<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X-QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JANUARY 31, 1997
Commission file number 1-10629
LASER VISION CENTERS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1530063
-------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer identification
or organization) number)
540 Maryville Centre Dr., Suite 200, St. Louis, Missouri 63141
---------------------------------------------------------------
(Address of principal executive offices)
(314)434-6900
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock outstanding as of March 10, 1997 - 8,815,383 shares.
<PAGE> 2
LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED JANUARY 31, 1997
INDEX
<TABLE>
<CAPTION>
PART OR ITEM PAGE
<S> <C> <C>
Part I. FINANCIAL STATEMENTS
Item 1. Interim Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheet - January 31, 1997 and April 30, 1996.............................. 3-4
Consolidated Condensed Statement of Operations - Three months and nine months
ended January 31, 1997 and 1996.......................................................................... 5
Consolidated Condensed Statement of Cash Flow - Nine months ended January 31, 1997 and 1996.............. 6-7
Consolidated Condensed Statement of Changes in Stockholders' Equity - Nine months
ended January 31, 1997................................................................................... 8
Notes to Interim Consolidated Condensed Financial Statements............................................. 9-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources.......................................................................... 10-11
Results of Operations.................................................................................... 11-15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................................ 16
Item 2. Changes in Securities.................................................................................... 16
Item 3. Defaults upon Senior Securities.......................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders...................................................... 16-17
Item 5. Other Information........................................................................................ 17
Item 6. Reports on Form 8-K...................................................................................... 17
</TABLE>
<PAGE> 3
Laser Vision Centers, Inc. And Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 31, April 30,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,155,000 $ 12,672,000
Restricted cash 276,000
Receivables, net of allowances of
$263,000 and $286,000, respectively 1,400,000 805,000
Prepaid expenses and
other current assets 736,000 483,000
Assets held for sale 1,200,000
----------- ------------
Total Current Assets 6,567,000 15,160,000
EQUIPMENT
Laser equipment 16,074,000 9,474,000
Medical Equipment 644,000 352,000
Mobile equipment 1,328,000 892,000
Furniture and fixtures 1,269,000 1,019,000
-Accumulated depreciation (3,992,000) (1,323,000)
----------- ------------
15,323,000 10,414,000
Equipment deposits 87,000 1,765,000
----------- ------------
Total Equipment, Net 15,410,000 12,179,000
OTHER ASSETS
Restricted cash 1,374,000
Goodwill, net 1,302,000 1,108,000
Deposits and other assets 602,000 466,000
----------- ------------
Total Other Assets 3,278,000 1,574,000
----------- ------------
Total Assets $25,255,000 $ 28,913,000
=========== ============
</TABLE>
See notes to interim consolidated condensed financial statements
3
<PAGE> 4
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 31, April 30,
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Current portion of notes payable $ 624,000 $ 1,858,000
Current portion of capitalized
lease obligations 695,000 467,000
Accounts payable 1,609,000 870,000
Accrued liabilities 1,289,000 1,963,000
------------- ------------
Total Current Liabilities 4,217,000 5,158,000
NON-CURRENT LIABILITIES
Notes payable 3,473,000
Capitalized lease obligations 1,793,000 1,375,000
Deferred revenue 211,000 275,000
Minority interests 113,000
------------- -------------
Total Non-Current Liabilities 5,477,000 1,763,000
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE PREFERRED STOCK WITH MANDATORY
REDEMPTION PROVISION IN 2005, 141,000
SHARES ISSUED, 0 AND 141,000 SHARES
OUTSTANDING, RESPECTIVELY 14,539,000
STOCKHOLDERS' EQUITY
Common stock, par value of $.01 per
share, 50,000,000 shares authorized;
8,815,383 and 6,415,993 shares issued
and outstanding, respectively 88,000 64,000
Warrants 23,000
Paid-in capital 38,653,000 23,831,000
Accumulated deficit (23,203,000) (16,442,000)
------------- -------------
Total Stockholders' Equity 15,561,000 7,453,000
------------- -------------
Total Liabilities and Stockholders' Equity $ 25,255,000 $ 28,913,000
============= =============
</TABLE>
See notes to interim consolidated condensed financial statements
4
<PAGE> 5
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ended January 31, Ended January 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 2,009,000 $ 852,000 $ 5,439,000 $ 2,584,000
Cost of revenues, depreciation 932,000 501,000 2,491,000 1,400,000
