1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
X-QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JANUARY 31, 1999
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 February 24, 1998 - 10,597,134 shares
Reason for Amendment
The Company has restated its financial statements as of January 31, 1999 and
April 30, 1998 and for the nine month period ended January 31, 1998 to account
for the beneficial conversion feature and the mandatory redemption features of
the Series B Convertible Preferred Stock. See Note 2 to the Financial
Statements.
2
LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED JANUARY 31, 1999
INDEX
PART OR ITEM PAGE
Part I. FINANCIAL STATEMENTS
Item 1. Interim Consolidated Financial Statements
Consolidated Balance Sheet - January 31, 1999 and April 30, 1998.............................3-4
Consolidated Statement of Operations - Three months and nine months
ended January 31, 1999 and 1998.................................................................5
Consolidated Statement of Cash Flow - Nine months
ended January 31, 1999 and 1998...............................................................6-7
Consolidated Statement of Changes in Stockholders' Equity - Nine months
ended January 31, 1999..........................................................................8
Notes to Interim Consolidated Financial Statements...........................................9-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources.............................................................11-12
Results of Operations.......................................................................13-16
Year 2000 Compliance...........................................................................17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................18
Item 2. Changes in Securities..........................................................................18
Item 3. Defaults upon Senior Securities................................................................18
Item 4. Submission of Matters to a
Vote of Security Holders.......................................................................18
Item 5. Other Information..............................................................................18
Item 6. Reports on Form 8-K............................................................................18
EXHIBITS
27 FINANCIAL DATA SCHEDULE
3
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JANUARY 31, April 30,
1999 1998
CURRENT ASSETS
Cash and cash equivalents $8,272,000 $8,430,000
Restricted cash 545,000 471,000
Accounts receivable, net 8,186,000 3,503,000
Inventory 2,142,000 1,185,000
Prepaid expenses and
other current assets 1,849,000 686,000
Deferred tax asset 944,000 -
----------- -----------
Total Current Assets 21,938,000 14,275,000
EQUIPMENT
Laser equipment 20,360,000 16,485,000
Medical equipment 2,530,000 713,000
Mobile equipment 6,978,000 3,498,000
Furniture and fixtures 1,664,000 1,374,000
-Accumulated depreciation (11,710,000) (7,879,000)
----------- -----------
Total Equipment, Net 19,822,000 14,191,000
OTHER ASSETS
Goodwill, net 6,548,000 678,000
Restricted cash 804,000 974,000
Future services obtained for issuance
of warrants and options 510,000 539,000
Tradename and service mark costs, net 98,000 113,000
Rent deposits and other, net 175,000 59,000
----------- -----------
Total Other Assets 8,135,000 2,363,000
----------- -----------
Total Assets $49,895,000 $30,829,000
=========== ===========
See notes to interim consolidated financial statements
3
4
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JANUARY 31, April 30,
1999 1998
CURRENT LIABILITIES (Restated - Note 2)
Current portion of notes payable $5,373,000 $2,365,000
Current portion of capitalized
lease obligations 1,443,000 672,000
Line of credit 268,000
Accounts payable 5,770,000 2,667,000
Accrued compensation 1,397,000 981,000
Other accrued liabilities 1,909,000 2,036,000
------------ -----------
Total Current Liabilities 16,160,000 8,721,000
NON-CURRENT LIABILITIES
Notes payable 6,278,000 5,907,000
Capitalized lease obligations 2,303,000 678,000
Other - 30,000
------------ -----------
Total Non-Current Liabilities 8,581,000 6,615,000
MINORITY INTEREST 282,000
COMMITMENTS AND CONTINGENCIES
SERIES B CONVERTIBLE PREFERRED STOCK WITH MANDATORY
REDEMPTION PROVISIONS (Restated - Note 2) 2,037,000 1,915,000
STOCKHOLDERS' EQUITY
Common stock, par value of $.01 per
share, 50,000,000 shares authorized;
10,568,694 and 9,687,323 shares issued
and outstanding, respectively 106,000 97,000
Warrants and options (Restated - Note 2) 1,270,000 1,261,000
Paid-in capital (Restated - Note 2) 49,914,000 44,227,000
Accumulated deficit (28,455,000) (32,007,000)
------------ -----------
Total Stockholders' Equity 22,835,000 13,578,000
------------ -----------
Total Liabilities and Equity $49,895,000 $30,829,000
============ ===========
See notes to interim consolidated financial statements
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Nine Months
Ended January 31, Ended January 31,
1999 1998 1999 1998
(Restated -- Note 2)
REVENUE $ 14,062,000 $ 6,345,000 $ 33,574,000 $ 15,666,000
COST OF REVENUE
Royalty fees and professional
medical services 4,510,000 2,152,000 11,416,000 5,389,000
Depreciation and amortization 1,532,000 1,102,000 3,885,000 3,224,000
Other costs 3,313,000 1,214,000 7,045,000 3,119,000
------------ ------------ ------------ ------------
GROSS PROFIT 4,707,000 1,877,000 11,228,000 3,934,000
------------ ------------ ------------ ------------
Selling, general and
administrative expense 3,049,000 2,638,000 7,927,000 7,078,000
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 1,658,000 (761,000) 3,301,000 (3,144,000)
Other income (expense)
