FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to ________.
Commission File Number 0-17919
Surgical Laser Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 31-1093148
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
147 Keystone Drive, Montgomeryville, PA 18936-9638
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 619-3600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
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(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), 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, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.(X)
As of March 15, 2001, the aggregate market value of the voting common equity of
Registrant held by non-affiliates was approximately $2,600,296. Registrant has
no authorized non-voting common equity.
On March 15, 2001 Registrant had outstanding 2,327,965 shares of Common Stock,
$.01 par value.
PART I
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Item 1. Business.
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(a) GENERAL DEVELOPMENT OF BUSINESS.
Surgical Laser Technologies, Inc. ("SLT" or "Registrant") was incorporated in
December 1983 under the laws of the State of Delaware. Registrant's
principal offices are located at 147 Keystone Drive, Montgomeryville,
Pennsylvania 18936-9638, and its telephone number is (215) 619-3600.
Registrant is engaged in the development, manufacture and sale of proprietary
laser systems for both contact and non-contact surgery, and in the delivery of
turn-key surgical services which include the provision of technicians, capital
equipment and disposable and reusable products for specific surgical procedures.
Registrant's surgical services are performed under contractual agreements with
its customers, or under a non-contracted arrangement. All of Registrant's
surgical services customers are charged for the services provided on a
per-procedure basis. Registrant supplements its sales of laser systems and
surgical services with certain non-laser product offerings.
Registrant's growth strategy includes a continued emphasis on identifying
surgical procedures that benefit from the precision and hemostatic capabilities
of Registrant's proprietary technology coupled with the development and
servicing of products that provide the opportunity to expand Registrant's
surgical services offerings.
Registrant expanded its surgical services offerings in June 2000 through the
acquisition of Surgical Innovations & Services ("SIS"). SIS provides surgical
services utilizing a variety of laser technologies to its customer base located
mainly in the southeastern United States. Registrant expanded its product
offerings during 2000 and 1999 to include non-laser based products specifically
targeted at the ENT and Neurosurgery markets. In 2000, Registrant re-designed
its ClearESS(R) irrigation and suction system, which was originally introduced
in 1998. The new ClearESS II(TM) has a smaller size and is more ergonomic than
its predecessor. In 1999, Registrant introduced the BiFrazier(TM), a bipolar
suction coagulator. Registrant will continue to seek to expand its product
offerings within the specialty markets it serves.
Registrant's Contact Laser(TM) System, unlike conventional laser systems,
enables the surgeon to use the laser instrument in direct contact with the
tissue being treated, thereby significantly enhancing the ease of use and
precision of laser surgery in many applications. Registrant's Contact Laser was
the first Contact Laser surgery system developed for commercial application, and
Registrant holds patent rights on the Wavelength Conversion(TM) effect
technology which is the technological foundation for Contact Laser surgery.
Registrant believes that Contact Laser surgery represents a significant
advancement in laser surgery.
Registrant's Contact Laser(TM) System is comprised of a portable laser unit that
delivers laser energy through Contact Laser Delivery Systems. Registrant's
current product line includes four portable laser units of various power levels
and a family of over 100 Laser Probes, Laser Scalpels, fibers and handpieces
that provide different Wavelength Conversion effect properties, power densities
and configurations appropriate for cutting, coagulation or vaporization.
The acquisition of SIS significantly increases the Registrant's sales presence
in the southeastern United States and expands Registrant's product offerings to
include various types of surgical products for a variety of surgical procedures.
Registrant accounted for the acquisition using the purchase accounting method
and has therefore included the revenues and expenses of SIS from June 1, 2000
in the consolidated financial statements included in Part II, Item 8, Financial
Statements and Supplementary Data. As consideration for the SIS business,
Registrant paid $300,000 in cash and issued 350,000 shares of Registrant's
common stock to the stockholders of SIS (see Note 2 of Notes to Consolidated
Financial Statements).
2
There were no other significant changes in Registrant's business during the
fiscal year ended December 31, 2000.
(b) FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS.
Registrant is engaged primarily in one operating segment: the design,
development and manufacture of laser products and the marketing of those laser
products as well as other instruments for medical applications. Registrant
markets its offerings through traditional sales efforts as well as through the
provision of fee based surgical services. See Note 16 of Notes to Consolidated
Financial Statements for segment information.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
Registrant is primarily engaged in the development, manufacture and sale of a
proprietary Contact Laser System for surgery and other instruments for surgical
applications, and in the provision of surgical services on a turn-key procedural
basis. Registrant's surgical services offerings were significantly expanded in
June, 2000 through the acquisition of SIS. Through the acquisition of SIS,
Registrant's surgical services offerings, previously limited to Registrant's
proprietary laser systems, have been expanded to include the products of several
other companies, broadening the scope of procedures to which Registrant is able
to provide support services. In conjunction with its primary products and
services, Registrant has entered and will continue to seek to enter into
relationships with other companies to expand the use of Registrant's products
and services, and will continue to seek to utilize its strengths in supplying
other companies with products that draw on Registrant's expertise and
competencies. During fiscal 2000, 1999 and 1998, total revenues from sales of
Registrant's products and services were $8,929,000, $7,951,000 and $9,393,000,
respectively.
Registrant introduced Contact Laser surgery by combining proprietary Contact
Laser Delivery Systems with an Nd:YAG laser unit to create a multi-specialty
surgical instrument that can cut, coagulate or vaporize tissue. Registrant's
Contact Laser Delivery Systems can be used effectively with any wavelength of
laser between 532nm and 1064nm. Included in these wavelengths are the KTP laser
(532nm), diode laser (various wavelengths) and Nd:YAG laser (1064nm).
Almost all of the surgery performed today, endoscopic or open-cavity, utilizes
two fundamental technologies-mechanical cutting and clamping, and/or thermal
vaporization and coagulation. The mechanical scalpel, scissors and suture are
universally accepted. However, today's surgery increasingly requires additional
control of bleeding, more precision and better access to diseased sites. Lasers
are suited for this requirement.
With the use of Registrant's Contact Laser System, a precise temperature
profile, or gradient, is created upon contact with the tissue by Registrant's
Laser Probes and Laser Scalpels. It is the temperature that directly causes the
therapeutic effect. If the temperature is sufficiently high, the tissue will be
vaporized (turned from liquid or solid into gas), creating a precise surgical
incision or excision. Lower temperatures coagulate tissue and thus control
bleeding or destroy diseased tissue.
Registrant's proprietary Contact Laser probe and scalpel surface treatments
provide the ability to alter selectively the temperature profile of tissue,
replicating the clinical effect of many different types of lasers. These
treatments are marketed under the trademark "Wavelength Conversion effect." In
addition, Contact Laser surgery restores to the surgeon the advantages of
tactile feedback lost with conventional lasers.
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Registrant's revenues are generated primarily by three sources: the sale of
Contact Laser Delivery Systems and related accessories; the sale of Nd:YAG laser
units and related service; and the provision of surgical services. Registrant's
Contact Laser Delivery Systems consist of proprietary fiberoptic delivery
systems which deliver the laser beam from Registrant's Nd:YAG laser unit via an
optical fiber to the tissue, either directly or through a proprietary Laser
Probe or Laser Scalpel.
Disposable Fiberoptic Delivery Systems. Registrant has designed disposable
optical quartz fibers to channel the laser beam from Registrant's laser unit to
the fiber end, the Laser Probe or the Laser Scalpel or to one of 24
interchangeable, application-specific handpieces that hold the Laser Scalpel or
Laser Probe. These proprietary optical fibers and handpieces are intended for
single use and range currently in list price from $145 to $990.
Laser Probes and Laser Scalpels. Registrant's proprietary Laser Probes and Laser
Scalpels are made of either synthetic sapphire or fused silica and have high
mechanical strength, high melting temperature and appropriate thermal
conductivity. Most of these Laser Probes and Laser Scalpels use Registrant's
patented Wavelength Conversion effect treatments or geometry. Registrant offers
over 60 interchangeable Laser Probes and Laser Scalpels that provide different
power densities through various geometric configurations appropriate for
cutting, coagulation or vaporization. Laser Probes and Laser Scalpels are made
with varying distal tip diameters and surface treatments, each with a different
balance between cutting and coagulation, so that the instrument can be suited to
the particular tissue effect desired. Additionally, Registrant markets
side-firing and direct-firing free-beam laser probes. Instead of changing laser
units, surgeons may choose a different Laser Probe or Laser Scalpel to perform a
different procedure. The Laser Probes and Laser Scalpels are intended for
limited reuse, and the list prices currently range from $395 to $520.
Disposable Gas or Fluid Cartridge Systems. Registrant's proprietary cartridge
system provides gas or fluid to cool the junction between the optical fiber and
the Laser Scalpel or the Laser Probe. These cartridges are sterile and used in
one set of procedures. The list price of these cartridges is currently $65.
Reusable Laser Aspiration Handpieces. Registrant's reusable stainless steel
handpieces are all used with interchangeable laser aspiration wands and flexible
endoscopic fibers. These proprietary handpieces are intended for
intra-nasal/endoscopic sinus and oropharyngeal procedures requiring smoke and/or
fluid evacuation. Wands have a list price of $95, and the handpiece list prices
currently range from $235 to $395.
Laser Units. Registrant markets the CLMD line of Nd:YAG laser units for use with
its Contact Laser Delivery Systems. The line consists of four units: the CLMD
25-watts to tissue, on 110 volts; the CLMD 40-watts to tissue, on 110 volts; the
CLMD Dual which operates up to 40-watts to tissue on 110 volts and up to
60-watts to tissue on 220 volts; and the CLMD 100-watts to tissue, on 220 volts.
The laser units are modularly designed to allow the customer to upgrade from the
25-watts laser to the 40-watts or Dual laser and from the 40-watts laser to the
Dual laser, and thus provide the customer the flexibility and versatility to
change its laser system easily to meet its changing surgery needs. Current list
prices for the lasers are as follows: CLMD 25-watts, 110-volts - $55,000; CLMD
40-watts, 110-volts - $70,000; CLMD Dual - $85,000; and CLMD 100 watts -
$95,000. These prices include a one-year warranty.
Virtually all of Registrant's laser systems and laser delivery systems (other
than those manufactured by other companies that are utilized in the provision of
surgical services) are manufactured and assembled at Registrant's
Montgomeryville, Pennsylvania facility. The raw materials used by Registrant are
generally available in adequate supply. Registrant obtains all of its partially
finished Laser Probes and Laser Scalpels from three suppliers in the United
States. Registrant performs materials processing and final assembly on the Laser
Probes and Laser Scalpels using proprietary and patented treatment processes.
The fiberoptic delivery systems, with and without handpieces, are also
manufactured by Registrant. Registrant's sterile gas and fluid cartridge systems
are manufactured exclusively by a domestic supplier in accordance with
Registrant's specifications.
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Handheld Sinus Instrumentation. Registrant markets a line of 27 precision
thru-cutting instruments used for minimally invasive sinus surgery. The line
includes instruments with cutting tips at several different angles to allow for
convenient access to difficult-to-reach anatomy. The instruments' list prices
range from $225 to $975.
Irrigation and Suction System. Registrant manufactures and markets ClearESS I
and ClearESS II, which provides convenient and effective irrigation and suction
to remove blood and debris for enhanced visualization during endoscopic sinus
surgery. The ClearESS I kit, which includes suction and irrigation tubing,
currently has a list price per package ranging from $495 to $795. The ClearESS
II kit, which includes suction and irrigation tubing, currently has a list price
per package ranging from $245 to $745.
Bipolar Devices. Registrant manufactures and markets HemoSleeve(R), a bipolar
sleeve which fits over the surgeon's existing microdebrider, and Bi-Frazier(TM),
a handheld bipolar suction coagulator. Both the HemoSleeve and Bi-Frazier
provide the surgeon with precise bipolar coagulation while the Bi-Frazier has
added suction capabilities. Both products improve surgical efficiency and
enhance visualization by reducing intra-operative bleeding. Registrant's
HemoSleeve has a list price of $295 for a package of five. Registrant's
Bi-Frazier has a list price of $245 for a package of five.
Surgical Services. Registrant provides its customers with the ability to utilize
its laser systems, as well as those of other companies, coupled with a
technician on a per-procedure basis. The services are provided for a variety of
surgical procedures utilizing various laser technologies. The per-procedure
prices charged for surgical services vary based on the surgical procedure
performed and currently range from $100 to $3,500 per-procedure.
Marketing
Registrant sells its products and services to hospitals and surgery centers, and
to individual practioners. Registrant works closely with its customers to
develop and supply innovative technologies that advance therapeutic benefit.
Registrant's products and services are designed to improve cost-effectiveness
and enhance access to and ease of use of various technologies. Registrant's
marketing efforts include activities designed to educate physicians and nurses
in the use of Registrant's products and services.
Registrant's sales organization provides consultation and assistance to
customers on the effective use of Registrant's products. The consultative sales
effort varies depending on many factors, which include the nature of the
specialty involved and complexity of the procedures and continues throughout
Registrant's long-term relationship with its customers. The length of the sales
cycle for a laser unit varies from one month to one year, with the average sale
requiring approximately six months. The length of the sales cycle for the
provision of services can range from immediate to several months depending on
the services desired.
Supervision of Registrant's sales and marketing activities is carried out
through Registrant's President and CEO and the President of SIS. The sale and
post-sale support provided by Registrant includes area managers and clinical
support specialists who are trained in the utilization of Registrant's products
and services, and who provide clinical consultation regarding safety, efficacy
and operating room procedures; and marketing and technology personnel, who
5
together provide the link between the surgeon and Registrant to create
innovative solutions and identify new applications and product opportunities. In
certain geographic areas of the United States, Registrant utilizes distributors,
whose employees are not Registrant's employees, to provide this support.
Registrant distributes its products internationally through independent
distributors.
Contract Development and Private Label Manufacturing. Registrant has sought and
will continue to seek to augment its sales to end-user customers by entering
into specific contract development and private label manufacturing agreements
with other companies. These activities are designed to utilize Registrant's
product strengths and capabilities.
International Markets. During 2000 and 1999, Registrant's international
marketing activities included working through distributors in various countries
in Europe, the Middle East, the Far East, South America, Mexico and Canada.
Research and Development
Registrant focuses its research and product development efforts on tissue effect
technologies that include laser and non-laser based technologies focused on
improving its product and service offerings. Registrant's technological
capabilities are designed to be responsive to the surgeon's needs. Registrant
has the ability to respond to development requirements in the areas of
optical/materials technology, laser and electrosurgical technology and
mechanical and electronics technology. During 2000, 1999 and 1998, Registrant
spent $651,000, $741,000 and $1,179,000, respectively, on product development.
Registrant's facility in Montgomeryville, Pennsylvania houses its product
development activities. Registrant utilizes the technologies developed by
Advanced Laser Systems Technology, Inc. ("ALST"), which was licensed to
Registrant in December 1990, in the development and manufacture of its CLMD
laser units. Registrant, in addition to its internal product development
programs, works closely with medical centers, universities and other companies
worldwide in an effort to develop additional products and applications.
