-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dc2vpRw4VzPYX8CtIqXWzDtt0DW2yLc5J+ThHLMw8ApeZuc31t1/rAOuP9vLwdz/ G4as2R4PD/jYK10tnYg6mw== 0000793523-98-000004.txt : 19980130 0000793523-98-000004.hdr.sgml : 19980130 ACCESSION NUMBER: 0000793523-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980129 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUXTEC CORP /MA/ CENTRAL INDEX KEY: 0000793523 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042741310 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14961 FILM NUMBER: 98516883 BUSINESS ADDRESS: STREET 1: 326 CLARK STREET CITY: WORCESTER STATE: WA ZIP: 01606 BUSINESS PHONE: 5088569454 MAIL ADDRESS: STREET 1: 326 CLARK STREET CITY: WORCESTER STATE: MA ZIP: 01606 10-K 1 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, 1997 [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 $2,508,027 based on the closing price of such stock on December 31, 1997, as reported by the American Stock Exchange ($2.38 per share). As of December 31, 1997, 2,858,998 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. 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 manufactures 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 9100, 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 4.5X. 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") and No. 5334171 ("Flexible, Noncollapsible Catheter Tube with Hard and Soft Regions") 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 50,000 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 are 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 affect 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 Cogent Light Technologies, Inc., 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, 1997, one customer, Specialty Surgical Instruments, accounted for 14% of the Corporation's net revenues. Research and Development The Corporation incurred approximately $495,000 of product development expenses in fiscal year 1997, $543,000 in fiscal 1996, and $517,000 in fiscal 1995. The decrease in expenses in this category was directly related to the completion of the introduction of two major product line upgrades during fiscal 1996. 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, 1997, the Corporation's backlog was $549,200, compared to $945,000 at October 31, 1996. 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, 1997, the Corporation had 64 full time employees, of whom six are executives, nine are engaged in supervisory capacities, 26 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 30,000 square feet at 326 Clark Street, Worcester, Massachusetts under a lease that has been extended through 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 None. 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, 1997. 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." AMEX has notified the Corporation that the Corporation has fallen below the AMEX Emerging Company Marketplace guidelines for continued listing on the exchange and that AMEX is reviewing the Corporation's listing eligibility. As a result of a meeting between representatives of the Corporation and AMEX held on January 22, 1998, AMEX has determined to continue the Corporation's listing. AMEX will conduct a further review of the Corporation's listing status in June, 1998. The Corporation is reviewing its options concerning actions it may take to comply with the AMEX guidelines. 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 10/31/96 First Quarter 4.00 2.00 Second Quarter 4.00 2.50 Third Quarter 3.38 2.75 Fourth Quarter 4.00 2.38 Fiscal Year Ended 10/31/97 First Quarter 4.00 2.63 Second Quarter 3.88 2.38 Third Quarter 3.00 2.38 Fourth Quarter 2.75 2.13 On December 31, 1997, the closing sale price of the Corporation's Common Stock on the American Stock Exchange was $2.38 per share. As of December 31, 1997, there were approximately 642 holders of record of the Corporation's Common Stock. The Corporation estimates that there are approximately 1,300 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 and the consolidated balance sheet data presented below 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 consolidated financial statements and notes thereto appearing elsewhere herein.
