<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Form S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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LASER VISION CENTERS, INC.
(Exact name of registrant in its charter)
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<S> <C> <C>
DELAWARE 43-1530063
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
</TABLE>
540 MARYVILLE CENTRE DRIVE, SUITE 200
ST. LOUIS, MISSOURI 63141
(314) 434-6900
(Address and telephone number of principal executive offices.)
ROBERT W. MAY, ESQ.
540 MARYVILLE CENTRE DRIVE, SUITE 200
ST. LOUIS, MISSOURI 63141
(314) 434-6900
(Name, address and telephone number of agent for service)
With copies to:
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JAMES R. DANKENBRING, ESQ. J. MARK KLAMER, ESQ.
DANKENBRING GREIMAN OSTERHOLT & HOFFMANN P.C. BRYAN CAVE LLP
120 SOUTH CENTRAL, SUITE 500 ONE METROPOLITAN SQUARE, SUITE 3600
ST. LOUIS, MISSOURI 63105 ST. LOUIS, MISSOURI 63102
(314) 863-7733 (314) 259-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as possible following the effectiveness of this registration
statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plan, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE(1)(2) REGISTRATION FEE
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Common stock, par value $0.01 per share...... 1,978,000 $54,395,000 $15,122
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</TABLE>
(1) Includes 258,000 shares that the underwriters have the option to purchase
from Laser Vision to cover over-allotments, if any.
(2) Estimated solely for the purposes of computing the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
An Index of the Exhibits to this registration statement can be found at page
II-2.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY , 1999
1,720,000 SHARES
LOGO
COMMON STOCK
------------------------
Laser Vision is offering 1,000,000 shares and the selling stockholders are
offering 720,000 shares. Our common stock is listed on the Nasdaq National
Market under the symbol "LVCI." On February 24, 1999, the reported last sale
price of the common stock on the Nasdaq National Market was $30.750 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------
PRICE $ A SHARE
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Per Share Total
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Laser Vision.................. $ $
Proceeds, before expenses, to the selling stockholders...... $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
258,000 shares of common stock to cover over-allotments. The underwriters expect
to deliver the shares to purchasers on , 1999.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
------------------------
A.G. EDWARDS & SONS, INC. PRUDENTIAL SECURITIES
Prospectus dated , 1999
<PAGE> 3
OUR ACTIVE U.S. SITES
[Depicted is a map of the U.S. showing fixed laser sites, mobile laser sites and
MSS sites.]
"ROLL-ON/ROLL-OFF" EXCIMER LASER SYSTEM
[Picture showing a mobile excimer laser system being loaded from its specially
modified delivery vehicle.]
LASERVISION(R), LASERVISION CENTERS AND DESIGN(R), LASERVISION CENTERS(R),
LASERVISION CENTER(R), MOBILEXCIMER(R), LVC(R), LVCI(R) and the Laser Vision
logo are registered U.S. servicemarks of Laser Vision.
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<PAGE> 4
Some of the statements in this prospectus contain forward looking
information. These statements are found in the sections entitled "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." They include statements concerning
our business strategy, liquidity and capital expenditures, use of proceeds from
this offering, our financing plans, trends in our industry, trends in government
regulation and the payment of dividends.
You can identify these statements by forward looking words such as
"expect," "believe," "goal," "plan," "intend," "estimate," "may" and "will" or
similar words. You should be aware that these statements are subject to known
and unknown risks, uncertainties and other factors, including those discussed in
the section entitled "Risk Factors," that could cause the actual results to
differ materially from those suggested by the forward looking statements. See
"Forward Looking Statements."
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in our common stock. You should carefully read the entire
prospectus, including the documents incorporated by reference into it,
particularly the section entitled "Risk Factors" and the consolidated financial
statements and the notes to the consolidated financial statements. In this
prospectus, "Laser Vision," "we," "us" and "our" refer to Laser Vision Centers,
Inc., including its divisions and consolidated subsidiaries.
OUR BUSINESS
We are one of the world's largest providers of excimer lasers, related
equipment and support services for the treatment of nearsightedness,
farsightedness and astigmatism. Our customers, who are eye surgeons, share
access to our equipment and pay us a fee for each procedure they perform. This
allows them to use sophisticated laser equipment without investment risk or
maintenance responsibility and allows us to more efficiently use our equipment.
We provide many of our eye surgeons with mobile excimer lasers that can be moved
from location to location. For eye surgeons who perform a high volume of laser
procedures, we provide excimer lasers at fixed sites. Our flexible delivery
system enlarges the pool of potential locations, eye surgeons and patients that
we can serve. We believe our flexible delivery system is our primary competitive
advantage since it allows us to effectively respond to changing market demands.
We also provide mobile equipment and support services for the treatment of
cataracts. We believe we are the world's largest provider of such cataract
equipment and services. Our mobile cataract business focuses on providing this
equipment and the related services to hospitals in smaller communities that do
not have a resident eye surgeon.
We began operating commercial excimer lasers in Canada in 1991, and
expanded into Europe in 1993 and the U.S. in 1995. As of January 31, 1999, we
operated 28 mobile excimer lasers and 15 fixed site excimer lasers serving over
490 eye surgeons in over 180 locations. In addition, as of January 31, 1999, we
operated 23 mobile cataract units serving over 140 eye surgeons in over 220
locations. Most of our revenue is generated in the U.S.
OUR INDUSTRY AND BUSINESS ARE GROWING
An industry source estimates that over 160 million Americans currently
require eyeglasses or contact lenses. Our excimer lasers and services directly
address the needs of most of this segment of the population. Industry sources
estimate that approximately 400,000 excimer laser procedures were performed in
the U.S. during 1998, an increase of 100% over the 200,000 procedures performed
during 1997. Industry sources project that the number of vision correction
surgeries will expand at an average annual rate of 40% to 50% over the next
several years. Additionally, cataract surgery is the most common therapeutic
surgical procedure performed on Americans age 65 and older. Over 1.3 million
cataract procedures are performed annually.
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We performed 40,003 excimer laser procedures for the nine months ended
January 31, 1999 representing a 105% gain over the 19,467 procedures performed
for the nine months ended January 31, 1998. Revenue increased to $33.6 million
for the nine months ended January 31, 1999 representing a 114% increase from
$15.7 million for the nine months ended January 31, 1998. Net income increased
to $3.6 million for the nine months ended January 31, 1999 from a net loss of
$3.6 million for the nine months ended January 31, 1998.
OUR EXCIMER LASER AND CATARACT SURGICAL PROCEDURES
Eye surgeons use our excimer lasers to eliminate or reduce the need for
eyeglasses or contact lenses by reshaping the curvature of the cornea. These
laser surgeries are performed on an outpatient basis without general anesthesia.
The typical procedure takes 15 to 30 minutes with actual excimer laser treatment
lasting less than 40 seconds.
Eye surgeons treat cataract disorders by removing the cloudy lens of the
eye and replacing it with a permanent implant lens. Cataract surgery is
generally an outpatient procedure which does not require general anesthesia. A
small, relatively inexpensive laser, known as a YAG laser, is often used in a
follow-up procedure three to four months after surgery to break up haziness
which can result from cataract surgery.
OUR STRATEGY
Our objective is to provide eye surgeons cost-effective access to excimer
lasers and other equipment used to treat nearsightedness, farsightedness,
astigmatism and cataracts. Our principal strategies to achieve this objective
include:
- Offering a flexible delivery system
- Increasing penetration in new and existing markets
- Maximizing the use of our equipment
- Providing value-added services to eye surgeons
- Expanding our products and services
RECENT DEVELOPMENTS
In September 1998 we acquired Refractive Surgical Resources, Inc. ("RSR")
for $468,000 in cash and $2.1 million in notes payable. We believe RSR is the
world's largest provider of microkeratome access. The microkeratome is a device
which allows eye surgeons to perform the most popular type of excimer laser
surgery. Prior to the acquisition, approximately 60% of procedures performed
with our lasers included Bausch & Lomb microkeratomes provided by RSR. RSR is
now fully integrated into our refractive operations and as of January 31, 1999
we operated 43 microkeratomes. With increased demand for excimer laser
procedures, the availability of microkeratomes has become limited. The RSR
acquisition has helped increase our access to the supply of microkeratomes
needed to meet customer demands.
In December 1998 we acquired Midwest Surgical Services, Inc. ("MSS") for
$3.8 million in cash and notes (including accrued dividends), and may be
required to pay up to approximately $8.3 million in additional consideration,
depending upon the performance of MSS through July 2001. MSS is a mobile
provider of access to all the equipment required to convert a certified surgical
suite into a cataract surgical suite. This acquisition expanded our range of
products and services. It also allows us to market our excimer laser services to
eye surgeons served by MSS, most of whom do not presently perform excimer laser
surgery.
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<PAGE> 6
THE OFFERING
Common stock offered:
By Laser Vision............... 1,000,000 shares
By the selling stockholders... 720,000 shares
Common stock outstanding after
the offering(1)(2).............. 12,017,134 shares
Use of proceeds by Laser
Vision.......................... Future payments relating to recent strategic
acquisitions, the purchase of additional
equipment, funding for possible future
strategic acquisitions, the expansion of
patient financing programs and working
capital and general corporate purposes. Laser
Vision will not receive any proceeds from the
sale of shares by the selling stockholders.
See "Use of Proceeds."
Nasdaq National Market symbol... LVCI
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(1) Assumes the sale of all shares offered by this prospectus, but does not
include any over-allotments. A total of 258,000 additional shares may be
sold by the underwriters through full exercise of their over-allotment
option.
(2) Does not include 2,897,120 shares reserved for issuance upon exercise of
outstanding options, warrants and convertible preferred stock.
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<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
The consolidated statement of operations data set forth below for the years
ended April 30, 1996, 1997 and 1998 are derived from the respective audited
consolidated financial statements of Laser Vision which are incorporated by
reference into and included in this prospectus. The statement of operations data
set forth below with respect to the years ended April 30, 1994 and 1995 are
derived from audited financial statements of Laser Vision which are not included
in or incorporated by reference into this prospectus. The following summary
interim financial data as of January 31, 1999 and for the nine months ended
January 31, 1998 and 1999 are unaudited and are derived from the interim
financial statements incorporated by reference and included in this prospectus.
In the opinion of management, the unaudited data have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for fair
presentation. Results for interim periods are not indicative of results for a
full year. The data set forth below should be read in conjunction with the
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.
The unaudited pro forma information for the fiscal year ended April 30, 1998
and the unaudited pro forma information for the nine months ended January 31,
1999 give effect to the acquisitions of RSR and MSS as if the acquisitions had
occurred as of May 1, 1997.
The as adjusted presentation below gives effect to the sale by us of
1,000,000 shares of common stock offered hereby at an assumed offering price of
$ , after deducting estimated underwriting discounts and commissions and
estimated offering expenses and including $3,257,297 which we will receive upon
exercise of 420,000 options and warrants to purchase common stock being offered
by certain selling stockholders.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED APRIL 30, JANUARY 31,
------------------------------------------------------------ -----------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1997 1998 1998 1998 1999 1999
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue............................ $ 2,106 $ 3,311 $ 3,918 $ 8,238 $23,469 $31,266 $15,666 $33,574 $39,805
Cost of revenue.................... 1,768 3,375 4,240 7,590 16,750 21,359 11,732 22,346 26,484
------- ------- ------- -------- ------- ------- ------- ------- -------
Gross profit (loss)................ 338 (64) (322) 648 6,719 9,907 3,934 11,228 13,321
Selling, general and administrative
expense........................... 2,238 3,144 5,831 9,719 9,592 12,377 7,078 7,927 9,704
Fixed asset impairment provision... -- -- 3,063 2,772 -- -- -- -- --
------- ------- ------- -------- ------- ------- ------- ------- -------
Income(loss) from operations....... (1,900) (3,208) (9,216) (11,843) (2,873) (2,470) (3,144) 3,301 3,617
Other income (expense)............. (310) (89) 413 (226) (623) (1,280) (479) (551) (884)
------- ------- ------- -------- ------- ------- ------- ------- -------
Net income (loss) before taxes..... (2,210) (3,297) (8,803) (12,069) (3,496) (3,750) (3,623) 2,750 2,733
Income tax benefit................. -- -- -- -- -- -- -- 802 802
------- ------- ------- -------- ------- ------- ------- ------- -------
Net income (loss).................. (2,210) (3,297) (8,803) (12,069) (3,496) (3,750) (3,623) 3,552 3,535
Preferred dividends................ -- -- (439) (126) (198) (198) (155) (122) (122)
------- ------- ------- -------- ------- ------- ------- ------- -------
Net income (loss) applicable to
common stockholders............... $(2,210) $(3,297) $(9,242) $(12,195) $(3,694) $(3,948) $(3,778) $ 3,430 $ 3,413
======= ======= ======= ======== ======= ======= ======= ======= =======
Net income (loss) per share --
basic............................. $ (0.66) $ (0.82) $ (1.75) $ (1.45) $ (0.40) $ (0.43) $ (0.42) $ 0.34 $ 0.34
Net income (loss) per share --
diluted........................... $ (0.66) $ (0.82) $ (1.75) $ (1.45) $ (0.40) $ (0.43) $ (0.42) $ 0.31 $ 0.31
Weighted average number of common
shares outstanding -- basic....... 3,356 4,001 5,278 8,421 9,178 9,178 9,055 9,987 9,987
Weighted average number of common
shares outstanding -- diluted..... 3,356 4,001 5,278 8,421 9,178 9,178 9,055 11,574 11,574
SELECTED OPERATING DATA:
Excimer laser procedures........... 3,217 4,494 4,677 9,703 29,408 29,408 19,467 40,003 40,003
</TABLE>
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JANUARY 31, 1999
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ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 8,272 $
Working capital............................................. 5,778
Total assets................................................ 49,895
Total debt, excluding current portion....................... 8,581
Accumulated deficit......................................... (28,455)
Total stockholders' equity.................................. 24,872
</TABLE>
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<PAGE> 8
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to purchase shares of our common stock.
SIGNIFICANT DECREASES IN EXCIMER LASER PRICES COULD HARM OUR BUSINESS BY MAKING
IT MORE ATTRACTIVE
FOR EYE SURGEONS TO BUY THEIR OWN LASERS AND BY FORCING US TO LOWER PRICES
A significant reduction in the price of excimer lasers could reduce demand
for our services by making it economically more attractive for eye surgeons to
buy excimer lasers for themselves instead of paying us a per procedure fee.
Also, excimer laser price decreases could force us to reduce our fees in
response to this reduction in demand or as a means to remain competitive with
other laser access providers. The excimer lasers we use currently have a retail
price of $525,000.
AN INCREASE IN THE NUMBER OF EYE SURGEONS WHO PERFORM ENOUGH EXCIMER LASER
PROCEDURES TO ECONOMICALLY JUSTIFY THE PURCHASE OF THEIR OWN LASERS MAY HARM OUR
BUSINESS
As excimer laser surgery becomes more commonplace, the number of eye
surgeons who can economically justify the purchase of their own laser may
increase. Unless the number of laser surgeries performed by eye surgeons who use
our services significantly increases as well, our business could be materially
harmed. Laser surgery is still a relatively new procedure for most eye surgeons,
and it generally takes time for eye surgeons to build up their case volume. Eye
surgeons who use our services perform an average of 20 to 30 procedures a month.
We estimate that an eye surgeon or practice group needs to perform approximately
60 procedures a month in one location in order to economically justify the
purchase of an excimer laser. This estimate is based upon a number of factors
including current prices for excimer lasers, current procedure fees charged by
eye surgeons and our current per procedure fee. This estimate does not take into
consideration the value an eye surgeon may place on our maintenance and support
services.
WE FACE INCREASING COMPETITION AND MUST CONTINUALLY ADAPT TO TECHNOLOGICAL
CHANGES AND
ADVANCES IN ORDER TO SUCCEED
The market for providing access to excimer lasers is increasingly
competitive. We also compete with other treatments for vision disorders,
including eyeglasses, contact lenses, incisional refractive surgery and corneal
rings. Further, we expect that our competitors may attempt to develop new
products that compete directly with the excimer lasers we use. In order to
compete successfully, we must adapt to technological changes and advances in the
treatment of vision disorders.
In certain markets, we compete with locally owned and operated laser
centers or eye surgeons who have purchased their own lasers and microkeratome
equipment. We compete with several other companies, including at least one
manufacturer of laser equipment, in providing access to excimer lasers. Four
excimer laser manufacturers have secured FDA approval and other manufacturers
are currently in the process of obtaining FDA approval for their lasers. These
manufacturers may choose to compete with us. LaserSight, Inc. and Autonomous
Technologies, Inc., manufacturers of excimer laser systems, have indicated that
they plan to compete with us. Non-manufacturing companies which compete with us
are:
- Clear Vision Laser Centers, Inc.
- LCA Vision, Inc.
- NovaMed Eyecare Management, LLC
- Omega Health Systems, Inc.
- Physicians Resource Group, Inc.
- TLC The Laser Center, Inc.
- Vision Twenty-One, Inc.
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<PAGE> 9
These or other companies could also introduce new or enhanced products with
features which would make our equipment obsolete or less marketable. For
example, KeraVision, Inc., a manufacturer of an implantable corneal ring for
correction of mild nearsightedness, recently received a recommendation for FDA
approval from an FDA advisory panel. Several other companies, including Staar
Surgical, Inc., are developing other implantable technology. Patients and
surgeons may choose other alternatives over our technology. If this occurs, we
may not be able to secure new equipment to allow us to compete effectively.
Patients in the U.S. pay from $1,500 to $2,500 per eye for excimer laser
surgery. However, future price levels may decline in response to competition.
This could cause our eye surgeon customers to seek lower pricing from us in
order to compete. We have experienced price cutting in Europe and Canada, where
the regulatory environment is less stringent and there are no per procedure
royalties paid to laser manufacturers, making it easier to offer lower pricing.
Price cutting may occur in the U.S. This could force us to lower prices, which
could negatively affect our revenue and profitability. For a more thorough
discussion of our competitors, see "Business -- Competition" at page 35.
