<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
OCTOBER 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 (I.R.S. Employer
incorporation 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 December 2, 1999 - 25,204,633 shares
<PAGE> 2
LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED OCTOBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PART OR ITEM PAGE
<S> <C>
Part I. FINANCIAL STATEMENTS (unaudited)
Item 1. Interim Consolidated Financial Statements
Consolidated Balance Sheet - October 31, 1999 and April 30, 1999.............................3-4
Consolidated Statement of Operations - Three months and six months
ended October 31, 1999 and 1998.................................................................5
Consolidated Statement of Cash Flow - Six months
ended October 31, 1999 and 1998...............................................................6-7
Consolidated Statement of Changes in Stockholders' Equity - Six months
ended October 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.............................................................12-14
Results of Operations.......................................................................14-19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................20
Item 2. Changes in Securities..........................................................................20
Item 3. Defaults upon Senior Securities................................................................20
Item 4. Submission of Matters to a
Vote of Security Holders.......................................................................20
Item 5. Other Information..............................................................................20
Item 6. Reports on Form 8-K............................................................................20
Signatures..............................................................................................20
</TABLE>
<PAGE> 3
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 31, April 30,
1999 1999
<S> <C> <C>
CURRENT ASSETS
- --------------
Cash and cash equivalents $24,066,000 $ 8,173,000
Short-term investments 37,203,000 -
Accounts receivable, net 10,041,000 8,540,000
Inventory 4,006,000 2,723,000
Deferred tax asset 3,375,000 1,755,000
Prepaid expenses and
other current assets 2,631,000 1,713,000
Restricted cash - 507,000
------------ -----------
Total Current Assets 81,322,000 23,411,000
EQUIPMENT
- ---------
Laser equipment 27,111,000 21,795,000
Medical equipment 4,645,000 3,274,000
Mobile equipment 9,729,000 7,611,000
Furniture and fixtures 2,226,000 1,722,000
Accumulated depreciation (17,366,000) (13,419,000)
------------ -----------
Total Equipment, Net 26,345,000 20,983,000
OTHER ASSETS
- ------------
Goodwill, net 6,853,000 7,148,000
Tradename and service mark costs, net 84,000 93,000
Deferred contract rights 365,000 451,000
Rent deposits and other, net 82,000 478,000
Restricted cash - 625,000
------------ -----------
Total Other Assets 7,384,000 8,795,000
------------ -----------
Total Assets $115,051,000 $53,189,000
============ ===========
</TABLE>
See notes to interim consolidated financial statements
3
<PAGE> 4
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 31, April 30,
1999 1999
<S> <C> <C>
CURRENT LIABILITIES
- -------------------
Current portion of notes payable $5,472,000 $4,552,000
Current portion of capitalized
lease obligations 1,155,000 1,290,000
Accounts payable 6,855,000 5,185,000
Taxes payable 549,000 266,000
Accrued compensation 1,716,000 2,004,000
Other accrued liabilities 2,517,000 3,009,000
------------ -----------
Total Current Liabilities 18,264,000 16,306,000
NON-CURRENT LIABILITIES
- -----------------------
Notes payable 5,081,000 5,687,000
Capitalized lease obligations 2,178,000 2,097,000
------------ -----------
Total Non-Current Liabilities 7,259,000 7,784,000
MINORITY INTEREST 788,000 352,000
COMMITMENTS AND CONTINGENCIES
SERIES B CONVERTIBLE PREFERRED STOCK WITH
MANDATORY REDEMPTION PROVISIONS 2,188,000 2,086,000
STOCKHOLDERS' EQUITY
- --------------------
Common stock, par value of $.01 per share, 50,000,000 shares
authorized; 25,200,058 and 21,369,576 shares issued
and outstanding, respectively 252,000 214,000
Warrants and options 975,000 1,213,000
Paid-in capital 102,724,000 50,701,000
Accumulated deficit (17,399,000) (25,467,000)
------------ -----------
Total Stockholders' Equity 86,552,000 26,661,000
------------ -----------
Total Liabilities and Stockholders' Equity $115,051,000 $53,189,000
============ ===========
</TABLE>
See notes to interim consolidated financial statements
4
<PAGE> 5
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended October 31, Ended October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES $20,835,000 $10,402,000 $41,834,000 $19,512,000
COST OF REVENUES
Royalty fees and professional
medical services 6,697,000 3,481,000 13,580,000 6,906,000
Depreciation and amortization 2,175,000 1,220,000 4,123,000 2,353,000
Other costs 5,221,000 2,046,000 10,186,000 3,732,000
----------- ----------- ----------- -----------
GROSS PROFIT 6,742,000 3,655,000 13,945,000 6,521,000
----------- ----------- ----------- -----------
Selling, general and
administrative expenses 3,884,000 2,512,000 8,011,000 4,878,000
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 2,858,000 1,143,000 5,934,000 1,643,000
