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
JULY 31, 1998
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 incorporation (I.R.S. Employer identification
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 September 8, 1998 - 9,910,829 shares.
1
2
LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED JULY 31, 1998
INDEX
PART OR ITEM PAGE
Part I. FINANCIAL STATEMENTS
Item 1. Interim Consolidated Financial Statements
Consolidated Balance Sheet - July 31, 1998 and April 30, 1998............................3-4
Consolidated Statement of Operations - Three months ended July 31, 1998 and 1997...........5
Consolidated Statement of Cash Flow - Three months ended July 31, 1998 and 1997..........6-7
Consolidated Statement of Changes in Stockholders' Equity - Three months
ended July 31, 1998...........................................................8
Notes to Interim Consolidated Financial Statements......................................9-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources........................................................10-11
Results of Operations..................................................................11-12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................................................13
Item 2. Changes in Securities.....................................................................13
Item 3. Defaults upon Senior Securities...........................................................13
Item 4. Submission of Matters to a
Vote of Security Holders..................................................................13
Item 5. Other Information.........................................................................13
Item 6. Reports on Form 8-K.......................................................................13
2
3
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
JULY 31, April 30,
1998 1998
CURRENT ASSETS
Cash and cash equivalents $ 8,985,000 $ 8,430,000
Restricted cash 499,000 471,000
Receivables, net of allowances of
$419,000 and $395,000, respectively 4,114,000 3,503,000
Inventory 1,015,000 1,185,000
Prepaid expenses and
other current assets 1,089,000 686,000
------------ ------------
Total Current Assets 15,702,000 14,275,000
EQUIPMENT
Laser equipment 16,812,000 16,485,000
Medical Equipment 785,000 713,000
Mobile equipment 3,733,000 3,498,000
Furniture and fixtures 1,450,000 1,374,000
-Accumulated depreciation (9,062,000) (7,879,000)
------------ ------------
Total Equipment, Net 13,718,000 14,191,000
OTHER ASSETS
Restricted cash 974,000 974,000
Goodwill, net 639,000 678,000
Tradename and service mark costs, net 108,000 113,000
Deferred contract rights 503,000 539,000
Rent deposits and other, net 79,000 59,000
------------ ------------
Total Other Assets 2,303,000 2,363,000
------------ ------------
Total Assets $ 31,723,000 $ 30,829,000
============ ============
See notes to interim consolidated financial statements
3
4
LASER VISION CENTERS, INC. AND SUBSIDIARIES (Unaudited)
CONSOLIDATED BALANCE SHEET JULY 31, April 30,
1998 1998
CURRENT LIABILITIES
Current portion of notes payable $ 2,500,000 $ 2,365,000
Current portion of capitalized
lease obligation 691,000 672,000
Accounts payable 2,903,000 2,667,000
Accrued compensation 586,000 981,000
Other accrued liabilities 2,129,000 2,036,000
------------ ------------
Total Current Liabilities 8,809,000 8,721,000
NON-CURRENT LIABILITIES
Notes payable 5,277,000 5,907,000
Capitalized lease obligations 497,000 678,000
Deferred revenue and other 16,000 30,000
------------ ------------
Total Non-Current Liabilities 5,790,000 6,615,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - 6,000 shares
issued at $1,000 par value, Series B,
3,250 shares outstanding, includes
preferred dividends 3,430,000 3,390,000
Common stock, par value of $.01 per
share, 50,000,000 shares authorized;
9,910,829 and 9,687,323 shares issued
and outstanding, respectively 99,000 97,000
Warrants and options 1,266,000 1,378,000
Paid-in capital 44,003,000 42,635,000
Accumulated deficit (31,674,000) (32,007,000)
----------- -----------
Total Stockholders' Equity 17,124,000 15,493,000
----------- -----------
Total Liabilities and Stockholders' Equity $ 31,723,000 $ 30,829,000
============ ============
See notes to interim consolidated financial statements
4
5
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Month Period
Ended July 31,
1998 1997
REVENUES $ 9,110,000 $ 4,098,000
Cost of revenues, depreciation 1,133,000 1,046,000
Cost of revenues, other 5,111,000 2,271,000
----------- -----------
GROSS PROFIT 2,866,000 781,000