EXCIMER LASER SURGERY MAY NOT ACHIEVE BROAD MARKET ACCEPTANCE WHICH WOULD LIMIT
OUR PROFITABILITY AND GROWTH
The failure of excimer laser surgery to achieve broad market acceptance
would have a material adverse effect on our business, financial condition and
results of operations. To date, excimer laser surgery has not achieved
widespread market acceptance. We cannot give you any assurance that excimer
laser surgery will be widely accepted by either the medical community or the
general population as an alternative to existing methods of treating vision
disorders. The acceptance of excimer laser surgery may be adversely affected by
the following:
- the cost of procedures which are not now generally reimbursed by
insurers or other third parties
- concerns about safety and effectiveness
- general resistance to surgery
- the effectiveness of alternative methods of correcting vision disorders
- the lack of long-term follow-up data
- the possibility of unknown side effects
Any adverse reactions or other unfavorable publicity involving patient
outcomes could also adversely affect public acceptance of excimer laser surgery.
Market acceptance could also be affected by the lack of a broad population of
eye surgeons trained in excimer laser surgery. Promotional efforts by suppliers
of products or procedures which are alternatives to excimer laser surgery
procedures, including eyeglasses and contact lenses, may also adversely affect
market acceptance.
THE LACK OF LONG-TERM FOLLOW-UP DATA AND POTENTIAL COMPLICATIONS OR SIDE EFFECTS
ASSOCIATED WITH EXCIMER LASER SURGERY COULD ADVERSELY AFFECT OUR BUSINESS
Long-term follow-up data could reveal additional complications that may
have a material adverse effect on acceptance of laser eye surgery. Concern over
the safety of excimer laser procedures could adversely affect market acceptance
of laser eye surgery or result in adverse regulatory action, including product
recalls. Any of these factors could have a material adverse effect on our
business, financial condition and results of operations.
Concerns with respect to the safety and effectiveness of excimer laser eye
surgery include predictability and stability of results. Potential complications
and side effects include:
- post-operative discomfort
- an increase in the light scattering properties of the cornea during
healing (corneal hazing)
- glare/halos (undesirable visual sensations produced by bright lights)
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<PAGE> 10
- decreases in contrast sensitivity
- temporary increases in pressure within the eye in reaction to medication
- modest fluctuations in focusing capabilities during healing
- modest decreases in best corrected vision (i.e., with corrective lenses)
- unintended over or under-corrections
- decline in corrective effect
- disorders of corneal healing, corneal scars and corneal ulcers
- induced astigmatism
INSURANCE COMPANIES DO NOT GENERALLY PROVIDE COVERAGE FOR ELECTIVE EYE SURGERY
WHICH COULD AFFECT MARKET ACCEPTANCE OF EXCIMER LASER SURGERY
Eye surgeons presently charge approximately $1,500 to $2,500 per eye for
excimer laser surgery. Health insurance companies generally do not offer
reimbursement for elective laser eye surgery. This lack of insurance
reimbursement could adversely affect market acceptance of these procedures and
our profitability. We cannot assure you that there will be any increase in the
availability of insurance coverage for laser eye surgery.
WE DEPEND ON LIMITED SOURCES OF EXCIMER LASERS, MICROKERATOMES AND DISPOSABLE
BLADES AND SHORTAGES OF THESE ITEMS COULD HINDER OUR ABILITY TO INCREASE THE
VOLUME OF OUR BUSINESS
We currently use only one supplier, VISX, Incorporated ("VISX") for our
excimer lasers. If VISX became unable or unwilling to supply their lasers,
repair parts or services to us, our business could be materially adversely
affected.
We are primarily dependent on Chiron Vision, a subsidiary of Bausch & Lomb,
Incorporated to provide the microkeratomes, blades and other disposable items we
need to perform the most popular type of excimer laser surgery. There are a
limited number of manufacturers of microkeratomes and there can be no assurance
that microkeratomes and microkeratome blades will be available in the amounts or
within the time frames we require. Any shortages in our supplies of this
equipment could limit our ability to increase our volume of excimer laser
surgeries.
WE HAVE A LIMITED HISTORY OF PROFITABLE OPERATIONS AND OUR PLANNED EXPANSION
COULD CAUSE NET LOSSES
We commenced operations in 1989 and have posted net losses in every fiscal
year since inception. We achieved profitability for the fourth quarter ended
April 30, 1998, posting $127,000 in net income before taxes. In the first,
second and third quarters of this fiscal year, we posted $333,000, $958,000, and
$1.5 million in net income before taxes. However, we may experience net losses
as a result of our planned expansion of U.S. operations, and we cannot assure
you that our recent profitability will be ongoing.
OUR QUARTERLY RESULTS OF OPERATIONS ARE AFFECTED BY RECOGNITION OF VARIOUS
DEFERRED TAX ASSETS
The amount of tax benefit or expense we recognize in the future may
fluctuate significantly and will depend upon our estimates of future taxable
income. If we can increase our estimates of future taxable income because of
continued earnings, we may be able to record additional tax benefits. However,
if we are unable to sustain our current level of profitability, we may have to
decrease our estimates of future taxable income and reverse the net tax benefit
previously recorded.
In prior fiscal years, we generated significant net operating losses, which
are available to be carried forward for a limited number of years to offset
against future taxable income. Due to our history of losses, we could not
previously conclude that there would be any future taxable income with which to
offset the net operating loss carry forwards prior to their expiration. As a
result, no net tax benefit was recorded for the tax effect of the net operating
loss carry forwards until the quarter ended January 31, 1999.
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<PAGE> 11
For the nine months ended January 31, 1999, we had net income before taxes
of $2.8 million. Because we have now reached a significant level of
profitability and have had four consecutive quarters of profitable operations,
we are for the first time able to conclude under generally accepted accounting
principles that we will likely have taxable income in the future. Accordingly,
we have recorded a tax benefit for the portion of the net operating loss carry
forwards that we believe will likely be used in the next fiscal year.
WE HAVE EXPERIENCED QUARTERLY FLUCTUATIONS IN OPERATING RESULTS WHICH MAY MAKE
QUARTER-TO-QUARTER COMPARISONS UNRELIABLE
We are a relatively new business that has experienced substantial growth in
our short history. Our results of operations have varied and may continue to
fluctuate significantly from quarter to quarter. Therefore, quarter-to-quarter
comparisons of our operating results are not necessarily meaningful and should
not be relied upon as indications of likely future performance or annual
operating results.
Our operating results will depend upon numerous factors, including:
- price and cost per procedure
- the number of lasers in operation and fluctuations in the number of
locations we serve
- the purchase and deployment of additional lasers and other equipment
- competition
- seasonal factors
OUR STOCK PRICE HAS BEEN VOLATILE AND FLUCTUATIONS IN OUR STOCK PRICE MAY RECUR
The market price of our common stock has historically been subject to
substantial price volatility. Such volatility may recur due to overall market
conditions or factors such as:
- our ability to effectively penetrate the excimer laser and cataract
surgery markets
- new products and technological changes and advances
- changes in government regulations
- developments with respect to patent or proprietary rights
- concerns with regard to the safety and effectiveness of eye surgery
- new or changed stock market analyst reports and recommendations
- our ability to meet analysts' projections
- fluctuations in our financial results
In addition, our common stock could experience significant fluctuations in
market price which are unrelated to our operating performance.
WE MAY EXPERIENCE DIFFICULTIES IN ACQUIRING OR INTEGRATING OTHER COMPANIES WHICH
COULD IMPAIR OUR BUSINESS
As part of our business, we may pursue acquisitions of complementary
companies, products and technologies. Our growth may be impeded to the extent
that we encounter difficulties in pursuing such acquisitions.
We may experience increased competition for acquisition candidates. This
would mean that fewer acquisition opportunities would be available to us and
that acquisition prices could increase. Additionally, businesses that we acquire
could experience problems that we are not aware of at the time of the
acquisitions. Such problems might include unknown liabilities, Year 2000
problems, software bugs or adverse litigation or claims.
10
<PAGE> 12
Integrating the management and operations of the businesses we acquire is
time consuming. We cannot guarantee that we will achieve any of the anticipated
synergies and other benefits we expect to realize from acquisitions, including
those reflected in our unaudited pro forma financial data. We may face the
following difficulties as a result of business integration:
- difficulty integrating the financial, operational and administrative
functions of acquired businesses
- difficulty integrating the products and services of acquired businesses
- delays in realizing the benefits of our strategies for acquired
businesses
- diversion of management's attention from our existing operations
- difficulty operating in markets in which we have little experience
- inability to retain customers of acquired businesses
- inability to retain key employees necessary to continue the operations
of acquired businesses
We may incur significant costs associated with acquisitions, principally in
the quarter in which we complete them. We expect such costs to include:
- the direct costs of acquisitions, including fees to financial advisors,
legal counsel and independent accountants
- charges related to the elimination of overlapping operations, products
and services
WE MAY EXPERIENCE DIFFICULTIES IN MANAGING OUR GROWTH WHICH COULD ADVERSELY
AFFECT OUR BUSINESS
To accommodate our recent growth, we will need to implement a variety of
new or expanded business and financial systems, procedures and controls,
including the improvement of our accounting, marketing and other internal
management systems. There can be no assurance that such systems, procedures and
controls can be successfully implemented without disruption of our operations.
Our expansion could significantly strain our management, financial and other
resources. In addition, we have hired and may need to hire substantial numbers
of new employees. We cannot assure you that our systems, procedures, controls
and staffing will be adequate to support our operations. Failure to manage our
growth effectively could have a material adverse effect on our business,
financial condition and results of operations.
WE DEPEND UPON OUR MANAGEMENT
Our success depends in part on our ability to recruit and retain certain
key personnel. The loss of the services of certain members of management, or
other key personnel could have a material adverse effect on Laser Vision. Laser
Vision is the beneficiary of $2.0 million and $1.0 million key-man life
insurance policies on certain members of management, but there can be no
assurance that the benefits under these policies will be sufficient to
compensate us for the loss of the services of any such persons.
OUR BUSINESS MAY BE IMPAIRED DUE TO GOVERNMENT REGULATIONS WHICH COULD RESTRICT
OUR EQUIPMENT, SERVICES AND RELATIONSHIPS WITH EYE SURGEONS
We and laser manufacturers are subject to extensive federal, state, local
and foreign laws, rules and regulations, including:
- restrictions on medical devices
- anti-kickback statutes
- fee-splitting laws
- corporate practice of medicine restrictions
- self-referral laws
- anti-fraud provisions
- facility license requirements and certificates of need
11
<PAGE> 13
- conflict of interest regulations
- sales and use taxes
Many of these laws and regulations are ambiguous, and courts and regulatory
authorities have provided little clarification. Moreover, state and local laws
vary from jurisdiction to jurisdiction. As a result, we may not always be able
to accurately interpret applicable law, and some of our activities could be
challenged.
We cannot control the activities of our suppliers. Their failure to obtain
regulatory approvals for additional uses of lasers or otherwise comply with
regulatory requirements could have a material adverse effect on our business,
financial condition or results of operations.
The regulatory environment in which we operate may change significantly in
the future. Numerous legislative proposals have been introduced in Congress and
in various state legislatures over the past several years that could cause major
reforms of the U.S. health care system. We cannot predict whether any of these
proposals will be adopted or how they might affect our business. New or revised
legislation could have a material adverse effect on our business, financial
condition and results of operations.
For a more thorough description of these laws and regulations, see
"Business -- Government Regulation" at page 36.
WE MAY EXPERIENCE ADVERSE EFFECTS FROM THE FDA INVESTIGATION OF THE
INTERNATIONAL CARD
On March 11, 1998, we were served with a subpoena by the U.S. Department of
Justice pertaining to an investigation of the so-called "international card"
software. We have provided the documents requested by the subpoena and intend to
continue to fully cooperate in this matter. This investigation could have a
material adverse effect on our business, financial condition and results of
operations. For more information on the investigation see "Legal Proceedings" at
page 39.
Failure to comply with applicable FDA requirements could subject us, our
eye surgeon customers or laser manufacturers to enforcement actions, including
product seizure, recalls, withdrawal of approvals and civil and criminal
penalties. Any such enforcement action could have a material adverse effect on
our business, financial condition and results of operations. Further, failure to
comply with regulatory requirements, or any adverse regulatory action could
result in limitations or prohibitions on our use of excimer lasers. This could
have a material adverse effect on our business, financial condition and results
of operations.
OUR MOBILE SYSTEM MAY BE SUBJECT TO FUTURE RESTRICTIONS WHICH COULD IMPEDE OUR
ABILITY TO INCREASE OR MAINTAIN THE VOLUME OF OUR BUSINESS
We rely on a motorized, air suspension platform as a major component of our
mobile strategy. We believe that this transport system does not require FDA
approval and the FDA has taken no position in regard to such approval. The FDA
could, however, take the position that excimer lasers are not approved for use
in this transport system. Such a view by the FDA could lead to an enforcement
action against us, which could impede our ability to maintain or increase our
volume of excimer laser surgeries. This could have a material adverse effect on
our business, financial condition and results of operations.
COMPETITORS MAY ATTEMPT TO USE OUR EXCLUSIVE INTELLECTUAL PROPERTY OR
PROPRIETARY TECHNOLOGY WHICH COULD WEAKEN OUR COMPETITIVE ADVANTAGES
We have secured patents for portions of the equipment we use to transport
our mobile lasers. Our patents and other proprietary technology offer us a
competitive advantage in the marketplace and are important to our success. Our
patents could be challenged, invalidated or circumvented in the future.
Litigation regarding intellectual property is common and our servicemark
registrations and patents may not adequately protect our intellectual property.
The defense and prosecution of intellectual property proceedings is costly and
involves substantial commitments of management time. Failure to successfully
12
<PAGE> 14
defend our rights with respect to our intellectual property could have a
material adverse effect on our business, financial condition and results of
operations.
THE YEAR 2000 COULD NEGATIVELY AFFECT THE COMPUTER PROGRAMS AND SYSTEMS UPON
WHICH WE DEPEND
Many currently installed computer systems, software programs and embedded
chips were designed to use only a two digit date field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. Until the date fields are updated, systems and programs
could fail or give erroneous results when referencing dates following December
31, 1999. Such failures or errors could occur prior to the actual turn of the
century. We rely on computer applications to manage and monitor our accounting,
sales, development and administrative functions. Further, the sophisticated
equipment that we provide to our clients is dependent on computer applications
and embedded technology for its operation. In addition, our customers, suppliers
and service providers are reliant upon computer applications, some of which may
contain technology which will fail as a result of the upcoming change in
century. Such failures could affect the interactions of these third parties with
Laser Vision. While we do not believe our computer systems, applications or
embedded technologies currently in use will be materially adversely affected by
the upcoming change in century, we or our technology may be adversely affected
by the change in century. Failure of our software, hardware or embedded
technology or that of our customers, suppliers or service providers could have a
material adverse impact on our business, financial condition and results of
operations. For a more detailed discussion of Year 2000 readiness issues, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance" at page 26.
WE MAY BE SUBJECT TO PRODUCT LIABILITY AND PROFESSIONAL LIABILITY CLAIMS
A partially or completely uninsured claim against us could have a material
adverse effect on our business, financial condition and results of operations.
The procedures performed with our equipment involve the potentially significant
risk of physical injury to patients. Such risk could result in product
liability, malpractice or other claims brought against us based upon injuries or
alleged injuries associated with a defect in a product's performance or
malpractice by a physician or technician. Some injuries or defects may not
become evident for a number of years. Therefore, the operation of any excimer
laser, microkeratome or cataract equipment may result in substantial claims
against us by patients who allege they were injured as a result of surgical
procedures. Although we have "umbrella" product and professional liability
insurance in the amount of $1.0 million/$5.0 million (per occurrence and
aggregate), we primarily rely and intend to continue to rely on physicians'
professional liability insurance policies and manufacturers' insurance policies
for product liability coverage. We require our eye surgeon customers to maintain
certain levels of professional liability insurance, and our agreements with eye
surgeon customers contain certain cross-indemnification provisions. We cannot
assure you that these eye surgeons will carry sufficient insurance.
THE SHARE VALUE OF OUR COMMON STOCK MAY DROP
Sales of substantial amounts of common stock in the public market following
this offering, or the perception that such sales will occur, could cause the
market price of our common stock to drop. These factors could also make it more
difficult for us to raise funds through future offerings of common stock.
There will be 12,017,134 shares of common stock outstanding immediately
after this offering. Of these shares, 11,229,706 will be freely transferable
without restriction or further registration under the Securities Act unless held
by affiliates, as defined under Rule 144 under the Securities Act. As of
February 24, 1999, an additional 2,897,120 shares of common stock were reserved
for issuance upon exercise of outstanding options, warrants and convertible
preferred stock. These shares of common stock have been registered and will be
freely transferable by non-affiliates upon exercise. For a more in-depth
discussion of these shares see "Shares Eligible for Future Sale".
13
<PAGE> 15
In connection with this offering, Laser Vision, its directors, executive
officers and certain of its shareholders have agreed not to sell any shares of
common stock without the consent of A.G. Edwards & Sons, Inc. for 90 days after
the date of this prospectus. For further information on the underwriting
arrangements see "Underwriting".
WE HAVE NEVER DECLARED OR PAID DIVIDENDS AND YOU SHOULD NOT EXPECT TO RECEIVE
DIVIDENDS IN THE FUTURE
We have never declared or paid any cash dividends. We anticipate that for
the foreseeable future we will follow a policy of not declaring dividends and
instead retaining earnings, if any, for use in our business.
14
<PAGE> 16
THE COMPANY
Laser Vision is incorporated in Delaware. Our principal executive offices
are located at 540 Maryville Centre Drive, Suite 200, St. Louis, Missouri 63141,
and our telephone number is (314) 434-6900.
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$ (approximately $ if the underwriters' over-allotment option
is exercised in full). We base this estimate on an assumed public offering price
of $ per share, the closing price of the common stock on the Nasdaq National
Market on , 1999. We have deducted estimated underwriting discounts
and commissions and estimated offering expenses. We will not receive any of the
proceeds from the sale of common stock by the selling stockholders.
While we currently have no specific plan for the net proceeds we will
receive from this offering, the principal reasons for this offering are:
- future payments relating to recent strategic acquisitions
- the purchase of additional equipment
- funding for possible future strategic acquisitions
- the expansion of patient financing programs
- working capital and general corporate purposes
We currently have no agreements or understandings with respect to any
material future acquisition. Until we use the proceeds for business purposes, we
intend to invest the net proceeds from this offering in short-term, government
securities and other investment-grade, interest-bearing securities.
15
<PAGE> 17
PRICE RANGE OF COMMON STOCK
Since 1996 the common stock has been traded on the over-the-counter market
through the Nasdaq National Market under the symbol "LVCI." Prior to that time,
our common stock was traded on the over-the-counter market through the Nasdaq
SmallCap Market, and on the Boston Stock Exchange.
