<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, 1996
------------------
Commission File Number: 0-16937
-------
Summit Technology, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2897945
-----------------------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
21 Hickory Drive Waltham, MA 02154
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
617-890-1234
------------
(Registrant's telephone number, including area code)
N/A
---
(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, 1996, 30,963,392 shares of common stock, par value $.01 per
share were outstanding.
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1996 1995
- -----------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,626 $ 74,632
Short-term investments 27,077 21,607
Accounts receivable, net 8,758 16,312
Inventories, net 20,265 15,703
Prepaid expenses and other current assets 4,413 3,271
Due from related party 1,237 238
Note receivable from former officer 322 381
-------- --------
Total current assets 111,698 132,144
-------- --------
Long-term investments 14,587 13,531
Property and equipment, net 18,119 9,300
Patents, net 6,480 6,795
Other assets, net 1,530 1,479
Restricted cash 1,505 1,535
-------- --------
Total assets $153,919 $164,784
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,183 $ 7,771
Accrued expenses 8,073 10,018
Current maturities of long-term debt 5,154 3,429
Deferred revenue 1,973 3,425
Due to related party 2,583 583
-------- --------
Total current liabilities 22,966 25,226
Long-term debt, less current maturities 11,630 1,247
Deferred Taxes 70 70
Stockholders' equity:
Common stock, $.01 par value. Authorized 60,000,000
shares; Issued 30,969,517 shares in 1996
and 30,934,827 in 1995 310 309
Additional paid-in capital 170,889 170,393
Accumulated deficit (51,786) (32,329)
-------- --------
119,413 138,373
Treasury stock, at cost, 6,125 shares in 1996 and
5,284 shares in 1995 (160) (132)
-------- --------
Total stockholders' equity 119,253 138,241
-------- --------
Total liabilities and stockholders' equity $153,919 $164,784
======== ========
</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 NINE MONTHS
CONSOLIDATED STATEMENTS OF OPERATIONS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $21,009 $27,278 $ 64,411 $69,726
Cost of revenues 15,692 17,497 49,083 46,324
------- ------- -------- -------
Gross profit 5,317 9,781 15,328 23,402
Operating expenses 10,048 9,250 37,908 26,627
------- ------- -------- -------
Operating income (loss) (4,731) 531 (22,580) (3,225)
Other income 790 25 3,105 336
------- ------- -------- -------
Income (loss) before provision
for income taxes (3,941) 556 (19,475) (2,889)
Provision for
income taxes - 20 - 622
------- ------- -------- -------
Net Income (loss) $(3,941) $ 536 $(19,475) $(3,511)
======= ======= ======== =======
Net Income (loss) per share $ (.13) $ .02 $ (.63) $ (.13)
======= ======= ======== =======
Weighted average number of common
shares and common share
equivalents outstanding 30,963 27,349 30,950 26,936
======= ======= ======== =======
</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 NINE MONTHS
CONSOLIDATED STATEMENTS OF CASH FLOWS ENDED SEPTEMBER 30,
(IN THOUSANDS; UNAUDITED) 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows used by operating activities:
Net loss $(19,475) $(3,511)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 2,494 2,648
Bad debt recovery (268) (75)
Changes in operating assets and liabilities:
Accounts receivable, net 7,822 (5,250)
Inventories (4,562) (3,257)
Prepaid expenses and other current assets (1,042) (637)
Accounts payable (2,589) (555)
Accrued expenses (1,457) 732
Deferred revenue (1,450) 749
Related party, net 1,001 -
Other, net - 14
-------- -------
Net cash provided used by operating activities (19,526) (9,142)
-------- -------
Cash flows from investing activities:
Decrease (increase) in short-term investments (5,470) 6,560
Decrease (increase) in long-term investments (1,056) -
Additions to property and equipment, net (11,281) (2,306)
Restricted cash 30 (1,497)
Other (281) (1,139)
-------- -------
Net cash provided (used) by investing activities (18,058) 1,618
-------- -------
Cash flows from financing activities:
Net proceeds repayments of long-term debt 12,109 2,673
Proceeds from exercise of stock options 469 957
-------- -------
Net cash provided by financing activities 12,578 3,630
-------- -------
Decrease in cash and cash equivalents (25,006) (3,894)
Cash and cash equivalents at beginning of period 74,632 8,698
-------- -------
Cash and cash equivalents at end of period $ 49,626 $ 4,804
======== =======
Supplemental cash flow information:
Interest paid $ 894 $ 384
======== =======
Income taxes paid $ 49 $ 617
======== =======
</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
(1) Nature of Business
------------------
Summit Technology, Inc. (the "Company") develops, manufactures and
markets ophthalmic laser systems designed to correct common vision
disorders such as nearsightedness, farsightedness and astigmatism. The
Company also participates in per procedure royalties payable to Pillar
Point Partners, a partnership, formed by the Company and VISX, Inc.
