Company's patents and the patents licensed to the Company and
VISX by Pillar Point Partners would have a material adverse effect on
the Company's future revenues and earnings. Further, there can be no
assurance that the Company's patent rights (or those licensed from
Pillar Point Partners) will deter others from developing
substantially equivalent or competitive products. Even if an
unlicensed competitor's products infringe upon the Company's patents
or those of Pillar Point Partners, it may be costly to enforce such
rights. An infringement action may require the diversion of funds
from the Company's operations and may require management to expend
effort that might otherwise be devoted to the Company's operations.
Furthermore, there can be no assurance that the Company or Pillar
Point Partners will be successful in enforcing its patent rights. Any
failure by the Company or Pillar Point Partners to prevail in patent
infringement actions against others, or any success by another company
in enforcing a patent infringment actions against others, or any
success by another company in enforcing a patent infringement
claim against the Company could have a material adverse effect on the
Company's business, financial condition and results of operations.
On August 29, 1995, the Company filed suit in the U.S. District Court
for the District of Delaware against VISX for infringement of a certain
U.S. patent with a priority date of 1985, which was purchased by the
Company in 1993 ("the Azema Patent"). The Company is seeking damages
for past infringement for all excimer lasers manufactured by VISX in
the U.S. for use outside the U.S. In addition, the Company is seeking
to enjoin VISX from manufacturing and selling excimer lasers for any
purpose other than U.S. clinical trials. On October 10, 1995,
VISX filed an answer to the Company's complaint. There can be no
assurance that the Company will prevail in this proceeding.
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<PAGE> 7
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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On August 3, 1995, a German court determined that the Schwind Keratom
ophthalmic excimer laser system distributed by Coherent, and the
Chiron Technolas Keracor 116 ophthalmic excimer laser system
distributed by Chiron Technolas, infringe the German counterpart of
the Azema Patent. The court has entered cease and desist orders
against Schwind and Chiron Technolas and has ordered them to pay
damages to the Company for past infringements. Both the Schwind and
Chiron Technolas excimer laser systems are manufactured in Germany. On
September 5, 1995, the Company posted the requisite bond in Germany
to enforce the injunction issued against Chiron Technolas by the
German court, as a result of which Chiron Technolas is now prohibited
from manufacturing, selling or using its Keracor 116 ophthalmic
excimer laser systems in Germany, where its production facility is
located. Chiron Technolas and Schwind have appealed the judgment and
Chiron Technolas has also filed a nullity action with the German
Patent Office. Although the Company believes it will prevail in this
nullity action, there can be no assurance that the German Azema patent
will survive the proceeding. If the nullity action or Chiron's appeal
is decided against the Company, its infringement verdict in Germany
will be overturned and it will be liable for damages which may or may
not exceed the amount of the bond. This bond is included in current
assets as restricted cash of $1.5 million at September 30, 1995.
On September 5, 1995, VISX sued the Company and eight Canadian
ophthalmologists who use or have used the Company's Excimer System,
the Federal Court of Canada, Trial Division, asserting that the
Excimer System infringed certain Canadian patents held by VISX. In
such suit, VISX seeks, among other things, damages for past
infringement and a permanent injunction preventing the Company and the
other defendants from manufacturing, marketing, selling, using and
inducing others to use the Excimer System in Canada. The Company
believes that it has valid defenses to VISX's suit and intends to
defend such action vigorously; however, there can be no assurance
that the Company will be successful. The Company does not believe
that the Canadian market is material to its business. There can be no
assurance that additional patent infringement claims in the United
States or in other countries will not be asserted against the Company,
or, if asserted, that the Company will be successful in defending
against such claims.
