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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
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/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED APRIL 1996
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1-10629
Commission File Number
LASER VISION CENTERS, INC.
(Name of Registrant as Specified in its Charter)
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DELAWARE 43-1530063
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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540 MARYVILLE CENTRE DRIVE, SUITE 200
ST. LOUIS, MISSOURI 63141
(Address of Principal Executive Offices)
(314) 434-6900
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, Boston Stock Exchange
$.01 Par Value
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value,
Redeemable Class C, D, and E Common Stock Purchase Warrants
(Title of Class)
Check whether the Company: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for past 90 days. YES /X/ NO / /
The aggregate market value of the voting stock of the Company held by
non-affiliates as of July 18, 1996 was approximately $53,865,000.
CLASSES OF COMMON EQUITY OUTSTANDING AS OF JULY 18, 1996
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Common Stock, $.01 par value...................................... 8,264,556
Class C Warrants.................................................. 24,000
Class D Warrants.................................................. 15,150
Class E Warrants.................................................. 24,500
Underwriter Unit Warrants......................................... 46,888
Other Registered Warrants......................................... 1,100,700
Other Unregistered Warrants....................................... 560,000
Incentive Stock Options......................................... 316,135
Non-Qualified Options........................................... 231,000
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DOCUMENTS INCORPORATED BY REFERENCE
The Company incorporates by reference various exhibits from the Company's
1991 Registration Statement, file No. 33-33843, the Company's November 1993
Registration Statements, file Numbers 33-67328 and 33-58618, the Company's
September 1994 Registration Statement, file No. 33-94050, and periodic reports
filed under the Exchange Act.
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ITEM 1
DESCRIPTION OF BUSINESS
The Company is the world's largest provider of access to excimer lasers and
related services for the treatment of refractive vision disorders and has 30
lasers currently in use in the United States, Canada and Europe. The Company is
also the world's only operator of mobile excimer laser systems. The excimer
laser can be used to treat refractive vision disorders such as nearsightedness
and astigmatism to eliminate or reduce the need for corrective lenses.
LaserVision Centers operate on a shared-access model, giving individual or group
ophthalmic practices use of excimer laser technology without investment risk or
maintenance requirements, thereby allowing optimal use of the excimer laser
equipment. In addition, the Company provides a broad range of professional
services, including physician and staff training, technical support services and
maintenance and, through its MarketVision and MedSource divisions, advertising
and marketing programs and services.
The Company has operated excimer laser centers in Canada and Europe since
1991 and 1993, respectively. Following the recent approval of the excimer laser
technology by the FDA to treat certain refractive vision disorders, the Company
began developing centers in the United States. The Company currently operates 14
centers in the United States, with plans to open additional centers. The Company
currently provides excimer lasers and related services to fixed-site centers in
the United States, Canada, the United Kingdom, Finland, Greece, Sweden and
Ireland and operates the MobilExcimer in Canada and the United Kingdom. In the
United States, fixed-site laser centers are operated in conjunction with
Columbia Healthcare or by the Company independently or through joint ventures.
In anticipation of the FDA's approval of the excimer laser to perform PRK
procedures, the Company developed a relationship with Columbia Healthcare
whereby the Company would become the primary provider of excimer lasers to
Columbia Healthcare ambulatory surgery centers. Since 1992, the Company has had
an option to provide excimer laser surgery equipment, training and services to
Columbia Healthcare once the excimer laser technology was approved by the FDA.
In December 1994, this mutually exclusive agreement was revised to expand the
number of potential sites to include all of the approximately 130 Columbia
Healthcare ambulatory surgery centers in 27 states nationwide. To date, the
Company is operating 12 centers pursuant to this agreement.
In addition to operating fixed-site centers, the Company has developed a
proprietary MobilExcimer system, which is a self-contained mobile refractive
laser surgery center duplicating all of the equipment and services typically
found in a fixed-site location. The Company has entered into a mutually
exclusive agreement with Calumet Coach Company, the world's leading manufacturer
of mobile medical systems, to build the MobilExcimer. This proprietary system
gives the Company flexibility which the Company believes is not currently
available to its competitors and is intended to help the Company achieve broader
penetration of both domestic and international markets. The Company plans to use
the MobilExcimer to provide laser access and related services to communities
where the Company's potential patient base is insufficient to sustain a
fixed-site center, thereby enhancing the Company's ability to expand quickly
into multiple markets. The Company recently submitted an application for PMA
with the FDA for use of the excimer laser for treatment of low to moderate
myopia, which is the first step in seeking approval for the MobilExcimer laser
system.
Currently, the Company provides access to 28 fixed-site lasers -- 12 in
Europe, 1 in Canada and 15 in the United States. The Company also has two mobile
systems in operation, one in Europe and one in Canada. The Company continues to
explore opportunities to expand both its domestic and international operations.
VISION DISORDERS
The human eye is approximately 25 millimeters in diameter and functions
much like a camera, incorporating a lens system which focuses light (the cornea
and the lens), a variable aperture system which regulates the amount of light
passing through the eye (the iris) and film which records the image
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(the retina). Light from a distant object passes through the cornea, iris, and
lens, which focus the light on the retina. The retina contains light sensitive
receptors which transmit the image through the optic nerve to the brain.
Seventy-five percent of the focusing power of the eye is provided by the
curvature of the corneal surface.
Two major categories of vision disorders are refractive and pathological
disorders. Refractive disorders result from an inability of the optic system to
properly focus images on the retina. Nearsightedness (myopia), farsightedness
(hyperopia) and astigmatism are the most common refractive disorders. The amount
of refraction is dependent on the shape (specifically, the curvature) of the
cornea. If the curvature is not correct, the cornea cannot properly focus the
light passing through it onto the retina, and the individual will perceive a
blurred image.
Currently eyeglasses or contact lenses are most often used to treat
refractive disorders. They may also be treated by several surgical techniques
such as radial keratotomy ("RK"). RK is a surgical procedure used to correct
myopia in which an ophthalmologist uses a scalpel to make a series of cuts
approximately 400 to 450 microns deep in a radial configuration around the
periphery of the cornea. The healing of the incisions causes a flattening of the
cornea and corrects small to moderate amounts of myopia. Other techniques in use
are keratomileusis, which involves freezing the cornea and reshaping it, and
automated lamellar keratoplasty ("ALK"), which involves using a microkeratone to
remove microscopic amounts of corneal tissue.
Another major category of vision problems is pathological disorders.
Traumatic, congenital and pathological sources cause defects in the cornea which
result in restricted vision. A typical medical alternative for treatment of
these conditions is a corneal transplant which involves major surgery and is
dependent on the availability of a suitable donor cornea and on the individual
surgeon's skill and experience. Corneal transplants frequently produce irregular
corneal surfaces which compromise the patient's vision. Another major concern
regarding corneal transplantation involves the possibility of transmission of
viruses that could infect the patient.
An industry source estimates that 145 million people in the United States
currently use eyeglasses and/or contact lenses to correct refractive vision
disorders. Of these individuals, an estimated 66 million suffer from
nearsightedness, with approximately 60% of nearsighted persons estimated to have
vision disorders within the criteria currently approved by the FDA for treatment
with excimer lasers. The Company estimates that approximately one-fourth of all
sufferers of nearsightedness also experience astigmatism and an additional 23
million people in the United States suffer from astigmatism but do not
experience nearsightedness. According to industry sources, consumers in the
United States spent approximately $13 billion on eyeglasses, contact lenses and
other corrective lenses in 1994. The Company believes that excimer laser surgery
will make it possible for many of these people to eliminate or reduce their
reliance on corrective lenses. In particular, the Company believes that many of
the approximately 26 million contact lenses users in the United States will be
particularly receptive to laser surgery as they have already chosen to use an
alternative to eyeglasses for vision correction.
Industry sources estimate that 200,000 RK procedures were performed in the
United States in 1994. Because RK is a manual procedure and is not performed
with a computer-controlled device, it is highly dependent on the surgical skill
of the ophthalmologist performing the procedure. In addition, because RK
involves incisions into the corneal tissue, it weakens the structure of the
cornea which can have adverse consequences as patients age. Furthermore, RK has
never undergone a controlled clinical study under an FDA protocol because no
medical devices, other than a scalpel, are used in the procedure. The Company
believes, based on currently available follow-up data and market trends in
countries where laser surgery is commercially available, that more people will
seek vision correction through laser surgery than through RK because PRK
involves reduced surgical risk, does not weaken the corneal tissue, is less
invasive and is less dependent on the ophthalmologist's skill.
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EXCIMER LASER SURGERY
An excimer laser emits energy in an extremely short pulse lasting only
several billionths of a second. High energy ultraviolet photons produced by the
excimer laser create a "non-thermal" process known as ablation which does not
heat adjacent tissue. The excimer laser can be used to treat refractive vision
disorders such as nearsightedness and astigmatism in the PRK procedure. PRK
involves using the excimer laser to resculpt the cornea. This adjusts the amount
of refraction which in turn eliminates or reduces the need for corrective
lenses. The excimer laser can also be used to treat a number of pathological
superficial corneal disorders in a procedure called PTK. Excimer lasers
manufactured by VISX and Summit have been approved for treatment of low to
moderate myopia, and VISX is currently in the process of pursuing FDA approval
for use of its laser for the treatment of astigmatism. Excimer lasers can also
be used to perform a procedure known as LASIK in which an ophthalmologist uses a
microkeratone to open a flap on the surface of the cornea. Laser energy is then
used to ablate corneal cells on the exposed surface to improve the person's
visual acuity, and the flap is then folded back into place. LASIK may be more
predictable in treating high levels of myopia, but has not been specifically
approved in the United States by the FDA.
Excimer lasers are designed to reshape or sculpt the cornea to correct
common visual problems such as nearsightedness and astigmatism by changing the
curvature of the cornea, and therefore, the focusing power of the eye. The
laser's functions are controlled by a computer based work station. The physician
enters the patient data into the system's computer, which makes the calculations
necessary for a precise corneal correction. After a verification procedure, the
physician cleans and aligns the eye, initiates the treatment and visually
monitors the eye during surgery. The procedure lasts approximately 15 or 20
minutes and generally requires less than 40 seconds of laser time. The natural
protective cover of the cornea, called the epithelium, typically regrows in 24
to 72 hours to recreate a smooth optical surface over the laser modified
curvature of the cornea.
Some potential medical risks have been identified in connection with the
use of PRK surgery and there may be other risks which will not be known until
the procedure has been widely used and monitored. Potential complications and
side effects include: post-operative discomfort; corneal haze during healing (an
increase in the light scattering properties of the cornea); glare/halos
(undesirable visual sensations produced by bright lights); decreases in contrast
sensitivity; temporary increases in intraocular pressure in reaction to
procedure medication; modest fluctuations in refractive capabilities during
healing; modest decreases in best corrected vision (i.e., with corrective
lenses); unintended over- or under-corrections; regression of effect; disorders
of corneal healing; corneal scars; corneal ulcers and induced astigmatism.
BUSINESS STRATEGY
The Company's goal is to retain its leadership position as the world's
largest provider of access to excimer lasers and related services for ophthalmic
surgery. In order to achieve this goal, the Company will expand its
relationships with eyecare practitioners through its shared-access model, which
allows individual or group ophthalmic practices use of excimer laser technology
without investment risk or maintenance requirements. Shared access also allows
optimal use of the excimer laser systems, thereby maximizing Company revenues.
The Company's growth strategy combines the following important elements:
- Increase Market Penetration. The Company intends to increase its market
penetration by using a combination of fixed-site laser centers operated by the
Company or as joint ventures, including through its agreement with the
Ambulatory Surgery Division of Columbia Healthcare, and expanded use of the
MobilExcimer system.
- Columbia Healthcare. The Company intends to capitalize upon its
agreement with the Ambulatory Surgery Division of Columbia Healthcare, the
world's largest for-profit health care provider with approximately 130
ambulatory surgery centers in 27 states, by establishing additional
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LaserVision Centers at Columbia Healthcare facilities and maximizing the
number of patients treated at each operating LaserVision Center. The
Company's access to the Columbia Healthcare network positions the Company
to establish additional LaserVision Centers more quickly than would be
possible through the establishment of independent centers. The Company
plans to have more than 20 LaserVision Centers operating in Columbia
Healthcare facilities by mid-1997, and intends to continue its evaluation
of the remaining Columbia Healthcare facilities to determine which of these
facilities would be appropriate for the establishment of additional
LaserVision Centers or which of these centers could be more effectively
served by the Company's MobilExcimers. In addition to providing access to a
large number of ambulatory surgery centers, Columbia Healthcare has over
850 affiliated ophthalmologists and is the single largest provider of
ophthalmic procedures in the United States, performing more than 130,000
procedures annually (approximately 10% of all eye surgeries in the United
States in 1995). Columbia Healthcare's affiliated ophthalmologists can
provide the Company with a large potential patient base to which the
Company can market its laser surgery services.
- MobilExcimer System. The Company believes that it is currently the
only company that has developed and is operating a mobile system for the
excimer laser. This proprietary system gives the Company flexibility that
the Company believes is not currently available to its competitors and is
intended to help the Company achieve broader penetration of both domestic
and international markets. The Company plans to use the MobilExcimer to
provide laser access and related services to communities where the
Company's potential patient base is insufficient to sustain a fixed-site
center, thereby enhancing the Company's ability to expand quickly into
multiple markets. The Company expects that the MobilExcimer will help meet
the expected demand for the procedure, while giving both doctors and
patients accessibility to laser surgery without the need for extended
travel. The Company has entered into a mutually exclusive agreement with
Calumet Coach Company ("Calumet"), the world's leading manufacturer of
mobile medical systems, to build the MobilExcimer. The Company currently
operates two mobile units, one each in Europe and Canada. The Company
anticipates that the consolidation of excimer laser surgery centers taking
place in Europe and Canada will present further opportunities for its
MobilExcimer.
The MobilExcimer system has not been approved for use in the United States
by the FDA. In June 1996, the Company submitted a PMA application with the
FDA for the use of VISX's excimer laser system for treatment of low to
moderate myopia, which is the first step in seeking approval for the
MobilExcimer. Pursuant to an agreement with VISX entered into in May 1996,
this PMA application incorporates the information contained in the PMA
applications filed with and approved by the FDA for use of VISX excimer
lasers for PRK and PTK. If its PMA application is approved, the Company
intends to submit a supplement to this PMA application to request FDA
approval for use of the excimer laser on the MobilExcimer. See "Risk
Factors -- Uncertainty of FDA Approval of MobilExcimer."
- Other Laser Centers. The Company intends to establish additional
fixed-site LaserVision Centers in areas not served by Columbia Healthcare.
These centers may be Company owned and operated, such as the Company's
center in St. Louis, or owned and operated by a joint venture or
partnership with a health care facility provider, such as the Company's
center at the Phillips Eye Institute in Minneapolis.
- Utilize Targeted Marketing. The Company intends to use the knowledge
gained through operating LaserVision Centers in Canada and Europe and the
marketing expertise of MarketVision and MedSource to identify and market to
selected geographic areas. While the international division continues to offer
considerable growth opportunities for the Company, management believes the
greatest growth market for PRK lies in the United States. Utilizing its
marketing expertise, the Company intends to identify demographic groups within
selected geographic areas which represent the most likely candidates for excimer
laser surgery. After identifying candidates for excimer laser surgery, the
Company will continue to provide "value added" services to ophthalmologists and
other health care
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providers by referring and helping to process prospective patients from the
initial point of inquiry through surgery.
- Promote Alliances With Physicians. A key element of the Company's
shared-access model is the promotion of alliances with physicians within a
community to maximize laser usage and resulting revenues. Through these
alliances, the Company attracts ophthalmologists who are not able or willing to
purchase, finance and maintain a laser. The Company continues to work with the
physicians after a center is opened by providing technical support and training
as well as sales and marketing expertise. By providing these services, the
Company goes beyond providing laser access and actively works with the
physicians to increase the number of consumer inquiries and to turn such
inquiries into procedures performed.
- Grow Through Acquisitions. The Company seeks to expand its presence
worldwide through complementary acquisitions of other laser operators, including
direct competitors, as well as acquisitions of businesses that provide related
equipment or services. The Company expects to take advantage of ongoing market
consolidation in Europe through strategic acquisitions of competitors. In
addition, the Company believes that the emerging market for the Company's
services in the United States will initially be fragmented, as it was in Europe,
and may subsequently offer consolidation opportunities.
- Expand Strategic Relationships. The Company intends to solidify and
expand its existing strategic alliances with health care providers, equipment
manufacturers, major employers, managed care providers and other third party
payors in order to provide the Company access to a larger patient base.
