<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, 1997
-------------------------------------------------
Commission File Number: 0-16937
---------------------------------------------------------
Summit Technology, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2897945
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 Hickory Drive Waltham, MA 02154
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(Address of principal executive offices) (Zip Code)
617-890-1234
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
On March 31, 1997, 31,022,335 shares of common stock, par value $.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) 1997 1996
- ------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,019 $ 44,013
Short-term investments 29,675 19,393
Accounts receivable, net 8,664 8,553
Inventories, net 16,084 15,848
Prepaid expenses and other current assets 1,511 2,121
Due from related party 1,960 1,726
Restricted cash 1,364 1,502
Notes receivable from officers 101 101
-------- ---------
Total current assets 101,378 93,257
-------- ---------
Long-term investments 296 8,718
Property and equipment, net 9,402 9,381
Patents, net 6,546 6,747
Other assets, net 520 529
Net assets held for discontinued operations 13,592 15,028
-------- ---------
Total assets $131,734 $ 133,660
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,100 $ 3,771
Accrued expenses 6,044 5,974
Current maturities of long-term debt 5,218 5,246
Deferred revenue 3,797 3,634
Due to related party 1,686 1,547
-------- ---------
Total current liabilities 20,845 20,172
Long-term debt, less current maturities 10,187 11,472
Deferred taxes 69 69
Stockholders' equity:
Common stock, $.01 par value. Authorized 60,000,000
shares; Issued 31,028,460 shares in 1997
and 31,024,709 in 1996 311 311
Additional paid-in capital 171,068 170,983
Accumulated deficit (70,586) (69,187)
-------- ---------
100,793 102,107
Treasury stock, at cost, 6,125 shares in 1997 and
1996 (160) (160)
-------- ---------
Total stockholders' equity 100,633 101,947
-------- ---------
Total liabilities and stockholders' equity $131,734 $ 133,660
======== =========
</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>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
- --------------------------------------------------------------------------------
<CAPTION>
Three Months
Ended March 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Net revenues $20,699 $25,158
Cost of revenues 13,812 17,096
------- -------
Gross profit 6,887 8,062
Operating Expenses:
Selling, general and
administrative expenses 4,968 7,257
Research and development expenses 1,723 1,384
Legal expenses 2,000 697
------- -------
Total operating expenses 8,691 9,338
Operating loss from
continuing operations (1,804) (1,276)
------- -------
Other income 495 1,309
------- -------
Net (loss) income from
continuing operations before
provision for income taxes (1,309) 33
Provision for income taxes (91) (117)
------- -------
Net loss from
continuing operations (1,400) (84)
Loss from discontinued operations -- (3,470)
------- -------
Net loss $(1,400) $(3,554)
======= =======
Loss per share from
continuing operations (.05) --
Loss per share from discontinued
operations -- (.11)
------- -------
Net loss per share $ (.05) $ (.11)
======= =======
Weighted average number of
common shares outstanding 31,020 30,945
======= =======
</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>
THREE MONTHS
CONSOLIDATED STATEMENTS OF CASH FLOWS ENDED MARCH 31,
(IN THOUSANDS; UNAUDITED) 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows used by operating activities:
Net loss $ (1,400) $ (3,554)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,105 731
Bad debt recovery (154) (198)
Changes in operating assets and liabilities:
Accounts receivable, net 42 (206)
Inventories, net (236) (2,331)
Prepaid expenses and other current assets 610 (751)
Accounts payable 328 (828)
Accrued expenses 70 1,033
Deferred revenue 163 (620)
Related party, net (92) (365)
Discontinued operations 1,054 969
-------- --------
Net cash provided (used) by operating activities 1,490 (6,120)
-------- --------
Cash flows from investing activities:
Increase in short-term investments (10,282) (19,521)
Decrease (increase) in long-term investments 8,422 (1,956)
Additions to property and equipment (917) (961)
Decrease in restricted cash 139 24
Other -- 80
Net cash invested in discontinued operations -- (2,901)
-------- --------
Net cash used by investing activities (2,638) (25,235)
-------- --------
Cash flows from financing activities:
Net proceeds (repayments) of long-term debt (1,313) 17,686
Proceeds from exercise of stock options 86 444
Cash used by discontinued operations -- (75)
-------- --------
Net cash provided (used) by financing activities (1,227) 18,055
-------- --------
Decrease in cash and cash equivalents (2,375) (13,300)
Cash and cash equivalents at beginning of period 44,013 74,303
-------- --------
Cash and cash equivalents at end of period $ 41,638 $ 61,003
======== ========
Supplemental cash flow information:
Interest paid $ 378 $ 87
======== ========
Income taxes paid $ 59 $ 22
======== ========
</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 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, Lens Express, Inc., the Company sells contact
lenses and related products.
The Company has sold its vision correction centers in the U.K. and is
divesting its U.S. Vision Center Business, owned and operated by the
Company's wholly-owned subsidiary, Refractive Centers International, Inc.
