1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): AUGUST 31, 2001
LASER VISION CENTERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-10629 43-1530063
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
540 MARYVILLE CENTRE DR., SUITE 200
ST. LOUIS, MISSOURI 63141
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 434-6900
================================================================================
2
Reference is made to the Current Report on Form 8-K, dated
August 31, 2001, filed by Laser Vision Centers, Inc. ("LaserVision") on
September 9, 2001 announcing the acquisition by LaserVision on August 31, 2001
of substantially all of the assets and certain selected liabilities of Clear
Vision Laser Centers, Inc. ("Clearvision").
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following sets forth certain historical financial
statements of Clearvision and unaudited pro forma combined financial information
of LaserVision, giving effect to the consummation of the acquisition by
LaserVision on August 31, 2001 of substantially all of the assets and certain
specified liabilities of Clearvision.
(a) Financial Statements of Businesses Acquired. The following
historical financial statements of Clearvision are filed herewith:
(1) Report of Independent Public Accountants.
(2) Consolidated Balance Sheets as of December 31,
2000 and 1999.
(3) Consolidated Statements of Operations for the
Years Ended December 31, 2000, 1999 and 1998.
(4) Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 2000, 1999 and 1998.
(5) Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000, 1999 and 1998.
(6) Notes to Consolidated Financial Statements.
(7) Consolidated Balance Sheets as of June 30, 2001
and December 31, 2000 (Unaudited).
(8) Consolidated Statements of Operations for the Six
Months Ended June 30, 2001 and 2000 (Unaudited).
(9) Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2001 and 2000 (Unaudited).
(10) Notes to Condensed Consolidated Financial
Statements (Unaudited).
(b) Pro Forma Financial Information. The following unaudited
pro forma combined financial statements of LaserVision giving effect to the
acquisition of substantially all of the assets and certain specified liabilities
of Clearvision are filed herewith:
(1) Pro Forma Combined Statement of Operations for
the Twelve Months Ended April 30, 2001 (Unaudited).
(2) Notes to Pro Forma Combined Statement of
Operations for the Twelve Months Ended April 30, 2001 (Unaudited).
(3) Pro Forma Combined Statement of Operations for
the Three Month Period Ended July 31, 2001.
(4) Notes to Pro Forma Combined Statement of
Operations for the Three Month Period Ended July 31, 2001.
(5) Pro Forma Combined Balance Sheet as of July 31,
2001 (Unaudited).
(6) Notes to Pro Forma Combined Balance Sheet as of
July 31, 2001.
(c) Exhibits. See Exhibit Index.
3
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As Of December 31, 2000 And 1999
Together With Report Of Independent Public Accountants
4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
ClearVision Laser Centers, Inc.:
We have audited the consolidated balance sheets of CLEARVISION LASER CENTERS,
INC. (a Nevada corporation) AND SUBSIDIARIES as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ClearVision Laser
Centers, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Arthur Andersen LLP
Denver, Colorado,
March 9, 2001.
5
Page 1 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999
------ -------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,262,986 $ 6,012,550
Trade accounts receivable, net of allowance for doubtful
accounts of $1,711,000 and $1,067,000, respectively 522,512 1,687,044
Other receivables 312,998 --
Prepaid royalty cards 254,050 1,087,320
Deferred tax asset -- 616,000
Other current assets 210,693 398,812
-------------- --------------
Total current assets 2,563,239 9,801,726
PROPERTY AND EQUIPMENT: 19,166,810 17,333,767
Less-accumulated depreciation and amortization (12,036,452) (7,515,511)
-------------- --------------
Property and equipment, net 7,130,358 9,818,256
-------------- --------------
OTHER NON-CURRENT ASSETS:
Non-compete agreements, less accumulated amortization of
$556,772 and $375,256, respectively -- 389,781
Goodwill, less accumulated amortization of $257,039 and
$139,934, respectively -- 602,266
Investments in unconsolidated affiliates 459,032 347,737
Deferred tax assets -- 2,567,000
Other non-current assets 243,555 157,547
-------------- --------------
Total other non-current assets 702,587 4,064,331
-------------- --------------
TOTAL ASSETS $ 10,396,184 $23,684,313
============== ==============
</Table>
The accompanying notes to financial statements are an integral
part of these consolidated balance sheets.
6
Page 2 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 and 1999
<Table>
<Caption>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 2000 1999
---------------------------------------------- ------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 3,954,087 $ 5,260,580
Patient deposits 106,591 84,526
Accrued interest payable 149,969 108,941
Accrued expenses 906,970 924,992
Current maturities of revolving lines
of credit and notes payable - affiliate (Note 4) 382,808 106,950
Current maturities of long-term debt and capitalized
lease obligations (Notes 7 and 8) 4,831,893 2,565,306
Other current liabilities 158,685 --
-------------- --------------
Total current liabilities 10,491,003 9,051,295
-------------- --------------
LONG-TERM LIABILITIES:
Revolving lines of credit- affiliate (Note 4) -- 69,841
Notes payable - related parties (Notes 4 and 11) 1,544,572 --
Bank line of credit and other long-term debt (Note 7) 20,457 1,574,564
Capitalized lease obligations (Notes 4 and 8) 364,154 1,828,089
-------------- --------------
Total long-term liabilities 1,929,183 3,472,494
-------------- --------------
SERIES A-1 REDEEMABLE PREFERRED STOCK (Note 10) 21,780,526 19,367,010
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY -- 449,869
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 14)
STOCKHOLDERS' EQUITY (DEFICIT):
Series A-2 convertible preferred stock, no par value, 20,000,000
shares authorized; 4,205,474 shares issued and outstanding 27,468,024 27,468,024
Common stock, $.001 par value; 72,000,000 shares authorized;
2,220,271 and 2,181,521 shares issued and 2,074,021 and
2,035,271 shares outstanding, respectively 2,220 2,182
Additional paid-in capital (deficit) (32,984,757) (33,149,040)
Warrants outstanding 3,056,797 3,007,684
Common stock held in treasury, at cost (146,250 shares) (1,302,300) (1,302,300)
Accumulated deficit (20,044,512) (4,682,905)
-------------- --------------
Total stockholders' equity (deficit) (23,804,528) (8,656,355)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 10,396,184 $ 23,684,313
============== ==============
The accompanying notes to financial statements are an integral part of these
consolidated balance sheets.
7
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---- ---- ----
REVENUE:
Professional medical services revenue, net $ 28,295,530 $ 38,294,939 $ 27,092,191
Other revenue 820,968 651,681 7,413
------------ ------------ ------------
Total revenue 29,116,498 38,946,620 27,099,604
COST OF REVENUE:
Royalty fees and medical supplies 7,572,473 13,022,810 9,274,556
Salaries and wages 5,045,597 4,360,206 2,165,778
Depreciation and amortization 5,261,868 3,924,327 2,573,861
Other cost of revenue 5,493,282 5,247,961 2,690,452
------------ ------------ ------------
Total cost of revenue 23,373,220 26,555,304 16,704,647
------------ ------------ ------------
Gross profit 5,743,278 12,391,316 10,394,957
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries and wages (exclusive of compensation
expense - recapitalization shown below) 6,818,391 5,193,463 2,427,162
Compensation expense - Recapitalization (Note 11) 79,459 3,821,168 --
Advertising and marketing 3,515,567 3,482,214 2,480,685
Depreciation and amortization 410,750 243,681 104,970
Asset impairment (Note 2) 683,131 -- --
Restructuring costs 748,403 -- --
Other selling, general and administrative 2,826,174 2,566,241 1,596,784
------------ ------------ ------------
Total selling, general and administrative expenses 15,081,875 15,306,767 6,609,601
------------ ------------ ------------
Income (loss) from operations (9,338,597) (2,915,451) 3,785,356
------------ ------------ ------------
OTHER INCOME (EXPENSES):
Equity in income of investees, net 230,982 172,762 123,980
Minority interest -- (414,483) (186,015)
Interest expense - affiliate (310,575) (430,373) (737,885)
Other interest expense (497,755) (419,569) (313,907)
Other income, net 154,158 132,185 26,857
------------ ------------ ------------
Total other income (expenses) (423,190) (959,478) (1,086,970)
------------ ------------ ------------
Income (loss) before income taxes (9,761,787) (3,874,929) 2,698,386
Income tax (expense) benefit (3,186,303) 1,635,000 777,000
------------ ------------ ------------
NET INCOME (LOSS) (12,948,090) (2,239,929) 3,475,386
DIVIDENDS AND ACCRETION OF
REDEEMABLE PREFERRED STOCK (2,413,517) (1,041,610) --
------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE
COMMON STOCK $(15,361,607) $ (3,281,539) $ 3,475,386
============ ============ ============
EARNINGS (LOSS) PER SHARE:
Basic $ (6.95) $ (0.93) $ 0.72
============ ============ ============
Diluted $ (6.95) $ (0.93) $ 0.64
============ ============ ============
The accompanying notes to financial statements are an integral part of these
consolidated statements.
8
Page 1 of 3
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Series A
Common Stock Preferred Stock Additional
-------------------------- -------------------------- Paid-in
Shares Amount Shares Amount Warrants Capital
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 4,696,916 $ 4,697 103,093 $ 103 $ 979,045 $ 3,499,636
Sale of common stock 10,000 10 -- -- -- 49,990
Exercise of stock options 325 -- -- -- -- 1,300
Exercise of warrants by non-
employees (Note 12) 84,000 84 -- -- (8,641) 113,621
Shares issued in exchange for
equipment 1,867 2 -- -- -- 13,998
Warrants cancelled or forfeited -- -- -- -- (24,149) 24,149
Non-cash compensation from stock
options (Note 12) -- -- -- -- -- 48,725
Warrants issued to non-employees -- -- -- -- -- 69,986
Issuance of common stock in
connection with acquisition
of business (Note 3) 25,000 25 -- -- -- 124,975
Issuance of common stock in
connection with non-
compete agreement (Note 6) 7,994 8 -- -- -- 39,962
Warrants issued in connection
with acquisition of business
(Note 3) -- -- -- -- 79,800 --
Repurchase of common stock
(56,250 shares) (Note 4) -- -- -- -- -- --
Net income -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1998 4,826,102 $ 4,826 103,093 $ 103 $ 1,026,055 $ 3,986,342
=========== =========== =========== =========== =========== ===========
Treasury Accumulated
Stock Deficit Total
------------ ------------ ------------
BALANCE, December 31, 1997 $ -- $(4,876,752) $ (393,271)
Sale of common stock -- -- 50,000
Exercise of stock options -- -- 1,300
Exercise of warrants by non-
employees (Note 12) -- -- 105,064
Shares issued in exchange for
equipment -- -- 14,000
Warrants cancelled or forfeited -- -- --
Non-cash compensation from stock
options (Note 12) -- -- 48,725
Warrants issued to non-employees -- -- 69,986
Issuance of common stock in
connection with acquisition
of business (Note 3) -- -- 125,000
Issuance of common stock in
connection with non-
compete agreement (Note 6) -- -- 39,970
Warrants issued in connection
with acquisition of business
(Note 3) -- -- 79,800
Repurchase of common stock
(56,250 shares) (Note 4) (225,000) -- (225,000)
Net income -- 3,475,386 3,475,386
----------- ----------- -----------
BALANCE, December 31, 1998 $ (225,000) $(1,401,366) $ 3,390,960
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
consolidated statements.
9
Page 2 of 3
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Series A Series A-2
Common Stock Preferred Stock Preferred Stock
---------------------------- ---------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 4,826,102 $ 4,826 103,093 $ 103 -- $ --
Recapitalization (Note 11)-
Conversion of promissory
notes to common stock 76,666 77 -- -- -- --
Conversion of preferred
stock into common stock 103,000 103 (103,093) (103) -- --
Issuance of series A-2
preferred stock, net
of offering costs of
$1,248,639 -- -- -- -- 3,787,764 25,947,506
Acquisition of common
stock (3,088,877) (3,089) -- -- -- --
Cash settlement of warrants -- -- -- -- -- --
Warrants issued to non-
employees -- -- -- -- -- (1,478,647)
Warrants issued to employees -- -- -- -- -- --
Warrants issued to non-
employees (Note 12) -- -- -- -- -- --
Exercise of warrants by non-
employees, including tax
benefit of $649,000 261,750 262 -- -- -- --
Non-cash compensation from
stock options (Note 12) -- -- -- -- -- --
Exercise of stock options 2,880 3 -- -- -- --
Management and Services
Agreement (Note 4) -
Common stock reacquired
(90,000 shares) -- -- -- -- -- --
Issuance of warrants -- -- -- -- -- --
Warrants cancelled or forfeited -- -- -- -- -- --
Sale of Series A-2 preferred stock -- -- -- -- 417,710 2,999,165
Dividends and accretion of
redeemable preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 2,181,521 $ 2,182 -- $ -- 4,205,474 $ 27,468,024
============ ============ ============ ============ ============ ============
Additional
Paid-in Treasury Accumulated
Warrants Capital Stock Deficit Total
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 $ 1,026,055 $ 3,986,342 $ (225,000) $ (1,401,366) $ 3,390,960
Recapitalization (Note 11)-
Conversion of promissory
notes to common stock -- 229,923 -- -- 230,000
Conversion of preferred
stock into common stock -- -- -- -- --
Issuance of series A-2
preferred stock, net
of offering costs of
$1,248,639 -- -- -- -- 25,947,506
Acquisition of common
stock -- (36,970,767) -- -- (36,973,856)
Cash settlement of warrants (756,209) (2,242,554) -- -- (2,998,763)
Warrants issued to non-
employees 2,465,097 -- -- -- 986,450
Warrants issued to employees 84,825 -- -- -- 84,825
Warrants issued to non-
employees (Note 12) 55,220 -- -- -- 55,220
Exercise of warrants by non-
employees, including tax
benefit of $649,000 (195,527) 1,785,375 -- -- 1,590,110
Non-cash compensation from
stock options (Note 12) -- 44,232 -- -- 44,232
Exercise of stock options -- 15,883 -- -- 15,886
Management and Services
Agreement (Note 4) -
Common stock reacquired
(90,000 shares) -- -- (1,077,300) -- (1,077,300)
Issuance of warrants 332,190 -- -- -- 332,190
Warrants cancelled or forfeited (3,967) 2,526 -- -- (1,441)
Sale of Series A-2 preferred stock -- -- -- -- 2,999,165
Dividends and accretion of
redeemable preferred stock -- -- -- (1,041,610) (1,041,610)
Net loss -- -- -- (2,239,929) (2,239,929)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 $ 3,007,684 $(33,149,040) $ (1,302,300) $ (4,682,905) $ (8,656,355)
============ ============ ============ ============ ============
The accompanying notes to financial statements
are an integral part of these consolidated statements.