Operating Data: (In thousands, except per share data) Year Ended October 31, 1993 1994 1995 1996 1997 Net Revenues . . . . . . . . . . $6,734 $8,139 $7,755 $9,348 $10,977 Net Income (Loss). . . . . . 153 164 (6,127) (571) (353) Net Income (Loss) Per Share . . . . . . . . . . . . . . . . .11 .11 (4.20) (.22) (.15) (In thousands) Balance Sheet Data: Year Ended October 31, 1993 1994 1995 1996 1997 Working Capital. . . . . . . . $ 1,210 $ 1,410 $ (599) $ 935 $ 1,394 Total Assets. . . . . . . . . . . 3,431 4,072 4,122 5,295 5,803 . Long-term debt and capital lease obligations, less current portions . . . . 119 661 - - - Stockholders' equity. . . . . 1,957 2,163 198 813 456
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 consolidated financial statements, including notes thereto. Results of Operations The following table sets forth certain consolidated financial data as a percentage of net revenues for the fiscal years ended October 31, 1995 1996 and 1997. 1995 1996 1997 Net revenues 100% 100% 100% Cost of goods sold 61 57 60 Selling and marketing 24 23 22 Research and development 7 6 4 General and administrative 19 18 15 Charge for purchased research and development (67) - - Other income/(expense) (1) (2) (2) Loss before provision for income taxes (79) (6) (3) Provision for income taxes - - - Net loss (79) (6) (3) Fiscal 1997 Compared with Fiscal 1996 Net Revenues: Net revenues of $10,977,435 for fiscal 1997 were 17.4% higher than the $9,347,699 reported for fiscal 1996. The Luxtec branded and OEM products, both domestic and international, were responsible for virtually all of the Corporation's revenue growth. Management believes that the introduction of new and improved products over the last two years was chiefly responsible for the fiscal 1997 revenue growth. Cost of Goods Sold: Cost of goods sold increased to $6,544,409 or 59.6% of net sales for fiscal 1997 compared with $5,323,764 or 57.0% of net sales for fiscal 1996. The higher product cost related to the recent introduction of a series of new products was the main reason for the higher costs in fiscal 1997. Gross Profit: Gross Profit increased to $4,433,026 or 40.4% of net sales for fiscal 1997 compared to $4,023,935 or 43.0% of net sales for fiscal 1996. Although the percentage decreased between years, the higher sales volume, partially offset by the higher costs related to product introductions and a contractual decrease in royalties received for a CardioDyne product, yielded the increased gross profit in fiscal 1997. The Corporation does not expect gross profit margins to change dramatically from their 1997 relationship to sales. Selling and Marketing Expenses: Selling and marketing expenses increased to $2,437,746 for fiscal 1997 compared to $2,190,881 for fiscal 1996, an increase of $246,865 or 11.3%. During fiscal 1997, Luxtec introduced marketing programs and continued to build the distribution channel for the new CardioDyne product line of motion tolerant blood pressure monitors. Management expects selling and marketing expenses for fiscal 1998 to remain in approximately the same ratio to sales as 1997. Research and Development: Research and development expenses were $495,373 in fiscal 1997 compared to $542,691 in fiscal 1996, a decrease of $47,318 or 8.7%. The decrease in expenses in this category was directly related to the completion of the introduction of two major product line upgrades during fiscal 1996. Management expects that research expenditures will increase as a result of the Corporation's product development plans. General and Administrative: General and administrative expenses were $1,627,637 in fiscal 1997 compared to $1,646,081 in fiscal 1996, representing a decrease of $18,444 or 1.1%. Fiscal year 1997 administrative activities and staffing levels remained essentially unchanged from fiscal 1996. Interest: Interest expense increased to $234,024 during fiscal year 1997 compared with $231,442 in fiscal 1996, an increase of $2,582 or 1%. The Corporation's cost of debt remained at approximately the same level during fiscal years 1997 and 1996. Fiscal 1996 Compared with Fiscal 1995 Net Revenues: 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 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. 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. Research and Development: Research and development expenses increased to $542,691 in fiscal 1996 compared to $516,601 in fiscal 1995, an increase of $26,090 or 5%. 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. General and Administrative: General and administrative expenses increased to $1,646,081 in fiscal 1996 compared to $1,476,310 in fiscal 1995, an increase of $169,771 or 11%. 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 $231,442 for fiscal 1996 compared to $97,741 for fiscal 1995, an increase of $133,701 or 137%. 