Other income (expenses)
Minority interests in net income (93,000) (181,000)
Interest and other income 841,000 93,000 1,538,000 194,000
Interest and other expense (261,000) (278,000) (560,000) (547,000)
----------- ----------- ----------- -----------
INCOME BEFORE TAXES 3,345,000 958,000 6,731,000 1,290,000
Income tax benefit 590,000 - 1,337,000 -
----------- ----------- ----------- -----------
NET INCOME 3,935,000 958,000 8,068,000 1,290,000
Deemed preferred dividends (52,000) (41,000) (102,000) (81,000)
----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO
COMMON STOCKHOLDERS $3,883,000 $917,000 $7,966,000 $1,209,000
=========== =========== =========== ===========
NET INCOME PER SHARE - BASIC $0.15 $0.05 $0.32 $0.06
===== ===== ===== =====
NET INCOME PER SHARE - DILUTED $0.14 $0.05 $0.28 $0.06
===== ===== ===== =====
Weighted average number of
common shares outstanding - basic 25,118,000 19,854,000 24,647,000 19,688,000
=========== =========== =========== ===========
Weighted average number of
common shares outstanding - diluted 28,859,000 21,416,000 28,590,000 21,558,000
=========== =========== =========== ===========
</TABLE>
See notes to interim consolidated financial statements
5
<PAGE> 6
<TABLE>
<CAPTION>
LASER VISION CENTERS, INC. AND SUBSIDIARIES Six Month Period
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) Ended October 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income $8,068,000 $1,290,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,665,000 2,596,000
Deferred income taxes (1,620,000)
Compensation paid in common stock,
options or warrants 110,000 193,000
Minority interest in net income of subsidiary 58,000
Increase in accounts receivable (1,501,000) (1,640,000)
(Increase) decrease in inventory (1,283,000) 144,000
Increase in prepaid expenses
and other current asset increase (918,000) (629,000)
Increase in accounts payable 1,670,000 1,428,000
Decrease in accrued liabilities (399,000) (1,349,000)
----------- -----------
Net cash provided by operating activities 8,850,000 2,033,000
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of short-term investments (90,314,000)
Sale of short-term investments 53,111,000
Acquisition of equipment (4,010,000) (1,533,000)
Business acquisition (74,000) (468,000)
Proceeds from sale of minority interest 276,000
Other, net (16,000) 4,000
----------- -----------
Net cash used in investing activities (41,027,000) (1,997,000)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from secondary stock offering 44,150,000
Stock offering costs (104,000)
Proceeds from exercise of stock options and warrants 8,267,000 1,503,000
Return of restricted cash 1,132,000 98,000
Principal payments under capitalized
lease obligations and notes payable (5,375,000) (1,576,000)
----------- -----------
Net cash provided by financing activities 48,070,000 25,000
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 15,893,000 61,000
Cash and cash equivalents at beginning of period 8,173,000 8,430,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $24,066,000 $ 8,491,000
=========== ===========
</TABLE>
See notes to interim consolidated financial statements
6
<PAGE> 7
<TABLE>
<CAPTION>
LASER VISION CENTERS, INC. AND SUBSIDIARIES Six Month Period
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) Ended October 31,
1999 1998
<S> <C> <C>
Non-cash investing and financing:
---------------------------------
Capital lease obligations and notes payable related
to laser and equipment purchases $5,635,000 $620,000
Accrued and deferred stock offering costs 412,000
Deemed preferred dividends 102,000 81,000
</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 17,000 17,000
Exercise of
warrants and options 1,052,289 10,000 8,519,000 (262,000) 8,267,000
Dividends accrued
on convertible
preferred stock (102,000) (102,000)
Stock split 12,462,981 125,000 (125,000)
Warrants and
options issued 7,000 7,000
Net income for the
six month period
ended October 31, 1999 8,068,000 8,068,000
---------- -------- ------------ -------- ------------ -----------
Balance -
October 31, 1999 25,200,058 $252,000 $102,724,000 $975,000 ($17,399,000) $86,552,000
========== ======== ============ ======== ============ ===========
</TABLE>
See notes to interim consolidated financial statements
8
<PAGE> 9
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 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 October 31, 1999, and for the three and six
month periods ended October 31, 1999 and October 31, 1998, 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 six months ended October 31, 1999 to $8.3
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 on August 9, 1999. 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 and six month periods ended October 31, 1999 include the
dilutive effects of warrants and options using the treasury stock
method and the Series B Convertible Preferred Stock. For the periods
ended October 31, 1998, preferred stock was anti-dilutive. For the
three and six month periods ended October 31, 1999, dilutive warrants
and options were calculated using an average market price of $19.27 and
$22.70, respectively, per common share. As of October 31, 1999, 4.75
million
9
<PAGE> 10
warrants and options with exercise prices below $16.00 per share were
outstanding and had an average exercise price of about $6.00 each.