OPERATION OF LASER CENTERS
The Company provides access to excimer lasers and related services for
ophthalmological surgery, collecting a fee for each procedure performed by
independent ophthalmologists. Currently, patients are charged approximately
$1,500 to $2,200 per eye for the procedure. The Company's fee ranges from
approximately $400 to $1,000 per procedure, depending on the services provided
by the Company. The Company provides access to excimer lasers and related
services through fixed-site laser centers and its MobilExcimer system. The
Company currently provides excimer lasers and related services to fixed-site
centers in the United States, Canada, the United Kingdom, Finland, Greece,
Sweden and Ireland and operates the MobilExcimer in Canada and the United
Kingdom. In the United States, fixed-site laser centers are operated in
conjunction with Columbia Healthcare or by the Company independently or through
joint ventures.
COLUMBIA HEALTHCARE
The majority of the Company's currently operating or planned U.S. laser
centers will operate in selected Columbia Healthcare ambulatory surgery centers.
The Company's agreement with Columbia Healthcare provides the Company with the
exclusive right to provide excimer laser equipment and related services
(marketing, technical support and service) to Columbia Healthcare ambulatory
surgery centers. The Company and Columbia Healthcare jointly determine which
surgery centers and physician users will be served with excimer lasers
(fixed-site or mobile) through a comprehensive business planning process. This
process takes into account such factors as market demographics, the number of
potential physician users, projected case volume and competition.
Under the agreement with Columbia Healthcare, the Company provides either
the VISX or Summit excimer laser, as specified by the physician users. In some
cases, the Company may also provide other equipment such as a corneal
topographer. In addition, the Company provides physician and staff training,
technical support services and maintenance of the laser, as well as marketing
support. Marketing support includes advertising and promotional materials for
the center as well as for physician users who elect to participate in a
center-level marketing plan. Columbia Healthcare provides space in its facility
to accommodate the laser in an appropriate setting, staff to handle inquiries,
surgical and support staff and surgical disposables. Typically, the facility and
equipment portions of the surgical fee are collected by the Columbia Healthcare
center on the date of treatment and the Company
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is paid monthly for treatments performed during the previous month. The Company
and Columbia Healthcare each receive a fixed fee for the equipment and services
provided, with the Company receiving a net fee of $450 to $850 per procedure
depending on the services provided.
Currently, the Company provides lasers and related services to 12 Columbia
Healthcare facilities located in 10 states. By mid-1997, the Company plans to
open approximately 10 additional LaserVision Centers at Columbia Healthcare
facilities, although there can be no assurance that such number of centers will
be opened. The Company will continue to evaluate the remaining Columbia
Healthcare facilities to determine which would be appropriate for fixed-site
lasers or the use of the MobilExcimer.
MOBILEXCIMER
The MobilExcimer is a self-contained mobile refractive laser surgery
center, containing a laser and other equipment identical to that typically found
in a fixed-site location. The mobile unit is designed to offer excimer laser
access to ophthalmologists practicing in communities where the Company's
potential patient base is insufficient to support a fixed-site laser surgery
facility. Depending on such factors as case volume and distances between sites,
a MobilExcimer unit can serve up to five sites per week. The Company intends to
implement logistical and routing systems to coordinate use of the MobilExcimer
units in a manner that will maximize utilization of capacity and service to
patients. Because the Company will provide more services and convenient access
and location, it is anticipated that procedures performed with the MobilExcimer
will typically generate higher fees per procedure than those performed at
fixed-site LaserVision Centers. Currently, these fees are expected to range from
approximately $800 to $1,000 per procedure.
The Company has entered into a mutually exclusive agreement with Calumet,
the world's leading manufacturer of mobile medical systems, which provides that
Calumet will produce and the Company will purchase a minimum of four
MobilExcimers units per year (up to an aggregate of 13) from the date of FDA
approval of the MobilExcimer through mid-1999. So long as minimum orders are
maintained, Calumet has agreed not to produce mobile laser surgery vehicles for
entities other than the Company. This agreement provides the Company with a
reliable source of supply from Calumet, which currently manufactures more than
60 percent of the mobile medical systems being used in the United States.
The mobile units are larger than many fixed laser surgery sites, with a
movable exterior wall allowing the MobilExcimer to expand in size upon reaching
its destination. The unit has electrical systems that are adaptable for use in
the U.S., Canada and Europe. The MobilExcimer can operate with port electrical
hookups or an internal generator, either of which are supported by an
uninterruptible power supply. The units utilize the Company's patented
MobilExcimer mounting system which allows the delicate internal systems of the
excimer laser to withstand the rigors associated with mobile operation.
The first PRK procedure in a MobilExcimer was performed in September 1994
by a Canadian ophthalmologist under the supervision of Dr. Stephen Trokel, the
developer of the PRK procedure using the excimer laser. The Company currently
operates two mobile units, one serving more than ten sites in Europe and the
other serving five sites in Canada. The MobilExcimer system has not been
approved for use in the United States by the FDA. In June 1996, the Company
submitted a PMA application with the FDA for the use of VISX's excimer laser
system for treatment of low to moderate myopia, which is the first step in
seeking approval for the MobilExcimer. Pursuant to an agreement with VISX
entered into in May 1996, this PMA application incorporates the information
contained in the PMA applications filed with and approved by the FDA for use of
VISX excimer lasers for PRK and PTK procedures. If its PMA application is
approved, the Company intends to submit a supplement to this PMA application to
obtain FDA approval for use of the excimer laser on the MobilExcimer. It is
uncertain when, if ever, the FDA will approve excimer lasers for mobile use. See
"Risk Factors -- Uncertainty of FDA Approval of MobilExcimer."
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The Company believes that the MobilExcimer will provide logistical
flexibility in the developing market for PRK. The MobilExcimer will allow the
Company to service locations that will not currently support the installation of
a fixed-site laser. Over time, the volumes at such locations may grow to be
sufficient to support a fixed-site center. Conversely, the volumes at an
existing fixed-site center may fall. Due to the flexibility of its MobilExcimer,
the Company will be in a position to move a laser from a fixed-site center to a
more attractive location while continuing service to the existing location with
the MobilExcimer.
OTHER LASER CENTERS
U.S. Centers. In addition to its affiliation with Columbia Healthcare, the
Company intends to open additional fixed-site centers in areas which are not
served by Columbia Healthcare ambulatory surgery centers. The Company currently
has two U.S. centers that are not associated with Columbia Healthcare: the
Company's LaserVision Center in St. Louis, which is wholly owned and operated by
the Company, and the center at the Phillips Eye Institute in Minneapolis, which
is owned and operated by a joint venture between the Company and the facility
provider. The Company intends to open three additional independent fixed-site
centers in the United States by the end of 1996, although there can be no
assurance that such number of centers will be opened. These additional centers
will be owned and operated either by the Company or by a joint venture or
partnership with other entities. The services the Company provides to these
centers are virtually identical to those provided to centers located at Columbia
Healthcare facilities. Sites are selected based on a number of criteria, such as
the number of physicians who indicate a substantial interest in using the
center, the historical surgical volumes of these physicians, demographic
factors, the results of market research and local media costs. The Company
receives a net fee of $500 to $940 per PRK procedure performed at these centers,
depending on the services provided by the Company.
Canadian Center. The Company currently owns and operates a LaserVision
Center located in Montreal, Quebec. The Company complements the Montreal site by
employing its Canadian MobilExcimer unit to serve five additional locations in
Canada which the Company believes are not suitable for the investment required
for a fixed site. The Company receives a net fee of $500 to $950 (U.S.) per
procedure performed at Canadian centers, depending on the services provided by
the Company.
European Centers. The Company provides access to 12 fixed-site excimer
lasers in Europe. The Company operates one center through a joint venture. The
remaining lasers and related services are provided to other entities pursuant to
leases and associated contracts. The Company has continued to consolidate
operations in Europe and has redeployed the lasers from several fixed-site
centers which were not cost effective to operate as fixed-site centers. The
MobilExcimer system operating in Europe has enabled the Company to continue to
serve the markets formerly served by the centers which were closed, while
simultaneously reducing the fixed operating costs attributable to these markets.
The Company has also recently acquired two fixed-site centers formerly operated
by New Image Laser Centers, along with a database with the names of 17,000
potential patients for the two new centers. The Company receives a net fee of
$400 to $950 (U.S.) per European laser surgery procedure, depending on the
services provided by the Company.
SUPPLIERS
The current cost of an excimer laser ranges from $475,000 to $525,000, plus
sales tax, as well as $250 per U.S. PRK procedure to be paid to a partnership
between VISX and Summit which owns certain patent rights with respect to the
excimer laser. In addition, the Company will be required to pay an annual
royalty fee of approximately $44,000 to VISX with respect to any additional
lasers operated in Canada. The purchase price includes a one or two year
warranty on all parts except the optics (mirror and glass components) which
carry a 30-day warranty. Annual maintenance and service fees are paid by the
Company and are estimated at $40,000 to $60,000 per year, but will vary with
usage.
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The Company currently has an available base of 34 excimer lasers worldwide,
comprised of 29 VISX and 5 Summit lasers. The Company has the flexibility to
utilize either manufacturer, depending on the preference of physician users at
each center. The Company has ordered 10 additional excimer lasers from VISX and
has an agreement to purchase up to 12 additional units from Summit. The Company
also has an option to purchase 20 additional VISX lasers.
MARKETVISION AND MEDSOURCE
MarketVision and MedSource comprise the Company's ophthalmic marketing
divisions. Both MarketVision and MedSource, which the Company acquired effective
February 1996, provide marketing services designed to increase ophthalmic
surgical volume. MarketVision operates as an advertising and marketing agency,
while MedSource provides services more directly related to planning, training
and consulting.
MarketVision and MedSource derive income from several sources. Revenue is
realized from commissions earned from placing print and broadcasting media,
retainer fees for various services and mark-ups on direct mail and related
collateral materials. While both entities enjoy their own clientele, both are
involved in administering the marketing of the Company's LaserVision Centers.
MARKETING
The degree to which PRK, PTK and the Company's LaserVision Centers can
penetrate the potential market for vision correction will depend on a variety of
factors including, but not limited to, medical and public acceptance of these
procedures and alternative technologies. None of these factors is under the
immediate control of the Company nor is any predictable at this time.
The Company's regional managers identify potential physician users through
professional meetings and direct marketing efforts, including printed materials
and personal contact. The Company directs its patient marketing efforts at three
potential patient sources: the ophthalmologist's patient base, other eyecare and
medical professionals' patient base and consumers as a whole.
- Ophthalmologist's Patient Base. The Company works with
ophthalmologists who have indicated an interest in using the center to
communicate with existing patients. Strategies include direct mailings with
information related to PRK, collateral and point of purchase materials to
reach patients during office visits and video tape presentations which can
be used to educate patients about PRK.
- Other Eyecare and Medical Professionals' Patient Base. The Company
works to form alliances between its ophthalmic surgeons and optometrists.
These referral networks are valuable in referring optometric patients to a
LaserVision Center. The Company helps to form these referral networks by
offering training for the optometrists, who are then able to provide
pre-operative screenings as well as post-surgical co-management of their
patients. The Company also provides its physician users with marketing
materials designed to foster these referrals and help generate patients.
- Consumers. The Company begins planning a center's marketing program
before the laser is shipped by analyzing available media for the targeted
demographic group. The marketing program consists of advertising and public
relations. Public relations efforts attempt to place news stories in
various media which will highlight the opening of the center and the
availability of PRK in the market. The Company utilizes radio, print,
television and direct mail to disseminate its message to prospective
patients. Prospective patients then respond to a toll free number
(888-LaserVision) and the calls are answered by Company representatives who
qualify the prospective patients and record the prospective patients' names
and related information into a computer system which can be used for
subsequent mailing lists. The representative makes an appointment with a
local center or surgeon to determine whether the prospective patient is a
candidate for the surgery. Based on its experience operating centers
internationally and providing marketing services to refractive
8
<PAGE> 10
surgeons, the Company believes that the conversion level is higher when
calls are received and processed by a central system. Prospective patients
are routed to exams and given educational materials about PRK. If the
prospective patient elects not to proceed to surgery following the exam
process, the prospective patient's name is placed on a follow-up list and
additional materials are sent to the prospective patient over a defined
period of time.
COMPETITION
LaserVision Centers. The market for access to excimer lasers is highly
competitive. The Company competes with several other companies, including at
least one manufacturer of laser equipment, in providing access to excimer lasers
in the United States and internationally. Summit, one of two suppliers of laser
equipment to the Company, has indicated it will open approximately 20 laser
centers in the United States during 1996. Other companies are currently in the
process of gaining FDA approval for their lasers and these companies may elect
to enter the laser center business. Other non-manufacturing companies which have
indicated they intend to operate or already operate laser centers in the United
States are: Beacon Laser Centers, Inc., Global Vision, Inc., LCA Vision, Inc.,
Sight Resources, Inc., Sterling Vision, Inc., The Laser Centre (TLC) and 20/20
Laser Centers, Inc. The Company also competes with laser centers operated by
local operators in certain markets. There can be no assurance that any reduction
in per procedure fees that may result from increased competition will be
compensated for by an increase in procedure volume.
The treatments offered by the Company's LaserVision Centers also compete
with other present forms of treatment for refractive disorders, including
eyeglasses, contact lenses, refractive surgery, corneal transplants and other
technologies currently under development. The Company expects that companies
which have developed or are developing new technologies or products, as well as
other companies (including established and newly formed companies), may attempt
to develop new products directly competitive with the excimer lasers that are to
be utilized by the Company or could introduce new or enhanced products with
features which render the equipment to be used by the Company obsolete or less
marketable. The ability of the Company to compete successfully will depend in
large part on its ability to adapt to technological changes and advances in the
treatment of refractive vision disorders. There can be no assurance that, as the
market for excimer laser surgery and other treatments of eye disorders develops,
the Company's equipment will not become obsolete, and if this occurs, that the
Company will be able to secure new equipment to allow it to compete effectively.
MarketVision and MedSource. The advertising and marketing businesses in
which the Company's MarketVision and MedSource divisions are engaged are highly
competitive. Clients have the freedom to move from one advertising agency to
another with comparative ease since the relationships normally can be terminated
on short notice. MarketVision and MedSource compete with several national and
regional ophthalmic specialty marketing companies, as well as national and local
advertising agencies which may handle diverse client activities. MarketVision
and MedSource may be hampered by their affiliation with LaserVision Centers in
that some customers may consider them competitors which could adversely affect
the ability of these divisions to continue to attract outside business.
PATENTS AND TRADEMARKS
The names LASERVISION(R), LASERVISION CENTERS AND DESIGN(R), LASERVISION
CENTERS(R), LASERVISION CENTER(R) and MobilExcimer(R) are registered U.S.
service marks of the Company. In addition, the Company owns service mark
registrations in a number of foreign countries. The Company has also secured a
patent for the MobilExcimer mounting system. The Company's service marks,
MobilExcimer patent and other proprietary technology may offer the Company a
competitive advantage in the marketplace and could be important to the success
of the Company. There can be no assurance that one or all of these registrations
will not be challenged, invalidated or circumvented in the future. The Company
is currently involved in two legal proceedings which could result in an adverse
impact on its rights to certain of such registrations. Litigation regarding
intellectual property is common and there can be no assurance that the Company's
service mark
9
<PAGE> 11
registrations and patent will significantly protect the Company's intellectual
property. The defense and prosecution of intellectual property proceedings is
costly and involves substantial commitments of management time. Failure to
defend the Company's rights with respect to its intellectual property would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Legal Proceedings."
GOVERNMENT REGULATION
The manufacturing, labeling, distribution and marketing of medical devices
such as the excimer lasers to which the Company provides access are subject to
extensive and rigorous government regulation in the United States and in certain
other countries. The Federal Food, Drug, and Cosmetic Act requires that medical
devices introduced to the U.S. market, unless exempted by regulation, secure
either an approved PMA application or a premarket notification clearance (known
as a 510(k)). Excimer lasers are required to be the subject of an approved PMA
application.
