1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X-QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JANUARY 31, 2001
Commission file number 1-10629
-------
LASER VISION CENTERS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1530063
-------- ----------
(State or other jurisdiction of (I.R.S. Employer identification
incorporation or organization) number)
540 Maryville Centre Dr., Suite 200, St. Louis, Missouri 63141
---------------------------------------------------------------
(Address of principal executive offices)
(314)434-6900
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock outstanding as of March 2, 2001 - 25,425,854 shares
2
LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED JANUARY 31, 2001
INDEX
PART OR ITEM PAGE
Part I. FINANCIAL STATEMENTS (unaudited)
Item 1. Interim Consolidated Financial Statements
Consolidated Balance Sheet - January 31, 2001 and April 30, 2000...........3-4
Consolidated Statement of Operations - Three months and nine months
ended January 31, 2001 and 2000...............................................5
Consolidated Statement of Cash Flow - Nine months
ended January 31, 2001 and 2000.............................................6-7
Consolidated Statement of Changes in Stockholders' Equity - Nine months
ended January 31, 2001........................................................8
Notes to Interim Consolidated Financial Statements.........................9-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources...........................................14-16
Results of Operations.....................................................16-20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................................21-22
Item 2. Changes in Securities........................................................22
Item 3. Defaults upon Senior Securities..............................................22
Item 4. Submission of Matters to a
Vote of Security Holders.....................................................22
Item 5. Other Information............................................................22
Item 6. Reports on Form 8-K..........................................................22
Signatures............................................................................22
3
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
(UNAUDITED)
JANUARY 31, April 30,
2001 2000
CURRENT ASSETS
- --------------
Cash and cash equivalents $13,419,000 $ 17,702,000
Short-term investments 9,679,000 31,440,000
Accounts receivable, net 11,721,000 11,055,000
Inventory 3,695,000 2,978,000
Deferred tax asset 2,770,000 3,680,000
Prepaid expenses and
other current assets 2,473,000 1,407,000
------------ ------------
Total Current Assets 43,757,000 68,262,000
EQUIPMENT
- ---------
Laser equipment 38,862,000 30,654,000
Medical equipment 8,947,000 5,901,000
Mobile equipment 12,591,000 10,677,000
Furniture and fixtures 3,760,000 2,979,000
-Accumulated depreciation (29,830,000) (22,183,000)
------------ ------------
Total Equipment, Net 34,330,000 28,028,000
OTHER ASSETS
- ------------
Deferred tax asset 6,378,000 6,309,000
Goodwill, net 18,365,000 11,924,000
Deferred contract rights and other, net 16,362,000 6,121,000
Investment in common equity securities 2,325,000
Rent deposits and other, net 332,000 298,000
-------- --------
Total Other Assets 41,437,000 26,977,000
---------- ----------
Total Assets $119,524,000 $123,267,000
============ ============
See notes to interim consolidated financial statements
3
4
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
(UNAUDITED)
JANUARY 31, April 30,
2001 2000
CURRENT LIABILITIES
- -------------------
Current portion of notes payable $5,910,000 $8,323,000
Current portion of capitalized
lease obligations 1,381,000 1,006,000
Accounts payable 5,801,000 4,268,000
Accrued compensation 1,720,000 1,549,000
Other accrued liabilities 5,148,000 8,975,000
----------- -------------
Total Current Liabilities 19,960,000 24,121,000
NON-CURRENT LIABILITIES
- -----------------------
Line of credit 2,000,000
Notes payable 4,012,000 4,025,000
Capitalized lease obligations 2,238,000 1,853,000
----------- ---------
Total Non-Current Liabilities 8,250,000 5,878,000
MINORITY INTERESTS 1,109,000 1,354,000
COMMITMENTS AND CONTINGENCIES (NOTE 5, 6 AND 9)
SERIES B CONVERTIBLE PREFERRED STOCK WITH
MANDATORY REDEMPTION PROVISIONS (NOTE 8) 744,000 2,295,000
STOCKHOLDERS' EQUITY
- --------------------
Common stock, par value of $.01 per
share, 50,000,000 shares authorized;
25,425,854 and 25,330,991 shares issued
and outstanding, respectively 254,000 253,000
Warrants and options 1,114,000 915,000
Paid-in capital 108,042,000 107,875,000
Treasury stock at cost (800,000) (7,514,000)
Accumulated deficit (19,149,000) (11,910,000)
------------ ------------
Total Stockholders' Equity 89,461,000 89,619,000
---------- ----------
Total Liabilities and Stockholders' Equity $119,524,000 $123,267,000
============ ============
See notes to interim consolidated financial statements
4
5
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ------------------------------------------------
Three Month Period Nine Month Period
Ended January 31, Ended January 31,
2001 2000 2001 2000
REVENUES $25,323,000 $22,510,000 $69,217,000 $64,343,000
COST OF REVENUES
Royalty fees and professional
medical services 6,004,000 8,159,000 16,725,000 21,835,000
Depreciation and amortization 3,915,000 2,462,000 10,903,000 6,585,000
Cost of revenues, other 7,066,000 4,699,000 20,156,000 14,788,000
----------- ----------- ------------ ------------
GROSS PROFIT 8,338,000 7,190,000 21,433,000 21,135,000
Selling, general and
administrative expenses 9,541,000 4,196,000 21,005,000 12,211,000
Vendor program change expense - 2,433,000 - 2,433,000