("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 discontinued its vision correction
centers in the U.K. and operates 19 U.S. vision correction centers
("Summit Vision [Registered Trademark] Centers"), many of which are
affiliated with prestigious national teaching hospitals. In addition,
through its wholly owned subsidiary, Lens Express, Inc., the Company
sells contact lenses and related products.
(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, 1996 and the results of operations
for the three and nine month periods ended September 30, 1996 and 1995
and cash flows for the nine month periods ended September 30, 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 and nine month periods ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
In May of 1996, the Company acquired Lens Express, Inc. The acquisition
has been accounted for as a pooling of interests and accordingly, the
consolidated financial statements have been restated to include the
accounts of Lens Express, Inc.
Net Income (Loss) Per Share
---------------------------
Net income per share is computed based 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.
5
<PAGE> 6
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
(3) Inventories (in thousands)
--------------------------
Inventories consist of the following:
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw materials and
subassemblies (net) $ 5,975 $ 5,802
Work in process 691 2,231
Finished goods 13,599 7,670
------- -------
$20,265 $15,703
======= =======
</TABLE>
(4) Restatement and Reclassifications
---------------------------------
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 and restatement for 1.71 million shares issued to acquire Lens
Express, Inc. (see note 2). Certain reclassifications were made to the
1995 consolidated financial statements to conform to the 1996
presentation.
(5) Cash Equivalents, Short and Long Term Investments
-------------------------------------------------
Cash equivalents consist of certificates of deposit and highly liquid
investment grade corporate bonds with a maturity of three months or
less.
Short-term investments consist of investments with original maturities
between three and twelve months. Long-term investments consist of
investments with original maturities greater than twelve months. The
Company has the intent and the ability to hold these investments to
maturity. Investments are carried at cost plus accrued interest, which
approximates market. These investments consist of U.S. Government
Securities and investment grade corporate bonds.
6
<PAGE> 7
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
Company's 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,
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
7
<PAGE> 8
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 appealed
the judgment. On October 17, 1996, Schwind agreed to dismiss its appeal
and pay the Company 1.23 million German marks (approximately $800,000)
in satisfaction of the Company's judgment. If the Chiron Technolas
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
non-current assets as restricted cash of $1.5 million at September 30,
1996.
8
<PAGE> 9
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 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. 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.
On August 28, 1996, an affiliate of VISX, purporting to act on behalf
of Pillar Point Partners, commenced a lawsuit against the Company in
the United States District Court for the District of Massachusetts. The
suit alleges that the Company owes equipment royalties to Pillar Point
Partners of not less than $4.5 million together with interest, costs
and attorneys' 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
9
<PAGE> 10
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
has issued subpoenas to the Company and others (including one officer
of the Company and David F. Muller, the Company's former Chairman and
Chief Executive Officer) for testimony and 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.
Antitrust Litigation
In June 1996, a Texas ophthalmologist, Robert G. Burlingame sued Pillar
Point Partners, VISX, the Company and certain affiliates of VISX and
the Company in the Federal District Court for the Northern District of
California alleging that the defendants have violated and are violating
federal and state antitrust laws. The plaintiff seeks damages of an
unspecified amount, treble damages, attorneys' fees and a permanent
injunction against future violations. On September 5, 1996, a Nevada
ophthalmologist, John R. Shepard, through his professional corporation,
commenced a similar lawsuit against the same parties, in the same
Court, alleging substantially similar claims and seeking substantially
similar relief.
Pillar Point Partners Patent 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
10
<PAGE> 11
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Pillar Point Partners has also commenced patent infringement litigation
against certain ophthalmologists believed to be using homemade laser
systems not licensed under patents held by Pillar Point Partners, as
well as an individual believed to be inducing infringement of such
patents. In one such action, the defendants have asserted a
counterclaim seeking a declaration that the patents in suit are
invalid. In addition, the Company is pursuing litigation against
certain other parties engaged in similar activities, including an
importer, a service provider and certain other ophthalmologists, some
of whom have asserted antitrust and other counterclaims against the
Company.
