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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 31, 1996 [Fee Required]
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File Number: 0-14961
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2741310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 Clark Street, Worcester, Massachusetts 01606
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(508) 856-9454
Securities registered pursuant to Section 12(b) of the Act:
American Stock Exchange
Common Stock, $.01 par value per share
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. 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 the 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 ]
The aggregate market value of the voting Common Stock held by non-affiliates of
the registrant was approximately $2,746,909 based on the closing price of such
stock on December 31, 1996, as reported by the American Stock Exchange ($2.63
per share).
As of December 31, 1996, 2,849,657 shares of Common stock, $.01 par value, were
issued and outstanding.
Documents Incorporated by Reference Form 10-K Reference
Proxy Statement for the next Annual Meeting Part III
PART I This report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below. The industry in which the Company competes is characterized by
rapid changes in technology and frequent new product introductions. The Company
believes that its long-term growth depends largely on its ability to continue to
enhance existing products and to introduce new products and features that meet
the continually changing requirements of its customers. While the Company has
invested heavily in new products and processes, there can be no assurance that
it can continue to introduce new products and features on a timely basis or that
certain of its products and processes will not be rendered noncompetitive or
obsolete by its competitors.
ITEM 1. BUSINESS
The Corporation
Luxtec Corporation, a Massachusetts Corporation (the "Corporation" or "Luxtec"),
was organized in November 1981, and is engaged in the design, manufacture,
marketing and distribution of fiber optic headlight and video camera systems,
light sources, cables, retractors, surgical telescopes and other custom made
surgical equipment for the medical and dental industries. Through its
subsidiaries, Fiber Imaging Technologies, Inc. and CardioDyne, Inc., the
Corporation also manufactures small diameter specialty endoscopes and motion
tolerant blood pressure monitors, respectively, for the medical market.
The Corporation has developed a proprietary, totally programmable, fiber optic
drawing system designed to manufacture optical glass to a predetermined diameter
as well as to control the actual size of the fiber bundles. The fibers are
utilized in fiber optic cables which are incorporated with the Corporation's
Surgical Headlight Systems and the Video Camera Systems as well as in an array
of fiber optic transilluminators utilized with the Corporation's surgical
instruments. The Corporation also markets replacement fiber optic cables and
light sources for use with other manufacturers' products, including various
endoscopic systems used in minimally invasive surgical procedures.
The Corporation's CardioDyne, Inc. subsidiary is engaged in the design and
development of proprietary, motion tolerant, non-invasive blood pressure ("BP")
monitors for use on moving and exercising patients. The products are designed
for use in the categories of exercise stress testing, emergency transport,
obstetrics, and other applications where frequent, accurate blood pressure data
is vital, yet where existing blood pressure monitors typically fail to work
because of patient motion. The Corporation's two existing BP products have been
approved for sale in the United States by the Food and Drug Administration (the
"FDA").
The Corporation maintains its principal executive offices and facilities at 326
Clark Street, Worcester, Massachusetts 01606, and its telephone number is (508)
856-9454.
Background and Technology
Fiber Optics
Fiber optics allow for the transmission, element by element, of a light or image
from one place to another through a flexible conduit. Fiber optic technology
permits the drawing of high quality optical glass rods and tubes into flexible
fibers, each coated with a "jacket" (a film of an organic silicon), that
protects the fibers from abrasion. This provides for an improved ability to bend
and transmit light and images to and from inaccessible places.
The technology used by Luxtec to provide illumination directly to the surgical
site is facilitated by fiber optic cables piping light into an adjustable
headlight composed of a series of lenses and mirrors mounted on a headband.
These lenses then focus the light directly on the surgical site when worn by the
surgeon. This provides a lightweight, low temperature illumination source to
enhance visualization for microsurgical and deep cavity illumination. State of
the art microsurgery often involves working on anatomical structures smaller
than 1 millimeter in diameter. To work on such small structures, the surgeon
often needs high quality, portable magnification devices. The new Luxtec
telescopes are designed to offer high quality magnification with coincident
illumination.
Blood Pressure Monitoring
An important symptom of patients with life threatening conditions such as shock,
internal bleeding or heart failure, is usually a drop in blood pressure (BP).
Thus, blood pressure is measured often on most patients, and is a key vital sign
in medicine.
The most common method of measuring blood pressure is by placing an inflated
cuff around the arm in order to occlude arterial blood flow. Blood pressure is
determined by slowly deflating the cuff and listening with a stethoscope for
Korotkoff sounds (arterial blood flow vibrations) that begin at systolic BP and
cease at diastolic BP. These measurements can be taken manually, or by using
various automated and semi-automated instruments or systems. Small vibrations in
the cuff pressure, called oscillometric pulses, are measured by most automatic
blood pressure monitors and are used to derive systolic and diastolic blood
pressure measurements.
For resting patients whose blood pressure must be sampled periodically,
automatic intermittent non-invasive blood pressure monitors are widely used.
Current measuring techniques are very sensitive to any motion of the patient
during the time that the actual reading is being taken. Most intermittent,
non-invasive BP monitors work poorly or do not work at all on patients who are
moving or being transported when the measurement is being taken. Motion
interferes with the ability to detect critical sounds and, therefore, it is very
difficult to measure the blood pressure of patients who are shivering,
exercising or being transported.
For patients whose blood pressure must be known more frequently, direct blood
pressure measurement is routinely used. In direct measurement, a fluid filled
catheter is introduced into an artery and connected to a pressure transducer.
This form of direct, invasive BP monitoring is expensive and painful to the
patient, requires frequent attention by a nurse or physician, and poses risks of
infection and blood clots. Although several continuous non-invasive blood
pressure monitors have been designed and introduced to the market, none has
received wide clinical use to date. The Corporation believes this stems from
questions regarding the accuracy, stability, and motion tolerance of such
monitors.
Products
Headlight Systems The Corporation has designed and manufactured a line of fiber
optic headlight systems that assist surgeons by illuminating the area of the
surgical procedure. Designed to provide maximum performance and comfort, the
Corporation's headlight systems are lightweight and provide the surgeon with a
near coaxial view. The Corporation's patented headlight systems provide a
virtually unobstructed view of the area of surgical procedure.
Light Sources A fiber optic light source with solid state electronics permits
the precise regulation of electric current in order to control illumination
levels of Xenon and Halogen lamps and, thereby, eliminates fluctuations or
"flickering" in the light provided. The lamps illuminate the end surface of the
fiber optic cable through which the light is transmitted in a rigid or flexible
mode without heat. The Corporation manufactures a product line of high quality,
solid state Xenon and Halogen fiber optic light sources. The Corporation's light
sources offer a wide range of light intensities in order to serve the varying
requirements in illuminating surgical and diagnostic procedures. The
Corporation's light sources are designed and manufactured to comply with U.L.
544 medical safety standards and are listed domestically with ETL Laboratories.
Internationally, the Corporation works to achieve compliance with as many
international standards as necessary to compete effectively on a worldwide basis
(including the CE mark that has been attained on the present product line).
The Corporation's model numbers 9175 and 9300 Xenon light sources produce high
intensity light that is the equivalent of daylight in color. The white light
produced by these light sources is used in instances where more intense
illumination is required, e.g., for endoscopic television surgery or for use
with the Corporation's Microlux television camera products.
Fiber Optic Cables The Corporation designs and manufactures a complete range of
fiber optic cables and holds patents on certain fiber optic cable assemblies.
See "Patents and Proprietary Information." The Corporation has a range of fiber
bundle diameters from 1.0 mm to 6.5 mm and also allows a surgeon to choose from
various angles (180 degree, 90 degree and 45 degree) in order to optimize the
use of surgical instruments. The Corporation employs a proprietary technology
that enables the fiber optic interface to withstand significantly higher
temperatures and that permits the use of higher output light sources.
All of the Corporation's fiber optic cables are adaptable to competitors' light
sources. The Corporation's Component Cable System allows the end-user to adapt
the end fitting of each cable to their own needs. The Component Cable System is
designed to provide the flexibility of universal cables by incorporating a
patented process to permanently attach select end fittings to the cable and,
thereby, customize the cable according to the user's needs, either at the point
of manufacturing or at the customer's site. This allows the customer to reduce
the inventory of replacement cables and facilitates a rapid turnaround when a
cable needs to be replaced in the operating room, clinic, or surgi - center.
Fiber Optic Headlight and Video Camera Systems The Corporation manufactures and
markets a series of video products that are currently being used in the United
States and approximately 26 countries around the world. The Corporation's
Microlux Headlight Camera Systems are designed to televise most surgical
procedures. The system is a very small, lightweight, solid state television
camera mounted at the front of a headband, manufactured by the Corporation, and
integrated with fiber optic illumination.
The Corporation's Microlux System can transmit the surgeon's eye view of the
procedure live to a television monitor for teaching purposes or to be recorded
for later use.
Surgical Telescopes The Corporation manufactures and markets a proprietary line
of surgical telescopes. The custom fit telescopes provide the surgeon with
increased magnification ranging from 2.5X to 6X. During the fourth quarter of
fiscal year 1993, the Corporation introduced illumination to the surgical
telescope, utilizing fiber optic delivery of light into the line of sight and
thus providing the first surgical telescope with coaxial illumination.