("RCII"). RCII was previously recorded as a business segment and has been
reported as a discontinued operation.
(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, 1997 and the results of operations and cash flows for the
three month periods ended March 31, 1997 and 1996.
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, 1996. The results of operations for the three
month period ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year.
Net Loss Per Share
------------------
Net loss per common share is based on the weighted average number of common
shares outstanding during each year.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standards No. 128 Earnings Per Share
("Statement 128"). Statement 128 replaces the presentation of primary
earnings per share ("EPS") and fully diluted EPS with basic EPS and diluted
EPS, respectively. Statement 128 is effective for both interim and annual
periods ending after December 15, 1997 and once implemented will require
restatement of all prior EPS data to conform with Statement 128. This
restatement will not be material.
-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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(3) Inventories (in thousands)
--------------------------
<TABLE>
Inventories consist of the following:
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials and
subassemblies (net) $ 1,119 $ 2,243
Work in process 868 728
Finished goods 14,097 12,877
------- -------
$16,084 $15,848
======= =======
</TABLE>
(4) Reclassifications and Restatement
---------------------------------
Certain reclassifications were made to the 1996 Consolidated Financial
Statements to conform to the 1997 presentation. The prior years Consolidated
Financial Statements have been restated to reflect the accounts of Lens Express,
Inc., which the Company acquired in May of 1996 and has been accounted for as a
pooling of interests. The Company is divesting its Vision Center Business owned
and operated by RCII. Accordingly, the results of operations for this business
have been classified as discontinued operations for all periods presented in the
consolidated statements of operations.
(5) Discontinued Operation
----------------------
On January 30, 1997, the Company publicly announced its plan to discontinue its
Vision Center Business owned and operated by RCII. The Company anticipates that
the business will be disposed of by July, 1997. Accordingly, the results of
operations for this business have been classified as discontinued operations for
all periods presented in the consolidated financial statements.
(6) Contingencies
-------------
U.S. Patent Litigation against VISX
In 1993, the Company purchased certain U.S. and foreign patents for an aggregate
purchase price, including acquisition costs, of $5.1 million in cash and 50,000
shares of Common Stock. One of these patents is the Azema Patent. As required by
the terms of the governing agreements, the Company offered Pillar Point Partners
the opportunity to acquire exclusive rights under the Azema Patent, but Pillar
Point Partners declined. On August 29, 1995, the Company filed suit in the U.S.
District Court for the District of Delaware against VISX for infringement of the
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 and on March 3, 1997, VISX
moved for Summary Judgment. The Court has scheduled a trial, if necessary, for
July 21, 1997. There can be no assurance that the Company will prevail in this
proceeding.
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<PAGE> 7
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
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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 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.
The Chiron Technolas appeal was recently decided in favor of the Company. Chiron
Technolas may appeal further to the German Supreme Court. If the Chiron
Technolas appeal is decided against the Company, the infringement verdict in
Germany will be overturned and the Company 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 $1.4 million at March 31, 1997.
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 U.S. 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 Patent Litigation
The Company is aware that certain U.S. ophthalmologists are performing
refractive procedures with so-called homemade excimer lasers or with gray
market Company excimer systems acquired from overseas. Although these homemade
and gray market systems have not received PMA approval and have been declared
illegal by the FDA, the FDA's enforcement efforts to date have been limited to
issuing warning letters and to inviting all manufacturers and users of these
unapproved lasers to submit clinical study protocols to the FDA. However, to
the best of the Company's knowledge, no user or manufacturer of an unapproved
laser has been the subject of an FDA enforcement action, and such users
continue to use their devices without significant restriction. These systems
have not been determined to be safe or effective by the FDA, and are
apparently unregulated. Users have not been limited either to the amount of
refractive correction they can perform, or to the scope of advertising they can
use to
-7-
<PAGE> 8
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
encourage consumers to have the procedure. As a consequence, doctors in the
United States who purchase an approved system may be put at a commercial
disadvantage. Moreover, users of unapproved systems are not licensed under the
Pillar Point Patents, and have not been paying procedure royalties. Pillar Point
continues to spend significant amounts of money in litigation with certain users
of this equipment. The proliferation of these unapproved devices may negatively
impact the Company's business, financial position and results of operations
through loss of sales to unapproved lasers, loss of patent royalty revenues and
the potential damage to the industry, at this early stage, posed by these
unapproved devices.
Pillar Point Partners has 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 one alleged
manufacturer of such laser systems and an individual believed to be inducing
infringement of such patents. These actions are presently pending as Pillar
Point Partners, et al. v. David Dulaney, et al. (U.S. District Court, District
of Arizona, Civil Action No. 96-2051PHXPGR); Pillar Point Partners, et al. v.
Jon G. Dishler, et al. (U.S. District Court, District of Colorado, Civil Action
No. 96-N-2351); Pillar Point Partners, et al. v. Jui-Teng Lin, et al. (U.S.