Diluted per share calculations follow:
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended October 31, Ended October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income 3,935,000 958,000 8,068,000 1,290,000
Deemed preferred dividends (52,000) (41,000) (102,000) (81,000)
---------- ---------- ---------- ----------
Net income applicable to
common stockholders 3,883,000 917,000 7,966,000 1,209,000
Weighted average number of
common shares outstanding-basic 25,118,000 19,854,000 24,647,000 19,688,000
Dilutive securities
Warrants and options 2,843,000 1,562,000 3,050,0000 1,890,000
Preferred stock 898,000 n/a 893,000 n/a
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding-diluted 28,859,000 21,416,000 28,590,000 21,558,000
Net Income per share - diluted $0.14 $0.05 $0.28 $0.06
</TABLE>
5. During the three months ended October 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 three and six month periods ended October 31,
1999, Laser Vision recognized a net tax benefit of $590,000 and
$1,337,000, respectively, on pretax income of $3,345,000 and
$6,731,000, respectively. The net tax benefit principally reflects the
benefit of the reduction in the valuation allowance on deferred tax
assets for the portion of the net operating loss ("NOL") carryforwards
which will more likely than not be realized in the next four quarters.
Accordingly, the net tax benefit was recognized as a current asset at
October 31, 1999. As NOL carryforwards are not available in all states
where Laser Vision operates, a current tax provision of approximately
$100,000 and $300,000, respectively, was recorded in "Taxes payable"
for estimated state liabilities for the three and six month periods
ended October 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 October 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 periods ended October 31, 1999 and 1998:
10
<PAGE> 11
<TABLE>
<CAPTION>
North American Other
Refractive Refractive Cataract Reconciling TOTAL
THREE MONTHS ENDED OCTOBER 31, 1999
- -----------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $16,982,000 $863,000 $2,990,000 $ - $20,835,000
Interest and other income 841,000 841,000
Interest and other expense (261,000) (261,000)
Income before taxes 3,033,000 118,000 600,000 (406,000) 3,345,000
Income tax benefit 590,000 590,000
NET INCOME 3,033,000 118,000 600,000 184,000 3,935,000
Three months ended October 31, 1998
- -----------------------------------
Revenue 9,844,000 558,000 - - 10,402,000
Interest and other income 93,000 93,000
Interest and other expense (278,000) (278,000)
Income before taxes 1,865,000 72,000 - (979,000) 958,000
Income tax benefit - -
Net income 1,865,000 72,000 - (979,000) 958,000
SIX MONTHS ENDED OCTOBER 31, 1999
- ---------------------------------
REVENUE 34,528,000 1,446,000 5,860,000 - 41,834,000
Interest and other income 1,538,000 1,538,000
Interest and other expense (560,000) (560,000)
Income before taxes 6,736,000 89,000 976,000 (1,070,000) 6,731,000
Income tax benefit 1,337,000 1,337,000
NET INCOME 6,736,000 89,000 976,000 267,000 8,068,000
Six months ended October 31, 1998
- ---------------------------------
Revenue 18,500,000 1,012,000 - - 19,512,000
Interest and other income 194,000 194,000
Interest and other expense (547,000) (547,000)
Income before taxes 3,277,000 (76,000) - (1,911,000) 1,290,000
Income tax benefit - -
Net income $3,277,000 $(76,000) $ - $(1,911,000) $1,290,000
</TABLE>
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
(A) LIQUIDITY AND CAPITAL RESOURCES
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 the three and six month periods ended
October 31, 1999 and 1998. This discussion should be read in conjunction with
the related 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. While we
currently have no specific plan for the net proceeds we received from this
offering, we will likely use the proceeds for the purchase of additional
equipment and funding for possible future strategic acquisitions. We currently
have no agreements or understandings with respect to any material future
acquisition. Until we use the proceeds for business purposes, we are investing
the net proceeds in short-term, government securities and other
investment-grade, interest-bearing securities.