These products are part of the current product offering of the Corporation.
Blood Pressure Monitors The Corporation has developed a proprietary electronic
signal acquisition and signal processing technology that separates "motion
noise" from systolic and diastolic blood pressure signals. In addition to the
Corporation's current product line, the Corporation plans to use this technology
to develop additional non-invasive blood pressure monitoring products that are
motion tolerant.
Microlaparascopic Products The Corporation's Fiber Imaging Technologies
subsidiary manufactures and markets small diameter rigid, flexible and
semi-flexible endoscopes that provide fields of view for either very high
magnification of objects or panoramic views of internal cavities. These
instruments can offer any direction of view that is required. The primary
product line consists of endoscopes that are between 0.5mm and 2.7mm in
diameter. Endoscopes are produced that contain working channels for the
insertion of tools, fluid infusion or drainage. Fiber Imaging Technologies
specializes in the design, manufacturing and marketing of custom optical systems
that offer outstanding image quality and optimum energy delivery.
Patents and Proprietary Information
The medical device industry traditionally has placed considerable importance on
obtaining and maintaining patents and trade secret protection for significant
new technologies, products and processes. The Corporation maintains a policy of
seeking patent protection in connection with certain elements of its technology
when it believes that such protection will benefit the Corporation. The
Corporation owns the following U.S. Patents (date of issuance shown in
parentheses):
* Patent No. 4516190 for Surgical Headlight (May 7, 1985)
* Patent No. 4534617 for Fiber Optic Cable (August 13, 1985)
* Patent No. 4616257 for Headlight Camera System (October 7, 1986)
* Patent No. 4653848 for 45 degree and 90 degree Fiber Optic Cables
(March 31, 1987)
* Patent No. 4797736 for Videolux Television Fiber Optic Headlight
Camera System (January 10, 1989)
* Patent No. 5003605 for an electronically augmented stethoscope with timing
sound (March 26,1991)
* Patent No. 5078469 for Optical System allowing coincident viewing,
illuminating and photography (January 7, 1992)
* Patent No. 5220453 for telescopic spectacles with coaxial illumination
(June 15, 1993)
* Patent No. 5295052 for a light source assembly (March 15 1994)
* Patent No. D345368 for surgical telescopes (March 22, 1994)
* Patent No. 5307432 for crimped light source termination (April 26, 1994)
* Patent No. 5331357 for an illumination assembly (July 19, 1994)
* Patent No. D349123 for spectacles having integral illumination
(July 26, 1994)
* Patent No. D350760 for an eyeglass frame temple (September 20, 1994)
* Patent No. 5392781 for blood pressure monitoring in noisy environments
(February 28, 1995)
In addition, the Corporation has entered into an exclusive license agreement
with InterMED Corporation for the rights to Patent No. 5222949 ("In-Vivo
Hardenable Catheter") for developing a line of catheters incorporating fiber
optics to facilitate several potential specialized applications.
The Corporation is the owner of four U.S. federal trademark registrations: (i)
LUXTEC, registration number 1,453,098, registered August 18, 1987; (ii) LUXTEC
(and design), registration number 1,476,726, registered February 16, 1988; (iii)
LUXTEC (stylized), registration number 1,758,176, registered March 16, 1993; and
(iv) LUXTEC, registration number 1,956,027, registered February 13, 1996. The
Corporation is also the owner of the following foreign trademark registrations
for its LUXTEC trademark: (i) Chile, registration number 452.314, registered
October 31, 1995; and (ii) Peru, registration number 016214, registered June 14,
1995.
In general, the Corporation relies on its development and manufacturing efforts
and skills of its personnel rather than patent protection to establish and
maintain its industry position. The Corporation treats its design and technical
data as confidential and relies on nondisclosure agreements, trade secrets laws
and non-competition agreements to protect its proprietary position. There can be
no assurance that these measures will adequately protect the Corporation's
proprietary technologies.
Marketing and Sales
Fiber Optics
The Corporation's customers for its fiber optic and illumination products are
acute care hospitals, clinics, surgi centers, and surgeons. An estimated 33,000
surgeons use the Corporation's products, on a worldwide basis. The Corporation's
products provide illumination and magnification used during the surgical
procedure.
The Corporation distributes its fiber optic and illumination products through
regional specialty surgical distributors, supported by Luxtec field specialists
as well as a customer support team located in the Worcester facility.
Internationally, Luxtec distributes through a network of local distributors. The
Corporation currently has distributors in 27 countries.
The Corporation competes on the basis of price, product quality and reliability.
The Corporation believes that its large base of satisfied users is also a key
marketing advantage and that the combination of satisfied customers and quality
products positions the corporation as one of the premium vendors in the
marketplace. The Corporation believes that it provides a higher standard of post
sales support when compared to the competition and that the combination of
service and a three year warranty stands as a significant market
differentiation.
The Corporation's marketing strategy is to provide training and support for the
distributor channel, to enhance end user awareness and demand by participating
as an exhibitor at major medical meetings, and to insure that the Corporation
provides high quality and performance of its products.
Blood Pressure Monitoring
The Corporation believes that the initial target market segments for its
products will be for use in exercise stress testing, emergency transport,
obstetrics and for post-operative patients. First shipments of production units
occurred during the fourth quarter of fiscal year 1996.
Exercise Stress Testing
The exercise stress test is a common non-invasive test for evaluating heart
function in known or suspected coronary artery disease. There are an estimated 5
million exercise stress tests done annually at approximately 20,000 exercise
stress test labs in the U.S. Most stress test labs now measure blood pressure on
their patients manually. Blood pressure must be measured accurately and often
(recommended by many experts to be at least once per minute) during the test. A
decline in systolic BP during exercise may reflect the presence of advanced
coronary artery disease, and is a criterion for immediate termination of the
stress test. This important indicator must be detected immediately to reduce
patient risk. Yet measuring blood pressure, either manually or automatically, is
difficult since the patient is moving and the treadmill creates interfering
background noise.
The CardioDyne NBP 2000 incorporates a sensor and companion processing software
that significantly reduces the interference from motion and noise in the blood
pressure signal. The Corporation believes this results in a reliable blood
pressure measurement during an exercise stress test. The CardioDyne NBP 2000 has
undergone clinical trials at Beth Israel Hospital, and has been tested by
physicians and clinicians at several other hospitals, including Deaconess
Hospital, and the University of Massachusetts Medical Center.
Emergency Transport
The Corporation estimates that the emergency transport (ambulance) market for
the CardioDyne product line is potentially large. There are approximately 42,000
emergency transport vehicles in the U.S., of which the Corporation estimates
that 30,000 are potential candidates for products based on the CardioDyne
technology.
The Corporation estimates that emergency victims of accidents, heart attacks,
strokes, and other medical emergencies account for almost 10 million transports
in the U.S. The Corporation further estimates that an additional 2 million
medical patients are transferred between hospitals annually in emergency
transport vehicles. These patients are often unstable or at risk of medical
hazard, hence their vital signs (blood pressure, heart rate, respiration, and
oxygen saturation) are measured frequently. Currently, blood pressure is
measured manually on most transport patients and the measurement is difficult to
do even by a skilled EMT because of the noise and vibration in the vehicle.
Preliminary tests indicate that the CardioDyne NBP 2000 accurately measures
blood pressure during transports, even with a shivering patient and even in the
presence of vibration and noise.
Obstetrics
Blood pressure is an important parameter to monitor during labor and delivery
due to the possibility of dangerously high blood pressures, hemorrhage and
shock, as well as other potential complications. Frequent, accurate blood
pressure information is important to manage these patients. However, women in
labor frequently shiver, particularly those receiving epidural anesthesia. The
Corporation believes that shivering causes commonly used oscillometric blood
pressure monitors to become inaccurate or to cease working. To accurately
measure blood pressure on shivering patients, the alternatives are invasive
blood pressure measurement, which is expensive and risky, or frequent manual
monitoring. The Corporation believes that the CardioDyne product line
potentially provides a better alternative, as it accurately measures and records
blood pressure on moving or shivering labor patients, without the cost and risk
of invasive monitoring or the constant attention of manual monitoring.
Post-Operative
Many recovery room patients experience post anesthesia tremors. These patients
are monitored for various vital signs, including blood pressure. The Corporation
believes that current commercial models can become inaccurate or fail to work in
this application due to patient tremor and that a motion tolerant monitor
therefore may be well received in this market.
Competition
Fiber Optics
The Corporation competes with national and international companies engaged in
the manufacture of headlight systems, including B.F. Wehmer, Cogent Light
Technologies, Inc. and Designs for Vision, and in fiber optic medical
instruments with Pilling Weck Company, the Stryker Company and Richard Wolf &
Company as well as other smaller diversified companies. In the replacement cable
market, the Corporation competes with both original equipment manufacturers as
well as others engaged in activities similar to that of the Corporation. The
Corporation is not aware of any specific seasonal variation factors that
directly effect net sales levels.
The Corporation's management believes that direct competition in the light
source market comes from several established companies having considerably
larger and greater financial and human resources, including Designs for Vision,
Olympus, B.F. Wehmer, Karl Storz Company, and Richard Wolf & Company.