The manufacturers of the excimer lasers to which the Company provides
access have received approval of their PMA applications for use of their lasers
in PTK and PRK procedures for the treatment of low to moderate myopia. However,
certain FDA officials have advised the Company that they believe that these
lasers are not approved for mobile use, and therefore FDA approval is required
in order to operate the MobilExcimer in the United States. In order to obtain
approval for the MobilExcimer, the Company submitted in June 1996 its own PMA
application for the FDA-approved VISX laser. If such PMA application is
approved, the Company will then submit a supplement to the PMA application to
cover use of the laser in the MobilExcimer. The Company has entered into an
agreement with VISX which allows the Company to reference, in any FDA
applications required for the MobilExcimer, information previously submitted to
the FDA by VISX in support of VISX's PMA applications. There can be no assurance
that the FDA will approve the Company's PMA application for the VISX laser or
its PMA supplement for the MobilExcimer on a timely basis, or at all. Also,
restrictions and limitations imposed by the FDA could adversely affect the
Company's ability to use or promote the MobilExcimer. If approval of the
MobilExcimer is required, delays in receipt of or failure to receive such
approval, or restrictions on the use of the MobilExcimer, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
PMA holders and manufacturers and certain users of medical devices are
subject to continuing FDA obligations. Medical devices are required to be
manufactured in accordance with regulations setting forth current Good
Manufacturing Practices ("GMP"), which require that devices be manufactured and
records be maintained in a prescribed manner with respect to manufacturing,
testing and control activities. It is the FDA's view that with respect to
excimer lasers, users, as well as manufacturers, are required to comply with FDA
requirements with respect to labeling and promotion. The Medical Device
Reporting regulation adopted by the FDA would require that the Company provide
information to the FDA whenever there is evidence to reasonably suggest that one
of its devices may have caused or contributed to a death or serious injury, or
that there has occurred a malfunction that would be likely to cause or
contribute to a death or serious injury if the malfunction were to recur. PMA
holders and manufacturers and certain users of medical devices are subject to
periodic inspections by the FDA. Failure to comply with applicable FDA
requirements could subject the Company to enforcement action, including product
seizures, recalls, withdrawal of approvals, and civil and criminal penalties,
any one or more of which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, clearances
or approvals could be withdrawn in appropriate circumstances. Failure of the
Company or its principal suppliers to comply with regulatory requirements, or
any adverse regulatory action, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The FDA has promulgated performance standards for lasers. Unless the FDA
approves a variance from such standards, manufacturers of excimer lasers must
comply with such standards as well as with special certification, labeling,
reporting and record keeping requirements. The failure of the Company
10
<PAGE> 12
or its principal suppliers to comply with these standards could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Medical device laws and regulations are also in effect in many of the
countries in which the Company currently conducts or may in the future conduct
business outside the U.S. These range from comprehensive device approval
requirements to requests for product data or certifications. The number and
scope of these requirements are increasing. Medical device laws and regulations
are also in effect in some states in which the Company currently conducts or may
in the future conduct business. The failure of the Company to obtain necessary
product approvals in a timely fashion or to comply with state or foreign medical
device laws and regulations may have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, federal, state and foreign laws and regulations regarding the
manufacture and marketing of medical devices are subject to change. For example,
the FDA is currently considering significant changes to its GMP and to other
regulations. The Company cannot predict what impact, if any, such changes might
have on its business; however, such changes could have a material adverse impact
on the Company's business, financial condition and results of operations.
There are currently two manufacturers, VISX and Summit, that have received
FDA approval to market excimer lasers for PTK and PRK for low to moderate
myopia. Lack of timely FDA approval for use of PRK for other indications, such
as astigmatism and hyperopia (farsightedness) could have a material adverse
effect on the Company's planned expansion in the United States market.
Furthermore, the failure of these and any other manufacturers that supply
excimer lasers to the Company to comply with applicable federal, state, or
foreign regulatory requirements, or any adverse regulatory action against such
manufacturers, could restrict the supply of lasers or restrict the ability of
the Company to provide access to the lasers. The inability of the Company to
obtain lasers for sale or use in the United States or elsewhere due to lack of
regulatory approval, or otherwise, could prevent the Company from establishing
or maintaining LaserVision Centers and MobilExcimers, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
The Company currently has 34 employees. Management believes that the
Company's relationship with its employees is satisfactory. As the Company
expands, it expects to add additional employees in technical, marketing and
management positions. The Company does not anticipate any difficulty in hiring
such personnel when needed.
ITEM 2
DESCRIPTION OF PROPERTY
The Company currently occupies 9,970 square feet of space in St. Louis
County, Missouri for its corporate headquarters under a lease which expires in
2001. The Company also leases 2,700 square feet of space in St. Louis County,
Missouri for its St. Louis LaserVision Center under a lease which expires in
2001.
LVCI Management (Quebec), Inc., a wholly-owned subsidiary of the Company,
leases approximately 2,200 square feet of space in Montreal, Quebec, Canada,
which houses the Montreal LaserVision Centre. Arnott Laser Vision Centre
Limited, a 50.002% owned subsidiary of the Company's wholly-owned European
subsidiary, leases approximately 3,000 square feet of space on Harley Street in
London, England, which houses the Harley Street LaserVision Centre.
All other lasers operated by the Company are located in centers owned or
leased by other parties. The Company does not have any material lease
obligations associated with such centers.
11
<PAGE> 13
ITEM 3
LEGAL PROCEEDINGS
The Company is a party to the following material legal proceedings:
On October 8, 1993, the Company filed suit in the Circuit Court of St.
Louis County, Missouri, against Laser Vision Centers International SpA ("SpA")
in connection with disputes between the Company and SpA arising out of a
proposed agreement between the parties. On December 17, 1993, the court entered
judgment by default in the Company's favor: (i) terminating and rescinding any
and all agreements and proposed agreements between the parties; (ii) for money
damages in the amount of $175,000 and (iii) ordering the return of 275,000
shares of Common Stock which were issued to SpA. In June 1994, SpA filed a
Motion to Vacate the Judgment in the lawsuit. SpA's motion was denied in April
1995, but SpA filed an appeal. In an order dated July 23, 1996, the Missouri
Court of Appeals, Eastern District, denied the relief requested in SpA's appeal
and affirmed the judgment of the trial court.
On November 17, 1994, the Company brought suit against LaserVision Centers
West, Inc. ("LVCWI") in the United States District Court for the Eastern
District of Missouri alleging trade mark, service mark and trade name
infringements and other related violations of law. The Company seeks to have
LVCWI enjoined from any further use of marks or names registered to and used by
the Company or any others which are confusingly similar to such marks or names.
In addition, the Company seeks damages, attorney fees and a declaratory judgment
that no agreement exists between the parties. On July 7, 1995, this action was
transferred to the United States District Court for the Central District of
California. The Company intends to vigorously pursue the prosecution of this
suit.
On March 24, 1995, the Company filed suit against 20/20 Laser Centers, Inc.
("20/20") in the United States District Court for the Southern District of
California alleging trade mark, service mark and trade name infringements and
other related violations of law. The various counts in this suit arose from
20/20's use of the marks or names "Laser Vision" and "Laser Vision Correction."
The Company seeks to have 20/20 enjoined from any further use of these marks or
names or any others which are confusingly similar to those registered and used
by the Company. The Company also seeks damages and attorney fees in conjunction
with this action. On June 23, 1995, by stipulated agreement of the parties, this
action was transferred to the United States District Court for the District of
Maryland, Southern Division. 20/20 has counterclaimed for cancellation of the
Company's registered marks LASERVISION, LASERVISION CENTERS AND DESIGN,
LASERVISION CENTER and LASERVISION CENTERS. The Company intends to vigorously
pursue the prosecution of this suit.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 14
PART II
ITEM 5
MARKET FOR COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the over-the-counter market
through NASDAQ and on the Boston Stock Exchange. Furthermore, the following
dealers are listed on NASDAQ summaries as market makers in the Company's stock
as of July 25, 1996:
<TABLE>
<S> <C>
Schneider Securities Inc. Smith, Barney Shearson Inc.
Josephthal Lyon & Ross Sherwood Securities Corp.
Herzog, Heine, Geduld, Inc. Wagner Stott & Co.
Troster Singer Corp. Mayer & Schweitzer Inc.
John G. Kinnard & Co., Inc. Pauli & Company, Inc.
Everen Securities, Inc. A.G. Edwards & Sons, Inc.
National Financial Services Cp Knight Securities, L.P.
Barron Chase Securities, Inc. J.C. Bradford & Co.
Kenny Securities Corp.
</TABLE>
There were 400 holders of record of the Company's common stock on July 25,
1996.(1) Based upon information received from securities dealers, the total
number of individual holders of the Company's common stock exceeds 1,200.
There have been and are expected to be no dividends declared on the common
stock.
- -------------------------
(1) This figure does not consider the individual holders of securities that are
held in the "street name" of a securities dealer.
TABLE OF HIGH/LOW SALES PRICES FOR EACH QUARTER
<TABLE>
<CAPTION>
CLASS A
-- WARRANT -- CLASS B CLASS F
-- COMMON -- ---------------- -- WARRANT -- -- WARRANT --
----------------- HI ----------------- -----------------
HI BID LOW BID BID LOW BID HI BID LOW BID HI BID LOW BID
QUARTER ENDED LVCI LVCI LVCIW LVCIW LVCIL LVCIL LVCIZ LVCIZ
- -------------------------- ------ ------- ----- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jul 94.................. 6.00 5.38 2.00 0.25 1.50 0.63
Oct 94.................. 8.00 5.25 2.00 0.75 2.06 0.75
Jan 95.................. 8.00 7.63 2.00 1.69 2.06 1.69
Apr 95.................. 8.50 7.00 2.56 1.81 2.50 1.75
Jul 95.................. 8.50 7.88
Oct 95.................. 15.88 8.50
Jan 96.................. 16.63 11.38
Apr 96.................. 15.25 12.38
</TABLE>
13
<PAGE> 15
ITEM 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the discussion in
this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the sections entitled "Risk
Factors" and "Business -- Government Regulation" as well as those discussed
elsewhere in this Prospectus and any documents incorporated herein by reference.
BACKGROUND
The Company was incorporated in Delaware in 1988 and initially provided
medical advertising and marketing services in the United States, primarily to
ophthalmologists. By 1991, the Company had shifted its strategic emphasis to the
emerging ophthalmic technology based on the use of excimer lasers for PRK and
acquired an excimer laser for use in a clinical center as part of clinical
trials with respect to the safety and efficacy of PRK.
Subsequent to the purchase of its first laser, the Company determined that
FDA approval for PRK in the United States would require a lengthier process than
was originally anticipated. As a result, the Company decided to enter the
international market for excimer laser surgery where regulatory restrictions
were much less prohibitive. Between late 1991 and mid-1992, the Company acquired
three commercial excimer laser centers in Canada and began developing the first
MobilExcimer unit. In July 1993, the Company opened a fourth Canadian center and
purchased six excimer lasers installed in Europe. In April 1994, the Company
acquired eight additional lasers installed in Europe. The first PRK procedure on
a MobilExcimer system was performed in Ontario, Canada in September 1994.
In anticipation of the FDA's approval of the excimer laser to perform PRK
procedures, in December 1994 the Company restated its agreement with Columbia
Healthcare pursuant to which the Company became the primary provider of excimer
lasers to Columbia Healthcare ambulatory surgery centers. In addition, by the
fall of 1995, the Company extended testing of its MobilExcimer system to
England, opened two European centers (including a Company-owned center with an
improved excimer laser system), acquired an additional MobilExcimer unit and
selected Dr. Richard Lindstrom as the Company's Medical Director.
In August 1995, the Company acquired Vision Correction, Inc., an excimer
laser access provider, for Common Stock with a value of approximately $650,000.
In October 1995 and March 1996, the FDA approved the use of the excimer lasers
manufactured by Summit and VISX, respectively, for performing PRK procedures for
low to moderate myopia, making it possible for the Company to begin providing
ophthalmologists access to lasers in the United States. In early 1996, the
Company acquired MedSource, a marketing services company, to complement its
existing marketing operations for cash and Common Stock with a combined value of
approximately $300,000. During April 1996, the Company purchased assets from a
former competitor to expand its European operations for a purchase price of
approximately $300,000, including cash and assumed liabilities. In the fiscal
year ended April 30, 1996, the Company opened six LaserVision Centers in the
United States and closed five international fixed-site centers which are now
serviced by a MobilExcimer.
Due to recent improvements in excimer laser technology, international
market conditions and the resulting operational considerations, the Company
believes that the recorded carrying value of certain of its international
fixed-site assets exceeded their estimated fair values. Accordingly, the Company
recorded a non-cash impairment charge of approximately $3.1 million in the
fourth quarter of fiscal 1996. See Note 4 to Consolidated Financial Statements.
14
<PAGE> 16
CENTERS IN OPERATION
The following table shows the number of centers which the Company operated
as of the dates indicated.
<TABLE>
<CAPTION>
APRIL 30,
------------------------------------------------------------- JUNE 15,
CENTERS WITH LASERS 1992 1993 1994 1995 1996 1996
- --------------------------------------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
International, Fixed................... 1 3 18 20 15 13
International, Mobile.................. - - 1 1 2 2
Domestic, Fixed........................ 1 1 1 1 6 14
-- -- -- -- -- --
Total Centers........................ 2 4 20 22 23 29
== == == == == ==
</TABLE>
RESULTS OF OPERATIONS
Fiscal Year ended April 30, 1996 Compared to Fiscal Year ended April 30, 1995
During the year ended April 30, 1996, the Company expanded its relationship
with Columbia Healthcare in the U.S. through the opening of five centers at
Columbia Healthcare facilities, extended operation of its MobilExcimer system
into a European market, opened two European centers, including a Company owned
center with an improved excimer laser system, began performing commercial PRK
procedures in the U.S. market, completed three acquisitions (one mobile laser
service related, one expanding European operations and one expanding U.S.
marketing capabilities) and closed five international fixed-site centers which
are now served by the MobilExcimer.
Revenues. Total revenues increased to $3,918,000 for the year ended April
30, 1996 from $3,311,000 for the year ended April 30, 1995, or an increase of
18%.
Revenues for the LaserVision Centers division increased slightly to
$2,484,000 for the year ended April 30, 1996 from $2,478,000 for the year ended
April 30, 1995. The slight increase in revenues is attributable to a $273,000
increase in U.S. revenues and a $22,000 increase in Canadian revenues, offset by
a $289,000 decrease in European revenues. The increase in U.S. revenues for the
LaserVision Centers division is attributable primarily to the increased number
of centers in operation and procedures performed in the U.S. The decreased
European revenues primarily related to a decreased number of fixed-site centers
and per procedure price fluctuations in Europe.
Revenues for the MarketVision division increased to $1,434,000 for the year
ended April 30, 1996 from $833,000 for the year ended April 30, 1995, or an
increase of 72%. The $601,000 increase in MarketVision division revenues
reflects the acquisition of MedSource in February 1996 and increased fees and
commissions earned through the division's marketing and advertising activities.
During the year ended April 30, 1996, revenues from the LaserVision Centers
division represented 63% of total revenues versus 75% for the year ended April
30, 1995. Revenues from the MarketVision division represented 37% of total
revenues during the year ended April 30, 1996 versus 25% for the year ended
April 30, 1995.
Costs of Revenues/Gross Profit (Loss). Cost of revenues increased to
$4,240,000 for the year ended April 30, 1996 from $3,375,000 for the year ended
April 30, 1995. This increase was primarily due to an increase in depreciation
to $1,973,000 from $1,589,000 in these respective periods due to the increased
inventory of lasers and other medical equipment.
Excluding laser and medical equipment depreciation, all other costs of
revenues increased by $481,000. This increase, when combined with the revenue
increase, resulted in these other costs of revenues increasing from 54% of total
revenues for the year ended April 30, 1995 to 58% of total revenues for the year
ended April 30, 1996. This $481,000 increase was primarily due to a $275,000
increase in MarketVision costs associated with the increase in MarketVision
revenues and a $206,000 increase in total costs of excimer laser maintenance,
gasses and optics on higher volumes of PRK procedures and new centers.
15
<PAGE> 17
Total gross profit decreased to a loss of $322,000 for the year ended April
30, 1996 from a loss of $64,000 for the year ended April 30, 1995. The variable
gross profit, excluding depreciation, increased to $1,651,000 from $1,525,000,
primarily because MarketVision costs of revenue are variable costs of revenue.
Operating Expenses. General and administrative expenses increased to
$2,356,000 for the year ended April 30, 1996 from $1,002,000 for the year ended
April 30, 1995 due to a $429,000 increase in legal and professional fees, an
$85,000 increase in the provision for bad debt, a $226,000 increase in the costs
associated with developing the U.S. market and $107,000 of expenses associated
with opening a new center in Europe, a $68,000 increase in insurance expenses
and an increase of $439,000 in other general and administrative expenses.
The increase in salaries and related expenses to $2,329,000 for the year
ended April 30, 1996 from $1,285,000 for the year ended April 30, 1995 was due
to an increase of $770,000 attributable to an increased number of employees,
salary adjustments and the related payroll taxes and fringe benefits, and an
increase of $274,000 due to the executive incentive compensation program.