In October, 1996, Autonomous Technologies Corporation ("Autonomous")
sued Pillar Point Partners, the Company and VISX (and certain
affiliates of the Company and VISX) in the Federal District Court for
Delaware. In this action, Autonomous seeks, INTER ALIA, a declaratory
judgment that it does not infringe a certain United States Patent held
by Pillar Point Partners, or, alternatively, a judgment ordering that
all U.S. patents held by Pillar Point Partners, together with their
foreign counterparts, be deemed unenforceable and/or be licensed to
Autonomous.
Seriani Litigation
On October 26, 1992, Joseph Seriani brought suit against Lens Express,
Inc. ("Lens") and certain of its former shareholders in the Florida
Circuit Court. The suit alleges violations of the Florida Civil
Remedies for Criminal Practices Act - the Florida civil RICO statute -
based on events which allegedly occurred in the mid-1980's. Seriani's
claims against Lens have been dismissed several times for failure to
state a viable claim, but in each instance with leave to amend and
refile. On May 15, 1996, the date of the Company's acquisition of Lens,
Seriani and his wife Rhonda Seriani filed, but have yet to serve on the
Company, an amended complaint which includes the Company as an
additional defendant. The amended Seriani complaint alleges, among
other things, that the Company is liable for the alleged actions of the
other defendants by virtue of its acquisition of Lens. The amended
Seriani complaint seeks damages of an unspecified amount, treble
damages and attorneys' fees. Lens' current motion to dismiss the suit
is presently pending. The Company believes the Serianis' suit against
the Company and Lens is without merit and intends to contest it
vigorously.
11
<PAGE> 12
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shareholder Securities Law Class Action Litigation
Between August 2, 1996 and October 8, 1996, fourteen actions were commenced
against the Company and, in some instances, against certain of its officers in
the United States District Court for the District of Massachusetts. The actions
are the following:
Pearl v. Summit Technology, Inc. et al., Civil Action
-----------------------------------------------------
No. 96-11589-JLT
----------------
Locke et al. v. Summit Technology, Inc. et al., Civil Action
------------------------------------------------------------
No. 96-11633-JLT
----------------
Kaliser et al. v. Summit Technology, Inc. et al., Civil Action
--------------------------------------------------------------
No. 96-11647-JLT
----------------
Kleiman v. Summit Technology, Inc. et al., Civil Action
-------------------------------------------------------
No. 96-11648-JLT
----------------
Raphael v. Summit Technology, Inc. et al., Civil Action
-------------------------------------------------------
No. 96-11664-JLT
Grover v. Summit Technology, Inc. et al., Civil Action
------------------------------------------------------
No. 96-11731-JLT
----------------
Shear et al. v. Summit Technology, Inc. et al., Civil Action
------------------------------------------------------------
No. 96-11747-JLT
----------------
Kaye v. Summit Technology, Inc., et al., Civil Action
-----------------------------------------------------
No. 96-11809-JLT
----------------
Markewich et al. v. Summit Technology, Inc., et al., Civil Action
-----------------------------------------------------------------
No. 96-11845-JLT
----------------
Teachers' Retirement System of Louisiana v. Summit Technology, Inc.,
--------------------------------------------------------------------
et al.,
-------
Civil Action No. 96-11899 JLT
-----------------------------
Hyman v. Summit Technology, Inc., et al., Civil Action
No. 96-11976-JLT
----------------------------------------
Aitken, et al. v. Summit Technology, Inc., et al., Civil Action
------------------------------------------
No. 96-11977-JLT
Wallander v. Summit Technology, Inc., et al., Civil Action
------------------------------------
No. 96-12031-JLT
Merlino v. Summit Technology, Inc., et al., Civil Action
------------------------------------------
No. 96-12044-JLT
Plaintiffs in these actions claim to have been purchasers of the Company's
common stock at various times between August, 1995 and July, 1996. Plaintiffs
claim violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 arising out of allegedly false and misleading public statements made by
the Company or its officers which plaintiffs allege artificially inflated the
market price of the Company's stock. Plaintiffs claim that these public
statements made material misrepresentations of fact, or failed to disclose
material information necessary to make statements made not misleading,
concerning a wide variety of matters -- including, for example, the alleged
inflation of the Company's publicly reported revenues and earnings through the
sale of laser systems for uses beyond FDA approval, the alleged obtaining of
FDA approval for
12
<PAGE> 13
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Company's Excimer System on the basis of flawed clinical data, the
alleged adverse side effects of use of the Company's laser products,
the alleged size of the market for LVC systems and procedures in the
United States, the alleged competitive position (including cost,
quality and safety) of the Company's Excimer System compared with
excimer systems under development or sold by competitors, and the
alleged position of LVC procedures compared with competitive procedures
for vision correction. Among the statements which plaintiffs claim to
have been misleading or to have unlawfully omitted material information
are statements contained in a number of the Company's filings with the
SEC pursuant to the reporting and other requirements of the Securities
Exchange Act of 1934 or other provisions of federal securities laws.
