<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
JULY 31, 1999
Commission file number 1-10629
LASER VISION CENTERS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1530063
-------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) identification 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 August 20, 1999 -- 25,044,112 shares.
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LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED JULY 31, 1999
INDEX
<TABLE>
<CAPTION>
PART OR ITEM PAGE
<S> <C>
Part I. FINANCIAL STATEMENTS
Item 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet -- July 31, 1999 and April 30, 1999.........................3-4
Consolidated Statement of Operations -- Three months ended July 31, 1999 and 1998.......5
Consolidated Statement of Cash Flow -- Three months ended July 31, 1999 and 1998.......6-7
Consolidated Statement of Changes in Stockholders' Equity -- Three months
ended July 31, 1999...............................................................8
Notes to Interim Consolidated Financial Statements.....................................9-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources.......................................................11-12
Results of Operations.................................................................12-17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................17
Item 2. Changes in Securities...................................................................17
Item 3. Defaults upon Senior Securities.........................................................17
Item 4. Submission of Matters to a Vote of Security Holders.....................................17
Item 5. Other Information.......................................................................17
Item 6. Reports on Form 8-K.....................................................................17
</TABLE>
2
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 31, April 30,
1999 1999
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $24,576,000 $ 8,173,000
Short-term investments 36,903,000
Restricted cash 350,000 507,000
Receivables, net of allowances of
$503,000 and $450,000, respectively 11,819,000 8,540,000
Inventory 2,754,000 2,723,000
Deferred tax asset 2,622,000 1,755,000
Prepaid expenses and
other current assets 1,613,000 1,713,000
---------- -------------
Total Current Assets 80,637,000 23,411,000
EQUIPMENT
Laser equipment 22,759,000 21,795,000
Medical equipment 3,783,000 3,274,000
Mobile equipment 8,724,000 7,611,000
Furniture and fixtures 2,007,000 1,722,000
-Accumulated depreciation (15,159,000) (13,419,000)
------------ ------------
Total Equipment, Net 22,114,000 20,983,000
OTHER ASSETS
Restricted cash 565,000 625,000
Goodwill, net 7,051,000 7,148,000
Tradename and service mark costs, net 88,000 93,000
Deferred contract rights 400,000 451,000
Rent deposits and other, net 76,000 478,000
---------- ------------
Total Other Assets 8,180,000 8,795,000
--------- ---------
Total Assets $110,931,000 $53,189,000
============ ===========
</TABLE>
See notes to interim consolidated financial statements
3
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 31, April 30,
1999 1999
<S> <C> <C>
CURRENT LIABILITIES
Current portion of notes payable $4,353,000 $4,552,000
Current portion of capitalized
lease obligations 1,182,000 1,290,000
Accounts payable 5,103,000 5,185,000
Taxes payable 460,000 266,000
Accrued compensation 1,308,000 2,004,000
Other accrued liabilities 7,344,000 3,009,000
--------- ----------
Total Current Liabilities 19,750,000 16,306,000
NON-CURRENT LIABILITIES
Notes payable 4,112,000 5,687,000
Capitalized lease obligations 2,186,000 2,097,000
--------- ---------
Total Non-Current Liabilities 6,298,000 7,784,000
MINORITY INTERESTS 645,000 352,000
COMMITMENTS AND CONTINGENCIES
SERIES B CONVERTIBLE PREFERRED STOCK WITH
MANDATORY REDEMPTION PROVISIONS 2,136,000 2,086,000
STOCKHOLDERS' EQUITY
Common stock, par value of $.01 per share, 50,000,000 shares
authorized; 25,040,462 and 10,684,788 shares issued
and outstanding, respectively 250,000 107,000
Warrants and options 959,000 1,213,000
Paid-in capital 102,227,000 50,808,000
Accumulated deficit (21,334,000) (25,467,000)
------------- ------------
Total Stockholders' Equity 82,102,000 26,661,000
------------ -----------
Total $110,931,000 $53,189,000
============ ===========
</TABLE>
See notes to interim consolidated financial statements
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period
Ended July 31,
1999 1998
<S> <C> <C>
REVENUES $20,999,000 $9,110,000
Royalty fees and professional medical services 6,883,000 3,425,000
Depreciation and amortization 1,948,000 1,133,000
Cost of revenues, other 4,965,000 1,686,000
---------- ---------
GROSS PROFIT 7,203,000 2,866,000
Selling, general and administrative expenses 4,127,000 2,366,000
--------- ---------
INCOME FROM OPERATIONS 3,076,000 500,000
Other income (expenses)
Minority interests in net income (88,000)
Interest and other income 697,000 101,000