Interest and other income 140,000 113,000 306,000 257,000
Interest and other expense (316,000) (265,000) (835,000) (736,000)
Minority interest in net income
of subsidiary (22,000) -- (22,000) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE TAXES 1,460,000 (913,000) 2,750,000 (3,623,000)
Income tax benefit 802,000 -- 802,000 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) 2,262,000 (913,000) 3,552,000 (3,623,000)
Deemed preferred dividends (Restated -- Note 2) (41,000) (56,000) (122,000) (1,887,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS (Restated --
Note 2) $ 2,221,000 ($ 969,000) $ 3,430,000 ($ 5,510,000)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - BASIC
(Restated -- Note 2) $ 0.22 ($ 0.10) $ 0.34 ($ 0.61)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - DILUTED
(Restated -- Note 2) $ 0.18 ($ 0.10) $ 0.31 ($ 0.61)
============ ============ ============ ============
Weighted average number of
common shares outstanding - basic 10,294,000 9,301,000 9,987,000 9,055,000
============ ============ ============ ============
Weighted average number of
common shares outstanding - diluted 12,313,000 9,301,000 11,574,000 9,055,000
============ ============ ============ ============
See notes to interim consolidated financial statements
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LASER VISION CENTERS, INC. AND SUBSIDIARIES Nine Months
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) Ended January 31,
1999 1998
CASH FLOWS - OPERATING ACTIVITIES
Net income (loss) $ 3,552,000 ($3,623,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,335,000 3,600,000
Deferred income taxes (944,000)
Compensation paid in common stock,
options or warrants 311,000 249,000
Minority interest in net income of subsidiary 22,000
Changes in assets and liabilities, net of effect
of RSR and MSS acquisitions
Increase in accounts receivable (3,343,000) (1,650,000)
Increase in inventory (265,000) (434,000)
Increase in prepaid expenses
and other current assets (710,000) (235,000)
Increase in accounts payable 2,465,000 570,000
Increase (decrease) in accrued liabilities (1,089,000) 494,000
----------- -----------
Net cash provided by (used in) operating activities 4,334,000 (1,029,000)
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of equipment (3,905,000) (2,960,000)
Acquisition of RSR and MSS, net of cash acquired (3,214,000)
Other, net (32,000) (18,000)
----------- -----------
Net cash used in investing activities (7,151,000) (2,978,000)
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 5,578,000 1,319,000
Proceeds from private offering, preferred 6,000,000
Private placement offering costs, preferred (513,000)
Return of restricted cash 96,000 126,000
Principal payments under capitalized
lease obligations, notes payable and line of credit (3,015,000) (1,379,000)
Proceeds from loan financings 1,863,000
----------- -----------
Net cash provided by financing activities 2,659,000 7,416,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (158,000) 3,409,000
Cash and cash equivalents at beginning of period 8,430,000 3,794,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,272,000 $ 7,203,000
=========== ===========
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LASER VISION CENTERS, INC. AND SUBSIDIARIES Nine Months
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) Ended January 31,
1999 1998
(Restated -- Note 2)
Non-cash investing and financing:
Conversion of preferred stock
(Restated -- Note 2) $ -- $ 849,000
Deemed preferred dividends (Restated --
Note 2) 122,000 1,887,000
Adjustment of value of common stock and
stock options issued for contract rights 96,000 218,000
Capital lease obligations and notes payable
related to laser and equipment purchases 2,466,000 925,000
Sale of assets to limited liability partnership 260,000
Notes payable issued to acquire RSR and MSS 3,141,000
On September 1, 1998, Laser Vision purchased all of the capital stock of RSR for
$468,000 of cash and $2,141,000 in notes payable. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 4,231,000
Cash paid for the capital stock (468,000)
-----------
Liabilities assumed, including acquisition notes payable $ 3,763,000
===========
On December 4, 1998, Laser Vision purchased all of the capital stock of MSS for
$2.8 million in cash and $1.0 million in notes payable. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 8,305,000
Cash paid for the capital stock (2,800,000)
-----------
Liabilities assumed, including acquisition notes payable $ 5,505,000
===========
See notes to interim consolidated financial statements
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
(Restated -- Note 2)
- -------------------------------------------
Common Stock
$.01 Par Value Warrants Total
Paid-in and Accumulated Shareholders'
Shares Amount Capital Options Deficit Equity
Balance-
April 30, 1998 9,687,323 $ 97,000 $ 44,227,000 $ 1,261,000 ($32,007,000) $ 13,578,000
(Restated -- Note 2)
Exercise of
warrants and options 874,583 9,000 5,717,000 (148,000) 5,578,000
Dividends accrued
on convertible
preferred stock (122,000) (122,000)
Warrants and
options issued 157,000 157,000
Shares issuable to
401(k) plan for
employees 6,788 92,000 92,000
Net income for the
nine month period
ended January 31, 1999 3,552,000 3,552,000
------------ ------------ ------------ ------------ ------------ ------------
Balance -
January 31, 1999
(Restated - Note 2) 10,568,694 $ 106,000 $ 49,914,000 $ 1,270,000 ($28,455,000) $ 22,835,000
============ ============ ============ ============ ============ ============
See notes to interim consolidated financial statements
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
January 31, 1999
(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.