----------- ----------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,203,000) 561,000 428,000 6,491,000
Other income (expenses)
Minority interests in net income (94,000) (16,000) (574,000) (197,000)
Interest and other income 467,000 805,000 1,861,000 2,343,000
Gain on sale of equity investment 595,000
Interest and other expense (256,000) (308,000) (814,000) (864,000)
----------- ----------- ------------ ------------
INCOME (LOSS) BEFORE TAXES (1,086,000) 1,042,000 1,496,000 7,773,000
Income tax benefit (expense) 33,000 495,000 (945,000) 1,832,000
----------- ----------- ------------ ------------
NET INCOME (LOSS) (1,053,000) 1,537,000 551,000 9,605,000
Deemed preferred dividends (50,000) (52,000) (159,000) (155,000)
----------- ----------- ------------ ------------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $(1,103,000) $1,485,000 $392,000 $9,450,000
=========== =========== ============ ============
Net Income (Loss) per Share - Basic ($0.05) $0.06 $0.02 $0.38
===== ===== ===== =====
NET INCOME (LOSS) PER SHARE - DILUTED ($0.05) $0.05 $0.02 $0.34
===== ===== ===== =====
Weighted average number of
common shares outstanding - basic 23,484,000 25,239,000 23,870,000 24,844,000
=========== =========== ============ ============
Weighted average number of
common shares outstanding - diluted 23,484,000 28,297,000 24,049,000 28,630,000
=========== =========== ============ ============
See notes to interim consolidated financial statements
5
6
LASER VISION CENTERS, INC. AND SUBSIDIARIES Nine Month Period
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) Ended January 31,
- -----------------------------------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income $551,000 $9,605,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,130,000 7,418,000
Deferred income taxes 841,000 (2,295,000)
Compensation paid in common stock,
options or warrants 227,000 355,000
Minority interest in net income of subsidiary 574,000 19,000
Increase in accounts receivable (666,000) (2,019,000)
Increase in inventory (717,000) (139,000)
(Increase) decrease in prepaid expenses
and other current assets (966,000) 339,000
Increase (decrease) in accounts payable 1,533,000 (20,000)
Decrease in accrued liabilities (3,656,000) (1,304,000)
------------ -----------
Net cash provided by operating activities 9,851,000 11,959,000
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of short-term investments (58,683,000) (106,276,000)
Sale of short-term investments 80,444,000 69,312,000
Sale of investment in common equity securities 2,494,000
Acquisition of equipment (11,900,000) (5,871,000)
Proceeds from sale of minority interests 40,000 646,000
Business acquisitions and partnership investments,
net of cash acquired, and other (19,018,000) (258,000)
------------ -----------
Net cash used in investing activities (6,623,000) (42,447,000)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from secondary stock offering 44,046,000
Purchase of treasury stock (2,994,000)
Proceeds from exercise of stock options and warrants 203,000 8,326,000
Return of restricted cash 1,132,000
Principal payments under capitalized
lease obligations and notes payable (5,861,000) (7,128,000)
Proceeds from line of credit 2,000,000
Proceeds paid to minority shareholders (859,000) -
------------ -----------
Net cash (used in) provided by financing activities (7,511,000) 46,376,000
------------ -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (4,283,000) 15,888,000
Cash and cash equivalents at beginning of period 17,702,000 8,173,000
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,419,000 $24,061,000
============ ===========
See notes to interim consolidated financial statements
6
7
LASER VISION CENTERS, INC. AND SUBSIDIARIES Nine Month Period
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) Ended January 31,
- ------------------------------------------------
2001 2000
Non-cash investing and financing:
---------------------------------
Capital lease obligations and notes payable related
to laser and equipment purchases $4,195,000 $6,995,000
Conversion of preferred stock and
deemed preferred dividends to
common stock 1,710,000
Deemed preferred dividends 159,000 155,000
Accrued and deferred stock offering costs 412,000
Stock issued for contract rights 250,000
See notes to interim consolidated financial statements
7
8
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------
Common Stock Accumulated
$.01 Par Value Other Warrants Total
Paid-in Comprehensive Treasury and Accumulated Shareholders'
Shares Amount Capital Income Stock Options Deficit Equity
Balance-
April 30, 2000 25,330,991 $253,000 $108,044,000 (169,000) (7,514,000) $915,000 ($11,910,000) $89,619,000
Warrants and options issued 199,000 199,000
Exercise of warrants and
options and shares transferred
for employee benefit plans (5,000) 514,000 (306,000) 203,000
Stock issued for acquisition 94,863 1,000 162,000 163,000
Treasury stock purchased (2,994,000) (2,994,000)
Conversion of preferred stock 9,194,000 (7,484,000) 1,710,000
Dividends accrued
on convertible
preferred stock (159,000) (159,000)
Comprehensive income
Net income for the
nine month period
ended January 31, 2001 551,000
Reverse unrealized holding
loss on investment 169,000
Total comprehensive income 720,000
---------- -------- ------------ -------- ---------- ---------- ------------- -----------
Balance -
January 31, 2001 25,425,854 $254,000 $108,042,000 $ - $(800,000) $1,114,000 $(19,149,000) $89,461,000
========== ======== ============ ======== ========== ========== ============= ===========
See notes to interim consolidated financial statements
8
9
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2001
(Unaudited)
Item 1.