Cost of revenues, other 959,000 487,000 2,622,000 1,621,000
----------- ---------- ------------ ------------
GROSS PROFIT (LOSS) 118,000 (136,000) 326,000 (437,000)
----------- ---------- ------------ ------------
Operating Expenses:
General and administrative 1,052,000 688,000 2,944,000 1,420,000
Salaries and related expenses 791,000 548,000 2,413,000 1,588,000
Depreciation and amortization 113,000 86,000 321,000 165,000
Selling and marketing expenses 365,000 298,000 1,356,000 751,000
----------- ---------- ------------ ------------
2,321,000 1,620,000 7,034,000 3,924,000
----------- ---------- ------------ ------------
LOSS FROM OPERATIONS (2,203,000) (1,756,000) (6,708,000) (4,361,000)
Other income (expenses)
Interest and other income 64,000 179,000 227,000 255,000
Interest expense (194,000) (43,000) (383,000) (76,000)
Imputed interest expense (14,000) (74,000)
Minority interest in net loss
of subsidiary 48,000 103,000 132,000
----------- ----------- ------------ ------------
NET LOSS ($2,333,000) ($1,586,000) ($6,761,000) ($4,124,000)
=========== =========== ============ ============
NET LOSS PER SHARE ($0.26) ($0.32) ($0.83) ($0.76)
====== ====== ====== ======
Weighted average number of
common shares outstanding 8,811,000 4,935,000 8,294,000 5,412,000
========= ========= ========= =========
</TABLE>
See notes to interim consolidated condensed financial statements
5
<PAGE> 6
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Nine Month Period
Ended January 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($6,761,000) ($4,124,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,812,000 1,564,000
Imputed interest 74,000
Provision for uncollectible accounts (23,000) 78,000
Receivables (increase) decrease (572,000) 9,000
Prepaid expenses and other current asset increase (253,000) (306,000)
Minority interests decrease (103,000) (141,000)
Accounts payable and accrued
liabilities increase (decrease) (186,000) 1,442,000
Deferred revenue decrease (64,000)
----------- ------------
Net cash used in operating activities (5,150,000) (1,404,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (3,291,000) (4,421,000)
Acquisition of goodwill (206,000) (17,000)
Deposits and other assets increase (159,000) (2,000)
Acquisition of minority interest (10,000)
----------- ------------
Net cash used in investing activities (3,666,000) (4,440,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from private offering, preferred 14,100,000
Private placement offering costs, preferred (1,092,000)
Proceeds from exercise of stock options 107,000 251,000
Principal payments under capitalized
lease obligations and notes payable (2,381,000) (2,246,000)
Proceeds from loan financing 2,573,000
Proceeds from private offerings, common 1,219,000
Private placement offering costs, common (64,000)
Proceeds from exercise of other warrants 1,502,000
Net proceeds from exercise of Class A, B and F warrants 4,522,000
----------- ------------
Net cash provided by financing activities 299,000 18,192,000
----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (8,517,000) 12,348,000
Cash and cash equivalents at beginning of period 12,672,000 2,126,000
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,155,000 $ 14,474,000
=========== ============
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Nine Month Period
Ended January 31,
1997 1996
<S> <C> <C>
Non-cash investing and financing:
Conversion of preferred stock and accrual
of preferred dividends 14,539,000
Equipment deposits and assets held for sale
exchanged for equipment and applied to deposits 2,965,000
Restricted cash acquired through lease financing 1,650,000
Capital lease obligations related to equipment purchases 1,044,000 1,024,000
Goodwill acquired for restricted common stock 130,000 647,000
Common stock issued to reduce liabilities 70,000
Med-Source purchase accounting
adjustment to goodwill and accruals 30,000
Warrant accretion 23,000
Increase in other liabilities for laser purchase 675,000
Deposits related to deferred revenue 250,000
Accrued offering costs, private placement 150,000
</TABLE>
See notes to interim consolidated condensed financial statements
7
<PAGE> 8
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value
------------------ Total
Paid-in Accumulated Stockholders'
Shares Amount Warrants Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Balance - April 30, 1996 6,415,993 $ 64,000 - $ 23,831,000 ($16,442,000) $ 7,453,000
Issuance of restricted
shares of common stock 20,609 160,000 160,000
Exercise of incentive and
non-qualified options 28,790 147,000 147,000
Dividends accrued on
convertible preferred
stock (126,000) (126,000)
Warrant accretion $23,000 23,000
Conversion of preferred
stock 2,349,991 24,000 14,641,000 14,665,000
Net loss for the nine month
period ended
January 31, 1997 (6,761,000) (6,761,000)
---------- -------- ------- ------------ ------------ -----------
Balance -
JANUARY 31, 1997 8,815,383 $ 88,000 $23,000 $ 38,653,000 ($23,203,000) $15,561,000
========== ======== ======= ============ ============ ===========
</TABLE>
See notes to interim consolidated condensed financial statements
8
<PAGE> 9
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1997
(Unaudited)
Item 1.