In addition, in one action plaintiff claims violations of Section 20A
of the Securities Exchange Act of 1934 by certain officers of the
Company due to sales of common stock of the Company while allegedly in
the possession of material non-public information.
The Company expects that all of these actions will be consolidated by
the Court. If the cases are consolidated, the Company expects that
plaintiffs will file a single consolidated complaint which may restate,
modify, delete, or supplement the claims asserted in the nine
individual actions.
Plaintiffs seek certification of these actions as class actions,
purportedly on behalf of all purchasers of the Company's common stock,
other than defendants, during certain periods of time beginning as
early as March 31, 1995 and running through July 4, 1996 in the case of
claims under Sections 10(b) and 20(a) and for the period of time
between November 30, 1995 and May 10, 1996 in the case of claims under
Section 20A. Plaintiffs seek unspecified damages, interest, costs and
expenses.
On October 1, 1996, an additional action was commenced against the
Company, certain of its officers and directors and the four
underwriters to the Company's October 1995 stock offering. The action
is captioned:
Burke v. Summit Technology, Inc., et al., Civil Action No. 96-11969 JLT
-----------------------------------------------------------------------
The plaintiff in the action claims to have purchased shares of the
Company's common stock pursuant to the Company's Registration Statement
on Form S-3 dated October 23, 1995, and declared effective by the
Securities and Exchange Commission on or about October 24, 1995 (the
"October Registration Statement"). He claims violations of Sections 11,
12(2) and 15 of the Securities Act of 1933 arising out of alleged
material misstatements of fact in the October Registration Statement or
failures to disclose
13
<PAGE> 14
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
material information necessary to make statements made in the
Registration Statement not misleading. He claims misrepresentations or
omissions concerning a wide variety of matters -- including, for
example, the alleged obtaining of FDA approval for the Company's
Excimer System on the basis of flawed clinical data, the alleged
adverse side effects of use of the Company's laser products, the
alleged scope of FDA approval of the Company's Excimer System and its
applicability to the Company's products, the alleged sale by the
Company of its products in contravention of FDA regulations and alleged
royalty payments owed by the Company.
The Company expects that this action will be coordinated with the ten
actions alleging violations of Sections 10(b) and 20(a) by the Court.
The plaintiff seeks certification of the action as a class action,
purportedly on behalf of all purchasers of the Company's common stock
pursuant to the October Registration Statement, other than defendants,
members of the Company's Board of Directors, members of the immediate
family of each of the individual defendants, and any entity in which
any defendant has a controlling interest or which is affiliated with
any of the defendants, and the legal representatives, heirs,
successors-in-interest or assigns of any such excluded party.
The Company believes that the allegations in these complaints are
without merit, and it intends to defend the actions vigorously. There
can be no assurance that the Company will not be served with additional
complaints of a similar nature in the future, that the Company will
ultimately prevail in the pending or any further actions, or that the
actions, individually or in the aggregate, will not have a material
adverse effect on the Company.
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 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.
14
<PAGE> 15
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
The Company's current strategy is to become an 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; (iii)
operating vision correction centers; and (iv) selling contact lenses
and related products. 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. The Company is evaluating
its operations and strategies, which may result in the total or partial
disposition of one or more of the Company's businesses, or the
acquisition by the Company of one or more additional businesses.