1. The information contained in the interim consolidated financial
statements and footnotes is condensed from that which would appear in
the annual consolidated financial statements. Accordingly, the interim
consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and related notes
thereto contained in the April 30, 2000 Annual Report on Form 10-K filed
by Laser Vision Centers, Inc. ("Laser Vision") with the Securities and
Exchange Commission. The unaudited interim consolidated financial
statements as of January 31, 2001, and for the three and nine month
periods ended January 31, 2001 and January 31, 2000, include all normal
recurring adjustments which management considers necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results which may be expected for the
entire fiscal year. The interim consolidated financial statements
include the accounts and transactions of the Company and its
subsidiaries. All significant intercompany transactions and accounts
have been eliminated.
2. The net income per share was computed as described below using the
"Weighted average number of common shares outstanding - basic" during
each period.
"Weighted average number of common shares outstanding - diluted" for the
three and nine month periods ended January 31, 2001 include the dilutive
effects, if any, of warrants and options using the treasury stock
method. The Series B Convertible Preferred Stock was antidilutive for
the three and nine month periods ended January 31, 2001. "Weighted
average number of common shares outstanding - diluted" for the three and
nine month periods ended January 31, 2000 include the dilutive effects
of warrants and options using the treasury stock method and the Series B
Convertible Preferred Stock. For the three and nine month periods ended
January 31, 2001, dilutive warrants and options were calculated using an
average market price of $2.05 and $4.05, respectively, per common share.
Diluted per share calculations follow:
Three Month Period Nine Month Period
Ended January 31, Ended January 31,
2001 2000 2001 2000
Net income (loss) $(1,053,000) $1,537,000 $551,000 $9,605,000
Deemed preferred dividends (50,000) (52,000) (159,000) (155,000)
-------- -------- --------- ---------
Net income (loss) applicable to
common stockholders $(1,103,000) $1,485,000 $392,000 $9,450,000
9
10
Weighted average number of
common shares outstanding-basic 23,484,000 25,239,000 23,870,000 24,844,000
Dilutive securities
Warrants and options - 2,150,000 179,000 2,888,000
Preferred stock - 908,000 - 898,000
---------------- ---------- -------------- ------------
Weighted average number of
common shares outstanding-diluted 23,484,000 28,297,000 24,049,000 28,630,000
Net income (loss) per share - diluted ($0.05) $0.05 $0.02 $0.34
3. Effective June 2000 LaserVision acquired Southeast Medical, Inc.
(Southeast Medical) of Mandeville, Louisiana for $1.5 million of cash
and future contingent consideration which is dependent upon Southeast
Medical achieving certain levels of revenue. This transaction has been
accounted for under the purchase method of accounting and was financed
with existing cash. Southeast Medical is a provider of mobile cataract
services in Louisiana and Mississippi and the results of their
operations for the eight months ended January 31, 2001 are included in
the consolidated financial statements of LaserVision. For segment
reporting purposes, its results of operations are included in the
cataract segment.
Effective December 2000 LaserVision acquired OR Providers, Inc. (ORP) of
Cleveland, Ohio for $2.9 million of cash and future contingent
consideration which is dependent upon ORP achieving certain levels of
revenue less supply costs. This transaction has been accounted for under
the purchase method of accounting and was financed with existing cash.
ORP is a provider of mobile cataract services in the Mideast and the
results of operations for the two months ended January 31, 2001 are
included in the consolidated financial statements of LaserVision. For
segment reporting purposes, its results of operations are included in
the cataract segment.
Effective January 2001 LaserVision acquired Valley Laser Eye Center
(VLEC) of Fargo, North Dakota for $2.2 million of cash. This transaction
has been accounted for under the purchase method of accounting and was
financed with existing cash. VLEC is a refractive center where the LASIK
procedure is performed and the results of their operations for the month
ended January 31, 2001 are included in the consolidated financial
statements of Laser Vision. For segment reporting purposes, its results
of operations are included in the North American Refractive segment.
Effective January 2001 LaserVision acquired Southern Ophthalmics of
South Carolina for $50,000 of cash and an assumption of approximately
$0.8 million of bank debt. This transaction has been accounted for under
the purchase method of accounting and was financed with existing cash.
Southern Ophthalmics is a provider of mobile cataract services to
locations in South Carolina and Georgia. For segment reporting purposes,
its results of operations are included in the cataract segment.
In January 2001 LaserVision acquired BSM Consulting Group for $650,000
in cash and
10
11
LaserVision stock. This transaction has been accounted for under the
purchase method of accounting and was financed with existing cash and
newly issued LaserVision stock. BSM Consulting Group designs and
develops ambulatory surgery centers (ASC's). LaserVision intends to
capitalize on relationships developed with our surgeons who are already
accessing the Company's refractive and cataract services to become a
more fully integrated ophthalmic services company. For segment reporting
purposes, its results of operations are included in the North American
Refractive segment.