1. The information contained in the interim consolidated financial statements
and footnotes is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the interim consolidated
financial statements included herein should be read in conjunction with the
consolidated financial statements and related notes thereto contained in the
April 30, 1996 Annual Report on Form 10-KSB filed by LaserVision Centers, Inc.
(the "Company") with the Securities and Exchange Commission. The unaudited
interim consolidated financial statements as of January 31, 1997 and January
31, 1996, and for the quarterly and nine month periods then ended, include all
normal recurring adjustments which management considers necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results which may be expected for the entire
fiscal year. The interim consolidated financial statements include the
accounts and transactions of the Company and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Cash and cash equivalents include short-term (90 day or less) commercial paper
and obligations of the U.S. government and its agencies.
The net loss per share was computed using the weighted average number of common
shares outstanding during each period. Common stock equivalents were excluded
due to their anti-dilutive effect. The loss per common share for the nine
months ended January 31, 1997, reflects $126,000 of accrued dividends on
Convertible Preferred Stock.
2. 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 after ten years. During the six months ended October 31, 1996, all
of the shares of restricted convertible preferred stock were converted to
2,349,991 shares of restricted common stock in accordance with the terms of the
purchase agreement.
3. Effective April 5, 1996, the Company's European subsidiary acquired certain
assets and assumed certain liabilities of New Image Laser Centres Limitied (New
Image).
4. On October 15, 1996, the Company purchased the minority interest in the
Harley Street Laser Vision Center located in London England. The purchase
price of approximately $330,000 resulted in the extinguishment of the remaining
minority interest of $3,000 and the remainder was allocated to goodwill.
5. During the six months ended October 31, 1996, ten lasers held for sale as of
April 30, 1996 were sold for their net book value of $1.2 million and four
lasers (3 new, 1 used) were purchased for use in Europe and Canada for $1.7
million.
9
<PAGE> 10
6. Eight lasers were purchased for use in the United States during the six
months ended October 31, 1996. Equipment deposits were utilized for a portion
of the laser purchases. In addition, during the quarter ended October 31, 1996
lease financing was obtained for eight lasers originally purchased with cash.
The four and one-half year lease restricts $1,650,000 of the cash proceeds
until certain payment or performance criteria are met. The portion of
restricted cash which will become unrestricted within a year is classified as a
current asset. The Company assumed the lease obligations for one excimer laser
in August 1996 and one in January 1997.
7. During the quarter ended July 31, 1996, the Company canceled a proposed
public offering and charged $260,000 of accumulated costs related to the
offering to general and administrative expenses.
8. Effective January 1, 1997, the Company completed a management services
agreement with an ophthalmic practice whose president is on the Company's Board
of Directors and is also its medical director.
9. The Company filed a Registration Statement on Form S-1 with the SEC to
register 2,717,209 shares of restricted common stock (including 2,349,991
converted from preferred stock) sold by the Company in 1995. This
registration statement became effective on March 7, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
(A) LIQUIDITY AND CAPITAL RESOURCES
Since the completion of its initial public offering in April 1991, the
Company's primary sources of liquidity have consisted of financing from the
sale of Common Stock and Convertible Preferred Stock, revenues from marketing
and laser access services provided to ophthalmic physicians, loans and
capitalized leases. At January 31, 1997, the Company had $4,155,000 of cash
and cash equivalents compared with $12,672,000 at April 30, 1996. At January
31, 1997, the Company had working capital of $2,350,000 compared with working
capital of $10,002,000 at April 30, 1996. The ratio of current assets to
current liabilities at January 31, 1997 was 1.56 to one, compared to 2.94 to
one at April 30, 1996.