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. Liquidity and Capital Resources At October 31, 1997, the Corporation had working capital of approximately $1,394,500 compared to working capital of $934,500 at October 31, 1996. The increase was primarily the result of the financing described in the next paragraph. On April 3, 1997, the Company received $500,000 from a new term loan agreement with a bank. Borrowings bear interest at the bank's prime rate plus 1.00%. Borrowings are secured by substantially all assets of the Company. Principal repayment is to be repaid from "Excess Cash Flow," as defined, but no later than April 3, 2002. 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, 1997. As an inducement to grant the loan under the stated terms, the Company issued a warrant that entitles the holder to purchase 44,000 shares of common stock at an exercise price of $3.00 per share (approximate fair market value at the date of grant), adjusted for certain dilutive events, as defined. The principal source of short-term borrowings during the year was a secured $2,250,000 revolving credit agreement. At October 31, 1997, the credit line borrowings balance was approximately $2,082,900. The interest rate on the credit line at the end of the fiscal year was 9.00%. The Corporation anticipates that its current cash requirements will be satisfied by cash flow from existing operations and the continuation of its revolving credit arrangement with a bank, although the Company is considering raising additional debt or equity in the near future. The Corporation had no significant capital expenditures during fiscal year 1997. 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. LUXTEC CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INDEX PAGE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 19 CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1996 AND 1997 20 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997 21 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997 22 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997 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, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended October 31, 1997. 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, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997, in conformity with generally accepted accounting principles. Boston, Massachusetts December 16, 1997 LUXTEC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
October 31, 1996 1997 CURRENT ASSETS: Cash $ 172,356 $ 41,712 Accounts receivable, less reserves of approximately $161,000 and $320,000 in 1,741,669 2,319,945 1996 and 1997, respectively Inventories 2,173,015 2,527,309 Prepaid expenses and other current assets 210,564 71,191 --------------- --------------- Total current assets 4,297,604 4,960,157 --------------- --------------- PROPERTY AND EQUIPMENT, AT COST 2,365,740 2,476,691 ACCUMULATED DEPRECIATION AND AMORTIZATION (1,617,861) (1,890,093) --------------- --------------- Property and equipment, net 747,879 586,598 OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF APPROXIMATELY $104,000 AND 249,375 255,819 --------------- --------------- $143,000 IN 1996 AND 1997, RESPECTIVELY Total assets $ 5,294,858 $ 5,802,574 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Revolving line of credit $ 2,146,223 $ 2,082,854 Current portion of equipment facility loan 39,612 65,186 Accounts payable 726,201 938,733 Accrued expenses 451,068 478,931 --------------- --------------- Total current liabilities 3,363,104 3,565,704 --------------- --------------- NOTE PAYABLE TO STOCKHOLDER 1,000,000 - TERM NOTE - 460,250 EQUIPMENT FACILITY LOAN, NET OF CURRENT PORTION 118,843 200,992 COMMITMENTS (Note 12) REDEEMABLE PREFERRED STOCK, $1.00 PAR VALUE: Series A Preferred Stock- Authorized--500,000 shares Issued and outstanding--10,000 shares (preference in liquidation of $1,119,768) - 1,119,768 STOCKHOLDERS' EQUITY: Common stock, $.01 par value- Authorized--10,000,000 shares Issued and outstanding--2,841,539 shares in 1996 and 2,853,491 in 1997 28,415 28,535 Additional paid-in capital 8,323,216 8,318,685 Accumulated deficit (7,538,720) (7,891,360) --------------- --------------- Total stockholders' equity 812,911 455,860 --------------- --------------- Total liabilities and stockholders' equity $ 5,294,858 $ 5,802,574 =============== ===============