In addition, during the six months ended October 31, 1999 Laser Vision received
$8.3 million in proceeds from the exercise of warrants and options. Cash and
cash equivalents increased 194% or $15.9 million to $24.1 million at October 31,
1999 from $8.2 million at April 30, 1999. Short-term investments maturing in
less than one year increased to $37.2 million at October 31, 1999 from $0 at
April 30, 1999. The ratio of current assets to current liabilities at October
31, 1999 was 4.45 to one, compared to 1.44 to one at April 30, 1999.
Cash Flows from Operating Activities
Net cash provided by operating activities increased by $6.8 million to $8.9
million for the six months ended October 31, 1999 from $2.0 million for the six
months ended October 31, 1998, primarily reflecting the growth of the Company's
business and profitability. The cash flows provided by operating activities
during the six months ended October 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, inventory, prepaid
expenses and other current assets and deferred taxes. The cash flows provided by
operating activities during the six months ended October 31, 1998 primarily
represent the net income in this period plus depreciation and amortization, less
increases in accounts receivable,
12
<PAGE> 13
inventory and prepaid expenses and other current assets.
Cash Flows from Investing Activities
Net cash used for investing activities increased by $39.0 million to $41.0
million for the six months ended October 31, 1999 from $2.0 million for the six
months ended October 31, 1998. Cash used for investing during the six months
ended October 31, 1999 was used to acquire short-term investments and acquire
equipment partially offset by the sale of minority interests. Cash used for
investing during the six months ended October 31, 1998 was used to acquire
Refractive Surgical Resources (RSR) and to acquire equipment for the expanding
U.S. market. In certain markets Laser Vision intends to enter into partnerships
with key surgeons as a means of securing long-term contracts with these
surgeons. These partnerships, in which Laser Vision would own a controlling
interest, require additional acquisitions of equipment offset by proceeds from
sale of minority interests.
Cash Flows from Financing Activities
Net cash provided by financing activities increased by $48.0 million to $48.1
million for the six months ended October 31, 1999 from $25,000 for the six
months ended October 31, 1998. Cash provided by financing during the six months
ended October 31, 1999 was primarily provided by the underwritten public stock
offering, the exercise of stock options and warrants and the return of
restricted cash and was partially offset by principal payments under capitalized
lease obligations and notes payable. Cash provided by financing during the six
months ended October 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 as management believed it was more likely than not that they
will be realized before expiration. These NOL carryforwards could be fully
utilized for book purposes during the next twelve months. A portion of the tax
benefit from the NOL carryforwards will be directly reflected in stockholders'
equity upon release of the valuation allowance. This tax benefit relates to
certain equity transactions that did not impact operating results, such as those
arising from the exercise of non-qualified stock options and warrants.
As net operating losses are not available in all states where Laser Vision
operates, a current tax provision of about $100,000 and $300,000, respectively,
has been recorded for the three and six months ended October 31, 1999.
Future operations
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
13
<PAGE> 14
to the Company.
(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 some of 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 SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUE
North American refractive $16,982,000 $9,844,000 $34,528,000 18,500,000
Other refractive 863,000 558,000 1,446,000 1,012,000
Cataract 2,990,000 - 5,860,000
----------- ---------- ----------- ----------
TOTAL REVENUE 20,835,000 10,402,000 41,834,000 19,512,000
Royalty fees and professional
medical services 6,697,000 3,481,000 13,580,000 6,906,000
Revenue less royalty fees and professional
medical services, "net revenue
contribution" 14,138,000 6,921,000 28,254,000 12,606,000
Gross profit 6,742,000 3,655,000 13,945,000 6,521,000
% of total revenue 32% 35% 33% 33%
% of net revenue contribution 48% 53% 49% 52%
Income from operations 2,858,000 1,143,000 5,934,000 1,643,000
% of total revenue 14% 11% 14% 9%
% of net revenue contribution 20% 17% 21% 13%
Net income before taxes 3,345,000 958,000 6,731,000 1,290,000
% of total revenue 16% 9% 16% 7%
% of net revenue contribution 24% 14% 24% 10%
</TABLE>
QUARTER ENDED OCTOBER 31, 1999 COMPARED TO QUARTER ENDED OCTOBER 31, 1998
Laser Vision has continued to provide excimer laser access to additional sites
throughout the U.S. In addition, the acquisition of RSR 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. Our strategy now anticipates the establishment of more fixed sites and
the
14
<PAGE> 15
signing of other contractual agreements with ophthalmic surgeons.