Depreciation and amortization decreased by $53,000 for the year ended April
30, 1996 primarily due to the elimination of the amortization of previously
deferred franchise costs of $175,000, partially offset by increased amortization
of goodwill related to acquisitions of $89,000 and a net increase in
depreciation of $33,000.
The increase in selling and marketing expenses was due to an increase of
$85,000 due to the promotion of the MobilExcimer, a $36,000 increase in European
advertising program costs and $221,000 in initial development costs for the U.S.
market.
The $3,063,000 fixed asset impairment provision was a non-cash expense, as
previously discussed.
Loss from Operations. The LaserVision Centers division's loss from
operations increased to $9,357,000 for the year ended April 30, 1996 from
$3,242,000 for the year ended April 30, 1995, primarily due to the provision for
fixed asset impairment as discussed previously, increased costs related to
commencing U.S. operations, a $311,000 increase in total depreciation and
amortization expenses, a $356,000 increase in variable costs of revenue and a
$5,358,000 increase in operating costs. The MarketVision division's income from
operations increased to $141,000 for the year ended April 30, 1996 from $34,000
for the year ended April 30, 1995 primarily as a result of the gross profit
related to increased volume.
The domestic loss from operations increased to $3,695,000 for the year
ended April 30, 1996 from $1,707,000 for the year ended April 30, 1995 due to a
$425,000 increase in professional and legal fees, a $216,000 increase in the
loss from U.S. laser operations, a $121,000 increase in travel costs, a $581,000
increase in payroll and a $645,000 increase in other corporate overhead.
The Canadian loss from operations increased to $1,350,000 for the year
ended April 30, 1996 from $409,000 for the year ended April 30, 1995 primarily
due to the write-down of lasers and related medical equipment of $637,000 and an
increase in the loss on operations of the mobile laser of $195,000.
The European loss from operations increased to $4,312,000 for the year
ended April 30, 1996 from $1,126,000 for the year ended April 30, 1995 due to
the write-down of lasers and related medical equipment of $2,426,000, a $529,000
decrease in gross profit due to declining revenues and increased depreciation
and a $231,000 increase in overhead expenses.
Other Income (Expense). Other income (expense) increased to a net income of
$413,000 during the year ended April 30, 1996 from a net expense of $89,000
during the year ended April 30, 1995. This favorable variance was due to an
increase of $400,000 in interest income, a $76,000 increase in the minority
interest in the net loss of a subsidiary and a decrease of $26,000 in interest
expense.
16
<PAGE> 18
Fiscal Year ended April 30, 1995 Compared to Fiscal Year Ended April 30, 1994
The Company's operating results for the years ended April 30, 1995 and
April 30, 1994 are not readily comparable due to significant expansion. The
LaserVision Centers division's operating results for the year ended April 30,
1995 included the operation of a center in Montreal for twelve months, 13
European installations for a full year and three European centers for an average
of nine months. The LaserVision Centers division operating results for the year
ended April 30, 1994 included the operation of a center in Montreal for 9.5
months, six European installations for an average of nine months and eight
European installations for one month. Both fiscal years included the operations
of the St. Catharines and Vancouver centers for a full year. Two international
centers which were open throughout fiscal 1994 were closed during most of fiscal
1995. During fiscal 1995, three European centers were acquired and testing of a
larger MobilExcimer trailer was successfully begun in Canada with Calumet Coach
Company.
Revenues. Total revenues increased to $3,311,000 for the year ended April
30, 1995 from $2,106,000 for the year ended April 30, 1994, or an increase of
57%.
Revenues for the LaserVision Centers division increased to $2,478,000 for
the year ended April 30, 1995 from $1,517,000 for the year ended April 30, 1994,
or an increase of 63%. The $961,000 increase in revenues is attributable
primarily to a $113,000 increase in Canadian revenues and an $856,000 increase
in European revenues. The increase in Canadian revenues for the LaserVision
Centers division is attributable primarily to an increased number of procedures
at both the Company's Vancouver and Montreal centers. The increased European
revenues related to a full year of revenue from thirteen centers acquired during
the year ended April 30, 1994 and the three centers opened during the year ended
April 30, 1995. The costs of relocation of one European center partially offset
this increase.
Revenues for the MarketVision division increased to $833,000 for the year
ended April 30, 1995 from $589,000 for the year ended April 30, 1994, or an
increase of 41%. The $244,000 increase reflected the addition of several
domestic ophthalmic advertising clients which had implemented cataract and/or
refractive vision correction marketing awareness programs.
During the year ended April 30, 1995, revenues from the LaserVision Centers
division represented 75% of total revenues versus 72% for the year ended April
30, 1994. Revenues from the MarketVision division represented 25% of total
revenues during the year ended April 30, 1995 versus 28% for the year ended
April 30, 1994.
Cost of Revenues/Gross Profit. Cost of revenues increased to $3,375,000 for
the year ended April 30, 1995 from $1,768,000 for the year ended April 30, 1994.
This increase included a $620,000 increase in excimer laser and medical
equipment depreciation to $1,589,000 during the year ended April 30, 1995 from
$969,000 during the year ended April 30, 1994. This non-cash expense reflects
the increase in the number of European excimer lasers operated for the full year
ended April 30, 1995 and the purchase of additional medical equipment.
Excluding laser and medical equipment depreciation, all other costs of
revenues increased by $987,000. This increase, when combined with the revenue
increase, resulted in these other costs of revenues increasing from 38% of total
revenues for the year ended April 30, 1994 to 54% of total revenues for the year
ended April 30, 1995. This $987,000 increase was primarily due to a $221,000
increase in medical professional fees for Company-owned laser centers, a
$542,000 increase in total costs of excimer laser maintenance, gasses and optics
on higher volumes of PRK procedures and new centers and a $224,000 increase in
MarketVision costs associated with the $244,000 increase in MarketVision
revenues.
Total gross profit decreased to a loss of $64,000 for the year ended April
30, 1995 from $338,000 for the year ended April 30, 1994. The variable gross
profit, excluding depreciation and a $175,000 non-cash provision for loss
relating to an advance of funds in 1991 to an Italian company, increased to
$1,525,000 from $1,307,000, primarily because medical professional fees and
MarketVision costs of revenue are variable costs of revenue.
17
<PAGE> 19
Operating Expenses. Operating expenses increased to $3,144,000 for the year
ended April 30, 1995 from $2,238,000 for the year ended April 30, 1994. General
and administrative expenses increased by $307,000 due to a $156,000 increase in
European and U.S. professional fees (primarily for new centers and tradename
protection), a $31,000 increase in insurance expenses, a $89,000 increase
associated with laser relocation costs and a $31,000 increase in travel costs
primarily associated with the Columbia Healthcare agreement.
The increase in salaries and related expenses to $1,002,000 for the year
ended April 30, 1995 from $695,000 for the year ended April 30, 1994 was
primarily due to an increase of $175,000 as a result of the hiring of new
employees in St. Louis, Canada and England, salary increases and higher
commissions on increased MarketVision revenues and a $208,000 increase due to
the executive incentive compensation program tied to the Company's stock price.
Depreciation and amortization increased by $33,000 due to the amortization
of previously deferred franchise costs of $159,000 and the increased
amortization of certain trademark costs, depreciation of new mobile equipment
and depreciation of European furniture and leasehold improvements totalling
$13,000, which were partially offset by a $139,000 decrease in depreciation of
the clinical laser.
Selling and marketing expenses increased by $183,000 primarily due to a
$100,000 increase in radio and newspaper advertising expenses for the European
centers, a $53,000 increase in European travel costs and $39,000 associated with
the initial promotion of the new MobilExcimer system. Lower radio and newspaper
advertising in western Canada partially offset these increases.
Loss from Operations. The LaserVision Centers division's loss from
operations increased to $3,242,000 for the year ended April 30, 1995 from
$1,870,000 for the year ended April 30, 1994, primarily due to a $655,000
increase in total depreciation and amortization expenses, a $398,000 increase in
variable costs of revenue and a $1,280,000 increase in operating costs which
were partially offset by a $961,000 increase in revenue. The MarketVision
division generated a $34,000 operating profit for the year ended April 30, 1995
versus a $30,000 operating loss for the year ended April 30, 1994, primarily due
to lower bad debt expenses and the gross profit on increased revenues.
The domestic loss from operations increased to $1,707,000 for the year
ended April 30, 1995 from $850,000 for the year ended April 30, 1994, primarily
due to a $264,000 increase in salaries, a $159,000 increase in franchise
amortization and a $434,000 increase in other corporate office expenses.
The Canadian loss from operations decreased by $201,000 to $409,000 for the
year ended April 30, 1995 from $610,000 for the year ended April 30, 1994. This
improvement was primarily due to increased gross profit of $159,000.
The European loss from operations increased to $1,126,000 for the year
ended April 30, 1995 from $410,000 for the year ended April 30, 1994 due to a
$221,000 decrease in gross profit, a $145,000 increase in payroll, a $175,000
increase in professional fees, and a $175,000 net increase in other expenses.
Other Income (Expense). Other expense decreased to $89,000 for the year
ended April 30, 1995 from $310,000 for the year ended April 30, 1994. Interest
expense increased to $242,000 for the year ended April 30, 1995 from $156,000
for the year ended April 30, 1994. This increase was primarily due to a $196,000
increase in imputed (non-cash) interest expense on European laser purchases and
was partially offset by a $110,000 decrease in European and other interest
expense. The $116,000 income from minority interest in net loss of subsidiary
for the year ended April 30, 1995 relates to one of the Company's new European
operations. The $175,000 non-cash provision for loss on advance for the year
ended April 30, 1994 relates to an advance of funds in 1991 to an Italian
company.
INFLATION
The Company's operations have not been, nor are they expected to be,
materially affected by inflation.
18
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
Since the completion of its initial public offering in April 1991, the
Company's primary sources of liquidity have consisted of financing from the sale
of Common Stock and Convertible Preferred Stock, revenues from marketing and
laser access services provided to ophthalmic physicians and leases. At April 30,
1996, the Company had $12,672,000 of cash and cash equivalents compared with
$2,126,000 at April 30, 1995. At April 30, 1996, the Company had working capital
of $8,802,000 compared with a working capital deficit of $1,301,000 at April 30,
1995. The ratio of current assets to current liabilities at April 30, 1996 was
2.71 to one, compared to 0.69 to one at April 30, 1995.
Cash Flows from Operating Activities. Net cash used for operating
activities was $2,879,000 for fiscal 1996 and was $1,017,000 and $899,000 for
fiscal 1995 and 1994, respectively. The cash flows used for operating activities
during fiscal 1996 primarily represent the net loss incurred in this period less
depreciation, amortization and fixed asset impairment and an accrual for one
laser. The cash flows used for operating activities in fiscal 1995 and 1994
primarily represent the net loss incurred in these periods less depreciation and
amortization.
Cash Flows from Investing Activities. Net cash used for investing
activities was $7,847,000 during fiscal 1996 and $1,227,000 and $2,468,000 for
fiscal 1995 and 1994, respectively, and was primarily due to the acquisition of
equipment, equipment deposits and acquisitions. The increase in acquisitions of
equipment in fiscal 1996 is primarily due to expansion into the U.S. market and
continued growth in the European market.
Cash Flows from Financing Activities. Net cash provided by financing
activities during fiscal 1996 was $21,272,000 and was primarily due to proceeds
received from a private placement of the Company's Convertible Preferred Stock
with a provision for mandatory redemption in 2005 and the exercise of warrants.
Net cash provided by financing activities for fiscal 1995 was $3,664,000 and was
primarily due to proceeds from the exercise of warrants and private stock
offerings offset by the repayment of certain notes payable and capitalized lease
obligations. For fiscal 1994, net cash provided by financing activities was
$3,286,000 and was primarily due to proceeds received from the exercise of
warrants and private stock offerings.
The Company anticipates that its current cash and cash equivalents,
together with the proceeds of this Offering, will be sufficient to fund
operating expenses for the next 12 months, including any capital expenditures
not financed by leasing. Effective May 30, 1996, the Company agreed to purchase
three new excimer lasers and one used excimer laser primarily for use in Europe
for a total of $1.7 million due during the first half of fiscal 1997. At April
30, 1996, the Company has agreed to purchase twelve VISX excimer lasers
(approximate purchase price of $6 million) and has an option to purchase twenty
more (approximate purchase price of $10 million). The Company is also
negotiating to assume the lease obligations for up to three excimer lasers. The
Company does not anticipate that it will need to seek additional financing to
fund operating expenses for the next 24 months, but may elect to finance laser
acquisitions through leasing alternatives. The Company expects to continue to
fund future operations and mobile development costs from existing cash and cash
equivalents, revenues received from providing laser access and market services,
the exercise of stock options and warrants and future financing as required.
There can be no assurance that capital will be available when needed or, if
available, that the terms for obtaining such funds will be favorable to the
Company.
19
<PAGE> 21
ITEM 7
FINANCIAL STATEMENTS
The consolidated financial statements included in this Form 10-K for the
years ended April 30, 1996, 1995 and 1994 have been audited by Price Waterhouse
LLP, independent certified public accountants, as indicated in their report with
respect thereto, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
ITEM 8
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
(a) On May 19, 1994, the Board of Directors of Laser Vision Centers, Inc.
("the Company") voted to dismiss its independent auditors, Lovelace,
Roby & Company, P.A. of Orlando, Florida and to engage Price Waterhouse
LLP as its independent auditors for the fiscal year ended April 30,
1994.
(b) The report of Lovelace, Roby & Company, P.A. for the fiscal years ended
April 30, 1993 and April 30, 1992 did not contain an adverse opinion,
disclaimer of opinion, qualification or modification as to uncertainty,
audit scope or accounting principles.
(c) The decision to change accountants was approved by the Company's Board
of Directors.
(d) During the fiscal years ended April 30, 1994, April 30, 1993 and in the
interim periods subsequent to April 30, 1994, the Company had no
disagreements with Lovelace, Roby & Company, P.A. on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the satisfaction
of Lovelace, Roby & Company, P.A., would have caused them to make
reference to the matter in their report. In addition, there were no
reportable events as listed in Item 304(a)(1)(B) of Regulation S-B.
(e) As required by Item 304 of Regulation S-B, Lovelace, Roby & Company,
P.A. has furnished to the Company a letter addressed to the Securities
and Exchange Commission stating that it agrees with the statements made
by the Company herein.
All directors hold office until the next annual meeting of stockholders or
the election and qualification of their successors. Other than Non-Qualified
Stock Options and/or warrants, directors of the Company do not receive any
compensation for their services as members of the Board of Directors but are
entitled to reimbursement for expenses incurred in connection with their
attendance at Board of Directors meetings. Officers are appointed by the Board
of Directors and serve at the discretion of the Board.
20
<PAGE> 22
PART III
ITEM 9
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors, executive officers and key personnel of the Company, their
positions with the Company, and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------
<S> <C> <C>
John J. Klobnak............... 45 Chairman of the Board and Chief Executive Officer
Alan F. Gillam................ 52 President, Director
Robert W. May................. 49 Vice-Chairman of the Board, General Counsel and
Secretary
B. Charles Bono III........... 48 Executive Vice President, Chief Financial Officer and
Treasurer
James C. Wachtman............. 35 Executive Vice President and Chief Operating Officer --
North America
T. Wesley Dunn................ 35 Vice President of Marketing
Dr. Henry Simon............... 65 Director
James M. Garvey............... 48 Director
Richard Lindstrom, M.D........ 49 Director
Steven C. Straus.............. 39 Director
</TABLE>
JOHN J. KLOBNAK. Mr. Klobnak has served as Chairman of the Board and Chief
Executive Officer of the Company since 1993. From 1990 to 1993, Mr. Klobnak
served as the Company's President and Chief Executive Officer. From 1986 to
1990, he served as Chief Operating Officer and subsequently President of
MarketVision, a partnership acquired by the Company upon its inception in 1990.
Prior to 1986, Mr. Klobnak was an advertising and marketing consultant.
ALAN F. GILLAM. Since 1993, Mr. Gillam has served as President and, until
June 1, 1996, as Chief Operating Officer of the Company. From 1991 to 1993, Mr.
Gillam was the International Director of the excimer laser project for Alcon
Surgical, Inc., a division of one of the world's largest eyecare specialty
companies. Prior to 1991, Mr. Gillam was area director for Alcon in Northern
Europe and Africa.