The previous five acquisitions resulted in approximately $7.0 million of
goodwill that will be amortized over eight to fifteen years.
4. Short-term investments have an original maturity of more than three
months and a remaining maturity of less than one year. These investments
are stated at cost as it is the intent of Laser Vision to hold these
securities until maturity. The fair market value of short-term
investments approximates book value at January 31, 2001.
5. In October 2000 LaserVision finalized a three year, $20 million line of
credit with LaSalle Bank as administrative agent. Interest rates vary
with our choice of either the prime rate or a LIBOR (London Interbank
Borrowing Rate) based rate. The line of credit is collateralized by
accounts receivable, short-term investments, certain lasers and the
related inventory and requires LaserVision to maintain certain financial
covenants concerning EBITDA (earnings before interest, taxes,
depreciation and amortization), a fixed charge coverage ratio, a maximum
funded debt to EBITDA ratio and minimum net worth. As of January 31,
2001, LaserVision has borrowed $2,000,000 against this line of credit
and was in compliance with the financial covenants.
In December 2000, Banc of America Leasing provided $0.6 million of
equipment financing (part of a $5 million leasing line) for 48 months at
8%. The Company also received $3.6 million of equipment financing from
other leasing and lending sources including one equipment supplier.
6. The Company has been contacted by three state sales tax authorities who
are reviewing whether the services provided by LaserVision to our
surgeon customers are subject to state sales and use tax. One state has
determined that LaserVision is not liable, one state has not yet begun
its review and one state has made a preliminary determination that our
services are subject to sales and use tax and that penalties and
interest are also due. The Company has contacted state tax professionals
to assist the Company in evaluating the appropriate response to this
preliminary determination. A fourth state has advised one of our
customers that we will be reviewed. It is our belief that the Company is
providing a service to our customers which is not taxable and
accordingly we have not collected sales and use tax. Although our
contracts generally require our customers to pay any sales taxes, the
outcome of each such sales and use tax review is not known.
7. In September 2000 LaserVision entered into a five year agreement with
Minnesota Eye Consultants (MEC) to provide laser access. LaserVision
paid $6.2 million to acquire five lasers and the exclusive right to
provide laser access to MEC. LaserVision also assumed leases on
11
12
three of the five lasers acquired. The transaction resulted in a $5.0
million intangible asset recorded as deferred contract rights which will
be amortized over the life of the agreement. The president of MEC, Dr.
Richard Lindstrom, serves on LaserVision's Board of Directors and
Medical Advisory Board.
8. In January 2001, 2,250 shares of convertible preferred stock plus the
related deemed dividends were exchanged for 1,829,463 shares of common
stock that LaserVision provided from treasury stock. In February 2001,
the remaining 1,000 shares of convertible preferred stock plus the
related deemed dividends were exchanged for 559,374 new shares of common
stock.
9. On January 12, 2001 LaserVision reached a settlement with the Center for
Devices and Radiological Health of the U.S. FDA of the administrative
complaint filed in April 2000 which was previously reported by the
Company. The complaint against the Company and four of its executives
related to the prior use of so-called "international cards" software
that enabled its excimer lasers to be used to perform laser eye
surgeries for higher myopia cases (greater than -6.0 diopters) than what
was initially approved by the FDA. The FDA ultimately approved the use
of an excimer laser for higher myopia cases in January 1998.
Many ophthalmologists have taken the position that FDA restrictions on
physicians' use of laser equipment through software control--rather than
the traditional means of labeling--deny physicians the flexibility to
treat individual patients as the physician deems medically necessary,
and represent an unwarranted intrusion upon physicians' rights to
practice medicine according to their best medical judgment.
Under the terms of the settlement agreement, the Company and the four
executives will pay a total of $1.5 million to settle all claims in the
Complaint. The FDA had sought payment of as much as $5 million. The
settlement contained no finding of any wrongdoing on the part of the
Company or any of its executives. Approximately $2.1 million
related to the FDA settlement, including officer indemnification and
the related legal expenses, is included in selling, general and
administrative expenses for the nine months ended January 31, 2001.
There were no such costs in the prior fiscal year.
The software in question was used in late 1996, 1997 and early 1998. The
Company has received no reports of injury to any patient whose surgery
used the expanded software. The Company only provided the software at
the request of the attending surgeons, who determined it was appropriate
in consultation with their patients.
Shortly after seeking information from the Company, the FDA allowed
laser manufacturers to issue software which allowed surgeons to override
previous lock-outs for unapproved limits, thus eliminating the need for
the practice in question. All of the indications in question have long
since been approved and are in widespread use.