Interest and other expense (299,000) (268,000)
--------- ---------
NET INCOME BEFORE TAXES 3,386,000 333,000
Income tax benefit 747,000 -
------- -------------
NET INCOME 4,133,000 333,000
Deemed preferred dividends (50,000) (40,000)
----------- ------------
NET INCOME APPLICABLE TO
COMMON STOCKHOLDERS $4,083,000 $293,000
========== ========
Net Income per Share - Basic $0.17 $0.02
===== =====
NET INCOME PER SHARE - DILUTED $0.14 $0.01
===== =====
Weighted average number of
common shares outstanding - basic 24,177,000 19,482,000
========== ==========
Weighted average number of
common shares outstanding - diluted 28,578,000 21,700,000
========== ==========
</TABLE>
See notes to interim consolidated financial statements
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period
Ended July 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,133,000 $333,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,216,000 1,231,000
Deferred income taxes (867,000)
Compensation paid in common stock,
options or warrants 57,000 86,000
Minority interst in net income of subsidiary 88,000
Increase in accounts receivables (3,279,000) (611,000)
(Increase) decrease in inventory (31,000) 170,000
(Increase) decrease in prepaid expenses
and other current assets 100,000 (403,000)
Increase (decrease) in accounts payable (82,000) 236,000
Increase (decrease) in accrued liabilities 3,833,000 (316,000)
--------- ---------
Net cash provided by operating activities 6,168,000 726,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (36,903,000)
Acquisition of equipment (1,879,000) (710,000)
Proceeds from sale of minority interest 201,000
Other, net (84,000) (23,000)
---------- --------
Net cash used in investing activities (38,665,000) (733,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from underwritten public stock offering 44,150,000
Stock offering costs (104,000)
Proceeds from exercise of stock options and warrants 7,718,000 1,247,000
Principal payments under capitalized
lease obligations and notes payable (3,081,000) (657,000)
Return of (deposits to) restricted cash 217,000 (28,000)
--------- -----------
Net cash provided by financing activities 48,900,000 562,000
------------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 16,403,000 555,000
Cash and cash equivalents at beginning of period 8,173,000 8,430,000
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $24,576,000 $8,985,000
=========== ==========
</TABLE>
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)(CONTINUED)
<TABLE>
<CAPTION>
Three Month Period
Ended July 31,
1999 1998
<S> <C> <C>
Non-cash investing and financing:
Capital lease obligations and notes payable related
to laser and equipment purchases $1,288,000
Accrued and deferred stock offering costs 412,000
Deemed preferred dividends 50,000 $40,000
</TABLE>
See notes to interim consolidated financial statements
7
<PAGE> 8
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value
Warrants Total
Paid-in and Accumulated Shareholders'
Shares Amount Capital Options Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Balance-
April 30, 1999 10,684,788 $107,000 $50,808,000 $1,213,000 ($25,467,000) $26,661,000
Stock offering 1,000,000 10,000 43,624,000 43,634,000
Accretion of warrants and options 6,000 6,000
Exercise of
warrants and options 892,693 8,000 7,970,000 (260,000) 7,718,000
Dividends accrued
on convertible
preferred stock (50,000) (50,000)
Stock split 12,462,981 125,000 (125,000)
Net income for the
three month period
ended July 31, 1999 4,133,000 4,133,000
____________ _________ _________ ________ _________ __________
Balance -
July 31, 1999 25,040,462 $250,000 $102,227,000 $959,000 ($21,334,000) $82,102,000
========== ======== ============ ======== ============= ===========
</TABLE>
See notes to interim consolidated financial statements
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LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999
(Unaudited)
Item 1.
1. The information contained in the interim consolidated financial
statements and footnotes is condensed from that which would appear in the
annual consolidated financial statements. Accordingly, the interim
consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and related notes
thereto contained in the April 30, 1999 Annual Report on Form 10-K
filed by Laser Vision Centers, Inc. ("Laser Vision") with the
Securities and Exchange Commission. The unaudited interim consolidated
financial statements as of July 31, 1999 and July 31, 1998, and for
the three months then ended, include all normal recurring adjustments
which management considers necessary for a fair presentation. The
results of operations for the interim periods are not necessarily
indicative of the results which may be expected for the entire fiscal
year. The interim consolidated financial statements include the
accounts and transactions of the Company and its subsidiaries. All
significant intercompany transactions and accounts have been
eliminated.