RESULTS OF OPERATIONS
1996 as compared with 1995
Revenues
Revenues for the three months ended September 30, 1996 decreased 23 %
to $21.0 million from $27.3 million for the three months ended
September 30, 1995. Revenues for the nine months ended September 30,
1996 decreased 8% to $64.4 million from $69.7 million for the nine
months ended September 30, 1995. These decreases were primarily
attributable to lower sales of laser systems. These decreases were
offset in part by an increase in per procedure royalties. During the
nine months ended September 30, 1996, the Company also introduced
several per procedure leasing programs, revenue from which will be
recognized over the lease term. At the end of the quarter, the Company
had 19 Vision Correction Centers (of which 14 were open at the
beginning of the quarter) in operation which had revenues of $1.0
million.
15
<PAGE> 16
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
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, a decrease
in U.S. demand for the Company's 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 1996 has resulted in increased
competition that has negatively impacted laser system sales.
Cost of revenues
Cost of revenues as a percentage of revenues for the three months ended
September 30, 1996 increased to 75 % from 64% for the three months
ended September 30, 1995. Cost of revenues as a percentage of revenues
for the nine months ended September 30, 1996 increased to 76% from 66%
for the nine months ended September 30, 1995. The increase in cost of
revenues as a percentage of revenues was attributable to unabsorbed
fixed overheads due to lower sales of laser systems, lower average
selling price of laser systems, and costs incurred in connection with
the Company's U.S. vision correction centers. These increases were
partially offset by lower cost of revenues as a percentage of revenues
associated with per procedure royalties.
Operating Expenses
Operating expenses for the three months ended September 30, 1996
increased 9% to $10.0 million from $9.3 million for the three months
ended September 30, 1995. Operating expenses for the nine months ended
September 30, 1996 increased 42% to $37.9 million from $26.6 million
for the nine months ended September 30, 1995. The increases are
primarily related to costs incurred in connection with the Company's
U.S. vision correction centers, one-time costs incurred in category
development consumer advertising and legal expenses. In addition, in
the second quarter, the Company had one-time costs incurred in the
acquisition of Lens Express, Inc. These increases are offset in part
by the Schwind settlement (see footnote 6 to the Consolidated
Financial Statements) of $800,000 which has been accounted for as a
reduction of operating expenses in the third quarter of 1996.
16
<PAGE> 17
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
Net Income (Loss)
Net loss for the three months ended September 30, 1996 was $3.9
million. Net income for the three months ended September 30, 1995 was
$.5 million. Net loss for the nine months ended September 30, 1996 was
$19.5 million compared to a net loss for the nine months ended
September 30, 1995 of $3.5 million. The increases in net loss were
primarily due to lower revenues and higher operating expenses. The
Company does not expect to achieve profitability in the fourth quarter
of 1996.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity requirements have been met through external
financing. As of September 30, 1996, the Company's cash, cash
equivalent balances and short-term investments decreased $19.5 million
to $76.7 million from $96.2 million as of December 31, 1995. Cash used
by operations of $19.5 million resulted primarily from the net
operating loss of $19.5 million. In addition, accounts receivable
decreased $7.8 million and inventory increased $4.6 million.
Cash used by investing activities of $18.1 million resulted primarily
from an increase of $6.5 million in short and long-term investments,
additions to property and equipment of $11.3 million and an increase in
other assets of $.3 million.
Cash provided by financing activities of $12.6 million resulted from
net proceeds of long-term debt obligations of $12.1 million and
proceeds from the exercise of stock options of $.5 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. There have been no borrowings under this facility. Also in March
1996, 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. At
September 30, 1996, $16.3 million of borrowings were outstanding under
this facility.
17
<PAGE> 18
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
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 from manufacturing, selling or using
its Keracor 116 ophthalmic excimer laser systems in Germany, where its
production facility is located. Chiron Technolas and Schwind appealed
the judgment. On October 17, 1996, Schwind agreed to dismiss its appeal
and pay the Company 1.23 million German marks (approximately $800,000)
in satisfaction of the Company's judgment. If the Chiron Technolas
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
non-current assets as restricted cash of $1.5 million at September 30,
1996.