Registrant's core Laser Probe and Laser Scalpel technology was acquired by
Registrant in 1985 in consideration for certain royalty payments on net sales of
probes and scalpels. The disposable fiberoptic delivery systems, with and
without handpieces, the disposable gas and fluid cartridge systems,
ceramic-enclosed probes, adjustable touch-control handpieces, ClearESS
irrigation and suction system, the HemoSleeve micro-debrider sleeve and the
Bi-Frazier suction coagulator have been developed by employees of Registrant;
Registrant has retained ownership of all such proprietary technology.
Registrant's handheld sinus instrument line was developed by an outside
consultant and is manufactured by a domestic supplier.
Registrant continues to focus on applications in minimally invasive and open
surgery procedures where precision and hemostasis are critical to the procedure
being performed and where Registrant's products and services can demonstrate
distinct clinical advantages and cost-effectiveness relative to traditional
surgical methods.
Competition
Registrant faces substantial competition from other manufacturers of surgical
systems, whose identity varies depending on the medical application for which
the surgical system is being used, and from traditional surgical methods. Other
companies are developing competitive surgical systems and related technologies
and certain of these companies are substantially larger and have substantially
greater resources than Registrant. These efforts could result in additional
competitive pressures on Registrant's operations.
6
In addition, Registrant faces competition from other surgical services companies
and from product manufacturers who may offer their products through a similar
per-procedure method.
Registrant faces substantial competition from well-established manufacturers of
non-laser products. These well-established companies have substantially greater
resources than Registrant and could exert considerable competitive pressure on
Registrant.
Registrant continues to be aware that certain companies have introduced into the
market concepts or products that draw on Contact Laser technology. Registrant
does not perceive that such concepts or products have a significant impact on
Registrant's sales.
Registrant, through its patented Contact Laser Delivery Systems, is able to
produce a wide range of temperature gradients which address a broad range of
surgical procedures within multiple specialties. Registrant's multiple specialty
capability reduces a hospital's need to purchase several lasers to meet its
specialists' varied requirements. These factors, coupled with the precision,
hemostasis, tactile feedback and control provided by its Contact Laser Delivery
Systems, are Registrant's primary competitive strengths. Registrant's non-laser
products employ novel features which are aimed at facilitating surgical
procedures and thus cause them to be differentiated in the marketplace. Certain
of these products have patent applications pending.
Registrant's primary competitive strengths in surgical services are in the
training it provides to its clinical service technicians, its adherence to
various quality standards and its ability to integrate products which it
manufactures into the range of services provided, and thus reduce the cost of
delivered services.
FDA and Related Matters
The FDA generally must approve the commercial sale of new medical devices.
Commercial sales of medical lasers must be preceded by either a premarket
notification filing pursuant to Section 510(k) of the Federal Food, Drug and
Cosmetic Act, or the granting of premarket approval for a particular medical
device.
The 510(k) notification filing must contain information that establishes that
the device in question is substantially equivalent to devices on the market.
Registrant has received FDA clearance to commercially market its Contact Laser
System, including the laser unit, Laser Probes and Laser Scalpels and Fiberoptic
Delivery System, in a variety of surgical specialties and procedures in
gynecology, gastroenterology, urology, pulmonology, general and plastic
surgery, cardio-thoracic surgery, ENT surgery, ophthalmology, neurosurgery and
head and neck surgery. These clearances were granted under Section 510(k) on the
basis of substantial equivalence to other laser or electrosurgical cutting
devices that had received prior clearances or were otherwise permitted to be
used in such areas.
Registrant has also placed on the market several Class I, 510(k) exempt, ENT
products, including handheld surgical instruments and suction/irrigation
products. Additionally, Registrant has received 510(k) clearance for HemoSleeve
and Bi-Frazier.
Registrant anticipates that most of its new products will also be eligible for
the Section 510(k) procedure, although some new products, such as products for
which there are few substantially equivalent devices or uses, may be subject to
a lengthier review process. There can be no assurance that any future FDA
clearances will be granted on a timely basis, if at all. Failure to obtain FDA
clearance or extensive delay in the FDA clearance process for any new product
which represents a significant development for Registrant would likely have a
material adverse effect on Registrant's business.
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Following FDA clearance for commercial distribution, the primary form of
government regulation of medical products is the Quality System Regulations for
medical devices. These regulations, administered by the FDA, set forth
requirements to be observed in the design, manufacture, storage, quality control
procedures and installation of medical products for human use. In addition,
there are a variety of registration and reporting requirements with which
Registrant must comply.
Registrant is also subject to the regulations under the Radiation Control for
Health and Safety Act (1968) of the Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require laser manufacturers to file new
product and annual reports, to maintain quality control, product testing and
sales records, to incorporate certain design and operating features in lasers
sold to end-users and to certify and label each laser sold as belonging to one
of four classes, based on the level of radiation from the laser that is
accessible to users. Various warning labels must be affixed and certain
protective devices installed, depending on the class of the product. CDRH is
empowered to seek fines and other remedies for violations of the regulatory
requirements. To date, Registrant has filed the documentation with CDRH for its
laser products requiring such filing, and has not experienced any difficulties
or incurred significant costs in complying with such regulations.
In addition, federal law requires Medicare to establish guidelines for hospital
reimbursement based on patient diagnosis ("Diagnostic Related Group" or "DRG").
Once a diagnosis is made, the payment to the hospital will be fixed irrespective
of the length of the hospital stay, the method of treatment, the supplies used
or the tests carried out. This provides the hospital with an incentive to adopt
cost reduction methods. Registrant believes that the Contact Laser System may
reduce costs to hospitals by reducing length of stay due primarily to the
reduced need for invasive surgery, general anesthesia or related medical
treatments.
The FDA and other governmental agencies, both in the United States and in
foreign countries, may adopt additional rules and regulations that may affect
Registrant and its products.
Patents
Registrant's patents offer significant protection to the differentiation of
Registrant's Contact Laser Delivery Systems from competitors' products.
Registrant has sought and enjoys such protection principally in the United
States. As of December 31, 2000, Registrant had seventeen patents issued by the
U.S. Patent and Trademark Office which generally expire 17 years from the
following respective dates of issuance: September 15, 1987 (laser scalpels);
April 12, 1988 (coatings); November 22, 1988 (two-piece disposable laser
delivery system); April 18, 1989 (laser probes and scalpels); January 23, 1990
(supply system for sterile fluids and gases); January 23, 1990 (two-piece
disposable laser delivery system); October 13, 1992 (unitary scalpel); June 22,
1993 (adjustable touch control hand-piece); January 10, 1995 (contact or
insertion laser probe having wide angle radiation); May 16, 1995 (fused tip and
fiber); May 28, 1996 (probe with inclusions); March 4, 1997 (surgical tool for
use with Contact Laser); September 5, 1998 ( a continuation of surgical laser
tool issued March 4, 1997); November 10, 1998 (laterally-emitting laser
devices); August 31, 1999 (method of treating a body cavity issue using an
endoscopic sugical laser); September 28, 1999 (photooptic breakdown probe); and
February 15, 2000 (laser catheter). Registrant has several other patents pending
before the U.S. Patent and Trademark Office, as well as other patents and
pending applications overseas.
Registrant has also begun to establish a proprietary position for its new
products. Registrant has filed patent applications with the U.S. Patent and
Trademark Office for its HemoSleeve and ClearESS products and anticipates that
applications will be filed for other new products.
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Registrant intends to continue its policy of defending vigorously the ownership
and protection of its proprietary technology against significant encroachments.
However, no assurance can be given that such policy will be successful.
Many of Registrant's products and services are offered under trademarks and
service marks, both registered and unregistered. Registrant believes its
trademarks encourage customer loyalty and aid in the differentiation of
Registrant's products from competitors' products. Accordingly, Registrant has
registered seven of its trademarks with the U.S. Patent and Trademark Office. It
has filed its intent to register other trademarks, principally in areas outside
of Contact Laser surgery. Registrant has other registrations issued or pending
abroad.
Employees
As of December 31, 2000, Registrant had 82 employees of whom 42 were engaged in
manufacturing, service and operations, 8 in research and product development, 17
in sales, marketing and customer service and 15 in general administration.
Registrant's employees are not represented by a union. Registrant considers its
relations with employees to be good.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
In addition to Registrant's domestic sales, Registrant currently sells its
products internationally through distributors in Western Europe, Canada, the
Middle East, the Far East and South America. During fiscal 2000, 1999 and 1998,
domestic sales represented 89%, 89% and 87%, respectively, of Registrant's total
sales. All export sales are transacted in U.S. currency.
Item 2. Properties.
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Registrant currently leases a 42,000 sq. ft. facility in Montgomeryville,
Pennsylvania that houses all of its administrative and manufacturing operations.
Registrant entered a five-year lease for the Montgomeryville facility on May 29,
1996 and has extended the original term of the lease until July 2006. In
addition to its headquarters in Montgomeryville, Pennsylvania, Registrant also
leases several offices throughout the southeastern United States. These offices
are utilized by Registrant sales representatives to conduct sales and training
responsibilities. With the exception of the Tuscaloosa, Alabama office, these
offices consist of one-room offices under various operating leases. The
Tuscaloosa, Alabama office is a 5,000 sq. ft. facility with a two year lease
term expiring July 2002.
On June 30, 1999, Registrant sold its four acres in Oaks, Pennsylvania on which
a 57,000 square foot office building was located. At the time of sale, the
property had a cost basis of $6,472,000 and accumulated depreciation of
$2,235,000. In connection with the sale, the mortgages having a balance at June
30, 1999 of $3,922,000 were assumed by the buyer. The cash payment received by
Registrant at the time of sale was $398,000, which included $45,000 of
restricted cash held in escrow for payment of taxes related to the sale.
Registrant's lease on its former manufacturing facility in Hebron, Kentucky
expired in August 2000. Since the operations from this facility were transferred
during 1992 to Pennsylvania, Registrant did not renew the lease.
Item 3. Legal Proceedings.
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Effective June 1, 2000, the Company completed its acquisition of SIS. In June
1999, SIS had been named as an additional defendant in an amended complaint to
an action brought by Zelda Williams in the Twelfth Judicial Circuit in and for
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Sarasota County, Florida. Ms. Williams' original complaint named as defendants
the surgeon who performed the procedure and his professional association, the
hospital at which the procedure was performed after review by its Institutional
Review Board, and the manufacturer of a custom-made laser accessory used in the
procedure. Ms. Williams' complaint alleges, among other things, negligence on
the part of the defendants in performing the surgical procedure and seeks
unspecified damages. It is not clear from the amended complaint on what basis
the plaintiff is asserting liability against SIS.
SIS provided the laser system, manufactured by a third-party, which the surgeon
used in performing the procedure, along with a technician to operate the laser,
subject to the surgeon's direction and supervision. SIS' insurance carrier is
defending the action without having reserved any right to contest its coverage
obligation. The case is in its discovery phase. The surgeon's deposition which
had been delayed due to the bankruptcy of his insurance provider finally took
place in November, 2000. The Company continues to believe that it has
meritorious defenses to Ms. Williams' claim and intends to defend itself
vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
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Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters.
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Registrant's Common Stock, $.0l par value, is quoted on the Nasdaq Stock Market
under the symbol "SLTI." Until January 14, 1999, Registrant's Common Stock was
quoted on the Nasdaq National Market. Since January 15, 1999, Registrant's
Common Stock has been traded on the Nasdaq SmallCap Market. As of March 15,
2001, there were approximately 495 record holders of Registrant's Common Stock.
On March 15, 2001, the closing price of Registrant's Common Stock on the Nasdaq
Stock Market was $1.31 per share. The following table sets forth the high and
low sales prices, for Registrant's Common Stock for each quarterly period within
the two most recent fiscal years.
2000 High Low
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First Quarter $5.00 $1.63
Second Quarter 3.00 1.81
Third Quarter 2.75 1.63
Fourth Quarter 1.97 1.06
1999 High Low
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First Quarter $3.13 $1.38
Second Quarter 4.47 1.63
Third Quarter 2.50 1.00
Fourth Quarter 2.31 1.38
Registrant has never paid any cash dividends on its Common Stock and does not
expect to pay cash dividends in the foreseeable future.
11
Item 6. Selected Consolidated Financial Data.
- ------- -------------------------------------
The following table summarizes certain selected financial data for the five
years ended December 31, 2000. The selected financial data for Registrant at
December 31, 2000 and January 2, 2000 and for each of the three years in the
period ended December 31, 2000 are derived from, and are qualified by reference
to, the financial statements of Registrant, which are included elsewhere in this
report. The December 31, 2000 financial statements have been audited by Grant
Thornton LLP, independent certified public accountants, to the extent indicated
in their report. The January 2, 2000 and January 3, 1999 financial statements
have been audited by Arthur Andersen LLP, independent public accountants, to
the extent indicated in their report. The selected financial data for Registrant
at January 3, 1999, December 28, 1997, and December 29, 1996, and for each of
the two years in the period ended December 28, 1997, are derived from the
audited financial statements of Registrant not included herein. This data should
be read in conjunction with Registrant's financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this report.
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands, except per share)
Statement of Operations Data:
Net sales $ 8,929 $ 7,951 $ 9,393 $ 11,665 $ 10,974
Gross profit 4,977 4,565 4,927 6,893 6,912
Percentage of sales 55.7% 57.4% 52.5% 59.1% 63.0%
Selling, general and administrative expenses 4,159 4,427 5,944 6,613 8,072
Product development expenses 651 741 1,179 910 1,404
Non-recurring charges (income) -- 1,440 (1) 485 (1) (177)(2) 1,504(3)
Operating income (loss) 167 (2,043) (2,681) (453) (4,068)
Net income (loss) 241 (1,883) (2,552) (381) (4,508)
Basic and diluted earnings (loss) per share $ 0.11 $ (0.95)(4) $ (1.29)(4) $ (0.19)(4) $ (2.28)(4)
Shares used in calculation of basic earnings
(loss) per share 2,182 1,978 1,978 1,977 1,973
Shares used in calculation of diluted earnings
(loss) per share 2,219 1,978 1,978 1,977 1,973
Balance Sheet Data:
Cash, cash equivalents and short-term
investments $ 2,400 $ 3,749 $ 6,023 $ 6,549 $ 6,120
Accounts receivable, net 1,825 1,210 1,437 1,925 2,899
Inventories 2,182 1,793 2,540 2,986 3,534
Total assets 10,933 8,020 16,648 19,996 21,490
Long-term debt 2,300 16 3,965 4,509 4,971
Convertible subordinated notes -- -- 1,624 1,633 1,660
Stockholders' equity $ 7,683 $ 6,722 $ 8,594 $ 11,357 $ 11,308
==================================================================================================================
(1) See Note 11 of Notes to Consolidated Financial Statements.
(2) Net effect of a benefit of $1,000,000 from the settlement of litigation,
offset in part by non-recurring facility-related costs.
(3) Severance and other costs associated with workforce reductions and
facility-related costs.