2. On May 14, 1999, Laser Vision completed an underwritten public stock
offering selling 1,000,000 shares of common stock for $46.5 million, ($43.6
million net of offering costs). Selling stockholders sold an additional
978,000 shares of which 463,500 shares were sold pursuant to the exercise
of options and warrants. 258,000 of the shares sold by selling stockholders
were sold pursuant to the Underwriter's exercise of their overallotment
option. The exercise of these warrants and options resulted in additional
proceeds to Laser Vision of $3.6 million.
The exercise of other warrants and options increased total warrant and
option proceeds for the quarter to $7.7 million.
3. On July 12, 1999, Laser Vision's Board of Directors approved a 2-for-1
stock split effective August 9, 1999 to stockholders of record at the close
of business on July 23, 1999. The split was effected in the form of a 100%
stock dividend. All earnings per share calculations reflect this split
retroactively as if it had occurred on May 1, 1998.
4. The net income per share was computed as described below using the
"Weighted average number of common shares outstanding - basic"
during each period.
"Weighted average number of common shares outstanding - diluted" for the
three months ended July 31, 1999 includes the dilutive effects of warrants
and options using the treasury stock method and the Series B Convertible
Preferred Stock. For the three months ended July 31, 1999, dilutive
warrants and options were calculated using an average market price of
$29.74 per common share. As of July 31, 1999, 5.1 million warrants and
options were
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outstanding with an average exercise price of about $9.60
each. Diluted per share calculations follow:
<TABLE>
<CAPTION>
Three months ended
July 31,
1999 1998
---- ----
<S> <C> <C>
Net income $4,133,000 $333,000
Deemed preferred dividends (50,000) (40,000)
---------- ----------
Net income applicable to
common stockholders $4,083,000 $293,000
Weighted average number of
common shares outstanding -- basic 24,177,000 19,482,000
Dilutive securities --
Warrants and options 3,513,000 2,218,000
Preferred stock 888,000 --
Weighted average number of
common shares outstanding --
diluted 28,578,000 21,700,000
Net Income per share -- Diluted $0.14 $0.01
</TABLE>
5. During the three months ended July 31, 1999, management continued to reassess
the likelihood of Laser Vision realizing deferred tax assets as a result of
Laser Vision's improving levels of and trend in profitability. For the quarter
ended July 31, 1999, Laser Vision recognized a net tax benefit of $747,000 on
pretax income of $3,386,000. The net tax benefit principally reflects the
benefit of the reduction in the valuation allowance on deferred tax assets for
the portion of the net operating loss ("NOL") carryforwards which will more
likely than not be realized in the next four quarters. Accordingly, the net tax
benefit was recognized as a current asset at July 31, 1999. As net operating
losses are not available in all states where Laser Vision operates, a current
tax provision of approximately $200,000 was recorded in "Taxes payable" for
estimated state liabilities for the quarter ended July 31, 1999.
6. Short-term investments have an original maturity of more than three months
and a remaining maturity of less than one year. These investments are stated at
cost as it is the intent of Laser Vision to hold these securities until
maturity. The fair market value of short-term investments approximates book
value at July 31, 1999.
7. The table below presents information about net income and segment assets used
by the chief operating decision maker of Laser Vision as of and for the quarters
ended July 31, 1999 and 1998:
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Quarter ended July 31, 1999
- ---------------------------
<TABLE>
<CAPTION>
North American Other
Refractive Refractive Cataract Reconciling Total
<S> <C> <C> <C> <C> <C>
Revenue $17,546,000 $583,000 $2,870,000 - $20,999,000
Interest and other income $697,000 697,000
Interest and other expense (299,000) (299,000)
Income tax benefit 747,000 747,000
Net income $3,703,000 $(29,000) $376,000 $83,000 $4,133,000
Quarter ended July 31, 1998
Revenue $8,656,000 $454,000 - - $9,110,000
Interest and other income $101,000 101,000
Interest and other expense (268,000) (268,000)
Income tax benefit - -
Net income $1,412,000 $(148,000) $(931,000) $333,000
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, statements relating to Laser
Vision's plan, objectives and future performance are forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations. Because of various
risks and uncertainties, actual strategies and results in future periods may
differ materially from those currently expected.