Revenues
Total revenues increased by 100%, or $10.4 million, to $20.8 million for the
three months ended October 31, 1999 from $10.4 million for the three months
ended October 31, 1998. Total refractive procedures increased by 87% to 23,543
for the three months ended October 31, 1999 from 12,622 for the three months
ended October 31, 1998. Total refractive procedures in future quarters are
expected to increase at a lower rate.
The increase in revenue is attributable to a $7.1 million increase in North
American refractive revenue, a $0.3 million increase in other refractive revenue
and $3.0 million of cataract revenue. The increase in North American revenue was
attributable to an increase of 28 U.S. lasers in operation to 59 lasers at
October 31, 1999 from 30 lasers at October 31, 1998. The cataract revenue is a
result of the acquisition of Midwest Surgical Services (MSS) as of December 4,
1998
Cost of Revenues/Gross Profit
Cost of revenues increased by 109%, or $7.3 million, to $14.1 million for the
three months ended October 31, 1999 from $6.7 million for the three months ended
October 31, 1998. This was primarily due to an increase of $2.7 million in total
domestic royalties, an increase of $1.1 million in mobile laser engineer
salaries and travel costs, an increase of $0.6 million in professional medical
services, an increase of $0.6 million in depreciation and $1.9 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 depreciation are primarily due to increased lasers and
refractive procedure volume.
Total gross profit increased by 84%, or $3.1 million, to $6.7 million for the
three months ended October 31, 1999 from $3.7 million for the three months ended
October 31, 1998. The variable gross profit, excluding depreciation, increased
by 83%, or $4.0 million, to $8.9 million for the three months ended October 31,
1999 from $4.9 million for the three months ended October 31, 1998. This was
primarily due to increased procedures performed at an increased number of sites.
As a percentage of total revenue, total gross profit decreased to 32% from 35%
for the three months ended October 31, 1999 and 1998, respectively. This decline
is primarily due to lower average sales prices to the surgeon user of our
equipment, particularly in newer domestic fixed sites.
Operating Expenses
Selling, general and administrative expenses increased by 55%, or $1.4 million,
to $3.9 million for the three months ended October 31, 1999 from $2.5 million
for the three months ended October 31, 1998. The increase was attributed to new
operating expenses related to the cataract business of $0.5 million, an increase
in marketing expenditures of $0.3 million and an increase in general and
administrative expenses of $0.5 million. Selling, general and administrative
expenses as a percentage of revenue decreased to 19% from 24% for the three
months ended October 31, 1999 and 1998, respectively, due to the leverage
obtained in implementing our low fixed cost business model.
15
<PAGE> 16
Income from Operations
The income from operations increased by $1.7 million to $2.9 million for the
three months ended October 31, 1999 from $1.1 million for the three months ended
October 31, 1998. This was primarily related to increased domestic refractive
profitability and the effects of the acquisition of MSS in December 1998 as
described above.
Other Income (Expenses)
Higher interest income and lower interest expense partially offset by higher
minority interests in net income of subsidiaries caused a $672,000 increase in
other income (expense) to a net $487,000 of income during the three months ended
October 31, 1999 from a net $185,000 expense during the three months ended
October 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.
Taxes
Income tax benefit increased $590,000 to $590,000 for the three months ended
October 31, 1999 from $0 for the three months ended October 31, 1998. Based upon
Laser Vision's improving levels of and trend in profitability, management has
reassessed the likelihood of realizing deferred tax assets and has recorded a
tax benefit reducing the valuation allowance on the deferred tax assets related
to the NOL carryforwards.
SIX MONTHS ENDED OCTOBER 31, 1999 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1998
Revenues
Total revenue increased by 114%, or $22.3 million, to $41.8 million for the six
months ended October 31, 1999 from $19.5 million for the six months ended
October 31, 1998. Total refractive procedures increased by 97% to 47,000 for the
six months ended October 31, 1999 from 23,805 for the six months ended October
31, 1998.