10
Page 3 of 3
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Series A Series A-2
Common Stock Preferred Stock Preferred Stock
--------------------------- --------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ------- -------- ----------- -----------
BALANCE, December 31, 1999 2,181,521 $ 2,182 -- $ -- 4,205,474 $27,468,024
Warrants issued to employees and
Non-employees (Note 12) -- -- -- -- -- --
Exercise of warrants by non-
employees 3,950 3 -- -- -- --
Warrants exercised in exchange
for $100,000 promissory note 25,000 25 -- -- -- --
Exercise of stock options 9,800 10 -- -- -- --
Non-cash compensation from
stock options -- -- -- -- -- --
Warrants cancelled or forfeited -- -- -- -- -- --
Dividends and accretion of
redeemable preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ------- -------- ----------- -----------
BALANCE, December 31, 2000 2,220,271 $ 2,220 -- $ -- 4,205,474 $27,468,024
=========== =========== ======= ======== =========== ===========
Additional
Paid-in Treasury Accumulated
Warrants Capital Stock Deficit Total
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 $ 3,007,684 $(33,149,040) $ (1,302,300) $ (4,682,905) $ (8,656,355)
Warrants issued to employees and
Non-employees (Note 12) 132,064 -- -- -- 132,064
Exercise of warrants by non-
employees -- 18,922 -- -- 18,925
Warrants exercised in exchange
for $100,000 promissory note (17,448) 17,423 -- -- --
Exercise of stock options -- 48,490 -- -- 48,500
Non-cash compensation from
stock options -- 37,500 -- -- 37,500
Warrants cancelled or forfeited (65,503) 41,948 -- -- (23,555)
Dividends and accretion of
redeemable preferred stock -- -- -- (2,413,517) (2,413,517)
Net loss -- -- -- (12,948,090) (12,948,090)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 2000 $ 3,056,797 $(32,984,757) $ (1,302,300) $(20,044,512) $(23,804,528)
============ ============ ============ ============ ============
The accompanying notes to financial statements are an
integral part of these consolidated statements.
11
Page 1 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(12,948,090) $ (2,239,929) $ 3,475,386
Adjustments to reconcile net income (loss) to net
cash from operating activities-
Amortization of non-compete agreements
and goodwill 298,621 333,681 299,962
Depreciation and amortization 5,373,997 3,834,327 2,353,779
Allowance for doubtful accounts 644,317 437,534 240,000
Asset impairment 683,131 -- --
Equity in income of investees (230,982) (172,762) (123,980)
Loss on disposal of fixed assets 40,885 -- --
Gain from Management and Services Agreement
(Note 4) (294,160) (235,327) --
Warrants issued to non-employees 29,050 55,220 69,986
Non-cash compensation for employee warrants 79,459 83,385 --
Non-cash compensation for employee options 37,500 44,232 48,725
Minority interest -- 414,483 186,015
Deferred tax provision (benefit) 3,183,000 (1,527,000) (1,007,000)
Distributions from unconsolidated affiliates 115,887 151,259 72,586
Effect of changes in operating assets and liabilities-
Trade accounts receivable 520,215 (791,317) (1,017,567)
Other receivables (312,998) -- --
Prepaid royalty cards 833,270 (320,710) (263,355)
Other current assets 188,119 (62,032) (300,700)
Other non-current assets (86,008) (43,111) (72,301)
Accounts payable (1,306,493) 2,247,395 1,554,779
Patient deposits 22,065 (61,890) 57,510
Accrued interest payable 41,028 (23,013) (49,893)
Accrued expenses 434,824 (177,491) 582,148
------------ ------------ ------------
Net cash provided by (used in) operating activities (2,653,363) 1,946,934 6,106,080
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable - related party -- 52,666 --
Purchase of property and equipment, net (1,944,271) (5,372,446) (3,421,267)
Sale of property and equipment 166,000 -- --
Distribution from unconsolidated affiliates 3,800 69,472 176,136
Purchase of Laser Northwest -- (803,135) --
Purchase of minority interest in subsidiary (439,575) -- --
------------ ------------ ------------
Net cash used in investing activities (2,214,046) (6,053,443) (3,245,131)
------------ ------------ ------------
The accompanying notes to financial statements are
an integral part of these consolidated statements.
12
Page 2 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Recapitalization transaction-
Proceeds from issuance of Series A-1 Redeemable
Preferred Stock $ -- $ 18,143,390 $ --
Proceeds from issuance of Series A-2 Convertible
Preferred Stock -- 27,196,146 --
Transaction costs from the issuance of
preferred stock -- (2,081,030) --
Cash redemption of common stock -- (36,973,856) --
Cash redemption of warrants -- (2,998,763) --
Proceeds from line of credit -- 1,090,000 --
Proceeds from notes payable - related parties 909,000 -- --
Net repayments under working capital
lines of credit and other payables - affiliate (107,124) (482,485) (270,594)
Payments on notes payable -- -- (391,338)
Proceeds from long-term debt 3,211,318 -- 1,969,141
Payments on long-term debt and capital
lease obligations (3,962,774) (2,372,264) (1,951,874)
Proceeds from issuance of common stock -- -- 50,000
Purchase of treasury stock -- -- (225,000)
Proceeds from exercise of options 48,500 15,886 1,300
Proceeds from exercise of warrants 18,925 941,110 105,064
Distribution to minority interest -- (150,629) --
Sale of Series A-1 and A-2 preferred stock -- 5,000,000 --
------------ ------------ ------------
Net cash provided by (used in) financing activities 117,845 7,327,505 (713,301)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,749,564) 3,220,996 2,147,648
CASH AND CASH EQUIVALENTS, beginning of year 6,012,550 2,791,554 643,906
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,262,986 $ 6,012,550 $ 2,791,554
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the year $ 767,301 $ 768,372 $ 1,001,899
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease
obligations and notes payable $ 948,713 $ 2,956,800 $ 583,687
============ ============ ============
Common stock issued in connection with
non-compete agreement (Note 6) $ -- $ -- $ 39,970
============ ============ ============
Common stock issued in connection with
acquisition of businesses (Note 3) $ -- $ -- $ 125,000
============ ============ ============
Warrants issued in connection with acquisition
of a business (Note 6) $ -- $ -- $ 79,800
============ ============ ============
Common stock issued in exchange for equipment $ -- $ -- $ 14,000
============ ============ ============
Conversion of promissory notes to common stock $ -- $ 230,000 $ --
============ ============ ============
Accretion of Series A-1 Preferred Stock $ 255,605 $ 133,023 $ --
============ ============ ============
Accrued dividends on Series A-1 Preferred Stock $ 1,105,272 $ 908,587 $ --
============ ============ ============
Dividend issue of Series A-1 Preferred Stock $ 1,961,226 $ -- $ --
============ ============ ============
The accompanying notes to financial statements
are an integral part of these consolidated statements.
13
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 and 1999
1. NATURE OF ORGANIZATION:
ClearVision Laser Centers, Inc. (together with its subsidiaries, the "Company"),
a Nevada corporation, was established in 1995 to develop and operate excimer
laser vision correction centers throughout the United States. The Company's
current operations are concentrated in the West Coast, Rocky Mountain, Midwest
and Southern regions of the United States. The Company contracts with
independent ophthalmologists and optometrists ("doctors") for the use of its
centers. The excimer laser can be used to treat refractive optical disorders
such as nearsightedness, farsightedness and astigmatism to eliminate or reduce
the need for corrective lenses. For each of its owned centers, the Company
manages the daily operations and provides all of the necessary services and
equipment, other than those professional services performed by a doctor. In
addition, the Company provides a broad range of related services, including
doctor and staff training, technical support services and maintenance, and
advertising and marketing programs and services.
Risks and Uncertainties
The Company competes with several other providers of fixed-site and mobile laser
centers. The viability of the Company is dependent upon, among other things, the
Company's ability to attract and retain commitments of doctors who perform laser
vision correction procedures, and its ability to obtain new or enhanced medical
devices or advanced technology as it is developed. The Company and its
operations are subject to numerous federal, state and local laws, rules and
regulations, many of which are subject to varying interpretations. As a result,
the potential reach of the laws is uncertain, and some of the Company's
activities could be challenged, which could require changes to certain of the
Company's legal or fee structure or curtailment of certain of its business
activities.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. However, since its inception and
through December 31, 2000, the Company has generated net losses totaling
$16,589,385, including net losses of $12,948,090 and $2,239,929 for the years
ended December 31, 2000 and 1999, respectively. Additionally, the Company had a
net use of cash from operations of $2,653,363 for the year ended December 31,
2000.
The laser vision correction industry has experienced a significant increase in
competition, including competition from discount providers, which has had a
material negative impact on the Company's results of operations. Beginning in
the third quarter of 2000, management has implemented significant cost saving
measures, including a reduction in the Company's workforce and consolidation of
Company facilities. The Company incurred $748,403 for severance payments, the
closure of under-performing sites and the elimination of excess lease space,
which is reflected as restructuring costs in the accompanying statement of
operations for the year ended December 31, 2000. Management continues to
evaluate and implement additional cost reduction measures.
14
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities, as well as the reported amounts of revenue and expenses.
Actual results could differ from those estimates.
Basis of Consolidation
The consolidated financial statements include the accounts of ClearVision Laser
Centers, Inc. and its wholly and majority-owned subsidiaries. The 44.6% interest
in one subsidiary that was not owned by the Company as of December 31, 1999, is
presented as a minority interest in the accompanying consolidated financial
statements. Effective January 1, 2000, the Company acquired the minority
interest for $439,575. The $10,294 book value of the minority interest in excess
of the purchase price was recorded as a reduction of goodwill. All significant
intercompany accounts and transactions have been eliminated.
Investments in Unconsolidated Affiliates
The Company accounts for its investments in less than 50% owned entities using
the equity method of accounting. Under the equity method of accounting, the
Company recognizes, in its financial statements, its proportionate share of the
income and losses of each investee. The Company's investment balances represent
its initial investments, adjusted for its proportionate share of the investees'
income or losses and distributions received from the investees. The Company's
investments consist of the following (together, "the LeaseCos"):
Colorado Excimer Leasing-1, LLC CEL, a limited liability company, was
formed in February 1995. As of December
31, 2000, 1999 and 1998, the Company owned
a 37.3% interest in CEL.
Utah Excimer Leasing, LLC UEL, a limited liability company, was
formed in September 1995. As of December
31, 2000, 1999 and 1998, the Company owned
a 49.1% interest in UEL.
Southern Colorado Excimer SCEL, a limited liability company, was
Leasing, LLC formed in October 1995. As of December 31,
2000, 1999 and 1998, the Company owned an
18% interest in SCEL.
The LeaseCos were formed primarily to raise capital for the acquisition of
lasers and other equipment used by the Company. The ownership interest in each
of the LeaseCos that is not held by the Company is held by certain individual
doctors who utilize the Company's centers. The LeaseCos obtained third-party
lease financing for lasers and other equipment which were then leased to the
Company for use in its centers (Note 4).
15
The following table summarizes financial information for the LeaseCos, for the
years ended December 31, 2000, 1999 and 1998, respectively:
2000 1999 1998
---------- ---------- ----------
Rental Income $ 735,393 $ 994,012 $1,533,237
Interest Income 33,933 169,857 95,162
Interest Expense 23,267 110,849 193,671
Net Income 577,786 479,744 490,268
Total Assets 1,342,091 1,071,489 2,395,307
Capitalized Lease Obligations -- 263,672 1,169,453
Total Members' Capital 1,134,895 581,689 902,593
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. Cash equivalents are composed of money
market funds, which are stated at cost and approximate market.