Blood Pressure Monitoring
The Corporation has identified two companies, Suntek and Colin Medical, that are
currently supplying exercise blood pressure monitors in the U.S. The companies
sell directly under their own name, and Colin produces an OEM version of its
monitor that is sold by Quinton. Critical care blood pressure monitors are sold
by numerous companies, including Critikon, Datascope, Colin, Hewlett Packard,
Spacelabs and others. The Corporation believes that the CardioDyne product line
performance, features and capabilities will allow it to compete effectively
against these products. Nonetheless, the Corporation expects that many of its
current and future competitors will have financial, technical, marketing, sales,
manufacturing, distribution and other resources substantially greater than those
of the Corporation. There can be no assurance that the Corporation will be able
to compete successfully in its intended markets.
Government Regulation
The Corporation's products are subject to government regulation in the United
States and other countries. In order to test clinically, produce and market
products for human diagnostic or therapeutic use, the Corporation must comply
with mandatory procedures and safety standards established by the United States
Food and Drug Administration ("FDA") and comparable state and foreign regulatory
agencies. Typically, products must meet regulatory standards as safe and
effective for their intended use prior to being marketed for human applications.
The clearance process is expensive and time consuming, and no assurance can be
given that any agency will grant clearance for the sale of the Corporation's
products or that the length of time the process will require will not be
extensive. The Corporation believes that its facility is in compliance with the
Federal Food and Drug Administration requirements for Good Manufacturing
Practice.
Major Customers
For the year ended October 31, 1996, one customer, Specialty Surgical
Instruments, accounted for 12% of the Corporation's net revenues.
Research and Development
The Corporation incurred approximately $661,000 of product development expenses
in fiscal year 1996, $615,000 in fiscal 1995, and $437,000 in fiscal 1994. The
Corporation expects that the increased level of investment in product
development will result in a series of product introductions during fiscal 1997
and beyond.
Manufacturing and Suppliers
The Corporation purchases components and materials from more than 300 vendors.
The Corporation believes it can purchase substantially all of its product
requirements from other competing vendors under similar terms. The Corporation
has no long-term contract with any supplier.
Backlog
At October 31, 1996, the Corporation's backlog was $945,000, compared to
$850,000 at October 31, 1995. The Corporation generally ships products within
three weeks of the receipt of an order from a customer. The Corporation does not
believe that its backlog accurately predicts the amount of quarterly or annual
revenues.
Employees
As of October 31, 1996, the Corporation had 71 full time employees, of whom five
are executives, three are engaged in supervisory capacities, 31 are in
manufacturing and the remainder are involved in engineering, research and
development, marketing and administration. None of the Corporation's employees
is covered by a collective bargaining agreement. The Corporation believes its
employee relations are good.
Executive Officers
For information with respect to the Executive Officers of the Corporation, see
the section entitled "Election of Directors" appearing in the Corporation's
Proxy Statement in connection with its next Annual Meeting of Shareholders or
special meeting in lieu thereof, which section is incorporated herein by
reference.
ITEM 2. PROPERTIES
The Corporation occupies approximately 27,000 square feet at 326 Clark Street,
Worcester, Massachusetts under a lease that has been extended through in
September 1998. The Corporation believes that this space is adequate to meet its
current requirements and that alternative space would be available at comparable
prices should the lease not be extended after its expiration.
ITEM 3. LEGAL PROCEEDINGS
The Corporation was the defendant in a suit brought by Republic Lens Corporation
("Republic") of New Jersey. The suit, filed on September 29, 1995, in United
States District Court, District of New Jersey alleged that the Corporation
breached a contract with Republic in which the Corporation was obligated to use
Republic as its sole supplier of parts to be used in the development and sale of
a product that would result from a patent assigned to the Corporation by
Republic. The two companies agreed to a settlement of the suit in which the
Corporation returned the rights to the patent to Republic in return for a
release from liability from Republic.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, whether through
solicitation of proxies or otherwise, during the fourth quarter of the
Corporation's fiscal year ended October 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Corporation's Common Stock is traded on the American Stock Exchange (AMEX)
under the AMEX symbol "LXU.EC." The Corporation's Common Stock has been listed
on the American Stock Exchange since April 20, 1994. From September, 1986 until
April, 1994 the Corporation's Common Stock was traded in the over-the-counter
market on the National Association of Securities Dealers, Inc. Automated
Quotations System (NASDAQ) under the NASDAQ symbol "LUXT." The following table
sets forth the high and low closing sale prices of the Corporation's Common
Stock on the AMEX during the periods indicated below.
Common Stock
High Low
Fiscal Year Ended 10/31/95
First Quarter 5.38 3.50`
Second Quarter 4.00 2.50
Third Quarter 7.25 2.88
Fourth Quarter 5.75 4.00
Fiscal Year Ended 10/31/96
First Quarter 4.00 2.00
Second Quarter 4.00 2.50
Third Quarter 3.38 2.75
Fourth Quarter 4.00 2.38
On December 31, 1996, the closing sale price of the Corporation's Common Stock
on the American Stock Exchange was $2.63.
As of December 31, 1996, there were approximately 747 holders of record of the
Corporation's Common Stock. The Corporation estimates that there are
approximately 2,000 beneficial holders of the Corporation's Common Stock.
The Corporation has not paid any cash dividends since its inception and the
Board of Directors does not contemplate doing so in the near future. The Board
of Directors currently intends to retain any future earnings for use in the
Corporation's business.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated operating data presented below for the years ended
October 31, 1992, 1993, 1994, 1995 and 1996 and the consolidated balance sheet
data at October 31, 1992, 1993, 1994, 1995 and 1996 are derived from and
qualified by reference to the Corporation's consolidated financial statements
that have been audited by Arthur Andersen LLP, the Corporation's independent
public accountants. The information set forth below should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein. This data reflects the Corporation's one-for-ten Common Stock reverse
split effected April 10, 1992 for all periods presented.
Operating Data: (In thousands, except for per share data)
Years Ended October 31,
1992 1993 1994 1995 1996
Sales . . . . . . . . . . . . . . $6,040 $6,734 $8,139 $7,755 $9,348
Net Earnings (Loss). . . . . 407 153 164 (6,127) (571)
Net Earnings (Loss) Per Share . . .29 .11 .11 (4.20) (.22)
(In thousands)
Balance Sheet Data: Years Ended October 31,
1992 1993 1994 1995 1996
Working Capital. . . . . . . . $1,056 $ 1,210 $ 1,410 $ (599) $ 935
Total Assets. . . . . . . . . . . 2,763 3,431 4,072 4,122 5,295
Long-term debt and capital lease
obligations, less current
portions . . . . 67 - - - 119
Stockholders' equity. . . . . 1,804 1,957 2,163 198 813
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This analysis of the Corporation's financial condition, capital resources and
results of operations should be read in conjunction with the accompanying
financial statements, including notes thereto.
Results of Operations
The following table sets forth certain consolidated financial data as a
percentage of revenue for the fiscal years ended October 31, 1994 1995 and 1996.
1994 1995 1996
Sales 100% 100% 100%
Cost of Goods Sold 55 61 57
Selling and Marketing 22 24 24
Research and development 5 8 7
General and administrative 15 18 16
Charge for purchased research and development - (67) -
Other income/(expense) - (1) (2)
Income (loss) before provision for income taxes 3 (79) (6)
Provision for income taxes 1 - -
Net income (loss) 2 (79) (6)
Fiscal 1996 Compared with Fiscal 1995
Sales: Sales increased 20.5% to $9,347,699 in fiscal 1996 compared to $7,755,376
in fiscal 1995. Sales increases were recorded in virtually all of the
Corporation's business lines. Fiscal year 1996 saw the introduction of a new
line of lightweight Luxtec fiber optic lighting products with significantly
enhanced performance that were well received in the marketplace. The
microlaparascopic products sold by the Corporation's Fiber Imaging Technologies
subsidiary also increased . The first CardioDyne blood pressure monitoring units
were shipped at the end of fiscal 1996. The Corporation expects sales to
increase during fiscal 1997 primarily as a result of having the CardioDyne
product line of blood pressure monitors for sale during the full year, as well
as the full year impact of other new product development introductions that
occurred during fiscal year 1996.
Cost of Goods Sold: Cost of goods sold was $5,323,764 or 57% of net sales for
fiscal year 1996 compared to $4,732,500 or 61% of net sales for fiscal 1995. The
fiscal 1995 results included charges to operations for the cost of some
inventory items that had become redundant as a result of the changes to old
product lines and the introduction of new product lines and increased accruals
related to future warranty claims due to such new product lines. These charges
were not repeated during fiscal 1996.
Gross Profit: Gross Profit increased to $4,023,935 or 43% of net sales for
fiscal 1996 compared to $3,022,876 or 39% of net sales for fiscal 1995. In
addition to the effect of the above mentioned inventory adjustments and accrual
increases, there continued to be price competition and an increase in the
portion of total sales attributable to lower margin OEM sales. These were
substantially offset by CardioDyne licensing revenue received during fiscal
1996. The Corporation does not expect gross profit margins during fiscal year
1997 to change dramatically from their 1996 relationship to sales.