("Laser Vision") with the Securities and Exchange Commission. The unaudited
interim consolidated financial statements as of January 31, 1999 and January 31,
1998, and for the three and nine months 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 Laser
Vision and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
2 - Effects of Restatements. In the course of a review of a Securities Act
filing, the staff of the Securities and Exchange Commission (the "Commission"),
raised an issue regarding the existence of a beneficial conversion feature
embedded in the Series B Convertible Preferred Stock ("Series B shares"), which
should be accounted for as a deemed dividend to the preferred shareholders.
After consideration, the Company concluded that a beneficial conversion feature
does exist and has quantified the amount as $3,667,000 at the issuance date. In
addition, based on review of the terms of the stock agreement, it has been
determined that the Series B shares have certain mandatory redemption features.
Although the Company believes that the likelihood of redemption occurring is
remote, the carrying value of the Series B shares is required to be presented as
temporary equity, which is outside of stockholders' equity.
The closing of the Series B Convertible Preferred Stock occurred on June 20,
1997 (the "Issuance Date") at an aggregate price of $6,000,000. The Company
issued 6,000 shares of preferred stock, having a stated value of $1,000 per
share, together with 100,000 warrants to purchase common stock at $9.39 per
share, and the right to an additional 100,000 warrants to purchase common stock
issuable on June 20, 1998, provided at least $2,000,000 of the preferred shares
remain outstanding at that date. Such additional warrants were issued in June
1998 in accordance with the terms of the agreement at an exercise price of
$17.85 per share. The Series B shares bear no dividends and are convertible at
any time. The warrants are exercisable immediately upon issuance.
The Series B shares are convertible into common stock at a conversion price,
which at the Issuance Date, is the lower of (a) 85% of the average of the daily
low sale price for the five consecutive trading days ending two days prior to
the conversion date, or $6.01 at the Issuance Date, and (b) $8.05. The number
of common shares into which the preferred stock is convertible is determined by
dividing the stated value of the preferred stock, increased on a daily basis at
a rate of 5% per annum, by the conversion price. As the Series B shares are
automatically convertible on June 20, 2002, the most beneficial conversion
ratio was determined to include the additional common shares attributable to
the 5% adjustment feature for the five-year period ending in 2002. After
adjustment for this additional benefit, the $6.01 conversion price is reduced
to $4.81, the most beneficial conversion price at the Issuance Date.
The Series B shares are subject to mandatory redemption requirements under
certain limited circumstances as defined in the preferred stock agreement. Those
circumstances include, a change in control of the Company in which more than 50%
of the voting power of the company is disposed of, the Company's failure to
maintain its common stock listing on the NASDAQ National Market or other
designated stock exchange, or the Series B shares ceasing to be convertible as a
result of the aggregate number of common shares then issuable upon conversion
equaling 19.99% of the outstanding common stock. Should the Series B shares
become redeemable, the redemption price would be the greater of (a) 118% of the
stated value of the preferred stock, increased on a daily basis since the
Issuance Date at a rate of 5% per annum, or (b) the number of shares issuable
upon conversion multiplied by the closing price of the common stock on such
conversion date.
The Company received $6,000,000 of proceeds, and paid offering costs of
$513,000, resulting in net proceeds of $5,487,000 for the preferred shares and
warrants. In the April 30, 1998 financial statements, the Company ascribed
$6,000,000, the stated value, to the preferred stock, $362,000 to paid in
capital for the warrants and charged paid-in capital $875,000, to account for
the net proceeds received. The Company accounted for the 5% adjustment feature
as a deemed dividend by charging paid-in capital, as the Company had an
accumulated deficit, and increasing the carrying value of the preferred stock.
For the three and nine-month periods ended January 31, 1999, the Company
recognized deemed dividends of $41,000 and $122,000, respectively, which were
determined based on the amount of the 5% adjustment feature realizable by the
Series B stockholder during the period.
The Company has restated its 1998 financial statements to account for the
beneficial conversion feature of the Series B shares. In determining the
accounting for the beneficial conversion feature, the Company first allocated
the net proceeds of $5,487,000 to the Series B shares and the warrants based on
their relative fair values at the Issuance Date, resulting in $5,242,000
assigned to the Series B shares and $245,000 assigned to the warrants as of
June 20, 1997. The Company then allocated $3,667,000 of the Series B shares net
proceeds to paid-in capital for the beneficial conversion feature resulting in
a reduction in the carrying value of the Series B shares to $1,575,000. The
beneficial conversion feature is being recognized as a deemed dividend to the
preferred shareholders over the minimum period in which the preferred
shareholders can realize that return. Because the Series B shares were
immediately convertible, a portion of the beneficial conversion feature is
realizable at the issuance date. Accordingly, a $1,732,000 deemed dividend as
of the Issuance Date has been recognized as a charge to paid-in capital and net
loss applicable to common stockholders, and an increase in the carrying value
of the preferred stock. As a result, the Company recognized deemed dividends of
$122,000 and $1,887,000 during the nine month periods ended January 31, 1999
and 1998, respectively. Through January 31, 1999, $2,052,000 of the beneficial
conversion feature has been recognized. The balance of the beneficial
conversion feature related to the outstanding Series B shares which is not
realizable until future periods is being recognized through June 2002 using the
interest method.