Trade Accounts Receivable
Trade accounts receivable consists of amounts due from doctors for their use of
the Company's centers, or from insurance companies in cases where the Company
performs billing services on behalf of the doctors, net of an estimate of
uncollectable amounts. The amount of insurance claims receivable, which will be
remitted to the doctors only upon collection by the Company, is included in
accounts payable. The Company does not require collateral on its trade
receivables.
Prepaid Royalty Cards
Prepaid royalty cards consist of cards necessary to use the Company's excimer
lasers. The cost of these cards is charged to royalty fees expense as they are
used.
Property and Equipment
Property and equipment, including assets acquired under capital leases, consists
principally of lasers and other medical equipment and is stated at cost.
Expenditures for repairs and maintenance are expensed as incurred. Depreciation
and amortization are computed utilizing the straight-line method over estimated
useful lives or, in the case of leasehold improvements, over the shorter of the
estimated useful lives or the remaining lease term.
Goodwill
The Company recorded goodwill in connection with the acquisitions of the
minority interests in certain consolidated subsidiaries, its interest in CEL and
certain other acquisitions. Amortization is recorded on a straight-line basis,
generally over periods of three to fifteen years (Note 3).
16
Non-compete Agreements
The Company has entered into non-compete agreements with certain doctors (Notes
3, 4 and 6). The cost of each non-compete agreement is amortized over the
estimated period of benefit, typically three to five years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable from future undiscounted cash flows. Impairment losses are recorded
for the difference between the carrying value and the fair value of the
long-lived asset. Due to the factors described in Note 1 (Liquidity and Capital
Resources), management evaluated the carrying value of its long-lived assets and
recorded an impairment in 2000 of $683,131 related to its non-compete agreements
and goodwill. These intangible assets were evaluated in combination with, and
based on, the fair value of related long-lived assets. The estimated fair values
of the Company's long-lived assets were based on recent market transactions.
Revenue
Professional medical services revenue represents fees, less discounts, earned
for laser vision correction procedures performed at the Company's centers. This
revenue is also presented net of professional medical services fees paid to
doctors. Beginning in 1999, the Company has amended its agreements with doctors
to provide that the Company receives a fixed fee per procedure performed by the
doctors rather than a variable percentage of the procedure fee earned by the
doctor.
Other revenue includes revenue received from the sale of marketing materials and
other miscellaneous sources and management services revenue.
Cost of Revenue
Cost of revenue includes expenses directly related to the operation of the laser
vision correction centers, including royalty fees, medical supplies, salaries
and wages, depreciation and amortization, including amortization of non-compete
agreements and other expenses. Other cost of revenue includes costs related to
the operation and occupancy of the laser vision correction centers, such as
rent, utilities and office supplies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include expenses that are not
directly related to the operation of the laser vision correction centers,
including salaries and wages, advertising and marketing expenses, depreciation
and amortization, training and contract labor. Advertising and marketing costs
are expensed as incurred.
Income Taxes
The Company uses the liability method for measuring and recognizing income
taxes. Deferred income tax assets and liabilities are recognized for the
expected future income tax consequences of temporary differences between the
financial reporting and income tax bases of assets, liabilities and
carryforwards. Deferred tax assets are reduced, if necessary, by a valuation
allowance for the amount of any net deferred tax asset which, more likely than
not based on current circumstances, is not expected to be realized.
17
Earnings (Loss) per Share
Basic earnings (loss) per share is determined by dividing net income (loss) by
the weighted average number of common shares outstanding during each period.
Diluted earnings per share includes the effects of potentially issuable common
stock, but only if dilutive. The treasury stock method, using the average price
of the Company 's stock for the period, is applied to determine the dilution
from stock options, warrants, convertible debt and Series A Convertible
Preferred Stock. These securities were excluded for the years ended December 31,
2000 and 1999 as anti-dilutive because of the net loss reported for those years.
Year Ended December 31,
------------------------------------------------------------
2000 1999 1998
------------ ------------ ------------
Basic Earnings (Loss) per Share:
Numerator-
Net income (loss) attributable
to common stock $(15,361,607) $ (3,281,539) $ 3,475,386
Denominator-
Weighted average shares outstanding 2,211,351 3,541,880 4,803,735
------------ ------------ ------------
Basic Earnings (Loss) per Share $ (6.95) $ (0.93) $ 0.72
============ ============ ============
Diluted Earnings (Loss) per Share:
Numerator-
Net income (loss) attributable
to common stock $(15,361,607) $ (3,281,539) $ 3,475,386
Interest on convertible debt, net
of tax effect -- -- 8,400
------------ ------------ ------------
(15,361,607) (3,281,539 3,483,786
------------ ------------ ------------
Denominator-
Weighted average shares outstanding 2,211,351 3,541,880 4,803,735
Options -- -- 134,633
Warrants -- -- 346,865
Convertible debt -- -- 76,667
Convertible preferred stock -- -- 103,093
------------ ------------ ------------
2,211,351 3,541,880 5,464,993
------------ ------------ ------------
Diluted Earnings (Loss) per Share $ (6.95) $ (0.93) $ 0.64
============ ============ ============
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive "Income", prescribes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income, as defined, includes all changes in
equity during a period from non-owner sources (revenues, expenses, gains and
losses). From its inception through December 31, 2000, the Company's
comprehensive income (loss) has been the same as its net income (loss).
18
New Accounting Standards
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delayed the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), until fiscal quarters of
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
instruments embedded in other contracts, and for hedging activities. SFAS 133
requires the recognition of all derivatives as either assets or liabilities and
the measurement of those instruments at fair value. It also specifies the
accounting for changes in the fair value of a derivative instrument depending on
the intended use of the instruments and whether (and how) it is designated as a
hedge. As of December 31, 2000, the Company was not engaged in any derivative
financial instruments and accordingly, there was no effect of adopting SFAS 133
on January 1, 2001.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. ACQUISITIONS:
1998 Acquisitions
In January 1998, the Company acquired the business of Laser Visioncare, a
Tacoma, Washington based laser eye surgery clinic. In connection with this
transaction, the Company issued 5,000 shares of its common stock, having a fair
value of $25,000, to Laser Visioncare shareholders and assumed Laser
Visioncare's laser and facility leases. The doctor shareholders of Laser
Visioncare agreed to reimburse the Company (subject to certain limitations) for
payments made under the laser lease through a deduction from professional fees
otherwise payable to the doctors for laser correction procedures performed. In
connection with this transaction, the Company recorded a receivable related to
the laser lease reimbursement agreement, capitalized the laser and recorded the
related lease obligation.
In 1998, the Company issued 10,000 shares of its common stock, having a fair
value of $50,000, to the partners of Nashville Global Vision Limited Partnership
("Global") for the purchase of Global's business. In connection with this
transaction, the Company attributed the $50,000 value of the stock issued to
non-compete arrangements obtained from Global's partners, capitalized the laser
and recorded the related lease obligation. The cost allocated to the non-compete
agreements is amortized over the period of benefit, estimated to be three years.
In 1998, the Company acquired the business of Laser Eye Care Center of Atlanta
("Laser Eye") in exchange for 10,000 shares of its common stock and the
assumption of Laser Eye's laser and facility leases. The fair value of the
10,000 shares of the Company's common stock totaled $50,000 and was attributed
to non-compete arrangements obtained from Laser Eye's members. This cost is
being amortized over the period of benefit, estimated to be three years.
1999 Acquisition
In May 1999, the Company purchased substantially all of the assets of Laser
Northwest, a Seattle, Washington based laser eye surgery clinic, for $803,135.
In connection with this transaction, the Company recorded goodwill for
approximately $292,000, capitalized the laser and other acquired assets, and
attributed approximately $144,000 to non-compete arrangements for payments made
to the physicians for each of their owned units of the partnership. The cost of
both the goodwill and the non-compete arrangements were being amortized over the
period of benefit, estimated to be three years.
19
During 2000, these assets were deemed to be impaired and the remaining book
value is included in the $683,131 asset impairment charge in the accompanying
statement of operations.
4. RELATED PARTY TRANSACTIONS:
The Company has entered into various lease arrangements with the LeaseCos (Note
2) for lasers and other related equipment which are accounted for as capital
leases by the Company (Note 8). Additionally, the LeaseCos have provided
ClearVision Laser Centers - Southern Colorado, LLC ("CVSC"), ClearVision Laser
Centers - Utah, LLC ("CVU") and ClearVision Laser Centers - Denver, LLC ("CVD")
with revolving lines of credit to borrow up to $400,000, $400,000 and $600,000,
respectively. The notes payable by CVSC and CVU were paid in full on their due
dates in 1999. CVD's borrowings under its line of credit totaled $69,667 and
$176,791 as of December 31, 2000 and 1999, respectively. Interest on CVD's line
of credit accrues at 14% per annum and is payable quarterly. The unpaid
principal and interest are due in full on July 31, 2001. Upon the occurrence of
certain events of default, as defined, CVD's revolving line of credit is due and
payable on demand.
During 2000, a director and former officer of the Company acquired the laser
leased by CVSC from SCEL and a new laser and sold those lasers to the Company in
exchange for a note payable totaling $748,713. The Company also acquired the
laser under lease from UEL in exchange for a note payable for $200,000. Interest
expense to the Company under these leases and working capital lines of credit
totaled $310,575, $430,373 and $737,885 for the years ended December 31, 2000,
1999 and 1998, respectively. The LeaseCos are managed by Accel Holdings, Inc., a
company owned by the director and former officer of the Company.
During 1997, the Company acquired two lasers from doctors. One laser was
acquired in exchange for $50,000 cash and a $150,000 note. This note was fully
repaid in 1998. The second laser was acquired by assuming the remaining payments
due by the doctor to the vendor totaling approximately $252,000. Approximately
$7,000 remained outstanding on this note as of December 31, 1999, which was
fully repaid during 2000 (Note 7).
The Company also acquired other medical equipment from doctors during 1997
totaling approximately $68,250. The unpaid balances on notes issued for these
purchases were fully repaid during 1998.
In March 1997, the Company loaned a doctor $50,000 under a five-year note
bearing interest at 8% per annum, payable annually commencing May 1, 1998. This
note was repaid in 1998. Additionally, as of December 31, 1997, the Company had
a $26,885 receivable from CEL which was repaid in 1998.
In August 1998, the Company repurchased 56,250 shares of its common stock from a
principal shareholder and former employee for $225,000.
Under agreements with certain doctors, the Company reimburses the doctors for
marketing costs incurred.
Management and Services Agreement
The Company entered into a Management and Services Agreement with a doctor
effective May 1, 1999 (the "Management Agreement"). Under the Management
Agreement, the Company managed the operations of the doctor's laser center and
provided marketing support through its call-center. As compensation for its
services, the Company received a management fee based upon the number of
procedures performed at the doctor's center each month. Additionally, the
Company leased certain laser equipment to the doctor.
20
The Management Agreement superseded all previous agreements between the Company
and the doctor, including a four-year non-compete agreement executed in April
1997, for which the Company issued the doctor a restricted stock certificate
representing 90,000 shares of the Company's common stock (the "Restricted
Stock"). The non-compete agreement was recorded at the $450,000 value of the
Restricted Stock and was being amortized over the four-year period of the
non-compete agreement. The Restricted Stock was subject to forfeiture only if
the doctor and/or his employees failed to perform a specified minimum number of
procedures annually at Company sites.
As consideration for executing the Management Agreement and the cancellation of
the Restricted Stock, the Company issued the doctor warrants to purchase 90,000
shares of the Company's common stock at $6.53 per share. Warrants for 30,000
shares vested immediately upon grant, with warrants for an additional 30,000
shares scheduled to vest on May 1, 2001 and May 1, 2003, respectively, provided
the Management Agreement was in full force and in effect at the time of vesting.
As a result of this transaction, the Company realized a gain of approximately
$529,000, representing the difference between the fair value of the cancelled
Restricted Stock and the total of (i) the net book value of the initial
non-compete December 31, agreement and (ii) the fair value of the warrants
issued. Approximately $235,000 of the gain was recognized, and is included in
other revenue in the accompanying consolidated statement of operations, for the
year ended December 31, 1999. The doctor terminated the Management Agreement in
July 2000, and the remaining deferred gain of approximately $294,000 was fully
recognized and is included in other revenue in the accompanying consolidated
statement of operations for the year ended December 31, 2000. Additionally, as
part of the termination agreement, the doctor's 60,000 unvested warrants for the
purchase of the Company's common stock were vested.
Management Agreement
In connection with the recapitalization transaction (Note 11), the Company
entered into a five-year management agreement with two purchasers of the Series
A-1 Preferred Stock and the Series A-2 Preferred Stock. Under that agreement,
the investors perform services relating to business and organizational strategy,
financial and investment management, advisory and merchant and investment
banking advice, for an aggregate fee of $250,000 per year. In July 2000, the
investors agreed to suspend the fee under the Management Agreement for one year.
The fee for 2000 is approximately $125,000.
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
Life
(In Years) December 31,
------------ --------------------------------
2000 1999
-------------- --------------
Lasers and medical equipment 3 $ 15,329,470 $ 14,317,712
Laser transport systems 3 991,362 953,018
Computers and office equipment 3 1,401,516 1,048,742
Furniture and fixtures 5 499,617 379,397
Leasehold improvements 5 928,477 485,852
Work in process 16,368 149,046
------------ ------------
19,166,810 17,333,767
Accumulated depreciation
and amortization (12,036,452) (7,515,511)
------------ ------------
Property and equipment, net $ 7,130,358 $ 9,818,256
============ ============
21
6. NON-COMPETE AGREEMENTS:
In 1998, the Company issued a warrant to a doctor for the purchase of 20,000
shares of the Company's common stock for $.01 per share in exchange for a
commitment by the doctor not to compete with the Company and to provide
part-time consulting services for a period of three years. The fair value of
this warrant totaled approximately $80,000 and is amortized over the estimated
three year period of benefit.
