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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 000-22755
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COMPUTER MOTION, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 77-0458805
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
130-B CREMONA DRIVE
GOLETA, CA 93117
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(Address of principal executive offices)
(805) 968-9600
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(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
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(Title of Class)
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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; and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, or will not be contained, to
the best of the Registrant's knowledge, in definitive proxy information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $65.9 million at March 30, 2000, when the
closing sale price of such stock as reported on the NASDAQ National Market was
$9.50 per share.
The number of shares outstanding of the Registrant's Common Stock,
$.001 par value, as of March 30, 2000 was 8,823,638 shares.
Portions of the Annual Report to Shareholders for the year ended
December 31, 1999 are incorporated by reference in Parts II and IV. Portions of
the Proxy Statement for the Company's Annual Meeting of stockholders to be held
on June 15, 2000 are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the securities exchange act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to "Risk Factors that May Affect Future
Results" below.
COMPANY OVERVIEW
Computer Motion, Inc. ("Computer Motion" or the "Company") is committed
to developing, manufacturing and marketing proprietary robotic and computerized
surgical systems that are intended to enhance a surgeon's performance and
centralize and simplify the surgeon's control of the operating room ("OR").
The Company believes that its products have the potential to
revolutionize surgery and the OR by providing surgeons with the precision and
dexterity necessary to perform complex, minimally invasive surgical procedures,
and by enabling surgeons to control critical devices in the OR through simple
verbal commands. Computer Motion believes that its products have the potential
to broaden the scope and increase the effectiveness of minimally invasive
surgery ("MIS"), improve patient outcomes and create a safer, more efficient and
cost effective OR.
Traditionally, the vast majority of all surgeries have been open,
requiring large incisions measuring up to 18 inches to access the operative
site. Although this approach can be highly effective, it often results in
significant trauma, pain and complications, as well as significant costs related
to lengthy convalescent periods for the patient. In an effort to minimize these
negative factors, minimally invasive surgical techniques and related
technologies have been developed. MIS is as effective as traditional open
surgery while offering patients substantially reduced pain and trauma, shortened
convalescent periods and decreased overall patient care costs. While these
benefits are significant, the minimally invasive approach presents challenges to
surgeons, including the intricate reconstruction of patient tissue by suturing,
delicate manipulation of small anatomical features and constrained access to,
and limited visualization of, the operative site.
The Computer Motion vision is to bring the power of computers and
robotics to the operating room to facilitate a surgeon's ability to perform
complex surgical procedures and enable new, minimally invasive microsurgical
procedures that are currently very difficult or impossible to perform. The
Company's products are intended to provide better visualization and improved
dexterity for the surgeon, particularly for minimally invasive techniques.
The Company currently markets the Automated Endoscopic System for
Optimal Positioning ("AESOP(R)"), a surgical robot capable of positioning an
endoscope in response to a surgeon's verbal commands. AESOP approximates the
form and function of a human arm and allows control of the endoscope through
simple verbal commands, eliminating the need for a member of a surgical staff to
manually control the camera, while providing a more stable and sustainable
endoscopic image. The Company estimates that over 85,000 MIS procedures have
been successfully assisted by 475 AESOP systems in 400 hospitals and surgery
centers around the world.
The Company's product development strategy is intended to leverage the
AESOP system's broad-based technology platform, and lead to a family of products
that improves the control of devices in the operating room and enables new
minimally invasive surgical procedures. To centralize and simplify control of
the OR, Computer Motion is developing the HERMES(TM) Control Center for the
voice control of medical devices in the operating room. To enable new minimally
invasive microsurgery procedures, such as endoscopic coronary artery bypass
grafting ("E-CABG(TM)"), the Company is developing the ZEUS(TM) Robotic Surgical
System.
The modernization of the OR has resulted in numerous medical devices
that aid a surgeon, but also increase the complexity and costs of the OR. In
many instances, these devices are manually controlled and monitored by someone
other than a surgeon in response to a surgeon's spoken commands and request for
status. The HERMES Control Center is designed to enable a surgeon to directly
control multiple OR devices, including the Company's AESOP system, through
simple verbal commands. The HERMES Control Center provides standardized visual
and digitized voice feedback to a surgical team. The Company believes that the
enhanced control and feedback provided by the HERMES Control Center can improve
safety, increase efficiency, shorten procedure times and reduce costs.
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The ZEUS Robotic Surgical System is designed to improve a surgeon's
ability to perform complex surgical procedures and enable new, minimally
invasive microsurgical procedures that are currently impossible or very
difficult to perform. The Company believes that the ZEUS system will improve a
surgeon's dexterity and precision and enhance visualization of, and access to,
confined operative sites. The Company believes that new MIS procedures performed
with the ZEUS system can, like currently available MIS procedures, result in
reduced pain and trauma, fewer complications, lessened cosmetic concerns and
shortened convalescent periods and will increase the number of patients
qualified for certain surgical procedures.
AESOP PRODUCT LINE
The Computer Motion AESOP system is a surgical robot capable of
positioning an endoscope (a specially designed optical tube which, when
connected to a medical video camera and light source, is passed into the body to
allow the surgeon to view the operative site on a video monitor) in response to
a surgeon's verbal commands. This allows the surgeon to have very direct control
over the endoscope in minimally invasive surgical procedures.
The Company believes that the AESOP platform is the world's first Food
and Drug Administration ("FDA") cleared surgical robot and incorporates the
world's first FDA-cleared voice control interface for use in the operating room.
The AESOP system was first introduced in the fourth quarter 1994. Since then,
the Company estimates that over 85,000 minimally invasive surgical procedures
have been successfully assisted by AESOP in 400 hospitals and surgery centers
around the world.
AESOP 2000 with Voice Control was introduced in the fourth quarter
1996. The AESOP 3000 platform, introduced in December 1997, is the world's first
FDA-cleared surgical robot capable of assisting in new advanced minimally
invasive cardiothoracic procedures. The AESOP 3000 robotic arm features added
flexibility and functionality over its predecessor, providing the range of
motion necessary for endoscopic viewing in the thoracic (chest) cavity.
Computer Motion is leveraging the core technologies underlying the
AESOP platform to develop the HERMES Control Center and the ZEUS Robotic
Surgical System.
HERMES PRODUCT LINE
The Computer Motion HERMES Control Center is designed to serve as a
centralized and simplified interface for a surgeon to voice-control multiple
medical devices in the operating room. The HERMES system has the potential to
increase the effectiveness of a surgical team by enhancing the efficiency and
safety of surgical procedures, while reducing operating room costs.
The HERMES System is comprised of a control unit which can be networked
with multiple HERMES-compatible ("HERMES-Ready"(TM)) devices and is controlled
by a surgeon using simple verbal commands or an interactive touch-screen
pendant. The devices controlled by the HERMES system which are currently
FDA-cleared include the endoscopic camera and light source, insufflator,
arthroscopic shaver, VCR, video printer, video frame grabber and the Computer
Motion AESOP system. The HERMES system provides both visual and digitized voice
feedback to the surgical team. The visual feedback is displayed on the
endoscopic video monitor and the digitized voice feedback is device-specific.
Both feedback features are customizable by a surgeon in real time, allowing a
surgeon to modify the amount and type of feedback received.
To leverage its proprietary voice recognition technology in the
arthroscopic and laparoscopic markets, Computer Motion has partnered with
Stryker Corporation, a leading manufacturer of endoscopic equipment. Stryker
purchases the HERMES system as an original equipment manufacturer ("OEM") and
markets the HERMES system as an integrated component with several of its
laparoscopic and arthroscopic products. The Company expects to make additional
510(k) submissions to the FDA in 2000 for HERMES control of Valleylab's
electrocautery unit and Berchtold Corporation's OR overhead cameras and lights.
Also, the Company plans to begin marketing STERIS Corporation's OR table and
overhead cameras.
Computer Motion intends to partner with other leading medical device
manufacturers to expand the number and type of devices to be integrated with the
HERMES controller, including electrocautery devices, various imaging systems and
devices for the cardiac catheter laboratory and other medical clinic
environments.
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ZEUS PRODUCT LINE
The Computer Motion ZEUS Robotic Surgical System is designed to
fundamentally improve a surgeon's ability to perform complex, minimally invasive
surgical procedures and to enable new, minimally invasive microsurgical
procedures that are currently very difficult or impossible to perform with
conventional surgical methods. The Company believes that these new minimally
invasive surgical procedures will result in reduced patient pain and trauma,
fewer complications, lessened cosmetic concerns and shortened convalescent
periods, and will increase the number of patients qualified for certain surgical
procedures. Additionally, the Company believes that an increase in minimally
invasive procedures would result in lower overall healthcare costs to patients,
hospitals and healthcare payors.
The ZEUS platform consists of three surgeon-controlled robotic arms,
one of which positions an endoscope while the other two hold disposable and
reusable surgical instruments. The ZEUS robotic arms are directly attached to
the surgical table to maintain a constant orientation to the patient. A surgeon
controls the movement of the robotic arms by manipulating two corresponding
robotic instrument handles, which are housed in a mobile console. These
instrument handles are similar to conventional surgical instrument handles. A
surgeon's precise manipulation of the instrument handles is communicated to a
proprietary computer controller which filters, scales and translates the
movements to the robotic surgical instruments. A surgeon can operate these
instrument handles from a comfortable, ergonomic position. The surgeon controls
the robotic arm, which holds the endoscope through means of simple verbal
commands spoken into a headset microphone. A video display of the endoscopic
image is placed directly in front of the surgeon, and a second monitor is
positioned next to the patient for use by the other members of the surgical
team.
Computer Motion has completed multi-center Phase I clinical testing
with the ZEUS system and has filed an Investigational Device Exemption
supplement with the FDA to gain approval to begin a multi-center, pivotal
clinical evaluation of the product in 2000. The Company intends to sell the ZEUS
system on a direct basis in North America and co-market the ZEUS system with
Medtronic, Inc., a leading manufacturer of medical devices, in Europe, the
Middle East and Africa.
The Company believes that the ZEUS platform will provide clinicians
with the following significant benefits:
IMPROVED PRECISION. The ZEUS platform incorporates technology that is designed
to enable a surgeon to scale his or her movements, allowing manipulation of
instruments on a microsurgical scale while utilizing normal hand and arm
movements. For instance, in microsurgical procedures which involve extremely
small anatomical structures and which utilize sutures ranging from 20 to 40
microns (1/3 to 2/3 the width of a human hair), if a surgeon selects a scaling
ratio of 4 to 1, each 1-inch movement by the surgeon would result in a 1/4 inch
movement by the robotic surgical instruments.
IMPROVED DEXTERITY. The ZEUS platform is designed to enhance a surgeon's
performance by enabling robotic manipulation of surgical instruments, as opposed
to hand-held instruments, which are very difficult or impossible to manipulate
manually when performing challenging minimally invasive surgery. For instance, a
surgeon can activate and deactivate the instrument handles to further extend his
or her range of motion to complete a particular movement, such as suturing,
without having to physically contort his or her arms. In addition, in order to
gain anatomical access to certain regions of the body in a minimally invasive
manner, the instruments must be placed in positions that would be extremely
difficult for a surgeon to manually manipulate using conventional minimally
invasive surgical techniques due to the distance between the instruments and
their relative positions to each other.