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, 1995 1996 1997 NET REVENUES $ 7,755,376 $ 9,347,699 $ 10,977,435 COST OF GOODS SOLD 4,732,500 5,323,764 6,544,409 --------------- --------------- --------------- Gross profit 3,022,876 4,023,935 4,433,026 --------------- --------------- --------------- OPERATING EXPENSES: Selling and marketing 1,825,897 2,190,881 2,437,746 Research and development 516,601 542,691 495,373 General and administrative 1,476,310 1,646,081 1,627,637 Charge for purchased research and development (Note 3) 5,230,950 - - --------------- --------------- --------------- Total operating expenses 9,049,758 4,379,653 4,560,756 --------------- --------------- --------------- Loss from operations (6,026,882) (355,718) (127,730) --------------- --------------- --------------- OTHER EXPENSE: Interest expense (97,741) (231,442) (234,024) Other income (expense) (2,317) 16,484 9,114 --------------- --------------- --------------- Total other expense (100,058) (214,958) (224,910) --------------- --------------- --------------- LOSS BEFORE PROVISION FOR INCOME TAXES (6,126,940) (570,676) (352,640) PROVISION FOR INCOME TAXES - - - --------------- --------------- --------------- Net loss (6,126,940) (570,676) (352,640) --------------- --------------- --------------- PREFERRED STOCK DIVIDENDS - - 76,666 --------------- --------------- --------------- Net loss applicable to common stockholders $ (6,126,940) $ (570,676) $ (429,306) =============== =============== =============== NET LOSS PER SHARE $(4.20) $(.22) $(.15) ====== ===== ===== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 1,457,897 2,574,705 2,849,538 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. LUXTEC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock, Additional Accumulated Total $.01 Par Value Paid-in Capital Deficit Shares Amount 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 1,000,000 10,000 4,115,000 - 4,125,000 connection with merger with CardioDyne, Inc. Issuance of common stock under 15,341 153 36,260 - 36,413 employee stock purchase plan ------ ------ -------------- -------------- --------------- 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 9,327 93 26,524 - 26,617 employee stock purchase plan 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 Net loss - - - (352,640) (352,640) Issuance of common stock under employee stock purchase plan 11,952 120 27,135 - 27,255 Dividends on Series A Preferred Stock - - (76,666) - (76,666) Issuance of warrants in connection with tem note - 45,000 - 45,000 --------------- ------------ ------------- -------------- --------------- BALANCE, OCTOBER 31, 1997 2,853,491 $ 28,535 $ 8,318,685 $ (7,891,360) $ 455,860 =============== ============ ============= ============= =============== 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, 1995 1996 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (6,126,940) $ (570,676) $ (352,640) Adjustments to reconcile net loss to net cash used in operating activities- Charge for purchased research and development 5,230,950 - - Depreciation and amortization 176,916 265,258 301,448 Amortization of debt discount - - 5,250 Provision for uncollectible accounts receivable 12,500 3,651 158,748 Changes in current assets and liabilities- Accounts receivable 121,242 (211,053) (737,024) Inventories (176,353) (477,014) (354,294) Prepaid expenses and other current assets 37,833 (127,826) 139,373 Accounts payable 624,218 (827,668) 212,532 Accrued expenses (255,437) (188,901) 70,965 --------------- --------------- --------------- Net cash used in operating activities (355,071) (2,134,229) (555,642) --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (125,261) (294,116) (110,951) Increase in other assets (95,685) (9,645) (35,660) Cash paid in connection with CardioDyne, Inc. acquisition, (582,154) - - net of cash acquired --------------- --------------- --------------- Net cash used in investing activities (803,100) (303,761) (146,611) --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (payments on) revolving line of credit 1,123,150 415,915 (63,369) Net proceeds from (payments on) equipment facility loan - (2,980) 107,723 Proceeds from note payable to stockholder - 1,000,000 - Proceeds from term note - - 500,000 Net proceeds from issuance of common stock in a private - 1,156,628 - placement Issuance of common stock under stock option plan - 2,445 - Issuance of common stock under employee stock purchase plan 36,413 26,617 27,255 --------------- --------------- --------------- Net cash provided by financing activities 1,159,563 2,598,625 571,609 --------------- --------------- --------------- NET INCREASE (DECREASE) IN CASH 1,392 160,635 (130,644) CASH, BEGINNING OF PERIOD 10,329 11,721 172,356 --------------- --------------- --------------- CASH, END OF PERIOD $ 11,721 $ 172,356 $ 41,712 =============== ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for - Interest $ 95,205 $ 157,144 $ 239,133 =============== ============= ============= 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 $ - $ 161,435 $ - =============== ============= ============= loan Conversion of note payable to stockholder to Series A $ - $ - $ 1,043,102 =============== ============= ============= Preferred Stock Unpaid dividends on Series A Preferred Stock $ - $ - $ 76,666 =============== ============= =============