In addition, due to the mandatory redemption features noted above, the carrying
value of the Series B shares, which were previously presented as a component of
Stockholders' Equity, has been reclassified as temporary equity, outside of
Stockholders' Equity at January 31, 1999 and April 30, 1998.
The restatements of the Company's fiscal 1998 interim and annual financial
statements and the January 31, 1999 interim financial statements for the matters
described above had no effect on the Company's net loss, total assets or total
liabilities. In addition, the restatements had no effect on the Company's Basic
and Diluted income per share for the three and nine month periods ended January
31, 1999 or the Basic and Diluted loss per share for the three month period
ended January 31, 1998. The Company's redeemable equity and total stockholders'
equity at January 31, 1999 and April 30, 1998 and Basic and Diluted loss per
common share for the nine month period ended January 31, 1998, as previously
reported and as restated, are as follows:
January 31, 1999 April 30, 1998
---------------- --------------
(unaudited)
[S] [C] [C]
Redeemable Equity - previously reported $ - $ -
Adjustment related to the presentation of the
Series B shares as redeemable 2,037,000 1,915,000
----------- -----------
As restated $ 2,037,000 $ 1,915,000
=========== ===========
Stockholders' Equity - previously reported $24,872,000 $15,493,000
Adjustment related to the presentation of the
Series B shares as redeemable (2,037,000) (1,915,000)
----------- -----------
As restated $22,835,000 $13,578,000
=========== ===========
For the Nine Month Period Ended
January 31, 1998
-------------------------------
(unaudited)
[S] [C]
Basic and Diluted Net Loss per
Common Share - previously reported ($0.42)
Adjustment related to the recognition of the
beneficial conversion feature as a deemed
preferred dividend ( 0.19)
-------
As restated ($0.61)
=======
3 - On September 1, 1998, Laser Vision acquired all of the outstanding stock of
Refractive Surgical Resources, Inc. (RSR) for $468,000 in cash and $2.1 million
in notes payable (of which $1.1 million is due within one year). Richard L.
Lindstom, M. D., one of Laser Vision'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 our existing refractive surgery business
and has been integrated with our existing field operations. The acquisition was
accounted for as a purchase and the resulting goodwill of $2.6 million will be
amortized over 15 years. The results of operations of RSR are included with
Laser Vision's results since the date of acquisition. For the fiscal year ended
April 30, 1998, RSR revenue was $1.8 million and assets, which consisted
primarily of microkeratome equipment and current assets, were over $1.5 million.
On December 4, 1998, Laser Vision acquired all of the outstanding stock of
Midwest Surgical Services, Inc. (MSS) for $3.8 million (including accrued
dividends) and, based on MSS's operating performance, up to $8.25 million of
contingent consideration in cash and Laser Vision common stock. Laser Vision
paid $2.8 million of the purchase price during the third quarter and owes $1
million which is payable in April 1999. Richard L. Lindstrom, M. D. held a
minority position of less than 9% in MSS. MSS provides mobile access to cataract
surgery technology. This acquisition allows us to provide another type of mobile
service to our ophthalmic surgeon customers. MSS will be initially operated as a
separate subsidiary while MSS's operating results will determine the amount of
any additional consideration. The acquisition was accounted for as a purchase
and the resulting goodwill of $3.4 million will be amortized over 15 years. Any
additional consideration required to be paid will be recorded as goodwill at
that time and amortized over the remaining life of the goodwill recorded. The
results of operations of MSS are included with Laser Vision's results since the
date of acquisition. For the fiscal year ended April 30, 1998, MSS revenue was
$6.2 million and assets, which consisted primarily of equipment and current
assets, were over $4.3 million.
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The unaudited pro forma Laser Vision results from operations assuming both the
RSR and MSS acquisitions were consummated as of May 1, 1997 are as follows:
Nine Months Ended Nine Months Ended
January 31, 1999 January 31, 1998
----------------- -----------------
(Restated-Note 2)
Revenue $39,805,000 $ 21,544,000
Net Income (Loss) $ 3,535,000 ($3,727,000)
Net Income (Loss) per Share - basic (Restated-Note 2) $.34 ($.62)
Net Income (Loss) per Share - diluted (Restated-Note 2) $.31 ($.62)
4 - On January 1, 1999 Laser Vision established a limited liability partnership
to own and operate one transportable refractive laser and related equipment and
services in the State of Minnesota (the "partnership"). Laser Vision is the
general partner and owns 60% of the partnership. Minnesota Eye Consultants, P.A.
("MEC") is a limited partner and owns 40% of the partnership. Richard L.
Lindstrom, M. D. is President of MEC. Laser Vision contributed equipment valued
at $650,000 to the partnership and will receive $260,000 from MEC for this
minority interest. The $260,000 amount due from MEC is recorded as part of
"Prepaid expenses and other current assets" and "Minority interest" on the
January 31, 1999 balance sheet. Laser Vision will receive a revenue-based
management fee from the partnership. The partnership will pay dividends
quarterly based upon cash flows. The partnership's operating results are
included in the Consolidated Statement of Operations.