Selling, general and administrative expenses 2,366,000 2,131,000
----------- -----------
INCOME (LOSS) FROM OPERATIONS 500,000 (1,350,000)
Other income (expenses)
Interest and other income 101,000 55,000
Interest and other expense (268,000) (242,000)
----------- -----------
NET INCOME (LOSS) 333,000 (1,537,000)
Preferred Dividends (40,000) (33,000)
----------- -----------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $ 293,000 ($1,570,000)
=========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ 0.03 ($ 0.18)
=========== ===========
Weighted average number of
common shares outstanding-basic 9,741,000 8,821,000
=========== ===========
Weighted average number of
common shares outstanding-diluted 10,850,000 8,821,000
=========== ===========
See notes to interim consolidated financial statements
5
6
LASER VISION CENTERS, INC. AND SUBSIDIARIES Three Month Period
CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited) Ended July 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 333,000 ($1,537,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,231,000 1,162,000
Compensation paid in common stock,
options or warrants 86,000 11,000
Increase in accounts receivables (611,000) (733,000)
(Increase) decrease in inventory 170,000 (385,000)
(Increase) decrease in prepaid expenses
and other current assets (403,000) 48,000
Increase in accounts payable 236,000 404,000
Increase (decrease) in accrued liabilities (316,000) 148,000
----------- -----------
Net cash provided by (used in) operating activities 726,000 (882,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (710,000) (843,000)
Other, net (23,000) (1,000)
----------- -----------
Net cash used in investing activities (733,000) (844,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from private offering, preferred 6,000,000
Private placement offering costs, preferred (517,000)
Proceeds from exercise of stock options and warrants 1,247,000 76,000
Principal payments under capitalized
lease obligations and notes payable (657,000) (360,000)
Deposits to restricted cash (28,000) (80,000)
----------- -----------
Net cash provided by financing activities 562,000 5,119,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 555,000 3,393,000
Cash and cash equivalents at beginning of period 8,430,000 3,794,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,985,000 $ 7,187,000
=========== ===========
6
7
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited) (CONTINUED)
Three Month Period
Ended July 31,
1998 1997
Non-cash investing and financing:
Adjustment of value of common stock
and stock options issued for contract rights $352,000
Accrual of preferred dividends and value
assigned to warrants $40,000 395,000
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
$.01 Par Value Warrants Total
Paid-in and Accumulated Shareholders'
Preferred Stock Shares Amount Capital Options Deficit Equity
Balance-
April 30, 1998 $3,390,000 9,687,323 $97,000 $42,635,000 1,378,000 ($32,007,000) $15,493,000
Exercise of
warrants and options 221,325 2,000 1,381,000 (136,000) 1,247,000
Dividends accrued
on convertible
preferred stock 40,000 (40,000)
Warrants and
Options issued 24,000 24,000
Shares issuable to
401(k) plan for
employees 2,181 27,000 27,000
Net income for the
three month period
ended July 31, 1998 333,000 333,000
------------ ------------ ------- ------------ ---------- ------------ -----------
Balance -
July 31, 1998 $ 3,430,000 9,910,829 $99,000 $44,003,000 $1,266,000 ($31,674,000) $17,124,000
============ ============ ======= =========== ========== ============ ============
See notes to interim consolidated financial statements
8
9
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
(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, 1998 Annual Report on Form 10-K filed by Laser Vision Centers, Inc.
(the "Company") with the Securities and Exchange Commission. The unaudited
interim consolidated financial statements as of July 31, 1998 and July 31, 1997,
and for the quarterly period then ended, 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. The July 31, 1997 three month consolidated
statement of operations includes certain reclassifications to conform with
classifications for the three month period ended July 31, 1998.
The net income (loss) per share was computed using the weighted average number
of common shares outstanding during each period. Weighted average number of
common shares outstanding - diluted for the quarter ended July 31, 1998 include
the dilutive effects of warrants and options using the treasury stock method.