In 1998, the Company issued 7,994 shares of its common stock to certain doctors
in connection with the commencement of operations at a new location. The fair
value of these shares totaled approximately $40,000 and is amortized over the
period of benefit, estimated to be three years.
Amortization expense related to non-compete agreements totaled approximately
$182,000, $223,000 and $269,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
As of December 31, 2000, based on the Company's results of operations for 2000,
and due to the adverse conditions in certain of its markets (Note 1), the
Company determined that there was no remaining value to its non-compete
agreements. Accordingly, the Company wrote-off the unamortized book value of
non-compete agreements totaling approximately $208,000, which is included in
asset impairment in the accompanying consolidated statement of operations for
the year ended December 31, 2000.
7. DEBT:
Bank Line of Credit
As of December 31, 1999, the Company had a $1,000,000 bank line of credit, of
which the full amount of the credit facility was outstanding. The line of
credit, which was payable in full on May 10, 2001, was repaid in full and
cancelled in 2000. Borrowings under the line of credit accrued interest at the
bank's prime rate.
Convertible Debt
The Company received proceeds of $40,000 and $190,000 from the sale of
convertible notes during 1997 and 1996, respectively. The convertible notes
accrued interest at an annual rate of 6%, payable semi-annually. In March 1999,
the convertible debt was converted into shares of the Company's common stock at
$3.00 per share.
Other Long-Term Debt
On February 14, 2000, the Company obtained a $10,000,000 credit facility
("Facility"). The Facility consists of: i) a $3,000,000 term loan ("Term Loan")
drawn and used to refinance the existing line of credit and refinance certain
capital lease obligations and ii) a currently unused $7,000,000 revolving credit
loan ("Revolver"). The Facility bears a floating annual interest rate at the
prime rate plus 1.75% on outstanding balances and a fee of 0.5% per annum on the
unused portion of the Revolver, payable monthly. The Facility is secured by
substantially all of the Company's assets. The Term Loan is payable in
forty-eight equal monthly installments beginning February 1, 2001. Draws and/or
repayments on the Revolver can be made monthly through February 14, 2002, at
which time the Revolver converts to a senior amortizing term loan, payable in
thirty-six equal monthly payments (based on a twenty year
22
amortization) with a balloon payment due on February 13, 2005. The Revolver can
be used for general working capital purposes up to $2,000,000, purchases of
equipment and acquisitions subject to the Company meeting certain financial and
non-financial covenants. The Facility contains financial covenants that require
the Company to maintain Senior Debt Service Coverage and Total Debt Service
Coverage Ratios, as defined, of no more than 3 to 1 and Minimum Tangible Net
Worth, as defined, of at least $2,970,000.
As of December 31, 2000, the Company was not in compliance with certain Facility
covenants. Accordingly, the Company is not currently permitted to request draws
under the Revolver and the entire $3,000,000 Term Loan is classified as a
current liability in the accompanying consolidated balance sheet as of December
31, 2000, based on the lender's right to demand repayment. Additionally, the
interest rate on the outstanding balance of the Term Loan was increased by 2%
per annum effective March 1, 2001 due to the defaults existing for certain
facility covenants. Total long-term debt consists of the following:
December 31,
------------------------------
2000 1999
------------- -------------
Bank line of credit $ -- $ 1,000,000
Term Loan 3,000,000 --
Revolving lines of credit - affiliate (Note 4) 69,667 176,791
Note payable; interest at 12% per annum; principal and
interest due monthly through March 2000; collateralized
by laser -- 7,325
Notes payable to a financial institution; interest at rates
ranging from 9.6% to 12.5% per annum; principal and
interest generally due in 36 monthly payments; debt
maturities at various dates through November 2001;
collateralized by lasers and other equipment -- 1,417,448
Note payable to UEL; interest at 8.5% per annum; principal
due in four equal payments through September 2001;
interest due in September 2001 (Note 4) 200,000 --
Note payable to a director and former officer; interest at 10%
per annum; principal and interest due quarterly through
October 2006 (Note 4) 748,713 --
Note payable; interest at 12% per annum; principal and
interest due in 60 monthly payments through October 2005 25,040 --
Notes payable to four related parties and former officers for
escrow releases; interest at a rate of 10% per annum,
principal and interest due in October 2006, or earlier upon
a change in control or 91 days after payment in full of all
amounts due under the Facility; subordinate to the Facility
(Note 11) 909,000 --
Note payable to a financing company; interest at a rate of
9.7% per annum; principal and interest due monthly
through April 2001 84,459 --
------------ -----------
Total 5,036,879 2,601,564
Less- Current portion (3,471,850) (957,159)
------------ -----------
Long-term debt, net of current portion $ 1,565,029 $ 1,644,405
============ ===========
23
Future annual maturities of the Company's long-term debt, including the bank
line of credit and the lines of credit from the LeaseCos (Note 4), but excluding
the effect of the Company's default under its Term Loan, are as follows:
Year ending December 31,
2001 $ 864,707
2002 540,897
2003 552,659
2004 565,657
2005 1,471,756
Thereafter 1,041,203
-----------
$ 5,036,879
===========
Due to the Company's default under its Term Loan, the lender may require the
Company to repay the $3,000,000 outstanding balance prior to its scheduled
maturity, which includes $392,857 in 2001, $428,572 in 2002 through 2004 and
$1,321,427 in 2005.
8. LEASES:
The Company leases its corporate offices and certain laser center facilities
under non-cancelable operating leases. Rental expense for all operating leases
totaled approximately $2,128,000, $1,701,000 and $866,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company also leases excimer
lasers and related equipment under capital lease arrangements with the LeaseCos
(Note 4). In 1998, Accel, as manager of the LeaseCos approved modifications to
the original leases in order to reflect more closely the intended financial
relationship between the LeaseCos and the Company at the inception of the
leases. The implicit interest rates on these leases, as amended, range from
approximately 12.5% to 58.0% per annum.
Assets under capital leases totaled approximately $4,291,000 and $6,320,000 with
total net book value of $1,438,000 and $2,760,000, respectively, at December 31,
2000 and 1999, and are included in property and equipment in the accompanying
consolidated balance sheets. Depreciation of leased assets was approximately
$1,141,000, $1,207,000 and $1,230,000 for the years ended December 31, 2000,
1999 and 1998, respectively. The following is a summary of future minimum lease
payments under capital leases and operating leases having an initial or
remaining non-cancelable term of one year or more as of December 31, 2000.
Capital Operating
Leases Leases
----------- -----------
Year Ending December 31,
2001 $ 1,795,122 $1,945,215
2002 571,418 1,851,074
2003 -- 1,722,697
2004 -- 1,467,728
2005 -- 975,212
Thereafter -- 466,907
----------- ----------
Total minimum lease payments 2,366,540 $8,428,833
==========
Less- amount representing interest (259,535)
-----------
Present value of minimum lease payments 2,107,005
Current maturities of capitalized
lease obligations (1,742,851)
-----------
Capitalized lease obligations $ 364,154
===========
24
9. INCOME TAXES:
As of December 31, 2000, the Company has tax net operating loss carryforwards
("NOLs") of approximately $14,621,000. Of those NOLs, approximately $77,000
expires in 2017, approximately $5,559,000 expires in 2019 and the remaining
approximately $8,985,000 expires in 2020.
As of December 31, 1997, the Company had recorded net deferred tax assets of
approximately $1,827,000 for the future benefit of NOLs and temporary
differences between the financial reporting and income tax bases of assets and
liabilities, with an offsetting valuation allowance for the full amount of those
deferred tax assets. The valuation allowance had been established due to the
uncertainty of the Company's ability to generate taxable income sufficient to
utilize the NOLs before their expiration based upon the results of the Company's
operations through December 31, 1997. For the year ended December 31, 1998, the
Company reversed the entire valuation allowance due to the utilization of most
of the Company's NOLs and management's estimate that it was more likely than not
that the Company would realize the full benefit of the remaining net deferred
tax assets. Due to the factors described in Note 1 (Liquidity and Capital
Resources), a valuation allowance for the full amount of the deferred tax asset
was established during the year ended December 31, 2000.
The components of the (provision for) benefit from income taxes for the years
ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
-------------- -------------- --------------
Current (provision) benefit:
Federal $ -- $ 123,000 $ (214,000)
State (3,303) (15,000) (16,000)
----------- ----------- -----------
Current (provision) benefit (3,303) 108,000 (230,000)
Deferred (provision) benefit:
Federal 3,378,000 1,947,000 (712,000)
State 397,000 229,000 (108,000)
Change in valuation allowance (6,958,000) -- 1,827,000
----------- ----------- -----------
Total deferred tax (provision) benefit (3,183,000) 2,176,000 1,007,000
Less: Benefit credited to stockholders' equity -- (649,000) --
----------- ----------- -----------
Deferred (provision) benefit (3,183,000) 1,527,000 1,007,000
----------- ----------- -----------
Total (provision) benefit $(3,186,303) $ 1,635,000 $ 777,000
=========== =========== ===========
25
The income tax benefits differ from amounts computed by applying the statutory
Federal income tax rate to income before taxes for the years ended December 31,
2000, 1999 and 1998, as follows:
2000 1999 1998
--------------------- ------------------- ----------------------
Amount % Amount % Amount %
------------- ------ ------------ ----- ------------ -----
Computed Federal income tax
benefit (expense) using
statutory rate $3,319,000 34.0% $1,318,000 34.0% $(917,452) 34.0%
Non-deductible expenses
and other (40,000) (0.4) (41,000) (1.1) (50,548) (1.9)
State income taxes, net of
federal benefit 387,000 4.0 153,000 4.0 (82,000) (3.0)
Management/Services
Agreement 100,000 1.0 153,000 4.0 -- --
Other 5,697 0.1 52,000 1.3 -- --
Change in valuation allowance (6,958,000) (71.3) -- -- 1,827,000 67.7
----------- ----- ---------- ----- ---------- ----
Income tax benefit $(3,186,303) 32.6% $1,635,000 42.2% $ 777,000 28.8%
=========== ===== ========== ===== ========== ====
The components of the net deferred tax assets and liabilities as of December 31,
2000 and 1999 are as follows:
2000 1999
-------------- --------------
Compensatory warrants issued $ 99,000 $ 293,000
Capitalized leases, net of depreciation 504,000 242,000
Minority interest in CVSC -- 11,000
Non-compete agreements 215,000 90,000
Accrued expenses 122,000 122,000
Goodwill 354,000 155,000
Net operating losses 5,524,000 2,136,000
AMT credit carryforward 89,000 89,000
Other 51,000 45,000
------------ ------------
Total deferred tax assets 6,958,000 3,183,000
Valuation allowance (6,958,000) --
------------ ------------
Net deferred tax assets -- 3,183,000
Current portion -- (616,000)
------------ ------------
Non-current portion $ -- $ 2,567,000
============ ============
10. SERIES A-1 REDEEMABLE PREFERRED STOCK:
Holders of the Company's Series A-1 Redeemable Preferred Stock (the "Series A-1
Preferred Stock") are entitled to receive dividends at an annual rate of 10%.
All dividends are cumulative, whether or not declared, and are payable
semi-annually in arrears commencing July 1, 1999, to holders of record on the
immediately preceding June 15 or December 15. The Company may, at its sole
option, pay dividends in
26
cash or in additional shares of Series A-1 Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends. In 2000, the
Company issued 409,439 shares of Series A Preferred Stock in payment of accrued
dividends totaling $908,587 at December 31, 1999. As of December 31, 2000,
accrued dividends totaled $1,105,272, which the Company paid through the
issuance of 230,746 additional shares of Series A-1 Preferred Stock in January
2001.
The holders of the Series A-1 Preferred Stock are not entitled to vote on any
matter to be voted upon by the Company's stockholders; however, they are
entitled to a liquidation preference equal to the original issue price plus all
accumulated and unpaid dividends. The Series A-1 Preferred Stock ranks senior to
all classes of common stock and on a parity with the Series A-2 Preferred Stock.
The Series A-1 Preferred Stock is subject to mandatory cash redemption in whole
on the earlier to occur of (i) a "Qualified Public Offering" (an underwritten
public offering of the Company's common stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, the net
proceeds from which exceeds $15 million) or (ii) seven years from the closing of
the Merger, at a redemption price equal to 100% of the liquidation preference,
including all accumulated and unpaid dividends. Upon proper written notice to
holders, the Company may at any time redeem the Series A-1 Preferred Stock, in
whole or in part, at a redemption price equal to 100% of the liquidation
preference, including all accumulated and unpaid dividends.