Selling and Marketing Expenses: Selling and marketing expenses increased to $
2,190,881 for fiscal 1996 compared to $1,825,897 for fiscal 1995, an increase of
$364,984 or 20%. Much of the increase in sales and marketing expenses during the
year related to the buildup of a sales and marketing organization for the new
CardioDyne products. Higher costs were also associated with the rollout of the
new line of Luxtec fiber optic lighting products. Management expects sales and
marketing expenses to increase during fiscal 1997 primarily due to the full year
offering of the CardioDyne product line and its method of distribution into the
market.
Research and Development: Research and development expenses increased to
$660,591 in fiscal 1996 compared to $614,937 in fiscal 1995, an increase of
$45,654 or 7%. The increase in expenses in this category resulted from work on
the new line of Luxtec fiber optic lighting and on the CardioDyne line of motion
tolerant blood pressure monitors during fiscal 1996. Management expects that
research expenditures will continue to increase as a result of the Corporation's
product development plans.
General and Administrative: General and administrative expenses increased to
$1,523,171 in fiscal 1996 compared to $1,377,974 in fiscal 1995, an increase of
$145,197 or 10.5%. During fiscal 1996, the Corporation absorbed the
administrative costs of CardioDyne Inc. and increased costs related to the
growth of the Fiber Imaging Technologies subsidiary. Additionally, during the
year, the Corporation incurred legal fees related to its position as defendant
in a lawsuit that was settled during the fiscal year.
Interest: Interest expense increased to $214,598 for fiscal 1996 compared to
$97,741 for fiscal 1995, an increase of $116,857 or 120%. An investment in the
company by GMMI of $1,000,000 of subordinated debt during the year, accounted
for a substantial portion of the increased interest cost. The subordinated debt
was converted to Preferred Stock during November, 1996. Higher credit line
balances were responsible for most of the remainder of the cost increase.
Fiscal 1995 Compared with Fiscal 1994
Sales: Sales were down 5% to $7,755,377 in fiscal 1995 compared to $8,138,903 in
fiscal 1994. The reasons for the decrease included delays in the completion of
two new product lines. Luxtec was essentially out of the Halogen light source
business during the second half of fiscal year 1995, as regulatory delays kept
the Corporation from shipping orders that were received during the fourth
quarter. The new versions of the illuminated and standard telescopes also were
not completed until the end of the fourth quarter, resulting in a buildup of
unshipped orders. Luxtec ended the year with a record backlog of over $850,000.
Cost of Goods Sold: Cost of goods sold increased to $4,732,500 or 61% of net
sales for fiscal 1995 compared with $4,432,219 or 54% of net sales for fiscal
1994. The Corporation charged to operations the cost of some inventory items
that had become redundant as a result of the changes to new product lines. The
Corporation also increased accruals related to future warranty claims due to the
introduction of new product lines.
Gross Profit: Gross Profit decreased to $3,022,876 or 39% of net sales for
fiscal 1995 compared to $3,706,684 or 46% of net sales for fiscal 1994. The
effect of the above mentioned inventory adjustments and accrual increases were
also accompanied by continued price competition and an increase in the sales mix
of lower margin OEM sales.
Selling and Marketing Expenses: Selling and marketing expenses increased to
$1,825,897 for fiscal 1995 compared to $1,793,137 for fiscal 1994, an increase
of $32,760 or 2%. During fiscal 1995, Luxtec essentially maintained employment
levels at their previous year levels, while introducing several new programs in
conjunction with the Corporation's distributors to offset increased competition
Research and Development: Research and development expenses increased to
$614,937 in fiscal 1995 compared to $437,064 in fiscal 1994, an increase of
$177,873 or 41%. The increase in expenses in this category were directly related
to the introduction of two major product line upgrades during fiscal 1995. The
next generation of standard and illuminated telescopes as well as a newly
designed line of halogen lightsources were introduced in late fiscal 1995.
General and Administrative: General and administrative expenses increased to
$1,377,974 in fiscal 1995 compared to $1,261,356 in fiscal 1994, representing an
increase of $116,618 or 9%. During fiscal 1995, Luxtec continued to upgrade its
investor relations programs, as well as working with an investment banking firm
in activities that ultimately resulted in the Corporation's acquisition of the
new technology represented by CardioDyne's product lines.
Interest: Interest expense increased to $97,741 for fiscal 1994 compared with
$31,860 in fiscal 1994 an increase of $65,881 or 207%. Higher credit line
balances and increased interest rates accounted for the increase.
Liquidity and Capital Resources
At October 31, 1996, the Corporation had working capital of approximately
$934,500 compared to negative working capital of approximately $ 599,000 at
October 31, 1995. The improvement was the result of two financings that are
described in subsequent paragraphs.
On December 18, 1995, the Company issued Senior Subordinated Notes (the Notes)
to an investor for $1,000,000 in cash. Interest accrued on the Notes at the rate
of 8% per annum and was payable annually in arrears. Principal on the Notes was
due January 1, 2001. In connection with the financing, the Corporation issued a
detachable stock warrant to the investor. The warrant entitles the holder to
purchase 450,000 shares of common stock at an exercise price of $3.00, adjusted
for certain dilutive events, as defined. In accordance with the terms of the
Note Purchase Agreement between the Corporation and the investor, the
Corporation required the investor to exchange the Notes for 10,000 shares of
Series A Preferred Stock of the Corporation ("Series A Stock") on November 17,
1996. Dividends, which are cumulative, accrue on the Series A Stock at the
annual rate of $8.00 per share and are payable when and if declared by the Board
of Directors of the Corporation. The Series A Stock is redeemable January 1,
2001.
During the third quarter of FY96, the Corporation authorized a private placement
of units comprised of one share of Luxtec common stock and one warrant to
purchase one share of Luxtec common stock at an exercise price of $6.00,
exercisable for five years. Each unit was priced at $3.00 and during the third
quarter of FY96, the Corporation received $994,665 for 331,555 units. An
additional 63,000 units were purchased by investors during August, 1996, for
$189,000 bringing the total proceeds of the private placement to $1,183,665 at
the time that the investment was closed. The principal source of short-term
borrowings during the year was a secured $2,500,000 revolving credit agreement.
At October 31, 1996, the credit line borrowings balance was approximately
$2,146,000. The interest rate on the credit line at the end of the fiscal year
was 8.50%.
The Corporation anticipates that its current cash requirements will be satisfied
by cash flow from existing operations and the continuation of the current credit
arrangements with BankBoston.
Risk Factors and Cautionary Statements
When used in this Form 10-K and in future filings by the Corporation with the
Securities and Exchange Commission, in the Corporation's press releases and in
oral statements made with the approval of an authorized executive officer, the
words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Corporation wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The Corporation wishes to advise readers that the factors listed
below could cause the Corporation's actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements.
The Corporation will NOT undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
*The Corporation's revenues and income are derived primarily from the
sale of medical devices. The medical device industry is highly
competitive. Such competition could negatively impact the
Corporation's market share and therefore reduce the Corporation's
revenues and income.
*Another result of competition could be the reduction of average unit
prices paid for the Corporation's products. This could have the impact
of reducing the percentage of profit margin available to the
Corporation for its product sales.
*The Corporation's future operating results are dependent on its
ability to develop, produce and market new and innovative products and
services. There are numerous risks inherent in this complex process,
including rapid technological change and the requirement that the
Corporation bring to market in a timely fashion new products and
services that meet customers' needs.
*Historically, the Corporation's operating results have varied from
fiscal period to fiscal period; accordingly, the Corporation's
financial results in any particular fiscal period are not necessarily
indicative of results for future periods.
*The Corporation offers a broad variety of products and services to
customers around the world. Changes in the mix of products and
services comprising revenues could cause actual operating results to
vary from those expected.
*The Corporation's success is partly dependent on its ability to
successfully predict and adjust production capacity to meet demand,
which is partly dependent upon the ability of external suppliers to
deliver components at reasonable prices and in a timely manner;
capacity or supply constraints, as well as purchase commitments, could
adversely affect future operating results.
*The Corporation operates in a highly competitive environment and in a
highly competitive industry, which includes significant competitive
pricing pressures and intense competition for skilled employees.
*The Corporation offers its products and services directly and
through indirect distribution channels. Changes in the financial
condition of, or the Corporation's relationship with, distributors
and other indirect channel partners, could cause actual operating
results to vary from those expected.
*The Corporation does business worldwide in over 50 countries. Global
and/or regional economic factors and potential changes in laws and
regulations affecting the Corporation's business, including without
limitation, currency exchange rate fluctuations, changes in monetary
policy and tariffs, and federal, state and international laws
regulating the environment, could impact the Corporation's financial
condition or future results of operations.
*The market price of the Corporation's securities could be subject to
fluctuations in response to quarter to quarter variations in
operating results, market conditions in the medical device industry,
as well as general economic conditions and other factors external to
the Corporation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 19
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1995 AND 1996 20
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 1994, 1995 AND 1996 21
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 22
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
OCTOBER 31, 1994, 1995 AND 1996 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Luxtec Corporation:
We have audited the accompanying consolidated balance sheets of Luxtec
Corporation and subsidiaries as of October 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended October 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Luxtec Corporation
and subsidiaries as of October 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1996, in conformity with generally accepted accounting principles.