12
13
10. The table below presents information about net income and segment assets
used by the chief operating decision maker of LaserVision as of and for
the periods ended January 31, 2001 and 2000:
North American Other
Refractive Refractive Cataract Reconciling TOTAL
THREE MONTHS ENDED JANUARY 31, 2001
- -----------------------------------
REVENUE $20,787,000 $643,000 $3,893,000 $ - $25,323,000
Interest and other income 467,000 467,000
Interest and other expense (256,000) (256,000)
Income before taxes 1,721,000 22,000 118,000 (2,947,000) (1,086,000)
Income tax benefit 33,000 33,000
NET INCOME (LOSS) 1,721,000 22,000 118,000 (2,914,000) (1,053,000)
Three months ended January 31, 2000
- -----------------------------------
Revenue 19,061,000 810,000 2,639,000 - 22,510,000
Interest and other income 805,000 805,000
Interest and other expense (308,000) (308,000)
Income before taxes 1,166,000 45,000 295,000 (464,000) 1,042,000
Income tax benefit 495,000 495,000
Net income 1,166,000 45,000 295,000 31,000 1,537,000
NINE MONTHS ENDED JANUARY 31, 2001
- -----------------------------------
REVENUE 56,174,000 2,312,000 10,731,000 - 69,217,000
Interest and other income 1,861,000 1,861,000
Interest and other expense (814,000) (814,000)
Income (loss) before taxes 3,488,000 233,000 890,000 (3,115,000) 1,496,000
Income tax expense (945,000) (945,000)
NET INCOME 3,488,000 233,000 890,000 (4,060,000) 551,000
Nine months ended January 31, 2000
- -----------------------------------
Revenue 53,589,000 2,256,000 8,498,000 - 64,343,000
Interest and other income 2,343,000 2,343,000
Interest and other expense (864,000) (864,000)
Income before taxes 7,909,000 134,000 1,271,000 (1,541,000) 7,773,000
Income tax benefit 1,832,000 1,832,000
Net income $7,909,000 $134,000 $ 1,271,000 $291,000 $9,605,000
13
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
(A) LIQUIDITY AND CAPITAL RESOURCES
Except for historical information, statements relating to Laser Vision's
plan, objectives and future performance are forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations. Because of various
risks and uncertainties, actual strategies and results in future periods may
differ materially from those currently expected.
The discussion set forth below analyzes certain factors and trends
related to the financial results for the three and nine month periods ended
January 31, 2001 and 2000. This discussion should be read in conjunction with
the related consolidated financial statements and notes to the consolidated
financial statements.
ITEM 2.
(A) LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended January 31, 2001, cash and cash equivalents
decreased 24% or $4.3 million to $13.4 million at January 31, 2001 from $17.7
million at April 30, 2000. Short-term investments maturing in less than one year
decreased $21.7 million to $9.7 million at January 31, 2001 from $31.4 million
at April 30, 2000. The ratio of current assets to current liabilities at January
31, 2001 was 2.19 to one, compared to 2.83 to one at April 30, 2000.
Cash Flows from Operating Activities
Net cash provided by operating activities decreased by $2.1 million to $9.9
million for the nine months ended January 31, 2001 from $12.0 million for the
nine months ended January 31, 2000. The cash flows provided by operating
activities during the nine months ended January 31, 2001 primarily represent the
net income in this period plus depreciation and amortization, the decrease in
deferred income taxes, the minority interest in the income of subsidiaries, and
the increase in accounts payable less the decrease in accrued liabilities, the
increase in prepaid expenses and other current assets, the increase in accounts
receivable and the increase in inventory. The cash flows provided by operating
activities during the nine months ended January 31, 2000 primarily represent the
net income in this period plus depreciation and amortization, less increases in
accounts receivable, inventory, and deferred taxes and decreases in current
liabilities. The significant decrease in accrued liabilities during the nine
months ended January 31, 2001 was due to paying the contingent consideration to
the former owners of Midwest Surgical Services, Inc.
Cash Flows from Investing Activities
Net cash used for investing activities decreased by $35.8 million to $6.6
million for the nine months ended January 31, 2001 from $42.4 million for the
nine months ended January 31, 2000. Cash used for
14
15
investing during the nine months ended January 31, 2001 was used to acquire
Southeast Medical, OR Providers, Valley Laser Eye Center, enter a long-term
agreement with Minnesota Eye Consultants, and enter into partnership agreements
and to acquire equipment partially offset by the net proceeds from the sale of
short-term and common equity investments. Cash used for investing during the
nine months ended January 31, 2000 was used to acquire short-term investments
and acquire equipment partially offset by the sale of minority interests.
Cash Flows from Financing Activities
During the nine months ended January 31, 2001, $7.5 million cash was used in
financing activities. During the nine months ended January 31, 2000, $46.4
million cash was provided by financing activities. Cash used in financing
activities during the nine months ended January 31, 2001 was primarily used to
purchase 1,157,443 shares of treasury stock, make principal payments under
capitalized lease obligations and notes payable and to pay proceeds to minority
shareholders. Cash provided by financing during the nine months ended January
31, 2000 was primarily provided by the underwritten public stock offering, the
exercise of stock options and warrants and the return of restricted cash and was
partially offset by principal payments under capitalized lease obligations and
notes payable.