11. SHAREHOLDERS' EQUITY:
Series A Convertible Preferred Stock
In 1996, the Company issued 103,093 shares of its $.001 par value Series A
Convertible Preferred Stock (the "Series A Preferred") to Omega Health Systems,
Inc. ("Omega") in exchange for $250,000 cash and a commitment by Omega to
provide the Company with various marketing materials and services having an
aggregate value of $250,000. The $250,000 attributed to these marketing
materials and services was expensed by the Company in 1996. Omega also received
warrants for the purchase of 51,546 shares of the Company's common stock,
exercisable from June 30, 1997 through June 30, 1998 at an initial price of
$4.85 per share. The warrants were not exercised by Omega and expired as of June
30, 1998. The fair value of the warrants issued was approximately $20,000, as
determined using a Black-Scholes pricing model, and has been reclassified from
warrants outstanding to additional paid in capital in the accompanying
consolidated balance sheets as of December 31, 1998.
The holders of the Series A Preferred Stock converted their shares into common
stock, on a one for one basis simultaneously with the recapitalization
transaction discussed below.
Series A-2 Convertible Preferred Stock
Holders of the Company's Series A-2 Convertible Preferred Stock (the "Series A-2
Preferred Stock") are not entitled to any dividends; however, they are entitled
to an initial liquidation preference equal to the original issue price.
Additionally, holders of the Series A-2 Preferred Stock are entitled to vote on
any matter to be voted upon by the stockholders of the Company, together with
the holders of common stock or any other class or series of stock, as a single
class.
The Series A-2 Preferred Stock, at the holder's option, is convertible at any
time into shares of the Company's common stock, initially on a one for one
basis. The conversion ratio is subject to adjustment upon the occurrence of
certain events, including among other things, (i) the payment of dividends or
distributions in shares of the Company's common stock, (ii) splits or reverse
splits on the Company's common stock, (iii) the issuance of rights, options or
warrants to all holders of the Company's common
27
stock entitling them to subscribe for the purchase of common stock at a price
per share less than the original issue price of the Series A-2 Preferred Stock
and (iv) certain other transactions in which shares of the Company's common
stock are converted into the right to receive stock, securities or other
property of another corporation.
Recapitalization
On May 26, 1999, the Company's Board of Directors approved an Agreement and Plan
of Merger (the "Agreement") through which the Company completed a
recapitalization effective July 21, 1999. Pursuant to the Agreement, Laser
Acquisition Corp., a newly created Nevada Corporation, merged into the Company
and the Company received cash proceeds from the issuance of preferred stock. The
Company received cash proceeds of approximately $43,259,000, net of offering
costs totaling approximately $2,081,000, from the sale to new investors of
3,787,764 shares of both the Series A-1 Preferred Stock ($4.79 per share) and
the Series A-2 Preferred Stock ($7.18 per share).
Holders of the Company's common stock as of May 26, 1999, were entitled to
receive $11.97 in exchange for each share of common stock held. Alternatively,
stockholders could elect to retain one-half of their shares and receive a
warrant to purchase one-quarter of a share of common stock for each share of
common stock retained by the stockholder (a "New Warrant") and receive $11.97
per share in cancellation of the other one-half of their shares. The Company
distributed $36,973,856 for 3,088,877 shares of common stock tendered and issued
499,433 New Warrants for shares retained by shareholders.
Holders of options to purchase the Company's common stock could retain their
options and receive a New Warrant for each share of common stock issuable upon
exercise of the options retained. Alternatively, holders of the Company's
options could elect to have one-half of their options cancelled and receive
$11.97 per share of common stock issuable under such options less the applicable
option exercise price. The Company distributed $3,736,343 in exchange for
options cancelled, which is included in compensation expense - recapitalization
in the accompanying financial statements. Additionally, the Company issued
132,016 New Warrants for options retained. The fair value of the New Warrants
issued totaled approximately $190,000 and is being recognized over the remaining
vesting period of options retained. For the years ended December 31, 2000 and
1999, $79,459 and $84,825, respectively, were recognized, which is also included
in compensation expense - recapitalization in the accompanying consolidated
financial statements. New Warrants having a fair value of $23,555 on the date of
issuance had been forfeited by terminated employees as of December 31, 2000.
Holders of warrants for the purchase of the Company's common stock could retain
their warrants and receive a New Warrant for each share of common stock issuable
upon exercise of the warrants retained. Alternatively, holders of the Company's
warrants could elect to have any or all of their warrants cancelled and receive
$11.97 per share of common stock issuable under such warrants less the
applicable warrant exercise price. The Company distributed $2,242,554 in
settlement of warrants tendered and issued 37,625 New Warrants for warrants
retained. The total fair value of New Warrants issued for common stock and
warrants retained totaled $2,465,097 and has been allocated ratably to the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock as a cost of
issuance.
Each New Warrant entitles the holder to purchase one-quarter share of the
Company's common stock based upon a purchase price of $5.09 per share. The New
Warrants are exercisable at any time prior to the seventh anniversary of the
closing of the Merger, or the sale or other disposition of all or substantially
all of the Company's assets, whichever occurs first (except that the New
Warrants issued to holders of options will not become exercisable prior to the
time that the associated options become exercisable and must be exercised, if at
all, by the date that is seven years from the closing of the Merger). The
purchase
28
price of $5.09 per share of common stock is subject to adjustment from time to
time in order to reflect the result of stock dividends, stock splits or other
similar events.
Of the cash consideration to be paid to holders of the Company's common stock,
options and warrants, $4.2 million was required to be placed in an escrow
account for approximately two years to cover post-closing claims, if any, made
by the new investors under the Agreement. The escrow account is maintained by a
financial institution and is not an asset of the Company. During 2000, a portion
of the escrow account was distributed to four related parties and former
officers of the Company who loaned the Company $909,000 of the proceeds in
exchange for notes bearing interest at 10% per annum and due in October 2006
(see Note 7).
The new investors, by virtue of their stock ownership and a Voting Trust
Agreement executed by two of the Company's principal shareholders and former
officers, have the voting power sufficient to control most decisions relating to
the Company that require a vote of stockholders. Additionally, the new investors
have the power to elect three of the Company's five directors.
On October 26, 1999, the Company sold an additional 417,710 shares of both the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock for $5,000,000.
12. STOCK OPTIONS AND WARRANTS:
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation" prescribes a fair value based method of accounting
for employee stock options or similar equity instruments. However, SFAS 123
allows the continued measurement of employee compensation expense for these
instruments using the intrinsic value based method prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees", provided that pro forma disclosures are made of net income or loss
as if the fair value based method had been applied.
SFAS 123 requires that equity instruments issued to non-employees for goods or
services be accounted for based on the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably
measurable.
Employee Stock Options
The Company accounts for its stock-based compensation to employees under the
provisions of APB 25 and related interpretations. Under the intrinsic value
based method prescribed by APB 25, no compensation expense is generally
recognized if the exercise price of options or similar equity instruments
granted is at least equal to the fair value of the underlying stock on the date
of grant.
The Company has granted stock options to employees that generally vest over one
to four years and expire three to ten years after the date of grant. The
exercise prices of options granted were generally equal to the fair value of the
Company's common stock on the date of grant, as determined by management.
Certain options, however, contained exercise prices below the current fair value
of the Company's common stock as evidenced by sales to third parties.
Accordingly, the Company recognized compensation expense totaling $37,500,
$44,232 and $48,725 for the years ended December 31, 2000, 1999 and 1998,
respectively.
During July 1999, the Company adopted the 1999 Stock Option Plan (the "Plan")
under which 1,256,455 shares of common stock are authorized for issuance to
qualified participants under the Plan. The option
29
price per share is equal to the fair market value at the time the option is
granted or, with respect to a nonqualified stock option, such other price as
determined by the Compensation Committee of the Board of Directors; provided
however, that the option price per share for any incentive stock option granted
to an employee who owns more than 10% of the combined voting power of all
classes of the Company's stock shall equal 110% of the fair market value at the
time the Incentive Stock Option is granted. All stock options granted under the
Plan have a maximum term of ten years.
Non-employee Warrants
The Company has granted warrants for the purchase of its common stock to certain
non-employees, including vendors and physicians, for services provided or in
connection with the expansion of the Company's operations into new markets. In
accordance with SFAS 123, the Company accounts for the issuance of equity
instruments to non-employees based upon their fair value as determined using a
Black Scholes pricing model. The warrants issued to non-employees are generally
exercisable upon issuance and expire three to five years after the date of
grant. The Company recognized $29,050, $55,220 and $69,986 for warrants issued
to non-employees which is included in general and administrative expenses in the
accompanying consolidated statements of operations for the years ended December
31, 2000, 1999 and 1998, respectively.
For accounting purposes, warrants granted were valued utilizing a Black-Scholes
option pricing model with the following weighted average assumptions.
Years Ended December 31,
----------------------------------------------
2000 1999 1998
------------- ------------ ------------
Risk-free interest rate 6.4% 5.9% 5.6%
Expected dividend yield 0% 0% 0%
Expected lives outstanding 7.0 years 6.7 years 3.5 years
Expected volatility 60% 58% 0%
Summary of Options and Warrants
A summary of the Company's stock option and warrant activity for the years ended
December 31, 2000, 1999 and 1998 is as follows:
Options Warrants
----------------------------- -----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ------------ ------------ ------------
Outstanding, December 31, 1997 659,800 $3.76 855,046 $3.19
Granted 383,500 5.25 69,000 3.55
Exercised (325) 4.00 (84,000) 1.25
Cancelled/Forfeited (28,900) 5.90 (123,546) 3.25
--------- ----- ----------- -----
Outstanding, December 31, 1998 1,014,075 $4.26 716,500 $3.44
========= ===== =========== =====
Granted 974,000 6.53 789,164 5.30
Exercised (2,880) 5.55 (261,750) 3.60
Cancelled (502,083) 4.13 (348,304) 2.73
--------- ----- ----------- -----
Outstanding, December 31, 1999 1,483,112 5.79 895,610 5.31
========= ===== =========== =====
30
Options Warrants
----------------------------- -----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ------------ ------------ ------------
Granted 162,000 $6.53 20,000 $6.53
Exercised (9,800) 4.95 (28,950) 4.11
Cancelled (529,786) 5.92 (117,490) 6.05
--------- ----- ---------- -----
Outstanding, December 31, 2000 1,105,526 $5.85 769,170 $5.28
========= ===== ========== =====
Options Options Options
Granted Granted Granted
Above At Below
Fair Value Fair Value Fair Value Warrants
---------- ---------- ---------- --------
Weighted average fair value of
options/warrants granted during
the year:
1998 $0.86 $1.59 $ -- $2.28
1999 $0.39 $2.22 $ -- $4.34
2000 -- $2.30 $ -- $4.32
The following table summarizes information about the stock options outstanding
and exercisable as of December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------ ----------------------------
Weighted
Average Weighted
Remaining Weighted Average
Range of Number Contractual Average Number Exercise
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Price
-------------------- ------------- ------------- ---------------- ------------- ----------
$ 1.50-$ 2.25 35,575 .2 $2.00 35,575 $2.00
$ 3.75-$ 4.50 160,137 .4 $4.00 159,562 $4.00
$ 4.51-$ 5.25 113,112 3.9 $5.00 51,570 $5.00
$ 5.26-$ 6.00 36,454 .2 $5.75 36,454 $5.75
$ 6.01-$ 6.75 753,998 7.3 $6.53 254,414 $6.53
$ 6.76-$ 7.50 6,250 .2 $7.50 6,250 $7.50
31
The following table summarizes information about the warrants outstanding and
exercisable as of December 31, 2000:
Warrants Outstanding Warrants Exercisable
---------------------------------- ---------------------------
Weighted
Average Weighted
Remaining Weighted Average
Range of Number Contractual Average Number Exercise
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Price
--------------- ----------- ------------ -------------- ----------- --------
$.001-$0.75 8,000 1.6 $0.01 8,000 $0.01
$1.50-$2.25 6,250 .2 $2.00 6,250 $2.00
$4.50-$5.25 648,920 5.1 $5.09 640,949 $5.09
$6.01-$6.75 105,000 4.2 $6.53 35,000 $6.53
$6.76-$7.50 1,000 .7 $7.50 1,000 $7.50
Pro Forma Disclosures
As discussed above, the Company has elected to account for its employee stock
options under the provisions of APB 25. In accordance with SFAS 123, the Company
has computed its pro forma net income as if the Company had accounted for its
employee stock options using the fair value method prescribed by that statement.
The fair value of the employee stock options was determined using the minimum
value method which assumes no volatility and the following weighted-average
assumptions:
Year Ended December 31,
--------------------------------------------
2000 1999 1998
---------- ---------- ----------
Risk-free interest rate 6.40% 6.02% 5.72%
Volatility 0% 0% 0%
Dividend yield 0% 0% 0%
Expected term 7.00 years 7.00 years 6.75 years
The aggregate estimated fair value of stock options granted in 2000, 1999 and
1998 was $372,566, $1,986,949 and $557,152, respectively. For purposes of pro
forma disclosures, the estimated fair value of options is amortized to expense
over the options' vesting period. All options are initially assumed to vest.