ELIMINATION OF INVOLUNTARY HAND TREMOR. The ZEUS platform is designed to hold
the surgical instruments and the endoscope in a steady manner, eliminating a
surgeon's incidental and unintended hand motions and tremors, which are
intensified when holding surgical instruments for extended periods of time.
ENHANCED TACTILE FEEDBACK. The ZEUS platform is designed to provide a surgeon
with computerized, scalable feedback, which enhances and amplifies the surgeon's
sense of touch while grasping delicate tissue as compared to traditional
minimally invasive surgical instruments.
ENHANCED VISUALIZATION. The ZEUS platform incorporates a robotic arm, which
controls the endoscope to produce a steady, magnified video image, which
facilitates performance of minimally invasive surgical procedures.
IMPROVED MINIMALLY INVASIVE ANATOMICAL ACCESS. The ZEUS platform is designed to
provide a surgeon with access to confined areas in the body and critical
anatomical structures that are currently only accessible by means of highly
invasive, open surgical procedures or multiple "less invasive" incisions. In the
case of cardiac surgery, these less invasive approaches can require multiple 3
to 5 inch incisions and often involve the removal of rib cartilage. In contrast,
the ZEUS system is designed to provide a surgeon with complete access to the
heart through several 5 millimeter ports.
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MINIMIZED SURGEON FATIGUE. The ZEUS platform allows a surgeon to operate the
surgical instrument handles in a comfortable, ergonomic position, including
sitting down and positioning his or her forearms on armrests. The Company
believes these enhanced ergonomics can extend the professional lives of surgeons
and increase the efficiency and effectiveness of demanding and lengthy
microsurgical procedures.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations are required to comply with the
FDA's Quality System Regulation ("QSR"), which addresses the design, controls,
methods, facilities and quality assurance used in manufacturing, packing,
storing and installing medical devices. In addition, certain international
markets have quality assurance and manufacturing requirements. Specifically, the
Company is subject to the compliance requirements of ISO 9001 and 9002
certification and Conformity Europeane ("CE") Mark directives which impose
certain procedural and documentation requirements with respect to device design,
development, manufacturing and quality assurance activities. The Company has
obtained such certification and is subject to audit on an annual basis for
compliance. The Company's manufacturing capability to date has been limited to
manufacturing moderate quantities of its AESOP product and limited quantities
of its HERMES and ZEUS products. The Company does not have experience
manufacturing its products in the volumes that will be necessary to achieve
significant commercial sales. The Company may encounter difficulties in scaling
up production of its products, in procuring the necessary supply of materials,
components and contract services, or in hiring and training additional
manufacturing personnel to support domestic and international demand. If the
Company is unable to achieve commercial-scale production capability on a timely
basis with acceptable quality and manufacturing yields and costs, or to achieve
FDA and other governmental approvals, the ability of the Company to deliver
products on a timely basis could be impaired.
COMPETITION
The Company is aware that there are other companies working on design
and development of both endoscope holding robots and surgical robots, as well as
voice control of medical devices. Beyond direct competition, there is
significant indirect competition. Many medical conditions that can be treated by
the Company's products can also be treated with pharmaceuticals or other medical
devices and procedures. Many of these alternative treatments are widely accepted
in the medical community and have a long history of use.
MARKETING
The Company's products are sold throughout the world. Payment terms
worldwide are consistent with local practice. Orders are shipped as they are
received and, therefore, no material backlog exists. No distributor organization
or single customer accounted for more than 10% of 1999 revenue. In the United
States, the Company sells directly to hospitals through an employee-based sales
organization. In Western Europe, the Company is developing an employee-based
sales organization, which will be principally focused on sales in France and
Germany. The Company co-markets the ZEUS product line with Medtronic, Inc. in
Europe, the Middle East and Africa. Throughout the rest of the world, the
Company uses independent distributor organizations including the Ethicon
Endo-Surgery Division of Johnson & Johnson, Inc. Under the Company's OEM
agreement with Stryker Corporation, Stryker may distribute the Company's HERMES
product for control of various Stryker endoscopic devices on a worldwide basis.
RESEARCH AND DEVELOPMENT
The Company's research and development function is focused on the
development of new medical products and improvements to existing products. In
addition, research and development expense reflects the Company's efforts to
obtain FDA approval of certain products and processes and to maintain the
highest quality standards of existing products. The Company's research and
development expenses were $9,528,000 (53% of revenue), $7,905,000 (75% of
revenue), and $4,149,000 (63% of revenue) in 1999, 1998 and 1997, respectively.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are
subject to regulation by the FDA and, in most instances, by state and foreign
governmental authorities. Under the Federal Food, Drug and Cosmetic Act, and
regulations thereunder, manufacturers of medical devices must comply with
certain policies and procedures that regulate the composition, labeling,
testing, manufacturing, packaging and distribution of medical devices. Medical
devices are subject to different levels of government approval requirements, the
most comprehensive of which require the completion of an FDA-approved clinical
evaluation program and submission and approval of a pre-market approval ("PMA")
application before a device may be commercially marketed. The Company's ZEUS
product is subject to a PMA application.
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In addition, the FDA may require testing and surveillance programs to
monitor the effect of approved products which have been commercialized and it
has the power to prevent or limit further marketing of a product based on the
results of these post-marketing programs. The FDA also conducts inspections to
determine compliance with both good manufacturing practice regulations and
medical device reporting regulations. If the FDA were to conclude that the
Company was not in compliance with applicable laws or regulations, it could
institute proceedings to detain or seize products, issue a recall, impose
operating restrictions, assess civil penalties against employees and recommend
criminal prosecution. Furthermore, the FDA could proceed to ban or request
recall, repair, replacement or refund of the cost of any device manufactured or
distributed.
The FDA also regulates recordkeeping for medical devices and reviews
hospital and manufacturers' required reports of adverse experiences to identify
potential problems with FDA-cleared devices. Aggressive regulatory action may be
taken due to adverse experience reports. FDA device tracking and post-market
surveillance requirements are expected to increase future regulatory compliance
costs.
Diagnostic-related groups ("DRG") reimbursement schedules regulate the
amount the United States government through the Health Care Financing
Administration ("HCFA") will reimburse hospitals and doctors for the inpatient
care of persons covered by Medicare. While the Company is unaware of specific
domestic price resistance as a result of DRG reimbursement policies, changes in
current DRG reimbursement levels could have an adverse effect on its domestic
pricing flexibility.
The Company's business outside the United States is subject to medical
device laws in individual foreign countries. These laws range from extensive
device approval requirements in some countries to requests for data or
certifications in other countries. Generally, regulatory requirements are
increasing in these countries. In addition, government funding of medical
procedures is limited and in certain instances being reduced. In the European
Economic Union ("EEU"), the regulatory systems have been harmonized and approval
to market in EEU countries can be obtained through one agency. All the Company's
products, AESOP, HERMES and ZEUS, are approved for CE-marking, enabling
marketing of these devices throughout the EEU countries. The Company's products
are approved for marketing in Canada. AESOP is approved in Australia, Japan,
Korea and Singapore.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
Protection of the Company's intellectual property is important to the
Company's business. The Company maintains a policy of seeking device and method
patents on its inventions, obtaining copyrights on copyrightable materials and
entering into proprietary information agreements with its employees and
consultants with respect to technology which it considers important to its
business. The Company also files for trademark registration and service mark
registration on those marks which may be used in marketing efforts with respect
to the products developed, sold and distributed by the Company. The Company also
relies upon trade secrets, unpatented know-how and continuing technological
innovation to develop and maintain its competitive position.
The Company currently holds 19 issued United States patents, one
European patent and has 32 domestic and foreign patent applications pending
disclosing concepts related to medical devices and methods, medical robotics and
speech recognition applications. More particularly, the Company has issued
patents protecting several key aspects of its AESOP and ZEUS product lines. The
Company has additional patent applications pending disclosing key aspects of its
ZEUS Robotic Surgical System, as well as key aspects of its HERMES Control
Center. The Company has filed corresponding international patent applications on
certain of its key United States patents.
There can be no assurance that patents will issue from any of the
pending applications, or that issued patents will be of sufficient scope to
provide meaningful protection of the Company's technology. In addition, there
can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection or commercial advantage to the Company.
Notwithstanding the scope of the patent protection available to the Company, a
competitor could develop other devices or methods for enabling minimally
invasive surgical procedures that do not require the use of robotics or speech
recognition, aspects of which are patented or pending patents.
Additionally, there has been substantial litigation regarding patents
and other intellectual property rights in the medical device industry.
Litigation, which could result in substantial cost to and diversion of effort by
the Company, may be necessary to enforce patents issued or licensed to the
Company, to protect trade secrets or know-how owned by the Company, or to defend
the Company against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. Adverse
determinations in litigation could subject the Company to significant
liabilities to third parties, could require the Company to seek
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licenses from third parties and could prevent the Company from manufacturing,
selling or using some or all of its products, any of which could have a material
adverse affect on the Company's business, financial condition or results of
operations.
From time to time, the Company may be subject to claims of, and legal
actions alleging, infringement by the Company of the patent rights of others.
The Company believes that it has been vigilant in reviewing the patents of
others with regard to the Company's products. The Company is not currently a
party to any patent litigation or other litigation regarding proprietary rights
and is not aware of any challenge to its patents or proprietary rights
PRODUCTS LIABILITY AND INSURANCE
The medical device industry has historically been subject to product
liability claims. Such claims could be asserted against the Company in the
future for events not known to management at this time. Management has adopted
risk management practices, including procurement of products liability insurance
coverage, which management believes are prudent.
EMPLOYEES
As of December 31, 1999, the Company had 161 full-time employees
including 44 employees in Sales and Marketing, 73 employees in Research and
Development, 26 employees in Production and 18 employees in Administration. It
has never experienced a work stoppage as a result of labor disputes and none of
its employees are represented by a labor organization.
INDUSTRY SEGMENT AND INTERNATIONAL OPERATIONS
The medical device industry is the single industry segment in which the
Company operates. The Company's export revenues were $6,143,000 (34% of
revenue), $1,225,000 (12% of revenue), and $1,871,000 (28% of revenue) in 1999,
1998 and 1997, respectively.
As the Company's foreign business expands, it will be subject to such
special risks as exchange controls, currency devaluation, dividend restrictions,
the imposition or increase of import or export duties and surtaxes, and
international credit or financial problems. Since its international operations
will require the Company to hold assets in foreign countries denominated in
local currencies, some assets will be dependent for their U.S. dollar valuation
on the values of several foreign currencies in relation to the U.S. dollar.
OTHER
The Company has not been materially impacted by the effects of
inflation or deflation during 1999.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Computer Motion operates in a rapidly changing environment that
involves a number of risks, some of which are beyond its control. A number of
these risks are highlighted below. These risks could affect its actual future
results and could cause them to differ materially from any forward-looking
statements the Company has made.