5 - During the quarter ended January 31, 1999, management reassessed the
realizability of Laser Vision's deferred tax assets as a result of Laser
Vision's improving levels of and trend in profitability. For the three and nine
months ended January 31, 1999, Laser Vision recognized a net tax benefit of
$802,000 on pretax income of $1,460,000 and $2,750,000, respectively. The net
tax benefit principally reflects the benefit of the reduction in the valuation
allowance on deferred tax assets for the portion of the net operating loss
("NOL") carryforwards which are more likely than not realizable in the next
fiscal year. Accordingly, the net tax benefit was recognized as a current asset
at January 31, 1999. Because net operating losses are not available in all
states where Laser Vision operates and are limited for alternative minimum tax
("AMT") purposes, a current tax provision of $142,000 was recorded in "Other
accrued liabilities" for estimated state and AMT liabilities. The valuation
allowance on deferred tax assets could be further reduced in the fourth quarter
and future periods if Laser Vision's profitability continues to improve and
estimates of future taxable income are increased.
6 - The net income (loss) per share was computed using the "Weighted average
number of common shares outstanding - basic" during each period. The "Net Income
per Share - basic" for the three months ended January 31, 1999 and for the nine
months ended January 31, 1999, reflects $41,000 and $122,000, respectively, of
deemed dividends on the Series B Convertible Preferred Stock. The "Net Loss per
Share - basic" for the three months ended January 31, 1998 and for the nine
months ended January 31, 1998 reflects $56,000 and $1,887,000, respectively, of
deemed dividends on the Series B Convertible Preferred Stock. The sum of the
quarterly net income (loss) per share amounts will not necessarily equal the
year to date net income (loss) per share. For the three and nine months ended
January 31, 1999, the Consolidated Statement of Operations reflects an income
tax benefit which was not applicable during the
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three and nine months ended January 31, 1998.
"Weighted average number of common shares outstanding - diluted" for the three
and nine months ended January 31, 1999 includes the dilutive effects of warrants
and options using the treasury stock method and the Series B Convertible
Preferred Stock. For the three months ended January 31, 1999, dilutive warrants
and options were calculated using an average market price of $19.26 per common
share. For the nine months ended January 31, 1999, dilutive warrants and options
were calculated using an average market price of $14.62. As of January 31, 1999,
2.9 million warrants and options were outstanding with an average exercise price
of about $9.50 each. Since MSS did not generate enough profitability during the
two months ended January 31, 1999 to earn the minimum contingent consideration,
no shares have been included for any Laser Vision stock issuable as contingent
consideration. Diluted per share calculations follow:
Three Months Ended Nine Months Ended
------------------------ -----------------------
1/31/98
(thousands) 1/31/99 1/31/98 1/31/99 (Restated-Note 2)
- ----------- ------- ------- ------- -------
Net Income (Loss) $ 2,262 ($ 913) $ 3,552 ($3,623)
Deemed preferred dividends (Restated-Note 2) -- ($ 56) -- ($1,887)
------- ------- ------- -------
Net Income (Loss) Applicable Common
Stockholders (Restated-Note 2) $ 2,262 ($ 969) $ 3,552 ($5,510)
Weighted average
number of common
shares outstanding - basic 10,294 9,301 9,987 9,055
Dilutive securities-
Warrants and options 1,585 -- 1,158 --
Preferred stock 434 -- 429 --
------- ------- ------- -------
Weighted average number of common
shares outstanding - diluted 12,313 9,301 11,574 9,055
Net Income (Loss)
per common share - diluted (Restated-Note 2) $ .18 ($ .10) $ .31 ($ .61)
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,
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revenues from laser access and marketing provided to eye surgeons, and
loans and leases. Cash and cash equivalents decreased 2% or $158,000 to
$8.3 million at January 31, 1999 from $8.4 million at April 30, 1998.
At January 31, 1999, working capital increased by 4% or $224,000 to
$5.8 million from $5.6 million at April 30, 1998. The ratio of current assets
to current liabilities at January 31, 1999 was 1.36 to one, compared to 1.64
to one at April 30, 1998.
Cash Flows -- Operating Activities
Net cash provided by operating activities increased by $5.4 million to $4.3
million for the nine months ended January 31, 1999 from a use of $1.0 million
for the nine months ended January 31, 1998. The cash flows provided by operating
activities during the nine months ended January 31, 1999 primarily represent the
net income in the period plus depreciation and amortization and a net increase
in current liabilities, less increases in accounts receivable, deferred taxes,
and prepaid expenses and other current assets. The increases in current
liabilities, accounts receivable, and prepaid expenses and other current assets
are a result at increased procedure volumes. Net cash used in operating
activities during the nine months ended January 31, 1998 primarily represents
the net loss incurred in this period less depreciation and amortization plus
increases in accounts receivable and prepaid expenses and other current assets
partially offset by increases in current liabilities.
Cash Flows -- Investing Activities
Net cash used in investing activities increased 140% or $4.2 million to $7.2
million for the nine months ended January 31, 1999 from $3.0 million for the
nine months ended January 31, 1998. Cash used for investing during the nine
months ended January 31, 1999 was used to acquire equipment for the expanding
U.S. market and for the acquisitions of MSS and RSR. Cash used for investing
during the nine months ended January 31, 1998 was used to acquire equipment for
the expanding U.S. market. Laser Vision expects capital expenditures for
equipment to continue at or above recent levels during the next twelve months.