The discussion set forth below analyzes certain factors and trends
related to the financial results for each of the quarters ended July 31, 1999
and 1998. This discussion should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements.
ITEM 2.
(A) LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended July 31, 1999, Laser Vision completed an underwritten
public stock offering raising $43.6 million net of offering costs. In addition,
Laser Vision received $7.7 million in proceeds from the exercise of warrants and
options. Cash and cash equivalents increased 201% or $16.4 million to $24.6
million from $8.2 million at April 30, 1999. Short-term investments maturing in
less than one year increased to $36.9 million at July 31, 1999 from $0 at April
30, 1999. The ratio of current assets to current liabilities at July 31, 1999
was 4.08 to one, compared to 1.44 to one at April 30, 1999.
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Cash Flows from Operating Activities
Net cash provided by operating activities increased by $5.4 million to $6.1
million for the three months ended July 31, 1999 from $0.7 million for the three
months ended July 31, 1998. The cash flows provided by operating activities
during the three months ended July 31, 1999 primarily represent the net income
in this period plus depreciation and amortization and the net increase in
current liabilities, less increases in accounts receivable and deferred taxes.
The cash flows provided by operating activities during the quarter ended July
31, 1998 primarily represent the net income in this period plus depreciation and
amortization, less increases in accounts receivable and prepaid expenses and
other current assets and a net decrease in current liabilities.
Cash Flows from Investing Activities
Net cash used for investing activities increased to $38.7 million for the three
months ended July 31, 1999 from $0.7 million for the three months ended July 31,
1998. Cash used for investing during the three months ended July 31, 1999 was
used to acquire short-term investments and acquire equipment partially offset
by the sale of minority interest. Cash used for investing during the quarter
ended July 31, 1998 was used to acquire equipment for the expanding U.S. market.
Cash Flows from Financing Activities
Net cash provided by financing activities increased to $48.9 million for the
three months ended July 31, 1999 from $0.6 million for the three months ended
July 31, 1998. Cash provided by financing during the three months ended July 31,
1999 was primarily provided by the underwritten public stock offering and the
exercise of stock options and warrants partially offset by principal payments
under capitalized lease obligations and notes payable. Cash provided by
financing during the quarter ended July 31, 1998 was primarily provided by
proceeds from exercise of stock options and warrants offset by principal
payments under capitalized lease obligations and notes payable.
Taxes
During fiscal 1999 Laser Vision began recognizing deferred tax assets related to
NOL carryforwards. These NOL carryforwards could be fully utilized for book
purposes during the last half of fiscal 2000. For tax purposes, the
equity-related tax loss carryforwards should result in a cash income tax expense
of about 6% . The balance of any future book income tax expenses are expected to
be credited to equity for the next two fiscal years.
The Company expects to continue to fund future operations from existing cash and
cash equivalents and short-term investments, 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.
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(B) RESULTS OF OPERATIONS
The following table breaks out revenue by source. This table also
includes "net revenue contribution." Net revenue contribution is revenue less
license fees paid to VISX, Incorporated, the supplier of our lasers, and amounts
paid to eye surgeons for professional medical services rendered at our fixed
laser sites. Management believes that net revenue contribution provides relevant
and useful information to investors because it reflects the dollars available to
cover Laser Vision's fixed and variable costs after excluding variable costs
which Laser Vision pays to third parties. Net revenue contribution should not be
considered as an alternative to gross profit, operating income and net income as
a measure of profitability. Finally, the table includes certain profitability
amounts as a percentage of total revenue and net revenue contribution.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
1999 1998
<S> <C> <C>
Revenue
North American refractive $17,546,000 $8,656,000
Other refractive 583,000 454,000
Cataract 2,870,000 --
----------- ----------
Total revenue 20,999,000 9,110,000
Royalty fees and professional
medical services 6,883,000 3,425,000
Revenue less royalty fees and professional
medical services, "net revenue
contribution" 14,116,000 5,685,000
Gross profit 7,203,000 2,866,000
% of total revenue 34% 31%
% of net revenue contribution 51% 50%
Income from operations 3,076,000 500,000
% of total revenue 15% 5%
% of net revenue contribution 22% 9%
Net income before taxes 3,386,000 333,000
% of total revenue 16% 4%
% of net revenue contribution 24% 6%
</TABLE>
QUARTER ENDED JULY 31, 1999 COMPARED TO QUARTER ENDED JULY 31, 1998
Laser Vision has continued to provide excimer laser access to additional sites
throughout the U.S. In addition, the acquisition of Refractive Surgical
Resources on September 1, 1998 has enabled us to provide microkeratome access
and the acquisition of Midwest Surgical Services on December 4, 1998 has allowed
us to provide mobile cataract services.