18
<PAGE> 19
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
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 in 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 has issued subpoenas to the Company and others (including one
officer of the Company and David F. Muller, the Company's former
Chairman and Chief Executive Officer) for testimony and 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
19
<PAGE> 20
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
Antitrust Litigation
In June 1996, a Texas ophthalmologist, Robert G. Burlingame, sued
Pillar Point, VISX, the Company and certain affiliates of VISX and the
Company in the Federal District Court for the Northern District of
California alleging that the defendants have violated and are violating
federal and state antitrust laws. The plaintiff seeks damages of an
unspecified amount, treble damages, attorneys' fees and a permanent
injunction against future violations. On September 5, 1996, a Nevada
ophthalmologist, John R. Shepard, through his professional corporation,
commenced a similar lawsuit against the same parties, in the same
Court, alleging substantially similar claims and seeking substantially
similar relief.
Pillar Point Partners Patent 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.
Pillar Point Partners has also commenced patent infringement litigation
against certain ophthalmologists believed to be using homemade laser
systems not licensed under patents held by Pillar Point Partners, as
well as an individual believed to be inducing infringement of such
patents. In one such action, the defendants have asserted a
counterclaim seeking a declaration that the patents in suit are
invalid. In addition, the Company is pursuing litigation against
certain other parties engaged in similar activities, including an
importer, a service provider and certain other ophthalmologists, some
of whom have asserted antitrust and other counterclaims against the
Company.
In October, 1996, Autonomous Technologies Corporation ("Autonomous")
sued Pillar Point Partners, the Company and VISX (and certain
affiliates of the Company and VISX) in the Federal District Court for
Delaware. In this action, Autonomous seeks, inter alia, a declaratory
judgment that it does not infringe a certain United States Patent held
exclusively by Pillar Point Partners, or, alternatively, a judgment
ordering that all U.S. patents held by Pillar Point Partners, together
with their foreign counterparts, be deemed enforceable and/or be
licensed to Autonomous.
20
<PAGE> 21
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
Seriani Litigation
On October 26, 1992, Joseph Seriani brought suit against Lens Express,
Inc. ("Lens") and certain of its former shareholders in the Florida
Circuit Court. The suit alleges violations of the Florida Civil
Remedies for Criminal Practices Act - the Florida civil RICO statute -
based on events which allegedly occurred in the mid-1980's. Seriani's
claims against Lens have been dismissed several times for failure to
state a viable claim, but in each instance with leave to amend and
refile. On May 15, 1996, the date of the Company's acquisition of Lens,
Seriani and his wife Rhonda Seriani filed, but have yet to serve on the
Company, an amended complaint which includes the Company as an
additional defendant. The amended Seriani complaint alleges, among
other things, that the Company is liable for the alleged actions of the
other defendants by virtue of its acquisition of Lens. The amended
Seriani complaint seeks damages of an unspecified amount, treble
damages and attorneys' fees. Lens' current motion to dismiss the suit
is presently pending. The Company believes the Serianis' suit against
the Company and Lens is without merit and intends to contest it
vigorously.
Shareholder Securities Law Class Action Litigation
Between August 2, 1996 and October 8, 1996, fourteen actions were
commenced against the Company and, in some instances, against certain
of its officers in the United States District Court for the District of
Massachusetts. The actions are the following:
Pearl v. Summit Technology, Inc. et al., Civil Action
-----------------------------------------------------
No. 96-11589-JLT
-----------------
Locke et al. v. Summit Technology, Inc. et al., Civil
-----------------------------------------------------
Action No. 96-11633-JLT
-----------------------
Kaliser et al. v. Summit Technology, Inc. et al., Civil
-------------------------------------------------------
Action No. 96-11647-JLT
-----------------------
Kleiman v. Summit Technology, Inc. et al., Civil Action
-------------------------------------------------------
No. 96-11648-JLT
----------------
Raphael v. Summit Technology, Inc. et al., Civil Action
-------------------------------------------------------
No. 96-11664-JLT
----------------
Grover v. Summit Technology, Inc. et al., Civil Action
------------------------------------------------------
No. 96-11731-JLT
----------------
Shear et al. v. Summit Technology, Inc. et al., Civil
-----------------------------------------------------
Action No. 96-11747-JLT
-----------------------
Kaye v. Summit Technology, Inc., et al., Civil Action
-----------------------------------------------------
No. 96-11809-JLT
----------------
Markewich et al. v. Summit Technology, Inc., et al.,
----------------------------------------------------
Civil Action No. 96-11845-JLT
-----------------------------
Teachers' Retirement System of Louisiana v. Summit
--------------------------------------------------