(4) The inclusion of common share equivalents had an anti-dilutive effect when
calculating diluted loss per share, and, as a result, diluted loss per
share was equivalent to basic loss per share for each period presented.
No cash dividends were declared during any of the periods presented.
The accompanying Consolidated Financial Statements and Notes thereto are an
integral part of this information.
12
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- -----------------------------------------------------------------------
Results of Operations.
----------------------
Acquisition of Surgical Innovations & Services, Inc.
On June 1, 2000, Registrant acquired SIS, a closely held Alabama corporation
that provides surgical services to hospitals and surgery centers in the
southeastern United States. The acquisition of SIS significantly increases
Registrant's sales presence in the southeastern United States and expands
Registrant's service offerings to include the provision of other companies'
product for various types of surgical procedures.
Registrant accounted for the acquisition using the purchase accounting method
and has therefore included the results of operation of SIS from June 1, 2000 in
the consolidated financial statements presented in Part II, Item 8, Financial
Statements and Supplementary Data. As consideration for the SIS business,
Registrant paid $300,000 in cash and issued 350,000 shares of Registrant's
common stock to the stockholders of SIS. The purchase price also included
approximately $2,702,000 of assumed liabilities, comprised of $2,323,000 in debt
obligations and $379,000 in accounts payable and accrued liabilities.
The purchase price has been preliminarily allocated to acquired assets based on
their fair values at the date of acquisition, pending final determination of
certain acquired balances. Based on the preliminary allocation, Registrant has
acquired assets valued at $3,193,000, primarily comprised of $2,763,000 in
property and equipment; $260,000 in accounts receivable; $107,000 in inventory;
and $34,000 in other assets. The property and equipment acquired included
$2,523,000 of lasers used in providing the SIS rental services to customers. The
excess of the purchase price over the fair value of the assets acquired of
approximately $648,000 was allocated to goodwill, which will be amortized on a
straight-line basis over twenty years.
During the first six months of fiscal 2001, Registrant will analyze whether a
portion of the excess of the purchase price over the assets acquired can be
allocated to intangible assets other than goodwill, such as customer base or
trade name. Therefore, the value assigned to goodwill is preliminary and subject
to change.
Net Sales
Registrant's net sales are generated primarily by three sources: sales of
Contact Laser Delivery Systems and related accessories; sales of Nd:YAG Laser
Systems and related maintenance; and the provision of surgical services. The
U.S. market is serviced predominantly by a direct sales force, while sales
outside the United States are derived through a network of distributors. In
2000, total net sales of $8,929,000 increased $978,000, or 12% from 1999 sales
of $7,951,000. The 1999 sales of $7,951,000 decreased $1,442,000, or 15%, from
1998 sales of $9,393,000.
Net sales of disposables and related accessories were $5,283,000 or 59% of total
net sales in 2000. This represented a decrease of $627,000 or 11% compared to
1999 net sales of disposables and related accessories of $5,910,000. The
decrease was due to the lower level of Contact Laser Delivery System sales
primarily within the U.S. markets. Net sales of disposables and related
accessories were $5,910,000 or 74% of total net sales in 1999. This represented
a decrease of $400,000 or 6% compared to 1998 net sales of disposables and
related accessories of $6,310,000. The decrease was due to the lower level of
Contact Laser Delivery System sales primarily within the U.S. Urology market,
offset, in part, by an increase in sales of new non-laser disposable products.
Net sales of laser systems and related maintenance, which comprised 16% of total
net sales in 2000, increased by 4% from 1999 on a 5% decline in laser unit
sales. In 2000, the overall average unit selling price of an Nd:YAG laser system
increased 23% as compared to 1999 due to increases in the selling price of new
and refurbished lasers. Net sales of laser systems and related maintenance,
which comprised 17% of Registrant's net sales in 1999, decreased by 35% from
1998 on a 37% decline in units. As part of Registrants contract development
13
activities in 1998, Registrant supplied holmium lasers to CorMedica Corporation
for use in its PTER(TM)procedure. Laser sales to CorMedica in 1998 accounted for
25% of the laser systems and service sales and 29% of unit sales. Excluding the
sales to CorMedica, net sales of laser systems and service in 1999 declined 13%
on a 12% decline in units. The decrease was caused by a 75% decline in
international laser system unit sales, resulting primarily from a decline in
sales to Registrant's distributor in China. This decrease was offset, in part,
by a 46% increase in domestic laser system unit sales, resulting primarily from
Registrant's sales in the ENT and Neurosurgical markets. In 1999, the overall
average unit selling price of an Nd:YAG laser system remained consistent as
compared to 1998.
Registrant provides per-procedure surgical services for customers which include
access to a laser system and related disposables as well as a technician. Prior
to the acquisition of SIS in June 2000, Registrant offered the use of its
proprietary Nd:YAG laser system in the provision of surgical services. With the
acquisition of SIS, Registrant has acquired several different types of lasers,
significantly expanding the types of surgical procedures that can be performed
through its services. Surgical services revenue was $2,200,000 in 2000 or 25% of
total net sales. This represented an increase of $1,543,000 compared to 1999.
Surgical services revenue was $657,000 in 1999 or 8% of total net sales. This
represented a decrease of $299,000 from the 1998 surgical services revenue of
$956,000. This decrease was primarily attributable to sales of Nd:YAG laser
systems to service customers, after which the services were no longer desired.
Management will continue to invest in identifying surgical procedures that
benefit from the precision and hemostatic capabilities of Registrant's
proprietary technology and in the development and servicing of products that
provide the opportunity to expand Registrant's surgical service offerings.
Gross Profit
Gross profit for the year ended December 31, 2000 increased $412,000 or 9% from
1999. As a percentage of net sales, gross profit was 56% in 2000, a decrease
from 57% in 1999. The decrease in gross profit as a percentage of net sales
resulted from lower percentage margins from the acquired SIS business, offset in
part by lower reserves required for laser inventories due to increased
production.
Gross profit for the year ended January 2, 2000 decreased $362,000 or 7% from
1998. As a percentage of net sales, gross profit was 57%, an increase from 52%
in 1998. The increase in gross profit as a percentage of net sales was primarily
attributable to the inclusion of laser sales to CorMedica in 1998 which carried
a lower gross profit, for which there were no comparable sales in 1999. Also
contributing to the increase in gross profit as a percentage of net sales was a
6% decrease in manufacturing expenses in 1999 as compared to 1998. The decrease
in manufacturing expenses was primarily attributed to reductions in headcount at
the end of the second quarter of 1999 in response to the discontinuance of the
CorMedica new product venture.
Operating Expenses
Operating expenses for 2000 were $4,810,000, a decrease of $358,000 or 7% as
compared to the 1999 operating expenses before non-recurring charges. This
decrease was primarily attributable to lower depreciation expense, the
collection of a previously reserved note receivable, and personnel and other
expense reductions implemented during the second quarter of 1999 for the purpose
of bringing expenses more in line with current sales levels. These reductions
were offset, in part, by the incorporation of SIS operating expenses since June
1, 2000.
14
Operating expense before non-recurring charges for 1999 were $5,168,000, a
decrease of $1,955,000 or 27% as compared to 1998. This decrease was primarily
attributable to reductions of Registrant's personnel and related expenses
enacted during the second quarter of 1999 in response to lower sales levels as
well as reduction in consulting charges associated with the discontinuance of a
new product venture.
Selling, General and Administrative
Selling, general and administrative expenses were $4,159,000 in 2000, compared
to $4,427,000 in 1999, a decrease of 6%. The comparative decrease was due
primarily to lower depreciation expense, the collection of a previously reserved
note receivable and reductions of Registrant's personnel associated expenses
enacted during the second quarter of 1999. The lower level of expenditures was
offset, in part, by the incorporation of SIS selling, general and administrative
expenses since June 1, 2000.
Selling, general and administrative expenses were $4,427,000 in 1999, compared
to $5,944,000 in 1998, a decrease of 26%. The decrease was primarily
attributable to the continuing efforts of Registrant to reduce expenses to a
level commensurate with then-current sales levels. In 1999, these reductions
were comprised primarily of personnel and related expense reductions.
Product Development
Product development costs were $651,000, $741,000 and $1,179,000 in 2000, 1999
and 1998, respectively. The decrease in 2000 as compared to 1999 was due
primarily to a decrease in personnel costs and related expenses. The decrease in
1999 as compared to 1998 was due primarily to a decrease in laser system
development consulting charges associated with the discontinuance of the
CorMedica product venture.
Non-Recurring Charges (Income)
In 1999, SLT recorded a non-recurring charge of $1,440,000. This non-recurring
charge consisted of $719,000 in charges related to the discontinuance of certain
new product ventures, a $539,000 charge to reserve for excess inventories and a
$182,000 charge for severance and related costs associated with headcount
reductions made in response to the discontinuance of the new product ventures.
In 1998, Registrant recorded a non-recurring charge of $485,000 related to the
impending sale of SLT's former headquarters facility in Oaks, Pennsylvania,
which was completed in June 1999. The charge consisted of a $325,000 write-down
of the asset necessitated by the terms of the sale and $160,000 in accrued
closing costs.
Other Income
Other income primarily consisted of facility-related income and expense items.
Other income was $0 in 2000, $194,000 in 1999 and $407,000 in 1998. The
comparative decrease in other income in 1999 and elimination in 2000 was
attributable to the sale of Registrant's property in Oaks, Pennsylvania on June
30, 1999.
Interest Expense
Interest expense of $123,000 in 2000 was $181,000 or 60% lower compared to 1999.
The decrease was primarily attributable to the sale of Registrant's facility in
Oaks, Pennsylvania during June 1999, whereby the mortgages on the facility were
assumed by the buyer, and the maturity of the Registrant's 8% subordinated notes
in July 1999. These reductions in interest expense were offset in part, by the
interest incurred on the assumed SIS debt.
15
Interest expense of $304,000 in 1999 was $289,000 or 49% lower compared to 1998.
The decrease was attributable to the sale of the Oaks facility in June 1999 and
maturity of the 8% subordinated notes in July 1999.
Interest Income
Interest income was $197,000 in 2000, a decline of $73,000 or 27% compared to
1999. Interest income was $270,000 in 1999, a decline of $48,000 or 15% compared
to 1998 interest income of $318,000. The declining levels of interest income
were attributable to the lower levels of cash, cash equivalents and short-term
investments.
Income Taxes
There was no tax provision in 2000 and 1999 due to the use of net operating loss
carryforwards and to net losses incurred, respectively. Any provisions for taxes
were completely offset by changes in the deferred tax valuation allowance. The
tax provision in 1998 of $3,000 was for state income taxes. Registrant expects
that its effective tax rate for 2001 will remain significantly lower than the
statutory rate due to continued availability of net operating loss carryforwards
and tax credit carryforwards for which deferred tax valuation reserves have been
established.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments at December 31, 2000 were
$2,400,000, a decrease of $1,349,000 over the January 2, 2000 balance of
$3,749,000. Registrant invests its excess cash in high- quality, liquid,
short-term investments. The decrease in cash, cash equivalents and short-term
investments was primarily attributable to the $300,000 cash payment to the
stockholders of SIS in accordance with the terms of the acquisition agreement,
$630,000 in cash payments of SIS trade payables and debt and $300,000 in
inventory purchases. Restricted cash and cash equivalents at January 2, 2000
consisted of $45,000 held in escrow for payment of taxes related to the sale of
Registrant's property in Oaks, Pennslyvania.
Concurrent with the SIS acquisition, Registrant obtained a $3 million credit
facility from a bank to replace the term debt of SIS. This $3 million credit
facility has a commitment term of three years, permits deferment of principal
payments until the end of the commitment term, and is secured by Registrant's
business assets, including collateralization of $2 million of Registrant's cash
and cash equivalents and short-term investments. The credit facility has an
interest rate of floating LIBOR plus 2.25% (9.01% at December 31, 2000) and is
subject to certain restrictive covenants and borrowing base certificates, with
which Registrant was in compliance at December 31, 2000. At December 31, 2000,
Registrant had $2,201,000 in outstanding obligations and $799,000 available
under the credit facility.
In 2000, net cash used in operating activities was $389,000, which resulted
principally from net income of $241,000 and depreciation and amortization of
$749,000, offset by increases in assets of $765,000 and decreases in liabilities
of $607,000.
In 1999, net cash used in operating activities was $437,000, which resulted
principally from losses incurred of $1,883,000 offset by net non-cash
adjustments of $2,292,000 and a decrease in accounts payable and accrued
liabilities of $884,000. The net non-cash adjustments of $2,292,000 included
non-recurring charges of $1,440,000. In 1998, net cash provided by operating
16
activities was $117,000, which resulted principally from losses incurred of
$2,552,000 offset by net non-cash adjustments of $1,515,000 and a decrease in
accounts receivable and inventory of $488,000 and $588,000, respectively. The
net non-cash adjustments of $1,515,000 included non-recurring charges of
$485,000.
On June 30, 1999, Registrant sold its property in Oaks, Pennsylvania. The sale
resulted in an increase in cash provided by investing activities of $4,237,000,
which represented the net book value of the property at the time of sale, and an
increase in cash used by financing activities of $3,922,000, which represented
the assumption of the mortgages on the property by the buyer at the time of
sale.
Net cash provided by investing activities was $958,000 in 2000 compared to cash
used in investing activities of $564,000 in 1999, excluding the sale of the
property in Oaks, Pennsylvania in 1999. The comparable increase in cash provided
by investing activities was due principally to the sale of short-term
investments offset, in part, by acquisition costs of SIS.
Net cash used in financing activities was $144,000 in 2000, compared to net cash
used in financing activities of $1,975,000 in 1999, excluding the sale of the
property in Oaks, Pennsylvania in 1999. The decrease was primarily the result of
Registrant's cash payment of $1,621,000 to the noteholders of Registrant's 8%
subordinated notes which matured on July 30, 1999.
Management believes that Registrant's current cash position and 2001 operating
cash flows will be sufficient to fund operations and meet its commitments for
long-term debt (see Note 9 of Notes to Consolidated Financial Statements), other
commitments and contingencies (see Note 17 of Notes to Consolidated Financial
Statements) and capital expenditures.
Management believes that inflation has not had a material effect on operations
for the three years in the period ended December 31, 2000.
Risk Factors
The statements contained in this Form 10-K that are not historical are
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, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. Additionally, from time to time, Registrant or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in, but are not limited
to, press releases, oral statements made with the approval of an authorized
executive officer or in various filings made by Registrant with the Securities
and Exchange Commission. These forward-looking statements reflect Registrant's
views as of the date they are made with respect to future events and financial
performance and are generally, but not exclusively, identified by the use of
such terms as "intends," "expects," "plans," "projects," "estimates,"
"anticipates," "should" and "believes." However, these forward-looking
statements are subject to many uncertainties and risks which could cause the
actual results of Registrant to differ materially from any future results
expressed or implied by such statements. Additionally, Registrant does not
undertake any obligation to update any forward-looking statements.