There can be no assurance that the agreements between the Company and
VISX relating to Pillar Point Partners will preclude patent disputes
with VISX with respect to technology not included in Pillar Point
Partners in the U.S. or with respect to any technology outside the
U.S., or that the Company's activities will not infringe patents held
by other parties. Under the agreements establishing Pillar Point
Partners, the Company must pay Pillar Point Partners a royalty fee
each time its Excimer System is used to perform LVC in the U.S.,
regardless of whether the Company performs the procedure. The Company
intends to maintain contractual arrangements permitting it to collect
such royalty fees from purchasers of its Excimer Systems, but, there
can be no assurance that it will be able to collect such fees. On
October 13, 1995, the Company received notice that the Federal Trade
Commission ("FTC") initiated an investigation to determine whether
Pillar Point Partners, VISX, and the Company or any of their
predecessors, alone or in conjunction with others, is engaging or has
engaged in any unfair methods of competition in violation of the
Federal Trade Commission Act, relating to certain arrangements
concerning patents of devices and procedures, and/or practices
relating to the sale or distribution of certain ophthalmic surgical
devices. The FTC issued a subpoena requiring the Company to produce
certain materials and information relating to the subject matter of
the investigation. In forming Pillar Point Partners, the Company has
taken measures to structure the partnership in a manner consistent
with U.S. antitrust laws. The compliance of Pillar Point Partners with
these laws
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<PAGE> 8
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
will depend upon the activities of the partners, a determination of
what constitutes the relevant market for purposes of such laws,
the number and relative strength of competitors in such markets and
numerous other factors, many of which are presently unknown or are
beyond the control of Pillar Point Partners. There can be no
assurance that the FTC's investigation will ultimately lead the FTC to
agree that Pillar Point Partners complies with the U.S. antitrust
laws. The Company is accordingly unable to predict whether or not, or
when, any proceeding may be brought by the FTC following such
investigation, or the scope of relief, if any, that may ultimately be
ordered in the event that any such proceeding were determined
adversely to the Company and/or Pillar Point Partners. Furthermore,
in March 1995, Pillar Point Partners sued LaserSight, Inc. for patent
infringement in the Federal District Court for Delaware. Although the
suit is based on a patent licensed to Pillar Point Partners by VISX,
the Company will share in the expenses of this litigation. In
addition, the defendant, LaserSight, Inc. has entered a declaratory
judgment counterclaim challenging Pillar Point Partners' ability to
enforce its rights under one of its patents, which counterclaim
asserts, among other things, that the alleged pooling of patents by
Pillar Point Partners constitutes patent misuse. Any successful
challenge to the structure and operation of Pillar Point Partners or
to its patents could have a material adverse effect on the Company's
business, financial condition and results of operations.
(6) Sale of Common Stock Subsequent to September 30, 1995
-----------------------------------------------------
In October of 1995, the Company received net proceeds of $100.4
million from the sale of 2,530,000 shares of common stock. The
proforma balance sheet reflects this transaction as if it had occurred
at September 30, 1995.
(7) Subsequent Event
-----------------------------------------------------
On November 14, 1995 the Company announced it will issue a dividend
of one share of the Company's common stock for every two shares of
outstanding common stock. The record date for determining the holders
of record entitled to the dividend is November 24, 1995 and the
payment date is December 1, 1995. This transaction has not been
reflected in the accompanying financial statements.
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 is a worldwide leader in the development, manufacture
and sale of ophthalmic laser systems designed to correct common
refractive vision disorders such as nearsightedness, farsightedness
and astigmatism. On October 20, 1995, the Company's excimer laser
system ("Excimer System") became the first excimer laser system in the
world to be approved by the Food and Drug Administration ("FDA") for
commercial sale in the United States to treat nearsightedness with
LVC.
The Company's strategy is to become a vertically integrated vision
correction business by (i) manufacturing and selling laser systems and
related products to correct vision disorders; (ii) operating
vision correction centers; and (iii) participating in per procedure
royalty from its ownership in Pillar Point Partners. The Company
believes that this strategy will position it to participate fully in
revenues derived from the sale of LVC equipment and revenue generated
from LVC. There can be no assurance, however, that the Company will
be successful achieving these goals.