THE COMPANY HAS NEVER OPERATED PROFITABLY. The Company has incurred
significant losses from its inception to date. Further, the Company expects to
incur additional losses as it increases spending for marketing, research and
development efforts, clinical trials, manufacturing capacity and sales force
improvement. The Company cannot assure you that it will ever achieve significant
commercial revenues, particularly from sales of the ZEUS product line, which has
not yet received regulatory clearance from the FDA, or that the Company will
become profitable. It is possible that the Company may encounter substantial
delays or incur unexpected expenses related to the market introduction and
acceptance of the ZEUS platform, or any future products.
RELIANCE ON FUTURE PRODUCTS AND UNCERTAINTY OF REGULATORY APPROVAL AND
MARKET ACCEPTANCE. The Company anticipates that HERMES and ZEUS platforms will
comprise a substantial majority of its sales in the future. Accordingly, the
future success of the Company depends on the successful development, regulatory
clearance or approval, commercialization and market acceptance of these
products. Even if the Company is successful in obtaining the necessary
regulatory clearances or approvals for the HERMES and ZEUS platforms, their
successful commercialization will depend upon the Company's ability to
demonstrate the clinical safety and effectiveness, ease-of-use, reliability and
cost-effectiveness of these products in a clinical setting. The HERMES system
has only recently begun to be marketed and the ZEUS system has been used in over
120 procedures, 40 of these being in the United States as part of the
Investigational Device Exemption ("IDE") application to the FDA. In order to
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conduct a multi-center clinical trial with the ZEUS system, the Company must
submit and obtain approval from the FDA of an IDE application. The Company can
not assure you that the FDA will allow it to conduct clinical trials or that the
ZEUS system will prove to be safe and effective in clinical trials under United
States or international regulatory requirements. It is also possible that the
Company may encounter problems in clinical testing that cause a delay in, or
prohibit commercialization of, the ZEUS system. Moreover, the clinical trials
may identify significant technical or other obstacles to overcome prior to
obtaining necessary regulatory or reimbursement approvals, resulting in
significant additional product development expense and delays. Even if the
safety and efficacy of procedures using the ZEUS platform is established,
surgeons may elect not to recommend the use of these products for any number of
reasons, including inadequate levels of reimbursement. Broad use of the products
will require significant surgeon training and practice, and the time and expense
required to complete such training and practice could adversely affect market
acceptance.
GOVERNMENT REGULATION. The Company's products in the United States are regulated
as medical devices by the FDA. The process of obtaining United States regulatory
approvals and clearances is lengthy, expensive and uncertain. Commercial
distribution of the products in foreign countries is also subject to varying
government regulations, which could delay or restrict marketing of its products
in those countries. In addition, such regulatory authorities may impose
limitations on the use of its products. The Company has obtained the CE-Mark for
all of its products which means these products can be sold in all the member
countries of the European Union. The manufacturing operations are subject to the
FDA's Quality System Regulations and similar regulations in other countries
regarding the manufacturing, testing, labeling, recordkeeping and storage of
devices and the failure to maintain compliance would have an adverse effect on
the Company's operations.
INTENSE COMPETITION. The minimally invasive surgery market has been, and will
likely continue to be, highly competitive. Many competitors in this market have
significantly greater financial resources and experience than this Company. Many
medical conditions that can be treated using the Company's products,
particularly the ZEUS system, can also be treated by pharmaceuticals or other
medical devices and procedures. Many of these alternative treatments are widely
accepted in the medical community and have a long history of use. In addition,
technological advances with other procedures could make such therapies more
effective or less expensive than using the Company's products and could render
its products obsolete or unmarketable. The Company cannot be certain that
physicians will use its products to replace or supplement established treatments
or that its products will be competitive with current or future technologies.
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT. In the United States, the Company's
products will be acquired primarily by medical institutions which then bill
various third-party payors, such as Medicare, Medicaid and other government
programs and private insurance plans for the healthcare services they provide
their patients. Government agencies, certain private insurers and certain other
payors generally reimburse hospitals for medical treatment at a fixed rate based
on schedules established by the Health Care Finance Administration. The Company
believes that the procedures using its products will be eligible for
reimbursement under existing reimbursement schedules. However, Medicare and
other third-party payors are increasingly scrutinizing whether to cover new
products and the level of reimbursement. Even if a procedure is covered by such
schedules, payors may deny reimbursement if they determine that the device used
in the treatment was unnecessary, inappropriate, not cost-effective,
experimental or used for a non-approved indication. Many international markets
have government managed healthcare systems that control reimbursement for new
products and procedures. In most markets, there are private insurance systems,
as well as governmental managed systems, that control reimbursement for new
products and procedures. Market acceptance of the Company's products may depend
on the availability and level of reimbursement in international markets it
targets. The Company cannot be certain that it will obtain reimbursement in any
country within a particular time, or at all.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company's success will
depend, in part, on its ability to obtain and maintain patent protection for its
products, to preserve its trade secrets, and to operate without infringing the
proprietary rights of others. The Company seeks to protect its proprietary
positions by filing United States and foreign patent applications related to its
technology, inventions and improvements that are important to the development of
business. The Company can not be certain that its issued patents or any patents
that may be issued will not be challenged, invalidated or circumvented in the
future. Further, it is possible that competitors, many of which have
substantially more resources than the Company and have made substantial
investments in competing technologies, will apply for and obtain patents that
will prevent, limit or interfere with the Company's ability to make, use or sell
its products either in the United States or internationally. The Company cannot
assure you that it will not become subject to patent infringement claims or
litigation.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT. The market for the
Company's products is characterized by rapidly changing technology and new
product introductions and enhancements. Its success will depend to a significant
extent upon the Company's ability to enhance and expand the utility of its
products so that they gain market acceptance.
8
<PAGE> 9
The Company maintains research and development programs to continually improve
and refine its current product offerings and develop new products. The Company
cannot assure you that it will be successful in identifying, developing,
manufacturing and marketing new products or enhancing its existing products on a
timely or cost-effective basis. Moreover, the Company may encounter technical
problems in connection with its product development efforts that could delay the
introduction of new products or product enhancements.
CONTROL BY MANAGEMENT. The Company's present directors and executive officers
beneficially own approximately 25% of the Company's outstanding common stock.
These shareholders, acting together, have the ability to significantly influence
the election of the Company's directors and other shareholder actions and, as a
result, direct the operation of its business, including delaying or preventing
a proposed acquisition of the Company.
DEPENDENCE ON KEY PERSONNEL. The Company's future business and operating results
depend in significant part on its key management, scientific, technical and
sales personnel, many of whom would be difficult to replace, and future success
will depend partially upon the Company's ability to retain these persons and
recruit additional qualified management, technical, marketing, sales,
regulatory, clinical and manufacturing personnel. Competition for such personnel
is intense, and the Company may have difficulty in attracting or retaining such
personnel.
FLUCTUATIONS IN OPERATING RESULTS AND MARKET VOLATILITY. The Company's results
of operations may vary significantly from quarter to quarter depending upon
numerous factors, including the following: (i) delays associated with the FDA
and other regulatory clearance and approval processes; (ii) healthcare
reimbursement policies; (iii) timing and results of clinical trials; (iv) demand
for the Company's products; (v) changes in pricing policies by the Company or
its competitors; (vi) the number, timing and significance of competitors'
product enhancements and new products; and (vii) product quality issues.
The market price of the Company's common stock is likely to be volatile and may
be affected by: (i) actual or anticipated decisions by the FDA with respect to
approvals or clearances of the Company's or its competitors' products; (ii)
actual or anticipated fluctuations in operating results; (iii) announcements of
technological innovations; (iv) new commercial products announced or introduced
by the Company or its competitors; (v) changes in third-party reimbursement
policies; (vi) developments concerning the Company's or its competitors'
proprietary rights; (vii) conditions and trends in the medical device industry;
(viii) governmental regulation; (ix) changes in financial estimates by
securities analysts; and (x) general stock market conditions.
EXPANSION OF MARKETING ACTIVITIES AND LIMITED DISTRIBUTION. The Company
anticipates significantly increasing the number of sales personnel to more fully
cover its target markets, particularly as the Company expands its product
offerings. It is possible the Company will be unable to compete effectively in
attracting, motivating and retaining qualified sales personnel. The Company
currently intends to market and sell its products outside the United States and
Europe principally through distributors. In order to accomplish this, the
Company will be required to expand its distributor network. The Company may not
be able to identify suitable distributors or negotiate acceptable distribution
agreements. Any such distribution agreements may not result in significant
sales.
DEPENDENCE ON INDEPENDENT CONTRACT MANUFACTURERS AND LIMITED MANUFACTURING
EXPERIENCE. The Company relies on independent contract manufacturers, some of
which are single source suppliers, for the manufacture of the principal
components of the AESOP system. Shortages of raw materials, production capacity
constraints or delays on the part of the contract manufacturers could negatively
affect the Company's ability to ship products and derive revenue. The Company
does not have experience manufacturing its products in commercial quantities.
Its manufacturing experience to date has been focused primarily on assembling
components produced by third-party manufacturers for the AESOP system. The
Company's manufacturing activities to date with respect the HERMES and ZEUS
systems have consisted primarily of manufacturing a limited number of products.
In scaling up manufacturing of new products, the Company may encounter
difficulties involving quality control and assurance, component availability,
adequacy of control policies and procedures, lack of qualified personnel and
compliance with FDA's Quality System Regulations requirements. The Company may
elect to internally manufacture components currently provided by third parties
or to implement new production processes. The Company can not assure you that
manufacturing yields or costs will not be adversely affected by a transition to
in-house production or to new production processes if such efforts are
undertaken.
RISK OF PRODUCT LIABILITY CLAIMS. The Company faces an inherent business risk of
financial exposure to product liability claims in the event that the use of its
products results in personal injury or death. The Company also faces the
possibility that defects in the design or manufacture of its products might
necessitate a product recall. It is possible that the Company will experience
losses due to product liability claims or recalls in the future. The Company
currently maintains product liability insurance with coverage limits of
$5,000,000, but future claims may exceed these coverage limits.
9
<PAGE> 10
MANAGEMENT OF GROWTH. The Company's growth will continue to place significant
demands on its management and resources. In order to compete effectively against
current and future competitors, prepare products for clinical trials and develop
future products, the Company believes it must continue to expand its operations,
particularly in the areas of research and development and sales and marketing.
It is likely that the Company will be required to implement additional operating
and financial controls, hire and train additional personnel, install additional
reporting and management information systems and expand its physical operations.
The Company's future success will depend, in part, on its ability to manage
future growth and the Company cannot assure you that it will be successful.
ADVERSE DILUTIVE IMPACT OF OPTIONS AND WARRANTS. The exercise of existing stock
options and warrants, totaling 3,004,104 shares, of which 1,905,622 were
exercisable at December 31, 1999, would have a dilutive effect on the interests
of current investors and may have an adverse effect on the market price of the
Company's common stock.