The accompanying notes are an integral part of these consolidated financial statements. LUXTEC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1997 (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. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries: Fiber Imaging Technologies, Inc., CardioDyne, Inc. and Cathtec, Inc. All intercompany accounts and transactions have been eliminated in consolidation. (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 life 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. (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 share is computed by dividing net income, after deducting preferred stock dividends, by the weighted average number of common 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) Realization of Long-Lived Assets In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. SFAS No. 121 requires the Company to periodically assess the future recovery of the carrying amounts of long-lived assets. Management believes that the recorded value of its long-lived assets are realizable and that no impairment allowance is necessary pursuant to the provisions of SFAS No. 121. (i) 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. (j) New Accounting Standards In March 1997, the FASB issued SFAS No. 128, Earnings Per Share, which established new standards for calculating and presenting earnings per share. The Company will adopt this new standard in its fiscal 1998 financial statements, which will require the reporting of diluted earnings per share and basic earnings per share, as defined. SFAS No. 128 is effective for periods ending after December 15, 1997, and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 requires disclosure of all components of comprehensive income on an annual and interim basis. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. SFAS No. 130 is effective for the fiscal years beginning after December 15, 1997. In July 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information. SFAS No. 131 requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. Unless impracticable, companies would be required to restate prior period information upon adoption. (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. 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 1997 and 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 Year Ended October 31, 1995 Revenue $ 7,755,376 Net loss (6,424,783) Net loss per common share (2.64) (4) INVENTORIES Inventories consisted of the following at October 31, 1996 and 1997: 1996 1997 Raw material $ 1,237,123 $ 1,357,761 Work-in-process 220,255 318,312 Finished goods 715,637 851,236 --------------- --------------- $ 2,173,015 $ 2,527,309 =============== ============== (5) PROPERTY AND EQUIPMENT Property and equipment and their respective useful lives are as follows at October 31, 1996 and 1997:
Estimated Useful 1996 1997 Lives Machinery and equipment 5-10 years $ 1,614,778 $ 1,675,878 Molds and tooling 5 years 183,423 221,818 Furniture and fixtures 10 years 339,308 342,753 Leasehold improvements Life of lease 228,231 236,242 --------------- --------------- $ 2,365,740 $ 2,476,691 =============== ===============
(6) ACCRUED EXPENSES Accrued expenses consisted of the following at October 31, 1996 and 1997:
1996 1997 Accrued payroll and related expenses $ 174,968 $ 220,713 Other accrued expenses 276,100 258,218 --------------- --------------- $ 451,068 $ 478,931 ============= =============
(7) INCOME TAXES As of October 31, 1997, the Company had available net operating loss carryforwards of approximately $2,223,000, research and development credit carryforwards of approximately $147,000, and general business credit carryforwards of approximately $25,000 available to reduce future federal income taxes, if any. These carryforwards expire through 2012 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 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. The components of the net deferred tax amount recognized in the accompanying consolidated balance sheets are set forth below: 1996 1997 Deferred tax assets $ 983,000 $ 1,353,000 Deferred tax liabilities (53,000) - Valuation allowance (930,000) (1,353,000) --------------- --------------- $ - $ - =============== =============== The appropriate tax effect of each type of temporary difference and carryforward before allocation of the valuation allowance is summarized as follows: 1996 1997 Net operating losses $ 920,000 $ 889,000 Inventory reserve (25,000) 89,000 Bad debt reserve 1,000 74,000 Other temporary differences (29,000) 129,000 Research and development credits 91,000 147,000 General business credits 25,000 25,000 --------------- --------------- $ 983,000 $ 1,353,000 =============== =============== 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. (8) LOANS FROM BANKS The Company has a $2,250,000 revolving line-of-credit agreement with a bank. Borrowings bear interest at the bank's prime rate (8.5% at October 31, 1997) plus .50%. 