Boston, Massachusetts
December 12, 1996
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
October 31,
1995 1996
CURRENT ASSETS:
Cash $ 11,721 $ 172,356
Accounts receivable, less reserves of $66,000 in 1995 and $69,000 in 1996 1,534,267 1,741,669
Inventories 1,696,001 2,173,015
Prepaid expenses and other current assets 82,738 210,564
--------------- ---------------
Total current assets 3,324,727 4,297,604
--------------- ---------------
PROPERTY AND EQUIPMENT, AT COST 1,910,189 2,365,740
ACCUMULATED DEPRECIATION AND AMORTIZATION (1,409,960) (1,617,861)
--------------- ---------------
Property and equipment, net 500,229 747,879
--------------- ---------------
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF $47,000 AND $104,000 AT
OCTOBER 31, 1995 AND 1996, RESPECTIVELY 297,087 249,375
--------------- ---------------
Total assets $ 4,122,043 $ 5,294,858
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,730,308 $ 2,146,223
Current portion of equipment facility loan - 39,612
Accounts payable 1,553,869 726,201
Accrued expenses 639,969 451,068
--------------- ---------------
Total current liabilities 3,924,146 3,363,104
--------------- ---------------
NOTE PAYABLE TO STOCKHOLDER - 1,000,000
--------------- ---------------
EQUIPMENT FACILITY LOAN, NET OF CURRENT MATURITIES - 118,843
--------------- ---------------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized--10,000,000 shares
Issued and outstanding--2,436,541 shares in 1995 and 2,841,539 in 1996 24,365 28,415
Additional paid-in capital 7,141,576 8,323,216
Accumulated deficit (6,968,044) (7,538,720)
--------------- ---------------
Total stockholders' equity 197,897 812,911
--------------- ---------------
Total liabilities and stockholders' equity $ 4,122,043 $ 5,294,858
=============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended October 31,
1994 1995 1996
NET REVENUES $ 8,138,903 $ 7,755,376 $ 9,347,699
COST OF GOODS SOLD 4,432,219 4,732,500 5,323,764
--------------- --------------- ---------------
Gross profit 3,706,684 3,022,876 4,023,935
--------------- --------------- ---------------
OPERATING EXPENSES:
Selling and marketing 1,793,137 1,825,897 2,190,881
Research and development 437,064 614,937 660,591
General and administrative 1,261,356 1,377,974 1,528,181
Charge for purchased research and development (Note 3) - 5,230,950 -
--------------- --------------- ---------------
Total operating expenses 3,491,557 9,049,758 4,379,653
--------------- --------------- ---------------
Income (loss) from operations 215,127 (6,026,882) (355,718)
--------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense (31,860) (97,741) (231,442)
Other income (expense) (2,679) (2,317) 16,484
--------------- --------------- ---------------
Total other income (expense) (34,539) (100,058) (214,958)
--------------- --------------- ---------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 180,588 (6,126,940) (570,676)
PROVISION FOR INCOME TAXES 16,266 - -
--------------- --------------- ---------------
Net income (loss) $ 164,322 $ (6,126,940) $ (570,676)
=============== =============== ===============
NET INCOME (LOSS) PER SHARE $ 0.11 $ (4.20) $ (.22)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 1,487,823 1,457,897 2,574,705
============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock, Additional
$.01 Par Value Paid-in Accumulated
Shares Amount Capital Deficit Total
BALANCE, OCTOBER 31, 1993 1,401,200 $ 14,012 $ 2,948,016 $ (1,005,426) $ 1,956,602
Net income - - - 164,322 164,322
Issuance of common stock for patent
rights 20,000 200 42,300 - 42,500
----------- ---------- ------------- --------------- --------------
BALANCE, OCTOBER 31, 1994 1,421,200 14,212 2,990,316 (841,104) 2,163,424
Net loss - - - (6,126,940) (6,126,940)
Issuance of common stock in
connection with merger with
CardioDyne, Inc. 1,000,000 10,000 4,115,000 - 4,125,000
Issuance of common stock under
employee stock purchase plan 15,341 153 36,260 - 36,413
----------- ---------- ------------- --------------- --------------
BALANCE, OCTOBER 31, 1995 2,436,541 24,365 7,141,576 (6,968,044) 197,897
Net loss - - - (570,676) (570,676)
Issuance of common stock under
employee stock purchase plan 9,327 93 26,524 - 26,617
Issuance of common stock under stock
option plan 1,500 15 2,430 - 2,445
Issuance of common stock in a private
placement, net of issuance costs of
$25,885 394,171 3,942 1,152,686 - 1,156,628
----------- ---------- ------------- --------------- --------------
BALANCE, OCTOBER 31, 1996 2,841,539 $ 28,415 $ 8,323,216 $ (7,538,720) $ 812,911
=========== ========== ============= =============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 31,
1994 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 164,322 $ (6,126,940) $ (570,676)
Adjustments to reconcile net income (loss) to net cash used
for operating activities-
Charge for purchased research and development - 5,230,950 -
Depreciation and amortization 173,284 176,916 265,258
Provision for uncollectible accounts receivable 27,500 12,500 3,651
Changes in current assets and liabilities-
Accounts receivable (465,406) 121,242 (211,053)
Inventories (144,704) (176,353) (477,014)
Prepaid expenses and other current assets (55,209) 37,833 (127,826)
Accounts payable 3,200 624,218 (827,668)
Accrued expenses 93,524 (255,437) (188,901)
--------------- --------------- ---------------
Net cash used for operating activities (203,489) (355,071) (2,134,229)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (100,455) (125,261) (294,116)
Increase in other assets (36,968) (95,685) (9,645)
Cash paid in connection with CardioDyne, Inc. acquisition,
net of cash acquired - (582,154) -
--------------- --------------- ---------------
Net cash used for investing activities (137,423) (803,100) (303,761)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock in a private - - 1,156,628
placement
Proceeds from note payable - - 1,000,000
Payments under equipment facility loan - - (2,980)
Issuance of common stock under stock option plan - - 2,445
Net borrowings on revolving line of credit 401,287 1,123,150 415,915
Payments on long-term debt (52,500) - -
Payments under capital lease obligations (11,213) - -
Issuance of common stock under employee stock purchase plan - 36,413 26,617
--------------- --------------- ---------------
Net cash provided by financing activities 337,574 1,159,563 2,598,625
--------------- --------------- ---------------
NET (DECREASE) INCREASE IN CASH (3,338) 1,392 160,635
CASH, BEGINNING OF PERIOD 13,667 10,329 11,721
--------------- --------------- ---------------
CASH, END OF PERIOD $ 10,329 $ 11,721 $ 172,356
============= =============== =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
In connection with the merger with CardioDyne, Inc. (Note 3),
the following noncash transactions occurred-
Fair value of assets acquired $ - $ 5,235,073 $ -
Issuance of common stock - (4,125,000) -
Liabilities assumed - (523,796) -
Cash acquired - (4,123) -
--------------- --------------- ---------------
Cash paid for acquisition, net of cash acquired $ - $ 582,154 $ -
============= =============== =============
Purchases of property and equipment under equipment
facility loan $ - $ - $ 161,435
============= =============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-Interest $ 31,868 $ 95,205 $ 157,144
============= =============== =============
Income taxes $ 14,536 $ - $ -
============= =============== =============
The accompanying notes are an integral part of these consolidated financial statements.
LUXTEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(1) NATURE OF THE BUSINESS
Luxtec Corporation (the Company) designs, manufactures and markets fiber
optic headlights and headlight television camera systems (for audio-video
recordings of surgical procedures), light sources, cables, retractors,
loupes, surgical telescopes, blood pressure monitors, and other
custom-made surgical specialty instruments utilizing fiber optic
technology for the medical and dental industries.
During 1995, as disclosed in Note 3, the Company acquired the stock of
CardioDyne, Inc., a development-stage enterprise.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Foreign Currency Remeasurement
The accompanying consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries:
Luxtec Fiber Optics B.V., Fiber Imaging Technologies, Inc., and
Cathtec, Inc. All intercompany accounts and transactions have been
eliminated in consolidation.
The accounts and transactions of Luxtec Fiber Optics B.V.
are remeasured into U.S. dollars using the applicable historical,
current and weighted-average exchange rates. All exchange gains
and losses from remeasurement of assets and liabilities are
currently recognized in income. The gains and losses recognized
due to foreign currency exchange were insignificant in fiscal
1994 and 1995. Luxtec Fiber Optics B.V. was dissolved during
fiscal 1995.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method and
includes materials, labor and manufacturing overhead.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are calculated using the straight-line method over
the estimated useful lives of the assets.
Leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or estimated useful life
of the assets.
LUXTEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Other Assets
Other assets consist principally of patent costs, which are
amortized using the straight-line method over five years.
(e) Revenue Recognition
Revenue is recognized when goods are shipped, at which time all
conditions of sale have been met.
(f) Research and Development Costs
Research and development costs are charged to operations as
incurred.
(g) Net Income (Loss) per Share
Net income per common and common equivalent share is computed by
dividing net income by the weighted average number of common and
common equivalent shares outstanding during the period using the
treasury stock method. Net loss per share is computed by dividing
the net loss by the weighted average number of common shares
outstanding during the period. No common equivalent shares are
included in periods in which a loss is reported because all such
common equivalent shares are antidilutive.
(h) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles 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 financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(3) MERGER WITH CARDIODYNE, INC.