District Court, Middle District of Florida, Civil Action No. 97-54-CV-ORL-22);
and Pillar Point Partners, et al. v. William D. Appler (U.S. District Court,
District of Columbia, Civil Action No. 1:96CV02082). The defendants in the
Barnet and Dishler actions have asserted counterclaims seeking declarations that
the patents in suit are invalid and unenforceable. Those defendants have also
raised antitrust counterclaims. 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.
VISX Royalty Action
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. The Company denies
these allegations and intends to contest them vigorously. However, there can be
no assurance that the lawsuit will be resolved in the Company's favor or that an
adverse judgment or settlement would not have a material adverse affect on the
results of operations of the Company in the period in which it occurs.
-8-
<PAGE> 9
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
FTC Investigation
On October 13, 1995, the Company received notice that the FTC initiated an
investigation to determine whether Pillar Point Partners, VISX, the Company or
any of their predecessors, alone or in conjunction with others, is engaging or
has engaged in any unfair methods of competition in violation of the Federal
Trade Commission Act, relating to certain arrangements concerning patents on
devices and procedures, and or/practices relating to the sale or distribution of
certain ophthalmic surgical devices. The FTC 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 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 conclude that Pillar Point Partners complies with 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,
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. Shepherd, 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 has stated that it believes the California
lawsuits are without merit and is contesting the suits vigorously.
Seriani Litigation
On October 26, 1992, Joseph Seriani brought suit against Lens and certain of its
former shareholders in the Florida Circuit Court. The suit alleged violations of
the Florida Civil Remedies for Criminal Practices Act - the Florida civil RICO
statute - based on events which allegedly occurred in the mid-1980s. Seriani's
claims against Lens were dismissed several times for failure to state a viable
claim, but in each instance with leave to amend and refile.
-9-
<PAGE> 10
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
On May 15, 1996, the date of the Company's acquisition of Lens, Seriani and his
wife Rhonda Seriani filed an amended complaint which included the Company as an
additional defendant. On November 25, 1996, the Serianis' voluntarily dismissed
their action against the Company and on March 7, 1997 voluntarily dismissed
their action against the remaining defendants, in each case without prejudice.
On March 24, 1997, the Seriani's commenced a new lawsuit against Lens and others
in the United States District Court for the Southern District of Illinois,
alleging substantially similar claims. The Company believes that the Serianis'
suits against the Company and Lens are and were without merit.
Vernon Litigation
On or about March 23, 1994, a former Lens employee filed a charge of
discrimination against Lens with the Equal Employment Opportunity Commission,
alleging sexual discrimination and harassment by certain co-employees, and
retaliation against her by Lens when she was terminated after making the claim.
After an investigation, the EEOC's Legal Department concluded that no probable
cause existed. On or about February 1, 1996, the former employee sued Lens and
two Lens managers in the United States District Court for the Southern District
of Florida, alleging sexual harassment and other state and federal charges and
seeking unspecified compensatory and punitive damages. All defendants have
denied the allegations. Subsequently, other present or former employees have
made similar allegations, and one has indicated that she intends to file suit.
While Lens believes the claims to be without merit, there can be no assurance
that it will prevail in this litigation. Lens cannot predict the range of
possible compensatory damages, if any, or whether punitive damages may be
assessed.
Shareholder Actions
Between August, 1996 and October, 1996, fourteen shareholder actions were
commenced against the Company and certain of its officers in the United States
District Court for the District of Massachusetts. The actions were consolidated,
by order of the Court entered December 2, 1996, as In re Summit Technology
Securities Litigation, Civil Action No. 96-11589-JCT (the "Exchange Act
Action"). Plaintiffs filed a First Amended and Consolidated Class Action
Complaint (the "Complaint") on January 10, 1997.
In the Complaint, plaintiffs claim to have been purchasers of the Company's
Common Stock at various times between May, 1995 and June, 1996. They claim
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
arising out of public statements made by the Company or its officers. Plaintiffs
allege that the statements made material misrepresentations of fact, or failed
to disclose material information necessary to make statements made not
misleading, concerning a variety of matters -- including, for example, alleged
sale of laser systems in contravention of FDA regulations, alleged patent
royalty payments owed by the Company, alleged defects in the manner by which the
Company obtained FDA approval for the Company's Excimer System, alleged adverse
side effects of use of the Company's laser systems, alleged size of the market
for Laser Vision Correction systems and procedures in the U.S., alleged
competitive position of the Company's Excimer System compared with excimer
systems under development or sold by competitors, and an alleged "write-off"
arising from the acquisition of Lens Express, Inc. Among the statements which
plaintiffs claim to have been misleading or to have unlawfully omitted
-10-
<PAGE> 11
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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 the Securities Act of 1933. Such filings
include:
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994
The Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1995
The Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995
The Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995
The Company's Registration Statement on Form S-3 and Prospectus dated
October 23, 1995
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995
In addition, plaintiffs claim violations of Section 20A of the Securities
Exchange Act of 1934 by certain officers of the Company due to alleged sales of
Common Stock of the Company while in the possession of material non-public
information.