In October 2000 LaserVision finalized a three year, $20 million line of credit
with LaSalle Bank as administrative agent. Interest rates vary with our choice
of either the prime rate or LIBOR (London Interbank Borrowing Rate). The line of
credit is collateralized by accounts receivable, short-term investments, certain
lasers and the related inventory and requires LaserVision to maintain certain
financial covenants concerning EBITDA (earnings before interest, taxes,
depreciation and amortization), a fixed charge coverage ratio, a maximum funded
debt to EBITDA ratio and minimum net worth. As of January 31, 2001, LaserVision
has borrowed $2,000,000 against this line of credit and was in compliance with
financial covenants.
In December 2000, Banc of America Leasing provided $0.6 million of equipment
financing (part of a $5 million leasing line) for 48 months at 8%. The Company
also received $3.6 million of equipment financing from other leasing and lending
sources including one equipment supplier.
Income Taxes
During the fourth quarter of fiscal 1999 LaserVision began recognizing deferred
tax assets related to net operating loss (NOL) carryforwards. Based on expected
future operating plans, at January 31, 2001, management has determined that the
net deferred tax assets generated by operations will more likely than not be
utilized to offset future taxes. For tax purposes, the tax benefit related to
certain equity transactions that did not impact operating results, such as those
arising from the exercise of non-qualified stock options and warrants, will be
credited to shareholders' equity and serve to reduce the future taxes paid by
LaserVision. In the future, LaserVision anticipates income tax expense to be
approximately 38% of income before taxes. With the impact of the equity related
tax loss carryforwards, LaserVision expects its cash income tax expense to be
about 6%.
15
16
Overview
LaserVision expects to continue to fund future operations from revenues received
from providing laser access and market services, existing cash and cash
equivalents and short-term investments, the possible exercise of stock options
and warrants, the line of credit and future financing as required. LaserVision
has established a $20 million bank line of credit for acquisitions and general
corporate purposes and has established a $5 million leasing line with another
bank for laser equipment purchases. LaserVision can also obtain financing from
vendors. There can be no assurance that capital will be available when needed
or, if available, that the terms for obtaining such funds will be favorable to
LaserVision.
(B) RESULTS OF OPERATIONS
The following table breaks out revenue by source and includes certain
operating results as a percentage of revenue.
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
2001 2000 2001 2000
REVENUE
North American refractive $20,787,000 $19,061,000 $56,174,000 $53,589,000
Other refractive 643,000 810,000 2,312,000 2,256,000
Cataract 3,893,000 2,639,000 10,731,000 8,498,000
--------- ------------- ---------- ---------
TOTAL REVENUE 25,323,000 22,510,000 69,217,000 64,343,000
Gross profit 8,338,000 7,190,000 21,433,000 21,135,000
% of total revenue 33% 32% 31% 33%
Income (loss) from operations (1,203,000) 561,000 428,000 6,491,000
% of total revenue NM 2% 1% 10%
Net income (loss) before taxes (1,086,000) 1,042,000 1,496,000 7,773,000
% of total revenue NM 5% 2% 12%
The fiscal 2000 revenues and cost of revenues include an additional $150 per
case for royalties paid to laser manufacturers. We continue to negotiate with
multiple suppliers for discounts, incentives and favorable financing terms.
QUARTER ENDED JANUARY 31, 2000 COMPARED TO QUARTER ENDED JANUARY 31, 2001
LaserVision has continued to provide excimer laser access to additional sites
throughout the U.S. We are focused on establishing long-term relationships with
our customers and providing value-added services through our partnership and
market development models. These models require a larger investment on our part
in marketing and personnel in exchange for a larger portion of the global fee.
These models are less profitable initially, but we believe they have the
potential to provide greater profitability and stability during the course of
the agreements.
16
17
Revenues
Total revenue increased by 12%, or $2.8 million, to $25.3 million for the three
months ended January 31, 2001 from $22.5 million for the three months ended
January 31, 2000. Total refractive procedures increased by 35% to 37,031 for the
three months ended January 31, 2001 from 27,514 for the three months ended
January 31, 2000. The increase in revenue is not as great as the increase in
procedures primarily due to the 60% decrease in the royalty fees paid to laser
manufacturers that has decreased the fee we charge to our surgeon customers. In
addition, global pricing to the patient has declined due to competition and,
accordingly, our fees to our surgeon customers, particularly for higher volume
accounts, have also declined.
The increase in revenue is attributable to a $1.7 million increase in North
American refractive revenue, a $1.3 million increase in cataract revenue and a
$0.2 decrease in other refractive revenue. The increase in North American
revenue was attributable to an increase both in the number of U.S. lasers in
operation and the number of procedures performed by our eye surgeon customers in
the U.S. partially offset by the decline in price due to the 60% decrease in the
royalty fee paid to laser manufacturers and lower prices for high volume
accounts. The increase in cataract revenue is due to the acquisition of
Southeast Medical in June 2000, the acquisition of ORP in December 2000, the
acquisition of Southern Ophthalmics in January 2001 and an increase in procedure
volume.