ITEM 2. PROPERTIES
The Company leases approximately 50,000 square feet of office and
manufacturing space in an office park in Goleta, California and a small sales
office in Strasbourg, France. The Company is currently seeking to expand its
leased space in Strasbourg.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of our operations in the normal course of business. As of the
date of this report, the Company is not a party to any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
Information on executive officers is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert W. Duggan 55 Chairman of the Board and Chief Executive Officer
Yulun Wang 40 Chief Technical Officer, Founder and Director
Gordon L. Rogers 46 Vice President, Chief Financial Officer and Secretary
Richard J. DeRisio 55 Vice President of Clinical, Regulatory and Quality Affairs
David A. Stuart 43 Vice President of Operations
Gregory J. Ruehle 48 Vice President of Global Sales
Anita M. Chambers 41 Vice President of Marketing
</TABLE>
ROBERT W. DUGGAN has been Chairman of the Board of Directors since 1990,
and Chief Executive Officer since October 1997. Mr. Duggan has been a private
venture investor for more than 25 years, and has participated as a director of,
investor in and advisor to numerous small and large businesses in the medical
equipment, computer local and wide area network, PC hardware and software
distribution, digital encryption, consumer retail goods and outdoor media
communications industries. He has also assisted in corporate planning, capital
formation and management for his various investments. He is a member of the
University of California, Santa Barbara Foundation Board of Trustees, as well as
the University's Engineering Steering Committee.
YULUN WANG, PH.D., has been Chief Technical Officer of the Company since
January 1996, and a Director since 1990, and has served in numerous other
capacities since he founded the Company in 1989.
GORDON L. ROGERS joined the Company as Vice President, Chief Financial
Officer and Secretary in March 2000. From 1999 to 2000, Mr. Rogers served as
Vice President of Finance at ViroLogic, Inc., a medical biotechnology company.
Previously, he spent five years at Nellcor Puritan Bennett, Inc., one of the
world's largest medical device manufacturers, most recently as Controller for
Worldwide Field Operations.
10
<PAGE> 11
RICHARD J. DERISIO joined the Company as Vice President of Clinical,
Regulatory and Quality Affairs in December 1999. Mr. DeRisio has held similar
positions at several medical device companies including Biosense Webster, Inc.,
a Johnson & Johnson Company, Sorin Biomedical Inc., Ventritex, Inc., Pfizer's
Hospital Products Group, the Ortho Diagnostics Division of Johnson & Johnson,
and Johnson & Johnson Corporate Sterilization Sciences Group. Mr. DeRisio has
also held positions with the FDA involving engineering support to field offices,
management of FDA's foreign inspection program, and review of GMP compliance,
regulatory actions and product submissions for medical devices.
DAVID A. STUART joined the Company as Vice President of Operations in
June 1996. From 1992 to 1996, Mr. Stuart served as Director of Materials at
Quantum Corporation, a disk drive manufacturer. Previously, he was Director of
Materials and Manager of Manufacturing Finance for LTX Corporation, a
manufacturer of semi-conductor test equipment.
GREGORY J. RUEHLE joined the Company as Vice President of Global Sales
in July 1999. Mr. Ruehle comes to the company with 20 years of medical device
experience, with particular expertise in cardiovascular sales. He previously
held senior sales management positions at St. Jude Medical, Inc., Sci-Med Life
Systems, Inc., Medtronic, Inc. and AorTech, Inc.
ANITA M. CHAMBERS joined the Company as Vice President of Marketing in
February 2000. Ms. Chambers most recently served as Cardiovascular Business
Development Manager for Siemens Medical Systems, Inc., where she was responsible
for product, market and business development in a new corporate arena. From 1987
to 1997, she was employed by Acuson Corporation, where her principal experience
was in introducing and marketing high-end cardiology ultrasound equipment.
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is quoted on the Nasdaq National Market under
the symbol "RBOT." The high and low sale prices for the Company's common stock
during 1999, 1998 and 1997 (from August 12, 1997, the date trading in the stock
commenced) are set forth below.
HIGH LOW
------ -----
Year Ended December 31, 1999
Fourth Quarter.................................. $14.38 $9.50
Third Quarter................................... $14.75 $9.38
Second Quarter.................................. $11.25 $8.63
First Quarter................................... $14.13 $8.38
HIGH LOW
------ -----
Year Ended December 31, 1998
Fourth Quarter.................................. $13.38 $7.50
Third Quarter................................... $13.06 $6.25
Second Quarter.................................. $17.63 $9.88
First Quarter................................... $13.00 $8.81
HIGH LOW
------ ------
Year Ended December 31, 1997
Fourth Quarter................................. $13.63 $ 7.88
Third Quarter (commencing August 12, 1997)..... $15.00 $13.38
Second Quarter................................. N/A N/A
First Quarter.................................. N/A N/A
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. Like the stock prices of other medical device companies,
the market price of the Company's common stock has been, and will be, subject to
significant volatility. Factors such as reports on the clinical effectiveness
and safety of the Company's products, government approval status, fluctuations
in the Company's operating results, announcements of technological innovations
or new products by the Company or its competitors, changes in estimates of the
Company's performance by securities analysts, failure to meet securities
analysts' expectations and developments with respect to patents or proprietary
rights, may have a significant effect on the market price of the common stock.
In addition, the price of the Company's common stock could be affected by stock
price volatility in the medical device industry or the capital markets in
general without regard to the Company's operating performance.
The Company currently intends to retain future earnings to fund the
development and growth of its business and, therefore, does not anticipate
paying cash dividends within the foreseeable future. Any future payment of
dividends will be determined by the Company's Board of Directors and will depend
on the Company's financial condition, results of operations and other factors
deemed relevant by its Board of Directors at the time. As of March 30, 2000,
there were approximately 3,200 shareholders of record.
The Company's Registration Statement on Form S-1 filed with the
Securities Exchange Commission (Registration No. 333-29505) for 2,875,000 shares
of its common stock was declared effective on August 11, 1997. Proceeds from the
offering, net of underwriting discounts and commissions and direct offering
expenses, were $36,740,000. During 1999, the Company used $1,280,000 of these
proceeds. The proceeds were principally used to support the cash loss from
operations, increase working capital and purchase property and equipment. The
primary source of funding for operations in 1999 was from the conversion of
short-term investment grade debt securities to cash ($12,512,000). These
investments were initially funded with proceeds from the offering.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data and is
qualified by reference to, and should be read in conjunction with, the Company's
consolidated financial statements and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the Company's 1999
Annual Report to Shareholders. The selected financial data is derived from
consolidated financial statements that have been audited by Arthur Andersen LLP,
independent public accountants.
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31.
(IN THOUSANDS EXCEPT PER SHARE DATA)
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue $ 18,058 $ 10,586 $ 6,611
Net loss $(13,375) $(11,545) $ (9,219)
Net loss per share $ (1.57) $ (1.45) $ (2.12)
Weighted average common
shares outstanding 8,503 7,959 4,343
Total assets $ 23,361 $ 30,444 $ 37,313
Long-term liabilities $ 1,073 $ 131 $ --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 29 through
32 of the Company's 1999 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments include cash and short-term
investment grade debt securities. At December 31, 1999, the carrying values of
the Company's financial instruments approximated their fair values based on
current market prices and rates.
It is the Company's policy not to enter into derivative financial
instruments. The Company does not currently have material foreign currency
exposure as the majority of its international transactions are denominated in
U.S. currency. Accordingly, the Company does not have significant overall
currency exposure at December 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and
Report of Independent Public Accountants set forth on pages 33 through 44 of the
Company's 1999 Annual Report to Shareholders are incorporated herein by
reference:
Consolidated Statements of Operations - Years ended December 31, 1999,
1998 and 1997
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity (Deficit) - Years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information set forth under the caption "Election of Directors" in
the Company's definitive proxy statement for the Company's Annual Meeting of
stockholders to be held on June 15, 2000, is incorporated herein by reference.
Information on executive officers is set forth in Part I, Item 4A hereto.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation and
Other Information" in the Company's definitive proxy statement for the Company's
Annual Meeting of stockholders to be held on June 15, 2000, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" and "Election of Directors" in the
Company's definitive proxy statement for the Company's Annual Meeting of
stockholders to be held on June 15, 2000, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Election of Directors" in
the Company's definitive proxy statement for the Company's Annual Meeting of
stockholders to be held on June 15, 2000, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company
and Report of Independent Public Accountants as set forth on
pages 33 through 37 of the Company's 1999 Annual Report to
Shareholders are incorporated herein by reference:
Consolidated Statements of Operations -Years ended December 31,
1999, 1998 and 1997
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity (Deficit) --
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule is filed as part of this
Report:
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
-------- ----------- ------
II Valuation and Qualifying Accounts 17
14
<PAGE> 15
The report of the Company's independent public accountants with respect
to the above-listed financial statement schedule appears on page 34 of this
Report.
All other financial statements and schedules not listed have been
omitted because the required information is included in the consolidated
financial statements or the notes thereto, or is not applicable.
(3) EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Second Amended and Restated Certificate of Incorporation.*
3.2 Bylaws of the Company.*
10.1 Computer Motion, Inc. Tandem Stock Option Plan.*
10.2 Development and Supply Agreement between the Stryker Endoscopy
Division of Stryker Corporation and the Company dated August 21,
1996.*(1)
10.3 Registration Agreement between the Company and certain
shareholders.*
10.4 Sales Agreement between the Company and Medtronic, Inc. dated
May 28, 1997.*(1)
10.5 Form of Warrant to Purchase Common Stock issued in connection
with Bridge Financing Agreements.*
10.6 Purchaser Representation and Subscription Agreement relating to
the Company's Series E Preferred Stock and Warrant to Purchase
Common Stock.*
10.7 Form of Redeemable Warrant to Purchase Common Stock of the
Company issued in conjunction with the Company's Series E
Preferred Stock.*
10.8 Business Agreement between the Company and Bulova Technologies,
L.L.C. dated February 18, 1997.*(1) 10.9 Lease between the
Company and University Business Center Associates dated March 1,
1994 and amendment thereto dated October 19, 1996.*
10.9 Lease between the Company and University Business Center
Associates dated March 1, 1994 and amendment thereto dated
October 19, 1996.*
10.10 Form of Indemnification Agreement for Officers and Directors of
the Company.*
10.11 Computer Motion, Inc. Employee Stock Purchase Plan, as amended
through September 30, 1997.**
10.12 Leases between the Company and University Business Center
Associates dated September 19, 1997.**
10.13 Computer Motion, Inc. 1997 Stock Incentive Plan*
13.1 Management's Discussion and Analysis of Financial Condition and
Results of Operations and Consolidated Financial Statements from
the 1999 Annual Report to Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
- ------------
* Incorporated by reference to the Company's Form S-1 Registration Statement
No. 333-29505 declared effective August 11, 1997.
(1) Registrant has sought confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with
the Commission.
** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
See Item 14(a)(3) of this Report.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
COMPUTER MOTION, INC.