Cash Flows -- Financing Activities
Net cash provided by financing activities was decreased 64% or $4.8 million to
$2.7 million for the nine months ended January 31, 1999 from $7.4 million for
the nine months ended January 31, 1998. Cash provided by financing during the
nine months ended January 31, 1999 was primarily provided by the exercise of
stock options and warrants, offset by principal payments
under capitalized lease obligations and notes payable. Cash provided by
financing during the nine months ended January 31, 1998 was primarily provided
by a private placement of preferred stock, proceeds from exercise of stock
options and warrants, and proceeds from loan financings, partially offset by
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 market
services, the exercise of stock options and warrants and future debt or equity
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 Laser Vision.
As discussed in Note 2 the Company has restated its financial statements to
account for the beneficial conversion feature and the mandatory redemption
features of its Series B Convertible Preferred Stock. The restatement resulted
in the recognition of an additional $1,732,000 deemed dividend at the Issuance
Date, which was reported as a charge to paid-in capital and net loss applicable
to common stockholders, and an increase in the carrying value of the Series B
shares. The recognition of the deemed dividend did not effect the cash flows of
the Company for the period, and subsequent recognition of additional deemed
dividends associated with the beneficial conversion feature will not effect the
Company's future cash flows. However, under certain limited circumstances, as
defined in the preferred stock agreement, the holders of the Series B shares
may be able to require the Company to redeem their shares for cash. While there
can be no assurance that those circumstances will not arise, the Company
believes the likelihood of redemption occurring is remote. Accordingly, the
redemption features of the Series B shares are not expected to adversely impact
the Company's cash flows or liquidity.
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(B) RESULTS OF OPERATIONS
Three Months Nine Months
Ended January 31, Ended January 31,
1999 1998 1999 1998
REVENUE
Domestic refractive $ 11,759,000 $ 5,640,000 $ 29,174,000 $ 12,940,000
International refractive 651,000 563,000 2,062,000 2,090,000
Cataract 1,323,000 -- 1,323,000 --
Marketing and training 329,000 142,000 1,015,000 636,000
------------ ------------ ------------ ------------
TOTAL REVENUE 14,062,000 6,345,000 33,574,000 15,666,000
Royalty fees and professional
medical services 4,510,000 2,152,000 11,416,000 5,389,000
------------ ------------ ------------ ------------
REVENUE LESS ROYALTY FEES AND
PROFESSIONAL MEDICAL SERVICES,
"NET REVENUE CONTRIBUTION" $ 9,552,000 $ 4,193,000 $ 22,158,000 $ 10,277,000
============ ============ ============ ============
GROSS PROFIT $ 4,707,000 $ 1,877,000 $ 11,228,000 $ 3,934,000
% of total revenue 33% 30% 33% 25%
% of net revenue contribution 49% 45% 51% 38%
INCOME (LOSS) FROM OPERATIONS $ 1,658,000 ($ 761,000) $ 3,301,000 ($ 3,144,000)
% of total revenue 12% (12%) 10% (20%)
% of net revenue contribution 17% (18%) 15% (31%)
NET INCOME (LOSS) BEFORE TAXES $ 1,460,000 ($ 913,000) $ 2,750,000 ($ 3,623,000)
% of total revenue 10% (14%) 8% (23%)
% of net revenue contribution 15% (22%) 12% (35%)
Laser Vision has continued to provide excimer laser access to additional sites
throughout the U.S. In addition, the acquisition of RSR has enabled us to
provide microkeratome access and the acquisition of MSS has allowed us to
provide cataract services. RSR revenues for September 1998 through January 1999
are included in domestic refractive revenues. MSS revenues for December 1998 and
January 1999 are shown as cataract revenues. The "net revenue contribution"
reflects the dollars available to cover fixed and discretionary costs after
excluding amounts that we collect for royalty fees and professional medical
services.
THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THREE MONTHS ENDED
JANUARY 31, 1998
Revenue
Total revenue increased by 122% or $7.7 million to $14.1 million for the three
months ended January 31, 1999 from $6.3 million for the three months ended
January 31, 1998.
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The increase is attributable to higher domestic refractive revenue of $6.1
million, cataract revenue of $1.3 million and a $187,000 increase in marketing
and training revenue. The increase in domestic revenue is attributable to the
increased number of procedures performed on each laser in the U.S., the addition
of new lasers, and the RSR acquisition. The cataract revenue is attributable to
the acquisition of MSS.
Cost of Revenue/Gross Profit
Cost of revenue increased by 109% or $4.9 million to $9.4 million for the three
months ended January 31, 1999 from $4.5 million for the three months ended
January 31, 1998. Royalty fees and professional medical services increased to
$4.5 million from $2.1 million in these respective periods due to the increased
number of procedures performed in the U.S. Depreciation increased by 39% or
$430,000 to $1.5 million from $1.1 million in these respective periods. This was
primarily due to an increase in lasers and mobile equipment in the U.S.
partially offset by decreased amortization of a management services contract
which has been terminated.
Other costs of revenue increased by 173% or $2.1 million to $3.3 million for
the three months ended January 31, 1999 from $1.2 million for the three months
ended January 31, 1998. This was primarily due to increased costs including
mobile laser operator salaries, travel and set-up related costs of $936,000, an
increase in medical supply costs of $246,000 primarily attributable to the RSR
acquisition, and an increase in laser and equipment maintenance costs of
$268,000. Other costs of revenue related to providing cataract services were
$660,000.