The following table sets forth the high and low sale prices of the common
stock as reported by the Nasdaq National Market for the period commencing
November 18, 1996, and the high and low bid prices of the common stock on the
Nasdaq SmallCap Market for the period from May 1, 1995 to November 15, 1996. The
Nasdaq SmallCap Market prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not reflect actual transactions.
<TABLE>
<CAPTION>
PRICE RANGE
------------------
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED APRIL 30, 1996
First Quarter............................................. $ 8.750 $ 7.875
Second Quarter............................................ 16.375 8.500
Third Quarter............................................. 16.875 11.375
Fourth Quarter............................................ 15.250 12.375
FISCAL YEAR ENDED APRIL 30, 1997
First Quarter............................................. $14.500 $ 7.000
Second Quarter............................................ 9.125 6.875
Third Quarter............................................. 7.625 4.938
Fourth Quarter............................................ 6.625 5.125
FISCAL YEAR ENDED APRIL 30, 1998
First Quarter............................................. $ 8.250 $ 6.000
Second Quarter............................................ 10.063 6.750
Third Quarter............................................. 9.000 6.500
Fourth Quarter............................................ 14.500 6.875
FISCAL YEAR ENDING APRIL 30, 1999
First Quarter............................................. $16.875 $10.125
Second Quarter............................................ 13.125 8.500
Third Quarter............................................. 29.500 10.750
Fourth Quarter (through February 24, 1999)................ 32.188 25.250
</TABLE>
On , 1999, the last reported sale price of the common stock on
the Nasdaq National Market was $ per share. As of such date, there were
approximately holders of record of the common stock.
16
<PAGE> 18
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the unaudited capitalization of Laser Vision
as of January 31, 1999 and as adjusted to reflect the estimated net proceeds to
Laser Vision from this offering and $3,257,297 from the exercise of 420,000
warrants and options by certain selling stockholders. We base this estimate on
an assumed public offering price of $ per share, the closing price of the
common stock on the Nasdaq National Market on , 1999 and the
application of the estimated net proceeds from this offering. The table set
forth below should be read in conjunction with the consolidated financial
statements, related notes and other financial information included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 8,272 $
======= =======
Current portion of notes payable and capitalized lease
obligations............................................... 6,816
======= =======
Non-current portion of notes payable and capitalized lease
obligations............................................... 8,581
------- -------
Stockholders' equity:.......................................
Preferred stock: 6,000 shares of Series B Convertible
issued at $1,000 par value, 3,250 shares outstanding
(includes preferred dividends)......................... 3,512
Common stock par value $.01 per share: 50,000,000 shares
authorized, 10,568,694 (11,988,694, as adjusted) issued
and outstanding(1)..................................... 106
Warrants and options...................................... 1,387
Paid-in-capital........................................... 48,322
Accumulated deficit....................................... (28,455) ( )
------- -------
Total stockholders' equity.................................. 24,872
------- -------
Total capitalization...................................... $33,453 $
======= =======
</TABLE>
- ---------------
(1) Does not include any over-allotments which may be included as part of this
offering and 2,897,120 shares reserved for issuance upon exercise of
options, warrants and convertible preferred stock.
17
<PAGE> 19
DILUTION
The tangible book value of Laser Vision at January 31, 1999 was
approximately $ , or approximately $ per share of common stock. Net
tangible book value represents the amount of Laser Vision's tangible assets less
total liabilities, divided by the total number of shares of common stock
outstanding.
Dilution per share represents the difference between the amount per share
paid by investors in this offering and the net tangible book value per share at
, 1999 as adjusted to give effect to this offering. After giving
effect to the sale of the shares of common stock by Laser Vision hereby at an
assumed offering price of $ per share (the closing price on February ,
1999) and the receipt and application of the estimated net proceeds therefrom
(approximately $ million after deducting underwriting discounts and
commissions and estimated offering expenses payable by Laser Vision) the net
tangible book value of Laser Vision on a pro forma as adjusted basis as of
, 1999 would have been $ or $ per share of common stock. This
represents an immediate increase in net tangible book value of $ per share
to existing shareholders and an immediate dilution of $ per share to
purchasers participating in this offering.
The following table illustrates the dilution per share described above:
<TABLE>
<S> <C> <C>
Offering price per share of common stock.................... $
Net tangible book value per share at January 31,
1999.................................................. $
Increase in net tangible book value per share
attributable to the issue of shares of common stock... $
-------
Pro forma net tangible book value per share after the issue
of shares of common stock................................. $
-------
Dilution per share to investors in this offering............ $
-------
</TABLE>
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
The consolidated statement of operations data set forth below for the years
ended April 30, 1996, 1997 and 1998 and the balance sheet data at April 30, 1997
and 1998 are derived from the respective audited consolidated financial
statements of Laser Vision which are incorporated by reference and included in
this prospectus. The statement of operations data set forth below with respect
to the years ended April 30, 1994 and 1995 and the balance sheet data at April
30, 1994, 1995 and 1996 are derived from the audited financial statements of
Laser Vision which are not included or incorporated by reference in this
prospectus. The following summary interim financial data as of January 31, 1999
and for the nine months ended January 31, 1998 and 1999 are unaudited and are
derived from the interim financial statements incorporated by reference and
included in this prospectus. In the opinion of management, the unaudited data
have been prepared on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation. Results for interim periods are
not indicative of results for a full year. The data set forth below should be
read in conjunction with the consolidated financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEARS ENDED APRIL 30, JANUARY 31,
------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................................. $ 2,106 $ 3,311 $ 3,918 $ 8,238 $ 23,469 $ 15,666 $ 33,574
Cost of revenue......................................... 1,768 3,375 4,240 7,590 16,750 11,732 22,346
------- ------- ------- -------- -------- -------- --------
Gross profit (loss)..................................... 338 (64) (322) 648 6,719 3,934 11,228
Selling, general and administrative expense............. 2,238 3,144 5,831 9,719 9,592 7,078 7,927
Fixed asset impairment provision........................ -- -- 3,063 2,772 -- -- --
------- ------- ------- -------- -------- -------- --------
Income (loss) from operations........................... (1,900) (3,208) (9,216) (11,843) (2,873) (3,144) 3,301
Other income (expense)..................................
Interest income and other.............................. 21 37 437 268 377 257 306
Interest expense....................................... (156) (242) (216) (597) (1,000) (736) (835)
Minority interest in net (income) loss of subsidiary... -- 116 192 103 -- -- (22)
Provision for loss on advance.......................... (175) -- -- -- -- -- --
------- ------- ------- -------- -------- -------- --------
Other income (expense), net............................. (310) (89) 413 (226) (623) (479) (551)
------- ------- ------- -------- -------- -------- --------
Net income (loss) before taxes.......................... (2,210) (3,297) (8,803) (12,069) (3,496) (3,623) 2,750
Income tax benefit...................................... -- -- -- -- -- -- 802
------- ------- ------- -------- -------- -------- --------
Net income (loss)....................................... (2,210) (3,297) (8,803) (12,069) (3,496) (3,623) 3,552
Preferred dividends..................................... -- -- (439) (126) (198) (155) (122)
------- ------- ------- -------- -------- -------- --------
Net income (loss) applicable to common stockholders..... $(2,210) $(3,297) $(9,242) $(12,195) $ (3,694) $ (3,778) $ 3,430
======= ======= ======= ======== ======== ======== ========
Net income (loss) per share -- basic.................... $ (0.66) $ (0.82) $ (1.75) $ (1.45) $ (0.40) $ (0.42) $ 0.34
Net income (loss) per share -- diluted.................. $ (0.66) $ (0.82) $ (1.75) $ (1.45) $ (0.40) $ (0.42) $ 0.31
Weighted average number of common shares outstanding --
basic.................................................. 3,356 4,001 5,278 8,421 9,178 9,055 9,987
Weighted average number of common shares outstanding --
diluted................................................ 3,356 4,001 5,278 8,421 9,178 9,055 11,574
SELECTED OPERATING DATA:
Excimer laser procedures................................ 3,217 4,494 4,677 9,703 29,408 19,467 40,003
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
------------------------------------------------- JANUARY 31,
1994 1995 1996 1997 1998 1999
------ ------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 706 $ 2,126 $ 12,672 $ 3,794 $ 8,430 $ 8,272
Working capital (deficit)................................... (244) (1,301) 10,002 1,654 5,554 5,778
Total assets................................................ 9,135 11,318 28,913 22,870 30,829 49,895
Total debt, excluding current portion....................... 2,464 406 1,375 6,133 6,585 8,581
Convertible preferred stock with mandatory redemption
provision in 2005.......................................... -- -- 14,539 -- -- --
Accumulated deficit......................................... (4,342) (7,639) (16,442) (28,511) (32,007) (28,455)
Total stockholders' equity.................................. 4,594 6,349 7,453 10,276 15,493 24,872
</TABLE>
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
interim and unaudited pro forma financial statements and related notes and the
consolidated financial statements of Laser Vision and related notes included
elsewhere in this prospectus. This discussion contains forward looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in the section
entitled "Risk Factors."
OVERVIEW
Laser Vision was incorporated in Delaware in 1988 and initially provided
medical advertising and marketing services in the U.S., primarily to eye
surgeons. By 1991, we shifted our strategic emphasis to emerging eye surgery
technology based on the use of excimer lasers.
After purchasing our first excimer laser, we determined that FDA approval
for laser surgery in the U.S. would require a lengthier process than originally
anticipated. As a result, we decided to enter the international market for laser
surgery where regulatory restrictions were less prohibitive. Between late 1991
and mid-1992, we acquired three commercial laser centers in Canada and began
developing the first MobilExcimer system. In July 1993, we opened a fourth
Canadian center and purchased six excimer lasers installed in Europe. In April
1994, we acquired eight additional lasers installed in Europe. The first
procedure on our MobilExcimer system was performed in Ontario, Canada in
September 1994. For a description of our mobile systems, see "Business -- Mobile
Systems" at page 32.
In December 1994, Laser Vision became the primary provider of excimer
lasers to Columbia/HCA ambulatory surgery centers. In addition, by the fall of
1995, we extended testing of our MobilExcimer system to England, opened two
European centers and acquired an additional MobilExcimer unit.
In October 1995 and March 1996, the FDA approved the use of the excimer
lasers manufactured by Summit Technology, Inc. ("Summit") and VISX to treat low
to moderate nearsightedness. This made it possible for us to begin providing
U.S. eye surgeons with access to excimer lasers. In the nine months ended
January 31, 1996, we opened three fixed site laser centers in the U.S. During
the quarter ended April 30, 1996, we purchased assets from a former competitor
for approximately $300,000 in cash to expand our European operations and used
our MobilExcimer system to service and consolidate a number of European
locations which had previously been fixed sites.
At the beginning of fiscal 1997, it was clear that the domestic market for
excimer laser surgery was developing more slowly than most experts had
anticipated. In 1997 and 1998, we responded by expanding our capacity to provide
mobile services through the development of our flexible delivery system which
includes our "Roll-On/Roll-Off" method of providing laser equipment to surgeons
as well as our strategy involving selected fixed site locations. Consequently,
we converted the majority of our fixed site lasers (including those located at
Columbia/HCA ambulatory surgery centers) to Roll-On/Roll-Off use. The
Roll-On/Roll-Off delivery system increased our flexibility to serve multiple
sites and allowed us to more efficiently use our equipment.
During the last two years we have closed centers and consolidated
operations outside of the U.S. We anticipate further declines in the
significance of our international operations both relative to our U.S. business
and in terms of total revenue. We believe that our services are not as
attractive internationally because foreign health care consumers seem less
willing to pay for procedures which are not reimbursed by health care plans. We
continue to concentrate our efforts primarily on small to medium sized markets
in the U.S. which we believe provide the best opportunities for growth.
20
<PAGE> 22
REVENUE RECOGNITION
We recognize revenue at the time services are rendered for surgical
procedures performed with our excimer laser and cataract equipment. Revenue is
primarily affected by the amount of equipment we put in service and by the
volume of procedures performed.
Our cost of revenue includes all fixed and variable expenses relating to
the operations of our businesses. The principal components of these costs
include royalty fees paid to laser equipment manufacturers, depreciation of
equipment used, professional medical services and supplies, salaries for
engineers and technicians and transportation costs.
NINE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THE NINE MONTHS ENDED JANUARY 31,
1998
Laser Vision has continued to provide excimer laser access to additional
sites throughout the U.S. In addition, the acquisition of RSR has enabled us to
provide microkeratome access and the acquisition of MSS has allowed us to
provide cataract services.
Revenue
Total revenue increased by 114% or $17.9 million to $33.6 million for the
nine months ended January 31, 1999 from $15.7 million for the nine months ended
January 31, 1998.
The increase is attributable to higher domestic refractive revenue of $16.2
million, cataract revenue of $1.3 million and a $379,000 increase in marketing
and training revenue. The increase in domestic revenue is attributable to the
increased number of procedures performed on each laser in the U.S., the addition
of new lasers, and the RSR acquisition. The cataract revenue is attributable to
the acquisition of MSS.
Cost of Revenue/Gross Profit (Loss)
Cost of revenue increased by 90% or $10.6 million to $22.3 million for the
nine months ended January 31, 1999 from $11.7 million for the nine months ended
January 31, 1998. Royalty fees and medical services increased to $11.4 million
from $5.4 million in these respective periods due to the increased number of
procedures performed in the U.S. Depreciation increased by 21% or $661,000 to
$3.9 million from $3.2 million in these respective periods. This was primarily
due to an increase in lasers and mobile equipment in the U.S. partially offset
by decreased amortization of a management services contract which has been
terminated.
Other costs of revenue increased by 126% or $3.9 million to $7.0 million
for the nine months ended January 31, 1999 from $3.1 million for the nine months
ended January 31, 1998. This was primarily due to increased costs, including
mobile laser operator salaries, travel and set-up related costs of $2.2 million,
an increase in medical supplies of $479,000 and an increase in laser and
equipment maintenance costs of $511,000. Other costs of revenue related to
cataract services were $660,000.
Total gross profit improved by 185% or $7.3 million to $11.2 million for
the nine months ended January 31, 1999 from $3.9 million for the nine months
ended January 31, 1998. The variable gross profit, excluding depreciation,
increased to $15.1 million from $7.2 million. This was primarily due to an
increase in the number of laser procedures performed in the U.S. and the MSS and
RSR acquisitions. As a percentage of total revenue, total gross profit increased
to 33% from 25% for the nine months ended January 31, 1999 and 1998,
respectively.
Operating Expense
Selling, general and administrative expense increased by 12% or $849,000 to
$7.9 million for the nine months ended January 31, 1999 from $7.1 million for
the nine months ended January 31, 1998. This is primarily attributable to an
increase of $329,000 related to the MSS acquisition and an increase of $876,000
in salaries and related expenses partially offset by a decrease of $75,000 in
general and administrative expenses and a decrease of $302,000 in selling and
marketing expenses. As a percentage of
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total revenue, operating expense decreased from 45% to 24% for the nine months
ended January 31, 1998 and 1999, respectively.
Income (Loss) from Operations
Income from operations increased by $6.4 million to $3.3 million during the
nine months ended January 31, 1999 from a loss of $3.1 million during the nine
months ended January 31, 1998. This was primarily due to the increased volume of
domestic refractive procedures. As a percentage of total revenue, income from
operations was 10% for the nine months ended January 31, 1999.
Other Income (Expense)
Higher interest expense and minority interest in net income of subsidiary
partially offset by higher interest income caused a 15% or $72,000 increase to a
net $551,000 in other expense during the nine months ended January 31, 1999 from
a net $479,000 in other expense during the nine months ended January 31, 1998.
This was due to higher interest costs associated with financing costs for
capital expenditures and the acquisitions of RSR and MSS.
Net Income (Loss)
Net income increased by $7.2 million to $3.6 million for the nine months
ended January 31, 1999 from a net loss of $3.6 million for the nine months ended
January 31, 1998. This was primarily attributable to the increased volume of
domestic refractive procedures and the recognition of deferred income tax
benefits. As a percentage of total revenue, net income was 11% for the nine
months ended January 31, 1999.
FISCAL YEAR ENDED APRIL 30, 1998 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1997
During the year ended April 30, 1998, we continued to develop the U.S.
market by targeting eye surgeons in medium-sized markets. We served these
markets primarily with our newly developed Roll-On/Roll-Off mobile system.
Revenue. Total revenue increased by 185% or $15.2 million to $23.5 million
for the year ended April 30, 1998 from $8.2 million for the year ended April 30,
1997.
The increase in revenue was attributable to a $15.4 million increase in
domestic revenue, which included a $211,000 decrease in European and Canadian
revenue. The increase in domestic revenue was attributable to an increase both
in the number of U.S. lasers in operation and the number of procedures performed
on each laser in the U.S. The decrease in European and Canadian revenue was
attributable to the closing of certain unprofitable fixed sites and the
conversion of most of them to mobile sites during the year.
Cost of Revenue/Gross Profit. Cost of revenue increased by 121% or $9.2
million to $16.8 million for the year ended April 30, 1998 from $7.6 million for
the year ended April 30, 1997. This was primarily due to an increase of $5.4
million in total domestic per procedure royalties, an increase of $2.0 million
in mobile laser operator salaries and travel costs, an increase of $963,000 in
depreciation expense and an increase of $894,000 in professional medical
services costs.
Total gross profit increased by 937% or $6.1 million to $6.7 million for
the year ended April 30, 1998 from $648,000 for the year ended April 30, 1997.
The variable gross profit, excluding depreciation, increased by 171% or $7.0
million to $11.2 million from $4.1 million for the year ended April 30, 1997.
This was primarily due to higher volumes of procedures at an increased number of
sites. As a percentage of total revenue, total gross profit increased to 29%
from 8% for the years ended April 30, 1998 and 1997, respectively.
Operating Expense. Selling, general and administrative expense decreased
by 1% or $127,000 to $9.6 million for the year ended April 30, 1998 from $9.7
million for the year ended April 30, 1997.
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Decreases for the year ended April 30, 1998 in general and administrative
expense of $310,000 and selling and marketing expense of $839,000 were partially
offset by increases in salaries and related expenses of $970,000 and
depreciation and amortization expense of $52,000.
Income (Loss) from Operations. The loss from operations decreased by 76%
or $9.0 million to $2.9 million for the year ended April 30, 1998 from $11.8
million for the year ended April 30, 1997. This was primarily due to the gross
profit earned on the increase in U.S. revenues, a decrease in fixed asset
impairment provisions of $2.7 million and the reduced operating loss from the
international operations.