Revenue
Total revenue increased by 131% or $11.9 million to $21.0 million for the three
months ended
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July 31, 1999 from $9.1 million for the three months ended July 31,
1998. Total laser procedures increased by 108% to 23,250 for the three months
ended July 31, 1999 from 11,177 for the three months ended July 31, 1998.
The increase in revenue is attributable to an $8.9 million increase in North
American refractive revenue, a $0.1 million increase in other refractive revenue
and $2.9 million of cataract revenue. The increase in North American revenue was
attributable to an increase both in the number of U.S. lasers in operation and
the number of procedures performed by our eye surgeon customers on each laser in
the U.S. and the RSR acquisition which was reflected in the results of
operations for the quarter ended July 31, 1999 but was not reflected in the
results of operations for the quarter ended July 31, 1998. The cataract revenue
is a result of the acquisition of MSS as of December 4, 1998.
Cost of Revenues/Gross Profit
Cost of revenues increased by 121% or $7.6 million to $13.8 million for the
three months ended July 31, 1999 from $6.2 million for the three months ended
July 31, 1998. This was primarily due to an increase of $3.1 million in total
domestic royalties, an increase of $1.2 million in mobile laser engineer
salaries and travel costs, an increase of $0.3 million in professional medical
services and a $0.5 million increase in gases, medical supplies and maintenance,
and $1.8 million of costs related to the cataract business pursuant to the MSS
acquisition in December 1998. The increases in royalty expenses, salaries and
travel, professional medical services, and gases, medical supplies and
maintenance are primarily due to increased refractive procedure volume.
Total gross profit increased by 151% or $4.3 million to $7.2 million for the
three months ended July 31, 1999 from $2.9 million for the three months ended
July 31, 1998. The variable gross profit, excluding depreciation, increased by
129% or $5.1 million to $9.1 million for the three months ended July 31, 1999
from $4.0 million for the three months ended July 31, 1998. This was primarily
due to higher volumes of procedures performed with our equipment at an increased
number of sites. As a percentage of total revenue, total gross profit increased
to 34% from 31% for the three months ended July 31, 1999 and 1998, respectively.
This improvement is primarily due to performing more procedures per laser, thus
improving utilization of our fixed assets. We do not believe gross profit will
continue to improve at this rate.
Operating Expenses
Selling, general and administrative expenses increased by 74% or $1.8 million to
$4.1 million for the three months ended July 31, 1999 from $2.4 million for the
three months ended July 31, 1998. The increase was attributed to new operating
expenses related to the cataract business of $0.6 million, increases in salaries
and related expenses of $0.8 million, increases in general and administrative
expenses of $0.2 million and increases in depreciation and amortization of $0.1
million. The $0.8 million increase in salaries and related expenses was
attributed to more employees, annual raises and variable compensation based on
operating results.
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Income from Operations
The income from operations increased by $2.6 million to $3.1 million for the
three months ended July 31, 1999 from $0.5 million for the three months ended
July 31, 1998. This was primarily related to improved domestic refractive
profitability and the acquisition of MSS in December 1998.
Other Income (Expenses)
Higher interest income partially offset by higher interest expense and minority
interests in net income of subsidiaries caused a $477,000 increase in other
income (expense) to a net $310,000 of income during the three months ended July
31, 1999 from a net $167,000 loss during the three months ended July 31, 1998.
This was primarily due to the interest income earned on the proceeds from the
underwritten public stock offering and option and warrant exercises.
Year 2000
We are aware that some information technology systems may not function properly
at the onset of the year 2000. These systems record only the last two digits of
a date's year instead of the full four digits. For example, they would record
"00" as the year for dates in both 1900 and 2000. This could cause such systems
to process and record information incorrectly or possibly fail to function in
the year 2000.
Our services, operations, customers, suppliers and service providers all rely on
information technology systems, both hardware and software, to function
properly. They include readily apparent systems such as those controlling the
VISX excimer laser used as a key part of our services as well as less obvious
ones such as those required to provide electricity to our main facility.