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, 1997. At October 31, 1997, availability under the line of credit was approximately $167,000. The line of credit expires on March 31, 1999. The Company has a $500,000 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 (8.5% at October 31, 1997) plus .5%. Borrowings under this facility are secured by substantially all assets of the Company. The equipment facility agreement expired on October 21, 1997. At October 31, 1997, the Company had outstanding borrowings of $266,178 under this agreement. The future minimum payments are as follows: 1998 $ 65,186 1999 65,186 2000 65,186 2001 65,186 2002 5,434 --------------- $ 266,178 (9) TERM NOTE AND NOTE PAYABLE TO STOCKHOLDER On April 3, 1997, the Company entered into a $500,000 term note agreement with a bank. The term note bears interest at prime (8.5% at October 31, 1997) plus 1.0%. Principal payments are payable in consecutive annual installments beginning on October 31, 1998 and continuing thereafter on October 31 of each succeeding year in an amount equal to the lesser of (a) $200,000 or (b) the greater of (i) zero and (ii) excess cash flow as defined. At October 31, 1997, the Company had outstanding borrowings of $500,000 under this agreement. The Company was in compliance with all covenants or had obtained a waiver from the bank for the year ended October 31, 1997. In connection with the term note agreement, the Company issued warrants to purchase 44,000 shares of common stock at an exercise price of $3.00 per share, expiring on March 31, 2002. Management has estimated the value of these warrants to be approximately $45,000, which has been recorded as a debt discount (amortized to interest expense over the payment term of sixty months). On December 18, 1995, the Company issued Senior Subordinated Notes (the Notes) to a stockholder for $1,000,000 in cash. Interest accrues on the Notes at the rate of 8% per annum and is payable annually in arrears. Principal on the Notes is 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. During the year ended October 31, 1997, the Company accrued $119,768 of dividends. 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 plus dividends. However, 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 plus dividends. (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 that 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 1992 Stock 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 300,000 to 400,000 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 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 9,327 and 11,952 in 1996 and 1997, respectively. 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. The following schedule summarizes the stock option activity for the three years ended October 31, 1997:
Number of Shares Option Price Per Weighted Average Share Option Price Outstanding at October 31, 1994 120,000 $ 1.25- 2.50 $ 1.65 Granted 196,000 4.13- 4.63 4.52 Canceled 6,000 1.25 1.25 -------------- ----------------- ------------ Outstanding at October 31, 1995 310,000 1.25- 4.63 3.46 Granted 913,571 2.75- 6.00 4.30 Exercised 1,500 1.63 1.63 -------------- ----------------- ------------ Outstanding at October 31, 1996 1,222,071 1.25- 6.00 4.08 Granted 134,200 2.63- 6.00 4.05 Exercised 40,050 1.25- 4.63 3.25 -------------- ----------------- ------------ Outstanding at October 31, 1997 1,316,221 $ 1.25-$ 6.00 $ 4.10 ============== ================= ====== Exercisable at October 31, 1997 1,103,509 $ 1.25-$ 6.00 $ 4.02 ============== ================= ======
As of October 31, 1996 and 1997, 500,000 and 600,000 shares, respectively, of common stock have been reserved for issuance under the Company's stock option plans. In October 1995, the 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 disclosures required under SFAS No. 123 for options granted in 1996 and 1997 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions are as follows: 1996 1997 Risk free interest rate 6.18% 7.00% Expected dividend yield - - Expected lives 10 years 10 years Expected volatility 18% 41% Weighted average value of grants 1.60 1.86 Weighted average remaining contractual life of 5.2 4.7 options outstanding The total value of options granted during the fiscal years ended October 31, 1995, 1996 and 1997 was computed as approximately $24,000, $87,000 and $158,000, 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: For the Years Ended October 31, 1995 1996 1997 Pro forma net loss $ (6,151,180) $ (657,686) $ (587,306) ============== ============== ============== Pro forma net loss per share $ (4.22) $ (.26) $ (.21) ======= ======= ======= (12) COMMITMENTS The Company has noncancelable operating lease commitments that consist principally of