The risk factors identified in the cautionary statements below could cause
actual results to differ materially from those suggested in these
forward-looking statements. Also, Registrant may, from time to time, set forth
additional risk factors on Forms 10-Q and 8-K. However, the risk factors listed
below or in future reports of Registrant are not exhaustive. New risk factors
emerge from time to time, and it is not possible for management to predict all
of such risk factors, nor can it assess the impact of all of such risk factors
on Registrant's business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
17
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results. The cautionary statements
below are being made pursuant to the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act"). Registrant intends that
all forward-looking statements made, in whatever form, be considered subject to
the Act.
Changes in the U.S. Health Care System. There has been substantial debate in the
political arena related to prospective changes in the U.S. health care system.
In addition, developments in both the public and the private sector have
significantly affected the financing and delivery of health care in the United
States, including the rapid expansion of managed care programs, the reduction of
reimbursements under the capital cost pass through system for the Medicare
program and the implementation of prospective governmental reimbursement
programs based on diagnostic related groups. Cost containment has been a major
element of these developments, which have had a material adverse effect on
Registrant's results of operations over the past several years. There can be no
assurance that such changes in the financing and delivery of health care will
not continue to affect hospital capital equipment and supplies procurement
patterns or dictate which surgical procedures will be covered by applicable
insurance or government funded or subsidized programs, which could continue to
have a material adverse impact on Registrant. Registrant also cannot predict the
extent or impact of future legislation or regulations.
Competition. Registrant faces substantial competition from conventional surgical
methods, from other manufacturers of surgical lasers and from manufacturers of
alternatives to surgical lasers. Competitive pressure could result in price
competition or the introduction of new products by Registrant's competitors,
which could have an adverse impact on Registrant's revenues and results of
operations. Registrant's competitors could also introduce comparable surgical
services which could result in price competition and hamper the revenue growth
which Registrant is striving for. In addition, Registrant is engaged in an
industry characterized by extensive research efforts. Advances in medical lasers
which improve clinical effectiveness and other discoveries or developments in
either the medical device or drug industry could render Registrant's products
obsolete and surgical services uncompetitive. Some of the companies with which
Registrant competes or may compete in the future have or may have more extensive
research, manufacturing and marketing capabilities and significantly greater
financial, technical and personnel resources than Registrant and may be better
positioned to continue to improve their technology and delivery of surgical
services in order to compete in an evolving industry.
Governmental Regulation. Government regulation in the U.S. and other countries
is a significant factor in the development, manufacturing and marketing of many
of Registrant's products and in Registrant's ongoing research and development
activities. Specifically, medical devices are subject to United States Food and
Drug Administration ("FDA") approval or clearance before they can be utilized
for clinical studies or sold commercially. The process for obtaining the
necessary approvals and compliance with applicable regulations can be costly and
time-consuming. There can be no assurance that regulatory review will not
involve delays or other actions adversely affecting the marketing and sales of
Registrant's products. Registrant has received all of its FDA clearances to date
using the procedure under Section 510(k). There is no assurance Registrant will
continue to be able to obtain applicable government approvals or successfully
comply with such regulations in a timely and cost-effective manner, if at all,
and failure to do so may have an adverse effect on Registrant's financial
condition and results of operation. Further, there can be no assurances that
more stringent regulatory requirements and/or safety and quality standards will
not be issued in the future with an adverse effect on Registrant's business.
Although Registrant believes that it is in compliance with all applicable
regulations of the FDA, current regulations depend heavily on administrative
interpretation and there can be no assurance that future interpretations made by
the FDA or other regulatory bodies, with possible retroactive effect, will not
adversely affect Registrant.
18
Registrant's products are similarly subject to foreign regulating bodies.
Typically, foreign bodies readily allow Registrant's products to be traded
within their jurisdictions, based on the fact that Registrant's products have
secured clearance from the FDA. However, there can be no assurance that such
foreign bodies will not impose different, additional requirements that may
materially hamper Registrant's ability to compete in overseas markets.
Patents and Proprietary Technologies. Registrant's ability to compete
effectively with other companies depends, in part, on its ability to protect and
maintain the proprietary nature of its technology. Registrant owns seventeen
United States patents, several Japanese patents and a number of issued foreign
patents and pending patent applications for its products. Registrant treats its
design and technical data as confidential, and relies on nondisclosure
safeguards, such as confidentiality agreements, laws protecting trade secrets
and agreements to protect proprietary information. Registrant has incurred
substantial costs in enforcing its patents against infringement by others and
defending itself against similar claims of others. Although Registrant has been
successful to date in disputes involving the validity and enforceability of its
patents and in defending itself against claims by others of patent infringement,
there can be no assurance that Registrant will continue to be successful in such
matters in the future or that Registrant's patents or other proprietary rights,
even if continuing to be held valid, will be broad enough in scope to enable
Registrant to prevent third parties from producing products using similar
technologies or processes.
As Registrant attempts to broaden its offerings, Registrant perceives that it
may be obliged to license technology from third parties in order to have
competitive offerings. There can be no assurance that Registrant will be
successful in obtaining such licenses on terms satisfactory to Registrant.
Product Development and Acquisitions. Registrant is actively engaged in
identifying market needs and in developing products to satisfy those unmet
needs. Such products are not necessarily laser products. Registrant attempts to
validate the existence of such unmet needs as well as the potential revenues,
costs and profits involved in satisfying such needs. There is a material risk
that Registrant's competitors may satisfy those needs with more effective or
less expensive products. There is also a material risk that Registrant's
estimates of the economic potential from such unmet needs may be incomplete or
inaccurate, or that the products which Registrant develops to meet such needs
will be untimely introduced or insufficiently effective clinically or
economically to gain market acceptance.
Registrant seeks to expand its product offerings through both internal
development and acquisition of products and/or companies. No assurance can be
given that Registrant will be successful in carrying out an acquisition strategy
or that any acquisition will be successfully integrated and result in increased
revenues and profits.
Change in Marketing Approach. Registrant is taking, or is contemplating taking,
certain actions to transition its marketing approach from addressing a wide
range of surgical specialties to providing a broader array of products to a more
select market segment. Although Registrant believes that this transition will
have a long-term positive financial impact, no assurance can be given that the
actions taken will provide the intended results, or that Registrant will not
experience short-term disruptions or an adverse impact of operations during the
transition to this new marketing approach.
Nasdaq Listing Requirements. Registrant's Common Stock is traded on the Nasdaq
SmallCap market. In 1997, Nasdaq modified its listing requirements with which
Registrant was required to comply in order to remain listed on the Nasdaq Stock
Market. In January 1999, Registrant requested and received Nasdaq's approval to
move the market in which the Common Stock is traded from the Nasdaq National
Market to the Nasdaq SmallCap Market, due primarily to Registrant's inability to
satisfy the minimum public float requirement for the Nasdaq National Market.
Although Registrant's stock price has remained above Nasdaq's $1.00 minimum bid
19
requirement since the one-for-five reverse split of the Common Stock was
implemented in January 1999, no assurance can be given that the bid price of
Registrant's Common Stock will remain above the $1.00 minimum, or that
Registrant will continue to meet the other listing requirements required by the
Nasdaq SmallCap Market.
Item 8. Financial Statements and Supplementary Data
- ------- --------------------------------------------
Page
----
Report of Independent Certified Public Accountants....................................................... 21
Report of Independent Public Accountants................................................................. 22
Consolidated Balance Sheets at December 31, 2000 and January 2, 2000..................................... 23
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
for each of the three years in the period ended December 31, 2000.................................... 24
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended December 31, 2000................................................................ 25
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 2000................................................................ 26
Notes to Consolidated Financial Statements............................................................... 27
Schedule II - Valuation and Qualifying Accounts.......................................................... 41
All other schedules are omitted because of the absence of conditions under which
they are required or because the required information is included in the
Consolidated Financial Statements or Notes thereto.
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Surgical Laser Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Surgical
Laser Technologies, Inc. and subsidiaries as of December 31, 2000, and the
related consolidated statements of operations and other comprehensive income
(loss), stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Surgical Laser Technologies, Inc. and subsidiaries as of December 31, 2000, and
the consolidated results of their operations and their consolidated cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States.
We have also audited Schedule II for the year ended December 31, 2000.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ GRANT THORNTON, LLP
Philadelphia, Pennsylvania
January 26, 2001
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Surgical Laser Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Surgical Laser
Technologies, Inc. (a Delaware corporation) and Subsidiaries as of January 2,
2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended January 2,
2000. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule 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 financial statements referred to above present fairly, in
all material respects, the financial position of Surgical Laser Technologies,
Inc. and Subsidiaries as of January 2, 2000, and the results of their operations
and their cash flows for each of the two years in the period ended January 2,
2000 in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as whole. The schedule included in Item 8 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
January 21, 2000
22
Surgical Laser Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for par values)
Dec. 31, 2000 Jan. 2, 2000
Assets
Current assets:
Cash and cash equivalents (Note 1) $ 702 $ 277
(including restricted amounts of $45 at Jan. 2, 2000)
Short-term investments (Note 1) 1,698 3,472
Accounts receivable, net of allowance for doubtful accounts
of $487 and $489 1,825 1,210
Inventories (Note 4) 2,182 1,793
Other 230 51
- ------------------------------------------------------------------------------------------------
Total current assets 6,637 6,803
Property and equipment, net (Note 5) 3,186 612
Patents and licensed technology, net (Note 6) 433 516
Goodwill, net (Note 2) 632 --
Other assets 45 89
- ------------------------------------------------------------------------------------------------
Total assets $ 10,933 $ 8,020
================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 58 $ 163
Accounts payable 376 515
Accrued liabilities (Note 8) 516 604
- ------------------------------------------------------------------------------------------------
Total current liabilities 950 1,282
- ------------------------------------------------------------------------------------------------
Long-term debt (Note 9) 2,300 16
- ------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 17)
Stockholders' equity:
Common stock, $.01 par value, 30,000 shares authorized,
2,328 and 1,978 shares issued and outstanding 23 20
Additional paid-in capital 33,716 33,033
Accumulated deficit (26,080) (26,321)
Accumulated other comprehensive income 24 --
Deferred compensation -- (10)
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 7,683 6,722
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,933 $ 8,020
================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
23
Surgical Laser Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
For the Year Ended
Dec. 31, 2000 Jan. 2, 2000 Jan. 3, 1999
Revenue:
Product sales $ 6,729 $ 7,294 $ 8,437
Surgical services 2,200 657 956
- ---------------------------------------------------------------------------------------------------------
Total revenue 8,929 7,951 9,393
- ---------------------------------------------------------------------------------------------------------
Cost of sales:
Product cost of sales 2,709 2,995 3,931
Surgical cost of sales 1,243 391 535
- ---------------------------------------------------------------------------------------------------------
Total cost of sales 3,952 3,386 4,466
- ---------------------------------------------------------------------------------------------------------
Gross profit 4,977 4,565 4,927
- ---------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 4,159 4,427 5,944
Product development 651 741 1,179
Non-recurring charges (Note 11) -- 1,440 485
- ---------------------------------------------------------------------------------------------------------
Total operating expenses 4,810 6,608 7,608
- ---------------------------------------------------------------------------------------------------------
Operating income (loss) 167 (2,043) (2,681)
Other income -- 194 407
Interest expense (123) (304) (593)
Interest income 197 270 318
- ---------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 241 (1,883) (2,549)
Income taxes -- -- 3
- ---------------------------------------------------------------------------------------------------------
Net income (loss) 241 (1,883) (2,552)
- ---------------------------------------------------------------------------------------------------------
Other comprehensive income:
Unrealized gains on available for sale securities 24 -- --
- ---------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 265 ($1,883) ($2,552)
=========================================================================================================
Basic and diluted net income (loss) per share (Note 3) $ 0.11 ($ 0.95) ($ 1.29)
=========================================================================================================
Weighted average shares used in calculation of
basic net income(loss) per share 2,182 1,978 1,978
Weighted average shares used in calculation of
diluted net income(loss) per share 2,219 1,978 1,978
=========================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
24
Surgical Laser Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Accumulated
Additional Other
Common Paid-In Accumulated Comprehensive Deferred
Stock Capital Deficit Income Compensation Total
Balance, December 28, 1997 $ 20 $ 33,223 ($21,886) $ -- $ -- $ 11,357
Conversion of subordinated notes to
common stock (2 shares) -- 9 -- -- -- 9
Stock warrants cancelled (Note 10) -- (232) -- -- -- (232)
Stock options issued for
compensation -- 33 -- -- (21) 12
Net loss -- -- (2,552) -- -- (2,552)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1999 20 33,033 (24,438) -- (21) 8,594
- -----------------------------------------------------------------------------------------------------------------------------------
Amortization of deferred
compensation -- -- -- -- 11 11
Net loss -- -- (1,883) -- -- (1,883)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 2000 $ 20 $ 33,033 ($26,321) -- ($ 10) $ 6,722
- -----------------------------------------------------------------------------------------------------------------------------------
Amortization of deferred
compensation -- -- -- -- 10 10
Issuance of stock (Note 2) 3 683 -- -- -- 686
Comprehensive income:
Net income -- -- 241 -- -- 241
Other comprehensive income:
Unrealized gain on available
for sale securities (Note 1) -- -- -- 24 -- 24
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 23 $ 33,716 ($26,080) $ 24 $ -- $ 7,683
===================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
25
Surgical Laser Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended
Dec. 31, 2000 Jan. 2, 2000 Jan. 3, 1999
Cash Flows From Operating Activities:
Net income (loss) $ 241 ($1,883) ($2,552)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 749 912 1,055
Imputed interest -- (15) (25)
Non-recurring charges -- 1,440 485
Provision for bad debt (7) 25 --
Gain on sale of property held for sale -- (70) --
(Increase) decrease in assets:
Accounts receivable (348) (169) 488
Inventories (300) 153 588
Other current assets (150) 95 8
Other assets 33 (41) 95
Increase (decrease) in liabilities:
Accounts payable (500) (248) 251
Accrued liabilities (107) (636) (276)
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (389) (437) 117
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Sale of property held for sale -- 4,237 --
(Purchases) sales of short-term investments 1,798 (388) 1,909
Additions to property and equipment (412) (144) (99)
Patent costs (9) (32) (85)
Acquisition of business, net of cash acquired (419) -- --
Cancellation of marketing agreement -- -- 16
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 958 3,673 1,741
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Payments on long-term debt (181) (1,975) (475)
Reduction in long-term debt on property held for sale -- (3,922) --
Net advances on line of credit 37 -- --
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (144) (5,897) (475)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 425 (2,661) 1,383
Cash and Cash Equivalents, Beginning of Year 277 2,938 1,555
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 702 $ 277 $ 2,938
=======================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
26
Surgical Laser Technologies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
Note 1
Summary of Significant Accounting Policies:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Surgical Laser Technologies, Inc. and its wholly owned subsidiaries ("SLT"). All
material intercompany balances and transactions have been eliminated.
