<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: March 31, 1996
------------------------------------------------
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 March 31, 1996, 29,251,437 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 MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1996 1995
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 60,810 $ 74,285
Short-term investments 41,128 21,607
Accounts receivable, net 16,221 15,520
Inventories, net 12,757 10,265
Prepaid expenses and other current assets 3,417 3,134
Due from related party 1,125 238
Notes receivable from officers 312 381
-------- --------
Total current assets 135,770 125,430
-------- --------
Long-term investments 15,487 13,531
Property and equipment, net 11,137 8,431
Patents, net 6,642 6,795
Other assets, net 1,907 1,413
Restricted cash 1,511 1,535
-------- --------
Total assets $172,454 $157,135
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,585 $ 5,781
Accrued expenses 10,900 9,054
Current maturities of long-term debt 5,429 429
Deferred revenue 2,786 3,411
Due to related party 1,105 583
-------- --------
Total current liabilities 23,805 19,258
Long-term debt, less current maturities 14,639 1,002
Stockholders' equity:
Common stock, $.01 par value. Authorized
60,000,000 shares; Issued 29,257,562 shares
in 1996 and 29,226,327 in 1995 293 292
Additional paid-in capital 170,700 170,229
Accumulated deficit (36,823) (33,514)
-------- --------
134,170 137,007
Treasury stock, at cost, 6,125 shares in 1996
and 5,284 shares in 1995 (160) (132)
-------- --------
Total stockholders' equity 134,010 136,875
-------- --------
Total liabilities and stockholders' equity $172,454 $157,135
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS
CONSOLIDATED STATEMENTS OF OPERATIONS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED) 1996 1995
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<S> <C> <C>
Net revenues $12,683 $ 7,107
Cost of revenues 8,829 4,726
------- -------
Gross profit 3,854 2,381
Operating expenses 8,387 4,568
------- -------
Operating loss 4,533 2,187
Other income 1,224 194
------- -------
Net loss $ 3,309 $ 1,993
======= =======
Net loss per share $ .11 $ .08
======= =======
Weighted average number of common
shares and common share
equivalents outstanding 29,236 25,202
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS
CONSOLIDATED STATEMENTS OF CASH FLOWS ENDED MARCH 31,
(IN THOUSANDS; UNAUDITED) 1996 1995
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<S> <C> <C>
Cash flows used by operating activities:
Net loss $ (3,309) $(1,993)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 824 612
Bad debt recovery (153) (75)
Changes in operating assets and liabilities:
Accounts receivable, net (549) 1,844
Inventories, net (2,491) (1,204)
Prepaid expenses and other current assets (283) (159)
Accounts payable (2,196) (692)
Accrued expenses 1,846 (916)
Deferred revenue (625) 932
Related party, net (365) 345
-------- -------
Net cash used by operating activities (7,301) (1,306)
-------- -------
Decrease (increase) in short-term investments (19,521) 674
Increase in long-term investments (1,956) --
Additions to property and equipment (3,329) (398)
Other (447) (43)
-------- -------
Net cash provided (used) by investing activities (25,253) 233
-------- -------
Cash flows from financing activities:
Net proceeds (repayments) of long-term debt 18,637 (49)
Proceeds from exercise of stock options 442 313
-------- -------
Net cash provided by financing activities 19,079 264
-------- -------
Decrease in cash and cash equivalents (13,475) (809)
Cash and cash equivalents at beginning of period 74,285 8,656
-------- -------
Cash and cash equivalents at end of period $ 60,810 $ 7,847
======== =======
Supplemental cash flow information:
Interest paid $ 131 $ 72
======== =======
</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") develops, manufactures and
sells ophthalmic refractive laser systems and related products to correct
vision disorders. The Company participates in per procedure royalties
payable to Pillar Point Partners, a partnership, formed by the Company and
VISX to hold certain U.S. patents covering excimer laser systems and
procedures. Through its wholly-owned subsidiary, Refractive Centers
International, Inc. ("RCII"), the Company owns and operates vision
correction centers. The Company has recently discontinued its vision
correction centers in the U.K. and is concentrating on opening several
U.S. vision correction centers ("Summit Vision[Trademark] Centers") in
1996, many of which are affiliated with prestigious national teaching
hospitals.