ROBERT W. MAY, ESQ. Mr. May joined the Company as its Vice-Chairman and
General Counsel in September 1993. Prior to joining the Company as a full-time
employee, Mr. May served as Corporate Secretary and a director of the Company
and was a partner in the St. Louis, Missouri law firm of May and Berne, the
former general corporate counsel for the Company, from 1985 until 1993.
B. CHARLES BONO III. Mr. Bono joined the Company as Executive Vice
President, Chief Financial Officer and Treasurer in 1992. From 1980 to 1992, Mr.
Bono was employed by Storz Instrument Company, a global marketer of ophthalmic
devices and pharmaceutical products, serving as Vice President of Finance from
1987 to 1992. He is not related to Frank J. Bono III, Vice President of Sales
for the Company.
JAMES C. WACHTMAN. Mr. Wachtman joined the Company as Chief Operating
Officer -- North American Operations effective May 30, 1996. From 1983 until he
joined the Company, Mr. Wachtman was employed by McGaw, Inc., a manufacturer of
disposables for home infusion, in various positions. Most recently, he served as
Vice President/Operations of CAPS, a hospital pharmacy division of McGaw.
T. WESLEY DUNN. Mr. Dunn joined the Company effective February 1, 1996 as
Senior Vice President of Marketing. From 1988 to 1995, Mr. Dunn was President of
Med-Source, Incorporated, a medical marketing firm which was acquired by the
Company effective February 1, 1996.
21
<PAGE> 23
DR. HENRY SIMON. Dr. Simon has served as a director of the Company since
November 1995. Since 1996, he has served as Chairman and from 1993 to 1996 as
CEO and Managing Partner of Schroder Ventures International Life Sciences
Advisers, a venture capital advisory company. Dr. Simon has served as Chairman
of Mitel, Inc., a manufacturer of telecommunications equipment and Shire
Pharmaceutical Group plc, a British company. Dr. Simon is currently a director
of Chiroscience plc and Micromass in the U.K.
JAMES M. GARVEY. Mr. Garvey has served as a director of the Company since
November 1995. Mr. Garvey serves as Chief Executive Officer and Managing Partner
of Schroder Ventures Life Sciences Advisors, a venture capital advisory company
which he joined in May of 1995. From 1989 to 1995, Mr. Garvey was Director of
Allstate Venture Capital, the $600 million venture capital division of Allstate
Corp. after initially directing Allstate Venture Capital's health care
investment activity. Mr. Garvey is currently a director of Allscrips
Pharmaceutical and J&C Healthcare and has served as director and Chairman of
several public and private healthcare companies.
RICHARD L. LINDSTROM, M.D. Dr. Lindstrom has served as a director of the
Company since November 1995. Since 1979, Dr. Lindstrom has been engaged in the
private practice of ophthalmology and has been the President of Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A. since 1989. In 1989, Dr.
Lindstrom founded the Phillips Eye Institute Center for Teaching & Research, a
ophthalmic research and surgical skill education facility, and he currently
serves as the center's Medical Director. Dr. Lindstrom has served as an
Associate Director of the Minnesota Lions Eye Bank since 1987. From 1980 to
1989, he served as a Professor of Ophthalmology at the University of Minnesota.
Dr. Lindstrom received his M.D. and his B.A. and B.S. degrees from the
University of Minnesota.
STEVEN C. STRAUS. Mr. Straus has served as a director of the Company since
January 1996. He currently serves as Senior Vice President of the Ambulatory
Surgery Division of Columbia Healthcare, the world's largest for-profit health
care provider. Mr. Straus was employed in a similar capacity with Medical Care
America, Inc. from 1993 until Medical Care America was merged into Columbia
Healthcare Corporation in 1994. From 1986 to 1993, Mr. Straus held various
positions with Baxter Healthcare Corporation and from 1978 to 1985 was employed
by American Hospital Supply Corporation.
22
<PAGE> 24
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
As required by the Securities and Exchange Commission rules under Section
16 of the Securities Exchange Act of 1934, as amended, the Company notes that
during the fiscal year ended April 30, 1995, all reports regarding transactions
in the Company's common stock were filed timely.
ITEM 10
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to five executive
officers earning total compensation at annual rates in excess of $100,000 during
the fiscal year ended April 30, 1996:
<TABLE>
<CAPTION>
WARRANTS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY(A) BONUS(B) OTHER AND OPTIONS
- ---------------------------------- ----------- --------- -------- ----- -----------
<S> <C> <C> <C> <C> <C>
John J. Klobnak................... April 1996 $ 186,000(a1) $124,330 -- 0
Chief Executive Officer
April 1995 $ 146,575 $ 56,835 -- 25,000(c)
85,000(d)
April 1994 $ 143,000 $ 16,250 116,000(e)
-- 52,500(f)
13,000(g)
10,000(h)
Alan F. Gillam.................... April 1996 $ 185,340(a1) $ 56,636 -- 0
President
April 1995 $ 146,063 $ 46,837 -- 25,000(i)
80,000(d)
April 1994 $ 142,500 $ 16,193 219,000(e)
50,000(f)
12,000(g)
Robert W. May..................... April 1996 $ 156,710(a1) $104,750 -- 0
Secretary and General Counsel
April 1995 $ 123,480 $ 47,880 -- 25,000(i)
75,500(d)
April 1994 $ 120,000 $ 15,692 47,500(f)
11,500(g)
30,000(j)
B. Charles Bono................... April 1995 $ 113,410(a1) $ 43,975 -- 0
Exec. VP, CFO and Treasurer
April 1994 $ 110,000 $ 12,500 -- 15,000(c)
50,000(d)
April 1993 $ 90,000 -- 8,500(g)
5,000(k)
T. Wesley Dunn.................... April 1996 $ 125,000(a2) $ 10,400 -- 61,000(l)
Vice President -- Marketing
</TABLE>
- -------------------------
(a) Annual compensation rate as of April 30, 1996.
(a1) Effective since October 11, 1995.
(a2) Effective since February 1, 1996.
(b) Earned during fiscal year, paid by following May or June.
(c) Warrants with exercise price of $7.75 per share.
(d) Unregistered warrants with exercise price of $9.00 per share.
(e) Warrants received as part of new employment contract with exercise price of
$5.00 per share.
(f) Warrants with exercise price of $7.50 per share.
(g) Warrants with exercise price of $5.00 per share.
(h) Incentive Stock Options with exercise price of $5.25 per share, exchanged
for warrants in January 1994.
(i) Incentive Stock Options with exercise price of $7.75 per share.
(j) Non-Qualified Stock Options with exercise price of $5.25 per share, issued
when Robert W. May was an outside director, exchanged for warrants in
January 1994.
(k) Incentive Stock Options with exercise price of $5.25 per share.
(l) Non-Qualified Warrants with exercise price of $12.625 per share.
23
<PAGE> 25
WARRANT AND OPTION GRANTS LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF: TOTAL OF
OPTIONS (O) OPTIONS/ EXERCISE
WARRANTS (W) WARRANTS PRICE
UNREGISTERED GRANTED TO PER
NAME/POSITION WARRANTS (UW) EMPLOYEES SHARE EXPIRATION DATE
- ----------------------------------------- ------------- ---------- -------- ----------------
<S> <C> <C> <C> <C>
John J. Klobnak.......................... 0 N/A N/A N/A
Chief Executive Officer
Alan F. Gillam........................... 0 N/A N/A N/A
President
Robert W. May............................ 0 N/A N/A N/A
Secretary
B. Charles Bono.......................... 0 N/A N/A N/A
Executive VP, CFO and Treasurer
T. Wesley Dunn........................... 61,000(w) 50.8% $ 12.625 February 1, 2001
V.P. -- Marketing
</TABLE>
STOCK OPTION PLANS
Incentive Stock Option Plan
In 1990, the Company adopted an Incentive Stock Option Plan (the "Stock
Option Plan") pursuant to and governed by Section 422 of the Internal Revenue
Code. Under the terms of the Stock Option Plan, as amended in January 1996, the
Company has reserved for issuance to key employees of the Company 700,000 shares
of common stock. The Stock Option Plan has been administered by the Board of
Directors who subjectively decide the present and future contributions to the
Company of these key employees. Since October 11, 1995, the Stock Option Plan
has been administered by the Compensation Committee of the Board of Directors, a
majority of which are outside directors. The exercise price may not be less than
100% of the fair market value of the common stock on the date of grant (110%
with respect to optionees who are 10% or more stockholders of the Company).
Options are nonassignable and may be exercised only by the employee while
employed by the Company or within three months after termination of employment,
except that upon death the option may be exercised within six months after such
death, and upon disability the option may be exercised for one year thereafter.
Options are exercisable on terms which may be established by the Board of
Directors in its discretion. Options expire no later than ten years from the
date of grant (five years with respect to optionees who are 10% or more
stockholders).
On April 30, 1996, the following executive officers held options to
purchase that number of shares granted pursuant to the Stock Option Plan on the
dates and at the prices set forth below:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES DATE GRANTED PRICE
--------- ------------- --------
<S> <C> <C> <C>
John J. Klobnak.................................... 20,000(a) March 5, 1990 $ 3.00
Alan F. Gillam..................................... 18,750(b) March 7, 1995 $ 7.75
Robert W. May...................................... 25,000 March 7, 1995 $ 7.75
B. Charles Bono.................................... 0(c) May 4, 1993 $ 5.25
</TABLE>
- -------------------------
(a) After exercise of 20,000 options in fiscal 1996.
(b) After exercise of 6,250 options in fiscal 1996.
(c) After exercise of 850 options in fiscal 1995 and 4,150 in fiscal 1996.
24
<PAGE> 26
NON-QUALIFIED STOCK OPTION PLAN
In 1990 the Company also adopted a Non-Qualified Stock Option Plan. Under
the terms of the Non-Qualified Stock Option Plan, as amended in January 1996,
the Company has reserved for issuance to directors who are not employees of the
Company ("outside directors") and consultants 600,000 shares of common stock.
The Non-Qualified Stock Option Plan is administered by the Board of Directors.
Beginning with the fiscal year ending April 30, 1996, the Non-Qualified Stock
Option Plan will be administered by the directors who are employees of the
Company. Options under this Plan are not intended to be treated as incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended. The exercise price may not be less than 100% of the fair market value
of the common stock on the date of grant. Options are nonassignable and may be
exercised by the director or consultant while serving as such or within ten days
thereafter, except that upon death or disability the Option may be exercised for
one year thereafter. On April 30, 1996, outside consultants and a former
director held options to purchase 151,000 shares pursuant to the Non-Qualified
Stock Option Plan.
NON-QUALIFIED WARRANT PLAN
In 1994 the Company adopted a Non-Qualified Warrant Plan (the "Warrant
Plan") which was approved by shareholders in January 1996. Under the terms of
the Warrant Plan, the Company reserved 1,500,000 shares of Common Stock for
issuance to employees, directors and consultants of the Company and its
subsidiaries. Since October 11, 1995 the Warrant Plan has been administered by
the Compensation Committee of the Board of Directors, a majority of which are
outside directors. Warrants under this plan are not intended to be treated as
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended. The exercise price may not be less than the fair market
value of the shares of Common Stock at the time the Warrant is granted as
determined by the Board of Directors. Warrants are not transferable and may be
exercised by the Warrant Holder at any time during the term of the Warrant or by
the Warrant Holder's devisee or estate upon his death.
On April 30, 1996, the following executive officers held warrants to
purchase shares granted pursuant to the Warrant Plan on the dates and at the
prices set forth below:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
WARRANTS DATE GRANTED PRICE
--------- ---------------- --------
<S> <C> <C> <C>
John J. Klobnak............................ 116,000 July 20, 1993 $ 5.00
52,500 January 4, 1994 $ 7.50
13,000 January 4, 1994 $ 5.00
95,000* January 4, 1994 $ 5.96
25,000 March 7, 1995 $ 7.75
Alan F. Gillam............................. 175,250(a) July 20, 1993 $ 5.00
50,000 January 4, 1994 $ 7.50
12,000 January 4, 1994 $ 5.00
Robert W. May.............................. 47,500 January 4, 1994 $ 7.50
11,500 January 4, 1994 $ 5.00
42,500(b)** January 4, 1994 $ 6.00
B. Charles Bono............................ 8,000(c) January 4, 1994 $ 5.00
55,000* January 4, 1994 $ 6.35
15,000 March 7, 1995 $ 7.75
T. Wesley Dunn............................. 61,000 February 1, 1996 $ 12.625
</TABLE>
- -------------------------
(a) After exercise of 43,750 warrants during fiscal 1996.
(b) After exercise of 30,000 warrants during fiscal 1996.
(c) After exercise of 500 warrants during fiscal 1996.
* Issued in exchange for a similar number of Incentive Stock Options with same
average exercise price.
** Issued in exchange for a similar number of Non-Qualified Stock Options with
same average exercise price.
25
<PAGE> 27
UNREGISTERED WARRANTS
On March 7, 1995, the Company issued a total of 325,000 unregistered
warrants with an exercise price of $9.00 per share. The following executive
officers currently hold unregistered warrants to purchase that number of shares
granted at the prices set forth opposite their names as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES DATE GRANTED PRICE
--------- -------------- --------
<S> <C> <C> <C>
John J. Klobnak.......................................... 85,000 March 7, 1995 $ 9.00
Alan F. Gillam........................................... 80,000 March 7, 1995 $ 9.00
Robert W. May............................................ 75,000 March 7, 1995 $ 9.00
B. Charles Bono.......................................... 50,000 March 7, 1995 $ 9.00
Richard Lindstrom, M.D. ................................. 100,000 August 1, 1995 $ 5.25
</TABLE>
ITEM 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information
regarding beneficial ownership of the Company's common stock and Convertible
Preferred Stock as of April 30, 1996 by (i) all those known by the Company to be
beneficial owners of more than 5% of the Company's common stock, (ii) all of the
Company's directors and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES COMMON SHARES
BENEFICIALLY BENEFICIALLY
DIRECTORS, OFFICERS AND 5% SHAREHOLDERS OWNED OWNED
- --------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
John J. Klobnak(2)............................................. 490,834 7.23%
540 Maryville Centre Drive
Suite 200
St. Louis, MO 63141
Alan F. Gillam(3).............................................. 296,833 4.42%
540 Maryville Centre Drive
Suite 200
St. Louis, MO 63141
Robert W. May(4)............................................... 164,400 2.50%
540 Maryville Centre Drive
Suite 200
St. Louis, MO 63141
Dr. Henry Simon(5)............................................. 1,666,665 20.62%
20 Southampton Street
London WC2E 7QG
England
James M. Garvey(5)............................................. 1,666,665 20.62%
One Beacon Street, Suite 4500
Boston, MA 02108
Richard L. Lindstrom, M.D. .................................... 51,023 0.79%
710 East 24th Street
Minneapolis, MN 55391
Steve Straus................................................... 0 0%
6467 Lakehurst Avenue
Dallas, TX 75230
All officers and directors as a group (9 persons)(7)(8)........ 2,814,642 31.02%
</TABLE>
26
<PAGE> 28
Pursuant to the rules of the Securities and Exchange Commission, shares of
common stock which an individual or group has a right to acquire within sixty
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage of ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
(1) Takes into account the possible exercise of the outstanding options granted
under the Incentive Stock Option Plan, the Non-Qualified Stock Option Plan,
the Non-Qualified Warrant Plan, the other unregistered warrants which are
presently exercisable, and the conversion of Convertible Preferred Stock
with a Mandatory Redemption Provision in 2005.
(2) Includes presently exercisable options and warrants to purchase 369,834
shares of common stock granted to Mr. Klobnak by the Board of Directors
pursuant to the Company's Incentive Stock Option Plan, the Non-Qualified
Warrant Plan and other unregistered warrants. Mr. Klobnak also owns an
additional 36,666 common stock options and warrants which are not presently
exercisable. See "Executive Compensation -- Stock Option Plan." and
"Executive Compensation -- Employment Agreements"
(3) Consists of presently exercisable warrants and options granted to Mr. Gillam
by the Board of Directors pursuant to the Non-Qualified Warrant Plan, the
Incentive Stock Option Plan and other unregistered warrants. Mr. Gillam also
owns 39,167 warrants and options which are not presently exercisable.
(4) Includes presently exercisable warrants and options granted to Mr. May by
the Board of Directors to purchase 164,000 shares of common stock pursuant
to the Non-Qualified Warrant Plan, the Incentive Stock Option Plan and other
unregistered warrants. Mr. May also owns 37,500 warrants and options which
are not presently exercisable.
(5) Reflects potential conversion of 100,000 shares of Convertible Preferred
Stock with Mandatory Redemption Provision in 2005 into Common Stock.