Cost of Revenues/Gross Profit
Cost of revenues increased by 11%, or $1.7 million, to $17.0 million for the
three months ended January 31, 2001 from $15.3 million for the three months
ended Janaury 31, 2000. This was primarily due to an increase of $1.5 million in
depreciation and amortization, an increase of $0.7 million in mobile laser
engineer salaries, an increase of $0.8 million in maintenance, gases and medical
supplies, an increase of $0.8 million in professional medical services, and an
increase of $0.8 million of costs related to the cataract business offset by a
$3.0 million decrease in royalty fees paid to laser manufacturers. The increases
in salaries, professional medical services, maintenance, gases and medical
supplies and depreciation and amortization are primarily due to increased lasers
and refractive procedure volume.
Total gross profit increased by 16%, or $1.1 million, to $8.3 million for the
three months ended January 31, 2001 from $7.2 million for the three months ended
January 31, 2000. The variable gross profit, excluding depreciation, increased
by 27%, or $2.6 million, to $12.3 million for the three months ended January 31,
2001 from $9.7 million for the three months ended January 31, 2000. As a
percentage of total revenue, total gross profit increased to 33% from 32% for
the three months ended January 31, 2001 and 2000, respectively.
Operating Expenses
Selling, general and administrative expenses increased by 127%, or $5.3 million,
to $9.5 million for the three months ended January 31, 2001 from $4.2 million
for the three months ended January 31, 2000. This was attributed to increases in
selling and marketing expenses of $1.5 million, increases in salaries and
related expenses of $1.9 million, increases in general and administrative
expenses of $1.8 million and increases in depreciation of $0.1 million. The $1.5
million increase in selling and marketing
17
18
expenses and a portion of the $1.9 million increase in salaries and related
expenses is a result of our change in focus to partnerships and market
development sites where we provide substantially all marketing services and
employ refractive coordinators in the practice in exchange for a larger
percentage of the global patient fee. Included in the $5.3 million increase in
selling, general and administrative expenses is $1.95 million of expenses
related to the FDA settlement including officer indemnification and the related
legal expenses.
Income (Loss) from Operations
The income (loss) from operations decreased by $1.8 million to a loss from
operations of $1.2 million for the three months ended January 31, 2001 from
income from operations of $0.6 million for the three months ended January 31,
2000. This was primarily related to decreased North American refractive and
cataract profitability.
Other Income (Expenses)
Lower interest income and higher minority interests in net income partially
offset by lower interest expense caused a $364,000 decrease in other income
(expense) to a net $117,000 of income during the three months ended January 31,
2001 from a net $481,000 of income during the three months ended January 31,
2000.
Taxes
Income tax benefit decreased from $495,000 for the three months ended January
31, 2000 to $33,000 for the three months ended January 31, 2001. Approximately
half of the FDA settlement related costs will not be deductible for tax
purposes. Given the utilization of NOL carryforwards generated by operations
available to offset future taxes for financial reporting purposes, LaserVision
anticipates income tax expense or benefit remaining at approximately 38% of
income before taxes.
NINE MONTHS ENDED JANUARY 31, 2001 COMPARED TO NINE MONTHS ENDED JANUARY 31,
2000
Revenues
Total revenue increased by 8%, or $4.9 million, to $69.2 million for the nine
months ended January 31, 2001 from $64.3 million for the nine months ended
January 31, 2000. Total refractive procedures increased by 34% to 99,790 for the
nine months ended January 31, 2001 from 74,330 for the nine months ended January
31, 2000.
The increase in revenue is attributable to a $2.6 million increase in North
American refractive revenue, a $0.1 million increase in other refractive revenue
and a $2.2 million increase in cataract revenue. The increase in revenue is not
as great as the increase in procedures primarily due to the 60% decrease in the
royalty fees paid to laser manufacturers that has decreased the fee we charge to
our surgeon customers. In addition, global pricing to the patient has declined
due to competition and, accordingly, our fees to our surgeon customers,
particularly for higher volume accounts, have also declined. The increase in
cataract revenue is due to the acquisition of Southeast Medical in June 2000,
the acquisition of ORP in
18
19
December 2000, and an increase in procedure volume.
Cost of Revenues/Gross Profit
Cost of revenues increased by 11%, or $4.6 million, to $47.8 million for the
nine months ended January 31, 2001 from $43.2 million for the nine months ended
January 31, 2000. This was primarily due to an increase of $2.0 million in
mobile laser engineer salaries and travel costs, an increase of $2.1 million in
maintenance, gases and medical supplies, an increase of $2.1 million in
professional medical services, an increase of $4.1 million in depreciation and
amortization and an increase of $1.7 million of costs related to the cataract
business offset by a $7.4 million decrease in royalty fees paid to laser
manufacturers and a decrease of $0.4 million in expenses related to training
courses. The increases in salaries and travel, professional medical services,
maintenance, gases and medical supplies and depreciation and amortization are
primarily due to increased lasers and refractive procedure volume.
Total gross profit increased by 1%, or $0.3 million to $21.4 million for the
nine months ended January 31, 2001 from $21.1 million for the nine months ended
January 31, 2000. The variable gross profit, excluding depreciation, increased
by 17%, or $4.6 million, to $32.3 million for the nine months ended January 31,
2001 from $27.8 million for the nine months ended January 31, 2000. As a
percentage of total revenue, total gross profit decreased to 31% from 33% for
the nine months ended January 31, 2001 and 2000, respectively.