rentals of facilities and machinery. Its manufacturing and office facilities are leased with a termination date of September 30, 1998. The future minimum operating lease payments over their remaining terms are as follows: Fiscal Year Amount 1998 $ 220,833 1999 38,473 2000 18,803 2001 18,097 2002 - --------------- Total minimum lease payments $ 296,206 ============= Rent expense charged to operations for operating leases was approximately $162,000, $142,000 and $169,000 in fiscal year 1995, 1996 and 1997, respectively. (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: Geographic Area For the Years Ended October 31, 1995 1996 1997 Domestic 84 % 84 % 84 % Europe 10 9 8 All others 6 7 8 ------- ------- ------- 100 % 100 % 100 % ======= ======= ======= (14) SIGNIFICANT CUSTOMERS/RELATED PARTY One customer, the president of which is a member of the Company's Board of Directors, accounted for 15%, 12% and 14% of net revenues in fiscal 1995, 1996 and 1997, 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 $10,835, $13,536 and $18,397 for the years ended October 31, 1995, 1996 and 1997, respectively. ?16? YEAR 2000 The Company expects to incur costs during the next two to three years to address the impact of the so-called Year 2000 problem on its information systems. The Year 2000 problem, which is common to most corporations, concerns the inability of information systems, primarily computer software programs, to properly recognize and process date sensitive information as the year 2000 approaches. The Company has completed an assessment of the majority of its systems and is in the process of developing a specific workplan to address this issue. The Company currently believes it will be able to modify or replace its affected systems in time to minimize any detrimental effects on operations. While it is not possible, at present, to give an accurate estimate of the cost of this work, the Company does not expect that such costs will be material to the Company's results of operations in one or more fiscal quarters or years, and will not have a material adverse impact on the long-term results of operations, liquidity or consolidated financial position of the Company. LUXTEC CORPORATION October 31, 1997 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 14% of net revenues during fiscal 1997. 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 revenues during fiscal 1998 as occurred during fiscal 1997. LUXTEC CORPORATION October 31, 1997 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, 1996 and October 31, 1997. Consolidated Statements of Operations for the years ended October 31, 1995, October 31, 1996 and October 31, 1997. Consolidated Statements of Stockholders' Equity for the years ended October 31, 1995, October 31, 1996 and October 31, 1997. Consolidated Statements of Cash Flows for the years ended October 31, 1995, October 31, 1996 and October 31, 1997. 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, 1997 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******* 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 LUXTEC CORPORATION October 31, 1997 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 Independent Public Accountants 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. *********Previously filed as exhibit to the Corporation's Report on Form 10-K for fiscal year ended October 31, 1996. LUXTEC CORPORATION October 31, 1997 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, 1997 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 1998. 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, 1998 James W. Hobbs Executive Officer, Director S/ SAMUEL M. STEIN Chief Financial Officer, January 29, 1998 Samuel M. Stein Treasurer, Assistant Clerk S/ JAMES BERARDO Director January 29, 1998 James Berardo S/ PAUL EPSTEIN Director January 29, 1998 Paul Epstein S/ JAMES J. GOODMAN Director January 29, 1998 James J. Goodman S/ PARTICK G. PHILLIPPS Director January 29, 1998 Patrick G. Phillipps S/ THOMAS J. VANDER SALM Director January 29, 1998 Thomas J. Vander Salm S/ LOUIS C. WALLACE Director January 29, 1998 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******* 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 Independent Public Accountants 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. *********Previously filed as exhibit to the Corporation's Report on Form 10-K for fiscal year ended October 31, 1996. LUXTEC CORPORATION October 31, 1997 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. 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, 1998 EX-27 2 FINANCIAL DATA SCHEDULE FOR YEAR END 10-K
5 1000 12-MOS OCT-31-1997 NOV-01-1996 OCT-31-1997 42 0 2,640 320 2,527 4,960 2,477 1,890 5,803 3,566 0 0 1,120 28 427 5,803 10,977 10,977 6,544 4,561 (9) 0 234 (353) 0 0 0 0 0 (353) (.15) (.15)
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