On October 23, 1995, the Company consummated a merger agreement (the
Merger) with CardioDyne, Inc., a development-stage company engaged in the
development of products that monitor blood pressure. In connection with
the Merger, the Company issued 1,000,000 shares of Luxtec common stock
with a fair value of $4.125 per share. This transaction was accounted for
as a purchase, and accordingly, the operations of CardioDyne, Inc. since
October 23, 1995 are included in the accompanying consolidated financial
statements.
(3) MERGER WITH CARDIODYNE, INC. (Continued)
In addition to receiving shares of Luxtec common stock, shareholders of
CardioDyne, Inc. are entitled to certain earnout payments based on the
performance of products and agreements incorporating technology
previously developed by CardioDyne, Inc., as defined. For a period of 17
years following the effective date of the Merger, former CardioDyne, Inc.
shareholders are entitled to receive, in proportion to their former
ownership percentages, 5% and 25% of revenues from product and license
agreements, respectively, which incorporate technology previously
developed by CardioDyne, Inc. Such earnout payments shall become payable
90 days after the end of the Company's fiscal year. Earnout payments
shall be paid 50% in cash and 50% in Luxtec common stock and will be
accounted for as an additional purchase price when paid. No earnout
payments were required during fiscal 1996.
The aggregate purchase price of $5,235,073 (which consisted of $4,125,000
of stock, $523,796 of assumed liabilities, and $582,154 of direct
acquisition costs) was allocated based on the fair value of the tangible
and intangible assets acquired as follows:
Current assets $ 4,123
Purchased research and development 5,230,950
---------------
$ 5,235,073
The portion of the purchase price, totaling $5,230,950, allocated to
research and development projects that were not yet technologically
feasible and did not have future alternative use was charged to
operations as of the acquisition date. To bring these projects to
technological feasibility, high-risk developmental and testing issues
needed to be resolved that required substantial additional development
effort, the success of which was uncertain at the date of acquisition.
The results of operations related to CardioDyne, Inc. have been included
with those of the Company since October 23, 1995. Unaudited pro forma
operating results for the Company, assuming the acquisition had been made
as of November 1, 1994, are as follows:
For the Years Ended October 31,
1994 1995
Revenue $ 8,138,903 $ 7,755,376
Net loss (142,033) (6,424,783)
Net loss per common share and common
equivalent share $ (0.06) $ (2.64)
(4) INVENTORIES
Inventories consist of the following at October 31, 1995 and 1996:
1995 1996
Raw material $ 978,477 $ 1,237,123
Work-in-process 203,833 220,255
Finished goods 513,691 715,637
--------------- ---------------
$ 1,696,001 $ 2,173,015
=============== ===============
(5) PROPERTY AND EQUIPMENT
Property and equipment and their respective useful lives are as follows
at October 31, 1995 and 1996:
Estimated Useful
Lives 1995 1996
Machinery and equipment 5-10 Years $ 1,251,305 $ 1,614,778
Molds and tooling 5 Years 159,893 183,423
Furniture and fixtures 10 Years 306,409 339,308
Leasehold improvements Life of lease 192,582 228,231
--------------- ---------------
$ 1,910,189 $ 2,365,740
=============== ===============
(6) ACCRUED EXPENSES
Accrued expenses consist of the following at October 31, 1995 and 1996:
1995 1996
Accrued payroll and related expenses $ 80,246 $ 174,968
Other accrued expenses 559,723 276,100
--------------- ---------------
$ 639,969 $ 451,068
============= =============
(7) REVOLVING CREDIT LINE AND EQUIPMENT FACILITY AGREEMENT
The Company has a $2,500,000 revolving line-of-credit agreement with a
bank. Borrowings bear interest at the bank's prime rate (8.25% at October
31, 1996) plus .25%. Unused portions of the revolving line of credit
accrue a fee at an annual rate of .25%. Borrowings are secured by
substantially all assets of the Company. The agreement contains
covenants, including the maintenance of certain financial ratios, as
defined. The Company was in compliance with all covenants or had obtained
a waiver from the bank for the year ended October 31, 1996. At October
31, 1996, availability under the line of credit was approximately
$227,000. The line of credit expires on March 31, 1997.
The Company has a $750,000 equipment facility agreement with a bank.
Borrowings are based on the purchase price of new equipment and
conditions determined by the bank. Borrowings bear interest at the bank's
base rate (8.25% at October 31, 1996) plus .5%. Borrowings under this
facility are secured by substantially all assets of the Company. The
equipment facility agreement expires on March 31, 1997.
(8) NOTE PAYABLE
On December 18, 1995, the Company issued Senior Subordinated Notes (the
Notes) to a stockholder for $1,000,000 in cash. Interest accrued on the
Notes at the rate of 8% per annum and was payable annually in arrears.
Principal on the Notes was due January 1, 2001. In connection with the
financing, the Company issued a detachable stock warrant to an investor.
The warrant entitles the holder to purchase 450,000 shares of common
stock at an exercise price of $3.00 per share (fair market value at date
of grant), adjusted for certain dilutive events, as defined.
On November 14, 1996, the Company exchanged the Senior Subordinated Notes
for ten thousand (10,000) shares of the Company's nonvoting Series A
preferred stock, $1.00 par value per share (the Series A Preferred
Stock).
The Series A Preferred Stock has the following rights and preferences:
Dividends
The holders of the Series A Preferred Stock shall be entitled to
receive cash dividends of $8.00 per share per annum, payable when, as
and if declared by the Board of Directors of the Company. Such
dividends on the Series A Preferred Stock shall accrue and be
cumulative from the date of issuance.
(8) NOTE PAYABLE (Continued)
Liquidation Preference
Upon any liquidation, dissolution or winding up of the Company, after
payment or provision for payment of all debts and other obligations and
liabilities of the Company, the holders of the shares of preferred
stock shall be entitled, before any distribution or payment is made
upon any common stock, to be paid an amount equal to the redemption
price ($100 per share) plus an amount equal to all accrued dividends,
and the holders of the preferred stock shall not be entitled to any
further payment.
Redemption
The Company may, at the option of the Company's Board of Directors,
redeem part or all of the outstanding shares of the Series A Preferred
Stock at any time or times at a redemption price of $100 per share.
On January 1, 2001, the Company shall redeem all outstanding shares of
the Series A Preferred Stock at a redemption price of $100 per share.
(9) COMMITMENTS
The Company has noncancelable operating lease commitments which consist
principally of rentals of facilities, machinery and an automobile. Its
manufacturing and office facilities are leased as tenants-at-will until a
formal agreement is signed.
The future minimum operating lease payments over their remaining terms
are as follows:
Fiscal Year Amount
1997 $ 199,775
1998 188,225
1999 35,470
2000 15,441
2001 15,441
---------------
Total minimum lease payments $ 454,352
=============
Rent expense charged to operations for operating leases was
approximately $138,000 in 1994, $162,000 in 1995 and $142,000 in
1996.
(10) PRIVATE PLACEMENT OF COMMON STOCK
On June 3, 1996, the Company raised approximately $1,182,000 through a
private placement of common stock. In conjunction with the offering, the
Company issued "units" at a price of $3 each. Each unit consists of one
share of common stock, $0.01 par value per share, and one warrant which
can be exchanged into one share of common stock for $6.00 per share,
which exceeded the fair market value at the date of grant. The warrants
(394,171 in total) are exercisable immediately and expire on December 31,
2001.
(11) STOCK PLANS
The Company maintains a stock option plan (the 1992 Stock Plan) that
provides for the grant of incentive stock options, nonqualified stock
options, stock awards and direct sales of stock. Under the Plan,
incentive stock options may be granted at an exercise price not less than
the fair market value of the Company's common stock on the date of grant.
Nonqualified options may be granted by the Board of Directors at its
discretion. The difference, if any, between the exercise price and the
fair value of the underlying common stock at the measurement date is
charged to expense over the vesting period of such options with a
corresponding credit to additional paid-in capital. The 1992 Stock Plan
also provides that the options are exercisable at varying dates, as
determined by the Compensation Committee of the Board of Directors (the
Compensation Committee), and have terms not to exceed 10 years.
The Company's Board of Directors adopted an amendment to the Company's
1992 Stock Plan. The amendment to the 1992 Stock Plan (i) increased from
100,000 to 300,000 the number of shares authorized for issuance under the
Plan and (ii) limits to 100,000 the maximum number of shares of common
stock with respect to which options may be granted to any employee in any
calendar year.
On December 8, 1994, the Company adopted a stock option plan for
nonemployee directors (the 1995 Director Plan). The 1995 Director Plan
provides that an aggregate of up to 200,000 nonqualified options may be
granted to nonemployee directors, as determined by the Compensation
Committee. Under the terms of the 1995 Director Plan, options are granted
at not less than the fair market value of the Company's common stock on
the date of grant. The 1995 Director Plan also provides that the options
are exercisable at varying dates, as determined by the Compensation
Committee, and have terms not to exceed 10 years.