Total gross profit improved by 151% or 2.8 million to $4.7 million for the three
months ended January 31, 1999 from $1.9 million for the three months ended
January 31, 1998. The variable gross profit, excluding depreciation, increased
to $6.2 million from $3.0 million. This was primarily due to an increase in the
number laser procedures performed in the U.S. and the MSS and RSR acquisitions.
As a percentage of total revenue, total gross profit increased to 33% from 30%
for the three months ended January 31, 1999 and 1998 respectively.
Operating Expense
Selling, general and administrative expense increased by 16% or $411,000 to $3.0
million for the three months ended January 31, 1999 from $2.6 million for the
three months ended January 31, 1998. This is primarily attributable to an
increase of $329,000 related to the MSS acquisition and an increase of $182,000
in salaries and related expenses partially offset by a decrease of $166,000 in
general and administrative expenses. As a percent of total revenue, operating
expenses decreased from 42% to 22% for the three months ended January 31, 1998
and 1999, respectively.
Income (Loss) from Operations
Income from operations increased by $2.4 million to $1.7 million during the
three months ended January 31, 1999 from a loss of $761,000 during the three
months ended January 31, 1998. This was primarily due to the increased volume of
domestic refractive procedures and the RSR and MSS acquisitions. As a percentage
of total revenue, income from operations was 12% for the three months ended
January 31, 1999.
Other Income (Expenses)
Higher interest expense and minority interest in net income of subsidiary
partially offset by higher interest income caused a 30% or $46,000 increase to a
net $198,000 in other expense during the three months ended January 31, 1999
from a net $152,000 in other expense during the three months ended January 31,
1998. This was due to higher interest costs associated with financing costs for
capital expenditures and the acquisitions of RSR and MSS.
Net Income (Loss)
Net income increased by $3.2 million to $2.3 million for the three months ended
January 31, 1999 from a loss of $913,000 for the three months ended January 31,
1998. This was primarily due to the increased volume of domestic refractive
procedures and recognition of deferred income tax benefits. As a percentage of
total revenue, net income was 10% for the three months ended January 31, 1999.
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NINE MONTHS ENDED JANUARY 31, 1999 COMPARED TO NINE MONTHS ENDED JANUARY 31,
1998
Revenue
Total revenue increased by 114% or $17.9 million to $33.6 million for the nine
months ended January 31, 1999 from $15.7 million for the nine months ended
January 31, 1998.
The increase is attributable to higher domestic refractive revenue of $16.2
million, cataract revenue of $1.3 million and a $379,000 increase in marketing
and training revenue. The increase in domestic revenue is attributable to the
increased number of procedures performed on each laser in the U.S., the addition
of new lasers, and the RSR acquisition. The cataract revenue is attributable to
the acquisition of MSS.
Cost of Revenue/Gross Profit
Cost of revenue increased by 90% or $10.6 million to $22.3 million for the nine
months ended January 31, 1999 from $11.7 million for the nine months ended
January 31, 1998. Royalty fees and medical services increased to $11.4 million
from $5.4 million in these respective periods due to the increased number of
procedures performed in the U.S. Depreciation increased by 21% or $661,000 to
$3.9 million from $3.2 million in these respective periods. This was primarily
due to an increase in lasers and mobile equipment in the U.S. partially offset
by decreased amortization of a management services contract which has been
terminated.
Other costs of revenue increased by 126% or $3.9 million to $7.0 million for the
nine months ended January 31, 1999 from $3.1 million for the nine months ended
January 31, 1998. This was primarily due to increased costs, including mobile
laser operator salaries, travel and set-up related costs of $2.2 million, an
increase in medical supplies of $479,000 and an increase in laser and equipment
maintenance costs of $511,000. Other costs of revenue related to providing
cataract services were $660,000
Total gross profit improved by 185% or $7.3 million to $11.2 million for the
nine months ended January 31, 1999 from $3.9 million for the nine months ended
January 31, 1998. The variable gross profit, excluding depreciation, increased
to $15.1 million from $7.2 million. This was primarily due to an increase in the
number of laser procedures in the U.S. and the MSS and RSR acquisitions. As a
percentage of total revenue, total gross profit increased to 33% from 25% for
the nine months ended January 31, 1999 and 1998, respectively.
Operating Expense
Selling, general and administrative expense increased by 12% or $849,000 to $7.9
million for the nine months ended January 31, 1999 from $7.1 million for the
nine months ended January 31, 1998. The increase is primarily attributable to an
increase of $329,000 related to the MSS acquisition, an increase of $876,000 in
salaries and related expenses partially offset by a decrease of $75,000 in
general and administrative expenses and a decrease of $302,000 in selling and
marketing expenses. As a percentage of total revenue, operating expense
decreased from 45% to 24% for the nine months ended January 31, 1998 and 1999,
respectively.
Income (Loss) from Operations
Income from operations increased by $6.4 million to $3.3 million during the nine
months ended January 31, 1999 from a loss of $3.1 million during the nine months
ended January 31, 1998. This was primarily due to the increased volume of
domestic refractive procedures. As a percentage of total revenue, income from
operations was 10% for the nine months ended January 31, 1999.