Nature of Operations
SLT is engaged primarily in the development, manufacture and sale of proprietary
lasers and delivery systems for both contact and non-contact surgery, and in the
provision of surgical services. SLT's Contact Laser(TM) System is comprised of a
portable laser unit that delivers laser energy through Contact Laser Delivery
Systems. SLT's current manufactured laser product line includes four portable
laser units of various power levels, a family of over 100 laser probes, laser
scalpels, fibers and handpieces that provide different Wavelength Conversion(TM)
effect properties, power densities and configurations appropriate for cutting,
coagulation or vaporization. SLT's surgical services offerings include the
provision of its and, other manufacturers laser systems, and technicians for
various surgical procedures.
SLT product offerings also include non-laser based products specifically
targeted at the Otolaryngology and Head and Neck and Neurosurgery (ENT and
Neurosurgery) markets. Those new product offerings include a line of reusable
handheld instruments and products for the control of bleeding and for suction
and irrigation.
Fiscal Year
SLT's fiscal year is the 52 or 53-week period ending the Sunday nearer to
December 31. Fiscal years 2000 and 1999 included 52 weeks and fiscal year 1998
included 53 weeks.
Comprehensive Income
SLT has adopted Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and presentation of
comprehensive income and its components. Comprehensive income comprises net
income and other comprehensive income and its components. Other comprehensive
income consists of the change in the net unrealized gain or loss on available
for sale marketable securities.
Cash and Cash Equivalents
SLT invests its excess cash in highly liquid short-term investments. SLT
considers short-term investments that are purchased with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents consisted
of the following at:
December 31, 2000 January 2, 2000
----------------- ---------------
(In thousands)
Cash and money market accounts $702 $277
- --------------------------------------------------------------------------------
Total cash and cash equivalents $702 $277
================================================================================
Restricted cash at January 2, 2000 consisted of $45,000 held in escrow for
payment of taxes related to the sale of SLT's property in Oaks, Pennsylvania in
June 1999.
27
Short-term Investments
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"), SLT has
classified its entire portfolio of short-term investments as available for sale
as they are available to support current operations or to take advantage of
other investment opportunities. Securities available for sale are stated at fair
value with unrealized gains and losses included in stockholders' equity as
accumulated comprehensive income. Dividend and interest income is recognized
when earned and is recorded in interest income. The amortized cost of debt
securities is adjusted for accretion of discounts to maturity. Such amortization
is also included in interest income. SLT currently invests only in high-quality,
short-term securities in accordance with its investment policy. At December 31,
2000, SLT recorded $24,000 of net unrealized investment gains, which is included
in accumulated other comprehensive income on the consolidated balance sheet.
The following table represents the estimated cost, fair value and unrealized
gain (loss) breakdown of short-term investments by category:
December 31, 2000
-----------------
Unrealized
----------
Cost Fair Value Gain (Loss)
---- ---------- -----------
(In thousands)
U.S. corporate debt securities $1,176 $1,182 $ 6
Asset backed securities 47 44 (3)
Commercial paper 451 472 21
- ------------------------------------------------------------------------------------------------------------
Total short-term investments $1,674 $1,698 $ 24
============================================================================================================
January2, 2000
--------------
Unrealized
----------
Cost Fair Value Gain (Loss)
---- ---------- -----------
(In thousands)
U.S. corporate debt securities $ 772 $ 772 $ --
Asset backed securities 249 249 --
U.S. Government securities 1,207 1,207 --
Commercial paper 884 884 --
Certificates of deposit 360 360 --
- -----------------------------------------------------------------------------------------------------------
Total short-term investments $3,472 $3,472 $ --
===========================================================================================================
The estimated fair value of short-term investments at December 31, 2000 due in
one year and due after one year was $1,351,000 and $347,000, respectively.
Property, Equipment, Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, primarily 3
to 10 years for demonstration equipment, furniture and office equipment,
automobiles, machinery and equipment, and 30 years for buildings. Leasehold
improvements are amortized over the lesser of their useful lives or the lease
term. Depreciation expense was $579,000 in 2000, $788,000 in 1999 and $974,000
in 1998. Expenditures for major renewals and betterments to property and
equipment are capitalized, while expenditures for maintenance and repairs are
charged to operations as incurred.
28
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Cost is determined at the latest cost for raw materials and at
production cost (materials, labor and indirect manufacturing cost) for
work-in-process and finished goods.
Laser units and laser accessories located at medical facilities for sales
evaluation and demonstration purposes or those units/accessories used for
development and medical training are included in property and equipment under
the caption "demonstration equipment." These units and accessories are being
depreciated over a period of up to 5 years. Laser units utilized in the
provision of surgical services are included in property and equipment under the
caption "machinery and equipment." These units are being depreciated over a
period of up to 10 years.
Patent Costs
Costs incurred to obtain or defend patents are capitalized and amortized over
the shorter of their estimated useful lives or eight years. Capitalized
litigation costs are netted against recoveries if and when a recovery is
attained (see Note 6). As of December 31, 2000, there are no capitalized
litigation costs recorded.
Revenue Recognition and Warranty Costs
Upon shipment of its product or delivery of a service, SLT records a sale and
accrues the related estimated warranty costs, if any.
Deferred Service Revenue
Revenue under maintenance agreements is deferred and recognized over the term
(primarily 1 to 2 years) of the agreements on a straight-line basis.
Product Development Costs
Costs of research, new product and development and product redesign are charged
to expense as incurred.
Use of Estimates
The preparation of these consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Impairment of Long-Lived Assets
Pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," SLT is required to evaluate the impairment of long-lived assets and certain
identifiable intangible assets on a periodic basis. SLT reviews the
realizability of its long-lived assets and other intangibles by analyzing the
projected undiscounted cash flows and adjusts the net book value of the recorded
assets to their realizable value when necessary. No such adjustments have been
recorded in 2000, 1999 or 1998, except as discussed in Note 11.
Note 2
Acquisition of Surgical Innovations & Services, Inc:
On June 1, 2000, Registrant acquired Surgical Innovations & Services, Inc.
("SIS"), a closely held Alabama corporation that provides surgical services
primarily to hospitals and surgery centers in the southeastern United States.
Under the acquisition agreement, the SIS stockholders received 350,000 shares of
Registrant's common stock and $300,000 in cash. Registrant accounted for the
acquisition using the purchase method. The purchase price also included
approximately $2,702,000 of assumed liabilities. The purchase price has been
29
preliminarily allocated to acquired assets, which included approximately
$2,763,000 of property and equipment, based on their estimated fair values at
the date of acquisition, pending final determination of certain acquired
balances. This preliminary allocation has resulted in acquired goodwill of
approximately $648,000, which is being amortized on a straight-line basis over
twenty years. Amortization expense was $16,000 in 2000.
The accompanying consolidated financial statements do not include any revenues
or expenses related to the acquisition prior to the June 1, 2000 closing date.
Following are Registrant's unaudited proforma results for the years ended
December 31, 2000 and January 2, 2000, assuming the acquisition occurred on
January 4, 1999.
For the Year Ended
December 31, 2000 January 2, 2000
----------------- ---------------
(in thousands)
Net sales $ 10,094 $ 10,636
Net income (loss) $ 75 ($ 1,843)
Basic and diluted income (loss)
per share $ 0.03 ($ 0.79)
Shares used in calculating basic and diluted
income (loss) per share 2,328 2,328
Shares used in calculating diluted income (loss)
per share 2,365 2,328
These unaudited proforma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the acquisition occurred on January 4, 1999, or
of future results of operations.
30
Note 3
Earnings (Loss) Per Share
Basic and diluted income (loss) per share have been computed under the
guidelines of Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS No. 128") as follows (in thousands except for per share amounts):
For the Year Ended
December 31, 2000 January 2, 2000 January 3, 1999
----------------- --------------- ---------------
Basic EPS Calculation
Net income (loss) $ 241 ($1,883) ($2,552)
Denominator:
Common Stock Outstanding 2,182 1,978 1,978
- ---------------------------------------------------------------------------------------------------
Basic EPS $ 0.11 ($ 0.95) ($ 1.29)
===================================================================================================
Diluted EPS Calculation
Net income (loss) $ 241 ($1,883) ($2,552)
Denominator:
Common Stock Outstanding 2,182 1,978 1,978
Common Stock Options 37 -- --
- ---------------------------------------------------------------------------------------------------
Total Shares 2,219 1,978 1,978
- ---------------------------------------------------------------------------------------------------
Diluted EPS $ 0.11 ($ 0.95) ($ 1.29)
===================================================================================================
For the years ended December 31, 2000, January 2, 2000 and January 3, 1999, SLT
has reported earnings per share on the face of the income statement. On December
31, 2000, SLT had common stock options and warrants outstanding of 515,000, of
which 343,000 were excluded from the calculation of diluted EPS because their
exercise price was above the 2000 average closing stock price of SLT's common
stock. SLT had common stock options and warrants outstanding at January 2, 2000
and January 3, 1999 of 399,000 and 395,000, respectively. Due to SLT's net loss
position in 1999 and 1998, the inclusion of these common share equivalents had
an anti-dilutive effect when calculating diluted EPS and, as a result, were
excluded from the diluted EPS calculation.
Note 4
Inventories:
(In thousands)
December 31,2000 January 2, 2000
---------------- ---------------
Raw materials and work-in-process (see Note 11) $1,300 $1,023
Finished goods 882 770
- --------------------------------------------------------------------------------------------------------------
Total inventories $2,182 $1,793
==============================================================================================================
31
Note 5
Property and Equipment:
(In thousands)
December 31,2000 January 2, 2000
---------------- ---------------
Property and equipment:
Furniture and office equipment $3,740 $3,690
Machinery and equipment 5,201 2,538
Demonstration equipment 415 401
Automobiles 301 -
Leasehold improvements 109 109
- --------------------------------------------------------------------------------------------------------------------
9,766 6,738
Less, Accumulated depreciation and amortization (6,580) (6,126)
- --------------------------------------------------------------------------------------------------------------------
Property and equipment, net $3,186 $612
====================================================================================================================
At December 31, 2000 and January 2, 2000, net property and equipment included
$154,000 and $22,000, respectively, of assets recorded under capitalized lease
arrangements. The related lease obligation of $157,000 and $179,000, was
included in long-term debt at December 31, 2000 and January 2, 2000,
respectively (see Note 9).
Note 6
Patents and Licensed Technology:
(In thousands)
December 31, 2000 January 2, 2000
----------------- ---------------
Patents, net of accumulated amortization of $654 and $561 $402 $484
Licensed technology, net of accumulated amortization of $9 and $7
31 32
- ------------------------------------------------------------------------------------------------------------------
Total patents and licensed technology $433 $516
- ------------------------------------------------------------------------------------------------------------------
Note 7
Common Stock Reverse Split:
On January 8, 1999, following Board of Director and stockholder approval, SLT
amended its Restated Certificate of Incorporation to effect a one-for-five
reverse split of the shares of SLT's Common Stock. All stockholders owning five
or more shares of SLT's Common Stock at the effective date received one share of
Common Stock in replacement for each five shares they held prior to the reverse
split. For those conversions resulting in fractional shares and for each
stockholder owning fewer than five common shares at the effective date, the
stockholder was entitled to receive cash in lieu of a fractional share at $0.41
per pre-split share. Par value of the Common Stock remained unchanged at $0.01
For all periods presented, references to the number of common shares, stock
options, stock warrants and earnings per share amounts in the consolidated
financial statements and related footnotes have been restated as appropriate to
reflect the effect of the reverse split.
32
Note 8
Accrued Liabilities:
(In thousands)
December 31, 2000 January 2, 2000
----------------- ---------------
Accrued compensation $264 $169
Deferred revenues 92 124
Director fees payable 62 29
Facility related accruals (see Note 11) - 166
Other 98 145
- -----------------------------------------------------------------------------------------------------------
Total accrued liabilities $516 $604
===========================================================================================================
Note 9
Long-term Debt:
(In thousands)
December 31, 2000 January 2, 2000
----------------- ---------------
Capital lease obligations (see Note 5) $ 157 $179
Borrowings on credit facility 2,201 --
Less: Current portion (58) (163)
- -----------------------------------------------------------------------------------------------------------
Total long-term debt $ 2,300 $ 16
===========================================================================================================
Concurrent with the SIS acquisition, SLT obtained a $3 million credit facility
from a bank to replace the term debt of SIS. This $3 million credit facility has
a commitment term of three years expiring June 2003, permits deferment of
principal payments until the end of the commitment term, and is secured by SLT's
business assets, including collateralization of $2 million of SLT's cash and
cash equivalents and short-term investments. The credit facility has an interest
rate of floating LIBOR plus 2.25% ( 9.01% at December 31, 2000) and is subject
to certain restrictive covenants and borrowing base certificates. At December
31, 2000, SLT had $2,201,000 in outstanding obligations and with $799,000
remaining available under the credit facility.
At December 31, 2000 and January 2, 2000, the estimated fair value of long-term
debt described above was approximately the same as the carrying amount of such
debt.
The obligations under capital leases are at fixed interest rates ranging from 8%
to 11.48% and are collateralized by the related property and equipment (see Note
5).
Future minimum payments for property under capital leases are as follows (in
thousands of dollars):
Year Amount
----------------------------------------------------------------------
2001 $69
2002 68
2003 38
----------------------------------------------------------------------
Total minimum lease obligation 175
Less: Interest 18
----------------------------------------------------------------------
Present value of total minimum lease obligation $157
======================================================================
33
Note 10
Common Stock Options and Common Stock Warrants:
Common Stock Options:
Under SLT's 1990 and 2000 Equity Incentive Plans and Second Amended and Restated
Stock Option Plan for Outside Directors (the "Option Plans"), an aggregate of
599,296 shares of common stock may be issued pursuant to options that may be
granted to certain officers, directors, key employees and others. Options under
all plans expire no more than 10 years from the date of grant and have varying
vesting schedules.
In May 2000, the 1990 Equity Incentive Plan and Second Amended and Restated
Stock Option Plan for Outside Directors expired by their terms with respect to
any future grants. At December 31, 2000, the 1990 Equity Incentive Plan had
298,596 options outstanding and the Second Amended and Restated Stock Option
Plan for Outside Directors had 50,700 options outstanding. In July 2000, the
2000 Equity Incentive Plan was approved by the stockholders at SLT's Annual
Meeting held July 19, 2000. The 2000 Equity Incentive Plan had 75,600 options
outstanding and another 174,400 options available for grant at December 31,
2000.
SLT accounts for the Option Plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for the Option
Plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), SLT's net income would have been reduced by
approximately $124,000 or $0.06 per share for the year ended December 31, 2000.
SLT's net loss and net loss per share would have increased by $52,000 and $0.03,
respectively, for the year ended January 2, 2000 and $323,000 and $0.16,
respectively, for the year ended January 3, 1999.
The per share fair value of options granted during the years ended December 31,
2000, January 2, 2000 and January 3, 1999, was estimated at $1.41, $0.81 and
$2.93, respectively. There were no options granted below market or above market
during the three years. The fair value of each option grant was estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 6.54%, 5.56% and 5.56%
for 2000, 1999 and 1998 grants, respectively; an expected life of five years;
dividend yield of zero for all grants; and volatility of 59.4%, 50.6% and 49.5%
for 2000, 1999 and 1998 grants, respectively. Because the SFAS 123 method of
accounting is not required to be applied to options granted prior to January 2,
1995, the resulting pro forma compensation charge may not be representative of
that which may be expected in future years.