Technology, Inc., et al.,
-------------------------
Civil Action No. 96-11899 JLT
Hyman v. Summit Technology, Inc., et al.,
----------------------------------------
Civil Action No. 96-11976-JLT
Aitken, et al. v. Summit Technology, Inc., et al.,
-------------------------------------------------
Civil Action No. 96-11977-JLT
Wallander v. Summit Technology, Inc., et al.,
--------------------------------------------
Civil Action No. 96-12031-JLT
Merlino v. Summit Technology, Inc., et al.,
------------------------------------------
Civil Action No. 96-12044-JLT
Plaintiffs in these actions claim to have been purchasers of the
Company's common stock at various times between August, 1995 and July,
1996. Plaintiffs claim violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 arising out of allegedly false and
misleading public statements made by the Company or its officers
21
<PAGE> 22
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
which plaintiffs allege artificially inflated the market price of the
Company's stock. Plaintiffs claim that these public statements made
material misrepresentations of fact, or failed to disclose material
information necessary to make statements made not misleading,
concerning a wide variety of matters -- including, for example, the
alleged inflation of the Company's publicly reported revenues and
earnings through the sale of laser systems for uses beyond FDA
approval, the alleged obtaining of FDA approval for the Company's
Excimer System on the basis of flawed clinical data, the alleged
adverse side effects of use of the Company's laser products, the
alleged size of the market for LVC systems and procedures in the United
States, the alleged competitive position (including cost, quality and
safety) of the Company's Excimer System compared with excimer systems
under development or sold by competitors, and the alleged position of
LVC procedures compared with competitive procedures for vision
correction. Among the statements which plaintiffs claim to have been
misleading or to have unlawfully omitted material information are
statements contained in a number of the Company's filings with the SEC
pursuant to the reporting and other requirements of the Securities
Exchange Act of 1934 or other provisions of federal securities laws.
In addition, in one action plaintiff claims violations of Section 20A
of the Securities Exchange Act of 1934 by certain officers of the
Company due to sales of common stock of the Company while allegedly in
the possession of material non-public information.
The Company expects that all of these actions will be consolidated by
the Court. If the cases are consolidated, the Company expects that
plaintiffs will file a single consolidated complaint which may restate,
modify, delete, or supplement the claims asserted in the nine
individual actions.
Plaintiffs seek certification of these actions as class actions,
purportedly on behalf of all purchasers of the Company's common stock,
other than defendants, during certain periods of time beginning as
early as March 31, 1995 and running through July 4, 1996 in the case of
claims under Sections 10(b) and 20(a) and for the period of time
between November 30, 1995 and May 10, 1996 in the case of claims under
Section 20A. Plaintiffs seek unspecified damages, interest, costs and
expenses.
On October 1, 1996, an additional action was commenced against the
Company, certain of its officers and directors and the four
underwriters to the Company's October 1995 stock offering. The action
is captioned:
22
<PAGE> 23
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
Burke v. Summit Technology, Inc., et al., Civil Action No. 96-11969 JLT
-----------------------------------------------------------------------
The plaintiff in the action claims to have purchased shares of the
Company's common stock pursuant to the Company's Registration Statement
on Form S-3 dated October 23, 1995, and declared effective by the
Securities and Exchange Commission on or about October 24, 1995 (the
"October Registration Statement"). He claims violations of Sections 11,
12(2) and 15 of the Securities Act of 1933 arising out of alleged
material misstatements of fact in the October Registration Statement or
failures to disclose material information necessary to make statements
made in the Registration Statement not misleading. He claims
misrepresentations or omissions concerning a wide variety of matters --
including, for example, the alleged obtaining of FDA approval for the
Company's Excimer System on the basis of flawed clinical data, the
alleged adverse side effects of use of the Company's laser products,
the alleged scope of FDA approval of the Company's Excimer System and
its applicability to the Company's products, the alleged sale by the
Company of its products in contravention of FDA regulations and alleged
royalty payments owed by the Company.
The Company expects that this action will be coordinated with the ten
actions alleging violations of Sections 10(b) and 20(a) by the Court.
The plaintiff seeks certification of the action as a class action,
purportedly on behalf of all purchasers of the Company's common stock
pursuant to the October Registration Statement, other than defendants,
members of the Company's Board of Directors, members of the immediate
family of each of the individual defendants, and any entity in which
any defendant has a controlling interest or which is affiliated with
any of the defendants, and the legal representatives, heirs,
successors-in-interest or assigns of any such excluded party.