Suppliers: We have been surveying existing suppliers about the ability of their
systems and products to properly handle dates for the year 2000 and beyond.
VISX, the manufacturer of Laser Vision's excimer lasers, has advised us that its
lasers will remain fully functional from a medical standpoint through the year
2000 and beyond. VISX has upgraded the laser systems and has advised us that
they will now properly print and store patient report dates for procedures
performed in the year 2000 or beyond. We will be testing this upgrade in the
next quarter.
The cataract equipment used by Midwest Surgical Services, Inc. (MSS) and the
microkeratome equipment used for the LASIK procedure are not affected by the
Year 2000 situation and will remain fully functional from a medical viewpoint
according to the cataract and microkeratome equipment manufacturers.
If our other suppliers do not reply or cannot comply, we may need to locate
alternative sources for goods and services.
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Operations: We have been gathering information from vendors about year 2000
compliance for each of the major elements of our internal information technology
systems. Based on the statements from vendors:
Our operating systems, which include MS Windows NT, MS Windows 98, MS Windows 95
and Novell IntraNetware 4.11, are all year 2000 compliant for their latest
versions.
Our key applications which include MS Exchange Server, Solomon for Windows, and
MS Office 97 will be year 2000 compliant after running a service pack for the
applications to bring them up to the current version of software. We expect to
complete this and related testing by October 1999.
Our Mitel SX-200 telephone system is year 2000 compliant. Our Colorado Replay
Plus Active Voice 1400 voicemail system is not year 2000 compliant. We expect to
replace this system by October 1999.
Our computer hardware, which is all PC based, is year 2000 compliant with the
exception of a few older personal computers. The hardware used to control our
LAN is year 2000 compliant. We expect to install any necessary upgrades or
replace any computers that are not year 2000 compliant before the end of 1999.
We have received notification from the owners and managers of our facility that
it is year 2000 compliant with regards to building security, heating, and
lighting controls.
Costs to Address Year 2000 Issues
We expect that any remaining costs for Year 2000 compliance will be less than
$100,000 and that the majority of these disbursements will be for equipment
purchases and therefore will be capitalized and depreciated. The total
anticipated costs for Year 2000 compliance (past and future) is expected to be
less than $150,000. However, we may spend more money than we have estimated and
this could have a material adverse effect on our results of operations and
financial condition. At this stage in the assessment process, we do not believe
that the Year 2000 issue will impact on our financial position, results of
operations or cash flows in future periods. There can be no assurance that
operating problems or expenses related to the Year 2000 issue will not arise
with our computer systems and software or that our customers or suppliers will
be able to resolve their Year 2000 issues in a timely manner. Accordingly, we
plan to devote the necessary resources to resolve all significant Year 2000
issues in a timely manner.
Contingency Plans
As we complete our internal review and external surveys we will prepare
contingency plans to prepare for the problems that we believe are reasonably
likely to arise. However, despite our best efforts, we may not anticipate all
problems that may ultimately arise.
16
<PAGE> 17
Risks of Year 2000 Issues
We will continue preparations with the goal of ensuring that our services,
operations and suppliers will recognize dates and function properly in the year
2000 and beyond. However, unanticipated problems could affect our ability to
provide services to our customers or interrupt or prevent deliveries from
suppliers at the onset of the year 2000. As a result, we could suffer a material
adverse impact to our business, financial position and results of operation due
to a loss of revenue, legal claims or extra expenses caused by unanticipated
year 2000 computer problems.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material change in the status of any
litigation from that reported in the Form 10-K for the year ended April 30,
1999, nor has any other material litigation been initiated.
Item 2. Changes in Securities
On July 12, 1999, Laser Vision's Board of Directors approved a 2-for-1
stock split effective August 9, 1999 to shareholders of record at the close of
business on July 23, 1999. The split was effected in the form of a 100% stock
dividend.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Reports on Form 8-K during the period covered by this report:
On July 19, 1999, Laser Vision filed a Report on Form 8-K regarding the
2-for-1 stock split referred to in Item 2, above.
Exhibits - None
17
<PAGE> 18
Signature
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASER VISION CENTERS, INC.
\s\John J. Klobnak August 24, 1999
- ------------------------------------ -------------------
John J. Klobnak Date
Chairman of the Board and Chief Executive Officer
\s\B. Charles Bono III August 24, 1999
- ------------------------------------ -------------------
B. Charles Bono III Date
Chief Financial Officer and
Principal Accounting Officer
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