Other Income (Expense)
Higher interest expense and minority interest in net income of subsidiary
partially offset by higher interest income caused a 15% or $72,000 increase to a
net $551,000 in other expense during the nine months ended January 31, 1999 from
a net $479,000 in other expense during the nine months ended January 31, 1998.
This was due to higher interest costs associated with financing costs for
capital expenditures and the acquisitions of RSR and MSS.
Net Income (Loss)
Net income increased by $7.2 million to $3.6 million for the nine months ended
January 31, 1999 from a loss of $3.6 million for the nine months ended January
31, 1998. This was primarily attributable to the increased volume of domestic
refractive procedures and the recognition of deferred income tax benefits. As a
percentage of total revenue, net income was 11% for the nine months ended
January 31, 1999.
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Income Taxes
At April 30, 1998, Laser Vision had approximately $31 million of net operating
losses available to be carried forward to offset future taxable income and which
expire in the years 2006 through 2013. However, as a result of the history of
losses incurred by Laser Vision, at April 30, 1998 there was insufficient
objective evidence of future taxable income to utilize the net operating loss
carryforwards ("NOL's") prior to their expiration. As a result, a valuation
allowance was recorded for substantially all of the estimated $13 million of
deferred tax assets which are principally associated with the net operating
losses at April 30, 1998.
In the fourth quarter of fiscal 1998, Laser Vision`s operations became
profitable. For the nine months ended January 31, 1999, Laser Vision had pretax
income of approximately $2.8 million. Because of the improving levels of and
trend in profitability, for the first time management was able to conclude
based on objective evidence that Laser Vision will likely have taxable income
in the next fiscal year. As a result, a portion of the valuation allowance was
reduced and Laser Vision recognized a $0.8 million net tax benefit during the
three months ended January 31, 1999.
Management will continue to review and assess the realizability of the deferred
tax assets on a quarterly basis. The amount of net tax benefit or expense
recognized in the future may fluctuate significantly depending on management's
estimates of future taxable income. If Laser Vision's profitability continues to
improve, additional reductions in the valuation allowance may be recognized.
Generally, the benefit arising from the reduction in the valuation allowance is
reflected in the statement of operations as a reduction of income tax expense.
However, if an incremental tax benefit is attributed to certain equity
transactions that did not impact operating results, such as those arising from
the exercise of non-qualified stock options and warrants, the tax benefit of the
release of the valuation allowance would be reflected directly in stockholders'
equity.
Regardless of when the reduction in the valuation allowance is recognized or
whether the tax benefit is recognized in the statement of operations or directly
in equity, the utilization of the NOL's will substantially reduce Laser Vision's
cash obligations for the payment of any income taxes otherwise due over the next
several years.
Except for historical information, statements relating to the Company'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 above analyzes certain factors and trends related to
the financial results for the three and nine months ended January 31, 1999 and
1998. This discussion should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements.
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YEAR 2000 COMPLIANCE
We are currently working to reduce the potential impact of the Year 2000 on the
processing of date-sensitive information by Laser Vision's computerized
information systems. The provider of Laser Vision's accounting and management
reporting system has advised us that it is Year 2000 compliant. VISX, the
manufacturer of Laser Vision's excimer lasers, has advised us that its lasers
will remain fully functional from a medical standpoint through the year 2000 and
beyond. VISX is working to ensure that all procedural documentation from its
lasers' computers will be reported properly in the year 2000. To the extent that
any computer documentation of procedures is unavailable, we are prepared to
manually produce the necessary reports.
The cataract equipment used by Midwest Surgical Services, Inc. (MSS) and the
microkeratome equipment used for the LASIK procedure are not affected by the
Year 2000 situation and will remain fully functional from a medical viewpoint
according to the cataract and microkeratome equipment manufacturers.
We expect that any remaining costs for Year 2000 compliance will be less than
$100,000 and that the majority of these disbursements will be for equipment
purchases and therefore will be capitalized and depreciated. The total
anticipated costs for Year 2000 compliance (past and future) is expected to be
less than $150,000. At this stage in the assessment process, we do not believe
that the Year 2000 issue will (1) pose significant operational problems for our
business or products or (2) have a material adverse impact on our 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 our computer systems and software or that our customers or
suppliers will be able to resolve their Year 2000 issues in a timely manner.
Accordingly, we plan to devote the necessary resources to resolve all
significant Year 2000 issues in a timely manner.
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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:
On December 22, 1998, the Company filed a Current Report on Form 8-K
regarding the acquisition by the Company of 100% of the stock of Midwest
Surgical Services, Inc. and the naming of James Wachtman as President.
On February 12, 1999, the Company filed a Current Report on Form 8-K/A
regarding the acquisition by Laser Vision of 100% of the stock of Refractive
Surgical Resources, Inc. and the acquisition by Laser Vision of 100% of the
stock of Midwest Surgical Services, Inc.
Exhibit 27 - Financial Data Schedule
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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 April 21, 1999
- --------------------------------- ------------------------
John J. Klobnak Date
Chairman of the Board and Chief Executive Officer
\s\B. Charles Bono, III April 21, 1999
- --------------------------------- ------------------------
B. Charles Bono Date
Chief Financial Officer and
Principal Accounting Officer
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