The Company believes that the allegations in these complaints are
without merit, and it intends to defend the actions vigorously. There
can be no assurance that the Company will not be served with additional
complaints of a similar nature in the future, that the Company will
ultimately prevail in the pending or any further actions, or that the
actions, individually or in the aggregate, will not have a material
adverse effect on the Company.
23
<PAGE> 24
PART II: OTHER INFORMATION
ITEM 5: OTHER INFORMATION
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
-----------------
On September 5, 1996, David F. Muller, the Company's Chairman and
Chief Executive Officer, was terminated from all positions with the
Company and its subsidiaries. D. Verne Sharma, the Company's
President, was elected interim Chief Executive Officer. There can be
no assurance that disputes will not arise between Dr. Muller and the
Company relating to his termination or that, if such disputes were to
occur, they could be resolved without litigation.
On October 7, 1996, the Company's Registration Statement No. 333-03765
dated October 3, 1996 was declared effective by the Securities
Exchange Commision. The information contained in such Registration
Statement, which is on file with the Securities Exchange Commision, is
incorporated herein by reference.
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. Exhibits
--------
11 Statement Re: Computation of per share earnings
99 The Company's Registration Statement No. 33-03765 dated October
3, 1996*
*On file with the Securities Exchange Commission and incorporated herein by
reference.
24
<PAGE> 25
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
b. Reports on Form 8-K
-------------------
On May 24, 1996, the Company filed a Form 8-K related to its
acquisition of Lens Express, Inc. for 1,708,500 shares of the
Company's common stock. On July 31, 1996, the Company filed an
amendment to this 8-K. On October 16, 1996, the Company filed a Form
8-K disclosing that it had been served with four shareholder actions
in addition to those described in its Registration Statement on Form
S-3 (No. 333-03765).
Cautionary Statement under "Safe Harbor" Provisions of the Securities
- ---------------------------------------------------------------------
Litigation Reform Act of 1995
- -----------------------------
Statements made in this report may contain information about the
Company's future business prospects. Some of these statements may be
considered "forward looking". These statements are subject to risks and
uncertainties that could cause actual results to differ materially from
those set forth in or implied by such forward-looking statements. For
further information regarding cautionary statements and factors
affecting future operating results, please refer to Summit's annual
report on Form 10-K for the year ended December 31, 1995 and its
Registration Statement No. 333-03765 dated October 3, 1996 on file with
the Securities Exchange Commission.
25
<PAGE> 26
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:
--------------- ----------------------------
D. Verne Sharma
President and Chief Executive Officer
Date: By:
--------------- ----------------------------
Rajiv Bhatt
Executive Vice President and
Chief Financial Officer
26
<PAGE> 1
Exhibit 11
SUMMIT TECHNOLOGY, INC.
<TABLE>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT 1996 1995 1996 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(3,941) $ 536 $(19,475) $(3,511)
Primary income (loss) per share:
Common Stock 30,963 26,959 30,950 26,936
Stock Options - 389 - -
------- ------- -------- -------
Weighted average common shares outstanding 30,963 27,348 30,950 26,936
------- ------- -------- -------
Income (loss) per share $ (.13) $ .02 $ (.63) $ (.13)
------- ------- -------- -------
Fully diluted income (loss) per share:
Common Stock 30,963 26,957 30,950 26,936
Stock Options - 392 - -
------- ------- -------- -------
Weighted average common shares outstanding 30,963 27,349 30,950 26,936
------- ------- -------- -------
Income (loss) per share $ (.13) $ .02 $ (.63) $ (.13)
------- ------- -------- -------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 49,626
<SECURITIES> 27,077
<RECEIVABLES> 9,465
<ALLOWANCES> 707
<INVENTORY> 20,265
<CURRENT-ASSETS> 111,698
<PP&E> 27,970
<DEPRECIATION> 9,851
<TOTAL-ASSETS> 153,919
<CURRENT-LIABILITIES> 22,966
<BONDS> 11,630
<COMMON> 0
0
310
<OTHER-SE> 118,943
<TOTAL-LIABILITY-AND-EQUITY> 153,919
<SALES> 64,411
<TOTAL-REVENUES> 0
<CGS> 49,083
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 37,908
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,303
<INCOME-PRETAX> (19,475)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,475)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> (.63)
</TABLE>