The following table summarizes the transactions of SLT's Option Plans for the
three year period ended December 31, 2000:
Weighted
Average
Exercise Exercise
Shares Price Price
- -----------------------------------------------------------------------------------------------------------
Outstanding options at December 28, 1997 293,830 $5.65-75.00 $13.45
Granted 49,200 1.72-7.03 5.86
Forfeited (38,168) 1.72-75.00 15.47
- -----------------------------------------------------------------------------------------------------------
Outstanding options at January 3, 1999 304,862 2.03-75.00 11.98
- -----------------------------------------------------------------------------------------------------------
Granted 106,300 1.56-2.50 1.60
Forfeited (102,012) 1.63-75.00 8.83
- -----------------------------------------------------------------------------------------------------------
Outstanding options at January 2, 2000 309,150 1.56-75.00 9.46
- -----------------------------------------------------------------------------------------------------------
Granted 135,800 2.94-2.00 2.47
Forfeited (20,054) 1.63-52.08 2.24
- -----------------------------------------------------------------------------------------------------------
Outstanding options at December 31, 2000 424,896 $1.56-75.00 $6.62
===========================================================================================================
34
At December 31, 2000, there were 214,871 options vested and exercisable and
174,400 options were available for grant. The following table summarizes the
options outstanding and exercisable by price range at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Weighted Weighted
Average Average Weighted
Range of Exercise Number Remaining Exercise Number Averagge
Prices Outstanding Contractual Life Price Exercisable Exercise Price
- ----------------------------------------------------------------------------------------------------------
$1.56-$1.63 96,967 8.53 $1.59 32,373 $ 1.59
2.00-2.25 75,466 9.43 2.09 266 2.03
2.50-5.63 85,000 8.37 3.55 22,466 5.21
6.25-7.19 75,913 5.96 6.68 68,316 6.68
8.12-21.25 74,890 3.88 15.72 74,790 15.72
27.50-75.00 16,660 1.17 30.86 16,660 30.86
- ----------------------------------------------------------------------------------------------------------
$1.56-$75.00 424,896 7.09 $6.62 214,871 $10.78
==========================================================================================================
Common Stock Warrants:
In July 1997, SLT entered into an agreement to develop and supply certain
laser-related devices. In connection with this agreement, SLT issued a warrant
to purchase 40,000 shares of SLT's common stock with an exercise price of $10.00
per share. In December 1997, SLT issued an additional warrant to purchase 40,000
shares of common stock with an exercise price of $10.00 per share. Both warrants
will expire on December 31, 2002. SLT recorded the $171,000 value of these
warrants as an increase to additional paid-in capital and an offset to revenue
earned under the agreement. At December 31, 2000, 80,000 warrants were
exercisable for an exercise price of $10.00.
Note 11
Non-recurring Items:
In 1999, SLT recorded a non-recurring charge of $1,440,000. This non-recurring
charge consisted of $719,000 in charges related to the discontinuance of certain
new product ventures, a $539,000 charge to reserve for excess inventories and a
$182,000 charge for severance and related costs associated with headcount
reductions made in response to the discontinuance of the new product ventures.
The 1998 non-recurring charge represented costs of the impending sale of SLT's
former headquarters facility in Oaks, Pennsylvania, which was completed in June
1999. The charge consisted of a $325,000 write-down of the facility necessitated
by the terms of the then impending sale and $160,000 in accrued closing costs
(see Note 8).
Note 12
Retirement Savings Plan:
SLT has a defined contribution retirement plan that provides all eligible
employees an opportunity to accumulate funds for their retirement. The plan is
qualified under Section 401(k) of the Internal Revenue Code and provides for
35
discretionary matching contributions by SLT of 50% of pretax contributions by an
employee, up to a maximum of 3% of the employee's compensation. At the time SLT
acquired SIS, SIS maintained a Simple IRA, for which SLT provided a
discretionary match to the Simple IRA of 100% of the first 3% of employee's
salary subsequent to the acquisition. Contributions to the Simple IRA ceased on
December 31, 2000, at which time SIS employees were eligible to participate in
SLT's defined contribution plan. SLT made $39,000 in discretionary matching
contributions in 2000. SLT did not make matching contributions in 1999 or 1998.
Note 13
Income Taxes:
SLT accounts for income taxes pursuant to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 is an
asset-and-liability approach that requires the recognition of deferred tax
assets and liabilities for the expected tax consequences of events that have
been recognized in SLT's consolidated financial statements or tax returns.
SLT recorded no provision for income taxes in 2000 and 1999 and provided $3,000
in 1998. The 1998 provision was for certain state income taxes. No provision was
recorded in 2000 and 1999 due to losses incurred. Any other provisions,
including accrual adjustments for prior periods, were completely offset by
changes in the deferred tax valuation allowance, primarily due to the
utilization of operating loss carryforwards.
Income tax expense, excluding the effect from the deferred liability of $320,000
acquired from SIS, consists of the following (in thousands of dollars):
2000 1999 1998
---- ---- ----
Federal including AMT tax
Current $ -- $ -- $ --
Deferred (37) (711) (995)
State
Current -- -- 3
Deferred (7) (50) (69)
- --------------------------------------------------------------------------------------------
(44) (761) (1,061)
Change in valuation allowance excluding deferred
liabilities acquired from SIS 44 761 1,064
- --------------------------------------------------------------------------------------------
Income tax expense $ -- $ -- $ 3
============================================================================================
SLT has no income that is subject to foreign taxes
A reconciliation of the effective tax rate with the federal statutory tax rate
is as follows (in thousands of dollars):
2000 1999 1998
---- ---- ----
Expected federal tax expense (benefit) at 34% rate $ 82 ($ 640) ($ 867)
Change in valuation allowance, net of deferred tax
liability acquired from SIS 44 761 1,064
Other, at 34% rate (126) (121) (197)
State income tax -- -- 3
- --------------------------------------------------------------------------------------------
Income tax expense $ -- $ -- $ 3
============================================================================================
36
As of December 31, 2000, SLT had approximately $26,771,000 of federal net
operating loss carryforwards, which begin to expire in 2001. Included in the
aggregate net operating loss carryforwards are $6,829,000 of tax deductions
related to equity transactions, the benefit of which will be credited to
stockholders' equity, if and when realized against taxes not reducible by other
deductions. Also included in the aggregate net operating loss carryforward are
approximately $527,000 of losses sustained by SIS prior to the tax-free merger
on June 1, 2000; these losses are subject to certain Federal use limitations
arising from the merger. In addition, SLT had approximately $938,000 of federal
tax credit carryforwards. The credit carryforwards began to expire in 1999 and
2000 and will continue to expire thereafter. Net deductible, or favorable,
temporary differences were approximately $3,726,000 at December 31, 2000. This
balance reflects the addition of unfavorable temporary differences generated by
SIS prior to the merger.
The changes in the deferred tax asset are as follows (in thousands of dollars):
2000 1999
---- ----
Beginning balance, gross $ 12,143 $ 11,382
Net changes due to:
Operating loss carryforwards, valued at 35% 553 488
Temporary differences, valued at 40% (893) 243
Carryforward & AMT credits 64 30
- ------------------------------------------------------------------------------
Ending balance, gross 11,867 12,143
Less: valuation allowance (11,867) (12,143)
- ------------------------------------------------------------------------------
Ending balance, net $ -- $ --
==============================================================================
The ending balances of the deferred tax asset have also been fully reserved,
reflecting the uncertainties as to realizability evidenced by SLT's historical
results and the general market conditions being experienced.
37
Deferred tax assets (liabilities) are comprised of the following (in thousands
of dollars):
2000 1999
---- ----
Assets:
Temporary differences
Bad debts $ 331 $ 404
Deferred R&D costs 870 993
Deferred revenues 37 50
Depreciation -- 134
Inventoriable costs 9 12
Inventory reserves 356 386
Legal costs 200 248
Relocation reserve -- 67
Severance -- 7
Warranty 4 4
Misc. temporary differences 84 78
Loss carryforwards 9,327 8,774
Carryforward & AMT credits 1,050 986
- ------------------------------------------------------------------------------
Gross deferred tax assets 12,268 12,143
- ------------------------------------------------------------------------------
Liabilities:
Depreciation 401 --
- ------------------------------------------------------------------------------
Gross deferred tax liabilities 401 --
- ------------------------------------------------------------------------------
Net deferred tax asset 11,867 12,143
Deferred net tax asset, valuation allowance (11,867) (12,143)
- ------------------------------------------------------------------------------
Net deferred tax asset, after valuation $ -- $ --
==============================================================================
As a result of the acquisition of SIS during 2000, SLT acquired a net deferred
tax liability of $320,000.
The average federal and state income tax rate (net of federal benefit) used to
value operating loss carryforwards is 35%, due principally to more stringent
usage requirements for loss carryforwards in the Commonwealth of Pennsylvania.
Note 14
Supplemental Cash Flow Information
The following non-cash investing and financing activities took place:
In connection with the acquisition of SIS, SLT issued 350,000 shares of its
common stock valued at $686,000, to the shareholders of SIS.
Interest paid was $108,000, $298,000 and $593,000 in 2000, 1999 and 1998,
respectively. There were no income taxes paid in 2000 and 1999 due to net losses
incurred. Income taxes paid in 1998 were immaterial.
38
Note 15
Related Party Transactions:
A partner in the firm which acts as primary legal counsel to SLT is also a
director and stockholder of SLT. In 2000, 1999 and 1998, the firm's legal fees
were approximately $111,000, $69,000 and $58,000 respectively.
Note 16
Business Segment and Geographic Data:
SLT is engaged primarily in one business segment: the design, development and
manufacture of laser products and the marketing of those laser products as well
as other instruments for medical applications. Registrant markets its offerings
through traditional sales efforts as well as through the provision of fee based
surgical services. SLT's customers are primarily hospitals and medical centers.
For the years 2000, 1999 and 1998, SLT did not have material net sales to any
one individual customer.
SLT reports net sales in the following categories (in thousands of dollars):
2000 1999 1998
---- ---- ----
Disposables and accessories $5,283 $5,910 $6,310
Laser system sales and related maintenance 1,446 1,384 2,127
Surgical services 2,200 657 956
- ---------------------------------------------------- ------ ------ ------
Total Net Sales $8,929 $7,951 $9,393
==================================================== ====== ====== ======
For the years 2000, 1999 and 1998, there were no material net sales attributed
to an individual foreign country. Net sales by geographic area are as follows
(in thousands of dollars):
2000 1999 1998
---- ---- ----
Domestic $7,918 $7,043 $8,184
Foreign 1,011 908 1,209
- ------------------------------------------------ ------ ------ ------
Total Net Sales $8,929 $7,951 $9,393
================================================ ====== ====== ======
Note 17
Commitments and Contingencies:
SLT leases office space and equipment under various non-cancelable operating
leases. For fiscal 2000, 1999 and 1998, rental payments were $387,000, $511,000
and $540,000, respectively, and 2000 rental payments related primarily to
facilities in Montgomeryville, Pennsylvania and Tuscaloosa, Alabama. 1999 and
1998 rental payments related to Montgomeryville, Pennsylvania only. Future
minimum rental payments under operating leases are as follows (in thousands of
dollars):
2001 2002 2003 2004 2005 Thereafter
- --------------------------------------------------------------------------------------------------------------------
Minimum rental payments $270 $272 $249 $249 $247 $123
=====================================================================================================================
SLT has severance agreements with certain key executives and employees which
create certain liabilities in the event of their termination of employment
without cause, or following a change in control of SLT. The aggregate commitment
in fiscal 2001 under these executive severance agreements, should all covered
executives and employees be terminated other than for cause, was approximately
$658,000 at December 31, 2000. Should all covered executives be terminated
following a change in control of SLT, the aggregate commitment under these
executive severance agreements at December 31, 2000 was approximately $342,000.
39
Note 18
Quarterly Financial Data (Unaudited):
For the Quarter Ended
(In thousands, except per share)
- -----------------------------------------------------------------------------------------------------------------
2000 April 2 July 2 Oct. 1 Dec. 31
- -----------------------------------------------------------------------------------------------------------------
Net sales $ 1,837 $ 2,022 $ 2,513 $ 2,557
Gross profit 1,065 1,063 1,425 1,424
Net income 87 42 61 51
Basic and diluted earnings per share $ 0.04 $ 0.02 $ 0.03 $ 0.02
- -----------------------------------------------------------------------------------------------------------------
1999 April 4 July 4 Oct. 3 Jan. 2
- -----------------------------------------------------------------------------------------------------------------
Net sales $ 2,262 $ 1,970 $ 1,915 $ 1,804
Gross profit 1,291 1,086 1,123 1,065
Net income (loss)(1) (277) (1,715) 47 62
Basic and diluted earnings (loss) per share ($ 0.14) ($ 0.87) $ 0.02 $ 0.03
- -----------------------------------------------------------------------------------------------------------------
1998 March 29 June 28 Sept. 27 Jan. 3
- -----------------------------------------------------------------------------------------------------------------
Net sales $ 2,367 $ 2,284 $ 2,200 $ 2,542
Gross profit 1,326 1,246 1,186 1,169
Net loss (2) (461) (527) (527) (1,037)
Basic and diluted loss per share ($ 0.23) ($ 0.27) ($ 0.27) ($ 0.52)
(1) Includes a non-recurring charge of $1,440,000 for the quarter ended July 4,
1999 (see Note 11).
(2) Includes a non-recurring charge of $485,000 for the quarter ended January
3, 1999 (see Note 11).
40
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions Charged to
--------------------
Balance at Balance at
Beginning of Cost and Other End of
Description Period Expenses Accounts Deductions (1) Period
- -----------------------------------------------------------------------------------------------------------------------
(In thousands)
FOR THE YEAR ENDED DECEMBER 31,
2000
Reserve for Doubtful
Accounts $489 $ 25 -- $27 $487
=======================================================================================================================
FOR THE YEAR ENDED JANUARY 2,
2000
Reserve for Doubtful
Accounts $138 $431 $ 4 $84 $489
=======================================================================================================================
FOR THE YEAR ENDED JANUARY 3,
1999
Reserve for Doubtful
Accounts $155 -- -- $17 $138
=======================================================================================================================
(1) Represents write-offs of specific accounts receivable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosures.
----------------------
Not Applicable.
41
PART III
- --------
Item 10. Directors and Executive Officers of Registrant
- -------- ----------------------------------------------
Executive Officers
- ------------------
Certain information about the executive officers of Registrant as of March 15,
2001 is as follows:
Name Age Positions held with Registrant
- ---- --- ------------------------------
Michael R. Stewart 43 President and Chief Executive Officer
Davis Woodward 53 Vice President and Chief Financial
Officer and Secretary
Robert L. Crutchfield 43 Vice President of Business Development
Michael R. Stewart has served as President and Chief Executive Officer and a
director of Registrant since July 1999. From October 1990 to July 1999, Mr.