(6) Includes presently exercisable unregistered warrants granted to Dr.
Lindstrom by the Board of Directors to purchase 40,000 shares of common
stock and 6,823 shares of Common Stock he received as an officer and
director of Vision Correction, Inc., a Minneapolis-based company acquired by
the Company in August, 1995. Dr. Lindstrom also owns 60,000 unregistered
warrants which are not presently exercisable.
(7) Includes presently exercisable options and warrants to purchase an aggregate
of 949,709 shares of common stock granted to five executive officers (three
of which are also directors) of the Company. An additional 183,291 options
and warrants to purchase shares of common stock are owned but are not
presently exercisable by these executive officers. See "Executive
Compensation -- Stock Option Plan" and "Executive Compensation -- Employment
Agreements."
(8) Includes presently exercisable options and warrants to purchase an aggregate
of 870,667 shares of common stock granted to directors (three of which are
also executive officers of the Company) and 1,666,667 common shares issuable
upon the conversion of preferred stock. An additional 173,333 options and
warrants to purchase shares of common stock are owned but not presently
exercisable by these directors.
As required by the Securities and Exchange Commission rules under Section
16 of the Securities and Exchange Act of 1934, the Company notes that during the
fiscal year ended April 30, 1996, all reports regarding transactions in the
Company's common stock were timely filed.
27
<PAGE> 29
The following table sets forth certain information regarding beneficial
ownership of the Company's Convertible Preferred Stock as of April 30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES PREFERRED SHARES
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED
- ----------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Schroder Ventures International............................ 37,923.48 26.9%
Life Sciences Fund LPI
Schroder Ventures International............................ 8,427.42 5.98%
Life Sciences Fund LP2
Schroder Ventures International............................ 13,349.1 9.47%
Life Sciences Trust
Barings (Guernsey) Limited................................. 7,500. 5.32%
Trustee of the Schroder UK
Venture 1 Extension Fund
Schroder UK Venture Fund III Trust......................... 13,177.78 9.35%
Schroder UK Venture Fund III LP1........................... 12,881.47 9.14%
Total of all Schroder Entities affiliated with directors
Garvey and Simon......................................... 100,000 70.92%
Drakes Landing Associates, L.P. ........................... 15,000 10.64%
525 Investments Limited.................................... 10,000 7.09%
Medical Science Partners II, L.P. ......................... 8,067 5.72%
</TABLE>
28
<PAGE> 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 12
Dr. Henry Simon and James M. Garvey are both members of the Board of
Directors and employees of Schroder Ventures Life Sciences Advisors, an
affiliate of the primary holder of the Company's Convertible Preferred Stock
with a Mandatory Redemption Provision in 2005.
EXHIBITS AND REPORTS ON FORM 8-K
ITEM 13
<TABLE>
<S> <C>
3.0* Company's Certificate of Incorporation and Amendment.
3.1* Company's Restated Certificate of Incorporation.
3.2* Form of Company's By-Laws, as amended.
4.1* Specimen Stock Certificate.
4.2* Amended form of Class B Warrant Certificate.
4.3* Form of Class B Warrant Agreement.
4.4* Amended form of Underwriter's Warrant Agreement.
4.5*** Form of Class F Warrant Agreement.
4.6*** Form of Class F Warrant Certificate.
10.1**** Agreements between the Company and affiliates of Alcon Laboratories, Inc. dated
March 31, 1994 and April 4, 1994.
16.0***** Letter of Lovelace, Roby & Company P.A., dated May 23, 1994, regarding change in
certifying accountants.
21.0** Subsidiaries of the Company -- Page 30
23.0** Consent of Independent Accountants, Price Waterhouse LLP -- Page 31
</TABLE>
- -------------------------
* Incorporated by reference from Registration Statement No. 33-33843
effective on April 3, 1991.
** Filed herewith.
*** Incorporated by reference from Registration Statement No. 33-67328
effective on November 9, 1993.
**** Incorporated by reference from Form 8-K filed April 19, 1994.
***** Incorporated by reference from Form 8-K filed May 19, 1994.
29
<PAGE> 31
REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the last quarter of the
period covered by this report:
None.
SUBSIDIARIES OF THE COMPANY
<TABLE>
<C> <S>
1. LVCI (Europe) Ltd.
-- incorporated under the laws of England;
2. Arnott Laser Vision Centre Limited
-- incorporated under the laws of England
-- doing business under the name Harley Street Laser Vision Centre
-- 50.002% owned;
3. Gestion LVCI (Quebec) Inc./LVCI Management (Quebec) Inc.;
-- incorporated under the Quebec Companies Act in the Province of Quebec, Canada;
-- doing business under the name of Montreal Laser Vision Centre;
4. LVCI Management (B.C.) Inc.;
-- incorporated under the laws of the Province of British Columbia
-- doing business under the name Broadway Eye Surgery Centre;
5. LVCI Management (Ontario) Inc.;
-- incorporated under the laws of the Province of Ontario, Canada;
-- doing business under the name St. Catharines Laser Vision Center;
-- 90% owned;
6. Laser Vision Centers (Calgary) Inc.;
-- incorporated under the Business Corporations Act (Alberta), in the Province of
Alberta, Canada
</TABLE>
30
<PAGE> 32
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-84050) pertaining to the Laser Vision Centers, Inc.
1990 Incentive Stock Option Plan, the 1990 Non-Qualified Stock Option Plan and
the 1994 Non-Qualified Warrant Plan of our report dated June 14, 1996, which is
included in Laser Vision Centers, Inc.'s Annual Report on Form 10-KSB for the
year ended April 30, 1996.
[SIG.]
Price Waterhouse LLP
St. Louis, Missouri
July 29, 1996
31
<PAGE> 33
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LASER VISION CENTERS, INC.
By: /s/ JOHN J. KLOBNAK
----------------------------------
John J. Klobnak, Chief Executive
Officer
By: /s/ B. CHARLES BONO
----------------------------------
B. Charles Bono, Principal
Accounting Officer
Date: July 26, 1996
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------------- -------------
<S> <C> <C>
/s/ JOHN J. KLOBNAK Chief Executive Officer, Director July 26, 1996
- -------------------------------------
John J. Klobnak
/s/ ALAN F. GILLAM President, Director July 26, 1996
- -------------------------------------
Alan F. Gillam
/s/ ROBERT W. MAY Secretary, Director July 26, 1996
- -------------------------------------
Robert W. May
/s/ W. HOWARD LEWIN, M.D. Director July 26, 1996
- -------------------------------------
W. Howard Lewin, M.D.
</TABLE>
32
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Laser Vision Centers, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Laser Vision Centers, Inc. and its subsidiaries as of April 30, 1996 and April
30, 1995, and the results of their operations and their cash flows for each of
the three years in the period ended April 30, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed further in Note 4, effective in the fourth quarter of the year
ended April 30, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
/s/ Price Waterhouse LLP
- -------------------------------
PRICE WATERHOUSE LLP
St. Louis, Missouri
June 14, 1996
F-1
<PAGE> 35
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
APRIL 30, AT APRIL 30, 1996
--------------------------- (NOTE 5)
1996 1995 (UNAUDITED)
----------- ------------ -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $12,672,000 $ 2,126,000 $ 12,672,000
Accounts receivable, net of allowance of
$286,000 and $157,000, respectively......... 805,000 587,000 805,000
Prepaid expenses and other current assets...... 483,000 164,000 483,000
Assets held for sale (Note 4).................. 1,200,000 -- 1,200,000
----------- ------------ -------------
Total current assets...................... 15,160,000 2,877,000 15,160,000
Property and equipment:
Laser equipment (Notes 4, 6 and 7)............. 9,474,000 9,941,000 9,474,000
Medical equipment (Note 4)..................... 352,000 386,000 352,000
Mobile equipment............................... 892,000 508,000 892,000
Furniture and fixtures......................... 1,019,000 396,000 1,019,000
----------- ------------ -------------
11,737,000 11,231,000 11,737,000
Less-accumulated depreciation.................... (1,323,000) (3,288,000) (1,323,000)
----------- ------------ -------------
10,414,000 7,943,000 10,414,000
Equipment deposits............................... 1,765,000 80,000 1,765,000
----------- ------------ -------------
Net property and equipment................ 12,179,000 8,023,000 12,179,000
Other assets (Note 2)............................ 1,574,000 418,000 1,574,000
----------- ------------ -------------
Total assets..................................... $28,913,000 $ 11,318,000 $ 28,913,000
=========== ============ =============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable (Note 6)...... $ 1,858,000 $ 3,013,000 $ 1,858,000
Current portion of obligations under capital
leases (Note 7)............................. 467,000 94,000 467,000
Accounts payable............................... 870,000 490,000 870,000
Accrued liabilities............................ 1,963,000 581,000 1,963,000
----------- ------------ -------------
Total current liabilities................. 5,158,000 4,178,000 5,158,000
Non-current liabilities:
Notes payable (Note 6)......................... 342,000
Capital lease obligations (Note 7)............. 1,375,000 64,000 1,375,000
Deferred revenue and other..................... 275,000 80,000 275,000
Minority interests (Note 3).................... 113,000 305,000 113,000
----------- ------------ -------------
1,763,000 791,000 1,763,000
Commitments and contingencies (Notes 9 and 10)
Convertible preferred stock with mandatory
redemption provision in 2005 (Note 5).......... 14,539,000
Stockholders' equity (Notes 11 and 12):
Common stock, par value $.01 per share,
50,000,000 authorized; 6,415,993 and
4,452,555 shares issued and outstanding,
respectively................................ 64,000 45,000 88,000
Paid-in-capital................................ 23,831,000 13,943,000 38,346,000
Accumulated deficit............................ (16,442,000) (7,639,000) (16,442,000)
----------- ------------ -------------
7,453,000 6,349,000 21,992,000
----------- ------------ -------------
Total liabilities, redeemable preferred
stock and stockholders' equity......... $28,913,000 $ 11,318,000 $ 28,913,000
=========== ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 36
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues........................................... $ 3,918,000 $ 3,311,000 $ 2,106,000
Cost of revenues (includes $1,973,000, $1,589,000
and $969,000 of depreciation, respectively)...... 4,240,000 3,375,000 1,768,000
----------- ----------- -----------
Gross profit (loss)........................... (322,000) (64,000) 338,000
Operating expense:
General and administrative....................... 2,356,000 1,002,000 695,000
Salaries and related expenses.................... 2,329,000 1,285,000 902,000
Depreciation and amortization.................... 230,000 283,000 250,000
Selling and marketing expenses................... 916,000 574,000 391,000
Fixed asset impairment provision (Note 4)........ 3,063,000 -- --
----------- ----------- -----------
8,894,000 3,144,000 2,238,000
----------- ----------- -----------
Loss from operations.......................... (9,216,000) (3,208,000) (1,900,000)
Other income (expenses):
Interest and other income........................ 437,000 37,000 21,000
Interest expense................................. (216,000) (242,000) (156,000)
Minority interest in net loss of subsidiary (Note
3)............................................ 192,000 116,000
Provision for loss on advance (Note 10).......... -- -- (175,000)
----------- ----------- -----------
Net loss...................................... $(8,803,000) $(3,297,000) $(2,210,000)
=========== =========== ===========
Net loss per share (Note 2)................... $ (1.75) $ (.82) $ (.66)
Weighted average number of common shares
outstanding...................................... 5,278,000 4,001,000 3,356,000
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 37
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
NOTE
COMMON STOCK RECEIVABLE, TOTAL
-------------------- PAID-IN ACCUMULATED COMMON STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
--------- ------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1993........ 2,913,000 $29,000 $ 6,032,000 $ (2,132,000) $(1,100,000) $ 2,829,000
Issuance of 950,000 units of
common stock and Class F
warrants in public offering
(Note 12), including over
allotment of F warrants to
underwriters................... 950,000 10,000 3,784,000 3,794,000
Cancellation of 275,000 shares of
common stock (Note 10)......... (275,000) (3,000) (922,000) 1,100,000 175,000
Exercise of Class A warrants..... 1,000 6,000 6,000
Net loss for year ended April 30,
1994........................... -- -- -- (2,210,000) -- (2,210,000)
--------- ------- ----------- ------------ ----------- -----------
Balance at April 30, 1994........ 3,589,000 36,000 8,900,000 (4,342,000) 4,594,000
Exercise of Class A, B and F
warrants....................... 726,955 8,000 4,142,000 4,150,000
Issuance of common stock in
private offering (Note 11)..... 125,000 1,000 835,000 836,000
Exercise of incentive and
non-qualified stock options.... 11,600 66,000 66,000
Net loss for year ended April 30,
1995........................... -- -- -- (3,297,000) -- (3,297,000)
--------- ------- ----------- ------------ ----------- -----------
Balance at April 30, 1995........ 4,452,555 45,000 13,943,000 (7,639,000) -- 6,349,000
--------- ------- ----------- ------------ ----------- -----------
Exercise of incentive and
non-qualified options.......... 100,210 1,000 468,000 469,000
Exercise of C, D, non-qualified,
underwriter and other
warrants....................... 363,294 3,000 2,137,000 2,140,000
Exercise of Class B and F
warrants....................... 1,159,690 12,000 6,910,000 6,922,000
Issuance of common stock in
private offering (Note 11)..... 242,218 2,000 1,143,000 1,145,000
Issuance of common stock in
conjunction with acquisitions
(Note 3)....................... 98,026 1,000 911,000 912,000
Costs associated with issuance of
convertible preferred stock
with mandatory redemption
provision...................... (1,242,000) (1,242,000)
Dividends accrued on convertible
preferred stock (Note 5)....... (439,000) (439,000)
Net loss for the year ended April
30, 1996....................... -- -- -- (8,803,000) -- (8,803,000)
--------- ------- ----------- ------------ ----------- -----------
Balance at April 30, 1996........ 6,415,993 $64,000 $23,831,000 $(16,442,000) $ -- $ 7,453,000
========= ======= =========== ============ =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 38
LASER VISION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating expenses:
Net loss................................................... $(8,803,000) $(3,297,000) $(2,210,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 2,203,000 1,872,000 1,219,000
Fixed asset impairment................................... 3,063,000
Imputed interest......................................... 74,000 212,000 16,000
Provision for loss on advance............................ 175,000
Provision for uncollectible accounts receivable.......... 75,000 32,000 66,000
Changes in operating assets and liabilities, excluding
the effects of acquisitions:
Increase in accounts receivable........................ (52,000) (386,000)
Increase in prepaid expenses and other current
assets.............................................. (319,000) (92,000) (69,000)
Increase in other assets............................... (54,000) (94,000)
Increase in accounts payable........................... 380,000 138,000 124,000
Increase in accrued liabilities........................ 746,000 328,000 166,000
Decrease in minority interest.......................... (192,000) (116,000) --
----------- ----------- -----------
Net cash used by operating activities............. (2,879,000) (1,017,000) (899,000)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of equipment................................... (5,993,000) (1,147,000) (2,818,000)
Equipment deposits......................................... (1,685,000) (80,000) (25,000)
Decrease in restricted cash................................ 375,000
Acquisition of New Image................................... (169,000) -- --
----------- ----------- -----------
Net cash used by investing activities...................... (7,847,000) (1,227,000) (2,468,000)
=========== =========== ===========
Cash flows from financing activities:
Proceeds from private offering, redeemable preferred....... 14,100,000
Private placement offering costs, redeemable preferred..... (1,117,000)
Proceeds from private offerings, common.................... 1,220,000 903,000 4,750,000
Private placement offering costs, common................... (75,000) (67,000) (956,000)
Net proceeds from exercise of Class A, B and F Warrants.... 6,922,000 4,150,000 6,000
Net proceeds from exercise of other warrants............... 2,140,000
Proceeds from exercise of incentive and nonqualified stock
options.................................................. 469,000 66,000
Payment on notes payable................................... (2,135,000) (1,305,000) (375,000)
Principal payments under capital lease obligations......... (252,000) (83,000) (139,000)
----------- ----------- -----------
Net cash provided by financing activities.................... 21,272,000 3,664,000 3,286,000
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 10,546,000 1,420,000 (81,000)
Cash and cash equivalents at beginning of year.... 2,126,000 706,000 787,000
----------- ----------- -----------
Cash and cash equivalents at end of year.......... $12,672,000 $ 2,126,000 $ 706,000
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Notes payable issued for laser purchases................... $ 675,000 $ 1,359,000 $ 5,914,000
Capital lease obligations related to laser purchases....... 1,936,000
Accrued dividends and offering costs, private placement
redeemable preferred..................................... 564,000
Acquisitions -- Fair value of assets acquired................ 1,676,000
Liabilities assumed........................................ (595,000)
Common stock issued........................................ (912,000)
-----------
Cash paid.................................................. 169,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest................... $ 127,000 $ 31,000 $ 140,000
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 39
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF ORGANIZATION
Laser Vision Centers, Inc. (the Company), provides access to excimer lasers
and related services for the treatment of refractive vision disorders and has 30
lasers currently in use in the United States, Canada and Europe. The Company is
the world's only operator of mobile excimer laser systems. The excimer laser can
be used to treat refractive optical disorders such as nearsightedness and
astigmatism to eliminate or reduce the need for corrective lenses. LaserVision
Centers(R) operate on a shared-access model, giving individual or group
ophthalmic practices use of the technology without investment risk or
maintenance requirements and allowing optimal use of the equipment. In addition,
the Company provides a broad range of professional services, including physician
and staff training, technical support services and maintenance and, through its
MarketVision and MedSource divisions, advertising and marketing programs and
services.