Other Income (Expense). Other income (expense) increased by 176% or
$397,000 to a net expense of $623,000 for the year ended April 30, 1998 from a
net expense of $226,000 for the year ended April 30, 1997. This increase was
primarily due to an increase of $403,000 in interest expense.
FISCAL YEAR ENDED APRIL 30, 1997 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1996
During the year ended April 30, 1997, we focused on the development of the
U.S. market. During the last quarter of fiscal 1997 we began aggressively
pursuing our mobile strategy in the U.S. by redeploying several of our fixed
site lasers and utilizing our newly developed Roll-On/Roll-Off strategy.
Revenue. Total revenue increased by 110% or $4.3 million to $8.2 million
for the year ended April 30, 1997 from $3.9 million for the year ended April 30
1996. The increase in total revenue was attributable to a $3.9 million increase
in U.S. revenue and a $776,000 increase in European revenue. The increase in
U.S. revenue for the LaserVision Centers division was attributable primarily to
the increased number of lasers in operation and procedures performed on each
laser in the U.S. The increase in European revenue was attributable to the
increased number of procedures performed in the Solihull and Edinburgh centers
and the increased number of procedures performed on the MobilExcimer system.
Cost of Revenue/Gross Profit (Loss). Cost of revenue increased by 79% or
$3.4 million to $7.6 million for the year ended April 30, 1997 from $4.2 million
for the year ended April 30, 1996. This increase was primarily attributable to a
$1.5 million or 76% increase in depreciation expense to $3.5 million from $2.0
million in these respective periods due to the increased inventory of lasers and
other medical equipment.
Excluding laser and medical equipment depreciation expense, cost of revenue
increased by 82% or $1.9 million from $2.3 million to $4.1 million for the years
ended April 30, 1996 and 1997 respectively. This $1.9 million increase was
primarily due to an increase of $1.1 million in total domestic per procedure
royalties, $548,000 in professional medical services, $142,000 in laser gas
costs on higher volumes of laser procedures and the addition of certain new
centers.
Total gross profit increased by 301% or $970,000 to $648,000 for the year
ended April 30, 1997 from a loss of $322,000 for the year ended April 30, 1996.
The variable gross profit, excluding depreciation, increased to $4.1 million in
the year ended April 30, 1997 from $1.7 million in the year ended April 30,
1996. This increase was primarily due to higher volumes of laser procedures. As
a percentage of total revenue, total gross profit for the year ended April 30,
1997 was 8%.
Operating Expense. Selling, general and administrative expense increased
by 67% or $3.9 million to $9.7 million for the year ended April 30, 1997 from
$5.8 million for the year ended April 30, 1996. This was primarily due to an
increase of $1.6 million in general and administrative expense, an increase of
$1.3 million in salaries and related expenses, an increase of $208,000 in
depreciation and amortization expense and an increase of $868,000 in selling and
marketing expenses.
Income (Loss) from Operations. The domestic loss from operations increased
by 145% or $5.4 million to $9.1 million for the year ended April 30, 1997 from
$3.7 million for the year ended April 30, 1996. This was primarily due to a $2.3
million write-down of lasers and related equipment, a $2.1 million increase in
the loss from U.S. laser operations, and an $891,000 increase in payroll.
The Canadian loss from operations decreased by 46% or $625,000 to $725,000
for the year ended April 30, 1997 from $1.4 million for the year ended April 30,
1996. This was primarily due to a decrease of $477,000 in the write-down of
lasers and related medical equipment and a decrease in the loss from operations
of $114,000 in the St. Catharines center which became a MobilExcimer site.
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The European loss from operations decreased by 54% or $2.3 million to $2.0
million for the year ended April 30, 1997 from $4.3 million for the year ended
April 30, 1996. This was primarily due to a decrease in the write-down of lasers
and related medical equipment of $2.2 million.
Other Income (Expense). Other income (expense) decreased to a net expense
of $226,000 during the year ended April 30, 1997 from a net income of $413,000
during the year ended April 30, 1996. This decrease was due to a $169,000
decrease in interest income and other, a $381,000 increase in interest expense
and an $89,000 decrease in minority interest in the net loss of a subsidiary.
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, revenue from laser access and
marketing services provided to eye surgeons and loans and leases. Cash and cash
equivalents decreased by 2% or $158,000 to $8.3 million at January 31, 1999 from
$8.4 million at April 30, 1998. At January 31, 1999, working capital had
increased by 4% or $224,000 to 5.8 million from $5.6 million at April 30, 1998.
The ratio of current assets to current liabilities at January 31, 1999 was 1.36
to one, compared to 1.64 to one at April 30, 1998.
Cash Flows -- Operating Activities
Net cash provided by operating activities increased by $5.4 million to $4.3
million for the nine months ended January 31, 1999 from a use of $1.0 million
for the nine months ended January 31, 1998. The cash flows provided by operating
activities during the nine months ended January 31, 1999 primarily represent the
net income in the period plus depreciation and amortization and a net increase
in current liabilities, less increases in accounts receivable, deferred taxes,
and prepaid expenses and other current assets. The increases in current
liabilities, accounts receivable, and prepaid expenses and other current assets
are a result of increased procedure volumes. Net cash used in operating
activities during the nine months ended January 31, 1998 primarily represents
the net loss incurred in this period less depreciation and amortization plus
increases in accounts receivable and prepaid expenses and other current assets
partially offset by increases in current liabilities.
Cash Flows -- Investing Activities
Net cash used in investing activities increased by 140% or $4.2 million to
$7.2 million for the nine months ended January 31, 1999 from $3.0 million for
the nine months ended January 31, 1998. Cash used for investing during the nine
months ended January 31, 1999 was used to acquire equipment for the expanding
U.S. market and for the acquisitions of MSS and RSR. Cash used for investing
during the nine months ended January 31, 1998 was used to acquire equipment for
the expanding U.S. market. Laser Vision expects capital expenditures for
equipment to continue at or above recent levels during the next 12 months.
Cash Flows -- Financing Activities
Net cash provided by financing activities decreased by 64% or $4.8 million
to $2.7 million for the nine months ended January 31, 1999 from $7.4 million for
the nine months ended January 31, 1998. Cash provided by financing during the
nine months ended January 31, 1999 was primarily provided by the exercise of
stock options and warrants, offset by principal payments under capitalized lease
obligations and notes payable. Cash provided by financing during the nine months
ended January 31, 1998 was primarily provided by a private placement of
preferred stock, proceeds from the exercise of stock options and warrants, and
proceeds from loan financings, partially offset by principal payments under
capitalized lease obligations and notes payable.
The Company expects to continue to fund future operations from existing
cash and cash equivalents, revenues received from providing laser access and
marketing services, the exercise of stock options and warrants and future debt
or equity 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 Laser Vision.
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Income Taxes
At April 30, 1998, Laser Vision had approximately $31 million of net
operating losses available to be carried forward to offset future taxable income
and which expire in the years 2006 through 2013. However, as a result of the
history of losses incurred by Laser Vision, at April 30, 1998 there was
insufficient objective evidence of future taxable income to utilize the net
operating loss carryforwards ("NOL's") prior to their expiration. As a result, a
valuation allowance was recorded for substantially all of the estimated $13
million of deferred tax assets which are principally associated with the net
operating losses at April 30, 1998.
In the fourth quarter of fiscal 1998, Laser Vision's operations became
profitable. For the nine months ended January 31, 1999, Laser Vision had pretax
income of approximately $2.8 million. Because of the improving levels of and
trend in profitability, management was able for the first time to conclude based
on objective evidence that Laser Vision will likely have taxable income in the
next fiscal year. As a result, a portion of the valuation allowance was reduced
and Laser Vision recognized a $0.8 million net tax benefit during the three
months ended January 31, 1999.
Management will continue to review and assess the realizability of the
deferred tax assets on a quarterly basis. The amount of net tax benefit or
expense recognized in the future may fluctuate significantly depending on
management's estimates of future taxable income. If Laser Vision's profitability
continues to improve, additional reductions in the valuation allowance may be
recognized. Generally, the benefit arising from the reduction in the valuation
allowance is reflected in the statement of operations as a reduction of income
tax expense. However, if an incremental tax benefit is attributed to certain
equity transactions that did not impact operating results, such as those arising
from the exercise of non-qualified stock options and warrants, the tax benefit
of the release of the valuation allowance would be reflected directly in
stockholders' equity.
Regardless of when the reduction in the valuation allowance is recognized
or whether the tax benefit is recognized in the statement of operations or
directly in equity, the utilization of the NOL's will substantially reduce Laser
Vision's cash obligations for the payment of any income taxes otherwise due over
the next several years.
Year 2000 Compliance
We are currently working to reduce the potential impact of the Year 2000 on
the processing of date-sensitive information by Laser Vision's computerized
information systems. The provider of Laser Vision's accounting and management
reporting system has advised us that it is Year 2000 compliant. 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 is working to ensure that all procedural documentation from its
lasers' computers will be reported properly in the year 2000. To the extent that
any computer documentation of procedures is unavailable, we are prepared to
manually produce the necessary reports.
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.
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. At this stage in the assessment process, we do not believe
that the Year 2000 issue will (1) pose significant operational problems for our
business or products or (2) have a material adverse 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.
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INDUSTRY BACKGROUND
REFRACTIVE VISION DISORDERS
The human eye functions much like a camera, incorporating a lens system
which focuses light (the cornea and the lens), a variable aperture system which
regulates the amount of light passing through the eye (the iris), and film which
records the image (the retina). Light from a distant object passes through the
cornea, iris, and lens, which together focus the light on the retina. The retina
contains light sensitive receptors which transmit the image through the optic
nerve to the brain. Seventy-five percent of the focusing power of the eye is
provided by the curvature of the cornea.
Refractive disorders prevent the eye from properly focusing images on the
retina. Nearsightedness (myopia), farsightedness (hyperopia) and other
irregularities in the shape of the cornea (astigmatism) are the most common
refractive disorders. If the cornea is too steep or too flat, the eye cannot
properly focus the light passing through it onto the retina, and the individual
sees a blurred image. Historically, consumers have most often chosen eyeglasses
or contact lenses to correct refractive disorders.
Excimer Laser Surgical Procedures
The excimer laser is used to treat nearsightedness, farsightedness and
astigmatism. Excimer laser surgery corrects the amount of curvature of the
cornea, which in turn eliminates or reduces the need for corrective lenses. An
excimer laser emits energy in a pulse lasting only several billionths of a
second. High-energy ultraviolet light produced by the excimer laser creates a
"non-thermal" process known as ablation, which does not damage adjacent tissue.
The laser manufactured by VISX, which is the laser we use, is currently approved
to treat nearsightedness of up to -12 diopters with astigmatism of up to -4
diopters and farsightedness of up to +6 diopters. To date, this is the widest
range of indications for any FDA-approved laser. Lasers manufactured by Summit,
Autonomous Technologies, Inc. ("Autonomous") and Nidek, Inc. ("Nidek") have also
received FDA approval, though for more limited overall indications.
There are primarily two procedures that use the excimer laser to correct
vision disorders: Laser In-Situ Keratomileusis ("LASIK") and Photorefractive
Keratectomy ("PRK"). Prior to performing these procedures, the eye surgeon
determines the correction required and programs the excimer laser. The excimer
laser software then calculates the optimal number of pulses needed to achieve
the intended correction. Both LASIK and PRK are done on an outpatient basis
without general anesthesia, using only topical anesthetic eye drops. During
these procedures, the patient wears an eyelid holder to prevent blinking. The
patient reclines in a chair and looks at a target while the surgeon prepares the
patient's eye for the procedure. The surgeon uses a foot pedal to trigger a
rapid succession of excimer laser pulses. The typical procedure takes 15 to 30
minutes from set-up to completion. The excimer laser itself is generally used
for less than 40 seconds.
LASIK
LASIK came into widespread commercial use in 1997. With LASIK, an eye
surgeon uses a microsurgical instrument called a microkeratome to open a thin
flap of tissue on the surface of the cornea. The flap is only about 30% of the
cornea's thickness. The eye surgeon lays the flap back and applies excimer laser
pulses to the cornea to treat the eye according to the patient's prescription.
The eye surgeon then folds the cornea flap back into place and it naturally
re-adheres and heals. With LASIK, the patient experiences virtually no
discomfort. The LASIK procedure offers two additional advantages over the PRK
procedure: LASIK usually allows the eye surgeon to treat both eyes of a patient
on the same day and LASIK patients experience much more rapid recovery. Most
LASIK patients see well enough to resume most normal activities the day after
the procedure and heal completely within one to three months. Currently, most
excimer laser procedures in the U.S. and Canada are LASIK.
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PRK
PRK has been used commercially since 1985. With PRK, the eye surgeon
prepares the eye by gently removing the surface layer of the cornea called the
epithelium. The surgeon then reshapes the curvature of the cornea using the
excimer laser. Since the layer removed is extremely thin, the cornea maintains
its strength. Following PRK, a patient typically experiences blurred vision and
discomfort until the epithelium heals. The patient usually experiences a
substantial improvement in clarity of vision within a few days following PRK.
However, it generally takes a patient one month, but may take up to six months,
to realize the full benefit of PRK.
Other Refractive Surgical Procedures
Refractive disorders may also be treated by other surgical techniques such
as radial keratotomy ("RK"). RK is a procedure used to correct nearsightedness
in which an eye surgeon uses a scalpel to make a series of cuts in a radial
pattern around the outer portion of the cornea. The healing of the incisions
causes a flattening of the cornea and corrects small to moderate amounts of
nearsightedness. RK is a manual procedure that is highly dependent on the skill
of the eye surgeon. In addition, RK involves incisions into the corneal tissue
which weakens the structure of the cornea. We believe that RK is used in a small
percentage of the surgeries performed to treat refractive disorders.
CATARACT VISION DISORDERS
Cataracts are a common vision disorder affecting many individuals as they
age. A cataract is a cloudy or opaque area in the normally transparent lens of
the eye. As the cloudiness increases, it prevents light rays from passing
through the lens and focusing on the retina, the light sensitive tissue lining
the back of the eye. As the cataract initially develops, it may not disturb
vision. But as the cataract worsens, several specific symptoms may develop,
including blurred vision, sensitivity to light and glare, increased
nearsightedness, or distorted images.
Cataract Surgical Procedures
Currently eye surgeons treat a cataract by surgical removal and implant. In
cataract surgery, the eye surgeon removes the cloudy lens, and in most cases
replaces it with a permanent artificial lens which restores the focusing power
of the eye. Cataract surgery is generally done on an outpatient basis. During
the procedure, eye drops and medications are administered to help the patient
relax, and a local anesthetic is given to make the surgery essentially painless.
Most cataract removals now do not require stitches or the use of a patch. After
the procedure, a patient is able to go home within a few hours.
While cataract surgery does not require the use of an excimer laser, a YAG
laser is used in a follow-up procedure after approximately 25% to 40% of
cataract removals. The YAG laser is a small, relatively inexpensive solid state
laser. It is used to break up the haziness which may develop in the eye's
central membrane three or four months after cataract removal.
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BUSINESS
Laser Vision provides excimer lasers and other equipment to eye surgeons
for the treatment of nearsightedness, farsightedness, astigmatism and cataracts.
We also provide related support services. We are one of the largest providers of
access to such equipment and services in the U.S. Much of our equipment is
mobile, and we routinely move it from location to location in response to
customer demand. We also provide our equipment at fixed locations. Our flexible
delivery system enlarges the pool of potential locations, eye surgeons and
patients that we can serve, and allows us to effectively respond to changing
market demands.
Eye surgeons pay us a fee for each procedure they perform using our
equipment. We typically provide each piece of equipment to many different eye
surgeons, which allows us to more efficiently use the equipment and offer it at
an affordable price. We refer to our practice of providing equipment to multiple
eye surgeons as "shared access".
Eye surgeons take advantage of our shared access and flexible delivery
system for a variety of reasons including the ability to:
- avoid a large capital investment
- eliminate the risks associated with buying high-technology equipment
that may rapidly become obsolete
- use the equipment without responsibility of maintenance or repair
- cost effectively serve small to medium-sized markets and remote
locations
- serve satellite locations even in large markets
We provide a broad range of value-added services to the eye surgeons who
use our equipment, including initial training, technical support and equipment
maintenance, marketing, clinical advisory service, patient financing and
practice satelliting. Eye surgeons who are developing their practices, or who
perform limited numbers of procedures, find our support services particularly
attractive. We continue to look for ways to expand our support services, so that
we can offer value to those surgeons who perform enough procedures to otherwise
justify the purchase of their own equipment. For a thorough description of our
support services, see "Value-Added Support Services" at page .
We provide mobile cataract services through our MSS subsidiary which
focuses on developing relationships between local hospitals, referring
optometrists and eye surgeons in small to medium sized markets. In this way, we
expand the demand for "close to home" cataract surgery which we make
economically feasible through our shared-access approach and mobile systems.
Our excimer laser and cataract businesses are operated relatively
separately at this time. We entered the cataract business only recently with our
purchase of MSS in December 1998. At the time of that purchase, approximately
80% of the eye surgeons using MSS services were not performing excimer laser
surgery. We expect over time to cross market both our excimer laser and cataract
services to the eye surgeons we serve.
MARKET TRENDS
The Refractive Market
An industry source estimates that over 160 million Americans currently
require eyeglasses or contact lenses. Approximately 100 million Americans
purchased eye wear in 1997. Consumers in the U.S. spent approximately $15.4
billion on eyeglasses, contact lenses and other corrective lenses in 1997
according to industry sources.
Industry sources estimate that in 1998, 400,000 excimer laser correction
procedures were performed in the U.S., an increase of 100% from the 200,000
procedures performed in 1997 and an increase of 471%
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from the 70,000 procedures performed in 1996, the first full year after FDA
approval of excimer laser surgery. Industry sources project the surgical vision
correction market will expand at an average annual rate of 40% to 50% (in terms
of procedure volume) over the next several years. In November 1998 the VISX
excimer laser was approved for the treatment of farsightedness. This recent
approval broadens the potential market for excimer laser surgery.
The Cataract Market
In the U.S., cataract surgery currently is the most common therapeutic
surgical procedure performed on Americans age 65 and older. Medicare pays $3.4
billion a year for 1.0 million of the 1.3 million cataract procedures performed
annually. There are currently 34 million Americans who are age 65 and older.
This segment of the population is growing at an annual rate of 1.2%.