(11) STOCK PLANS (Continued)
The following schedule summarizes the stock option activity for the three
years ended October 31, 1996:
Number of Option Price
Shares Per Share
Outstanding at October 31, 1993 65,000 $ 1.25
Granted 55,000 1.63
-------------- -----------
Outstanding at October 31, 1994 120,000 1.25- 1.63
Granted 196,000 4.13- 4.75
Canceled 6,000 1.25
-------------- -----------
Outstanding at October 31, 1995 310,000 1.25- 4.75
Granted 901,571 2.75- 6.00
-------------- -----------------
Outstanding at October 31, 1996 1,211,571 $ 1.25-$ 6.00
============== =================
Exercisable at October 31, 1996 1,006,251 $ 1.25-$ 6.00
============== =================
As of October 31, 1995 and 1996, 500,000 shares of common stock have been
reserved for issuance under the Company's stock option plans.
On April 21, 1994, the Board of Directors approved the 1993 Employee
Stock Purchase Plan (the 1993 Plan) whereby the Company has reserved and
may issue up to an aggregate of 25,000 shares of common stock in
semiannual offerings. Stock is sold at 85% of fair market value, as
defined. Shares subscribed to and issued under the 1993 Plan were 15,341
and 9,327 in 1995 and 1996, respectively.
In October 1995, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 requires the measurement of the fair value of stock options or
warrants to be included in the statement of income or disclosed in the
notes to financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123. The Company has
computed the pro forma
(11) STOCK PLANS (Continued)
disclosures required under SFAS No. 123 for options granted in 1996
using the Black-Scholes option pricing model prescribed by SFAS No.123.
The weighted average assumptions used for 1996 are:
Risk free interest rate 6.18%
Expected dividend yield -
Expected lives 10 years
Expected volatility 18%
The total value of options granted during the fiscal years ended October
31, 1995 and 1996 was computed as approximately $24,000 and $87,000,
respectively. Had compensation cost for these plans been determined
consistent with SFAS No. 123, the Company's net loss and loss per share
would have been the following pro forma amounts:
Year Ended October 31,
1995 1996
Pro forma net loss $ (6,151,180) $ (657,686)
============== ==============
Pro forma net loss per share $ (4.20) $ (.26)
======= =======
(12) INCOME TAXES
As of October 31, 1996, the Company had available net operating loss
carryforwards of approximately $2,300,000, research and development
credit carryforwards of approximately $91,000, and general business
credit carryforwards of approximately $25,000 available to reduce future
federal income taxes, if any. These carryforwards expire through 2011 and
are subject to review and possible adjustment by the Internal Revenue
Service. The Tax Reform Act of 1986 limits a corporation's ability to
utilize certain net operating loss carryforwards in the event of a
cumulative change in ownership in excess of 50%, as defined.
The Company follows the liability method of accounting for income taxes
in accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, whereby a deferred
tax liability is measured by the enacted tax rates that will be in effect
when any differences between the financial statement and tax bases of
assets and liabilities reverse.
(12) INCOME TAXES (Continued)
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before provision
for income taxes due to the following:
For the Years Ended October 31,
1994 1995 1996
Computed at statutory rate 34.0 % 34.0 % 34.0 %
State income tax, net of federal benefit
6.0 6.0 6.0
Tax benefit from net operating loss
carryforwards (31.0) (40.0) (40.0)
--------- --------- ---------
Effective tax rate 9.0 % - % - %
========= ========= =========
The components of the net deferred tax amount recognized in the
accompanying consolidated balance sheets are set forth below:
1994 1995 1996
Deferred tax assets $ 346,000 $ 1,141,000 $ 983,000
Deferred tax liabilities (62,000) - (53,000)
Valuation allowance (284,000) (1,141,000) (930,000)
--------------- --------------- ---------------
$ - $ - $ -
============= =============== =============
The appropriate tax effect of each type of temporary difference and
carryforward before allocation of the valuation allowance is summarized
as follows:
1994 1995 1996
Net operating losses $ 230,000 $ 1,006,000 $ 920,000
Other temporary differences (62,000) 19,000 (53,000)
Research and development credits 91,000 91,000 91,000
General business credits 25,000 25,000 25,000
-------------- --------------- --------------
$ 284,000 $ 1,141,000 $ 983,000
============ =============== ============
Due to the uncertainty surrounding the timing of realizing the benefits
of its favorable tax attributes in future income tax returns, the Company
has placed a valuation allowance against its otherwise recognizable net
deferred tax assets.
(13) BUSINESS SEGMENT AND EXPORT SALES
The Company operates in one business segment--the manufacture, sale and
distribution of a wide range of medical products using fiber optics.
The Company operates from one location in the United States. Sales for
this operation totaled the following:
For the Years Ended October 31,
Geographic Area 1994 1995 1996
Domestic 84 % 84 % 84 %
Europe 11 10 9
All others 5 6 7
------- ------- -------
100 % 100 % 100 %
======= ======= =======
(14) SIGNIFICANT CUSTOMERS
One customer, the president of which is a member of the Company's Board
of Directors, accounted for 15%, 15% and 12% of total revenues in fiscal
1994, 1995 and 1996, respectively.
(15) 401(K) RETIREMENT PLAN
On January 1, 1989, the Company adopted a qualified 401(k) retirement
plan. The plan covers substantially all employees who have satisfied a
six-month service requirement and have attained the age of 18. The 401(k)
plan provides for an optional company contribution for any plan year at
the Company's discretion. The Company contributed and charged to
operations $0, $10,835 and $13,536 for the years ended October 31, 1994,
1995 and 1996, respectively.
LUXTEC CORPORATION
October 31, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the Directors and Executive Officers of the
Corporation, see the section entitled "Election of Directors" appearing in the
Corporation's Proxy Statement in connection with its next Annual Meeting of
Shareholders or special meeting in lieu thereof, which section is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation" appearing in the Corporation's
Proxy Statement in connection with its next Annual Meeting of Shareholders or
special meeting in lieu thereof, which section is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See the section entitled "Election of Directors" appearing in the Corporation's
Proxy Statement in connection with its next Annual Meeting of Shareholders or
special meeting in lieu thereof, which section is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Louis C. Wallace is currently, and has been since 1989, a member of the
Board of Directors of the Corporation. Mr. Wallace is the founder and President
of Specialty Surgical Instrumentation, Inc. (SSI), a surgical distributor in ten
(10) southeastern states. SSI is the largest single customer of the Corporation,
representing approximately 12% of net sales during fiscal 1996. SSI and Luxtec
operate at arms length with a contract substantially the same as the other
domestic distributors of the Corporation's products. The Corporation expects
that SSI will represent approximately the same percentage of net sales during
fiscal 1996 as occurred during fiscal 1995.
LUXTEC CORPORATION
October 31, 1996
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of October 31, 1995 and October 31, 1996.
Consolidated Statements of Earnings for the years ended October 31, 1994,
October 31, 1995 and October 31, 1996.
Consolidated Statements of Stockholders' Equity for the years ended October
31, 1994, October 31, 1995 and October 31, 1996.
Consolidated Statements of Cash Flows for the years ended October 31, 1994,
October 31, 1995 and October 31, 1996.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
No schedules are submitted because they are not applicable, not
required or because the information is included elsewhere herein.
LUXTEC CORPORATION
October 31, 1996
3. Exhibits
Exhibit Description Designation
- ------- ----------- -----------
2A Merger Agreement 2A****
3A Articles of Organization 3A*
3B Amendment dated March 30, 1982 to Articles of Organization 3B*
3C Amendment dated August 9, 1984 to Articles of Organization 3C*
3D Amendment dated April 10, 1992 to Articles of Organization 3D**
3E Amendment dated October 20, 1995 to Articles of Organization 3E****
3F Amendment dated October 20, 1995 to Articles of Organization 3F****
3G Amendment dated September 16, 1996 to Articles of Organization 3G*******
3H Certificate of Vote of Directors Establishing a Series of a Class of Stock, 3H*******
dated September 16, 1996
3I Certificate of Correction dated October 4, 1996 3I
3J Certificate of Correction dated October 4, 1996 3J
3K By-Laws 3K*
4A Specimen of Stock Certificate 4A*
4B Note Purchase Agreement dated as of December 18, 1995, by and between 4B*******
the Company and Geneva Middle Market Investors, L.P. (`GMMI')
4C 8% Senior Subordinated Note due June 1, 2001, dated December 18, 1995
4C******* in the principal amount of $1,000,000, made by the Company
in favor of GMMI
4D Rights Agreement made as of December 18, 1995, between the Company and 4D*******
GMMI
4E Registration Rights Agreement made as of June 3, 1996, between the 4E********
Company and the Purchasers (as defined therein)
10L Lease for the premises in Worcester, MA 10L*****
10N Employment Agreement with James Hobbs 10N**
10O Luxtec Corporation 1992 Stock Plan 10O**
10P Luxtec Corporation 1995 Stock Option Plan for Non-Employee Directors 10P****
10Q Bank Agreement 10Q******
10R Warrant Agreement made as of December 18, 1995, between the Company 10R*******
and GMMI
10S Warrant for 450,000 shares of Common Stock of the Company dated as of 10S*******
December 18, 1995, in the name of GMMI
10T Form of Subscription Agreement and Letter of Investment Intent between the 10T********
Purchaser named therein and the Company 3. Exhibits (Continued)
LUXTEC CORPORATION
October 31, 1996
3. Exhibits (Continued)
Exhibit Description Designation
10U Warrant Agreement made as of June 3, 1996, between the Company and the 10U********
Purchasers (as defined therein)
10V Form of Warrant 10V********
21 Luxtec Subsidiaries 21
23 Consent of Auditors 23
27 Financial Data Schedule 27
*Previously filed as exhibits to the Corporation's Registration Statement on
Form S-18 SEC File No.33-5514B declared effective on July 7, 1986.