Cash Flows from Operating Activities
Net cash used for operating activities was $5,150,000 for the nine months ended
January 31, 1997 compared to $1,404,000 for the nine months ended January 31,
1996. The cash flows used for operating activities during the nine months
ended January 31, 1997 primarily represent the net loss incurred in this period
less depreciation and amortization and an increase in accounts payable and
accrued liabilities partially offset by increases in accounts receivable, and
prepaid expenses and other current assets.
Cash Flows from Investing Activities
Net cash used for investing activities was $3,666,000 and $4,440,000 during the
nine months ended January
10
<PAGE> 11
31, 1997 and 1996, respectively. Cash used for investing during the nine
months ended January 31, 1997 was used to acquire equipment for the expanding
U.S. market and to purchase the minority interest in the Harley Street Laser
Vision Center.
Cash Flows from Financing Activities
Net cash provided by financing activities was $299,000 and $18,192,000 during
the nine months ended October 31, 1997 and 1996, respectively. Loan and lease
financing obtained, offset by the related lease payments, were the primary
source of cash provided by financing during the nine months ended January 31,
1997.
The Company anticipates that its current cash and cash equivalents will be
sufficient to fund operating expenses through July 1997, including any capital
expenditures not financed by leasing.
The Company anticipates that it will require additional equity, lease and/or
loan financing to fund the Company's operations, including its proposed
expansion of its mobile laser access capability, during the next 24 months. In
the future funds may be received from operating and capital leases of
equipment, the exercise of underwriter and other warrants and/or the exercise
of stock options, and other public or private equity offerings. The Company's
future liquidity and capital requirements will depend on numerous factors, many
of which are outside the control of the Company. Future financings may result
in the issuance of senior securities or in dilution to the holders of the
Common Stock. Any such financing, if required, may not be available on
satisfactory terms or at all.
(B) RESULTS OF OPERATIONS
QUARTER ENDED JANUARY 31, 1997 COMPARED TO QUARTER ENDED JANUARY 31, 1996
The Company has continued to implement its domestic strategy. As of January
31, 1997, the Company had installed twenty-three lasers for domestic use.
Fourteen of these lasers were installed in Columbia/HCA Healthcare Corporation
outpatient surgery centers. Four lasers have been deployed for use with the
Company's strategy to provide access to multiple sites by transporting
fixed-site lasers between sites to meet demand. In converting lasers for
purposes of transporting, various lasers were idle at times during the quarter
ended January 31, 1997. The impact of the conversion of various lasers was
equivalent to having two lasers idle during the entire quarter. Five lasers
are being utilized in other clinics.
Reorganization of the Company's international operations has been completed in
accordance with the plan established in the fourth quarter of 1996.
Revenues
Total revenues of $2,009,000 for the quarter ended January 31, 1997 increased
by $1,157,000 from $852,000 for the quarter ended January 31, 1996, or an
increase of 136%.
11
<PAGE> 12
Revenues for the Laser Vision Centers division increased to $1,837,000 for the
quarter ended January 31, 1997 from $615,000 for the quarter ended January 31,
1996. The increase is attributable to higher revenues from the U.S. procedures
and training of $1,148,000 and higher revenues from the European centers of
$75,000. The increase in U.S. revenues for the Laser Vision Centers division
is attributable to the increased number of centers in operation and procedures
performed in the U.S. The increased European revenues is primarily related to
increased procedures performed with the European mobile laser and at the
centers acquired in conjunction with the New Image acquisition. Total Canadian
revenues remained at a consistent level due to increases in revenues for the
Canadian mobile laser offset by a decrease in revenues in the Vancouver and
Montreal centers.
Revenues for the MarketVision division decreased by $65,000 due to a shift of
attention to providing marketing for the U.S. Laser Vision centers for which the
Company does not record revenues.
Cost of Revenues/Gross Profit (Loss)
Cost of revenues increased to $1,891,000 for the quarter ended January 31, 1997
from $988,000 for the quarter ended January 31, 1996. Depreciation in cost of
revenue increased to $932,000 from $501,000 in these respective periods due to
the increased number of U.S. lasers partially offset by decreases in
depreciation on European and Canadian lasers which were written down to
estimated fair market value during the fourth quarter of fiscal 1996.
Other costs of revenues increased to $959,000 for the quarter ended January 31,
1997 from $487,000 for the quarter ended January 31, 1996 due to increased
costs for U.S. operations, including Pillar Point royalties of $324,000 and
gas costs of $30,000. Professional medical services in Montreal also increased
$41,000. The net increase, when combined with the revenue increase, resulted
in these other costs of revenues decreasing from 57% of total revenues for the
quarter ended January 31, 1996 to 48% of total revenues for the quarter ended
January 31, 1997.