According to the American Academy of Ophthalmology, individuals between the
ages of 52 and 64 have a 50% chance of having a cataract. By age 75, almost
everyone has a cataract. Fifty percent of the people between the ages of 75 and
85 with cataracts have lost some vision as a result. According to the National
Eye Institute, cataracts account for approximately 42% of all blindness even
though an effective surgical treatment is available.
BUSINESS STRATEGY
Our strategy is to provide eye surgeons cost-effective access to surgical
equipment used for excimer laser and cataract procedures.
Our business strategy includes the following elements:
- Offering a Flexible Delivery System. Our focus on a flexible delivery
system of mobile and fixed locations is unique. Our mobile system
incorporates patented technology and provides us with advantages over
our competitors. We are able to address growing markets and meet the
needs of customers who do not initially and may never have the procedure
volume to warrant the fixed investment of purchasing an excimer laser.
In addition, our flexible delivery system allows us to provide our
customers with options to address changes in demand. For eye surgeons
with increased procedure volumes, we provide fixed site lasers. This
allows surgeons to continue to take advantage of our support services
while avoiding the risks associated with purchasing their own equipment.
- Increasing Penetration in New and Existing Markets. We intend to
increase our market penetration in existing markets and to expand into
new markets. We primarily target eye surgeons in smaller or middle sized
markets that would not otherwise be able to support the substantial
investment required to purchase and maintain a laser. These underserved
markets typically have less competition. For any new market, our mobile
lasers allow us to enter with lower initial procedure volume because we
can spread our investment over multiple locations. It also allows us to
enter a new market with less risk because we do not have to make a large
fixed investment, and can easily discontinue service to a location if
procedure volumes do not increase sufficiently. We provide access to our
excimer lasers to eye surgeons or practice groups who intend to perform
as few as five procedures. We seek to increase the number of eye
surgeons and locations we serve. We continue to expand our geographic
coverage by adding mobile and fixed excimer lasers. We anticipate adding
six mobile lasers and twelve fixed site lasers in fiscal year 2000.
- Maximizing the Use of Our Equipment. We attempt to maximize the use of
each of our lasers and cataract equipment. For our mobile systems, we
try to reduce the size of the geographic region served by each mobile
system and to increase the number of eye surgeons and locations served
within a region. We also strive to optimize the routing schedules of our
equipment. For eye surgeons at both mobile and fixed sites our support
services help identify ways to increase case volume. In addition, all of
our certified engineers are trained by the laser manufacturer and Laser
Vision to service, repair and maintain the laser, which helps us reduce
the set-up and down time of our equipment.
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- Providing Value-Added Services to Eye Surgeons. Our value-added support
services help surgeons to adopt excimer laser surgical procedures and
enhance their practices and procedure growth. These services include
training, technical support and equipment, maintenance, marketing,
clinical advisory service, patient financing and clinical practice
satelliting. For a more complete description of these services see
"Value-Added Services" at page .
- Expanding Our Products and Services. Our eye surgeon customers need
many types of equipment and services to perform various surgeries. We
intend to explore expansion of our equipment and services to help us
provide additional value to our current customers as well as attract new
ones. We seek to internally develop or acquire these products and
services. Our acquisition of MSS and RSR are two recent examples. The
RSR acquisition allows us to provide equipment complementary to our
existing laser surgery business. The MSS acquisition has allowed us to
expand into the cataract market which we did not previously serve.
EXCIMER LASER BUSINESS
Eye surgeons use the excimer laser to reshape the curvature of the cornea
in order to correct nearsightedness, farsightedness and astigmatism. Most of the
laser procedures performed by eye surgeons using our equipment also involve a
microkeratome. Our excimer laser and microkeratome services are provided through
our flexible delivery system including both mobile systems and fixed site
locations.
Mobile Systems
Our mobile laser systems are typically used by eye surgeons who perform
fewer than 20 procedures per month. One of our certified laser engineers
accompanies each of our mobile excimer lasers. If an eye surgeon uses our
microkeratomes, we generally supply two microkeratomes and a second Laser Vision
employee, who is trained by the microkeratome manufacturer and us as a surgical
technician. Our mobile laser equipment is provided in two ways: the
"Roll-On/Roll-Off" and the "MobilExcimer" laser systems.
Roll-On/Roll-Off Laser System
The Roll-On/Roll-Off laser system consists of an excimer laser mounted on a
motorized air suspension platform. This system allows an excimer laser to be
moved upon reaching its destination. We transport the Roll-On/Roll-Off laser
system between locations in a specially modified truck. We have patented certain
aspects of this transport system. Due to the design of the Roll-On/Roll-Off
system, our lasers usually require only minor adjustments and minimal set-up
time at each destination. Eye surgeons use our Roll-On/Roll-Off system in their
offices and at hospitals and ambulatory surgical centers. As of January 31,
1999, we had 25 Roll-On/Roll-Off systems in operation, all but two of which were
located in the U.S.
MobilExcimer
The MobilExcimer is a self-contained mobile suite with all the equipment
necessary to perform laser procedures. We have patented certain aspects of this
system. This system is most appropriate for serving eye surgeons, hospitals and
ambulatory surgical centers that cannot accommodate a Roll-On/Roll-Off system.
As of January 31, 1999 we had three MobilExcimer systems in operation, two in
the U.S. and one in Canada.
Fixed Site Lasers
Our fixed site lasers are dedicated to single locations where eye surgeons
perform at least 75 procedures per month. As of January 31, 1999 we had ten U.S.
sites, one Canadian site and four European sites. We operate one of these fixed
sites and the remainder are operated by eye surgeons. Currently all of our fixed
sites are used by more than one surgeon. Some exclusively serve single practice
groups and others are located in ambulatory surgery centers where they can be
used by any qualified eye
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surgeon. We anticipate that fixed site lasers in the U.S. will make up an
increasing percentage of our overall business.
Microkeratomes
Since the acquisition of RSR in September 1998, we have provided increased
microkeratome access for excimer laser procedures. We now operate 43
microkeratomes which allows us to offer this access to both our excimer laser
customers and our non-excimer laser customers. Microkeratomes are used in over
90% of the procedures performed with our excimer lasers. In January 1999 we
provided 46% of the microkeratomes for these procedures.
The table below illustrates the quarterly growth in the number of
procedures performed by us since the fourth quarter of fiscal year 1996.
'CHART'
CATARACT BUSINESS
We believe that our MSS subsidiary is the world's largest provider of
mobile equipment and services necessary to convert a certified surgical center
into a cataract surgical suite. One of our certified surgical technicians
transports this equipment from one surgery location to the next and prepares the
equipment at each stop so that the operating room is ready for cataract surgery.
Through this mobile approach, local optometrists are able to refer their
patients, the majority of which are elderly, to eye surgeons who offer the
convenience of "close to home" sophisticated cataract surgical services. As of
January 31, 1999 we operated 23 mobile cataract systems.
VALUE-ADDED SUPPORT SERVICES
We offer eye surgeons value-added support services that distinguish us from
our competitors, enhance our ability to compete for business and enable us to
grow with our customers by offering them various service and support
arrangements. The following value-added services help our eye surgeon customers
to expand their practices thereby increasing the use of our equipment and
services:
- Training. We conduct regular training sessions throughout the U.S. in
conjunction with laser and microkeratome manufacturers. These sessions
are designed to certify new eye surgeons in the use
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of excimer lasers and microkeratomes. We also provide ongoing clinical
training for all of our engineers and technicians.
- Technical Support and Equipment Maintenance. As of January 31, 1999 we
employed 26 certified laser engineers, 17 microkeratome technicians and
23 cataract equipment technicians. Our laser engineers perform most of
our laser maintenance. Having our own certified laser engineers helps
ensure rapid response to any repair needs for our excimer lasers.
- Marketing. We offer a comprehensive marketing program that includes
print and broadcast advertising, Internet web pages, direct mail and
other media based programs. We assist our customers in directing their
marketing efforts. Strategies include direct mailings with information
related to excimer laser surgery, collateral and point of purchase
materials to reach patients during office visits, and videotape
presentations which can be used to educate patients about laser surgery.
In addition, we work to form relationships between eye surgeons and
optometrists. These optometric networks are valuable in referring
patients to eye surgeons who use our equipment and services. We help to
form these referral networks by training optometrists, who are then able
to provide pre-operative screenings as well as post-surgical follow-up
to their patients. We also provide our eye surgeon customers with
marketing materials designed to foster these referrals and generate new
patients.
- Clinical Advisory Service. We maintain a Clinical Advisory Board which
conducts regular conference calls with our eye surgeon customers. These
conference calls are chaired by our clinical advisors, who are eye
surgeons with extensive clinical experience. In addition, we conduct
clinical advisory meetings at the two major ophthalmic conferences each
year. Our clinical advisors also make themselves available to consult
with our eye surgeon customers outside of regularly scheduled conference
calls and meetings.
- Patient Financing. We offer our eye surgeon customers a comprehensive
patient financing program. Under this program, our eye surgeon customers
may offer their patients the ability to finance their excimer laser
surgery. Eye surgeons pay us a one-time fee for each patient who takes
advantage of this program. We intend to expand our patient financing
programs with certain proceeds from this offering.
- Practice Satelliting. We assist eye surgeons with high-volume practices
who desire to serve smaller markets through satellite surgical
locations. This program allows our eye surgeon customers to leverage
their time performing eye surgery.
SALES AND MARKETING
Refractive Surgery
Our refractive surgery sales force consists of six regional managers, five
practice group members and four part-time telemarketing employees. Our
telemarketing employees regularly contact eye surgeons throughout the U.S. in
order to develop interest in, and demand for, our services. Our regional
managers develop sales leads which come from sources such as telemarketing and
customer contact through trade shows and professional organizations. After
identifying a prospective eye surgeon customer, the regional manager guides the
eye surgeon through the contract process. Our practice development group then
arranges the necessary training and marketing assistance required by each
individual customer. Once an eye surgeon is prepared to initiate surgeries using
our services and equipment, our operations department assumes primary
responsibility for the ongoing relationship. In response to our anticipated
growth, we intend to hire an additional two regional managers and five practice
group members.
Cataract Surgery
Our MSS sales staff focuses on identifying small to medium sized markets
which do not have convenient access to the services of a cataract eye surgeon.
After identifying such a market, our sales staff will contact the local hospital
and local optometrists to develop interest in "close to home" cataract
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surgery services. When there is sufficient interest, our sales staff brings the
hospital and optometrists in contact with an eye surgeon who is willing to
provide services to that local market. By bringing these various parties into
contact, we increase demand for our mobile cataract services.
SUPPLIERS
The current retail cost of a VISX excimer laser is $525,000. The purchase
price includes a one-year warranty on all parts except the optics (mirror and
glass components), which carry a 30-day warranty. We are required to pay a
royalty fee of $250 to VISX for each procedure performed.
As of January 31, 1999, we had 43 active excimer lasers worldwide. We
currently use VISX lasers only, but we have the flexibility to utilize lasers
produced by any of the currently approved manufacturers, depending on the eye
surgeon's preference and sales structures or inducements which may be offered by
the manufacturer. We currently have an additional five excimer lasers on order
from VISX.
The retail cost of a Bausch & Lomb microkeratome is approximately $55,000.
We currently purchase all of our microkeratomes and microkeratome blades from
Bausch & Lomb.
COMPETITION
Refractive Surgery
The market for providing access to excimer lasers is highly competitive. We
compete with laser centers operated by local operators and eye surgeons who have
purchased their own laser. We also compete with several other companies,
including at least two manufacturers of laser equipment, in providing access to
excimer lasers in the U.S. Other companies are currently in the process of
gaining FDA approval for their lasers, and these companies may elect to enter
the laser center business. Other non-manufacturing companies which have
indicated they intend to operate or already operate laser centers in the U.S.
are Clear Vision Laser Centers, Inc., LCA Vision, Inc., NovaMed Eyecare
Management, LLC Omega Health Systems, Inc., Physicians Resource Group, Inc., TLC
The Laser Center, Inc. and Vision Twenty-One, Inc. Omega Health Systems, Inc.
recently announced that it intends to pursue a mobile strategy. We will monitor
any such efforts closely and will enforce the exclusivity of our patents and
other intellectual property.
The services and equipment we offer also compete with other forms of
treatment for refractive disorders, including eyeglasses, contact lenses, radial
keratotomy, corneal rings and other technologies currently under development. We
expect that companies may attempt to develop new products directly competitive
with our excimer lasers. Other companies could introduce new or enhanced
products with features which render our equipment obsolete or less marketable.
Our success will depend in large part on our ability to adapt to technological
changes and advances in the treatment of refractive vision disorders.
Cataract Surgery
Our MSS subsidiary competes with several other companies that provide
mobile cataract services including Vantage Technology, Inc., Southeastern
Instruments, Inc. and American Eye Instruments, Inc. MSS also competes with
local hospitals and surgery centers which offer cataract surgery.
For further discussion regarding potential competition see "Risk
Factors -- We face increasing competition and must continually adopt to
technological changes and advances in order to succeed" at page .
PATENTS AND TRADEMARKS
LASERVISION(R), LASERVISION CENTERS AND DESIGN(R), LASERVISION CENTERS(R),
LASERVISION CENTER(R), LVC(R), LVCI(R), and MOBILEXCIMER(R) are registered U.S.
servicemarks of Laser Vision. In addition, we own servicemark registrations in a
number of foreign countries. We have also secured patents for the MobilExcimer
mounting system, and for certain aspects of our Roll-On/Roll-
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Off system. Our intellectual property, including servicemarks, patents and other
proprietary technology give us a competitive advantage in the marketplace and
are important to our success. See "Risk Factors -- Competitors may attempt to
use our exclusive intellectual property or proprietary technology which could
weaken our competitive advantages" at page .
GOVERNMENT REGULATION
Excimer lasers used in the U.S. are regulated by the FDA and cannot be sold
in the U.S. until the FDA grants approval for the device. In the U.S., VISX,
Summit, Autonomous and Nidek are the only excimer laser manufacturers with FDA
approval to market their lasers. In addition, we have obtained, as a
manufacturer, FDA approval of the MobilExcimer. Excimer laser manufacturers
which obtain FDA approval for use of their excimer lasers are subject to
continuing regulation by the FDA. Although the FDA has not sought to regulate
surgeons' use of excimer lasers, it enforces numerous regulations including
regulations prohibiting the sale and promotion of lasers for non-indicated uses.
The FDA also conducts periodic inspections of manufacturers to determine
compliance with regulations.
While excimer lasers are not approved by the FDA for LASIK, surgeons in the
U.S., including those affiliated with us and our competitors, have performed
LASIK using their discretion as a practice of medicine matter. The FDA may seek
to challenge this practice in the future.
The following is a more detailed description of certain laws and
regulations that affect our operations.
Restrictions on Medical Devices
In the U.S., the FDA regulates the manufacturing, labeling, distribution
and marketing of excimer lasers. The excimer lasers that we use have been
approved by the FDA for certain uses as has the MobilExcimer.
Once FDA approval is obtained, however, excimer laser manufacturers are
subject to continuing FDA obligations. For example, the FDA requires that
medical devices be manufactured in accordance with its Quality System
Regulations. In essence, this means that medical devices must be manufactured
and records must be maintained in a prescribed manner with respect to
production, testing and control activities. The FDA has held that users (such as
Laser Vision) as well as manufacturers of excimer lasers are required to comply
with FDA requirements on labeling and promotion. Non-compliance with FDA
requirements could subject laser manufacturers and Laser Vision to enforcement
action, including:
- product seizures
- recalls
- withdrawal of approvals
- civil and criminal penalties
Any such enforcement action could have a material adverse effect on our
business, financial condition and results of operations.
To authorize new uses of lasers, manufacturers are required to obtain a
supplemental FDA approval. Obtaining these approvals is time consuming and
expensive, and we cannot be sure that manufacturers of the laser products we use
will be able to obtain any such additional FDA approvals. Further, later
discovery of problems with the lasers or the manufacture or failure to comply
with manufacturing or labeling requirements may result in restrictions on use of
the lasers or enforcement action against the manufacturers, including withdrawal
of lasers from the market. Changes in legislation or regulation could affect
whether and how we can use the lasers. These and other regulatory actions could
limit the supply of lasers or our ability to use them, which would have a
material adverse effect on our business, financial condition and results of
operations.
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Anti-Kickback Statutes
In the U.S., the federal anti-kickback statute prohibits the knowing and
willful solicitation, receipt, offer or payment of any kickback in connection
with:
- the referral of patients
- the ordering or purchasing of items or services payable in whole or in
part under Medicare, Medicaid or other federal health care programs
Some courts have interpreted the federal anti-kickback statute broadly to
prohibit payments intended to induce the referral of Medicare or Medicaid
business, regardless of any other legitimate motives. Sanctions for violations
of the anti-kickback statute include:
- criminal penalties
- civil penalties of up to $50,000 per violation
- exclusion from Medicare, Medicaid and other federal programs
According to the U.S. Office of the Inspector General, eye surgeons and
optometrists who engage in agreements to refer business may be violating the
anti-kickback statute. Further, violations may occur even with respect to
non-Medicare or Medicaid services if the arrangement has an impact on the
referral pattern for Medicare or Medicaid services.
Some states have enacted statutes similar to the federal anti-kickback
statute which are applicable to all referrals of patients. Although we have
endeavored to structure our contractual relationships in compliance with these
laws, authorities could determine that our business practices are in violation
of such laws. This could have a material adverse effect on our business,
financial condition and results of operations.
Fee-Splitting
Many states prohibit professionals (including eye surgeons and
optometrists) from paying a portion of a professional fee to another individual
unless that individual is an employee or partner in the same professional
practice. Violation of a state's fee-splitting prohibition may result in civil
or criminal fines, as well as loss of licensing privileges. Many states offer no
clear guidance on what relationships constitute fee-splitting, particularly in
the context of providing management services for doctors. Although we have
endeavored to structure our contractual relationships in material compliance
with these laws, state authorities could find that fee-splitting prohibitions
apply to our business practices. This could have a material adverse effect on
our business, financial condition and results of operations.
Corporate Practice of Medicine and Optometry
The laws of many states prohibit business corporations, such as Laser
Vision, from practicing medicine and employing or engaging physicians to
practice medicine. Some states prohibit business corporations from practicing
optometry or employing or engaging optometrists to practice optometry. Such laws
preclude companies that are not owned entirely by eye care professionals from:
- employing eye care professionals
- controlling clinical decision making
- engaging in other activities that are deemed to constitute the practice
of optometry or ophthalmology
This prohibition is generally referred to as the prohibition against the
corporate practice of medicine or optometry. Violation of this prohibition may
result in civil or criminal fines, as well as sanctions imposed against the
professional through licensing proceedings. Although we have endeavored to
structure
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our contractual relationships in compliance with these laws, if any aspect of
our operations were found to violate state corporate practice of medicine or
optometry prohibitions, this could have a material adverse effect on our
business, financial condition and results of operations.