April 13, 2000 /s/ Robert W. Duggan
- -------------- -----------------------------------
Date Robert W. Duggan
Chairman and Chief Executive Officer
(Principal Executive Officer)
April 13, 2000 /s/ Gordon L. Rogers
- -------------- -----------------------------------
Date Gordon L. Rogers
Vice President, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Daniel R. Doiron Director April 13, 2000
- ---------------------------------
Daniel R. Doiron
/s/ Robert W. Duggan Director April 13, 2000
- ---------------------------------
Robert W. Duggan
/s/ W. Peter Geis Director April 13, 2000
- ---------------------------------
W. Peter Geis
/s/ M. Jacqueline Eastwood Director April 13, 2000
- ---------------------------------
M. Jacqueline Eastwood
/s/ Yulun Wang Director April 13, 2000
- ---------------------------------
Yulun Wang
</TABLE>
16
<PAGE> 17
COMPUTER MOTION, INC.
YEAR ENDED DECEMBER 31, 1999
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING BALANCE AT
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts $254,000 $1,068,000 $119,000 $1,203,000
Year ended December 31, 1998
Allowance for doubtful accounts 62,000 298,000 106,000 254,000
Year ended December 31, 1997
Allowance for doubtful accounts 75,000 28,000 41,000 62,000
</TABLE>
17
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Second Amended and Restated Certificate of Incorporation.*
3.2 Bylaws of the Company.*
10.1 Computer Motion, Inc. Tandem Stock Option Plan.*
10.2 Development and Supply Agreement between the Stryker Endoscopy
Division of Stryker Corporation and the Company dated August 21,
1996.*(1)
10.3 Registration Agreement between the Company and certain
shareholders.*
10.4 Sales Agreement between the Company and Medtronic, Inc. dated
May 28, 1997.*(1)
10.5 Form of Warrant to Purchase Common Stock issued in connection
with Bridge Financing Agreements.*
10.6 Purchaser Representation and Subscription Agreement relating to
the Company's Series E Preferred Stock and Warrant to Purchase
Common Stock.*
10.7 Form of Redeemable Warrant to Purchase Common Stock of the
Company issued in conjunction with the Company's Series E
Preferred Stock.*
10.8 Business Agreement between the Company and Bulova Technologies,
L.L.C. dated February 18, 1997.*(1) 10.9 Lease between the
Company and University Business Center Associates dated March 1,
1994 and amendment thereto dated October 19, 1996.*
10.9 Lease between the Company and University Business Center
Associates dated March 1, 1994 and amendment thereto dated
October 19, 1996.*
10.10 Form of Indemnification Agreement for Officers and Directors of
the Company.*
10.11 Computer Motion, Inc. Employee Stock Purchase Plan, as amended
through September 30, 1997.**
10.12 Leases between the Company and University Business Center
Associates dated September 19, 1997.**
10.13 Computer Motion, Inc. 1997 Stock Incentive Plan*
13.1 Management's Discussion and Analysis of Financial Condition and
Results of Operations and Consolidated Financial Statements from
the 1999 Annual Report to Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
- ------------
* Incorporated by reference to the Company's Form S-1 Registration Statement
No. 333-29505 declared effective August 11, 1997.
(1) Registrant has sought confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with
the Commission.
** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
<PAGE> 1
This discussion contains forward looking statements that involve risks and
uncertainties. The Company's actual results may differ materially due to factors
that include, but are not limited to, the risks discussed herein under "Risk
Factors," as well as those discussed in the "Risk Factors" section of the
Company's Annual Report on Form 10-K.
(MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
Computer Motion, Inc. (the "Company") develops and markets proprietary robotic
and computerized surgical systems that are intended to enhance a surgeon's
performance and centralize and simplify a surgeon's control of the operating
room ("OR"). The Company believes that its products will provide surgeons with
the precision and dexterity necessary to perform complex, minimally invasive
surgical procedures, as well as enable surgeons to control critical devices in
the OR through simple verbal commands. The Company believes that its products
will broaden the scope and increase the effectiveness of minimally invasive
surgery, improve patient outcomes, and create a safer, more efficient and cost
effective OR.
The Company's AESOP(R) robotic endoscope positioning system allows direct
surgeon control of the endoscope through simple verbal commands, eliminating the
need for a member of a surgical staff to manually control the camera, while
providing a more stable and sustainable endoscopic image.
The Company's ZEUS(TM) Robotic Surgical System is comprised of three
surgeon-controlled robotic arms, one of which positions the endoscope and two of
which manipulate surgical instruments. The Company believes that the ZEUS System
will improve a surgeon's dexterity and precision and enhance visualization of,
and access to, confined operative sites.
The Company's HERMES(TM) Control Center is designed to enable a surgeon to
directly control multiple OR devices, including various laparoscopic,
arthroscopic and video devices, as well as the Company's robotic devices,
through simple verbal commands.
The Company has sustained significant losses since inception and expects to
continue to incur losses due to research and development efforts, costs
associated with obtaining regulatory approvals and clearances, continued
marketing expenditures to increase sales and other costs associated with the
Company's anticipated growth. Furthermore, the Company anticipates that its
operating results may fluctuate significantly from quarter to quarter in the
future, depending on a number of factors, many of which are outside the
Company's control. These factors include timing and results of clinical trials,
delays associated with FDA and other clearance processes, changes in pricing
policy by the Company or its competitors, the number, timing and significance of
product enhancements and new products by the Company and its competitors, health
care reimbursement policies and product quality issues.
(RESULTS OF OPERATIONS)
(REVENUE) Revenue increased $7.5 million (70.6 percent) to $18.1 million in 1999
from $10.6 million in 1998. The increase resulted from a $1.2 million or 69.7
percent, increase in HERMES revenue and a $6.5 million, or 664.9 percent,
increase in ZEUS revenue. AESOP revenues were relatively flat, declining
$289,000 or 3.7 percent. Development revenues associated with pre-clinical ZEUS
activities in 1999 totaled $1.3 million, a 57.1 percent increase over the prior
year. Development revenues associated with HERMES in 1999 totaled $115,000.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 29
<PAGE> 2
Revenue increased $4.0 million (60.1 percent) to $10.6 million in 1998 from $6.6
million in 1997. The increase resulted from a $2.5 million, or 46.2 percent,
increase in AESOP revenue and a $1.5 million, or 686.5 percent, increase in
HERMES revenue. Development revenues associated with pre-clinical ZEUS
activities in 1998 totaled $807,000, a slight decrease from the prior year.
(GROSS PROFIT) Gross profit increased $2.8 million (46.4 percent) to $8.9
million in 1999 from $6.1 million in 1998. Gross margin decreased to 49.4
percent in 1999 as compared to 57.6 percent in 1998. The decrease in gross
margin was primarily due to costs associated with the ZEUS product line as costs
of future upgrades granted were recognized, and promotional accessories were
offered at little or no cost. Pressure on gross margins will continue until the
Company receives FDA clearance for the ZEUS System and is able to produce and
sell it at a greater volume.
Gross profit increased $2.3 million (62.2 percent) to $6.1 million in 1998 from
$3.7 million in 1997. Gross margin increased to 57.6 percent in 1998 as compared
to 56.7 percent in 1997. The increase in gross margin was primarily due to
significantly increased AESOP average selling prices and some efficiencies of
scale associated with increased unit production, offset in part by costs
associated with the ZEUS product line as older products in the field were
replaced with upgraded or new products.
(SELLING, GENERAL AND ADMINISTRATIVE) Selling, general and administrative
expenses increased $2.3 million (20.8 percent) to $13.4 million in 1999 as
compared to $11.1 million in 1998. The increase was due mainly to the addition
of sales and marketing personnel and related recruiting and relocation costs,
increased levels of marketing support, greater travel and business expenses, and
higher commissions based on the increased sales.
Selling, general and administrative expenses increased $3.3 million (42.7
percent) to $11.1 million in 1998 as compared to $7.8 million in 1997. The
increase was due mainly to the addition of sales and marketing personnel and
related costs necessary to support the increased sales of the Company.
(RESEARCH AND DEVELOPMENT) Research and development expenses increased $1.6
million (20.5 percent) to $9.5 million in 1999 as compared to $7.9 million in
1998, primarily as a result of additional personnel and increased research and
development efforts with respect to the HERMES and ZEUS platforms.
Research and development expenses increased $3.8 million (90.5 percent) to $7.9
million in 1998 as compared to $4.1 million in 1997, primarily as a result of
additional personnel and increased research and development efforts with respect
to the HERMES and ZEUS platforms, as well as for building additional research
and development, new product introduction and regulatory and clinical affairs
infrastructure.
(OTHER INCOME) Other income was $681,000 in 1999 compared to $1.4 million in
1998. Other income was almost entirely interest income derived from investments
in marketable securities. This decrease is a result of the reduced level of
investments in cash and marketable securities derived from the proceeds of the
Company's initial public offering in August 1997 as these funds were used to
support ongoing operations.
Other income was $1.4 million in 1998 compared to other expense of $1.0 million
in 1997. Other income in 1998 was almost entirely interest income derived from
proceeds from the Company's initial public offering which was completed in
August 1997. Other expense in 1997 included the amortization of $1.0 million of
financing costs attributable to the fixed conversion feature of a convertible
debenture and $442,000 of financing costs attributable to warrants issued in
connection with bridge debt, and was net of $776,000 of interest income derived
primarily from investing the proceeds of the Company's initial public offering.
(INCOME TAXES) Minimal provisions for state income taxes have been recorded on
the Company's pre-tax losses to date. At December 31, 1999, the Company had
federal and state net operating loss
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 30
<PAGE> 3
carryforwards of approximately $36.0 million and $7.5 million, respectively
which are available to offset future federal and state taxable income. These
carryforwards will expire on various dates through 2019. The Company has
provided a full valuation allowance on the deferred income tax asset because of
the uncertainty regarding its realization.
(FINANCIAL CONDITION)
Since its inception, the Company's expenses have exceeded its revenues,
resulting in an accumulated deficit of $46.6 million as of December 31, 1999.
Until its initial public offering, the Company had primarily relied on proceeds
from issuance of preferred and common stock and bridge debt financing to fund
its operations.
At December 31, 1999, the Company's current ratio (current assets divided by
current liabilities) was 2.9 to 1 versus 8.1 to 1 at December 31, 1998,
reflecting the decrease in cash and marketable securities as the proceeds from
the initial public offering were used to support operations.
For the year ended December 31, 1999, the Company's use of cash in operating
activities of $14.3 million was primarily attributable to the net loss and also
to increases in accounts receivable and inventory in support of the Company's
revenue growth.
Cash outflow from purchases of plant and equipment was $1.5 million in 1999. The
Company currently has no material commitments for capital expenditures, but has
procured additional leased space in anticipation of continued business growth.
For the year ended December 31, 1999, net cash provided by financing activities
of $2.0 million was almost entirely attributable to the exercise of stock
options and warrants totaling $2.1 million.