Operating Expenses
Selling, general and administrative expenses increased by 72%, or $8.8 million,
to $21.0 million for the nine months ended January 31, 2001 from $12.2 million
for the nine months ended January 31, 2000. The increase was attributed to
increased salaries and related expenses of $2.9 million, increased selling and
marketing expenses of $3.8 million, increased general and administrative
expenses of $1.6 million and increased depreciation of $0.4 million. The $3.8
million increase in selling and marketing expenses and a portion of the $2.9
million increase in salaries and related expenses is a result of our change in
focus to partnerships and market development sites where we provide
substantially all marketing services and employ refractive coordinators in the
practice in exchange for a larger percentage of the global patient fee. Included
in the $8.8 million increase in selling, general and administrative expenses is
$2.1 million of expenses related to the FDA settlement including officer
indemnification and the related legal expenses.
Income from Operations
The income from operations decreased by $6.1 million to $0.4 million for the
nine months ended January 31, 2001 from $6.5 million for the nine months ended
January 31, 2000. This was primarily related to decreased North American
Refractive profitability and the FDA settlement expenses.
Other Income (Expenses)
A one-time gain of $595,000 relative to the sale of an investment in common
equity securities increased other income during the nine months ended January
31, 2001. Excluding this one-time event, higher
19
20
minority interests in net income of subsidiaries and lower interest income
caused a $809,000 decrease in other income to a net $473,000 of income during
the nine months ended January 31, 2001 from a net $1.3 million of income during
the nine months ended January 31, 2000.
Taxes
Income tax (expense) benefit changed from a tax benefit of $1,832,000 for the
nine months ended January 31, 2000 to tax expense of $945,000 for the nine
months ended January 31, 2001. Approximately half of the FDA settlement related
costs will not be deductible for tax purposes. Given the utilization of NOL
carryforwards generated by operations available to offset future taxes for
financial reporting purposes, LaserVision anticipates income tax expense
remaining at approximately 38% of income before taxes.
20
21
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
a. On January 12, 2001 Laser Vision Centers, Inc. reached a
settlement with the Center for Devices and Radiological Health of the
U.S. FDA of the administrative complaint filed in April 2000 which
was previously reported by the Company. The complaint against the
Company and four of its executives related to the prior use of
so-called "international cards" software that enabled its excimer
lasers to be used to perform laser eye surgeries for higher myopia
cases (greater than -6.0 diopters) than what was initially approved
by the FDA. The FDA ultimately approved the use of an excimer laser
for higher myopia cases in January 1998.
Many ophthalmologists have taken the position that FDA
restrictions on physicians' use of laser equipment through software
control--rather than the traditional means of labeling--deny
physicians the flexibility to treat individual patients as the
physician deems medically necessary, and represent an unwarranted
intrusion upon physicians' rights to practice medicine according to
their best medical judgment.
Under the terms of the settlement agreement, the Company and
the four executives will pay a total of $1.5 million to settle all
claims in the Complaint. The FDA had sought payment of as much as $5
million. The settlement contained no finding of any wrongdoing on
the part of the Company or any of its executives.
The Company was disappointed to have been "singled out" by the
FDA on a matter that was clearly widespread and in use by nearly
every laser operator and surgeon performing refractive surgery. The
Company believes that in bringing the proceedings, FDA acted in a
manner inconsistent with its stated guidelines which provide for the
agency to issue warning letters to alert individuals that a practice
may not be in accordance with FDA's standards. Given the lack of
customary warnings, the fact that other laser operators engaged in
the same practice were not the subject of FDA enforcement and other
mitigating circumstances, the Company believes its defenses to the
proceedings had substantial merit. Despite the perceived strength of
its case, the Company determined that the time and expense of
pursuing the initial administrative civil trial, and a possible
appeal, could have been more than the cost of the settlement and
would have been a significant distraction to management. In view of
the very critical issues faced by the Company the board of directors
concluded that it was in the best interests of the Company and its
shareholders to resolve the matter by this settlement.
21
22
The software in question was used in late 1996, 1997 and early
1998. The Company has received no reports of injury to any patient
whose surgery used the expanded software. The Company only provided
the software at the request of the attending surgeons, who determined
it was appropriate in consultation with their patients.
Shortly after seeking information from the Company, the FDA
allowed laser manufacturers to issue software which allowed surgeons
to override previous lock-outs for unapproved limits, thus
eliminating the need for the practice in question. All of the
indications in question have long since been approved and are in
widespread use.
b. Other than the above, there has been no material change in the
status of any litigation from that reported in the Form 10-K for the year ended
April 30, 2000, nor has any other material litigation been initiated.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Reports on Form 8-K during the period covered by this report:
On January 12, 2001, LaserVision filed a report on Form 8-K
regarding the settlement with FDA described in Item 1. Legal Proceedings.
Exhibits - None
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASER VISION CENTERS, INC.
\s\John J. Klobnak March 16, 2001
- ------------------------------------- --------------------
John J. Klobnak Date
Chairman of the Board and Chief Executive Officer
\s\B. Charles Bono, III March 16, 2001
- ------------------------------------- ---------------------
B. Charles Bono Date
Chief Financial Officer and
Principal Accounting Officer
22