Total gross profit (loss) improved from a loss of $136,000 for the quarter
ended January 31, 1996 to a profit of $118,000 for the quarter ended January
31, 1997. The variable gross profit, excluding depreciation, increased to
$1,050,000 from $365,000, primarily due to increased procedures in the U.S. and
Europe.
Operating Expenses
General and administrative expenses increased from $688,000 to $1,052,000 for
the quarters ended January 31, 1996 and 1997, respectively. The increase is
primarily attributable to an increase of $84,000 in European office and rent
expenses, an increase of $66,000 in consulting and other professional fees, an
increase of $58,000 in rent expenses in the U.S., an increase of $45,000 in
travel expenses, and $42,000 in costs related to the new mobile delivery
concept. These increases were partially offset by a decrease of $51,000 in
legal expense.
Salaries and related expenses increased from $548,000 to $791,000 for the
quarters ended January 31, 1996 and 1997, respectively. The increase was due
to an increased number of employees, salary adjustments and
12
<PAGE> 13
the related payroll taxes and fringe benefits, offset by a decrease in
executive incentive compensation.
Depreciation and amortization increased from $86,000 to $113,000 for the
quarter ended January 31, 1996 and 1997, respectively. The increase was
primarily due to amortization of goodwill associated with the acquisition of
Med-Source.
Selling and marketing expenses increased from $298,000 to $365,000 for the
quarters ended January 31, 1996 and 1997, respectively. The increase was
primarily due to an increase of $38,000 in promotional costs associated with
the new U.S. market.
Other Income (Expenses)
Higher interest expense and lower interest income caused the net decline in
other income (expenses) to $130,000 of other expense during the quarter ended
January 31, 1997 from a net $170,000 in other income during the quarter ended
January 31, 1996.
NINE MONTHS ENDED JANUARY 31, 1997 COMPARED TO NINE MONTHS ENDED
JANUARY 31, 1996
Revenues
Total revenues of $5,439,000 for the nine months ended January 31, 1997
increased by $2,855,000 from $2,584,000 for the nine months ended January 31,
1996, or an increase of 110%.
Revenues for the Laser Vision Centers division increased to $4,596,000 for the
nine months ended January 31, 1997 from $1,592,000 for the nine months ended
January 31, 1996. The increase is attributable to higher revenues from the
European centers of $655,000 and new U.S. centers of $2,373,000 partially
offset by a decrease in Canadian revenues of $24,000. The increase in U.S.
revenues for the Laser Vision Centers division is attributable to the increased
number of centers in operation and procedures performed in the U.S. The
increased European revenues is primarily related to increased procedures
performed with the European mobile laser and at the centers acquired in
conjunction with the New Image acquisition. Total Canadian revenues decreased
due to decreases in revenues in the Vancouver center partially offset by
increases in revenues for the Canadian mobile laser.
Revenues for the Market Vision division decreased by $150,000 due to a shift of
attention to providing marketing for the U.S. Laser Vision centers for which the
Company does not record revenues partially offset by new revenues from the
Med-Source acquisition.
Cost of Revenues/Gross Profit (Loss)
Cost of revenues increased to $5,113,000 for the nine months ended January 31,
1997 from $3,021,000 for the nine months ended January 31, 1996. Depreciation
in cost of revenue increased to $2,491,000 from $1,400,000 in these respective
periods due to the increased number of U.S. lasers partially offset by
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<PAGE> 14
decreases in depreciation on European and Canadian lasers which were written
down to estimated fair market value during the fourth quarter of fiscal 1996.
Other costs of revenues increased to $2,622,000 for the nine months ended
January 31, 1997 from $1,621,000 for the nine months ended January 31, 1996 due
to increased costs for U.S. operations, including Pillar Point royalties of
$643,000 and gas costs of $105,000. Costs of revenue in Europe also increased
by $190,000 due to higher case volumes and mobile operating costs. Costs of
revenue in Canada increased due to increased costs of professional medical
services in Montreal of $62,000. These increases were partially offset by
decreases in costs of revenue for Market Vision of $142,000. The net increase,
when combined with the revenue increase, resulted in these other costs of
revenues decreasing from 63% of total revenues for the nine months ended
January 31, 1996 to 48% of total revenues for the nine months ended January 31,
1997.