The Company's operations to date have consumed substantial amounts of cash, and
the Company expects its capital and operating expenditures to continue to exceed
proceeds from ongoing sales at least through 2000. The Company's need for
additional financing will depend upon numerous factors, including, but not
limited to, the extent and duration of the Company's future operating losses,
the level and timing of future revenues and expenditures, the progress and scope
of clinical trials, the timing and costs required to receive both United States
and international governmental approvals or clearances, market acceptance of new
products, the results and scope of ongoing research and development projects,
the costs of training physicians to become proficient in the use of the
Company's products and procedures, and the cost of developing appropriate sales
and marketing capabilities. The Company plans to raise additional funds through
public or private equity financing and is also planning to obtain a bank line of
credit. There can be no assurance that additional financing, if required, would
be available on acceptable terms, if at all. Management is confident that they
will be able to raise the funds necessary to sustain operations through December
31, 2000. If adequate funds are not available, the Company's business, financial
condition and results of operations would be materially adversely affected and
its ability to continue as a going concern would be at risk.
The Company's financial instruments include cash and short-term investment grade
debt securities. At December 31, 1999, the carrying values of the Company's
financial instruments approximated their fair values based on current market
prices and rates. It is the Company's policy not to enter into derivative
financial instruments. The Company does not currently have material foreign
currency exposure as the majority of its international transactions are
denominated in U.S. currency. Accordingly, the Company does not have significant
currency exposure at December 31, 1999.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 31
<PAGE> 4
(RISK FACTORS)
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. The following discussion
summarizes some of these risks which could affect the Company's actual future
results and could cause them to differ materially from any forward-looking
statements made by the Company.
The Company has a limited operating history and has not yet made a profit. The
HERMES and ZEUS product lines are important to the Company's future success and
neither product has achieved market acceptance. The ZEUS System has not yet
achieved United States regulatory clearance. Government regulation of the
medical device industry is strict and the regulatory clearance process is
generally lengthy, expensive and uncertain. There are alternative treatments and
procedures to using the Company's products. The Company's products are subject
to rapid technological change. The success of the Company, in part, is based on
its ability to obtain patent protection for its products. The Company is
dependent on sole source suppliers for principal components of its AESOP and
ZEUS product lines. The Company's operations will continue to consume
significant amounts of cash and anticipated growth will place significant
demands on the Company's management resources, particularly in research and
development and sales and marketing.
A more detailed discussion of factors that could affect the Company's future
results can be found in the "Risk Factors" section of the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 and under financial
condition above.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 32
<PAGE> 5
(CONSOLIDATED STATEMENTS OF OPERATIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 18,058,000 $ 10,586,000 $ 6,611,000
Cost of revenue 9,135,000 4,492,000 2,863,000
------------ ------------ ------------
Gross profit 8,923,000 6,094,000 3,748,000
- ---------------------------------------------------------------------------------------------------
Research and development expense 9,528,000 7,905,000 4,149,000
Selling, general and administrative expense 13,431,000 11,117,000 7,790,000
------------ ------------ ------------
Loss from operations (14,036,000) (12,928,000) (8,191,000)
- ---------------------------------------------------------------------------------------------------
Other (income) expense, net (681,000) (1,408,000) 1,015,000
------------ ------------ ------------
Loss before income tax provision (13,355,000) (11,520,000) (9,206,000)
- ---------------------------------------------------------------------------------------------------
Income tax provision 20,000 25,000 13,000
Net loss $(13,375,000) $(11,545,000) $ (9,219,000)
- ---------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Foreign currency translation adjustment (33,000) -- --
------------ ------------ ------------
Comprehensive loss $(13,408,000) $(11,545,000) $ (9,219,000)
- ---------------------------------------------------------------------------------------------------
Net loss per share - basic and diluted $ (1.57) $ (1.45) $ (2.12)
- ---------------------------------------------------------------------------------------------------
Weighted average shares outstanding -
basic and diluted 8,503,000 7,959,000 4,343,000
===================================================================================================
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 33
<PAGE> 6
(REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
To the Board of Directors of Computer Motion, Inc.:
We have audited the accompanying consolidated balance sheets of Computer Motion,
Inc., a Delaware corporation and subsidiary, as of December 31, 1999 and 1998,
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Computer Motion,
Inc. as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Woodland Hills, California
February 25, 2000
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 34
<PAGE> 7
(CONSOLIDATED BALANCE SHEETS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 4,297,000 $ 5,577,000
Marketable securities 3,224,000 15,736,000
Accounts receivable, net of allowance
for doubtful accounts of $1,265,000
in 1999 and $254,000 in 1998 6,203,000 2,856,000
Inventories
Raw materials 2,899,000 1,588,000
Work in process 942,000 344,000
Finished goods 1,168,000 1,349,000
------------ ------------
Total inventories 5,009,000 3,281,000
Prepaid expenses 332,000 347,000
------------ ------------
Total current assets 19,065,000 27,797,000
- ---------------------------------------------------------------------------------
Furniture and fixtures 1,157,000 950,000
Computer equipment 2,061,000 1,307,000
Machinery and equipment 2,341,000 1,807,000
Accumulated depreciation (2,626,000) (1,689,000)
------------ ------------
Property and equipment, net 2,933,000 2,375,000
- ---------------------------------------------------------------------------------
Other assets 1,363,000 272,000
- ---------------------------------------------------------------------------------
Total assets $ 23,361,000 $ 30,444,000
=================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------
Current liabilities
Accounts payable $ 3,235,000 $ 1,623,000
Accrued expenses 2,917,000 1,820,000
Deferred revenue 317,000 --
------------ ------------
Total current liabilities 6,469,000 3,443,000
- ---------------------------------------------------------------------------------
Deferred revenue 970,000 --
Other liabilities 103,000 131,000
------------ ------------
Total liabilities 7,542,000 3,574,000
Commitments and contingencies (Note 6)
- ---------------------------------------------------------------------------------
Shareholders' equity
Preferred stock
Authorized -- 5,000,000 shares
Issued and Outstanding -- none
Common stock -- $.001 par value
Authorized -- 25,000,000 shares
Issued & Outstanding -- 1999 - 8,745,442
shares; 1998 - 8,353,725 shares 9,000 8,000
Additional paid-in capital 62,663,000 60,813,000
Deferred compensation (247,000) (753,000)
Accumulated deficit (46,573,000) (33,198,000)
Accumulated comprehensive loss (33,000) --
------------ ------------
Total shareholders' equity 15,819,000 26,870,000
- ---------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 23,361,000 $ 30,444,000
=================================================================================
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 35
<PAGE> 8
(CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT))
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
PREFERRED COMMON ADDITIONAL DEFERRED DEFICIT & COMP- SHAREHOLDERS'
STOCK STOCK PAID-IN CAPITAL COMPENSATION REHENSIVE LOSS EQUITY (DEFICIT)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1996 $ 3,716,000 $ 2,000 $ 537,000 $ (515,000) $(12,434,000) $ (8,694,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock issued -- 1,000 1,216,000 -- -- 1,217,000
Stock issued on IPO -- 3,000 36,737,000 -- -- 36,740,000
Conversion of preferred
to common net of
issuance costs (3,716,000) 2,000 12,176,000 -- -- 8,462,000
Exercise of options -- -- 272,000 -- -- 272,000
Exercise of warrants,
net of issuance costs -- -- 168,000 -- -- 168,000
Deferred compensation,
net of amortization -- -- 2,323,000 (1,266,000) -- 1,057,000
Conversion of debt
to common -- -- 5,074,000 -- -- 5,074,000
Redemption premium -- -- (240,000) -- -- (240,000)
Stock purchase plan -- -- 78,000 -- -- 78,000
Net loss -- -- -- -- (9,219,000) (9,219,000)
----------- --------- ------------ ----------- ------------ ------------
Balance December 31, 1997 -- 8,000 58,341,000 (1,781,000) (21,653,000) 34,915,000
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock issued -- -- 46,000 -- -- 46,000
Exercise of options -- -- 1,094,000 -- -- 1,094,000
Exercise of warrants -- -- 1,471,000 -- -- 1,471,000
Amortization of
deferred compensation -- -- (400,000) 1,028,000 -- 628,000
Stock purchase plan -- -- 276,000 -- -- 276,000
IPO expenses and other -- -- (15,000) -- -- (15,000)
Net loss -- -- -- -- (11,545,000) (11,545,000)
----------- --------- ------------ ----------- ------------ ------------
Balance
December 31, 1998 -- 8,000 60,813,000 (753,000) (33,198,000) 26,870,000
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock issued -- -- -- -- -- --
Exercise of options -- 1,000 1,836,000 -- -- 1,837,000
Exercise of warrants -- -- 37,000 -- -- 37,000
Amortization of
deferred compensation -- -- (270,000) 506,000 -- 236,000
Stock purchase plan -- -- 262,000 -- -- 262,000
Other -- -- (15,000) -- -- (15,000)
Unrealized loss -
translation -- -- -- -- (33,000) (33,000)
Net loss -- -- -- -- (13,375,000) (13,375,000)
----------- --------- ------------ ----------- ------------ ------------
Balance
December 31, 1999 $ -- $ 9,000 $ 62,663,000 $ (247,000) $(46,606,000) $ 15,819,000
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
COMMON SHARES PREFERRED SHARES
1997 1998 1999 1997 1998 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 1,734,289 7,670,589 8,353,725 1,474,545 -- --
- --------------------------------------------------------------------------------------------------------
Issued 125,734 91,747 -- 323,871 -- --
Issued on IPO 2,875,000 -- -- -- -- --
Exercise of options 187,653 254,780 354,478 -- -- --
Conversion of preferred 2,344,387 -- -- (1,798,416) -- --
Exercise of warrants 31,051 309,827 8,189 -- -- --
Conversion of debt 363,743 -- -- -- -- --
Stock purchase plan 8,732 26,782 29,050 -- -- --
--------- --------- --------- ---------- ---- ----
Ending balance 7,670,589 8,353,725 8,745,442 -- -- --
========================================================================================================
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 36
<PAGE> 9
(CONSOLIDATED STATEMENTS OF CASH FLOWS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(13,375,000) $(11,545,000) $ (9,219,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 937,000 518,000 379,000
Provision for doubtful accounts 1,011,000 298,000 28,000
Loss on sale of fixed assets 8,000 5,000 1,000
Common stock and options issued for services 50,000 46,000 66,000
Financing cost of warrants issued with debt and fixed
conversion of convertible debenture -- -- 1,442,000
Compensation for stock options, warrants and
common stock issued below fair market value 236,000 628,000 1,057,000
Decrease/(increase) in:
Accounts receivable (4,358,000) (1,350,000) (747,000)
Inventories (1,728,000) (2,289,000) (347,000)
Prepaid expenses 15,000 (65,000) (195,000)
Other assets (1,091,000) -- --
Increase/(decrease) in:
Accounts payable 1,612,000 405,000 316,000
Accrued expenses 1,097,000 849,000 212,000
Deferred revenue and other liabilities 1,259,000 -- --
------------ ------------ ------------
Net cash used in operating activities (14,327,000) (12,500,000) (7,007,000)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Purchases of property and equipment (1,503,000) (1,784,000) (816,000)
Decrease/(increase) in marketable securities 12,512,000 (5,557,000) (10,179,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 11,009,000 (7,341,000) (10,995,000)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Repayment of debt -- (78,000) (4,488,000)
Proceeds from common stock issued and warrants
exercised, net of repurchases 249,000 1,747,000 5,470,000
Proceeds from IPO, net of expenses -- (35,000) 36,740,000
Proceeds from preferred stock issuance -- -- 2,341,000
Proceeds from exercise of stock options 1,836,000 1,094,000 272,000
Other (47,000) 135,000 (211,000)
------------ ------------ ------------
Net cash provided by financing activities 2,038,000 2,863,000 40,124,000
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (1,280,000) (16,978,000) 22,122,000
Cash and cash equivalents at beginning of period 5,577,000 22,555,000 433,000
------------ ------------ ------------
Cash and cash equivalents at end of period $ 4,297,000 $ 5,577,000 $ 22,555,000
=================================================================================================================
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 37
<PAGE> 10
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
(NOTE 1 > SIGNIFICANT ACCOUNTING POLICIES)
(NATURE OF OPERATIONS AND RISKS) Computer Motion, Inc. develops and markets
proprietary robotic and computerized surgical systems that enhance a surgeon's
performance and centralize and simplify a surgeon's control of the operating
room. The Company's primary efforts are directed toward developing and
commercializing medical robots and intelligent interface modalities which will
enable new minimally invasive surgical procedures and enhance the surgical
team's overall productivity. The Company's objective is to be the world's
leading provider of robotic and computerized surgical systems.