The increase in revenue is attributable to a $16.0 million increase in North
American refractive revenue, a $0.4 million increase in other refractive revenue
and $5.9 million of cataract revenue. The increase in North American revenue was
attributable to an increase of 28 U.S. lasers in operation to 59 lasers at
October 31, 1999 from 30 lasers at October 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 115%, or $14.9 million, to $27.9 million for the
six months ended October 31, 1999 from $13.0 million for the six months ended
October 31, 1998. This was primarily due to an increase of $5.7 million in total
domestic royalties, an increase of $2.3 million in mobile laser engineer
salaries and travel costs, an increase of $0.8 million in professional medical
services, a $1.1
16
<PAGE> 17
million increase in depreciation, a $0.7 million increase in gases, medical
supplies and maintenance and $2.2 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,
depreciation, and gases, medical supplies and maintenance are primarily due to
increased lasers and refractive procedure volume.
Total gross profit increased by 114%,or $7.4 million, to $13.9 million for the
six months ended October 31, 1999 from $6.5 million for the six months ended
October 31, 1998. The variable gross profit, excluding depreciation, increased
by 104%, or $9.2 million, to $18.1 million for the six months ended October 31,
1999 from $8.9 million for the six months ended October 31, 1998. This was
primarily due to increased procedures performed at an increased number of sites.
As a percentage of total revenue, total gross profit remained consistent at 33%
for the six month periods ended October 31, 1999 and 1998.
Operating Expenses
Selling, general and administrative expenses increased by 64%, or $3.1 million,
to $8.0 million for the six months ended October 31, 1999 from $4.9 million for
the six months ended October 31, 1998. The increase was attributed to new
operating expenses related to the cataract business of $1.1 million, increased
general and administrative expenses of $0.6 million, increased salaries and
related expenses of $0.8 million and increased selling and marketing expenses of
$0.5 million. Selling, general and administrative expenses as a percentage of
revenue decreased to 19% from 25% for the six months ended October 31, 1999 and
1998, respectively, due to the leverage obtained in implementing our low fixed
cost business model.
Income from Operations
The income from operations increased by $4.3 million to $5.9 million for the six
months ended October 31, 1999 from $1.6 million for the six months ended October
31, 1998. This was primarily related to increased domestic profitability and the
effects of the acquisition of MSS in December 1998.
Other Income (Expenses)
Higher interest income partially offset by higher interest expense and by higher
minority interests in net income of subsidiaries caused a $1,150,000 increase in
other income (expense) to a net $797,000 of income during the six months ended
October 31, 1999 from a net $353,000 of expense during the six months ended
October 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.
Taxes
Income tax benefit increased $1,337,000 to $1,337,000 for the six months ended
October 31, 1999 from $0 for the six months ended October 31, 1998. Based upon
Laser Vision's improving levels of and trend in profitability, management has
reassessed the likelihood of realizing deferred tax assets and has recorded a
tax benefit reducing the valuation allowance on the deferred tax assets related
to the NOL
17
<PAGE> 18
carryforwards.
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 have tested 29 of 55 lasers (according
to VISX testing specifications) and all have passed.
The cataract equipment used by 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.
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 are Y2K compliant in the latest version/service pack.
Our Mitel SX-200 telephone system is year 2000 compliant. Our Octel Aria 250
voicemail system is Y2K compliant.
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 have purchased relacement computers for those
PC's that failed BIOS rollover testing. All replacement PC's will be in place
prior to the new year.
18
<PAGE> 19
We have received notification from the owners and managers of our St. Louis
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
$25,000 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 an 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 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 completed our internal review and external surveys we prepared contingency
plans 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.
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.
19
<PAGE> 20
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
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders on October 28, 1999,
shareholders elected five members of the Board of Directors, approved
PricewaterhouseCoopers LLP as the Company's independent public accountants,
approved a 3,000,000 share increase in the common stock available in the
Non-Qualified Warrant Plan, and approved a new Employee Stock Purchase Plan.
Item 5. Other Information
None
Item 6. Reports on Form 8-K during the period covered by this report:
None
Exhibits - None
Signatures
----------
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 December 8, 1999
- ------------------------------------- -----------------------
John J. Klobnak Date
Chairman of the Board and Chief Executive Officer
\s\B. Charles Bono, III December 8, 1999
- ------------------------------------- -----------------------
B. Charles Bono Date
Chief Financial Officer and
Principal Accounting Officer
20
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<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-31-1999
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2,188,000
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