(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 March 31, 1996 and the results of operations and cash
flows for the three month periods ended March 31, 1996 and 1995.
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, 1995. The results of operations for
the three month period ended March 31, 1996 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)
-------------------------
<TABLE>
Inventories consist of the following:
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials and subassemblies (net) $ 7,552 $ 5,802
Work in process 1,778 2,231
Finished goods 3,427 2,232
------- -------
$12,757 $10,265
======= =======
</TABLE>
(4) Reclassifications and Restatement
---------------------------------
Certain reclassifications were made to the 1996 consolidated financial
statements to conform to the 1995 presentation. In addition, the 1995
consolidated financial statements reflect retroactive restatement of a
dividend of one share of the Company's common stock for every two shares
of outstanding common stock paid on December 1, 1995.
-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) Subsequent Event
----------------
In April 1996, the Company entered into a definitive agreement to acquire
Lens Express Inc. of Deerfield Beach, Florida for between 1.43 million and
1.70 million shares of Summit stock depending on the price at time of
closing.
Lens Express' fiscal year ends June 30. For the year ended June 30, 1995,
Lens Express' revenues were $50.6 million and operating income on an
adjusted basis was $2.4 million.
Lens Express will become an operating division of Summit Technology, with
the acquisition being recorded as a pooling of interests.
(6) 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. patents on laser vision correction
to treat nearsightedness, also known as photorefractive keratectomy, 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 patents (or those licensed from Pillar Point Partners) will
ultimately be found to be valid, or 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
infringement claim against the Company could have a material adverse
effect on the Company's business, financial condition and results of
operations.
U.S. Patent Litigation against VISX
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.
-6-
<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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German Patent Litigation
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 March 31, 1996.
Canadian Patent Litigation
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.
Pillar Point Partners
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.
FTC Investigation
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
-7-
<PAGE> 8
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 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.
LaserSight Litigation
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.
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 System became the first excimer
laser system in the world to be approved by the Food and Drug
Administration for commercial sale in the United States for laser
correction of nearsightedness. Use of the Company's Excimer System to
treat astigmatism and farsightedness has not been approved by the FDA.
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) participating in per
procedure royalty from its ownership in Pillar Point Partners; and (iii)
operating vision correction centers. The Company believes that this
strategy will position it to participate in revenues derived from the sale
of Excimer Systems and revenues generated from laser correction of
nearsightedness. There can be no assurance, however, that the Company will
be successful in achieving these goals.
RESULTS OF OPERATIONS
---------------------
1996 as compared with 1995
--------------------------
-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
- --------------------------------------------------------------------------------
Revenues
Revenues for the three months ended March 31, 1996 increased 79% to
$12.7 million from $7.1 million for the three months ended March 31, 1995.
The increases were primarily attributable to higher sales of laser systems,
per procedure royalties and product upgrade revenues.
Due to uncertainty regarding acceptance of laser correction of
nearsightedness 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,
quarterly revenues are likely to remain unpredictable. In addition, U.S.
FDA approval of Visx's excimer laser system for laser correction of
nearsightedness in March of 1996 will result in increased competition that
may have a negative impact on Excimer System sales.
Cost of revenues
Cost of revenues as a percentage of revenues for the three months
ended March 31, 1996 increased to 69.6% from 66.5% for the three months
ended March 31, 1995. The increase in cost of revenues as a percentage of
revenues was attributable to a lower average selling price of Excimer
System sales which was offset in part by per procedure royalty revenues.
Operating Expenses
Operating expenses for the three months ended March 31, 1996 increased
83.6% to $8.4 million from $4.6 million for the three months ended March
31, 1995. Operating expenses as a percentage of revenues for the three
months ended March 31, 1996 increased to 66.1% from 64.3% for the three
months ended March 31, 1995. The increase is primarily related to start-up
costs incurred in connection with the Company's U.S. vision correction
centers and legal expenses.
The Company has opened 10 Vision Correction Centers in the U.S. and intends
to open several more centers in the U.S. by the end of 1996 and anticipates
incurring significant ongoing expenses including marketing, public
relations, leasing, personnel hiring and training costs. The Company is in
the process of discontinuing its vision correction centers in the U.K. as
it concentrates on the opening of its U.S. vision correction centers.