32
Compensation previously recognized is reversed to the extent applicable to
forfeitures of unvested options. The Company's pro forma net loss for the years
ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
------------ ----------- ----------
Net Income (Loss) Attributable
to Common Stock:
As Reported $(15,361,607) $(3,281,539) $3,475,386
Pro Forma $(16,626,593) $(4,113,087) $3,225,227
Net Income (Loss) per Share:
As Reported--Diluted $ (6.95) $ (0.93) $ 0.64
Pro Forma--Diluted $ (7.52) $ (1.16) $ 0.59
13. RETIREMENT PLAN:
The Company sponsors a plan known as ClearVision Laser Centers, Inc. 401(k)
Profit Sharing Plan and Trust (the "Plan"). Substantially all of the Company's
employees of at least 21 years of age are eligible to participate after nine
months of employment. The Company can make matching contributions at its
discretion. The Company's matching contributions to the Plan totaled
approximately $151,705, $97,000 and $44,000 for the years ended December 31,
2000, 1999 and 1998, respectively.
14. COMMITMENTS AND CONTINGENCIES:
The Company previously offered, subject to certain exclusions, a lifetime
warranty program through which enhancement procedures are available at no charge
to qualified patients who comply with the specified terms and conditions of the
program following their initial laser vision correction procedure. The Company
has accrued approximately $68,000 and $68,000 for costs associated with
potential future enhancement procedures related to laser vision correction
procedures performed through December 31, 2000 and 1999, respectively.
The Company is subject to various legal proceedings and claims that arise in the
ordinary course of its business. Management believes the ultimate resolution of
these matters will not have a material adverse affect on the Company's financial
position or results of operations.
33
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As Of June 30, 2001 and December 31, 2000
and For The Six Months Ended June 30, 2001 and 2000
34
Page 1 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
(Unaudited)
ASSETS June 30, December 31,
------ 2001 2000
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 983,913 $ 1,262,986
Trade accounts receivable, net of allowance for doubtful
accounts of $1,208,000 and $1,711,000, respectively 316,560 522,512
Other receivables 206,298 312,998
Prepaid royalty cards 269,881 254,050
Other current assets 84,125 210,693
------------ ------------
Total current assets 1,860,777 2,563,239
PROPERTY AND EQUIPMENT: 18,696,828 19,166,810
Less-accumulated depreciation and amortization (13,730,015) (12,036,452)
------------ ------------
Property and equipment, net 4,966,813 7,130,358
------------ ------------
OTHER NON-CURRENT ASSETS:
Investments in unconsolidated affiliates 424,971 459,032
Other non-current assets 221,880 243,555
------------ ------------
Total other non-current assets 646,851 702,587
------------ ------------
TOTAL ASSETS $ 7,474,441 $ 10,396,184
============ ============
The accompanying notes to financial statements
are an integral part of these condensed consolidated balance sheets.
35
Page 2 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) June 30, December 31,
2001 2000
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 4,075,260 $ 3,954,087
Patient deposits 54,253 106,591
Accrued interest payable 221,772 149,969
Accrued expenses 692,400 906,970
Current maturities of revolving lines
of credit and notes payable - affiliate (Note 4) 238,111 382,808
Current maturities of long-term debt and capitalized
lease obligations (Notes 4 and 5) 4,201,662 4,831,893
Other current liabilities 103,685 158,685
------------ ------------
Total current liabilities 9,587,143 10,491,003
------------ ------------
LONG-TERM LIABILITIES:
Notes payable - related parties (Note 4) 1,486,753 1,544,572
Other long-term debt (Note 4) 58,368 20,457
Capitalized lease obligations (Note 5) 37,535 364,154
------------ ------------
Total long-term liabilities 1,582,656 1,929,183
------------ ------------
SERIES A-1 REDEEMABLE PREFERRED STOCK 23,072,669 21,780,526
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Series A-2 convertible preferred stock, no par value, 20,000,000
shares authorized; 4,205,474 shares issued and outstanding 27,468,024 27,468,024
Common stock, $.001 par value; 72,000,000 shares authorized;
2,220,271 shares issued and 2,074,021 shares outstanding 2,220 2,220
Additional paid-in capital (deficit) (32,984,757) (32,984,757)
Warrants outstanding 3,061,447 3,056,797
Common stock held in treasury, at cost (146,250 shares) (1,302,300) (1,302,300)
Accumulated deficit (23,012,662) (20,044,512)
------------ ------------
Total stockholders' equity (deficit) (26,768,027) (23,804,528)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 7,474,441 $ 10,396,184
============ ============
The accompanying notes to financial statements
are an integral part of these condensed consolidated balance sheets.
36
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
------------ ------------
REVENUE:
Professional medical services revenue, net $ 11,846,698 $ 16,859,550
Other revenue 181,595 553,164
------------ ------------
Total revenue 12,028,293 17,412,714
COST OF REVENUE:
Royalty fees and medical supplies 3,412,020 4,901,346
Salaries and wages 1,874,148 2,617,186
Depreciation and amortization 2,086,640 2,538,380
Other cost of revenue 2,103,700 2,965,468
------------ ------------
Total cost of revenue 9,476,508 13,022,380
------------ ------------
Gross profit 2,551,785 4,390,334
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries and wages (exclusive of compensation
expense - recapitalization shown below) 2,072,168 3,912,009
Compensation expense - Recapitalization -- 78,587
Advertising and marketing 613,423 1,835,673
Depreciation and amortization 222,373 201,283
Other selling, general and administrative 1,014,982 1,586,865
------------ ------------
Total selling, general and administrative
expenses 3,922,946 7,614,417
------------ ------------
Loss from operations (1,371,161) (3,224,083)
------------ ------------
OTHER INCOME (EXPENSES):
Equity in income of investees, net 68,508 117,790
Interest expense - affiliate (137,303) (171,933)
Other interest expense (237,218) (232,256)
Other income, net 5,919 513,270
------------ ------------
Total other income (expenses) (300,094) 226,871
------------ ------------
Loss before income taxes (1,671,255) (2,997,212)
Income tax (expense) benefit (4,752) --
------------ ------------
NET LOSS (1,676,007) (2,997,212)
DIVIDENDS AND ACCRETION OF
REDEEMABLE PREFERRED STOCK (1,292,143) (1,177,673)
------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (2,968,150) $ (4,174,885)
============ ============
The accompanying notes to financial statements
are an integral part of these condensed consolidated statements.
37
Page 1 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,676,007) $(2,997,212)
Adjustments to reconcile net loss to net cash
from operating activities-
Amortization of non-compete agreements
and goodwill -- 152,635
Depreciation and amortization 2,340,153 2,582,354
Equity in income of investees (68,508) (117,790)
(Gain) loss on disposal of fixed assets (31,140) --
Gain from Management and Services Agreement (Note 4) -- (36,770)
Warrants issued to non-employees 4,650 31,863
Non-cash compensation for employee warrants -- 78,587
Non-cash compensation for employee options -- 18,750
Effect of changes in operating assets and liabilities-
Trade accounts receivable, net 225,465 557,762
Other receivables 87,188 (570,217)
Prepaid royalty cards (15,831) 681,780
Other current assets 126,568 364,621
Other non-current assets 21,675 (258,542)
Accounts payable 121,173 (572,191)
Patient deposits (52,338) (5,674)
Accrued interest payable 71,803 23,375
Accrued expenses (269,569) (384,091)
----------- -----------
Net cash from operating activities 885,282 (450,760)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (69,070) (1,638,119)
Distribution from unconsolidated affiliates 102,569 49,213
Purchase of minority interest in subsidiary -- (439,572)
----------- -----------
Net cash from investing activities 33,499 (2,028,478)
----------- -----------
The accompanying notes to financial statements
are an integral part of these condensed consolidated statements.
38
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
Page 2 of 2
2001 2000
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under working capital
lines of credit and other payables - affiliate $ (79,372) $ (51,661)
Proceeds from long-term debt -- 3,000,000
Payments on long-term debt and capital
lease obligations (1,118,482) (3,148,919)
Proceeds from exercise of options -- 46,029
Proceeds from exercise of warrants -- 116,755
----------- -----------
Net cash from financing activities (1,197,854) (37,796)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (279,073) (2,517,034)
CASH AND CASH EQUIVALENTS, beginning of period 1,262,986 6,012,550
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 983,913 $ 3,495,516
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the period $ 302,718 $ 380,814
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of promissory notes to common stock $ 76,400 $ --
=========== ===========
Accretion of Series A-1 Preferred Stock $ 131,607 $ 125,033
=========== ===========
Accrued dividends on Series A-1 Preferred Stock $ 1,160,536 $ 1,052,640
=========== ===========
Dividend issue of Series A-1 Preferred Stock $ 1,105,272 $ 908,573
=========== ===========
The accompanying notes to financial statements
are an integral part of these condensed consolidated statements.
39
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF ORGANIZATION:
ClearVision Laser Centers, Inc. (together with its subsidiaries, the "Company"),
a Nevada corporation, was established in 1995 to develop and operate excimer
laser vision correction centers throughout the United States. The Company's
current operations are concentrated in the West Coast, Rocky Mountain, Midwest
and Southern regions of the United States. The Company contracts with
independent ophthalmologists and optometrists ("doctors") for the use of its
centers. The excimer laser can be used to treat refractive optical disorders
such as nearsightedness, farsightedness and astigmatism to eliminate or reduce
the need for corrective lenses. For each of its owned centers, the Company
manages the daily operations and provides all of the necessary services and
equipment, other than those professional services performed by a doctor. In
addition, the Company provides a broad range of related services, including
doctor and staff training, technical support services and maintenance, and
advertising and marketing programs and services.
Risks and Uncertainties
The Company competes with several other providers of fixed-site and mobile laser
centers. The viability of the Company is dependent upon, among other things, the
Company's ability to attract and retain commitments of doctors who perform laser
vision correction procedures, and its ability to obtain new or enhanced medical
devices or advanced technology as it is developed. The Company and its
operations are subject to numerous federal, state and local laws, rules and
regulations, many of which are subject to varying interpretations. As a result,
the potential reach of the laws is uncertain, and some of the Company's
activities could be challenged, which could require changes to certain of the
Company's legal or fee structure or curtailment of certain of its business
activities.
Liquidity and Capital Resources
Since its inception and through June 30, 2001, the Company has generated net
losses totaling $18,265,392, including net losses of $1,676,007 and $2,997,212
for the six months ended June 30, 2001 and 2000, respectively. Beginning in the
third quarter of 2000, management has implemented significant cost saving
measures, including a reduction in the Company's workforce and consolidation of
Company facilities. Additionally, the Company has explored various financing
options and strategic relationships (Note 6). The Company generated cash from
operations of $885,282 for the six month period ended June 30, 2001 as compared
to a net use of cash from operations of $(450,760) for the six month period
ended June 30, 2000.
The auditors' report on the Company's financial statements as of, and for the
year ended, December 31, 2000, expressed substantial doubt regarding the
Company's ability to continue as a going concern due to its continuing losses
and its net capital deficiency.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States and with the
40
instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial
information. Accordingly, these statements do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. All significant intercompany
accounts and transactions have been eliminated in consolidation. Operating
results for the six months ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2001. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and footnotes thereto for the year ended
December 31, 2000.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each reporting
period. Actual results could differ from those estimates.
Investments in Unconsolidated Affiliates
The Company accounts for its investments in less than 50% owned entities using
the equity method of accounting. Under the equity method of accounting, the
Company recognizes, in its financial statements, its proportionate share of the
income and losses of each investee. The Company's investment balances represent
its initial investments, adjusted for its proportionate share of the investees'
income or losses and distributions received from the investees. The Company's
investments consist of the following (together, "the LeaseCos"):
Colorado Excimer Leasing-1, CEL, a limited liability Company, was formed in
LLC February 1995. As of June 30, 2001 and December
31, 2000, the Company owned a 37.3% interest in
CEL
Utah Excimer Leasing, LLC UEL, a limited liability company, was formed in
September 1995. As of June 30, 2001 and December
31, 2000, the Company owned a 49.1% interest in
UEL.
Southern Colorado Excimer SCEL, a limited liability company, was formed in
Leasing, LLC October 1995. As of June 30, 2001 and December
31, 2000, the Company owned an 18% interest in
SCEL.
The LeaseCos were formed primarily to raise capital for the acquisition of
lasers and other equipment used by the Company. Certain individual doctors who
utilize the Company's centers hold the ownership interest in each of the
LeaseCos that is not held by the Company. The LeaseCos obtained third-party
lease financing for lasers and other equipment, which were then leased to the
Company for use in its centers.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable from future
41
undiscounted cash flows. Impairment losses are recorded for the difference
between the carrying value and the fair value of the long-lived asset. The laser
vision correction industry has experienced a significant increase in
competition; including competition from discount providers, which has had a
material negative impact on the Company's results of operations since the second
half of 2000. Due to the expected continuing effects of the increased
competition, management evaluated the carrying value of its long-lived assets
and recorded an impairment as of December 31, 2000, of $683,131 related to its
non-compete agreements and goodwill. These intangible assets were evaluated in
combination with, and based on, the fair value of related long-lived assets. The
estimated fair values of the Company's long-lived assets were based on recent
market transactions. For the six month period ended June 30, 2000, amortization
expense related to goodwill and non-compete agreements totaled approximately
$153,000.