Total gross profit (loss) improved from a loss of $437,000 for the nine months
ended January 31, 1996 to a profit of $326,000 for the nine months ended
January 31, 1997. The variable gross profit, excluding depreciation, increased
to $2,817,000 from $963,000, primarily due to increased procedures in the U.S.
and Europe.
Operating Expenses
General and administrative expenses increased from $1,420,000 to $2,944,000 for
the nine month periods ended January 31, 1996 and 1997, respectively. The
increase is primarily attributable to $260,000 of stock offering costs, an
increase of $269,000 in office and rent expenses associated with the increased
U.S. operations, an increase of $233,000 in European office and rent expenses
due to acquisition of New Image centers, an increase of $150,000 in legal fees
associated with tradename issues, an increase of $126,000 in travel expenses,
an increase in professional fees of $115,000, an increase of $96,000 for
additional insurance coverage, $127,000 of development costs associated with a
new mobile laser concept, costs of producing various patient education videos
of $41,000, and an increase of $31,000 in bad debt expense.
Salaries and related expenses increased from $1,588,000 to $2,413,000 for the
nine month periods ended January 31, 1996 and 1997, respectively. The increase
was due to an increased number of employees, salary adjustments and the
related payroll taxes and fringe benefits, offset by a decrease in executive
incentive compensation.
Depreciation and amortization increased from $165,000 to $321,000 for the nine
month periods ended January 31, 1996 and 1997, respectively. The increase was
primarily due to an increase in amortization of goodwill associated with
acquisitions and increased depreciation for the home office.
Selling and marketing expenses increased from $751,000 to $1,356,000 for the
nine month periods ended January 31, 1996 and 1997, respectively. The increase
was due to $363,000 of promotional costs associated with the new U.S. market,
an increase of $62,000 related to Canadian marketing primarily in mobile
markets, an increase of $46,000 related to European travel, and an increase of
$42,000 related to production of patient education videos.
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<PAGE> 15
Other Income (Expenses)
Higher interest expense was the primary cause of the decrease in other income
(expenses) to an expense of $53,000 during the nine months ended January 31,
1997 from $237,000 in other income during the nine months ended January 31,
1996.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings
An agreement in principle was reached to settle the lawsuit between
the Company and 20/20 Laser Centers, Inc. ("20/20"), currently
pending in the U.S. District Court for the District of Maryland. No
payment will be made by either party to the other and 20/20 has
agreed to certain restrictions on its use of the term "Laser vision
correction." A formal settlement agreement is currently being
finalized.
An agreement in principle was reached to settle the lawsuit between
the Company and Laser Vision Centers West, Inc. ("LVCW"), currently
pending in the U.S. District Court for the Southern District of
California, which had been scheduled for trial in December, 1996.
Under the terms of the settlement agreement, the Company will pay a
nominal sum to LVCW and a permanent injunction will be entered
against LVCW restraining it from infringing the Company's service
marks and trade names. A formal settlement agreement is currently
being finalized.
A lawsuit entitled Lanny S. Odin v. Laser Vision Centers, Inc. and
Medical Care International, Inc., was filed in the Circuit Court of
St. Louis County, Missouri on August 5, 1996. This case involves a
claim for unspecified damages by a former franchisee of the Company
against the Company and Medical Care International, Inc., assignee
of the franchises. The Company intends to vigorously defend the
lawsuit.
A lawsuit entitled Team Vision Corporation v. Laser Vision Centers,
Inc. was filed in Orange County, Florida on March 3, 1997. This
suit involves a claim against the Company for damage to medical
equipment leased by the plaintiff. The Company's insurer has
assumed the Company's defense of the suit under a reservation of
rights.
Other than as stated above, there has been no significant
change in the status of any litigation from that reported in the
April 30, 1996 For 10-KSB, nor has any other material litigation
been instituted.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on
February 12, 1997. The following matters were submitted to a vote
of the Shareholders, with the following results:
Seven members of the Board of Directors were elected and qualified.
16
<PAGE> 17
Price Waterhouse, LLP was ratified as the Company's Independent
Certified Public Accountant for the purposes of conducting the
annual audit.
Item 5. Other Information
None
Item 6. Reports on Form 8-K during the period covered by this report:
None.
Exhibits - None
17
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