Stewart served as Registrant's Vice President and Chief Financial Officer.
Davis Woodward has served as Vice President and Chief Financial Officer of
Registrant since October 1999 and served as Registrant's Vice President, Legal &
Tax Affairs from January 1995 until October 1999. From July 1990 to January
1995, Mr. Woodward served as Registrant's Assistant General Counsel and Director
of Tax Planning. He has served as Secretary of Registrant since November 1990.
Robert L. Crutchfield has served as Vice President of Business Development of
Registrant and President and Chief Executive Officer of Registrant's SIS
subsidiary since June 2000. Prior to joining Registrant, Mr. Crutchfield had
served as President and CEO of Surgical Innovation & Services, Inc. since
November 1994.
42
Directors
- ---------
The names of the Directors, and certain information about them as of March 15,
2001, are set forth below.
Name of Director Age Principal Occupation Director Since
- ---------------- --- -------------------- --------------
Richard J. DePiano............. 59 Chairman and Chief Executive Officer of Escalon 1986
Medical Corp.
Sheldon M. Bonovitz............ 63 Chairman and Partner, Duane, Morris & Heckscher LLP, 1985
Counsel to Registrant
Jay L. Federman................ 63 Ophthalmologist and attending Surgeon and Co-Director 1987
of Research, Wills Eye Hospital and Chief of
Ophthalmology at Medical College of Pennsylvania
Michael R. Stewart............. 43 President and Chief Executive Officer of Registrant 1999
James Lee Stafford 60 Managing Partner, Watkins, Ward and Stafford, PLLC 2000
Directors will serve until the 2001 Annual Meeting and until the due election of
their respective successors.
Except as set forth below, each of the nominees has been engaged in his
principal occupation described above for the past five years. There are no
family relationships among directors or officers of Registrant.
Richard J. DePiano has served as the Chairman of the Board of Directors of
Registrant since July 1995. Since March 1997, Mr. DePiano has served as Chairman
and Chief Executive Officer of Escalon Medical Corp., of which he is also a
director. Mr. DePiano has been the Chief Executive Officer of The Sandhurst
Company, L.P. and the Managing Director of The Sandhurst Venture Fund since
1986. Mr. DePiano is also a Director of PhotoMedex, Inc.
Sheldon M. Bonovitz has been a partner in the law firm of Duane, Morris &
Heckscher LLP, Philadelphia, Pennsylvania, since 1969, where he also serves as
Chairman and a member of the management committee. Mr. Bonovitz also serves as a
director of Comcast Corporation, PRWW, Ltd. and eResearchTechnology, Inc.
Jay L. Federman, M.D. has been an attending surgeon at Wills Eye Hospital,
Philadelphia, Pennsylvania, since 1980 and an ophthalmologist in private
practice since 1968. Dr. Federman was a founder of SITE Microsurgical Systems,
Inc. and serves as a director of Escalon Medical Corp. and Chief of
Ophthalmology at the Medical College of Pennsylvania.
Michael R. Stewart has served as President and Chief Executive Officer and
Director of Registrant since July 1999. Prior to Mr. Stewart's appointment as
President and Chief Executive Officer, he served as Registrant's Vice President
and Chief Financial Officer since October 1990.
James Lee Stafford has been a managing partner in the CPA firm of Watkins, Ward
and Stafford, PLLC since 1985.
43
Item 11. Executive Compensation
- -------- ----------------------
Director Compensation
- ---------------------
Each director of Registrant who is not an officer or employee of Registrant (an
"Outside Director") receives an annual retainer of $15,000 and a fee of $500 for
each committee meeting attended other than meetings held in conjunction with
meetings of the Board of Directors.
Registrant also maintains the Second Amended and Restated Stock Option Plan for
Outside Directors (the "Outside Director Plan") and the 2000 Equity Incentive
Plan (the "2000 Plan"). The Outside Director Plan expired in May 2000 with
respect to future grants. At its expiration, the Outside Director Plan had
50,700 options outstanding. Pursuant to the terms of the 2000 Plan, each person
who is or becomes a director of Registrant and is neither an officer of nor
otherwise employed by Registrant or any subsidiary (an "Outside Director") is
entitled to receive nonqualified options ("Director Options") under the Plan.
Individuals who first become Outside Directors after adoption of the Plan will
receive Options to purchase 10,000 shares on the 15th day after first being
elected to the Board, with the number increasing to 15,000 if the individual is
elected to serve as Chairman. Each Outside Director is also entitled to receive
Options to purchase 10,000 shares upon completion of three years of service
since the most recent grant of options under the 2000 Plan or under Registrant's
Second Amended and Restated Stock Option Plan for Outside Directors, with the
number increasing to 15,000 if the Outside Director has served as Chairman
during the three-year period. The exercise price for all Director Options is
100% of the fair market value of the Common Stock on the date of grant. Director
Options are exercisable in three equal consecutive annual installments
commencing one year from the date of grant, but all Director Options become
immediately exercisable upon the consummation of any business combination
transaction involving the sale of all or substantially all of the assets of
Registrant to, or the acquisition of shares of Registrant's Common Stock
representing more that 50% of the votes which all stockholders of Registrant are
entitled to cast by, any person not presently an affiliate of Registrant.
Director Options terminate upon the earliest to occur of: (a) ten years from the
grant date; (b) one year after the Outside Director's death if such death occurs
while the optionee is an Outside Director or within the three-month or
three-year period specified in the next two clauses; (c) three months after the
optionee ceases to serve as an Outside Director for any reason other than death
or disability, except as noted in clause (b) above; or (d) three years after the
optionee ceases to serve as an Outside Director due to disability, except as
noted in clause (b) above.
An aggregate 250,000 shares of Common Stock are currently reserved for issuance
under the 2000 Plan, of which 45,000 shares are subject to outstanding options
issued to Outside Directors.
Executive Officer Compensation
- ------------------------------
The following table sets forth certain information with respect to compensation
paid by Registrant during each of the three fiscal years ended December 31,
2000, January 2, 2000 and January 3, 1999 to the Chief Executive Officer of
Registrant and the other executive officers of Registrant whose annual salary
and bonus in 2000 exceeded $100,000.
44
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------- ------------
Awards
------ All Other
Options Compensation
------- ------------
Name & Principal Position Year Salary ($) Bonus ($) (#) ($)
- ------------------------- ---- ---------- --------- --- ---
Michael R. Stewart (1) 2000 187,784 23,125 50,000(4) 3,140(6)
President, Chief Executive 1999 169,507 -- 50,000 643(7)
Officer and Director 1998 153,932 -- -- 643(7)
Davis Woodward (2) 2000 136,379 13,434 20,000 3,073(8)
Vice President, Chief Financial 1999 132,384 -- 27,500(5) 1,285(7)
Officer 1998 127,392 -- -- 1,285(7)
Robert L. Crutchfield (3) 2000 112,823 30,000 30,000 2,417(9)
Vice President of Business
Development
- ------------
(1) Mr. Stewart was appointed President and Chief Executive Officer in July
1999. Prior to his appointment as President and Chief Executive Officer, Mr.
Stewart served as Registrant's Vice President and Chief Financial Officer.
(2) Mr Woodward was appointed Vice President and Chief Financial Officer in
October 1999. Prior to his appointment as Chief Financial Officer, Mr.
Woodward served as Registrant's Vice President, Legal & Tax Affairs.
(3) Mr. Crutchfield was appointed Vice President of Business Development in June
2000.
(4) These options were granted in 2001 for services rendered in 2000.
(5) These options were granted in 2000 for services rendered in 1999.
(6) Represents $2,497 in contributions to Mr. Stewart's defined contribution
plan and $643 in premiums for certain supplementary life insurance coverage.
(7) Represents payments of premiums for certain supplementary life insurance
coverage.
(8) Represents $1,788 in contributions to Mr. Woodward's defined contribution
plan and $1,285 in premiums for certain supplementary life insurance
coverage. (9) Represents payments for contributions to Mr. Crutchfield's
Simple IRA Plan.
45
The following table sets forth information with respect to options granted
during the fiscal year ended December 31, 2000 to the persons named in the
Summary Compensation Table above.
Option Grants in Last Fiscal Year
% of Total Potential Realizable Value
Options at Assumed Annual Rates
Granted to of Stock Price Appreciation
Employees for Option Term
Options In Fiscal Exercise ---------------
Name Granted(#) Year Price Expiration Date 5% 10%
- ---- ---------- ---- ----- --------------- --- ----
Davis Woodward 27,500 27.3% $2.94 January 18, 2010 $50,812 $128,766
Robert L. Crutchfield 30,000 29.8% $2.00 June 1, 2010 $37,734 $ 95,625
The following table sets forth information with respect to options held at
December 31, 2000 by the persons named in the Summary Compensation Table above.
No options were exercised by such persons during the fiscal year ended December
31, 2000. No outstanding options were in the money at December 31, 2000.
Fiscal Year-End Option Values
Number of Unexercised Options
at Fiscal Year End
-----------------------------------
Name Exercisable Unexercisable
---- ----------- -------------
Michael R. Stewart 50,739 36,201
Davis Woodward 26,906 30,034
Robert L. Crutchfield -- 30,000
Employment and Other Agreements
In October 1999, Registrant entered into an employment agreement with Michael R.
Stewart pursuant to which Mr. Stewart serves as Registrant's President and Chief
Executive Officer for successive one-year terms expiring December 31 absent at
least three months' prior written notice of termination by either party. Mr.
Stewart's minimum annual base salary under the agreement is $185,000 and his
agreement provides that he will be eligible for a bonus of 50% of base salary
pursuant to bonus programs developed by the Board of Directors based on
objective criteria related to Registrant's results of operations. Mr. Stewart
was awarded a $23,125 bonus under the 2000 bonus program. If Mr. Stewart's
employment is terminated by Registrant without cause during the initial or any
renewal term of the agreement (other than following a change in control as
described below), Mr. Stewart will be entitled to severance benefits equal to
continuation of his base salary, health, disability and life insurance for a
one-year period and the right to exercise options which are not then exercisable
for a period equal to the lesser of one year from the date of termination for
all options granted after 1996 and five years from the date of termination for
all options granted before 1997 or the original term of such options. If Mr.
Stewart's employment is terminated without cause within two years following a
change in control or if Mr. Stewart resigns his employment within two years
after a change in control following (a) the relocation of Mr. Stewart's
principal business location by more than 35 miles, (b) a significant reduction
in Mr. Stewart's duties and responsibilities from those existing prior to the
change in control or (c) a reduction in Mr. Stewart's then-current base salary,
Mr. Stewart will be entitled to severance benefits equal to continuation of his
base salary and his health, disability and life insurance for a one year period
and the right to exercise any options granted under the agreement which are not
otherwise exercisable for a period equal to the lesser of one year from the date
of termination for all options granted after 1996 and five years from the date
of termination for all options granted before 1997 or the original term of such
options. Mr. Stewart was also granted under the agreement options to purchase
50,000 shares of Registrant's Common Stock at the market price. Registrant
46
provides long-term disability insurance equal to 60% of Mr. Stewart's base
salary, a $1 million life insurance policy and automobile, vacation, and other
insurance benefits as are available to Registrant's other senior executive
officers. During the term of the agreement and for a period of one year
thereafter, Mr. Stewart is prohibited from competing with Registrant in any
respect, interfering with Registrant's business relationships or soliciting
business from Registrant's customers.
Registrant maintains a severance benefits program for certain key employees,
including Mr. Woodward and Mr. Crutchfield. Under the terms of this program, a
participant whose employment is terminated by Registrant other than for cause
and other than following a change in control is entitled to continue receiving
his then-current base salary and coverage under the medical, dental,
supplemental life and supplemental disability insurance policies, if any, being
provided at the time of termination for a specified period, with the obligation
to provide such insurance coverage terminating in the event the participant is
provided substantially the same coverage from a new employer. Mr. Woodward and
Mr. Crutchfield are entitled to continue receiving such base salary and
insurance coverage for a period of one year under the foregoing circumstances.
In addition, if, within two years following a change in control of Registrant, a
participant's employment is terminated without cause or the participant resigns
following (a) the relocation of his principal business location, (b) a
significant reduction in the duties or responsibilities from those existing
prior to the change in control, or (c) a reduction in his then-current base
salary, then, in any such event, the participant is also entitled to continue
receiving his then-current base salary and coverage under the aforementioned
insurance program (subject to the restriction described above) for a specified
period. Mr. Woodward is entitled to continue receiving his respective base
salary for a period of 12 months under such circumstances. In addition, under
such circumstances, Mr. Woodward is also entitled to continue receiving the
aforementioned insurance coverages for a period of 12 months, and all unvested
options which he holds become exercisable in full and all outstanding options
remain exercisable for the lesser of the remaining scheduled term thereof or an
extended exercise period, which is one year for options granted after December
1996 and five years for options granted before January 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2001, the following persons were known to Registrant to be the
beneficial owners of more than 5% of Registrant's Common Stock:
Number of Percent
Name and Address Shares of Class
- ---------------- ------ --------
Steven T. Newby .................................... 183,600 7.89%
6116 Executive Blvd.
Rockville, MD 20852
Robert L. Crutchfield .............................. 140,000 6.01%
1003 23rd Avenue Suite B
Tuscaloosa, AL 35401
Kontron Instruments Holding N.V. ................... 139,130 5.98%
Julianaplein 22
Curacao, Netherlands Antilles
47
Security Ownership of Management
The following table sets forth the beneficial ownership of the Common Stock of
Registrant as of March 15, 2001 by each director, each executive officer named
in the Summary Compensation Table and by all directors and executive officers as
a group. The persons named in the table below have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and the information
contained in the table and notes thereto.
Shares Beneficially Owned
-------------------------
Name Number Percent
- ---- ------ -------
Robert L. Crutchfield.............................. 140,000 6.01%
James Lee Stafford................................. 105,000 4.51%
Davis Woodward..................................... 68,348 (1) 2.89%
Jay L. Federman ................................... 62,739 (2) 2.68%
Michael R. Stewart ................................ 54,852 (3) 2.30%
Richard J. DePiano ................................ 45,900 (4) 1.95%
Sheldon M. Bonovitz ............................... 24,000 (5) 1.02%
All directors and executive officers as a group
(7 persons)...................................... 500,839 (6) 20.15%
- ------------
(1) Includes 38,566 shares which Mr. Woodward has the right to purchase
under outstanding stock options exercisable within 60 days after March 15,
2001.
(2) Includes 15,900 shares which Dr. Federman has the right to acquire under
outstanding stock options exercisable within 60 days after March 15, 2001
and 2,499 shares owned by Dr. Federman's child. Dr. Federman disclaims
beneficial ownership of such 2,499 shares.
(3) Includes 53,566 shares which Mr. Stewart has the right to purchase under
outstanding stock options exercisable within 60 days after March 15, 2001.
(4) Includes 30,900 shares which Mr. DePiano has the right to acquire under
outstanding stock options exercisable within 60 days after March 15, 2001.