Income Taxes
The Company uses the liability method for measuring and recognizing income
taxes. Deferred income tax assets and liabilities are recognized for the
expected future income tax consequences of temporary differences between the
financial reporting and income tax bases of assets, liabilities and
carryforwards. Deferred tax assets are reduced, if necessary, by a valuation
allowance for the amount of any net deferred tax asset which, more likely than
not based on current circumstances, is not expected to be realized. The Company
recorded a valuation allowance sufficient to fully offset net deferred tax
assets arising during the six-month periods ended June 30, 2001 and 2000, due to
the uncertainty regarding realization of those deferred tax assets. Based on
continuing losses through December 31, 2000 and the projected losses for 2001,
the Company increased its valuation allowance to $6,958,000 to fully offset its
deferred tax assets as of December 31, 2000.
The components of the (provision for) benefit from income taxes for the
six-month periods ended June 30, 2001 and 2000, are as follows:
2001 2000
------------ ------------
Current (provision) benefit:
Federal $ -- $ --
State (4,752) --
--------- ---------
Current (provision) benefit (4,752) --
Deferred (provision) benefit:
Federal 568,000 869,000
State 67,000 120,000
Change in valuation allowance (635,000) (989,000)
--------- ---------
Deferred tax (provision) benefit -- --
--------- ---------
Total (provision) benefit $ (4,752) $ --
========= =========
42
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
June 30, December 31,
Life ------------- --------------
(In Years) 2001 2000
------------ ------------- --------------
Lasers and medical equipment 3 $ 14,793,750 $ 15,329,470
Laser transport systems 3 991,362 991,362
Computers and office equipment 3 1,386,909 1,401,516
Furniture and fixtures 5 491,728 499,617
Leasehold improvements 5 1,033,079 928,477
Work in process -- 16,368
------------ ------------
18,696,828 19,166,810
Accumulated depreciation
and amortization (13,730,015) (12,036,452)
------------ ------------
Property and equipment, net $ 4,966,813 $ 7,130,358
============ ============
4. DEBT:
On February 14, 2000, the Company obtained a $10,000,000 credit facility
("Facility"). The Facility consists of: i) a $3,000,000 term loan ("Term Loan")
drawn and used to refinance the existing line of credit and refinance certain
capital lease obligations and ii) a currently unused $7,000,000 revolving credit
loan ("Revolver"). The Facility bears a floating annual interest rate at the
prime rate plus 1.75% on outstanding balances and a fee of 0.5% per annum on the
unused portion of the Revolver, payable monthly. The Facility is secured by
substantially all of the Company's assets. The Term Loan is payable in
forty-eight equal monthly installments beginning February 1, 2001. Draws and/or
repayments on the Revolver can be made monthly through February 14, 2002, at
which time the Revolver converts to a senior amortizing term loan, payable in
thirty-six equal monthly payments (based on a twenty year amortization) with a
balloon payment due on February 13, 2005. The Revolver can be used for general
working capital purposes up to $2,000,000, purchases of equipment and
acquisitions subject to the Company meeting certain financial and non-financial
covenants. The Facility contains financial covenants that require the Company
to maintain Senior Debt Service Coverage and Total Debt Service Coverage
Ratios, as defined, of 1.35 to 1; a Senior Debt to Adjusted EBITDA Ratio, as
defined, of no more than 3 to 1 and a Minimum Tangible Net Worth, as defined,
of at least $2,970,000.
As of June 30, 2001 and December 31, 2000, the Company was not in compliance
with certain Facility covenants and the Company is not currently permitted to
request draws under the Revolver. The entire outstanding balance under the Term
loan of $2,785,714 and $3,000,000 is classified as a current liability in the
accompanying consolidated balance sheets as of June 30, 2001 and December 31,
2000, respectively, based on the lender's right to demand repayment.
Additionally, the interest rate on the outstanding balance of the Term Loan was
increased by 2% per annum effective March 1, 2001 due to the defaults existing
for certain facility covenants.
43
Total long-term debt consists of the following:
June 30, December 31,
------------- ------------
2001 2000
------------- ------------
Term Loan $ 2,785,714 $ 3,000,000
Revolving lines of credit - affiliate 10,295 69,667
Note payable to UEL; interest at 8.5% per annum;
principal due in four equal payments through
September 2001; interest due in September 2001 100,000 200,000
Note payable to a director and former officer; interest
at 10% per annum; principal and interest due
quarterly through October 2006 725,569 748,713
Note payable; interest at 12% per annum; principal
and interest due in 60 monthly payments through
October 2005 23,795 25,040
Note payable; interest at 10.5% per annum; principal
and interest due in 36 monthly payments through
December 2003 65,271 --
Notes payable to four related parties and former
officers for escrow releases; interest at a rate of
10% per annum, principal and interest due in
October 2006, or earlier upon a change in control
or 91 days after payment in full of all amounts due
under the Facility; subordinate to the Facility 889,000 909,000
Note payable to financing company; interest at a rate
of 9.7% per annum; principal and interest due
monthly through April 2001 -- 84,459
----------- -----------
Total 4,599,644 5,036,879
Less- Current portion (3,054,523) (3,471,850)
----------- -----------
Long-term debt, net of current portion $ 1,545,121 $ 1,565,029
=========== ===========
5. LEASES:
The Company leases its corporate offices and certain laser center facilities
under non-cancelable operating leases. In 2001, the Company amended its
operating lease for its corporate offices to terminate October 31, 2001.
Assets under capital leases totaled approximately $4,153,000 and $4,291,000 with
total net book value of $885,000 and $1,438,000, respectively, at June 30, 2001
and December 31, 2000, and are included in property and equipment in the
accompanying consolidated balance sheets.
44
Depreciation of leased assets was approximately $511,000 and $694,000 for the
six month periods ended June 30, 2001 and 2000, respectively.
The following is a summary of future minimum lease payments under capital leases
and operating leases having an initial or remaining non-cancelable term of one
year or more as of June 30, 2001.
Capital Operating
Leases Leases
----------- -----------
Year Ending June 30,
2002 $ 1,593,111 $ 1,613,844
2003 40,846 1,285,854
2004 -- 1,090,982
2005 -- 777,534
2006 -- 404,787
Thereafter -- 365,188
----------- -----------
Total minimum lease payments 1,633,957 $ 5,538,189
===========
Less- amount representing interest (211,172)
-----------
Present value of minimum lease payments 1,422,785
Current maturities of capitalized
lease obligations (1,385,250)
-----------
Capitalized lease obligations $ 37,535
===========
6. SUBSEQUENT EVENTS:
On August 31, 2001, the Company sold substantially all assets and certain
liabilities (the "Transaction") to Laser Vision Centers, Inc., ("Laser Vision")
a publicly traded company in the refractive laser access business based in St.
Louis, Missouri. Laser Vision paid an aggregate of approximately $4,882,000 in
cash and issued 2,129,085 shares of restricted stock for the net assets
acquired. An aggregate of 750,000 shares of the restricted stock issued was
deposited in an escrow account for one year to be available to satisfy
additional purchase price adjustments that may arise as set forth and defined in
the Asset Purchase Agreement. The cash received will be distributed to the
Company in the amount of $266,079 for the payout of severance to terminated
employees, $375,000 for Transaction expenses and $197,229 for future ongoing
operation costs. Finova Capital Corporation will receive $2,802,012 in
satisfaction of all indebtedness of the Company under the Facility (Note 4).
Certain related party creditors will receive $37,500 from Laser Vision proceeds
and $18,750 from the Company in full satisfaction of $82,169 of outstanding
obligations. Other related party creditors will receive a combination of cash of
$769,784 and an amount equal to the value of an established number of shares of
LVCI stock held by the Company to be paid within 90 days of the first
anniversary of the Transaction in full satisfaction of $1,624,177 of outstanding
obligations. The unconsolidated affiliate, Colorado Excimer Leasing-1, LLC, will
receive $202,750 in full satisfaction of $883,856 of outstanding obligations and
ClearVision will waive its ownership rights to any future distributions of CEL.
CEL will also receive $162,500 in exchange for certain equipment. In addition,
Utah Excimer Leasing, LLC will receive $69,388 in full satisfaction of
approximately $136,323 of outstanding obligations and ClearVision will waive its
ownership rights to any future distributions of UEL.
Following the settlement of remaining obligations, it is the intent of the Board
of Directors to dissolve the Company.
45
Unaudited Pro Forma Financial Information
Item 7(b) - Unaudited Pro Forma Financial Information, including Condensed
Combined Statements of Operations for the year ended April 30, 2001 and for the
three months ended July 31, 2001, Condensed Combined Balance Sheet as of July
31, 2001 and Notes to the Condensed Combined Pro Forma Financial Statements.
On August 31, 2001, Laser Vision Centers, Inc. (LaserVision) acquired certain
assets and liabilities of Clearvision Laser Centers, Inc. (Clearvision) for $4.9
million in cash and 2.1 million shares of restricted common stock of LaserVision
of which 750,000 shares are being held in escrow pending settlement of certain
post-acquisition purchase price contingencies. The acquisition was accounted for
under the purchase method of accounting and resulted in the recognition of
goodwill of approximately $11.0 million. In connection with the acquisition of
Clearvision, LaserVision management does not believe there are material amounts
of separately identifiable assets to be valued apart from goodwill, however,
further studies which are presently in process could possibly identify specific
intangible assets other than goodwill, which would impact the accompanying pro
forma financial information. Clearvision provides excimer laser
access and is based in Lakewood, Colorado.
The unaudited pro forma financial information presents a combination of the
historical financial statements for Laser Vision and Clearvision as adjusted for
the pro forma effects of the acquisition described above. Pro forma statements
of operations are presented for the year ended April 30, 2001 and the three
months ended July 31, 2001 as if the acquisition had occurred as of May 1, 2000.
A pro forma balance sheet is presented as of July 31, 2001 to illustrate the
estimated effects of the acquisition as if it had occurred on this date.
The Pro Forma Condensed Combined Statement of Operations for the year ended
April 30, 2001 includes LaserVision's results of operations for the year ended
April 30, 2001 and Clearvision's results of operations for the twelve months
ended March 31, 2001. The Pro Forma Condensed Combined Statement of Operations
for the three months ended July 31, 2001 includes LaserVision's results of
operations for this period and Clearvision's results of operations for the
three months ended June 30, 2001. The Pro Forma Combined Balance Sheet includes
LaserVision's balance sheet as of July 31, 2001 and Clearvision's balance sheet
as of June 30, 2001. Final purchase accounting adjustments recorded by
LaserVision for the Clearvision acquisition as of August 31, 2001 will differ
from the pro forma adjustments presented herein and described in the
accompanying notes due primarily to the results of operations of Clearvision
from June 30, 2001 to the date of closing, August 31, 2001, and to the
potential allocation of purchase price to specific intangible assets based on
the completion of the studies mentioned above.
Following is a table of the estimated total purchase cost and preliminary
purchase allocation for the Clearvision acquisition:
<Table>
Estimated purchase cost:
------------------------
Estimated value of securities issued $ 6,642,000
Cash paid on Clearvision debt 4,296,000
Direct transaction costs 685,000
-----------
$11,623,000
===========
Purchase price allocation:
--------------------------
Tangible net assets acquired $ 637,000
Identifiable intangible assets 0
Goodwill 10,986,000
-----------
$11,623,000
===========
</Table>
Management believes that the assumptions used in preparing the unaudited pro
forma financial information provide a reasonable basis for presenting all of the
significant effects of the acquisition, that the pro forma adjustments give
appropriate effect to those assumptions, and that the pro forma adjustments are
properly applied in the accompanying unaudited pro forma financial information.
The unaudited pro forma financial information does not purport to represent what
the LaserVision's results of operations or financial condition would actually
have been had such transactions occurred on May 1, 2000 or to project the
LaserVision's results of operations for any future period or financial condition
at any future date. The unaudited pro forma financial information does not
reflect any estimate of cost savings or other efficiencies that may be achieved
from the integration of LaserVision and Clearvision.
46
Laser Vision Centers, Inc.
Pro Forma Combined Statement of Operations (Unaudited)
For the Year Ended April 30, 2001
Dollars in thousands except share and per share data
Historical
-------------------------------- Pro forma Pro forma
LaserVision Clearvision Adjustments Total
----------- ------------ ------------ ------------
Revenue $ 96,073 $ 26,648 $ 122,721
Royalty fees and professional
medical services 22,834 4,415 27,249
Depreciation and amortization 14,616 5,124 $ (3,624)(a) 16,116
Other costs 28,039 12,085 40,124
Gross profit 30,584 5,024 3,624 39,232
Selling, general and
administrative expenses 29,098 13,522 (309)(a)(f) 42,311
Income (loss) from operations 1,486 (8,498) 3,933 (3,079)
Other income (expenses):
Interest expense (1,052) (837) 429(b) (1,460)
Interest income and other 2,192 299 (177)(c) 2,314
Minority interest in net income
of subsidiaries (586) (586)
Gain on sale of equity investment 595 595
Income (loss) before taxes 2,635 (9,036) 4,185 (2,216)
Income tax (expense) benefit (1,387) (3,191) 5,442(d) 864
Net income (loss) 1,248 (12,227) 9,627 (1,352)
Deemed preferred dividends (161) (2,482) 2,482(e) (161)
Net income (loss) applicable to
common stockholders $ 1,087 $ (14,709) $ 12,109 $ (1,513)
Earnings (loss) per share - basic $ 0.04 $ (0.06)
Earnings (loss) per share - diluted $ 0.04 $ (0.06)
Weighted average number of common
shares outstanding, basic 24,264,000 1,379,000(g) 25,634,000(g)
Weighted average number of common
shares outstanding, diluted 24,326,000 2,129,000 26,455,000
See accompanying notes to pro forma combined statement of operations.