**Previously filed as exhibit to the Corporation's Report on Form 10-K for
fiscal year ended October 31, 1993.
***Previously filed as exhibits to the Corporation's Report on Form 10-Q for
quarter ended July 31, 1994.
****Previously filed as exhibits to the Corporation's Proxy Statement dated
October 20, 1995.
*****Previously filed as exhibit to the Corporation's Report on Form 10-K for
fiscal year ended October 31, 1994.
******Previously filed as exhibit to the Corporation's Report on Form 10-K for
fiscal year ended October 31, 1995.
*******Previously filed as exhibit to the Corporation's Proxy Statement dated
June 21, 1996.
********Previously filed as exhibits to the Corporation's Report on Form 10-Q
for quarter ended July 31, 1996.
LUXTEC CORPORATION
October 31, 1996
3. Exhibits (Continued)
(b) Reports on Form 8-K:
None.
(c) Exhibits.
The Corporation hereby files as exhibits to this Form 10-K those
exhibits listed in Item 14 (a)(3), above, as being filed herewith.
(d) Financial Statement Schedules.
None.
LUXTEC CORPORATION
October 31, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Worcester, Commonwealth of Massachusetts, on the 29th day of January 1997.
LUXTEC CORPORATION
by S/ JAMES W. HOBBS
James W. Hobbs, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
S/ JAMES W. HOBBS President, Chief January 29, 1997
James W. Hobbs Executive Officer, Director
S/ SAMUEL M. STEIN Chief Financial Officer, January 29, 1997
Samuel M. Stein Treasurer, Assistant Clerk
S/ JAMES BERARDO Director January 29, 1997
James Berardo
S/ PAUL EPSTEIN Director January 29, 1997
Paul Epstein
S/ LYNN K. FRIEDEL Director January 29, 1997
Lynn K. Friedel
S/ JAMES J. GOODMAN Director January 29, 1997
James J. Goodman
S/ PATRICK G. PHILLIPPS Director January 29, 1997
Patrick G. Phillipps
S/ THOMAS J. VANDER SALM Director January 29, 1997
Thomas J. Vander Salm
S/ LOUIS C. WALLACE Director January 29, 1997
Louis C. Wallace
Exhibits furnished pursuant to requirements
of FORM 10K
3. Exhibits
Exhibit Description Designation
- ------- ----------- -----------
2A Merger Agreement 2A****
3A Articles of Organization 3A*
3B Amendment dated March 30, 1982 to Articles of Organization 3B*
3C Amendment dated August 9, 1984 to Articles of Organization 3C*
3D Amendment dated April 10, 1992 to Articles of Organization 3D**
3E Amendment dated October 20, 1995 to Articles of Organization 3E****
3F Amendment dated October 20, 1995 to Articles of Organization 3F****
3G Amendment dated September 16, 1996 to Articles of Organization 3G*******
3H Certificate of Vote of Directors Establishing a Series of a Class of Stock, 3H*******
dated September 16, 1996
3I Certificate of Correction dated October 4, 1996 3I
3J Certificate of Correction dated October 4, 1996 3J
3K By-Laws 3K*
4A Specimen of Stock Certificate 4A*
4B Note Purchase Agreement dated as of December 18, 1995, by and between 4B*******
the Company and Geneva Middle Market Investors, L.P. (`GMMI')
4C 8% Senior Subordinated Note due June 1, 2001, dated December 18, 1995
4C******* in the principal amount of $1,000,000, made by the Company
in favor of GMMI
4D Rights Agreement made as of December 18, 1995, between the Company and 4D*******
GMMI
4E Registration Rights Agreement made as of June 3, 1996, between the 4E********
Company and the Purchasers (as defined therein)
10L Lease for the premises in Worcester, MA 10L*****
10N Employment Agreement with James Hobbs 10N**
10O Luxtec Corporation 1992 Stock Plan 10O**
10P Luxtec Corporation 1995 Stock Option Plan for Non-Employee Directors 10P****
10Q Bank Agreement 10Q******
10R Warrant Agreement made as of December 18, 1995, between the Company 10R*******
and GMMI
10S Warrant for 450,000 shares of Common Stock of the Company dated as of 10S*******
December 18, 1995, in the name of GMMI
10T Form of Subscription Agreement and Letter of Investment Intent between the 10T********
Purchaser named therein and the Company
Exhibits furnished pursuant to requirements
of FORM 10K
3. Exhibits (Continued)
Exhibit Description Designation
10U Warrant Agreement made as of June 3, 1996, between the Company and the 10U********
Purchasers (as defined therein)
10V Form of Warrant 10V********
21 Luxtec Subsidiaries 21
23 Consent of Auditors 23
27 Financial Data Schedule 27
*Previously filed as exhibits to the Corporation's Registration Statement on
Form S-18 SEC File No.33-5514B declared effective on July 7, 1986.
**Previously filed as exhibit to the Corporation's Report on Form 10-K for
fiscal year ended October 31, 1993.
***Previously filed as exhibits to the Corporation's Report on Form 10-Q for
quarter ended July 31, 1994.
****Previously filed as exhibits to the Corporation's Proxy Statement dated
October 20, 1995.
*****Previously filed as exhibit to the Corporation's Report on Form 10-K for
fiscal year ended October 31, 1994.
******Previously filed as exhibit to the Corporation's Report on Form 10-K for
fiscal year ended October 31, 1995.
*******Previously filed as exhibit to the Corporation's Proxy Statement dated
June 21, 1996.
********Previously filed as exhibits to the Corporation's Report on Form 10-Q
for quarter ended July 31, 1996.
LUXTEC CORPORATION
October 31, 1996
EXHIBIT 3I
FEDERAL IDENTIFICATION
NO. 04-2741310
THE COMMONWEALTH OF MASSACHUSETTS
Willian Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston Masachusetts 02108-1512
CERTIFICATION OF CORRECTION
(General Laws, Chapter 156B, Section 6A)
1. Exact name of corporation : Luxtec Corporation
2. Document to be corrected: Articles of Amendment
3. The above mentioned document was filed with the Secretary of the Commonwealth
on: September 19, 1996.
4. Please state the inaccuracy or defect in said document:
Justin P. Morreale, one of the officers of Luxtec Corporation who signed the
Articles of Amendment on behalf of Luxtec, was referred to as the Clerk of
the corporation.
5. Please state corrected version of the document:
Justin P. Morreale is actually the Assistant Clerk of Luxtec Corporation.
Note: This correction should be signed by the person(s) required by law to sign
the original document.
SIGNED UNDER PENALTIES OF PERJURY, this 4th day of October, 1996.
S/ SAMUEL M. STEIN
Samuel M. Stein Vice President
S/ VICTOR J. PACI
Victor J. Paci Clerk
Note: If the inaccuracy or defect to be corrected is not apparent on the face of
the document, minutes of the meeting substantiating the error must be
filed with the certificate. Additional information may be provided on
separate 8 1/2 x 11 sheets of white paper with the left margin of at
least 1 inch.
LUXTEC CORPORATION
October 31, 1996
EXHIBIT 3J
FEDERAL IDENTIFICATION
NO. 04-2741310
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
CERTIFICATE OF CORRECTION
(General Laws, Chapter 156B, Section 6A)
1. Exact name of corporation: Luxtec Corporation
2. Document to be corrected: Certificate of Vote of Directors Establishing
A Series of A Class Stock
3. The above mentioned document was filed with the Secretary of the Commonwealth
on: September 19, 1996.
4. Please state the inaccuracy or defect in said document:
Justin P. Morreale, one of the officers of Luxtec Corporation who signed
the Certificate of Vote of Directors Establishing A Series of A Class of
Stock on behalf of Luxtec, was incorrectly referred to as the Clerk of the
corporation.
5. Please state corrected version of the document:
Justin P. Morreale is actually the Assistant Clerk of Luxtec Corporation.
Note: This correction should be signed by the person(s) required by law to sign
the original document.
SIGNED UNDER THE PENALTIES OF PERJURY, this 4th day of October, 1996.
S/ SAMUEL M. STEIN
Samuel M. Stein Vice President
S/ VICTOR J. PACI
Victor J. Paci Clerk
Note: If necessary the inaccuracy or defect to be corrected is not apparent on
the face of the document, minutes of the meetinf substantiating the error
must be filed with the certificate. Additional information may be provided
on seperate 8 1/2 x 11 sheets of white paper with the left margin at least
1 inch.
LUXTEC CORPORATION
October 31, 1996
EXHIBIT 21
Luxtec Corporation Subsidiaries
1. Cathtec, Inc., a Massachusetts Corporation.
2. Fiber Imaging Technologies, Inc., a Massachusetts Corporation.
3. CardioDyne, Incorporated, a Massachusetts Corporation.
LUXTEC CORPORATION
October 31, 1996
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-83510, 333-19087 and
333-19107).
S/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 29, 1997