Plaintiffs seek certification of the Exchange Act Action as a class action,
purportedly on behalf of all purchasers of the Company's Common Stock, other
than defendants and certain affiliated persons and entities, between March 31,
1995 and July 3, 1996. Plaintiffs seek unspecified damages, interest, costs and
expenses.
On October 1, 1996, an additional action was commenced in the United Sates
District Court for the District of Massachusetts against the Company, its
directors, certain of its officers and the four underwriters of the Company's
October, 1995 Common Stock offering. The action was coordinated with In re
Summit Technology Securities Litigation, Civil Action No. 96-11589, by order of
the Court dated December 2, 1996 and is presently pending as In re Summit
Technology Securities Litigation (the Burke Action), Civil Action No. 96-11589
(the "Burke Action"). Plaintiff filed an Amended Complaint (the "Amended
Complaint") on January 10, 1997.
In the Amended Complaint, plaintiff 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 October Registration Statement not misleading. He
claims misrepresentations or omissions concerning a variety of matters --
including, for example, alleged adverse side effects of use of the Company's
laser products, alleged sale by the Company of its products in contravention of
FDA regulations and alleged royalty payments owed by the Company. The Amended
Complaint
-11-
<PAGE> 12
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
seeks unspecified damages, interest, costs and expenses. The plaintiff seeks
certification of the Burke 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 and certain affiliated persons and
entities.
On February 27, 1997, the Company moved to dismiss the Exchange Act Action and
the Burke Action for failure to state a claim on which relief could be granted.
The Court conducted a hearing on the motions on May 5, 1997 but has not yet
issued a ruling.
The Company believes that the allegations in the Exchange Act Action and the
Burke Action 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 possible additional actions, or that the actions,
individually or in the aggregate, will not have a material adverse effect on the
Company.
On December 20, 1996, a shareholder of the Company filed in the United States
District Court for the District of Massachusetts a derivative action,
purportedly on behalf of the Company, against the Company as nominal defendant,
its directors and certain of its present or former officers. This action is
presently pending as West v. Muller, et al, Civil Action No. 96-12576-JLT (the
"Derivative Action"). The complaint in the Derivative Action alleges that the
defendant directors and officers caused the Company to make public statements,
in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and of Sections 11 and 12 of the Securities Act of 1933, which contained
material misrepresentations of fact or which failed to disclose material
information necessary to make the statements made not misleading. It alleges
that this conduct has rendered the Company liable to the plaintiffs in, and has
exposed the Company to the expense and inconvenience of defending, the Exchange
Act Action and the Burke Action and has harmed the Company's reputation, thereby
limiting its access to capital markets. The complaint further alleges that the
defendant directors and officers improperly traded in the Company's Common Stock
based upon material non-public information. The complaint seeks recovery from
the defendant directors and officers, in an unspecified amount, for the damages
allegedly caused by their alleged misconduct. The Company has not been served
with the complaint.
Lens Express
In November, 1996, certain former shareholders of Lens (the "Lens Shareholders")
made demand on the Company for rescission of the Company's acquisition of Lens,
asserting that, prior to the acquisition, they had been misled "regarding the
product, markets, operations and financial prospects" of the Company.
Subsequently, the Lens Shareholders withdrew their rescission demand and entered
into settlement discussions with the Company. These discussions are continuing.
However, there can be no assurance that the Lens Shareholders will not renew
their rescission demand or that the matter will be resolved without resort to
litigation. The Company believes the Lens Shareholders' claims to be without
merit.
The Internal Revenue Service has examined the income tax returns of Lens Express
for the years ended June 30, 1994 and June 30, 1995 and has issued a preliminary
assessment disallowing $1.8 million of deductions for the two years. Lens
Express believes that this assessment is without merit and is contesting it
vigorously. The Company has no other income tax examinations pending.
-12-
<PAGE> 13
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-----------------------------------------------------------------------
General
The Company manufactures and sells laser systems and related products to correct
vision disorders, participates in per procedure royalties from its ownership in
Pillar Point Partners and sells contact lenses and related products. The Company
also operates several centers that provide vision correction services to the
public. On January 30, 1997 the Company publicly announced its plan to
discontinue its vision center business. The Company anticipates that the
business will be disposed of by July, 1997. Accordingly, the results of
operations for this business have been classified as discontinued operations for
all periods presented in the consolidated financial statements. The Company is
continuing to evaluate its operations and strategies, which may result in the
acquisition by the Company of one or more additional businesses or the total or
partial disposition of one or more of the Company's businesses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED WITH THREE MONTHS ENDED MARCH 31,
1996
Revenues
Revenues for the first quarter of 1997 decreased 17.7% to $20.7 million from
$25.2 million in the first quarter of 1996. This decrease was primarily
attributable to lower sales of laser systems and a decrease in the average
selling price of laser systems. Sales of contact lenses and related products
also decreased due to lower prices and less advertising. These decreases were
offset in part primarily by an increase in royalty revenue. The Company also
leases its lasers under several leasing programs. Revenue from these leases is
recognized over the lease terms.