Self-Referral Laws
The U.S. federal self-referral law (the "Stark Law") prohibits physicians
(including optometrists) from referring their Medicare or Medicaid patients for
certain health services to any provider with which they (or their immediate
family members) have a financial relationship. Certain referrals, however, fit
within specific exceptions in the statute or regulations. The penalties for
violating the Stark Law include:
- denial of payment for the health services performed
- civil fines of up to $15,000 for each service provided pursuant to a
prohibited referral
- a fine of up to $100,000 for participation in a circumvention scheme
- possible exclusion from Medicare and Medicaid programs
At this time it is unclear how eye doctors are affected under the law.
While we believe that our present business practices will not be affected, there
can be no assurance that we fully comply with the Stark Law or similar state
laws. This could have a material adverse effect on our business, financial
condition and results of operations.
Other Anti-Fraud Provisions
Certain federal and state laws impose penalties on health care providers
and those who provide services to such providers (including businesses such as
Laser Vision) that fraudulently or wrongfully bill government or other
third-party payors for health care services. Such penalties include substantial
civil and criminal fines and imprisonment. In addition, the federal law
prohibiting false Medicare/Medicaid billings allows a private person to bring a
civil action in the name of the U.S. government for violations of its
provisions. Such private individuals can obtain a portion of the false claims
recovery if the action is successful. We believe that we operate in material
compliance with these laws. We do not know whether any of our activities will be
challenged or reviewed by governmental authorities or private parties asserting
false claims. Any such actions could have a material adverse effect on our
business, financial condition and results of operations.
Facility Licensure and Certificate of Need
State Departments of Health may require us to obtain licenses in the
various states in which we initiate or acquire business operations. We believe
that we have obtained the necessary licensure in states where licensure is
required and that we are not required to obtain licenses in other states.
However, some of the regulations governing the need for licensure are unclear
and there is little guidance available regarding certain interpretative issues.
Therefore, it is possible that a state regulatory authority could determine that
we are improperly conducting business operations without a license. This could
subject us to significant fines or penalties, result in our being required to
cease operations in that state and could otherwise have a material adverse
effect on our business, financial condition and results of operations. We have
no reason to believe that we will be unable to obtain necessary licenses without
unreasonable expense or delay, but there can be no assurance that we will be
able to obtain any required license.
Some states require permission by the State Department of Health in the
form of a Certificate of Need ("CON") prior to the construction or modification
of an ambulatory care facility or the purchase of certain medical equipment in
excess of a certain amount. We believe that we have obtained the necessary CONs
in states where a CON is required. However, some of the regulations governing
the need for CONs are unclear and there is little guidance to cover certain
interpretive issues. Therefore, it is possible that a state regulatory authority
could determine that we are improperly conducting business operations without a
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CON. This could have a material adverse effect on our business, financial
condition and results of operations. There can be no assurance that we will be
able to acquire a CON in all states where it is required.
Health Care Reform
Health care reform is considered by many in the U.S. to be a national
priority. Several states are also currently considering health care proposals.
We cannot predict what additional action, if any, the federal government or any
state may ultimately take with respect to health care reform or when any such
action will be taken. Health care reform may bring radical changes in the
financing and regulation of the health care industry, which could have a
material adverse effect on our business, financial condition and results of
operations.
EMPLOYEES
As of January 31, 1999, we had 170 employees. None of our employees is
subject to a collective bargaining arrangement. We consider our relations with
our employees to be good. As we expand, we expect to hire additional employees
in technical, marketing and management positions.
DESCRIPTION OF PROPERTY
We lease 9,970 square feet of space in St. Louis County, Missouri for our
corporate headquarters and will lease an additional 4,500 square feet beginning
in April 1999. We also utilize 2,700 square feet of space in St. Louis County,
Missouri for our St. Louis LaserVision Center, under a five-year lease.
MSS occupies 7,000 square feet of office/warehouse space in Bloomington,
Minnesota under a lease expiring in July 2001.
LaserVision Europe Limited, our wholly-owned European subsidiary, leases
approximately 3,000 square feet of space on Harley Street in London, England,
which houses the Harley Street Laser Vision Centre.
All other lasers operated by Laser Vision are used in centers owned or
leased by other parties. Laser Vision does not have any material lease
obligations associated with such centers.
LEGAL PROCEEDINGS
In March 1998, Laser Vision was served with a subpoena by the U.S.
Department of Justice. We understand that the subpoena is part of an
industry-wide investigation into the so-called "international card" software
that enabled excimer lasers to be used to perform laser eye surgeries for higher
nearsightedness (greater than -6.0 diopters) than were initially approved by the
FDA. The FDA subsequently approved use of an excimer laser for higher
nearsightedness in January 1998. Many eye surgeons have taken the position that
FDA restrictions on use of laser equipment through software control, rather than
the traditional means of labeling, deny physicians the flexibility to treat
individual patients as the physician deems medically necessary, and represent an
unwarranted intrusion upon the physicians' right to practice medicine according
to their best medical judgment. The subpoena requested several categories of
documents, which we have provided. We intend to continue to fully cooperate in
this matter. We are unable to assess the effect, if any, of this investigation
on our financial condition or results of operations. See "Risk Factors -- We may
experience adverse effects from the FDA investigation of the international
card."
We are currently involved in other, non-material litigation. Other than as
described above, we do not expect that any outstanding or pending legal
proceedings, individually or in the aggregate, will have a material adverse
effect upon our future results of operations, liquidity or financial condition.
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DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key personnel of Laser Vision, their
positions with Laser Vision, and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John J. Klobnak(1)(3)..................... 48 Chairman of the Board and Chief Executive Officer
Robert W. May(1).......................... 51 Vice-Chairman of the Board, General Counsel and
Secretary
James C. Wachtman......................... 38 President and Chief Operating Officer
B. Charles Bono III....................... 51 Executive Vice President, Chief Financial Officer and
Treasurer
James B. Tiffany.......................... 42 Vice President of Sales
Thomas L. Eakins.......................... 44 President and Chief Executive Officer, MSS
Dr. Henry Simon(3)........................ 68 Director
James M. Garvey(1)(2)..................... 51 Director
Richard Lindstrom, M.D.(3)................ 52 Director
Steven C. Straus(2)....................... 42 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
JOHN J. KLOBNAK. Mr. Klobnak has served as Chairman of the Board and Chief
Executive Officer of Laser Vision since July 1993. From 1990 to 1993, Mr.
Klobnak served as Laser Vision's Chairman, President and Chief Executive
Officer. From 1986 to 1990, he served as Chief Operating Officer and
subsequently President of MarketVision, a partnership acquired by Laser Vision
upon its inception in 1990. Prior to 1986, Mr. Klobnak was engaged in marketing
and consulting.
ROBERT W. MAY. Mr. May joined Laser Vision as its Vice-Chairman and General
Counsel in September 1993. Prior to joining Laser Vision as a full-time
employee, Mr. May served as Corporate Secretary, General Corporate Counsel and a
director of Laser Vision. He was engaged in private legal practice in St. Louis,
Missouri from 1985 until 1993.
JAMES C. WACHTMAN. Mr. Wachtman joined Laser Vision as Chief Operating Officer
of North America operations effective June 1996 and became President in August
1998. From 1983 until he joined Laser Vision, Mr. Wachtman was employed in
various positions by McGaw, Inc., a manufacturer of medical disposables. Most
recently, he served as Vice President of Operations of CAPS, a hospital pharmacy
division of McGaw.
B. CHARLES BONO III. Mr. Bono joined Laser Vision as Executive Vice President,
Chief Financial Officer and Treasurer in October 1992. From 1980 to 1992, Mr.
Bono was employed by Storz Instrument Company (a global marketer of ophthalmic
devices and pharmaceutical products that is now a part of Bausch and Lomb
Surgical) serving as Vice President of Finance from 1987 to 1992.
JAMES B. TIFFANY. Mr. Tiffany joined Laser Vision in December 1998 as Vice
President of Sales. For the prior thirteen years, Mr. Tiffany held a number of
positions with Storz Instrument Company and Bausch and Lomb Surgical. While with
Storz, Mr. Tiffany served as Director of Marketing and Vice President of Sales
and Marketing. From January 1998, he served as Vice President for Commercial
Operations for the U.S., Canada and Latin America for Bausch and Lomb Surgical.
THOMAS L. EAKINS. Mr. Eakins is President and Chief Executive Officer of MSS,
which Laser Vision acquired in December 1998. He formerly served in that
capacity from 1993 to 1996. He has been involved in the ophthalmic industry
since 1976.
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DR. HENRY SIMON. Dr. Simon has served as a director of Laser Vision since
November 1995. Since 1996, he has served as Chairman of Schroder Venture
International Life Sciences Advisers, a venture capital advisory company
("SVILSA"). From 1993 to 1996 he served as Chief Executive Officer and Managing
Partner of SVILSA. Dr. Simon has served as Chairman of Mitel, Inc., a
manufacturer of telecommunications equipment and Shire Pharmaceutical Group plc,
a British company.
JAMES M. GARVEY. Mr. Garvey has served as a director of Laser Vision since
November 1995. Mr. Garvey serves as Chief Executive Officer and Managing Partner
of Schroder Ventures Life Sciences Advisors, a venture capital advisory company
which he joined in May 1995. From 1989 to 1995, Mr. Garvey was Director of
Allstate Venture Capital, the $600 million venture capital division of Allstate
Corp. after initially directing Allstate Venture Capital's health care
investment activity. Mr. Garvey is currently a director of JCN Healthcare,
Mednova Ltd., Orthovita, Inc. and has served as director and Chairman of several
public and private healthcare companies.
RICHARD L. LINDSTROM, M.D. Dr. Lindstrom has served as a director of Laser
Vision since November 1995. Since 1979, Dr. Lindstrom has been engaged in the
private practice of ophthalmology and has been the President of Minnesota Eye
Associates P.A. (formerly Lindstrom, Samuelson & Hardten Ophthalmology
Associates, P.A.) since 1989. In 1989, Dr. Lindstrom founded the Phillips Eye
Institute Center for Teaching & Research, a ophthalmic research and surgical
skill education facility, and he currently serves as the Center's Medical
Director. Dr. Lindstrom has served as an Associate Director of the Minnesota
Lions Eye Bank since 1987. From 1980 to 1989, he served as a Professor of
Ophthalmology at the University of Minnesota. Dr. Lindstrom received his M.D.,
B.A. and B.S. degrees from the University of Minnesota.
STEVEN C. STRAUS. Mr. Straus has served as a director of Laser Vision since
January 1996. He currently serves as President and Chief Operating Officer of
the Jordan Industries, Inc. Healthcare Products Group. Prior to 1998, Mr. Straus
was Senior Vice President of the Ambulatory Surgery Division of Columbia/HCA and
was employed in a similar capacity with Medical Care America, Inc. from 1993
until Medical Care America was merged into Columbia/HCA in 1994. From 1986 to
1993, Mr. Straus held various positions with Baxter Healthcare Corporation.
There are no family relationships between any of the directors or executive
officers of Laser Vision.
CERTAIN RELATIONSHIPS OF OFFICERS AND DIRECTORS
We have entered into a limited partnership agreement with Minnesota Eye
Consultants, P.A. for the operation of one of our Roll-On/Roll-Off mobile
systems. Dr. Richard Lindstrom, a director and medical director of Laser Vision,
is president of Minnesota Eye Consultants. Laser Vision is the general partner
and owns 60% of the partnership. Minnesota Eye Consultants, P.A. is a limited
partner and owns 40% of the partnership. Laser Vision contributed equipment
valued at $650,000 to the partnership and will receive $260,000 from Minnesota
Eye Consultants. Laser Vision receives a revenue-based management fee from the
partnership. Dr. Lindstrom receives compensation from Laser Vision in his
capacity as medical director.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and notes set forth certain information with respect to
the beneficial ownership of Laser Vision's common stock as of January 31, 1999,
both before and after giving effect to the sale of shares of common stock in
this offering (excluding over allotments, if any) for the following:
- all those known by Laser Vision to be beneficial owners of more than 5%
of Laser Vision's common stock
- all of Laser Vision's directors
- the selling stockholders
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- all directors and executive officers of Laser Vision as a group
The table below sets forth the names of the selling stockholders and the
number of shares which may be sold respectively by the selling stockholders
pursuant to this prospectus as of the date of this prospectus.
The information included below is based upon information provided by the
selling stockholders. Because this offering may not result in the sale of all
additional shares pursuant to overallotments, no definitive estimate as to the
percentage of common shares that will be held by the selling stockholders after
this offering can be provided. The table below has been prepared on the
assumption that all of the shares offered under this prospectus will be sold to
unaffiliated parties. See "Underwriting."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) SHARES AFTER THE OFFERING(1)
------------------------- BEING ----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------------ --------- ---------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John J. Klobnak(2)....................................... 413,832 3.82% 50,000 363,832 2.97%
--------- ------ ---------
Robert W. May(3)......................................... 199,922 1.85% 50,000 149,922 1.23%
--------- ------ ---------
Dr. Henry Simon(4)....................................... 883,512 8.32% 250,000 633,512 5.27%
--------- ------
James M. Garvey(4)....................................... 883,112 8.32% 250,000 633,112 5.27%
--------- ------
Richard L. Lindstrom, M.D.(5)............................ 195,232 1.81% 120,000 75,232 0.62%
--------- ------ ---------
Steven C. Straus(6)...................................... 16,225 0.15% 14,000 2,225 0.02%
--------- ------ ---------
James C. Wachtman(7)..................................... 173,893 1.61% 50,000 123,893 1.02%
========= ====== =========
B. Charles Bono(8)....................................... 153,863 1.43% 50,000 103,863 0.86%
========= ====== =========
James B. Tiffany(9)...................................... 1,375 0.01% -- 1,375 0.01%
========= ====== =========
All officers and directors as a group (9
persons)(10)(11)......................................... 2,054,279 17.75% 584,000 1,470,279 11.57%
========= ======
Alan F. Gillam........................................... 80,079 0.75% 80,000 79 0.00%
--------- ------
T. Wesley Dunn........................................... 62,500 0.59% 21,000 41,500 0.35%
--------- ------
Frank J. Bono, III....................................... 36,750 0.35% 20,000 16,750 0.14%
--------- ------
Rikki L. Bradley......................................... 22,750 0.21% 10,000 12,750 0.11%
--------- ------
Robert M. Freyman........................................ 10,250 0.10% 5,000 5,250 0.05%
--------- ------
Schroder Ventures
International Life Sciences Fund LP1..................... 328,683 3.10% 94,810 233,873 1.95%
Schroder Ventures
International Life Sciences Fund LP2..................... 73,041 0.69% 21,069 51,972 0.43%
Schroder Ventures
International Life Sciences Trust........................ 115,694 1.09% 33,372 82,322 0.69%
Schroder Ventures Managers Limited,
as Investment Manager for the Schroder Ventures
International Life Sciences Co-investment Scheme......... 2,602 0.02% 751 1,851 0.02%
Barings (Guernsey) Limited,
as Trustee of the Schroder UK Venture I Extension Fund... 65,000 0.61% 18,750 46,250 0.38%
Schroder UK Venture Fund III Trust....................... 114,207 1.08% 32,944 81,263 0.68%
Schroder UK Venture Fund III LP1......................... 111,640 1.05% 32,203 79,437 0.66%
Schroder UK Venture Fund III LP2......................... 55,820 0.53% 16,101 39,719 0.33%
Vinik Asset Management, L.P., VGH Partners, L.L.C., Vinik
Partners, L.P., Vinik Asset Management, L.L.C., Jeffrey
N. Vinik, Michael S. Gordon and Mark D. Hostetter(12).... 902,900 8.52% -- 902,900 7.51%
--------- ------
RGC International Investors, LDC(13)..................... 641,296 5.71% -- 641,296 5.34%
</TABLE>
Pursuant to the rules of the Securities and Exchange Commission, shares of
common stock which an individual or group has a right to acquire within sixty
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage of ownership of such
individual
40
<PAGE> 42
or group, but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown on the table.
(1) Takes into account the possible exercise of the outstanding options and
warrants granted under the Incentive Stock Option Plan, the Non-Qualified
Stock Option Plan and the Non-Qualified Warrant Plan and other unregistered
warrants which are presently exercisable.
(2) Includes presently exercisable options and warrants to purchase 248,250
shares of common stock granted to Mr. Klobnak by the Board of Directors
pursuant to Laser Vision's Incentive Stock Option Plan and Non-Qualified
Warrant Plans. Mr. Klobnak also owns 112,500 warrants and options which are
not presently exercisable.
(3) Includes presently exercisable warrants and options to purchase 197,450
shares of common stock granted to Mr. May by the Board of Directors
pursuant to the Non-Qualified Warrant Plans and the Incentive Stock Option
Plan. The shares offered by Mr. May in this offering will be issued upon
his exercise of 50,000 of such options or warrants. Mr. May also owns
95,000 warrants and options which are not presently exercisable.
(4) Beneficial ownership established by virtue of membership on the Board of
Directors of Laser Vision as the representative of Schroder Ventures Life
Science Advisors, Inc., an affiliate of the holders of 866,687 shares of
Laser Vision's common stock. Includes presently exercisable options granted
to Dr. Simon and Mr. Garvey, respectively, by the Board of Directors to
purchase 15,825 shares of common stock each pursuant to the Non-Qualified
Stock Option Plan. Each also owns 34,175 options which are not presently
exercisable. The shares being offered are held by various entities
represented by Schroder Ventures Life Science Advisors, Inc.
(5) Includes presently exercisable warrants and options to purchase 175,825
shares of common stock granted to Dr. Lindstrom by the Board of Directors
pursuant to the Non-Qualified Option Plan and Non-Qualified Warrant Plans
as a director and medical director to Laser Vision and to acquire an
excimer laser from Dr. Lindstrom. The shares offered by Dr. Lindstrom in
this offering will be issued upon his exercise of 120,000 of such options
and warrants. Dr. Lindstrom also owns 94,175 options and warrants which are
not presently exercisable.
(6) Includes presently exercisable options to purchase 15,825 shares of common
stock granted to Mr. Straus by the Board of Directors pursuant to the
Non-Qualified Option Plan. The shares offered by Mr. Straus in this
offering will be issued upon his exercise of 14,000 of such options. Mr.