Net Income (Loss)
Net loss for the three months ended March 31, 1996 was $3.3 million.
Net loss for the three months ended March 31, 1995 was $2.0 million. The
net loss related to the LVC centers segment was $3.7 million for the three
months ended March 31, 1996 and $0.8 million for the three months ended
March 31, 1995. There can be no assurance that the Company will achieve
profitability in 1996.
-9-
<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
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity requirements have been met through external
financing. As of March 31, 1996, the Company's cash, cash equivalent
balances and short-term investments increased $6.0 million to $101.9
million from $95.9 million as of December 31, 1995. The net loss of $3.3
million for the three month period ended March 31, 1996 was offset by
depreciation and amortization of $0.8 million and an increase in accrued
expenses of $1.8 million. Reductions of working capital resulted from the
increase in accounts receivable and inventories of $0.5 million and $2.5
million, respectively. In addition, accounts payable decreased $2.2
million.
Cash used by investing activities of $25.3 million resulted primarily
from an increase of $21.5 million in short and long-term investments,
additions to property and equipment of $3.3 million and an increase in
other assets of $0.5 million.
Cash provided by financing activities of $19.1 million resulted from
net proceeds of long-term debt obligations of $18.6 million and proceeds
from the exercise of stock options of $0.4 million.
In March of 1996, the Company obtained a $20.0 million unsecured
revolving credit facility. The facility expires in March 1999 and allows
the Company to borrow at LIBOR plus 75 basis points or Prime Rate. At March
31, 1996, there were no borrowings under this facility. Also in March 1996,
the Company's wholly-owned subsidiary, RCII obtained a $20.0 million
unsecured term loan. The term loan is payable over 16 equal quarterly
installments at LIBOR plus 125 basis points or Prime Rate. The term loan is
guaranteed by the Company. The Company intends to use this facility to fund
working capital requirements and purchase equipment related to the opening
of its U.S. vision correction centers. At March 31, 1996, $18.75 million of
borrowings were outstanding under this facility.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
U.S. Patent Litigation against VISX
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.
German Patent Litigation
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
-10-
<PAGE> 11
PART II: OTHER INFORMATION
ITEM 2: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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 March 31, 1996.
Canadian Patent Litigation
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.
FTC Investigation
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 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.
LaserSight Litigation
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.
-11-
<PAGE> 12
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: 5/15/96 By: /s/ David F. Muller
--------------------------- ------------------------------------
David F. Muller, Ph.D.
Chief Executive Officer and Chairman
of the Board
Date: 5/15/96 By: /s/ Rajiv Bhatt
-------------------------- ------------------------------------
Rajiv Bhatt
Executive Vice President and Chief
Financial Officer
-12-
<PAGE> 1
Exhibit 11
SUMMIT TECHNOLOGY, INC.
<TABLE>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net loss $ 3,309 $ 1,993
======= =======
Primary loss per share:
Weighted average common shares outstanding 29,236 25,202
------- -------
Loss per share $ .11 $ .08
======= =======
Fully diluted loss per share:
Weighted average common shares outstanding 29,236 25,202
------- -------
Loss per share $ .11 $ .08
======= =======
</TABLE>
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1996 FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 60,810
<SECURITIES> 41,128
<RECEIVABLES> 17,042
<ALLOWANCES> 821
<INVENTORY> 12,757
<CURRENT-ASSETS> 135,770
<PP&E> 19,218
<DEPRECIATION> 8,081
<TOTAL-ASSETS> 172,454
<CURRENT-LIABILITIES> 23,805
<BONDS> 14,639
<COMMON> 292
0
0
<OTHER-SE> 133,718
<TOTAL-LIABILITY-AND-EQUITY> 172,454
<SALES> 0
<TOTAL-REVENUES> 12,683
<CGS> 0
<TOTAL-COSTS> 8,829
<OTHER-EXPENSES> 8,387
<LOSS-PROVISION> (153)
<INTEREST-EXPENSE> (131)
<INCOME-PRETAX> (3,309)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,309)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,309)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