Due to the competitive environment and the proliferation of unapproved,
unlicensed laser systems in the U.S., system sales are likely to remain weak and
the Company may continue to experience a decrease in unit sales and the average
selling price of its laser systems in 1997 as compared to 1996.
Patent royalty revenues from Pillar Point Partners increased significantly in
the first quarter of 1997 from the first quarter of 1996. This trend may
continue in 1997 although there are many risks and contingencies that could
adversely affect this trend. Some of these are: (a) consumer and professional
acceptance of laser vision correction fails to grow; (b) licensees fail to
honor their royalty payment obligations; (c) the continued proliferation of
unapproved, unlicensed laser systems in the U.S.; and (d) the Company's rights
to collect such payments and to participate in the profits of Pillar Point
Partners are adversely affected. The Company, VISX and Pillar Point Partners
are involved in several lawsuits with respect to royalties, patent infringement
and related antitrust matters. If any of these matters is resolved adversely to
the Company it may have an adverse effect on the Company's royalty revenues.
-13-
<PAGE> 14
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
-----------------------------------------------------------------------
Cost of revenues
Cost of revenues as a percentage of revenues decreased to 66.7% for the first
quarter of 1997 from 68.0% for the first quarter of 1996. The decrease was
primarily a result of lower cost of revenues as a percentage of revenues
associated with per procedure royalties. This decrease was partially offset by
an increase in cost of revenues as a percentage of revenues attributable to
unabsorbed fixed overheads due to lower sales of laser systems. On February 18,
1997, the Company announced that it received FDA approval to commercially market
and sell its SVS APEX PLUS excimer laser system ("Apex Plus") to treat
nearsightedness. Prior to Apex Plus approval, the Company had FDA approval to
treat nearsightedness only using its Apex excimer laser system ("Apex"). The
Apex Plus has been used outside the U.S. to treat nearsightedness,
farsightedness and astigmatism. The Company does not have approval in the U.S.
to treat farsightedness and astigmatism with the Apex Plus. During the first
quarter of 1997, the Company upgraded several Apex's to Apex Plus at prices
approximating the cost of the upgrade. The Company expects this upgrade program
to continue through at least the remainder of 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of 1997
decreased 31.5% to $5.0 million from $7.3 million for the first quarter of 1996.
This decrease was primarily a result of a decrease in commission expense on
sales of laser systems and lower selling expenses related to selling contact
lenses and related products.
Research and Development Expenses
Research and Development expenses for the first quarter of 1997 increased 24.5%
to $1.7 million from $1.4 million for the first quarter of 1996. This increase
was primarily related to increased spending on the Company's regulatory efforts.
Legal Expenses
Legal expenses for the first quarter of 1997 increased 187.0% to $2.0 million
from $.7 million for the first quarter of 1996. This increase is primarily
related to the patent litigation initiated by the Company and/or Pillar Point
Partners to defend its intellectual property, to the defense of antitrust and
similar claims asserted against Pillar Point Partners and in defense of
shareholder litigation initiated against the Company in 1996. The Company
expects to continue to incur substantial legal expenses for at least the
remainder of 1997.
Net Loss
Net loss from continuing operations for the first quarter of 1997 was $1.4
million as compared to a loss from continuing operations of $.1 million for the
first quarter of 1996. The increase in the net loss for the first quarter of
1997 from the first quarter of 1996 was primarily due to lower revenues and
higher legal expenses. There can be no assurance that the Company will achieve
-14-
<PAGE> 15
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
profitability in 1997. Net loss from discontinued operations for the first
quarter of 1996 was $3.5 million.
Income Taxes
Due to the uncertainties noted above, the Company has continued to provide a
100% valuation allowance against its net deferred tax asset of approximately
$19.7 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have been met through external debt and
equity financing. As of March 31, 1997, the Company's cash, cash equivalent
balances and short-term investments increased $8.3 million to $71.7 million from
$63.4 million as of December 31, 1996. Cash provided by operations of $1.5
million resulted primarily from a decrease in net assets held for discontinued
operations of $1.4 million, a decrease in prepaid expenses and other current
assets of .6 million and an increase in accounts payable, accrued expenses and
deferred revenue of $.6 million. These increases to cash and cash equivalents
were offset in part by the net loss after depreciation and amortization of $.3
million and an increase in inventories of $.2 million.
Cash used by investing activities of $2.6 million resulted primarily from a net
increase in short and long term investments of $1.9 million and additions to
property and equipment of $.9 million. This cash used by investing activities
was offset in part by a net decrease in restricted cash of $.1 million.