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<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
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RESULTS OF OPERATIONS
---------------------
1995 as compared with 1994
--------------------------
Revenues
Revenues for the three months ended September 30, 1995 increased
112.5% to $13.8 million from $6.5 million for the three months ended
September 30, 1994. Revenues for the nine months ended September 30,
1995 increased 88.3% to $30.2 million from $16.0 million for the nine
months ended September 30, 1994. The increases were primarily
attributable to higher sales of laser systems in the U.S. and product
upgrade revenue.
Uncertainty regarding acceptance of the LVC procedure by the
ophthalmic community and the general population, uncertainty
regarding the success of the Company's U.S. vision correction centers,
the long sales cycle for laser systems and continued competition in
international markets are likely to make quarterly revenues
unpredictable.
Cost of revenues
Cost of revenues as a percentage of revenues for the three months
ended September 30, 1995 decreased to 59.8% from 70.0% for the three
months ended September 30, 1994. Cost of revenues as a percentage of
revenues for the nine months ended September 30, 1995 decreased to
64.7% from 77.5% for the nine months ended September 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. 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
since the second quarter of 1995 and will continue at least through
the remainder of 1995.
Operating Expenses
Operating expenses for the three months ended September 30, 1995
increased 3.7% to $5.4 million from $5.2 million for the three months
ended September 30, 1994. Operating expenses as a percentage of
revenues for the three months ended September 30, 1995 decreased to
38.8% from 79.5% for the three months ended September 30, 1994.
Operating expenses for the nine months ended September 30, 1995
decreased 4.4% to $14.8 million from $15.5 million for the nine months
ended September 30, 1994. The decrease was primarily attributable to
lower commissions paid to independent sales representatives.
Operating expenses as a percentage of revenues for the nine months
ended September 30, 1995 decreased to 49.0% from 96.5% for the nine
months ended September 30, 1994.
In the next twelve months the Company intends to open 20 to 30 Vision
Correction Centers in the U.S. and anticipates incurring significant
ongoing expenses including marketing, public relations, leasing costs,
personal hiring and training costs.
Net Income (Loss)
Net income for the three months ended September 30, 1995 was $0.3
million. Net loss for the three months ended September 30, 1994
was $3.2 million. The net loss related to the LVC centers segment was
$1.0 million for the three months ended September 30, 1995 and $0.6
million for the three months ended September 30, 1994. Net loss for
the nine months ended
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<PAGE> 10
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
September 30, 1995 decreased 68.3% to $3.7 million from $11.7
million for the nine months ended September 30, 1994. Net loss
related to the LVC centers segment was $2.7 million for the nine
months ended September 30, 1995 and $1.7 million for the nine months
ended September 30, 1994. The Company is likely to incur losses
through 1995, and there can be no assurance that the Company will
achieve long term profitability.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity requirements have been met through external
financing. As of September 30, 1995, the Company's cash, cash
equivalent balances and short-term investments decreased $10.5 million
to $6.7 million from $17.2 million as of December 31, 1994. The net
loss of $3.7 million for the nine month period ended September 30,
1995 was offset by depreciation and amortization of $1.9 million and
an increase in deferred revenue of $0.8 million. Accounts receivable
and inventories increased $5.3 million and $0.4 million, respectively.
Cash provided by investing activities of $3.8 million resulted
primarily from a decrease of $6.6 million in short term investments
which was offset in part by additions to property and equipment of
$1.7 million and an increase in other assets of $1.1 million.
Cash provided by financing activities of $0.7 million resulted from
proceeds from the exercise of stock options of $1.0 million offset in
part by net repayments of capital lease obligations of $0.3 million.
The Company has a $3.0 million leasing facility for capital asset
purchases. At September 30, 1995 the Company had $1.4 million of
borrowings under this facility. The Company has a working capital
line of credit that expires in March of 1996. The 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
September 30, 1995 the Company had no borrowings under this facility.