Straus also owns 34,175 options which are not presently exercisable.
(7) Includes presently exercisable warrants and options to purchase 171,000
shares of common stock granted to Mr. Wachtman by the Board of Directors
pursuant to the Incentive Stock Option Plan and the Non-Qualified Warrant
Plans. The shares offered by Mr. Wachtman in this offering will be issued
upon his exercise of 50,000 of such options or warrants. Mr. Wachtman also
owns 117,000 warrants and options which are not presently exercisable.
(8) Includes presently exercisable warrants and options to purchase 137,500
shares of common stock granted to Mr. Bono by the Board of Directors
pursuant to the Incentive Stock Option Plan and the Non-Qualified Warrant
Plans. The shares offered by Mr. Bono will be issued upon his exercise of
50,000 of such options or warrants. Mr. Bono also owns 95,000 warrants and
options which are not presently exercisable.
(9) Includes 1,375 warrants and options to purchase 1,375 shares of common
stock granted to Mr. Tiffany by the Board of Directors pursuant to the
Incentive Stock Option Plan and the Non-Qualified Stock Option Plan and the
Non-Qualified Warrant Plan. Mr. Tiffany also owns 38,625 warrants and
options which are not presently exercisable.
(10) Includes presently exercisable options and warrants to purchase an
aggregate of 755,575 shares of common stock granted to four executive
officers (two of which are also directors) of Laser Vision. The shares
offered by the officers and directors will be the result of their exercise
of 284,000 of such
41
<PAGE> 43
options and warrants. An additional 495,625 options and warrants to
purchase shares of common stock are owned but are not presently exercisable
by these executive officers.
(11) Includes presently exercisable options and warrants to purchase an
aggregate of 669,000 shares of common stock granted to directors (two of
which are also executive officers of Laser Vision). An additional 441,700
options and warrants to purchase shares of common stock are owned but not
presently exercisable by these directors or their affiliates.
(12) Vinik Asset Management, L.P. and Vinik Partners, L.P. are Delaware limited
partnerships. VGH Partners, L.L.C. and Vinik Asset Management, L.L.C. are
Delaware limited liability companies. Jeffrey N. Vinik, Michael S. Gordon
and Mark D. Hostetter are U.S. citizens.
(13) RGC International Investors, LDC owns 200,000 vested warrants and 325,000
shares of Series B Convertible Preferred Stock, which could convert within
60 days into 441,296 shares of common stock.
As required by the Securities and Exchange Commission rules under Section
16 of the Securities and Exchange Act of 1934, Laser Vision notes that during
the fiscal year ended April 30, 1998 and subsequent interim periods, all reports
regarding transactions in Laser Vision's common stock were timely filed.
DESCRIPTION OF SECURITIES
The Shares offered hereby are shares of common stock of Laser Vision.
Dividends may be paid on the common stock of Laser Vision at the discretion of
the Board of Directors, but no dividend or distribution may be made to holders
of common stock other than a dividend payable in common stock of Laser Vision
until all accrued dividends on preferred stock of Laser Vision have been paid.
The common stock has exclusive voting power except as required by law and except
to the extent that voting rights are granted in connection with the issue of
preferred stock. There are no preemptive rights in conjunction with ownership of
the common stock of Laser Vision.
Laser Vision's Amended Certificate of Incorporation contains an
anti-takeover provision which makes it a less attractive target for an
acquisition of control by an outsider who does not have the support of Laser
Vision's Board of Directors. This provision requires an affirmative vote of 80%
of all outstanding shares to approve certain business combinations involving
entities owning beneficially at least 10% of Laser Vision's shares. It also
requires that such business combinations be approved by a majority of the
outstanding shares, excluding any shares owned beneficially by entities seeking
to participate in such business combinations.
Laser Vision's Amended Certificate of Incorporation authorizes the issuance
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by the Board of Directors. Accordingly,
the Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
Laser Vision's common stock, thus making it difficult for a third party to
obtain voting control of Laser Vision. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of Laser Vision.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, there will be 12,017,134 shares of common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option or any outstanding warrants, options or convertible preferred stock,
except for exercises of warrants and options by selling stockholders resulting
in the issuance of shares sold in this offering). Of these 12,017,134 shares of
common stock, 11,229,706 shares (including the 1,720,000 shares sold in this
offering), will be freely tradable without restriction or further registration
under the Securities Act, except that (i) 772,644 of such shares are subject to
90 day lock-up agreements ("Lock Up Agreements") with the representatives of the
42
<PAGE> 44
underwriters and will be available to be sold 90 days after the date of this
prospectus, and (ii) any of such shares purchased or owned by "affiliates" of
Laser Vision Centers, Inc., as that term is defined in "Rule 144" under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below. All of the 772,644 shares of common stock (the
"Restricted Stock") are deemed "restricted securities" under Rule 144.
Laser Vision and certain of its stockholders who will hold 772,644 shares
of common stock in the aggregate immediately following the closing of the
offering have agreed that, without the prior consent of A.G. Edwards & Sons,
Inc., on behalf of the underwriters, they will not, during the period ending 90
days after the date of this prospectus offer, sell, assign, transfer, encumber,
pledge, contract to sell, grant an option to purchase or otherwise dispose of,
other than by operation of law, shares of common stock owned or deemed to be
beneficially owned by them, except, in certain instances, shares of common stock
that are not "restricted securities" and are otherwise freely tradable by them.
A.G. Edwards & Sons, Inc. may release Laser Vision or the stockholders from
these restrictions, in whole or in part, at any time in its sole discretion.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the registration statement of which this prospectus is a
part, a stockholder, including an affiliate, who has beneficially owned
restricted securities for at least one year from the later of the date such
securities were acquired from Laser Vision, or (if applicable) the date they
were acquired from an affiliate, is entitled to sell, within any three month
period, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of common stock (approximately 120,170 shares after the
offering) or the average weekly trading volume in the common stock during the
four calendar weeks proceeding the date on which notice of such sale was filed
under Rule 144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition, under
Rule 144(k), if a period of at least two years has elapsed between the later of
the date restricted securities were acquired from Laser Vision, or (if
applicable) the date they were acquired from an affiliate of Laser Vision, a
stockholder who is not an affiliate of Laser Vision at the time of sale and has
not been an affiliate for at least three months prior to the sale is entitled to
sell the shares immediately without compliance with the foregoing requirements
under Rule 144.
Laser Vision has filed registration statements on Form S-8 under the
Securities Act to register 2,950,000 shares common stock issuable under its
Incentive Stock Option Plan, Non-Qualified Stock Option Plan and Non-Qualified
Warrant Plan. The resale of shares issued upon the exercise of stock options or
warrants or other rights thereunder will be restricted and subject to Rule 144
limitations applicable to affiliates of Laser Vision and to the Lock Up
Agreements noted above, if applicable.
No prediction can be made as to the effect, if any, that market sales of
shares of common stock, or the availability of shares for sale, will have on the
market price of the common stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of common stock in the public market
could adversely affect the market price of the common stock and could impair
Laser Vision's future ability to raise capital through an offering of its equity
securities.
43
<PAGE> 45
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
Laser Vision, the selling stockholders and the representatives on behalf of the
underwriters, the underwriters have agreed severally to purchase from Laser
Vision and the selling stockholders the following respective number of shares of
common stock at the offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
A.G. Edwards & Sons, Inc....................................
Prudential Securities Incorporated..........................
-------
Total.....................................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will purchase all such shares of the common stock if any of such
shares are purchased. The underwriters are obligated to take and pay for all of
the shares of common stock offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
The representatives of the underwriters have advised Laser Vision and the
selling shareholders that they propose to offer such shares of common stock to
the public at the offering price set forth on the cover page of this prospectus
and to certain dealers at such price less a concession not in excess of
$ per share. The underwriters may allow, and such dealers may re-allow,
a concession not in excess of $ per share to certain other dealers.
After the offering, the offering price and other selling terms may be changed by
the underwriters.
Pursuant to the underwriting agreement, Laser Vision has granted to the
underwriters an option, exercisable for thirty (30) days after the date of this
prospectus, to purchase up to 258,000 additional shares of common stock at the
offering price, less the underwriting discounts and commissions set forth on the
cover page of this prospectus, solely to cover over-allotments.
To the extent that the underwriters exercise such option, the underwriters
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth to such
Underwriter's name in the preceding table bears to the total number of shares in
such table, and Laser Vision will be obligated, pursuant to the option, to sell
such shares to the underwriters.
Laser Vision and each of its directors and executive officers, the related
interests of such directors and executive officers and the selling stockholders
have agreed not to sell or otherwise dispose of any shares of common stock for a
period of ninety days after the date of this prospectus without the prior
written consent of A.G. Edwards & Sons, Inc. A.G. Edwards may, in its sole
discretion, allow any of such parties to dispose of common stock or other
securities prior to the expiration of such 90-day period. There are, however, no
agreements between A.G. Edwards and such parties that would allow them to do so
as of the date of this prospectus. See "Risk Factors -- ."
44
<PAGE> 46
The following table summarizes the discounts and commissions to be paid to
the underwriters by Laser Vision and the selling stockholders in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
<TABLE>
<CAPTION>
PAID BY PAID BY
LASER VISION SELLING STOCKHOLDERS
-------------------- --------------------
NO FULL NO FULL
EXERCISE EXERCISE EXERCISE EXERCISE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Per share..................................... $ $ $ $
Total.........................................
</TABLE>
Laser Vision expects to incur expenses of approximately $ in
connection with this offering.
Laser Vision and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.
Until the distribution of the common stock is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members to bid for and purchase the common stock. As an exception to these
rules, the underwriters are permitted to engage in certain transactions that
stabilize, maintain or otherwise affect the price of the common stock.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell a greater aggregate number of
shares of common stock than is set forth on the cover page of this prospectus,
the underwriters may reduce the short position by purchasing shares of common
stock in the open market. This is known as a "syndicate covering transaction."
The underwriters may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
The underwriters may also impose a penalty bid on certain selling group
members. This means that if the underwriters purchase common stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the common stock, it may reclaim the amount of the selling concession
from the selling group members who sold those shares of common stock as part of
the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither Laser Vision nor the representatives make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
Laser Vision nor the representatives make any representation that the
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock offered hereby and certain other legal
matters will be passed upon for Laser Vision by Dankenbring Greiman Osterholt &
Hoffmann, P.C., St. Louis, Missouri. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Bryan Cave LLP, St.
Louis, Missouri.
EXPERTS
The consolidated financial statements of the Company as of April 30, 1998
and 1997 and for each of the three years in the period ended April 30, 1998
included in this prospectus and the consolidated financial statements
incorporated by reference to the Annual Report on Form 10-K of Laser Vision,
Inc.
45
<PAGE> 47
for the year ended April 30, 1998 and the audited financial statements of
Midwest Surgical Services, Inc. for the two years ended April 30, 1998 and the
audited financial statements of Refractive Surgical Resources, Inc. for the year
ended April 30, 1998 included in Laser Vision Centers, Inc. Form 8-K/A dated
February 12, 1999 have been so included or incorporated in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
46
<PAGE> 48
FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements which involve risks and
uncertainties. Such forward looking statements include:
- our belief that the market for excimer laser correction is growing
- our belief that the recent FDA approval of the sale of excimer lasers
for the treatment of hyperopia will increase the market for excimer
laser correction
- our strategy to (i) expand the use of our mobile excimer laser systems
(ii) expand our market share through purchasing additional excimer
lasers and setting up new fixed site lasers across the U.S., (iii)
utilize target marketing among "baby boomers" and other population
groups, and (iv) expand the scope of our vision correcting services,
such as cataract services, through acquisitions of related businesses
and by providing development opportunities to eye surgeon practices and
community hospitals
- our belief that expected economies of scale and geographic coverage of
our network of affiliated doctors will improve our competitive position
to obtain managed care contracts
- our belief that we will be able to conform our operations in all
material respects to applicable health care laws and obtain required
licenses and certificates of need
- other statements preceded by, followed by or that include the words
"believes," "expects," "intends," "anticipates," "potential" and other
similar expressions
We claim the protection of the safe harbor for forward looking statements
contained in the Private Securities Litigation Reform Act of 1995 for the
foregoing statements. The following important factors, in addition to those
discussed elsewhere in this prospectus, could affect our future results and
could cause those results to differ materially from those expressed in the
forward looking statements:
- our limited operating history, prior losses from operations and the
uncertainty of future profits
- the uncertainty of market acceptance of excimer laser correction
- obsolescence of equipment
- price decreases of lasers
- our dependence on affiliated doctors
- competition in providing excimer laser correction, secondary care and
managed care
- quarterly fluctuations in our operating results
- potential side effects and long-term results of excimer laser correction
- potential malpractice liability and the availability of insurance
- our ability to manage growth
- our inability to execute our acquisition strategy
- the risk of continued reduction of reimbursement rates for secondary
care
- risks associated with compliance with applicable federal and state laws
concerning health care and related matters
- risks associated with technological changes
47
<PAGE> 49
- dependence on key personnel
- risks associated with intellectual property and propriety technology
- other risks described in "Risk Factors"
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Commission. We have filed with the Commission a registration statement on Form
S-3 under the Securities Act to register the offering of the shares of common
stock offered hereby. This prospectus constitutes a part of the registration
statement. Prospective investors may read and copy the registration statement
and its exhibits and schedules without charge at the Public Reference Room
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Prospective investors may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. In addition, we are
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web Site at
http:www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents, previously filed by Laser Vision with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference:
(1) Laser Vision's Annual Report on Form 10-K for the year ended April 30, 1998.
(2) Laser Vision's Quarterly Reports on Form 10-Q and 10-Q/A for the quarters
ended January 31, 1999, October 31, 1998 and July 31, 1998.
(3) Laser Vision's Current Report on Form 8-K/A filed with the Commission on
February 12, 1999.
(4) Laser Vision's Current Report on Form 8-K filed with the Commission on
December 22, 1998.
(5) The description of Laser Vision's common stock contained in its registration
statement on Form 8-A filed with the Commission on November 5, 1993.
All reports and other documents filed by us pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus
and prior to the termination of this offering shall be deemed to be incorporated
by reference into this prospectus and shall be a part hereof from the date of
filing of such reports and documents. Any statement incorporated herein shall be
deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
Laser Vision will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus is delivered, upon such
person's written or oral request that includes the address (including title or
department) and telephone number to which such information is to be directed, a
copy of any and all information incorporated by reference in this prospectus
(other than exhibits to the information that is incorporated by reference,
unless such exhibits are specifically incorporated by reference herein).
Requests for such copies should be directed to Laser Vision at its principal
executive offices located at 540 Maryville Centre Drive, Suite 200, St. Louis,
Missouri 63141, telephone (314) 434-6900, Attention: Robert W. May.