Cash used by financing activities of $1.2 million resulted from net repayments
of long-term debt obligations of $1.3 million. This cash provided by financing
activities was offset in part by proceeds from the exercise of stock options of
$.1 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, 1997, the
Company had 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 guaranteed by the Company. At March 31, 1997 $15.0 million of
borrowings were outstanding under this facility. This obligation is included in
the Company's consolidated balance sheet as of March 31, 1997.
-15-
<PAGE> 16
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
------------------------------------------------------------------------
Item 1. Legal Proceedings
-----------------
U.S. Patent Litigation against VISX
In 1993, the Company purchased certain U.S. and foreign patents for an aggregate
purchase price, including acquisition costs, of $5.1 million in cash and 50,000
shares of Common Stock. One of these patents is the Azema Patent. As required by
the terms of the governing agreements, the Company offered Pillar Point Partners
the opportunity to acquire exclusive rights under the Azema Patent, but Pillar
Point Partners declined. On August 29, 1995, the Company filed suit in the U.S.
District Court for the District of Delaware against VISX for infringement of the
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 and on March 3, 1997, VISX
moved for Summary Judgment. The Court has scheduled a trial, if necessary, for
July 21, 1997. 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.
The Chiron Technolas appeal was recently decided in favor of the Company. Chiron
Technolas may appeal further to the German Supreme Court. If the Chiron
Technolas appeal is decided against the Company, the infringement verdict in
Germany will be overturned and the Company 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 December 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, 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
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<PAGE> 17
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
------------------------------------------------------------------------
U.S. 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 Patent Litigation
The Company is aware that certain U.S. ophthalmologists are performing
refractive procedures with so-called homemade excimer lasers or with gray market
Company excimer systems acquired from overseas. Although these homemade and gray
market systems have not received PMA approval and have been declared illegal by
the FDA, the FDA's enforcement efforts to date have been limited to issuing
warning letters and to inviting all manufacturers and users of these unapproved
lasers to submit clinical study protocols to the FDA. However, to the best of
the Company's knowledge, no user or manufacturer of an unapproved laser has been
the subject of an FDA enforcement action, and such users continue to use their
devices without significant restriction. These systems have not been determined
to be safe or effective by the FDA, and are apparently unregulated. Users have
not been limited either to the amount of refractive correction they can perform,
or to the scope of advertising they can use to encourage consumers to have the
procedure. As a consequence, doctors in the United States who purchase an
approved system may be put at a commercial disadvantage. Moreover, users of
unapproved systems are not licensed under the Pillar Point Patents, and have not
been paying procedure royalties. Pillar Point continues to spend significant
amounts of money in litigation with certain users of this equipment. The
proliferation of these unapproved devices may negatively impact the Company's
business, financial position and results of operations through loss of sales to
unapproved lasers, loss of patent royalty revenues from Pillar Point Partners,
and the potential damage to the industry, at this very early stage, posed by
these unapproved devices.
Pillar Point Partners has 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 one alleged
manufacturer of such laser systems and an individual believed to be inducing
infringement of such patents. These actions are presently pending as Pillar
Point Partners, et al. v. David Dulaney, et al. (U.S. District Court, District
of Arizona, Civil Action No. 96-2051PHXPGR); Pillar Point Partners, et al. v.
Jon G. Dishler, et al. (U.S. District Court, District of Colorado, Civil Action
No. 96-N-2351); Pillar Point Partners, et al. v. Jui-Teng Lin, et al. (U.S.
District Court, Middle District of Florida, Civil Action No. 97-54-CV-ORL-22);
and Pillar Point Partners, et al. v. William D. Appler (U.S. District Court,
District of Columbia, Civil Action No. 1:96CV02082). The defendants in the
Barnet and Dishler actions have asserted counterclaims seeking declarations that
the patents in suit are invalid and unenforceable. Those defendants have also
raised antitrust counterclaims. 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
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<PAGE> 18
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
------------------------------------------------------------------------
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.
VISX Royalty Action
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. The Company denies
these allegations and intends to contest them vigorously. However, there can be
no assurance that the lawsuit will be resolved in the Company's favor or that an
adverse judgment or settlement would not have a material adverse affect on the
results of operations of the Company in the period in which it occurs.
FTC Investigation
On October 13, 1995, the Company received notice that the FTC initiated an
investigation to determine whether Pillar Point Partners, VISX, the Company or
any of their predecessors, alone or in conjunction with others, is engaging or
has engaged in any unfair methods of competition in violation of the Federal
Trade Commission Act, relating to certain arrangements concerning patents on
devices and procedures, and or/practices relating to the sale or distribution of
certain ophthalmic surgical devices. The FTC 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 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 conclude that Pillar Point Partners complies with 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.
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<PAGE> 19
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. Shepherd, 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 has stated that it believes the California
lawsuits are without merit and is contesting the suits vigorously.