Photorefractive keratectomy (PRK) involves the use of an excimer laser to
reshape the cornea, thereby adjusting its refractive power, which in turn
eliminates or reduces the need for corrective lenses. The excimer laser can also
be used to treat a number of pathological superficial corneal disorders in a
procedure called phototherapeutic keratectomy (PTK). Two manufacturers, VISX,
Incorporated (VISX) and Summit Technology, Inc. (Summit) recently received
approval by the United States Food and Drug Administration (FDA) for use of
their excimer lasers to perform PRK for low to moderate myopia and PTK. In
addition to such procedures, excimer lasers can also be used to perform
procedures known as laser in situ keratomileusis (LASIK), which may be more
predictable in treating high levels of myopia, but which has not been
specifically approved in the United States by the FDA.
The Company has operated excimer laser centers in Canada and Europe since
1991 and 1993, respectively. The Company currently provides excimer lasers and
related services to fixed-site centers in Canada, the United Kingdom, Finland,
Greece, Sweden and Ireland and operates the MobilExcimer(R) in Canada and the
United Kingdom. With the recent approval of the excimer laser technology by the
FDA to treat certain refractive vision disorders, the Company currently operates
centers in the United States and plans to continue to open U.S. centers. Risk
factors associated with the successful implementation of the Company's business
strategy include the absence of profitable operations, the uncertainty of market
acceptance of excimer laser surgery, competition, the Company's dependence on
limited sources of excimer lasers, government regulation, the uncertainty of FDA
approval of the MobilExcimer, the lack of long-term follow-up data and
undetermined medical risks with respect to the effect of excimer laser surgery,
product liability and professional liability, the Company's ability to manage
its growth and its dependence on current management and the possible need for
additional financing. In the United States, fixed-site laser centers are
operated in conjunction with Columbia Healthcare Corporation (Columbia
Healthcare), formerly Columbia/HCA, or by the Company independently or through
joint ventures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Cash equivalents
The Company considers unrestricted cash, as well as short-term investments
purchased with an original maturity of three months or less, to be cash
equivalents. Cash and cash equivalents included money market funds of $7,903,000
($1,711,000 in 1995) and short term commercial paper of $4,500,000 at April 30,
1996.
F-6
<PAGE> 40
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risks consist principally of funds held in commercial
paper, money market accounts and trade receivables.
As of April 30, 1996 and 1995, the Company has deposited $12,406,000 and
$1,747,000, respectively, in commercial paper and money market accounts at
financial institutions. Management believes the credit risk related to these
funds is limited due to the short-term nature of the accounts.
Management believes the credit risk related to its trade receivables is
limited due to the Company's large number of customers and that its allowance
for doubtful accounts is adequate.
Property and equipment
Property and equipment is stated at cost, or at estimated fair value for
long-lived assets determined to be impaired. Expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation and amortization
are computed utilizing the straight-line method. In the opinion of management,
this method is adequate to allocate the cost of equipment over its estimated
useful lives which range from four to five years. Depreciation for commercial
lasers and other equipment is included in cost of revenues. Depreciation for the
clinical laser and furniture and fixtures is classified as an operating expense.
Impairment of long-lived assets
The Company reviews for the impairment of long-lived assets when events or
changes in circumstances indicate that an asset's carrying value may not be
recoverable. In reviewing for impairment, if the carrying value of an asset is
greater than the sum of the undiscounted projected cash flows attributable to
that asset, an impairment loss is recognized. The impairment loss is based on
the fair value of the asset which is determined based on market prices,
discounted cash flows or the best information available. See Note 4 for the
impairment provision and the adoption of Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of ("SFAS 121").
Other assets
Other assets at April 30 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Goodwill, net of $89,000 and $8,000 amortization, respectively (Note
3)................................................................. $1,108,000 $242,000
Tradename and servicemark costs, net of $30,000 and $15,000
amortization, respectively......................................... 152,000 167,000
VCI deposits in escrow (Note 3)...................................... 256,000
Rent deposits and other, net......................................... 58,000 9,000
---------- --------
$1,574,000 $418,000
========== ========
</TABLE>
The goodwill, tradename and servicemark costs are being amortized over 5 to
15 years.
Revenue
Laser revenues are recognized when the surgical procedures are performed.
Advertising revenues are recognized as earned, upon delivery of print media or
upon broadcast of TV or radio advertisements.
F-7
<PAGE> 41
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cost of revenues
Cost of revenues include laser and medical equipment depreciation, laser
maintenance including optics and gasses, Pillar Point royalty fees, professional
medical services and medical supplies for the LaserVision Centers division. For
the MarketVision division, cost of revenues includes client media and production
costs which are deferred during production and expensed when the client is
billed. Advertising costs are expensed as incurred and included in selling and
marketing expenses for the LaserVision Centers division.
Deferred revenue
Deferred revenue, included in other assets, relates to funds received from
opthalomologists under agreements with the Company to provide excimer laser
access. When laser training and access are provided and the deposits are
released, the revenue will be recorded.
Minority interests
The minority interests on the consolidated balance sheet relate to a
49.998% interest in a European subsidiary (see Note 3) and a 10% interest in one
Canadian subsidiary.
Income taxes
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the difference
between the income tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes.
Foreign Currency Translation
The accounts of the Company's foreign subsidiaries are maintained in their
respective local currencies. The accompanying consolidated financial statements
have been translated and adjusted to reflect U.S. dollars on the bases presented
below.
Assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Foreign currency translation adjustments
and transaction gains and losses are immaterial amounts and are included in
earnings currently.
Loss per share
Net loss per common share is based upon the weighted average number of
shares outstanding during the period and includes dividends accrued on the
convertible preferred stock. The calculation excludes common stock equivalent
shares when their inclusion in such calculations would have been antidilutive.
Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
3. ACQUISITIONS
Effective April 5, 1996, the Company's European subsidiary acquired certain
assets and assumed certain liabilities of New Image Laser Centres Limited (New
Image) for approximately $169,000 paid upon acquisition and $60,000 which is
payable September 15, 1996. Assets acquired include accounts
F-8
<PAGE> 42
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivable, medical equipment, leasehold improvements and furniture and
fixtures. Liabilities assumed include the obligation to provide patient
follow-up exams for treatment commenced prior to the acquisition date. The
acquisition was accounted for in accordance with the purchase method of
accounting; the acquisition cost approximated the fair value of the net assets
acquired and no goodwill has been recorded. The 1996 consolidated financial
statements include the revenues and expenses of New Image from the acquisition
date.
Effective February 1, 1996, the Company acquired the stock of Med-Source,
Inc. (Med Source) for 21,845 shares of the Company's unregistered common stock
issued at the $12.125 market price when the transaction was negotiated, and
$35,000. The acquisition was accounted for in accordance with the purchase
method of accounting; the acquisition cost exceeded the fair value of the net
assets acquired resulting in approximately $282,000 of goodwill. To increase
ophthalmic surgical volumes, Med Source provides marketing services in the areas
of planning, training, and consulting. The April 30, 1996 consolidated financial
statements include all assets and liabilities of Med Source and reflect the
revenues and expenses of Med Source since the acquisition date.
In August 1995, the Company acquired the stock of Vision Correction, Inc.
of Minnesota (VCI) for 76,181 shares of the Company's unregistered common stock
issued at the $8.50 market price. The principal assets acquired were site
agreements with eye centers, clinics and individual doctors in nine states with
respect to access to mobile excimer lasers. The 25 agreements, each of which
required a $10,000 deposit by the eye center, clinic or doctor, require the
Company to provide certain services including regular access to a mobile excimer
laser in return for an agreement by the eye center, clinic or doctor to
exclusively use mobile lasers provided by the Company for all PRK or similar
services. The agreements become effective when the Company gives notice of its
intention to provide access to a mobile excimer laser and continues thereafter
for an initial term of 2 years and on a year to year basis thereafter unless
notice of termination is given. The eye centers, clinics and doctors may
terminate the agreements if the agreements do not become effective on or before
December 31, 1997. The VCI acquisition was accounted for in accordance with the
purchase method of accounting; the acquisition cost exceeded the fair value of
the net assets acquired resulting in the recording of goodwill totaling
$664,000.
Effective November 1, 1994, the Company's European subsidiary acquired a
majority interest of Arnott Laser Vision Centre Limited (currently doing
business as Harley Street Laser Vision Centre "HSLVC") in London, England for
approximately $39,000. The step acquisition of HSLVC was accounted for pursuant
to the purchase method of accounting. HSLVC subsequently acquired approximately
$104,000 of equipment and the existing excimer laser surgery practice from the
minority owners of HSLVC in exchange for a non-interest bearing note of
approximately $354,000, resulting in the recording of goodwill of $250,000. In
June 1995, HSLVC consolidated operations and moved to a new leased facility on
Harley Street in London. As specified in the acquisition agreement, the Company
agreed to purchase a new excimer laser for approximately $500,000 to be used at
the Harley Street facility in exchange for a non-interest bearing note of HSLVC.
The April 30, 1996 and 1995 consolidated financial statements include the
operations of HSLVC since the acquisition date and reflect the equity and other
obligations due to the minority owners as a non-current liability.
4. FIXED ASSET IMPAIRMENT PROVISION
In connection with the Company's continuing evaluation of the
recoverability of its assets, a fixed
asset impairment charge of $3,063,000 was recognized in the fourth quarter of
fiscal 1996. This resulted from a reorganization of the Company's international
operations in connection with the approval by the Food and Drug Administration
(FDA) of the Summit laser in October 1995 and the VISX laser in March 1996, for
performance of certain PRK procedures in the United States. The Company had 22
F-9
<PAGE> 43
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Model B VISX lasers dedicated to its European and Canadian operations as of
February 1, 1996. The intent of the Company had been to move a number of these
lasers to the United States after the FDA approval. The Company also expected
these lasers to be upgradeable to treat hyperopia (farsightedness). However, in
the fourth quarter of fiscal 1996 the Company was informed of VISX's decision
not to upgrade the Model B lasers to treat hyperopia and of its decision to
effectively prohibit the reimporting of Model B lasers. As a result, the Company
was unable to upgrade the international lasers for use in the United States and,
thus, had an excess of international equipment which could not treat hyperopia.
Accordingly, the Company entered into negotiations to sell 10 excess lasers
for $1,200,000, resulting in an impairment provision of $1,350,000. Such lasers
are classified as assets held for sale on the balance sheet at April 30, 1996
and will be sold prior to October 31, 1996.
The Company revised its international business plan in April 1996 to take
into account FDA approval, increased emphasis on activity in the United States,
international market conditions and the market acceptance of PRK procedures to
date. It reduced the number of fixed sites in Europe and Canada, redeployed a
number of lasers and selected a number of sites to be served by mobile lasers.
Because of this significant change in business conditions, the Company assessed
the projected undiscounted future cash flows of the remaining European and
Canadian excimer lasers and related medical equipment and determined that cash
flows were insufficient to recover the carrying value of these assets. As a
result, the Company recorded an additional provision for impairment of
$1,713,000 to record those assets at fair value based upon current market
prices. These assets, with a carrying value of $1,235,000, will continue to be
used in international operations.
The total original cost of the above equipment was $9,542,000 and the
accumulated depreciation at the time of the write-downs was $4,044,000.
Furthermore, the Company implemented SFAS 121 in the fourth quarter and its
adoption had no direct impact on the Company.
5. CONVERTIBLE PREFERRED STOCK WITH MANDATORY REDEMPTION PROVISION IN 2005
The Company's amended Articles of Incorporation authorize the Board of
Directors to issue 1,000,000 shares of preferred stock, at $.01 par value per
share, in one or more series, designated by them as to rights, preferences,
terms and limitations. In fiscal 1995, the Board of Directors authorized the
sale of up to 180,000 shares of convertible preferred stock via a private
placement at a price per share and under terms to be determined. In October
1995, the Company received $14,100,000 from the sale of 141,000 shares of
restricted convertible preferred stock with a mandatory redemption provision in
2005, at the holders' option. The related offering costs of $1,242,000 were
deducted from paid-in-capital. These restricted preferred shares, par value
$100, are convertible into 2,349,991 shares of common stock at a conversion
price of $6 per share, have a stated dividend rate beginning after three years
of 8% (after two years under certain circumstances) and have limited piggy-back
registration rights in the event of any public offering of common stock and
mandatory registration rights after two years. For the year ended April 30,
1996, dividends of $439,000 were accrued and are reflected in the calculation of
net loss per common share. These shares are expected to be converted into
2,349,991 shares of common stock upon consummation of the proposed stock
offering and, in that case, the accrued dividends would not be payable (see Note
14).
The Pro forma balance sheet at April 30, 1996 has been prepared using the
historical balance sheet at April 30, 1996 and adjusted for the conversion of
the Preferred Stock into 2,349,991 shares of common stock.
F-10
<PAGE> 44
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE
In April and June 1994 and May and July 1995, the Company entered into
agreements to purchase VISX lasers. The purchase agreements required periodic
repayments over eighteen to twenty-four months to the seller, bearing no stated
interest rate (interest was imputed at 6%). At April 30, 1996 and 1995, the
outstanding balances relating to these purchase agreements totaled $1,847,000
and $3,355,000, respectively. Subsequent to April 30, 1996, the Company repaid
the outstanding balance under these purchase agreements.
7. OBLIGATIONS UNDER CAPITAL LEASES
In September 1995, the Company acquired two excimer lasers for use in the
United States. The lasers were financed by five year capital leases requiring
principal payments totaling $1,024,000 and bearing interest at 11% per annum. In
January 1996, the Company acquired two additional excimer lasers for use in the
United States. The lasers were primarily financed by three and one-half year
term capital leases requiring principal payments totaling $912,000 and bearing
interest at 12% per annum.
Future minimum payments under capital leases as of April 30, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
APRIL 30, AMOUNT
---------- ----------
<S> <C>
1997............................................................. $ 643,000
1998............................................................. 571,000
1999............................................................. 571,000
2000............................................................. 364,000
2001............................................................. 87,000
----------
Total minimum lease payments..................................... 2,236,000
Less amount representing interest................................ (394,000)
Less current portion............................................. (467,000)
----------
Long-term portion of obligations under capital leases at 11% to
12%............................................................ $1,375,000
==========
</TABLE>
Assets under capital leases totaled $2,353,000 and $440,000, respectively,
at April 30, 1996 and 1995. Depreciation of leased assets was $265,000, $101,000
and $122,000 for the years ended April 30, 1996, 1995 and 1994, respectively.
8. INCOME TAXES
At April 30, 1996, the Company has net operating loss carryforwards of
approximately $13.3 million available to offset future taxable income, expiring
2006 through 2011. The Company has recorded a deferred tax asset of
approximately $5.3 million with an offsetting valuation allowance at April 30,
1996. For purposes of recording deferred tax assets, no future taxable income is
assumed given the results of operations of the Company to date.
F-11
<PAGE> 45
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred taxes at April 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net operating loss............................................... $ 5,430,000 $ 3,006,000
Depreciation..................................................... (172,000) (72,000)
Other............................................................ 59,000 42,000
----------- -----------
Net asset........................................................ 5,317,000 2,976,000
Valuation allowance.............................................. (5,317,000) (2,976,000)
----------- -----------
Total deferred taxes........................................ $ -0- $ -0-
=========== ===========
</TABLE>
The components of income tax expense are as follows for the fiscal years
ending April 30:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Computed expected tax benefit.................................... $ 3,521 $ 1,319 $ 884
Impairment provision............................................. (1,225)
Change in valuation allowance.................................... (2,341) (1,319) (884)
Other............................................................ 45
------- ------- -----
Income tax expense............................................. $ -0- $ -0- $ -0-
======= ======= =====
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Agreements to lease or purchase laser equipment
Effective May 30, 1996, the Company agreed to purchase three new
excimerlasers and one used excimer laser for use primarily in Europe for a total
of $1.7 million due during the first half of fiscal 1997. At April 30, 1996, the
Company has agreed to purchase twelve VISX excimer lasers (approximate purchase
price of $6 million) and has an option to purchase twenty more (approximate
purchase price of $10 million). The Company is also negotiating to assume the
lease obligations for up to three excimer lasers.