In October, the Company received net proceeds of $100.4 million from
the sale of 2,530,000 shares of common stock. The Company intends to
continue to expand its business through development and marketing
of the Company's Vision Correction Centers, development of consumer
acceptance of and demand for LVC, the expansion of manufacturing
capabilities and further research and development. Management believes
that internally generated funds and current cash resources, together
with proceeds of this offering, will be adequate to satisfy the
Company's cash requirements, including current anticipated
expenditures, for at least twenty-four months.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In 1993, the Company purchased certain U.S. and foreign patents
for an aggregate purchase price, including acquisition
costs of $5.1 million in cash and 50,000 shares of Common
Stock. One of these patents is the Azema Patent, which the
Company believes to be the only basic laser vision correction
patent in the U.S. that is not held by Pillar Point
Partners. As required by the terms of the governing agreements,
the Company offered Pillar Point Partners the opportunity to
acquire exclusive rights under the Azema Patent, but Pillar
Point Partners declined.
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<PAGE> 11
PART II: OTHER INFORMATION (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
On August 3, 1995, a German court determined that the Schwind
Keratom ophthalmic excimer laser system distributed by Coherent,
and the Chiron Technolas Keracor 116 ophthalmic excimer laser
system distributed by Chiron Technolas, infringe the German
counterpart of the Azema Patent. The court has entered cease and
desist orders against Schwind and Chiron Technolas and has
ordered them to pay damages to the Company for past
infringements. Both the Schwind and Chiron Technolas excimer
laser systems are manufactured in Germany. On September 5, 1995,
the Company posted the requisite bond in Germany to enforce
the injunction issued against Chiron Technolas by the German
court, as a result of which Chiron Technolas is now prohibited
from manufacturing, selling or using its Keracor 116 ophthalmic
excimer laser systems in Germany, where its production facility
is located. Chiron Technolas and Schwind have appealed the
judgment and Chiron Technolas has also filed a nullity action
with the German Patent Office. Although the Company believes it
will prevail in this nullity action, there can be no assurance
that the German counterpart of the Azema Patent will survive
the proceeding. If the nullity action or Chiron's appeal is
decided against the Company, its infringement verdict in
Germany will be overturned and it will be liable for damages
which may or may not exceed the amount of the bond. This bond
is included in current assets as restricted cash of $1.5 million
at September 30, 1995.
On August 29, 1995, the Company filed suit in the U.S. District
Court for the District of Delaware against VISX for
infringement of the U.S. Azema Patent that has a priority date
of 1995. The Company is seeking damages for past infringement
for all excimer lasers manufactured by VISX in the U.S. for use
outside the U.S. In addition, the Company is seeking to enjoin
VISX from manufacturing and selling excimer lasers for any
purpose other than U.S. clinical trials. On October 10, 1995,
VISX filed an answer to the Company's complaint. There can be
no assurance that the Company will prevail in this proceeding.
In March 1995, Pillar Point Partners sued LaserSight, Inc. for
patent infringement in the Federal District Court of Delaware.
Although the suit is based on a patent licensed to Pillar Point
Partners by VISX, the Company will share in the expenses of
this litigation. In addition, the defendant, LaserSight, Inc.,
has entered a declaratory judgment counterclaim challenging
Pillar Point Partners' ability to enforce its rights under one
of its patents, which counterclaim asserts, among other things,
that the alleged pooling of patents by Pillar Point Partners
constitutes patent misuse.
On September 5, 1995, VISX sued the Company and eight Canadian
ophthalmologists who use or have used the Company's Excimer
System, in the Federal Court of Canada, Trial Division,
asserting that the Excimer System infringed certain Canadian
patents held by VISX. In such suit, VISX seeks, among other
things, damages for past infringement and a permanent injunction
preventing the Company and the other defendants from
manufacturing, marketing, selling, using and inducing others
to use the Excimer System in Canada. The Company believes that
it has valid defenses to VISX's suit and intends to defend such
action vigorously; however, there can be no assurance that the
Company will be successful. The Company does not believe that
the Canadian market is material to its business.