Seriani Litigation
On October 26, 1992, Joseph Seriani brought suit against Lens and certain of its
former shareholders in the Florida Circuit Court. The suit alleged violations of
the Florida Civil Remedies for Criminal Practices Act - the Florida civil RICO
statute - based on events which allegedly occurred in the mid-1980s. Seriani's
claims against Lens were 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 an amended complaint which included the Company as an additional
defendant. On November 25, 1996, the Serianis' voluntarily dismissed their
action against the Company and on March 7, 1997 voluntarily dismissed their
action against the remaining defendants, in each case without prejudice. On
March 24, 1997, the Seriani's commenced a new lawsuit against Lens and others in
the United States District Court for the Southern District of Illinois, alleging
substantially similar claims. The Company believes that the Serianis' suits
against the Company and Lens are and were without merit.
Vernon Litigation
On or about March 23, 1994, a former Lens employee filed a charge of
discrimination against Lens with the Equal Employment Opportunity Commission,
alleging sexual discrimination and harassment by certain co-employees, and
retaliation against her by Lens when she was terminated after making the claim.
After an investigation, the EEOC's Legal Department concluded that no probable
cause existed. On or about February 1, 1996, the former employee sued Lens and
two Lens managers in the United States District Court for the Southern District
of Florida, alleging sexual harassment and other state and federal charges and
seeking unspecified compensatory and punitive damages. All defendants have
denied the allegations. Subsequently, other present or former employees have
made similar allegations, and one has indicated that she intends to file suit.
While Lens believes the claims to be without merit, there can be no assurance
that it will prevail in this litigation. Lens cannot predict the range of
possible compensatory damages, if any, or whether punitive damages may be
assessed.
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<PAGE> 20
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
------------------------------------------------------------------------
Shareholder Actions
Between August, 1996 and October, 1996, fourteen shareholder actions were
commenced against the Company and certain of its officers in the United States
District Court for the District of Massachusetts. The actions were consolidated,
by order of the Court entered December 2, 1996, as In re Summit Technology
Securities Litigation, Civil Action No. 96-11589-JCT (the "Exchange Act
Action"). Plaintiffs filed a First Amended and Consolidated Class Action
Complaint (the "Complaint") on January 10, 1997.
In the Complaint, plaintiffs claim to have been purchasers of the Company's
Common Stock at various times between May, 1995 and June, 1996. They claim
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
arising out of public statements made by the Company or its officers. Plaintiffs
allege that the statements made material misrepresentations of fact, or failed
to disclose material information necessary to make statements made not
misleading, concerning a variety of matters -- including, for example, alleged
sale of laser systems in contravention of FDA regulations, alleged patent
royalty payments owed by the Company, alleged defects in the manner by which the
Company obtained FDA approval for the Company's Excimer System, alleged adverse
side effects of use of the Company's laser systems, alleged size of the market
for Laser Vision Correction systems and procedures in the U.S., alleged
competitive position of the Company's Excimer System compared with excimer
systems under development or sold by competitors, and an alleged "write-off"
arising from the acquisition of Lens Express, Inc. 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 the Securities Act of 1933. Such filings include:
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994
The Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1995
The Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995
The Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995
The Company's Registration Statement on Form S-3 and Prospectus dated
October 23, 1995
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995
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<PAGE> 21
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
------------------------------------------------------------------------
In addition, plaintiffs claim violations of Section 20A of the Securities
Exchange Act of 1934 by certain officers of the Company due to alleged sales of
Common Stock of the Company while in the possession of material non-public
information.
Plaintiffs seek certification of the Exchange Act Action as a class action,
purportedly on behalf of all purchasers of the Company's Common Stock, other
than defendants and certain affiliated persons and entities, between March 31,
1995 and July 3, 1996. Plaintiffs seek unspecified damages, interest, costs and
expenses.
On October 1, 1996, an additional action was commenced in the United Sates
District Court for the District of Massachusetts against the Company, its
directors, certain of its officers and the four underwriters of the Company's
October, 1995 Common Stock offering. The action was coordinated with In re
Summit Technology Securities Litigation, Civil Action No. 96-11589, by order of
the Court dated December 2, 1996 and is presently pending as In re Summit
Technology Securities Litigation (the Burke Action), Civil Action No. 96-11589
(the "Burke Action"). Plaintiff filed an Amended Complaint (the "Amended
Complaint") on January 10, 1997.
In the Amended Complaint, plaintiff 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 October Registration Statement not misleading. He
claims misrepresentations or omissions concerning a variety of matters --
including, for example, alleged adverse side effects of use of the Company's
laser products, alleged sale by the Company of its products in contravention of
FDA regulations and alleged royalty payments owed by the Company. The Amended
Complaint seeks unspecified damages, interest, costs and expenses. The plaintiff
seeks certification of the Burke 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 and certain affiliated persons and
entities.
On February 27, 1997, the Company moved to dismiss the Exchange Act Action and
the Burke Action for failure to state a claim on which relief could be granted.
The Court conducted a hearing on the motions on May 5, 1997 but has not yet
issued a ruling.