47
Footnotes to Pro Forma Combined Statement of Operations - Year ended April 30,
2001
(a) Adjustment to depreciation of Clearvision fixed assets based on fair
value of assets at acquisition and depreciation policies of
LaserVision.
(b) Adjustment of $742,000 to interest expense to reverse interest on
Clearvision debt not assumed or repaid at the acquisition date.
Additional interest of $313,000 has been reflected on the additional
$5,000,000 draw (weighted average interest rate of 6.25% for the
period) on LaserVision line of credit used to finance purchase of
Clearvision.
Increase (decrease) (Increase) decrease
in debt in interest expense
LaserVision
Additional debt and interest expense
at 6.25% on line of credit $ 5,000,000 $(313,000)
Clearvision
Eliminate interest expense on June 30, 2001 debt
repaid or not assumed by LaserVision (4,599,000) 742,000
----------- ---------
401,000 429,000
(c) Adjustment to other income to reverse income on minority ownership in
leasing company which was not continued after LaserVision acquired
Clearvision.
(d) Adjustment to tax (expense) benefit to reflect a 39% income tax rate on
pro forma combined income (loss) before taxes.
(e) Adjustment to eliminate preferred dividends on Clearvision preferred
stock which was not assumed in the acquisition.
(f) Effective May 1, 2001, LaserVision adopted the provisions of SFAS 141,
"Business Combinations" and SFAS 142 "Goodwill and Other Intangible
Assets", and ceased amortization of goodwill. The pro forma combined
statement of operations for the year ended April 30, 2001 does not
reflect any amortization of goodwill relative to the Clearvision
goodwill.
If LaserVision had adopted the provisions of SFAS 141 and 142 on May 1,
2000, LaserVision goodwill amortization of $1,612,000 would not have
been reflected in the pro forma combined statement of operations for
the year ended April 30, 2001, and pro forma net income (loss)
applicable to common stockholders and pro forma earnings (loss) per
share-basic and-diluted would have been $99,000, $0.00 and $0.00,
respectively.
(g) 750,000 LaserVision shares held in escrow are excluded from the
calculation of basic earnings per share.
48
Laser Vision Centers, Inc.
Pro Forma Combined Statement of Operations (Unaudited)
For the three months ended July 31, 2001
Dollars in thousands except share and per share data
Historical
-------------------------------- Pro forma Pro forma
LaserVison Clearvision Adjustments Total
------------ ------------ ---------------- ------------
Revenue $ 25,311 $ 5,396 $ 30,707
Royalty fees and professional
medical services 5,534 1,103 6,637
Depreciation and amortization 3,623 1,015 $ (640)(a) 3,998
Other costs 7,886 2,367 10,253
Gross profit 8,268 911 640 9,819
Selling, general and
administrative expenses 7,793 1,899 (68)(a)(f) 9,624
Income (loss) from operations 475 (988) 708 195
Other income (expenses):
Interest expense (234) (177) 86(b) (325)
Interest income and other 252 37 (33)(c) 256
Minority interest in net income
of subsidiaries (84) (84)
Net income (loss) before taxes 409 (1,128) 761 42
Income tax (expense) benefit (156) 139(d) (17)
Net income (loss) 253 (1,128) 900 25
Deemed preferred dividends -- (646) 646(e) --
Net income (loss) applicable to
common stockholders $ 253 $ (1,774) $ 1,546 $ 25
Earnings per share - basic $ 0.01 $ 0.00
Earnings per share - diluted $ 0.01 $ 0.00
Weighted average number of common
shares outstanding, basic 25,702,000 1,379,000(g) 27,081,000(g)
Weighted average number of common
shares outstanding, diluted 25,885,000 2,129,000 28,014,000
See accompanying notes to pro forma combined statement of operations.
49
Footnotes to Pro Forma Combined Statement of Operations - Three Months ended
July 31, 2001
(a) Adjustment to depreciation of Clearvision fixed assets based on fair
value of assets at acquisition and depreciation policies of
LaserVision.
(b) Adjustment of $155,000 to interest expense to reverse interest on
Clearvision debt not assumed or repaid at the acquisition date.
Additional interest of $69,000 has been reflected on additional
$5,000,000 draw (weighted average interest rate of 5.5% for the period)
on LaserVision line of credit used to finance purchase of Clearvision.
Increase (decrease) (Increase) decrease
in debt in interest expense
LaserVision
Additional debt and interest expense
at 5.5% on line of credit $ 5,000,000 $(69,000)
Clearvision
Eliminate interest expense on June 30, 2001 debt
repaid or not assumed by LaserVision (4,599,000) 155,000
----------- --------
401,000 86,000
(c) Adjustment to other income to reverse income on minority ownership in
leasing company which was not continued after LaserVision acquired
Clearvision.
(d) Adjustment to tax (expense) benefit to reflect a 39% income tax rate on
pro forma combined income (loss) before taxes.
(e) Adjustment to eliminate preferred dividends on Clearvision redeemable
preferred stock which was not assumed in the acquisition.
(f) Effective May 1, 2001, LaserVision adopted the provisions of SFAS 141,
"Business Combinations" and SFAS 142, "Goodwill and Other Intangible
Assets," and ceased amortization of goodwill. The pro forma combined
statement of operations for the three months ended July 31, 2001 does
not reflect any amortization of goodwill.
(g) 750,000 LaserVision shares held in escrow are excluded from the
calculation of basic earnings per share.
50
Laser Vision Centers, Inc.
Pro Forma Combined Balance Sheet (Unaudited)
July 31, 2001
Dollars in thousands
Pro Forma Pro Forma
LaserVision Clearvision Adjustments Total
----------- ----------- ----------- ---------
Assets
Current assets:
Cash and cash equivalents $ 17,834 $ 984 $ (266)(a)
(572)(b)
(2,802)(c)
(1,494)(d)
5,000 (h) $ 18,684
Short-term investments 5,953 5,953
Accounts receivable, net 9,547 317 9,864
Inventory 3,750 270 4,020
Prepaid expenses and
other current assets 2,127 290 (189)(k) 2,228
Deferred tax asset 3,250 3,250
Total current assets 42,461 1,861 (323) 43,999
Property and equipment:
Laser equipment 44,988 9,732 (6,562)(i) 48,158
Medical equipment 10,102 5,062 (3,542)(i) 11,622
Mobile equipment 13,997 992 (752)(i) 14,237
Furniture and fixtures 4,424 2,911 (2,791)(i) 4,544
Accumulated depreciation (35,811) (13,730) 13,730 (i) (35,811)
Total equipment 37,700 4,967 83 42,750
Other assets
Deferred tax assets 6,829 6,829
Goodwill, net 22,528 716 (a)
1,257 (b)
(303)(e)
(222)(e)
3,696 (f)
6,642 (g)
(83)(i)
(335)(j)
(328)(k) 33,568
Receivable from minority interest 442 442
Deferred contract rights 12,592 12,592
Other 594 646 (155)(b)
(425)(k) 660
Total other assets 42,985 646 10,460 54,091
Total assets $123,146 $ 7,474 $10,220 $140,840
See accompanying notes to July 31, 2001 pro forma combined balance sheet.
51
Laser Vision Centers, Inc.
Pro Forma Combined Balance Sheet (Unaudited), continued
July 31, 2001
Dollars in thousands
Pro Forma Pro Forma
LaserVision Clearvision Adjustments Total
---------- ----------- ----------- ---------
Current Liabilities
Current portion of notes payable $ 6,499 $ 3,054 $ (2,802)(c)
(252)(d) $ 6,499
Current portion of leases 1,452 1,385 2,837
Accounts payable 5,267 4,075 (335)(j)
(942)(k) 8,065
Accrued compensation 1,236 1,236
Other accrued liabilities 6,229 1,073 (222)(e)
530 (b)
450 (a) 8,060
Total current liabilities 20,683 9,587 (3,573) 26,697
Non-current liabilities
Line of credit 2,011 5,000 (h) 7,011
Notes payable 2,567 1,545 (1,242)(d)
(303)(e) 2,567
Capitalized lease obligations 3,329 38 3,367
Total non-current liabilities 7,907 1,583 3,455 12,945
Minority interests 1,280 1,280
Redeemable preferred stock 23,073 (23,073)(f)
Stockholders equity
Convertible preferred stock 27,468 (27,468)(f)
Common stock 259 2 (2)(f)
21 (g) 280
Treasury stock (323) (1,302) 1,302 (f) (323)
Warrants and options 1,144 3,061 (3,061)(f) 1,144
Paid in capital 110,924 (32,985) 32,985 (f)
6,621 (g) 117,545
Accumulated deficit (18,728) (23,013) 23,013 (f) (18,728)
Total stockholders equity 93,276 (26,769) 33,411 99,918
Total liabilities and stockholders equity $123,146 $ 7,474 $ 10,220 $140,840
See accompanying notes to July 31, 2001 pro forma combined balance sheet.
52
Notes to July 31, 2001 Pro Forma Combined Balance Sheet
(a) Adjustment to reflect severance payment totalling $266,000 and accrual
of $450,000 for severance and related obligations to former Clearvision
employees for services rendered prior to August 31, 2001.
(b) Adjustment of $572,000 to reflect payment of transaction expenses and
other payments to major stockholders of Clearvision. Adjustment to
reclassify $155,000 of deferred LaserVision transaction costs
(previously paid to third party advisors) to goodwill. Adjustment to
accrue legal and accounting fees of $120,000 and investment banker fees
of $410,000 incurred by LaserVision relative to the transaction.
(c) Adjustment to reflect payment of bank debt of Clearvision with proceeds
of the transaction.
(d) Adjustment to reflect payment of other debt of Clearvision with
proceeds of the transaction.
(e) Adjustment to eliminate debt and accrued interest not assumed by
LaserVision as part of the Clearvision acquisition. This debt and
accrued interest were forgiven by the various respective debt holders.
(f) Adjustment to eliminate Clearvision historical equity accounts.
(g) Adjustment to record LaserVision stock issued: 2,129,085 shares at
$3.12, the average of the closing market prices from August 7, 2001
through August 13, 2001, two days prior through two days following the
announcement of the acquisition of Clearvision by LaserVision. 750,000
of these common shares are being held in an escrow account pending
settlement of certain post-acquisition purchase price contingencies.
(h) Adjustment to record draw on LaSalle line of credit by LaserVision to
fund cash portion of purchase price and related transaction costs.
(i) Adjustment to record property and equipment at estimated fair market
value. Under LaserVision depreciation policies, the remaining useful
lives of the various Clearvision property and equipment categories are
as follows:
Category Life
-------- ----
a. Lasers 3.5 years
b. Medical equipment 2.5 years
c. Mobile equipment 3.0 years
d. Furniture, fixtures and leasehold improvements 3.0 years
(j) Adjustment to record vendor concessions agreed to as of the transaction
closing date on amounts owed by Clearvision.
(k) Adjustment to eliminate investment in unconsolidated affiliate and
related receivable and payable from/to affiliate as such amounts were
not acquired or assumed by LaserVision in the acquisition of
Clearvision.
Note: Goodwill/Intangibles
In connection with the acquisition of Clearvision, LaserVision management does
not believe there are material amounts of separately identifiable intangible
assets to be valued apart from goodwill; however, further studies which are
presently in process could possibly identify specific intangible assets other
than goodwill, which would impact the accompanying pro forma financial
information.
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
LaserVision has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 11, 2001
LASER VISION CENTERS, INC.
By /s/ Robert W. May
----------------------------------
Robert W. May
Vice Chairman and General Counsel
54
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1* Asset Purchase Agreement, dated as of August 9, 2001, by and among
Laser Vision Centers, Inc., ClearVision Laser Centers, Inc.,
ClearVision Laser Centers - Western, LLC, ClearVision Laser Centers -
Sunshine, LLC, ClearVision Laser Centers - Peachtree, LLC,
ClearVision Laser Centers - Pacific Northwest, LLC, ClearVision Laser
Centers - Keystone, LLC, ClearVision Laser Centers - Chesapeake, LLC,
ClearVision Laser Centers - Great Lakes, LLC and ClearVision Laser
Centers - Rocky Mountain, LLC.
2.2* Escrow Agreement, dated as of August 31, 2001, by and among Laser
Vision Centers, Inc., ClearVision Laser Centers, Inc., ClearVision
Laser Centers - Western, LLC, ClearVision Laser Centers - Sunshine,
LLC, ClearVision Laser Centers - Peachtree, LLC, ClearVision Laser
Centers - Pacific Northwest, LLC, ClearVision Laser Centers -
Keystone, LLC, ClearVision Laser Centers - Chesapeake, LLC,
ClearVision Laser Centers - Great Lakes, LLC, ClearVision Laser
Centers - Rocky Mountain, LLC and A.G. Edwards Trust Company FSB.
2.3* Registration Rights Agreement, dated as of August 31, 2001, by and
among Laser Vision Centers, Inc. and ClearVision Laser Centers, Inc.
23** Consent of Arthur Andersen LLP.
---------------
* Previously filed as exhibits to the Registrant's current Report on Form 8-K
filed on September 9, 2001.
** Filed herewith