- 11 -
<PAGE> 12
PART II: OTHER INFORMATION (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
Item 2. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits.
--------
Exhibit 11
Exhibit 27
b. Reports on Form 8-K.
-------------------
On October 10, 1995 the Company reported its Third Quarter
1995 Financial Results.
On October 13, 1995 the Company received notice that the Federal
Trade Commission ("FTC") initiated an investigation to
determine whether Pillar Point Partners, VISX Incorporated
("VISX"), the Company or any of their predecessors, alone or
in conjunction with others, is engaging or has engaged in any
unfair methods of competition in violation of the Federal Trade
Commission Act, relating to certain arrangements concerning
patents on devices and procedures, and/or practices relating to
the sale or distribution of certain ophthalmic surgical devices.
The FTC issued a subpoena requiring the Company to produce
certain materials and information relating to the subject matter
of the investigation.
Pillar Point Partners was structured in compliance with the
Federal Trade Commission Act and other applicable U.S.
antitrust laws. The Company believes that both the formation of
Pillar Point Partners in 1992 and its operation to date are
consistent with such laws. There can be no assurance, however,
that the FTC's investigation will ultimately lead the FTC to
agree with the Company. The Company is accordingly unable to
predict whether or not, or when, any proceeding may be brought
by the FTC following such investigation, or the scope of relief,
if any, that may ultimately be ordered in the event that any
such proceeding were determined adversely to the company and/or
Pillar Point Partners.
On October 20, 1995, the Company received Food and Drug
Administration ("FDA") approval to commercially market and sell
the Company's excimer laser for Photorefractive Keratectomy
("PRK") for laser correction of nearsightedness. The
approval covers the use of the Company's excimer laser to
perform PRK for laser correction of nearsightedness from -1.5 to
-7 diopters using a six millimeter ablation zone. The Company
is the first and only company in the ophthalmic excimer laser
field to receive FDA approval to commercially market and sell
excimer laser systems in the U.S. for treating nearsightedness.
- 12 -
<PAGE> 13
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, Chief Executive Officer
and Chairman of the Board
Date: By: /s/ Rajiv Bhatt
------------------ -------------------------
Rajiv Bhatt
Executive Vice President,
Chief Financial Officer
- 13 -
<PAGE> 1
<TABLE>
Exhibit 11
SUMMIT TECHNOLOGY, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1995 1994
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 273 $(3,191) $(3,698) $(11,681)
======= ======= ======= ========
Primary income (loss) per share:
Common stock 16,834 16,368 16,818 16,355
Stock options 259 - - -
------- ------- ------- --------
Weighted average common shares
outstanding 17,093 16,368 16,818 16,355
------- ------- ------- --------
Income (loss) per share $ .02 $ (.19) $ (.22) $ (.71)
======= ======= ======= ========
Fully diluted income (loss) per share:
Common stock 16,834 16,368 16,818 16,355
Stock options 261 - - -
------- ------- ------- --------
Weighted average common shares
outstanding 17,095 16,368 16,818 16,355
------- ------- ------- --------
Income (loss) per share $ .02 $ (.19) $ (.22) $ (.71)
======= ======= ======= ========
</TABLE>
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 4,742
<SECURITIES> 1,935
<RECEIVABLES> 15,764
<ALLOWANCES> 974
<INVENTORY> 7,307
<CURRENT-ASSETS> 32,521
<PP&E> 13,885
<DEPRECIATION> 7,057
<TOTAL-ASSETS> 49,389
<CURRENT-LIABILITIES> 13,146
<BONDS> 1,101
<COMMON> 169
0
0
<OTHER-SE> 34,973
<TOTAL-LIABILITY-AND-EQUITY> 49,389
<SALES> 0
<TOTAL-REVENUES> 30,175
<CGS> 0
<TOTAL-COSTS> 19,510
<OTHER-EXPENSES> 14,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 3,698
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,698
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