Like other companies at this stage of development and in this industry, the
Company's future success is subject to numerous risks including the uncertainty
of design, development and manufacturing of new products, regulatory clearances
and approvals, developing its markets, acceptance of its products, reimbursement
for its products, financing its operations, managing its growth and competition.
The Company's operations to date have consumed substantial amounts of cash, and
the Company expects its capital and operating expenditures to continue to exceed
proceeds from ongoing sales at least through 2000. The Company's need for
additional financing will depend upon numerous factors, including, but not
limited to, the extent and duration of the Company's future operating losses,
the level and timing of future revenues and expenditures, the progress and scope
of clinical trials, the timing and costs required to receive both United States
and international governmental approvals or clearances, market acceptance of new
products, the results and scope of ongoing research and development projects,
the costs of training physicians to become proficient in the use of the
Company's products and procedures, and the cost of developing appropriate sales
and marketing capabilities. The Company plans to raise additional funds through
public or private equity financing and is also planning to obtain a bank line of
credit. There can be no assurance that additional financing, if required, would
be available on acceptable terms, if at all. Management is confident that they
will be able to raise the funds necessary to sustain operations through December
31, 2000. If adequate funds are not available, the Company's business, financial
condition and results of operations would be materially adversely affected and
its ability to continue as a going concern would be at risk.
(CONSOLIDATION) The consolidated financial statements include the accounts of
the Company and its wholly-owned French subsidiary, Computer Motion S.A.
Intercompany transactions and balances have been eliminated in consolidation.
(RECLASSIFICATIONS) Certain reclassifications of previously reported amounts
have been made to conform with the current year presentation.
(USE OF ESTIMATES) Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(REVENUE RECOGNITION) The Company recognizes revenue from the sale of product
and from the performance of services as products are shipped and as services are
performed. The company defers revenue from the sale of extended warranties and
other contracts and recognizes it over the life of the contracts.
(FOREIGN CURRENCY TRANSLATION) The assets and liabilities of Computer Motion
S.A. are translated into U.S. dollars at exchange rates in effect on reporting
dates, while capital accounts are translated at historical rates. Income
statement items are translated at average exchange rates in effect during the
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 38
<PAGE> 11
financial statement period. The cumulative effect of translation is recorded as
a separate component of shareholders' equity.
(NET LOSS PER SHARE) Basic net loss per share is calculated on a basis
equivalent to diluted net loss per share since inclusion of the Company's
outstanding stock options and warrants in the calculation is antidilutive. Net
loss per share is based on the weighted average number of common shares
outstanding during the financial statement period.
(CASH EQUIVALENTS) Cash equivalents, consisting of liquid investments with a
maturity of three months or less when purchased, are stated at cost which
approximates market.
(PROPERTY AND EQUIPMENT) Property and equipment are stated at cost and are
depreciated using the straight line method based on useful lives of seven years
for furniture and fixtures and three to seven years for machinery and equipment
and three years for computer equipment.
(RESEARCH AND DEVELOPMENT) Research and development expenses are charged to
operations as incurred and totaled $9,528,000, $7,905,000 and $4,149,000 in
1999, 1998 and 1997 respectively.
(INCOME TAXES) The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statements and the tax
basis of assets and liabilities using the enacted tax rate in effect for the
years in which the differences are expected to reverse.
(INVENTORIES) Inventories, which include materials, are stated at the lower of
cost or market. The Company uses the first-in, first-out (FIFO) method to value
inventories.
(PATENTS, TRADEMARKS AND OTHER INTANGIBLES) Patents, trademarks and other
intangibles are carried at cost less accumulated amortization that is calculated
on the straight-line basis over the useful lives of the assets.
(NOTE 2 > STOCK PURCHASE AND OPTION PLANS)
(STOCK PURCHASE) The Company's employee stock purchase savings plan allows
participating employees to purchase, through payroll deductions, shares of
common stock at 85% of the fair market value at specified dates. Under the terms
of the plan, 129,668 shares of common stock have been reserved for purchase by
plan participants. Employees purchased 29,050, 26,782 and 8,732 shares in 1999,
1998 and 1997 respectively. At December 31, 1999, 65,104 shares were available
for purchase under the plan. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation".
(STOCK OPTIONS) Under the terms of the Company's stock option plans, 3,493,361
shares of common stock have been reserved for issuance to directors, officers
and employees and to others upon the grant of restricted stock or the exercise
of stock options. Stock options are generally exercisable over periods up to 10
years from date of grant and may be "incentive stock options" or "non-qualified
stock options." Options generally vest evenly over four years. At December 31,
1999, there were a maximum of 945,376 shares available for grant and 1,695,210
options outstanding, of which 596,728 shares were exercisable at a weighted
price of $6.18 per share. The weighted average contractual life of options
outstanding at December 31, 1999 was 8.2 years. Stock option activity was as
follows:
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 39
<PAGE> 12
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVG.
OUTSTANDING EXERCISE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance - 12/31/96 1,341,760 $ 4.01
- --------------------------------------------------------------------------------
Granted 650,789 $ 8.44
Canceled (71,421) $ 4.57
Exercised (187,653) $ 1.45
Balance - 12/31/97 1,733,475 $ 6.34
- --------------------------------------------------------------------------------
Granted 657,950 $10.61
Canceled (471,197) $ 9.12
Exercised (254,780) $ 4.30
Balance - 12/31/98 1,665,448 $ 7.10
- --------------------------------------------------------------------------------
Granted 861,175 $10.37
Canceled (476,935) $ 9.30
Exercised (354,478) $ 5.18
Balance - 12/31/99 1,695,210 $ 8.54
================================================================================
</TABLE>
In the opinion of management, all options have been granted at not less than
fair market value at dates of grant. When stock options are exercised, the par
value of the shares issued is credited to common stock and the excess of the
proceeds over the par value is credited to additional paid-in capital. When
non-qualified options are exercised, or when incentive stock options are
exercised and sold within a one-year period, the Company realizes income tax
benefits based on the difference between the fair value of the stock on the date
of exercise and the stock option exercise price. These tax benefits do not
affect the income tax provision, but rather are credited directly to additional
paid-in capital.
Pursuant to the terms of the plans, the Company has issued options to
non-employees for services. Options issued to non-employees totaled 75,000 and
the related compensation expense recognized by the company totaled $50,000 in
1999. Compensation related to options issued for services is recognized ratably
over the service period.
During February 1999, the Company issued a total of 130,000 options to sales
personnel of the Company. Vesting rights for these options were contingent on
the Company meeting certain sales performance criteria. No compensation expense
was required in 1999 due to there being no variance between the exercise price
and fair market value of the options on the date the performance criteria was
met.
The Company issued certain common stock and warrants and granted certain stock
options at prices perceived by the Securities and Exchange Commission to be less
than the estimated fair market value of the common stock. The difference between
the issuance or grant price and the estimated fair market value at date of
issuance or grant is reflected as compensation expense. Compensation expense of
$236,000, $628,000 and $1,057,000 was recognized in 1999, 1998 and 1997
respectively. At December 31, 1999, deferred (unamortized) compensation expense
relating to stock options was $247,000 and will be recognized as compensation
expense over the balance of the vesting period of the stock options.
Under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," the Company has elected to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related accounting interpretations. Accordingly, no compensation
expense has been recognized related to the granting of stock options, except as
noted above. If compensation expense related to stock options was determined
based upon their grant date fair value consistent with the methodology
prescribed under SFAS No. 123, the Company's net loss and basic loss per share
would have been increased by $2,406,332, ($.28 per share), $1,295,000 ($.16 per
share) and $718,000 ($.17 per share) for 1999, 1998 and 1997, respectively. The
fair market value of the warrants and stock
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 40
<PAGE> 13
options at the grant date was estimated using the Black-Scholes model with the
following weighted average assumptions:
1999 1998 1997
- --------------------------------------------------------------------------------
Expected life (years) 7.0 7.0 7.0
Interest rate 5.5% 5.5% 6.0%
Volatility 63.0% 40.0% 10.0%
Dividend yield 0.0% 0.0% 0.0%
================================================================================
(NOTE 3 > COMMON STOCK WARRANTS)
The Company has issued warrants to purchase common shares which are exercisable
over periods of up to 7 years from date of issuance. At December 31, 1999, all
outstanding warrants were exercisable. Warrant information is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVG.
WARRANTS OUTSTANDING EXERCISE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance - 12/31/96 1,301,288 $5.18
- --------------------------------------------------------------------------------
Granted 356,673 $7.43
Exercised (31,051) $5.23
--------- -----
Balance - 12/31/97 1,626,910 $5.34
- --------------------------------------------------------------------------------
Exercised (309,827) $4.75
--------- -----
Balance - 12/31/98 1,317,083 $5.48
- --------------------------------------------------------------------------------
Exercised (8,189) $4.57
--------- -----
Balance - 12/31/99 1,308,894 $5.48
================================================================================
</TABLE>
(NOTE 4 > INCOME TAX PROVISION)
Income tax for all years presented consisted of minimum state income and
franchise taxes. Net deferred income tax assets at December 31, 1999 and 1998
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Allowance for doubtful accounts $ 504,000 $ 102,000
Accrued liabilities 674,000 80,000
Deferred rent 41,000 53,000
Depreciation and amortization 137,000 74,000
Uniform capitalization costs 358,000 337,000
Net operating loss carryforwards 12,854,000 9,950,000
Tax credits 1,530,000 771,000
Deferred revenue 513,000 --
Capitalized research and development costs 1,094,000 --
Other 382,000 52,000
------------ ------------
Total deferred income tax asset 18,087,000 11,419,000
Valuation reserve (18,087,000) (11,419,000)
------------ ------------
Net deferred income tax asset $ -- $ --
================================================================================
</TABLE>
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 41
<PAGE> 14
The income tax provision reconciles to the amount computed by applying the
federal statutory rate to loss before taxes as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected federal benefit $(4,541,000) $(3,917,000) $(3,222,000)
State income taxes, net of
federal income tax effect 20,000 25,000 13,000
Tax benefits not recognized 4,541,000 3,917,000 3,222,000
----------- ----------- -----------
Income tax provision $ 20,000 $ 25,000 $ 13,000
================================================================================
</TABLE>
At December 31, 1999, the Company had federal and state net operating loss (NOL)
carryforwards of approximately $36,000,000 and $7,500,000, respectively and
research and development tax credit carryforwards of approximately $1,530,000.