(5) Includes 18,900 shares which Mr. Bonovitz has the right to acquire under
outstanding stock options exercisable within 60 days after March 15, 2001.
Also includes 5,100 shares owned by a pension trust of which Mr. Bonovitz
is the beneficiary.
(6) Includes 157,832 shares which such persons have the right to purchase
under stock options exercisable within 60 days after March 15, 2001.
Item 13. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
Sheldon M. Bonovitz, a Director of the Registrant, is the Chairman and a Partner
of Duane, Morris & Heckscher LLP, Registrant's outside legal counsel.
48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- -------
(a) 1. Financial Statements
--------------------
Page
----
Consolidated Balance Sheets at December 31, 2000 and January 2, 2000........................... 23
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
for each of the three years in the period ended December 31, 2000........................... 24
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 2000.............................................................. 25
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 2000.............................................................. 26
Notes to Consolidated Financial Statements..................................................... 27
Report of Independent Certified Public Accountants............................................. 21
Report of Independent Public Accountants....................................................... 22
2. Financial Statement Schedules
-----------------------------
Page
----
Schedule II - Valuation and Qualifying Accounts for the three years in the period
ended December 31, 2000..................................................................... 41
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter of the fiscal year
ended December 31, 2000.
49
(c) Exhibits
--------
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.1 Restated Certificate of Incorporation of Registrant as amended,
incorporated by reference to Exhibit 3.1 filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended January 3, 1999 filed on
April 1, 1999 ("the 1998 Form 10-K").
3.2 By-laws of Registrant, as amended, incorporated by reference to Exhibit
3.2 filed with Registrant's Annual Report on Form 10-K for the fiscal
year ended December 30, 1990 filed on March 29, 1991 (the "1990 Form
10-K").
10.1 Lease Agreement dated May 29, 1996, between Registrant and Nappen &
Associates, incorporated by reference to Exhibit 10.51 filed with
Registrant's Form 10-Q for the fiscal quarter ended June 30, 1996 filed
on August 19, 1996 (the "Second Quarter 1996 Form 10-Q").
10.2* Employment Agreement dated August 5, 1996, between Registrant and W.
Keith Stoneback, incorporated by reference to Exhibit 10.1 filed with
Registrant's Form 10-Q for the fiscal quarter ended September 29, 1996
filed on November 15, 1996 (the "Third Quarter 1996 Form 10-Q").
10.3* Registrant's Equity Incentive Plan, as amended through October 10,
1996, incorporated by reference to Exhibit 4 filed with Registrant's
Form S-8 Registration Statement filed on January 3, 1997, Registration
No. 333-19229 ("the 1996 Form S-8").
10.4* Second Amended and Restated Stock Option Plan for Outside Directors of
Registrant, incorporated by reference to Exhibit 4(B) filed with
Registrant's Form S-8 Registration Statement filed on August 19, 1994,
Registration No. 33-83074 (the "1994 Form S-8").
10.5 Collaboration and Assignment Agreement dated as of March 7, 1995 among
Registrant, Daniel M. Schuman, M.D. and the AMERICA Charitable Fund,
incorporated by reference to Exhibit 10.7 filed with Registrant's
Amendment No. 1 to Annual Report on Form 10-K/A filed on August 28,
1996 (the "1995 Form 10-K/A").
10.6* Registrant's 1997 Executive Staff Bonus Program adopted January 17,
1997, incorporated by reference to Exhibit 10.54 filed with
Registrant's Amendment No. 1 to Annual Report on Form 10-K/A for the
fiscal year ended December 29, 1996 filed on April 7, 1997 ("the 1996
Form 10-K/A").
10.7 Employment Agreement dated March 1, 1987 between Registrant and Norio
Daikuzono, incorporated by reference to Exhibit 10.22 filed with the
Form S-1, as amended by Settlement Agreement and Limited Mutual Release
dated November 7, 1997 incorporated by reference to Exhibit 10.9 filed
with Registrant's Annual Report on Form 10-K for the fiscal year ended
December 28, 1997, filed on March 25, 1998 ("the 1997 Form 10-K").
10.8 Agreement of Sale dated November 25, 1998, between Lenfest Oaks, Inc.
(an affiliate of Suburban Cable TV Co. Inc.) and SLT Properties, Inc.,
incorporated by reference to Exhibit 10.10 filed with the 1998 Form
10-K.
10.9 License Agreement dated December 11, 1990 among Registrant, Advanced
Laser Systems Technology, Inc., Robert E. McKinney, Dennis R. Bellar,
Randel W. Owen, and Jim D. Keatley, incorporated by reference to
Exhibit 10.11 filed with the 1990 Form 10-K.
50
10.10 Amended and Restated Loan Agreement dated December 1, 1992 among
Registrant, Meridian Bank, SLT Properties, Inc., SLT Technology, Inc.,
Diversified Properties-Equity Group, Inc. and Surgical Laser
Technologies Development, Inc., incorporated by reference to Exhibit
10.20 filed with Registrant's Annual Report on Form 10-K for the fiscal
year ended January 3, 1993 filed on April 19, 1993 (the "1992 Form
10-K"); as amended pursuant to a First Amendment thereto dated July 26,
1993, incorporated by reference to Exhibit 10.15 filed with
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 2, 1994 filed on April 1, 1994 (the "1993 Form 10-K"); as
amended pursuant to a Second Amendment thereto dated January 19, 1995,
incorporated by reference to Exhibit 10.15 filed with Registrant's
Annual Report on Form 10-K for the fiscal year ended January 1, 1995
filed on April 3, 1995 (the "1994 Form 10-K"); as amended pursuant to a
Third Amendment thereto dated December 20, 1995 and as amended pursuant
to a Letter Agreement accepted March 14, 1996 filed with Registrant's
1995 Form 10-K/A; as amended by Letter Agreement dated November 5, 1997
from CoreStates Bank (successor to Meridian Bank) to Registrant,
incorporated by reference to Exhibit 10.15 filed with Registrant's 1997
Form 10-K; and as further amended by Letter Agreement dated March 17,
1999 from First Union Corporation (successor to CoreStates Bank) to
Registrant incorporated by reference to Exhibit 10.15 filed with
Registrant's 1998 Form 10-K.
10.11* Form of Agreements dated June 12, 1992 between Registrant and Executive
Officers with respect to severance and change of control benefits,
incorporated by reference to Exhibit 10.40 filed with Registrant's 1992
Form 10-K, as amended by Letter Agreement dated January 24, 1997
incorporated by reference to Exhibit 10.36 filed with Registrant's 1996
Form 10-K/A.
10.12 Lease Agreement dated March 5, 1990 between Duke Associates #77 Limited
Partnership and Registrant and Lease Addendum Number One dated March
30, 1990, incorporated by reference to Exhibit 10.41 filed with
Registrant's 1992 Form 10-K.
10.13 Amendment to the Joint Venture and other Agreements dated September 30,
1996, among Registrant; Mediq/PRN Life Support Services, Inc.; and
Mediq PRN/SLT, incorporated by reference to Exhibit 10.5 filed with
Registrant's Third Quarter 1996 Form 10-Q.
10.14 Investment Agreement dated December 8, 1994 between Registrant and
Kontron Instruments Holding N.V., incorporated by reference to Exhibit
10.42 filed with Registrant's 1994 Form 10-K.
10.15 Amendment to Confidentiality and Non-Compete Agreement dated April 28,
1994 between Registrant and Terry A. Fuller, amending Confidentiality
and Non-Compete Agreement dated June 6, 1990, incorporated by reference
to Exhibit 10.43 filed with Registrant's 1994 Form 10-K, as amended
pursuant to Severance Agreement dated November 5, 1996, between
Registrant and Dr. Fuller, incorporated by reference to Exhibit 10.3
filed with Registrant's Third Quarter 1996 Form 10-Q, and as further
amended pursuant to Addendum dated December 20, 1996, between
Registrant and Dr. Fuller, incorporated by reference to Exhibit 10.43
filed with Registrant's 1996 Form 10-K/A.
10.16 Guaranty dated December 29, 1994 from Registrant to KCI Financial
Services, Inc., incorporated by reference to Exhibit 10.44 filed with
Registrant's 1994 Form 10-K.
10.17 $629,430.53 Standby Letter of Credit dated as of January 1, 1995 issued
by Meridian Bank to Montgomery County Industrial Development
Corporation for the account of Registrant, incorporated by reference to
Exhibit 10.47 filed with Registrant's 1994 Form 10-K, as amended by an
Amendment dated December 22, 1995 reducing the amount of the Letter of
51
Credit to $575,607, incorporated by reference to Exhibit 10.47 filed
with Registrant's 1995 Form 10-K/A, as amended by an Amendment dated
December 24, 1997 incorporated by reference to Exhibit 10.47 filed with
Registrant's 1997 Form 10-K; as further amended by Amendment dated
December 28, 1998, incorporated by reference to Exhibit 10.45 filed
with Registrant's 1998 Form 10-K.
10.18 Termination of Lease, dated June 29, 1999 and effective June 30, 1999,
between Registrant and SLT Properties, Inc., incorporated by reference
to Exhibit 10.50 filed with Registrant's Form 10-Q for the fiscal
quarter ended July 4, 1999 filed on August 16, 1999 ("the Second
Quarter 1999 Form 10-Q").
10.19 Assumption and Assignment Agreement, dated June 28, 1999 and effective
June 30, 1999, among Montgomery County Industrial Development
Corporation, Pennsylvania Industrial Development Authority, Lenfest
Oaks, Inc., and SLT Properties, Inc., incorporated by reference to
Exhibit 10.51 filed with the Second Quarter 1999 Form 10-Q.
10.20 Assumption Agreement, dated June 28, 1999 and effective June 30, 1999,
among American United Life Insurance Company, Montgomery County
Industrial Development Corporation, Lenfest Oaks, Inc., SLT Properties,
Inc. and Registrant, incorporated by reference to Exhibit 10.52 filed
with the Second Quarter 1999 Form 10-Q.
10.21 Consent, Subordination and Assumption Agreement, dated June 28, 1999,
among Pennsylvania Industrial Development Authority, Montgomery County
Industrial Development Corporation, Lenfest Oaks, Inc., Suburban Cable
TV Co. Inc., SLT Properties, Inc. and Registrant, incorporated by
reference to Exhibit 10.53 filed with the Second Quarter 1999 Form
10-Q.
10.22 Termination of Assignment of Lease Agreement, dated June 23, 1999 and
effective June 30, 1999, among Pennsylvania Industrial Development
Authority, SLT Properties, Inc. and Registrant, incorporated by
reference to Exhibit 10.54 filed with the Second Quarter 1999 Form
10-Q.
10.23 Termination of Sublease Agreement, dated June 29, 1999 and effective
June 30, 1999, between Suburban Cable TV Co. Inc. and Registrant,
incorporated by reference to Exhibit 10.55 filed with the Second
Quarter 1999 Form 10-Q.
10.24* Severance Agreement, dated July 21, 1999, between W. Keith Stoneback
and Registrant, incorporated by reference to Exhibit 10.56 filed with
the Second Quarter 1999 Form 10-Q.
10.25* Employment Agreement dated October 5, 1999, between Registrant and
Michael R. Stewart, incorporated by reference to Exhibit 10.25 filed
with Registrant's Annual Report on Form 10-K for the fiscal year ended
January 2, 2000 filed on March 23, 2000.
10.26 Revolving Loan Agreement, dated May 31, 2000, between Registrant and
AmSouth Bank, incorporated by reference to Exhibit 10.26 filed with
Registrant's Form 10-Q for the quarter ended July 2, 2000 filed on
August 14, 2000 ("the Second Quarter 2000 Form 10-Q").
10.27 Master Note for Business and Commercial Loans, dated May 31, 2000,
between Registrant and AmSouth Bank, incorporated by reference to
Exhibit 10.27 filed with Registrant's Second Quarter 2000 Form 10-Q.
10.28 Security Agreement (Accounts, Inventory and General Intangibles), dated
May 31, 2000, granted by Registrant to AmSouth Bank, incorporated by
reference to Exhibit 10.28, filed with Registrant's Second Quarter 2000
Form 10-Q.
52
10.29 Security Agreement for Tangible Personal Property, dated May 31, 2000,
granted by Registrant to AmSouth Bank, incorporated by reference to
Exhibit 10.29, filed with Registrant's Second Quarter 2000 Form 10-Q.
10.30 Limited Security Agreement (Alabama), dated May 31, 2000, granted by
Registrant to AmSouth Bank, incorporated by reference to Exhibit 10.30,
filed with Registrant's Second Quarter 2000 Form 10-Q.
10.31 Lease Agreement, dated May 18, 2000, between Mike Kilgo and Karen
Kilgo, Lessor, and Surgical Innovations & Services, Inc., Lessee, for
premises at 1001 23rd Avenue, Tuscaloosa, Alabama, incorporated by
reference to Exhibit 10.31, filed with Registrant's Second Quarter 2000
Form 10-Q.
10.32* Confidentiality and Severance Agreement, dated May 31, 2000, between
Registrant and Robert L. Crutchfield, incorporated by reference to
Exhibit 10.32, filed with Registrant's Second Quarter 2000 Form 10-Q.
10.33 Agreement and Plan of Reorganization dated May 5, 2000 by and among
Registrant, SLT Subsidiary, Inc., Surgical Innovations & Services,
Inc., and Robert L. Crutchfield, James Lee Stafford and John E.
Griffin, MD, incorporated by reference to Exhibit 1 filed with
Registrant's Form 8-K, filed on June 15, 2000.
10.34* Surgical Laser Technologies, Inc. 2000 Equity Incentive Plan,
incorporated by reference to Exhibit 4 filed with Registrant's Form S-8
filed on November 1, 2000, Registration No. 333-49110.
10.35 Lease Renewal Agreement dated January 18, 2001 between Registrant and
Nappen & Associates.
21 Subsidiaries of Registrant, incorporated by reference to Exhibit 22
filed with Registrant's 1993 Form 10-K.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Arthur Andersen LLP.
* This exhibit represents a management contract or compensatory plan or
arrangement.
53
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: March 23, 2001 SURGICAL LASER TECHNOLOGIES, INC.
By: /s/ Michael R. Stewart
-------------------------------
Michael R. Stewart
President and Chief Executive
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 Registrant and in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Michael R. Stewart President, Chief Executive Officer and March 23, 2001
- ------------------------ Director (principal executive officer)
Michael R. Stewart
/s/ Davis Woodward Vice President and Chief Financial Officer March 23, 2001
- ------------------------ (principal financial and accounting officer)
Davis Woodward
/s/ Richard J. DePiano Chairman of the Board and March 23, 2001
- ------------------------ Director
Richard J. DePiano
/s/ Sheldon M. Bonovitz Director March 23, 2001
- ------------------------
Sheldon M. Bonovitz
/s/ Jay L. Federman Director March 23, 2001
- ------------------------
Jay L. Federman
/s/ James Lee Stafford Director March 23, 2001
- ------------------------
James Lee Stafford