Employment agreements
During fiscal 1996, the Company entered into three-year contracts with four
officers of the Company provide for base salaries and the potential payment of
certain bonuses. During fiscal 1996, 1995 and 1994, $449,000, $208,000 and
$62,000, respectively, were provided for these bonuses which were tied to the
price of the Company's common stock. Six other key employees have employment
contracts for one year to eighteen month periods.
Operating leases
The Company has office and laser center lease agreements in St. Louis,
Minneapolis, Montreal, London, Edinburgh and Solihull. The respective leases
commenced in 1993, 1994 and 1996 and shall
F-12
<PAGE> 46
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
end in 1998, 2000 and 2001. Approximate future minimum rental payments under the
leases are as follows.
<TABLE>
<CAPTION>
YEAR ENDING MINIMUM RENTAL
APRIL 30, PAYMENTS
------------ --------------
<S> <C>
1997........................................................... $370,000
1998........................................................... 297,000
1999........................................................... 270,000
2000........................................................... 243,000
2001........................................................... 168,000
</TABLE>
Related rental expenses totaled $184,000, $98,000 and $71,000 for the years
ended April 30, 1996, 1995 and 1994, respectively.
Claims
During fiscal 1992, the Company hired an investor relations consulting firm
and agreed to issue the firm 100,000 to 150,000 warrants to purchase the
Company's common stock at $5.00 per share. Due to failure to perform and breach
of contract, the Company filed a claim against the firm during fiscal 1993 to
rescind the contract, void the warrants and recover fees and expenses. The
disputed warrants are not included in Note 12 of these consolidated financial
statements. Management does not expect this claim, currently in the trial
preparation process, to have a material adverse effect upon the Company's future
results of operations, liquidity or financial condition.
10. LEGAL PROCEEDINGS
The Company is party to the following legal proceedings:
On October 8, 1993, the Company filed suit in the Circuit Court of St.
Louis County, Missouri, against Laser Vision Centers International SpA (SpA) in
connection with disputes between Company and SpA arising out of a proposed
agreement between the parties. On December 17, 1993, the court entered judgment
by default in the Company's favor: (i) terminating and rescinding any and all
agreements and proposed agreements between the parties; (ii) for money damages
in the amount of $175,000 and (iii) ordering the return of 275,000 shares of
common stock which was issued to SpA. Accordingly, in the year ended April 30,
1994, the Company recorded a $175,000 provision for loss on the advance and the
cancellation of the 275,000 shares of common stock and related note receivable,
common stock. In June 1994, SpA filed a Motion to Vacate the Judgment in the
lawsuit. SpA's motion was denied in April 1995, but SpA has filed an appeal
which is currently awaiting a ruling from the Missouri Court of Appeals.
On November 17, 1994, the Company brought suit against LaserVision Centers
West, Inc. (LVCWI) in the United States District Court for the Eastern District
of Missouri alleging trade mark, service mark and trade name infringements and
other related violations of law. The Company seeks to have LVCWI enjoined from
any further use of these marks or names or any others which are confusingly
similar to those registered to and used by the Company. In addition, the Company
seeks damages, attorney fees and a declaratory judgment that no agreement exists
between the parties. LVCWI has counterclaimed against the Company for breach of
contract. On July 7, 1995, this action was transferred to the United States
District Court for the Central District of California. The case is in the final
stages of discovery. The Company intends to vigorously pursue the prosecution of
this suit.
On March 24, 1995, the Company filed suit against 20/20 Laser Centers, Inc.
(20/20) in the United States District Court for the Southern District of
California alleging trade mark, service mark
F-13
<PAGE> 47
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and trade name infringements and other related violations of law. The various
counts in this suit arose from 20/20's use of the marks or name "Laser Vision"
and "Laser Vision Correction." The Company seeks to have 20/20 enjoined from any
further use of these marks or names or any others which are confusingly similar
to those registered and used by the Company. The Company also seeks damages and
attorney fees in conjunction with this action. On June 23, 1995, by stipulated
agreement of the parties, this action was transferred to the United States
District Court for the District of Maryland, Greenbelt Division. 20/20 has
counterclaimed for cancellation of the Company's registered marks LASERVISION,
LASERVISION CENTERS AND DESIGN, LASERVISION CENTER and LASERVISION CENTERS. The
Company intends to vigorously pursue the prosecution of this suit.
Management does not expect these legal proceedings, individually or in the
aggregate, to have a material adverse effect upon the Company's future results
of operations, liquidity or financial condition.
11. CAPITAL STOCK
In November 1993, the Company completed a second public offering for
950,000 units at a price to the public of $5.00 per unit. Each unit consisted of
one share of common stock and one Class F warrant which allows the holder to
purchase one share of common stock for $6.00 on or before April 3, 1995. The
underwriter subsequently exercised its over allotment option and acquired
142,500 Class F warrants bringing the total number of Class F warrants issued to
1,092,500. In connection with this second public offering, the Company sold to
the representative, for $.001 per warrant, underwriter warrants to purchase up
to 95,000 units at $7.25 per unit over a five-year period.
During fiscal 1994, the expiration date for the Class A warrants was
extended to August 1994 and the expiration date for the Class B warrants was
extended to April 1995. In addition, the exercise price for the Class B warrants
was reduced to $6.00 per share. Prior to expiration, a total of 401,220 Class A
warrants were exercised (288,780 Class A warrants expired without being
exercised) and 401,220 Class B warrants were issued. During fiscal 1995, the
expiration date for the Class B warrants and the Class F warrants was extended
to February 6, 1996. All Class B and F warrants were exercised by February 6,
1996 except for 7,295 which expired unexercised.
In September 1994, stockholders approved an increase in the number of
authorized common shares from 10,000,000 to 50,000,000 and an amendment to the
Company's Certificate of Incorporation requiring super majority (80%) approval
of certain business combinations.
In April 1995, the Company sold 125,000 shares of unregistered common stock
to two investors at $7.225 per share, less solicitation and offering costs.
These stockholders also received certain piggyback registration rights and the
option to (1) convert their common shares for any convertible preferred stock
subsequently issued under a private offering or (2) receive additional common
shares at no cost to bring the average price per share down to a $.25 discount
to the conversion price as anti-dilution rights. In May and September 1995, the
Company sold an additional 168,500 shares of unregistered common stock to two
other investors under substantially similar terms. In October 1995, these
investors elected to receive 73,718 additional shares of common stock in
connection with their anti-dilution rights.
12. STOCK OPTIONS AND WARRANTS
The Company has two plans under which stock options may be granted, one
plan under which registered warrants may be granted and also has issued
unregistered warrants. These plans are administered by the Board of Directors
whose Compensation Committee recommends option and warrant grants for officers,
directors and key consultants of the Company.
F-14
<PAGE> 48
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1990 Incentive Stock Option Plan (the Option Plan) was approved by
stockholders of the Company on March 5, 1990 and amended by the stockholders on
April 22, 1992 and January 19, 1996. Under the terms of the Option Plan, the
Company has reserved for issuance to key employees and officers of the Company
700,000 shares of common stock. The exercise price may not be less than the
market price of the common stock on the date of grant. Options are nonassignable
and may be exercised only by the employee while employed by the Company or
within three months after termination of employment unless due to death or
disability. Options are exercisable in increments over four years and expire no
later than ten years from the date of the grant. Of the 283,485 options
outstanding as of April 30, 1996, 78,750 were granted to officers and 204,735
were granted to other employees. In May 1996, 10,000 options were granted to a
new officer at $12.50 per share.
The 1990 Non-Qualified Stock Option Plan (the Plan) was approved by the
stockholders of the Company on March 5, 1990, and amended by the stockholders on
April 22, 1992 and January 19, 1996. Under the terms of the Plan, as amended,
the Company has reserved 600,000 shares of common stock for issuance upon
exercise of options granted to outside directors and consultants. At April 30,
1996, the Company had 151,000 options outstanding under the Plan of which
135,000 were issued to a former outside director and 16,000 were issued to
consultants. In May 1996, 80,000 options were issued to the four outside members
of the Board of Directors and the four members of the Company's medical advisory
board (one of whom is also a Board member) at an exercise price of $12.625 per
share, which approximated the fair market value at the date of grant.
Under the 1994 Non-Qualified Warrant Plan, as amended on January 19, 1996,
the Company has reserved 1,500,000 shares of common stock for issuance upon
exercise of registered warrants granted to certain employees, directors and
consultants, of which 104,250 were exercised during fiscal 1996 and 901,250
warrants were outstanding as of April 30, 1996. Such warrants generally vest
ratably over a twenty four month period and are exercisable over a five year
period. During fiscal 1995, 824,500 unregistered warrants were converted to
Non-Qualified Warrants with the same exercise price per share and 120,000
Non-Qualified Warrants were issued to certain consultants, officers and
employees at the market price. During fiscal 1996, 61,000 Non-Qualified Warrants
were issued to a Company officer at $12.625 per share, the market price at the
date of the grant. In May 1996, certain officers (including new officers) and
employees were granted a total of 234,000 warrants at an average market price of
$12.46 per share, which approximated the fair market value at the date of grant.
Of the 435,000 unregistered warrants outstanding as of April 30, 1996,
325,000 were issued to officers, employees and consultants during fiscal 1995 at
$9.00 per share (above the market price). During fiscal 1996, 30,000
unregistered warrants were exercised and 110,000 unregistered warrants were
issued to consultants. In May 1996, 125,000 unregistered warrants were granted
to new officers of the Company at the current market price of $12.50 per share.
Unregistered warrants are exercisable over a five year period and vest at
varying rates ranging from immediately to three years.
F-15
<PAGE> 49
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with respect to the above plans is as follows:
<TABLE>
<CAPTION>
1990 1990
INCENTIVE NON-QUALIFIED 1994
STOCK OPTION STOCK OPTION UNREGISTERED NON-QUALIFIED
PLAN PLAN WARRANTS WARRANT PLAN
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Outstanding at April 30, 1993............. 310,045 235,000 -- --
Exchanged ($5.91 to $6.35)................ (217,000) (72,500) 289,500
Granted ($5.00 to $5.50 options; $5.00 to
$7.50 warrants)......................... 92,000 67,000 565,000
Canceled.................................. (4,500) (52,500) -- --
-------- ------- -------- --------
Outstanding at April 30, 1994............. 180,545 177,000 854,500 --
Exercised ($5.00 to $5.75)................ (1,600) (10,000)
Exchanged ($5.00 to $7.50)................ (824,500) 824,500
Granted ($5.38 to $7.75 options; $5.31 to
$9.00 warrants)......................... 109,000 25,000 325,000 120,000
Canceled.................................. (1,250) -- -- --
-------- ------- -------- --------
Outstanding at April 30, 1995............. 286,695 192,000 355,000 944,500
Exercised ($3.00 to $7.75)................ (59,210) (41,000) (30,000) (104,250)
Granted ($12.50 to $16.625 options; $5.25
to $12.625 warrants).................... 59,000 110,000 61,000
Canceled.................................. (3,000) -- -- --
-------- ------- -------- --------
Outstanding at April 30, 1996............. 283,485 151,000 435,000 901,250
======== ======= ======== ========
Average price per share at
April 30,
1994................................. $ 4.41 $ 5.38 $ 5.79 $ --
1995................................. $ 5.62 $ 5.67 $ 8.66 $ 5.89
1996................................. $ 7.42 $ 5.78 $ 8.11 $ 6.40
Exercisable at April 30,
1994................................. 100,545 145,750 363,151 --
1995................................. 165,570 159,500 57,083 737,347
1996................................. 170,235 151,000 239,583 827,041
</TABLE>
The Company also has the following warrants outstanding as of April 30,
1996:
24,000 Class C and 15,150 Class D-Exercisable for one share of common
stock, at a price of $5.00 per share, expire December 24, 1997
24,500 Class E-Exercisable for one share of common stock, at a price
of $5.00 per share, expire January 6, 1998
46,888 Underwriter warrants-Exercisable for one share of common stock,
at a price of $7.25 per share, expire November 9, 1998
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which addresses accounting for stock option, purchase
and award plans. SFAS 123 specifies that companies utilize either the "fair
value based method" or the "intrinsic value based method" for valuing stock
options granted. The Company will adopt SFAS 123 as required in fiscal 1997, and
expects to utilize the "intrinsic value based method" for valuing stock options
granted. The Company anticipates that, when adopted, SFAS 123 will not have a
material effect on its financial position or results of operations.
F-16
<PAGE> 50
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. BUSINESS SEGMENT INFORMATION
After allocating certain corporate expenses and determining the primary
geographic area for mobile equipment, business segment information for the years
ended April 30, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
LASERVISION CENTERS DIVISION
---------------------------------------
FOREIGN
------------------------- MARKETVISION
DOMESTIC CANADA EUROPE DIVISION TOTAL
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1996
Revenues............................. $ 286,000 $ 943,000 $ 1,255,000 $ 1,434,000 $ 3,918,000
----------- ----------- ----------- ------------ -----------
Income (loss) from operations........ $(3,695,000) $(1,350,000) $(4,312,000) $ 141,000 $(9,216,000)
----------- ----------- ----------- ------------ -----------
Minority interest in net loss of
subsidiary......................... 192,000
Interest/other income................ 437,000
Interest expense..................... (216,000)
-----------
Net loss........................... $(8,803,000)
Identifiable assets.................. $23,667,000 $ 561,000 $ 4,027,000 $ 658,000 $28,913,000
----------- ----------- ----------- ------------ -----------
Capital expenditures................. $ 7,213,000 $ 426,000 $ 981,000 $ 7,000 $ 8,604,000
----------- ----------- ----------- ------------ -----------
Depreciation and amortization........ $ 285,000 $ 467,000 $ 1,430,000 $ 20,000 $ 2,203,000
----------- ----------- ----------- ------------ -----------
YEAR ENDED APRIL 30, 1995
Revenues............................. $ 12,000 $ 921,000 $ 1,545,000 $ 833,000 $ 3,311,000
----------- ----------- ----------- ------------ -----------
Income (loss) from operations........ $(1,707,000) $ (409,000) $(1,126,000) $ 34,000 $(3,208,000)
----------- ----------- ----------- ------------ -----------
Minority interest in net loss of
subsidiary......................... 116,000
Interest/other income................ 37,000
Interest expense..................... (242,000)
-----------
Net loss........................... $(3,297,000)
-----------
Identifiable assets.................. $ 2,613,000 $ 1,741,000 $ 6,767,000 $ 197,000 $11,318,000
----------- ----------- ----------- ------------ -----------
Capital expenditures................. $ 371,000 $ 508,000 $ 1,627,000 $ -- $ 2,506,000
----------- ----------- ----------- ------------ -----------
Depreciation and amortization........ $ 236,000 $ 388,000 $ 1,248,000 $ -- $ 1,872,000
----------- ----------- ----------- ------------ -----------
YEAR ENDED APRIL 30, 1994
Revenues............................. $ 20,000 $ 808,000 $ 689,000 $ 589,000 $ 2,106,000
----------- ----------- ----------- ------------ -----------
Loss from operations................. $ (850,000) $ (610,000) $ (410,000) $ (30,000) $(1,900,000)
----------- ----------- ----------- ------------ -----------
Interest/other income................ 21,000
Interest expense..................... (156,000)
Loss on advance...................... (175,000)
-----------
Net loss........................... $(2,210,000)
-----------
Identifiable assets.................. $ 1,446,000 $ 1,497,000 $ 6,025,000 $ 167,000 $ 9,135,000
----------- ----------- ----------- ------------ -----------
Capital expenditures................. $ 27,000 $ 142,000 $ 5,914,000 $ -- $ 6,083,000
----------- ----------- ----------- ------------ -----------
Depreciation and amortization........ $ 224,000 $ 466,000 $ 527,000 $ 2,000 $ 1,219,000
----------- ----------- ----------- ------------ -----------
</TABLE>
14. PROPOSED STOCK OFFERING
On June 5, 1996, the Company filed a Form S-3 Registration Statement with
the Securities and Exchange Commission, pursuant to which the Company intends to
sell 2,500,000 to 2,875,000 shares of the Company's common stock.
F-17