Common stock equivalents were excluded from the calculation for the quarter
ended July 31, 1997 due to their anti-dilutive effect. The income (loss) per
common share for the three months ended July 31, 1998 and 1997 reflects
$40,000 and $33,000 of accrued dividends, respectively, on the Series B
Convertible Preferred Stock.
2. On September 1, 1998, the Company acquired all of the outstanding stock
of Refractive Surgical Resources, Inc. (RSR) for $1.0 million in cash and $2.3
million in notes payable/future payments (of which $1.1 million is due within
one year). Richard L. Lindstom, M.D., one of the Company's outside directors
held a minority ownership position of less than 7% in RSR. RSR provides
microkeratome access and the related disposable blades used by ophthalmologists
during the LASIK procedure. This acquisition complements the Company's existing
refractive surgery business and will be integrated with the Company's existing
field operations. The acquisition will be accounted for as a purchase and about
95% of the purchase cost will be recorded as goodwill and amortized over 15
years. For the fiscal year ended April 30, 1998, RSR revenues were $1.7 million
and assets, which consisted primarily of microkeratome equipment and current
assets, were over $1.3 million.
3. The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems.
9
10
The Company's accounting and management reporting system is Year 2000 compliant.
The laser manufacturer of the Company's lasers has advised the Company that the
lasers will operate in the year 2000 and that the manufacturer is working to
ensure that all documentation from the lasers' computers will be reported
properly in the year 2000. At this stage in the assessment process, the Company
does not believe that the Year 2000 issue will (1) pose significant operational
problems for its business or products or (2) have a material adverse impact in
the Company's financial position, results of operations or cash flows in future
periods. There can be no assurance that operating problems or expenses related
to the Year 2000 issue will not arise with the Company's computer systems and
software or that the Company's customers or suppliers will be able to resolve
their Year 2000 issues in a timely manner. Accordingly, the Company plans to
devote the necessary resources to resolve all significant Year 2000 issues in a
timely manner.
4. No net tax provision was recognized for the period as it is anticipated
that any taxable income of the Company for the fiscal year will be offset by the
utilization of net operating loss carryforwards. The Company has recorded a
deferred tax asset, related primarily to net operating loss carryforwards, of
approximately $10 million with an offsetting valuation allowance at July 31,
1998. For purposes of recording deferred tax assets, no future taxable income is
assumed given the results of operations of the Company to date. The amount of
the valuation allowance could be reduced in the near term if estimates of future
taxable income are increased.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
(A) LIQUIDITY AND CAPITAL RESOURCES
Since the completion of its initial public offering in April 1991, the Company's
primary sources of liquidity have consisted of financing from the sale of Common
Stock and Convertible Preferred Stock, revenues from laser access services and
marketing provided to ophthalmologists, equipment loans and equipment leases. At
July 31, 1998, the Company had $8,985,000 of cash and cash equivalents compared
with $8,430,000 at April 30, 1998. At July 31, 1998, the Company had working
capital of $6,893,000 compared with working capital of $5,554,000 at April 30,
1998. The ratio of current assets to current liabilities at July 31, 1998 was
1.78 to one, compared to 1.64 to one at April 30, 1998.
Cash Flows from Operating Activities
Net cash provided by operating activities was $726,000 for the quarter ended
July 31, 1998. Net cash used in operating activities was $882,000 for the
quarter ended July 31, 1997. The cash flows provided by operating activities
during the quarter ended July 31, 1998 primarily represent the net income in
this period plus depreciation and amortization, less increases in accounts
10
11
receivable and prepaid expenses and other current assets and a net decrease in
current liabilities. The cash flows used in operating activities during the
quarter ended July 31, 1997 primarily represent the net loss incurred in this
period less depreciation and amortization, plus increases in accounts receivable
and inventory partially offset by net increases in current liabilities.