The Company believes that the allegations in the Exchange Act Action and the
Burke Action 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 possible additional actions, or that the actions,
individually or in the aggregate, will not have a material adverse effect on the
Company.
On December 20, 1996, a shareholder of the Company filed in the United States
District Court for the District of Massachusetts a derivative action,
purportedly on behalf of the Company, against the Company as nominal defendant,
its directors and certain of its present or former officers. This action is
presently pending as West v. Muller, et al, Civil Action No. 96-12576-JLT (the
"Derivative Action"). The complaint in the Derivative Action alleges that the
defendant directors and officers caused the Company to make public statements,
in violation of Sections
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<PAGE> 22
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS (CONTINUED)
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
------------------------------------------------------------------------
10(b) and 20(a) of the Securities Exchange Act of 1934 and of Sections 11 and 12
of the Securities Act of 1933, which contained material misrepresentations of
fact or which failed to disclose material information necessary to make the
statements made not misleading. It alleges that this conduct has rendered the
Company liable to the plaintiffs in, and has exposed the Company to the expense
and inconvenience of defending, the Exchange Act Action and the Burke Action and
has harmed the Company's reputation, thereby limiting its access to capital
markets. The complaint further alleges that the defendant directors and officers
improperly traded in the Company's Common Stock based upon material non-public
information. The complaint seeks recovery from the defendant directors and
officers, in an unspecified amount, for the damages allegedly caused by their
alleged misconduct. The Company has not been served with the complaint.
-22-
<PAGE> 23
CAUTIONARY STATEMENTS AND RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
This report contains information about the Company's future business prospects
including, without limitation, statements about the size of the potential
markets for laser vision correction and the Company's excimer system, the
potential for royalty revenues and the success of the Company's Lens Express
subsidiary. Some of these statements may be considered "forward looking". The
following cautionary statements identify important factors that may cause actual
results to differ materially from those reflected in, or implied by, any such
forward looking statements.
The Company's profitability and growth depend upon broad acceptance of laser
vision correction in the U.S., and there can be no assurance that laser vision
correction will be broadly accepted as an alternative to existing methods of
treating refractive vision disorders or that, if broad acceptance occurs, the
Company will benefit. Acceptance of laser vision correction may be affected
adversely by its cost, concerns relating to its safety and efficacy, the lack
of third party reimbursement, general resistance to surgery, the effectiveness
of alternative methods of correcting refractive vision disorders, the lack of
long-term follow-up data, the possibility of unknown side effects, and the cost
of the Excimer System. Laser system sales may be negatively impacted by
competition, the proliferation of unapproved devices, patent disputes, changing
technologies and delays in regulatory approvals. Participation in per-procedure
Royalties may also be negatively impacted by challenges to Pillar Point
Partners, the Company's patents and/or the FTC's investigation regarding Pillar
Point Partners, VISX and the Company. Sales of contact lenses and related
products by the Company's Lens Express subsidiary may be adversely affected by
lack of consistent sources of supply, inability to obtain suitable advertising,
burdensome laws and regulations and competition. The Company's financial
position and results of operations are likely to be negatively impacted if the
Company is unsuccessful in any of these areas.
For additional information and risks associated with the Company's business,
please review the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, a copy of which is available from the Company without charge.
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
------------------------------------------------------------------------
EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
11 Statement Re: Computation of per share earnings
b.) Reports of Form 8-K
None
-23-
<PAGE> 24
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: May 15, 1997 By: /s/ Robert J. Palmisano
------------------ -----------------------
Robert J. Palmisano
Chief Executive Officer
Date: May 15, 1997 By: /s/ Rajiv Bhatt
------------------ ---------------
Rajiv Bhatt
Executive Vice President and
Chief Financial Officer
-24-
<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) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net loss $ (1,400) $(3,554)
======== ========
Primary loss per share:
Weighted average common shares
outstanding 31,020 30,945
-------- --------
Loss per share $ (.05) $ (.11)
======== ========
Fully diluted loss per share:
Weighted average common shares
outstanding 31,020 30,945
-------- --------
Loss per share $ (.05) $ (.11)
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 41,638
<SECURITIES> 29,675
<RECEIVABLES> 9,407
<ALLOWANCES> 743
<INVENTORY> 16,084
<CURRENT-ASSETS> 100,997
<PP&E> 21,043
<DEPRECIATION> 11,641
<TOTAL-ASSETS> 131,734
<CURRENT-LIABILITIES> 20,845
<BONDS> 10,187
0
0
<COMMON> 311
<OTHER-SE> 100,322
<TOTAL-LIABILITY-AND-EQUITY> 131,734
<SALES> 0
<TOTAL-REVENUES> 20,699
<CGS> 0
<TOTAL-COSTS> 13,812
<OTHER-EXPENSES> 8,845
<LOSS-PROVISION> (154)
<INTEREST-EXPENSE> 378
<INCOME-PRETAX> (1,309)
<INCOME-TAX> 91
<INCOME-CONTINUING> (1,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,400)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