The federal tax credit and NOL carryforwards expire twenty years from the year
of loss and are restricted if significant changes in ownership occur. The state
NOL carryforwards expire in five to seven years from the year of loss.
Realization of deferred tax assets is dependent on generating sufficient taxable
income during the periods in which the temporary differences will reverse.
Because the Company is uncertain when it may realize the benefit of its tax
assets, the Company has placed a valuation allowance against the total deferred
tax assets.
(NOTE 5 > FINANCIAL INSTRUMENTS AND OFF-BALANCE STREET RISK)
(FINANCIAL INSTRUMENTS) Marketable securities consist of bank certificates of
deposit, commercial paper and corporate bonds, all of which by policy must
mature within 360 days. Under Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities", all
marketable securities are classified as held to maturity and are carried at
amortized cost which closely approximates fair market value. Interest income
earned totaled $700,000, $1,448,000 and $776,000 in 1999, 1998 and 1997
respectively.
The Company's investment portfolios consist of the following:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Certificates of deposit $ -- $ 1,000,000
Commercial paper 698,000 8,686,000
Corporate bonds 2,499,000 9,068,000
Cash 4,294,000 2,350,000
Interest receivable 30,000 209,000
---------- -----------
Total $7,521,000 $21,313,000
================================================================================
</TABLE>
(CONCENTRATION OF RISK) Trade accounts receivable and certain marketable
securities are the financial instruments which may subject the Company to
concentration of credit risk. Although the Company does not anticipate
collection problems with its receivables, payment is contingent to a certain
extent upon the economic condition of the hospitals which purchase the Company's
products. The credit risk associated with receivables is limited due to
dispersion of the receivables over a number of customers in a number of
geographic areas. The Company monitors credit worthiness of its customers to
which it grants credit terms in the normal course of business. Marketable
securities are placed with high credit qualified financial institutions and
Company policy limits the credit exposure to any one financial instrument;
therefore, credit loss is reduced.
A sub-assembly of the robotic arms, which are a major component of the Company's
AESOP and ZEUS products, is purchased from a single supplier. The Company
believes that other suppliers would be available for the sub-assembly, if
necessary.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 42
<PAGE> 15
(NOTE 6 > COMMITMENTS AND CONTINGENCIES)
(LEASES) Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$667,000, $629,000 and $364,000, respectively. As of December 31, 1999, the
Company had the following minimum lease payments for certain facilities and
equipment under operating leases: 2000-$805,000; 2001-$828,000; 2002-$845,000;
2003-$869,000; 2004-$893,000 and thereafter $1,794,000.
(CONTINGENCIES) The Company is involved in various claims arising in the normal
course of business. Management is of the opinion that the ultimate resolution of
all such matters will not have a material effect on the accompanying financial
statements.
(NOTE 7 > FINANCING ARRANGEMENTS)
The Company has arrangements with several third-party finance institutions,
whereby the Company sells its leases, primarily without recourse. The Company
recognized approximately $1,880,000, $3,511,000 and $1,331,000 in revenues from
leases sold in 1999, 1998 and 1997, respectively. At December 31, 1999,
approximately $165,000 had not been collected on leases sold with recourse for
which the Company is contingently liable. The Company intends to no longer sell
leases with recourse.
(NOTE 8 > PROFIT SHARING PLAN)
The Company's defined contribution profit sharing plan (the "Plan) includes
features under Section 401(k) of the Internal Revenue code. All employees are
eligible to participate in the Plan after meeting certain minimum service
requirements. Employees may make discretionary contributions to the Plan subject
to Internal Revenue Service limitations. Employer contributions to the Plan were
$63,000, $56,000 and 0 in 1999, 1998 and 1997 respectively.
(NOTE 9 > GEOGRAPHIC AREA)
The Company operates in a single industry segment, the medical device industry.
Export sales from the United States were $6,143,000, $1,225,000 and $1,871,000
in 1999, 1998 and 1997 respectively primarily to Europe and Asia.
(NOTE 10 > SHAREHOLDER RIGHTS PLAN)
In June 1999, the Board of Directors approved a Shareholder Rights Plan and
declared a dividend distribution of one right for each outstanding share of the
Company's outstanding Common Stock to stockholders of record on the close of
business June 28, 1999. Each right entitles the holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock $(.001
par value) at a price of $70 (subject to adjustment). Subject to extension by
the Board of Directors, the rights will separate from the Common Stock and a
distribution will occur upon the earlier of: ten days following a public
announcement of a person, persons or other affiliated entity having acquired or
obtained the right to acquire beneficial ownership of 20 percent or more of the
outstanding shares of Common Stock, or ten business days following the
commencement of a tender offer that would result in a person, persons or other
affiliated entity beneficially owning 20 percent or more of the outstanding
shares of Common Stock. In the event that at any time following the distribution
of the rights a person, persons or other affiliated entity obtains more than 20
percent of the outstanding shares of Common Stock, engages in any "self-dealing"
transactions as set forth in the Right Agreement, or an event occurs which
results in an increase in a person, persons or other affiliated entity's
ownership interest by more than one-half of one percent, each holder of a right
will thereafter have the right to receive Common Stock (or in certain
circumstances, cash, property or other securities) having a value equal to two
times the exercise price of the right. In conjunction with the above, all rights
beneficially owned (and under certain circumstances previously beneficially
owned) by the person, persons or other affiliated entity triggering the
exercisability of the rights, shall be null and void. However, rights may not be
exercisable if the Board of Directors deems a tender or exchange offer to be a
"Permitted Offer" in the best interest of the Company and its stockholders. A
"Permitted Offer" does not trigger the exercisability of the right and any time
prior to the rights becoming exercisable, the Company may redeem the rights (in
whole only) at a price of $.01 per right.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 43
<PAGE> 16
NOTE 11 > SHAREHOLDERS' EQUITY
In August 1997, the Company reincorporated in Delaware and effected a reverse
stock split of its existing common and preferred stock of its existing common
and preferred stock of 1 for 1.928 shares. This reincorporation and reverse
stock split have been retroactively reflected in the accompanying financial
statements. All shares of preferred stock were converted to common stock upon
the Company's initial public offering in August, 1997.
(PREFERRED STOCK) At December 31, 1999, the Company had 5,000,000 shares of
undesignated preferred stock authorized and available for future issuance, none
of which had been issued. The Company's Board of Directors, at its sole
discretion, may determine, fix and alter dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any such series,
and may determine the designation, terms and conditions of the issuance of any
such shares.
(COMMON STOCK) During the year ended December 31, 1999, stock option and warrant
exercises and issuances of common stock under the Company's Employee Stock
Purchase Plan increased the number of common shares by 391,717. Effective May
1997, a corporation which had invested $4,000,000 in the form of a convertible
note converted its note and all accrued interest thereon into 363,743 shares of
the Company's common stock. Financing costs of $1,000,000 relating to the fixed
conversion feature of this note were expensed in 1997.
(NOTE 12 > SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION)
Cash paid for income taxes was $8,085, $3,462, and $1,500 for 1999, 1998 and
1997 respectively. Cash paid for interest was $11,703, $37,776 and $332,202 for
1999, 1998 and 1997 respectively.
(NOTE 13 > EVENTS SUBSEQUENT TO THE DATE OF AUDITORS' REPORT (UNAUDITED))
In March 2000, the Company's Chief Executive Officer made a convertible loan to
the Company in the amount of $3,000,000. Interest on the convertible loan
accrues at the prime rate. The convertible loan shall be due and payable on
demand upon (a) the earlier of the first anniversary of the 2000 Annual Meeting,
if the stockholders decline to approve the conversion of the note, or (b) at any
time after March 29, 2002. All of the principal and accrued interest outstanding
shall automatically be converted into common stock upon the approval of the
conversion by the Company's stockholders at the Company's 2000 Annual Meeting.
(NOTE 14 > QUARTERLY FINANCIAL DATA (UNAUDITED))
Quarterly data for 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
Revenue $ 3,952,000 $ 4,699,000 $ 5,358,000 $ 4,049,000
Gross profit $ 2,238,000 $ 2,720,000 $ 3,215,000 $ 750,000
Net loss $(2,736,000) $(2,387,000) $(1,982,000) $(6,270,000)
Loss per share $ (0.33) $ (0.28) $ (0.23) $ (0.72)
- --------------------------------------------------------------------------------------------------
Year Ended December 31, 1998:
Revenue $ 2,077,000 $ 2,274,000 $ 2,807,000 $ 3,428,000
Gross profit $ 1,184,000 $ 1,323,000 $ 1,589,000 $ 1,998,000
Net loss $(2,730,000) $(3,004,000) $(2,994,000) (2,817,000)
Loss per share $ (0.35) $ (0.38) $ (0.37) $ (0.35)
==================================================================================================
</TABLE>
In the fourth quarter of 1999 the Company recorded certain year-end adjustments
related to collectibility of accounts receivable which increased the net loss by
approximately $990,000.
- --------------------------------------------------------------------------------
COMPUTER MOTION
1999 ANNUAL REPORT
PAGE 44
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
The Company has one wholly-owned subsidiary, Computer Motion, S.A.
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 25, 2000, included in Computer Motion,
Inc.'s Form 10-K for the year ended December 31, 1999 into the Company's
previously filed Form S-8 registration statement #333-35939 and to all
references to our Firm.
/s/ ARTHUR ANDERSEN LLP
- -------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
April 5, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,297,000
<SECURITIES> 3,224,000
<RECEIVABLES> 7,468,000
<ALLOWANCES> 1,265,000
<INVENTORY> 5,009,000
<CURRENT-ASSETS> 19,065,000
<PP&E> 5,559,000
<DEPRECIATION> 2,626,000
<TOTAL-ASSETS> 23,361,000
<CURRENT-LIABILITIES> 6,469,000
<BONDS> 0
0
0
<COMMON> 9,000
<OTHER-SE> 15,810,000
<TOTAL-LIABILITY-AND-EQUITY> 23,361,000
<SALES> 18,058,000
<TOTAL-REVENUES> 18,058,000
<CGS> 9,135,000
<TOTAL-COSTS> 9,135,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,011,000
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> (13,355,000)
<INCOME-TAX> 20,000
<INCOME-CONTINUING> (13,375,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,375,000)
<EPS-BASIC> (1.57)
<EPS-DILUTED> (1.57)
</TABLE>