Cash Flows from Investing Activities
Net cash used for investing activities was $733,000 and $844,000 during the
quarters ended July 31, 1998 and 1997, respectively. Cash used for investing
during the quarter ended July 31, 1998 and 1997 was primarily used to acquire
equipment for the expanding U.S. market.
Cash Flows from Financing Activities
Net cash provided by financing activities was $562,000 and $5,119,000 during the
quarters ended July 31, 1998 and 1997, respectively. Cash provided by financing
during the quarter ended July 31, 1998 was primarily provided by proceeds from
exercise of stock options and warrants offset by principal payments under
capitalized lease obligations and notes payable. Cash provided by financing
during the quarter ended July 31, 1997 was primarily provided by a private
placement of convertible preferred stock partially offset by expenses related to
the private offering and principal payments under capitalized lease obligations
and notes payable.
The Company expects to continue to fund future operations from existing cash and
cash equivalents, revenues received from providing laser access and marketing
services, the exercise of stock options and warrants and future financing as
required. 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
the Company.
(B) RESULTS OF OPERATIONS
QUARTER ENDED JULY 31, 1998 COMPARED TO QUARTER ENDED JULY 31, 1997
The Company has continued to develop the U.S. market by targeting
ophthalmologists in medium-sized markets. These ophthalmic practices are
primarily served with two types of mobile excimer delivery systems. The Company
also provides fixed excimer lasers in certain large and medium sized markets.
Revenues
Total revenues of $9,110,000 for the quarter ended July 31, 1998 increased by
$5,012,000 from $4,098,000 for the quarter ended July 31, 1997, or an increase
of 122%.
The increase is attributable to higher revenues from U.S. operations of
$5,189,000, partially offset by a $177,000 decrease in European and Canadian
revenues. The increase in domestic
11
12
revenues is attributable to the increased number of procedures performed on each
laser in the U.S. and new lasers. The decrease in European and Canadian revenues
is attributable to closing certain unprofitable fixed sites and converting most
of them to mobile sites.
Cost of Revenues/Gross Profit (Loss)
Cost of revenues increased to $6,244,000 for the quarter ended July 31, 1998
from $3,317,000 for the quarter ended July 31, 1997. Depreciation in cost of
revenue increased to $1,133,000 from $1,046,000 in these respective periods due
to the increased number of U.S. lasers and mobile equipment partially offset by
decreased amortization of a management services contract which has been
terminated.
Excluding laser and medical equipment depreciation, all other costs of revenues
increased by $2,840,000 primarily due to an increase of $1,612,000 in domestic
per procedure royalties, an increase of $456,000 in professional medical
services, an increase of $400,000 in mobile laser operator salaries, and an
increase of $170,000 in travel costs, and an increase of $92,000 in laser
maintenance.
Total gross profit improved from $781,000 for the quarter ended July 31, 1997 to
$2,866,000 for the quarter ended July 31, 1998. The variable gross profit,
excluding depreciation, increased to $3,999,000 from $1,827,000, primarily due
to increased procedures in the U.S.
Operating Expenses
Selling, general and administrative expenses increased to $2,366,000 from
$2,131,000 for the quarters ended July 31, 1998 and 1997, respectively. The
increase is primarily attributable to a net increase of $417,000 in salaries and
related expenses partially offset by a decrease of $161,000 in selling and
marketing expenses. Variable compensation earned by mobile laser technicians and
certain insurance costs are now reported in cost of revenues. During fiscal
1998, these costs were recorded as operating expenses.
Other Income (Expenses)
Higher interest income caused the decrease in other income (expenses) to a net
$167,000 in other expenses during the quarter ended July 31, 1998 from a net
$187,000 in other expenses during the quarter ended July 31, 1997.
12
13
PART II-OTHER INFORMATION
Item 1.Legal Proceedings
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, 1998, 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:
None
Exhibits - None
13
14
Signature
---------
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 September 10, 1998
- ------------------------------ ------------------
John J. Klobnak Date
Chairman of the Board and Chief Executive Officer
\s\B. Charles Bono III September 10, 1998
- ------------------------------ ------------------
B. Charles Bono Date
Chief Financial Officer
14