48
<PAGE> 50
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet................................ F-3
Consolidated Statement of Operations...................... F-5
Consolidated Statement of Changes in Stockholders'
Equity................................................. F-6
Consolidated Statement of Cash Flow....................... F-7
Notes to Consolidated Financial Statements................ F-9
Unaudited Pro Forma Combined Statements of Operations....... F-23
</TABLE>
F-1
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Laser Vision Centers, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Laser Vision Centers, Inc. and its subsidiaries at April 30, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended April 30, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
June 12, 1998, except as to Note 17,
which is as of January 1, 1999
F-2
<PAGE> 52
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, 1997 APRIL 30, 1998 JANUARY 31, 1999
-------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents..................... $ 3,794,000 $ 8,430,000 $ 8,272,000
Restricted cash............................... 461,000 471,000 545,000
Accounts receivable, net...................... 1,719,000 3,503,000 8,186,000
Inventory..................................... 538,000 1,185,000 2,142,000
Prepaid expenses and other current assets..... 377,000 686,000 1,849,000
Deferred tax asset............................ -- -- 944,000
----------- ----------- -----------
Total current assets..................... 6,889,000 14,275,000 21,938,000
EQUIPMENT
Laser equipment............................... 12,617,000 16,485,000 20,360,000
Medical equipment............................. 750,000 713,000 2,530,000
Mobile equipment.............................. 1,599,000 3,498,000 6,978,000
Furniture and fixtures........................ 1,316,000 1,374,000 1,664,000
Accumulated depreciation...................... (3,799,000) (7,879,000) (11,710,000)
----------- ----------- -----------
Total equipment, net..................... 12,483,000 14,191,000 19,822,000
OTHER ASSETS
Restricted cash............................... 1,239,000 974,000 804,000
Goodwill, net................................. 836,000 678,000 6,548,000
Tradename and service mark costs, net......... 136,000 113,000 98,000
Deferred contract rights...................... 1,238,000 -- --
Future services obtained for issuance of
warrants and options, net.................. -- 539,000 510,000
Rent deposits and other, net.................. 49,000 59,000 175,000
----------- ----------- -----------
Total other assets....................... 3,498,000 2,363,000 8,135,000
----------- ----------- -----------
Total assets............................. $22,870,000 $30,829,000 $49,895,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 53
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, 1997 APRIL 30, 1998 JANUARY 31, 1999
-------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion of notes payable.............. $ 1,003,000 $ 2,365,000 $ 5,373,000
Current portion of capitalized lease
obligations................................ 690,000 672,000 1,443,000
Line of credit................................ -- 268,000
Accounts payable.............................. 2,078,000 2,667,000 5,770,000
Accrued compensation.......................... 616,000 981,000 1,397,000
Other accrued liabilities..................... 848,000 2,036,000 1,909,000
----------- ----------- -----------
Total current liabilities................ 5,235,000 8,721,000 16,160,000
NON-CURRENT LIABILITIES
Notes payable................................. 4,544,000 5,907,000 6,278,000
Capitalized lease obligations................. 1,589,000 678,000 2,303,000
Deferred revenue.............................. 134,000 30,000 --
----------- ----------- -----------
Total non-current liabilities............ 6,267,000 6,615,000 8,581,000
MINORITY INTEREST............................... -- -- 282,000
COMMITMENTS AND CONTINGENCIES
CONTINGENT EQUITY, COMMON STOCK AND STOCK
OPTIONS ISSUED FOR CONTRACT RIGHTS (NOTE 4)... 1,092,000 -- --
STOCKHOLDERS' EQUITY
Preferred stock -- 6,000 shares of Series B
Convertible issued at $1,000 par value,
3,250 shares outstanding (includes
preferred dividends)....................... -- 3,390,000 3,512,000
Common stock, par value of $.01 per share,
50,000,000 shares authorized; 8,817,057,
9,687,323 and 10,568,694 shares issued and
outstanding, respectively.................. 88,000 97,000 106,000
Warrants and options.......................... 36,000 1,378,000 1,387,000
Paid-in capital............................... 38,663,000 42,635,000 48,322,000
Accumulated deficit........................... (28,511,000) (32,007,000) (28,455,000)
----------- ----------- -----------
Total stockholders' equity............... 10,276,000 15,493,000 24,872,000
----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $22,870,000 $30,829,000 $49,895,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 54
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED APRIL 30, ENDED JANUARY 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................ $ 3,918,000 $ 8,238,000 $23,469,000 $15,666,000 $33,574,000
Cost of revenue
Royalty fees and professional
medical services.......... 360,000 1,985,000 8,030,000 5,389,000 11,416,000
Depreciation and
amortization.............. 1,973,000 3,472,000 4,435,000 3,224,000 3,885,000
Other costs.................. 1,907,000 2,133,000 4,285,000 3,119,000 7,045,000
----------- ------------ ----------- ----------- -----------
Gross profit (loss)..... (322,000) 648,000 6,719,000 3,934,000 11,228,000
Selling, general and
administrative expense....... 5,831,000 9,719,000 9,592,000 7,078,000 7,927,000
Fixed asset impairment
provision (Note 6)........... 3,063,000 2,772,000 -- -- --
----------- ------------ ----------- ----------- -----------
Income (loss) from
operations........... (9,216,000) (11,843,000) (2,873,000) (3,144,000) 3,301,000
Other income (expense)
Minority interest in net
(income) loss of
subsidiary................ 192,000 103,000 (22,000)
Interest and other income.... 437,000 268,000 377,000 257,000 306,000
Interest and other expense... (216,000) (597,000) (1,000,000) (736,000) (835,000)
----------- ------------ ----------- ----------- -----------
Net income (loss) before
taxes................ (8,803,000) (12,069,000) (3,496,000) (3,623,000) 2,750,000
Income tax benefit............. -- -- -- -- 802,000
----------- ------------ ----------- ----------- -----------
Net income (loss)....... (8,803,000) (12,069,000) (3,496,000) (3,623,000) 3,552,000
Preferred dividends............ (439,000) (126,000) (198,000) (155,000) (122,000)
----------- ------------ ----------- ----------- -----------
Net income (loss) applicable to
common stockholders.......... $(9,242,000) $(12,195,000) $(3,694,000) $(3,778,000) $ 3,430,000
=========== ============ =========== =========== ===========
Net income (loss) per
share -- basic....... $ (1.75) $ (1.45) $ (.40) $ (0.42) $ 0.34
=========== ============ =========== =========== ===========
Net income (loss) per
share -- diluted..... $ (1.75) $ (1.45) $ (.40) $ (0.42) $ 0.31
=========== ============ =========== =========== ===========
Weighted average number of
common shares outstanding --
basic........................ 5,278,000 8,421,000 9,178,000 9,055,000 9,987,000
Weighted average number of
common shares outstanding --
diluted...................... 5,278,000 8,421,000 9,178,000 9,055,000 11,574,000
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 55
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
PREFERRED --------------------- PAID-IN ACCUMULATED WARRANTS STOCKHOLDERS'
STOCK SHARES AMOUNT CAPITAL DEFICIT AND OPTIONS EQUITY
----------- ---------- -------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995....... -- 4,452,555 $ 45,000 $13,943,000 $(7,639,000) -- $ 6,349,000
Exercise of incentive and
non-qualified options.......... -- 100,210 1,000 468,000 -- -- 469,000
Exercise of C, D, non-qualified,
underwriter and other
warrants....................... -- 363,294 3,000 2,137,000 -- -- 2,140,000
Exercise of Class B and F
warrants....................... -- 1,159,690 12,000 6,910,000 -- -- 6,922,000
Issuance of common stock in
private offering............... -- 242,218 2,000 1,143,000 -- -- 1,145,000
Issuance of common stock in
conjunction with acquisitions
(Note 5)....................... -- 98,026 1,000 911,000 -- -- 912,000
Costs associated with issuance
of convertible preferred stock
with mandatory redemption
provision...................... -- -- -- (1,242,000) -- -- (1,242,000)
Dividends accrued on convertible
preferred stock with mandatory
redemption in 2005 (Note 10)... -- -- -- (439,000) -- -- (439,000)
Net loss for the year ended
April 30, 1996................. -- -- -- -- (8,803,000) -- (8,803,000)
----------- ---------- -------- ----------- ------------ ------------ ------------
Balance at April 30, 1996....... -- 6,415,993 64,000 23,831,000 (16,442,000) -- 7,453,000
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 with mandatory
redemption in 2005 (Note 10)... -- -- -- (126,000) -- -- (126,000)
Conversion of preferred stock
with mandatory redemption in
2005 (Note 10)................. -- 2,349,991 24,000 14,641,000 -- -- 14,665,000
Warrants and options issued
(Note 15)...................... -- -- -- -- -- $ 36,000 36,000
Shares issued to 401(k) plan for
employees...................... -- 1,674 -- 10,000 -- -- 10,000
Net loss for the year ended
April 30, 1997................. -- -- -- -- (12,069,000) -- (12,069,000)
----------- ---------- -------- ----------- ------------ ------------ ------------
Balance at April 30, 1997....... -- 8,817,057 88,000 38,663,000 (28,511,000) 36,000 10,276,000
Issuance of preferred stock
(Note 10)...................... $ 6,000,000 -- -- (875,000) -- 362,000 5,487,000
Exercise of incentive and
non-qualified options and
warrants....................... -- 410,123 4,000 2,178,000 -- -- 2,182,000
Dividends accrued on convertible
preferred stock (Note 10)...... 198,000 -- -- (198,000) -- -- --
Conversion of preferred stock... (2,808,000) 452,146 5,000 2,803,000 -- -- --
Warrants and options issued
(Note 15)...................... -- -- -- -- -- 980,000 980,000
Shares issued to 401(k) plan for
employees...................... -- 7,997 -- 64,000 -- -- 64,000
Net loss for the year ended
April 30, 1998................. -- -- -- -- (3,496,000) -- (3,496,000)
----------- ---------- -------- ----------- ------------ ------------ ------------
Balance at April 30, 1998....... 3,390,000 9,687,323 97,000 42,635,000 (32,007,000) 1,378,000 15,493,000
Exercise of warrants and options
(unaudited).................... -- 874,583 9,000 5,717,000 -- (148,000) 5,578,000
Dividends accrued on convertible
preferred stock (unaudited).... 122,000 -- -- (122,000) -- -- --
Warrants and options issued
(unaudited).................... -- -- -- -- -- 157,000 157,000
Shares issuable to 401(k) plan
for employees (unaudited)...... -- 6,788 -- 92,000 -- -- 92,000
Net income for the nine month
period ended January 31, 1999
(unaudited).................... -- -- -- -- 3,552,000 -- 3,552,000
----------- ---------- -------- ----------- ------------ ------------ ------------
Balance at January 31, 1999
(unaudited).................... $ 3,512,000 10,568,694 $106,000 $48,322,000 $(28,455,000) $ 1,387,000 $ 24,872,000
=========== ========== ======== =========== ============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 56
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED APRIL 30, ENDED JANUARY 31,
------------------------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES
Net income (loss)........................... $ (8,803,000) $(12,069,000) $(3,496,000) $(3,623,000) $ 3,552,000
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 2,203,000 3,910,000 4,925,000 3,600,000 4,335,000
Fixed asset impairment.................... 3,063,000 2,772,000 -- --
Deferred income taxes..................... (944,000)
Imputed interest.......................... 74,000 -- -- -- --
Compensation paid in common stock options
and warrants............................ -- 46,000 326,000 249,000 311,000
Minority interest in net income (loss) of
subsidiary.............................. (192,000) (103,000) -- -- 22,000
Changes in assets and liabilities, net of
effect of acquisitions:
Decrease (increase) in accounts
receivable.............................. 23,000 (914,000) (1,784,000) (1,650,000) (3,343,000)
Increase in inventory..................... (87,000) (378,000) (647,000) (434,000) (265,000)
Increase in prepaid expenses and other
current assets.......................... (232,000) (54,000) (146,000) (235,000) (710,000)
Increase in accounts payable.............. 380,000 1,581,000 590,000 570,000 2,465,000
Increase (decrease) in accrued
liabilities............................. 746,000 (479,000) 1,257,000 494,000 (1,089,000)
------------ ------------ ----------- ----------- -----------
Net cash provided by (used in) operating
activities................................ (2,825,000) (5,688,000) 1,025,000 (1,029,000) 4,334,000
CASH FLOWS -- INVESTING ACTIVITIES
Equipment acquisitions and deposits......... (7,678,000) (4,586,000) (4,132,000) (2,960,000) (3,905,000)
Business acquisitions and other............. (223,000) (93,000) (13,000) (18,000) (3,246,000)
------------ ------------ ----------- ----------- -----------
Net cash used in investing activities....... (7,901,000) (4,679,000) (4,145,000) (2,978,000) (7,151,000)
CASH FLOWS -- FINANCING ACTIVITIES
Proceeds from exercise of stock options and
warrants.................................. 9,531,000 107,000 2,182,000 1,319,000 5,578,000
Proceeds from private offering, preferred... -- -- 6,000,000 6,000,000 --
Private placement offering costs,
preferred................................. -- -- (513,000) (513,000) --
Return (deposit) of restricted cash......... -- (50,000) 255,000 126,000 96,000
Proceeds from private offering, redeemable
preferred................................. 14,100,000 -- -- -- --
Private placement offering costs, redeemable
preferred................................. (1,117,000) -- -- -- --
Proceeds from private offerings, common..... 1,220,000 -- -- -- --
Private placement offering costs, common.... (75,000) -- -- -- --
Principal payments under capitalized lease
obligations, notes payable and line of
credit.................................... (2,387,000) (2,716,000) (2,031,000) (1,379,000) (3,015,000)
Proceeds from loan financings............... -- 4,148,000 1,863,000 1,863,000 --
------------ ------------ ----------- ----------- -----------
Net cash provided by financing activities... 21,272,000 1,489,000 7,756,000 7,416,000 2,659,000
------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 10,546,000 (8,878,000) 4,636,000 3,409,000 (158,000)
Cash and cash equivalents at beginning of
period.................................... 2,126,000 12,672,000 3,794,000 3,794,000 8,430,000
------------ ------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................... $ 12,672,000 $ 3,794,000 $ 8,430,000 $7,203,000 $ 8,272,000
============ ============ =========== =========== ===========
</TABLE>
F-7
<PAGE> 57
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED APRIL 30, ENDED JANUARY 31,
------------------------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NON-CASH INVESTING AND FINANCING
Conversion of preferred stock, accrual of
preferred dividends, and value assigned
to warrants............................. -- $ 14,665,000 $ 2,571,000 $1,596,000 $ 122,000
Restricted cash upon issuance of capital
leases.................................. -- 1,650,000 -- -- --
Management Services Agreements:
Stock and stock options (returned)
issued for contract rights............ -- 1,092,000 (1,092,000) -- --
Contract rights surrendered............. -- -- 1,044,000 -- --
Equipment returned...................... -- -- 233,000 -- --
Lease obligation transferred............ -- -- 215,000 -- --
Warrants and options issued for
equipment purchase and future
services.............................. -- -- 718,000 -- --
Sale of assets to limited liability
partnership............................. -- -- -- -- 260,000
Notes payable issued to acquire RSR and
MSS..................................... -- -- -- -- 3,141,000
Adjustment of value of common stock and
stock options issued for contract
rights.................................. -- -- -- 218,000 96,000
Capital lease obligations and notes
payable related to laser and equipment
purchases............................... $ 2,611,000 1,045,000 2,177,000 925,000 2,466,000
Accrued dividends and offering costs,
private placement redeemable
preferred............................... 564,000 126,000 -- -- --
Acquisitions--Fair value of assets
acquired.................................. 1,676,000 -- -- -- 12,536,000
Liabilities assumed, including notes
payable................................. 595,000 -- -- -- 9,268,000
Common stock issued....................... 912,000 130,000 -- -- --
Cash paid................................. 169,000 193,000 -- -- 3,268,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest................................ $ 127,000 $ 587,000 $ 1,010,000 $ 725,000 $ 835,000
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE> 58
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF ORGANIZATION
Laser Vision Centers, Inc. (the Company) provides access to excimer lasers
and related services for the treatment of refractive vision disorders and at
April 30, 1998 owned 40 excimer lasers which are available for use in the United
States, Canada or Europe. The Company is also the world's largest operator of
mobile excimer laser systems and provides mobile laser access with two different
types of mobile support equipment including the patented MobilExcimer(R)
surgical suite which received FDA approval in April 1997 and another system
which is used to move excimer lasers into qualified ambulatory surgery centers
and physician's offices. The excimer laser can be used to treat refractive
vision disorders such as nearsightedness, farsightedness and astigmatism to
eliminate or reduce the need for corrective lenses. LaserVision Centers(R)
operates primarily on a shared-access model, giving individual or group
ophthalmic practices use of the technology without investment risk or
maintenance requirements, thereby improving utilization of the excimer laser
equipment. In addition, the Company provides a broad range of professional
services, including physician and staff training, technical support services and
maintenance and, through its MarketVision division, advertising and marketing
programs and services.
Photorefractive keratectomy (PRK) involves the use of an excimer laser to
reshape the cornea, thereby adjusting its refractive power, which in turn
eliminates or reduces the need for corrective lenses. Most of the Company's
lasers were manufactured by VISX, Incorporated (VISX) which has received
approval by the United States Food and Drug Administration (FDA) for use of
their excimer lasers to perform PRK for myopia and astigmatism. In addition to
such procedures, excimer lasers can also be used with microkeratomes to perform
procedures known as laser in situ keratomileusis (LASIK). While LASIK has not
been specifically approved in the U.S. by the FDA, it has been widely adopted by
U.S. ophthalmologists and is treated by the FDA as a practice of medicine
matter.
The Company has operated excimer laser centers in Canada, Europe and the
U.S. since 1991, 1993 and 1995, respectively. The Company currently provides
excimer lasers and related services to fixed site centers in the U.S., Canada,
United Kingdom, Finland, Greece, and Sweden and provides mobile services in the
U.S., Canada, United Kingdom, and Ireland. The Company's mobile access strategy
makes it possible to provide excimer laser access to additional locations
without having to purchase a separate laser for each location. In the United
States, fixed site laser centers are operated in conjunction with Columbia/ HCA
Healthcare Corporation or by the Company independently or through joint
operating agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, as well as the reported amounts
of revenue and expenses. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS
The Company considers unrestricted cash, as well as short-term investments
purchased with an original maturity of three months or less, to be cash
equivalents. At April 30, 1998, cash and cash equivalents included $4,651,000 of
money market funds and at April 30, 1997 $1,943,000 of money market funds and
$1,488,000 of short-term government obligations and commercial paper.
F-9
<PAGE> 59
FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the
fair value of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, restricted cash, notes payable and capitalized
lease obligations approximates book value at April 30, 1998 and 1997, based on
terms currently available to the Company in financial markets.
CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of funds held in commercial
paper, money market accounts and trade receivables.
As of April 30, 1998 and 1997, the Company has deposited $4,651,000 and
$3,431,000, respectively, in government obligations, commercial paper and money
market accounts at financial institutions. Management believes the credit risk
related to these funds is limited due to the short-term nature of the accounts.
One customer with multiple locations accounted for 21%, 24% and 3% of total
revenues in fiscal 1998, 1997 and 1996, respectively and 17% of accounts
receivable at April 30, 1998. Management believes the credit risk related to its
trade receivables, and the patient notes with recourse to the Company, is
limited due to the Company's large number of customers and that its allowance
for doubtful accounts is adequate.
INVENTORY
Inventory consists of key cards which operate the lasers and is recorded at
cost.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Long-lived assets determined to
be impaired are stated at the estimated fair value at the date impairment was
determined. Expenditures for repairs and maintenance are charged to expense as
incurred. Depreciation and amortization are computed utilizing the straight-line
method. In the opinion of management, this method is adequate to allocate the
cost of equipment over its estimated useful lives which range from four to five
years. Depreciation for lasers, mobile equipment and medical equipment is
included in cost of revenue. Depreciation for leasehold improvements, furniture
and fixtures is classified as a selling, general and administrative expense.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets when events or
changes in circumstances indicate that an asset's carrying value may not be
recoverable. In reviewing for impairment, if the carrying value of an asset is
greater than the sum of the undiscounted projected cash flows attributable to
that asset, an impairment loss is recognized. The impairment loss is based on
the fair value of the asset which is determined based on market prices,
discounted cash flows or the best information available.
OTHER ASSETS
Costs of goodwill, tradename, servicemark and deferred contract rights are
being amortized over 5 to 15 years. The carrying value of goodwill is assessed
for recoverability by management based on an analysis of future expected cash
flows from the underlying operations of the Company. To the extent expected
future discounted cash flows are less than the carrying value of goodwill, a
writedown of goodwill to the extent of such shortfall may be recognized.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") which defines
F-10
<PAGE> 60
the fair value based method of accounting for stock options, purchase and award
plans. SFAS 123 allows companies to use the fair value method defined in the
Statement or to continue use of the intrinsic value method as outlined in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company utilizes APB 25 for accounting for employee
stock options and warrants. See Note 15 for the pro forma impact on the net loss
per share for the fiscal years ended April 30, 1998, 1997 and 1996.
For all equity instruments issued to non-employees, the fair value is
determined and recorded using the Black-Scholes option pricing model for options
and warrants, or the market price for common stock, at the date of grant or
issuance.
REVENUE
Laser revenue is recognized when the surgical procedures are performed.
Advertising revenue is recognized as earned, upon delivery of print media or
upon broadcast of TV or radio advertisements.
COST OF REVENUE
Cost of revenue includes laser and medical equipment depreciation, laser
maintenance including optics and gasses, per procedure royalty fees, mobile
equipment travel, laser technician salaries, professional medical services and
medical supplies for the LaserVision Centers division. For the MarketVision
division, client media and production costs are expensed when the revenue is
earned. Advertising costs are expensed as incurred and included in selling,
general and administrative expenses for the LaserVision Centers division.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the difference
between the income tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. See Note 11 for discussion of income taxes.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign subsidiaries are maintained in their
respective local currencies. The accompanying consolidated financial statements
have been translated and adjusted to reflect U.S. dollars on the bases presented
below.
Assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Foreign currency translation adjustments
and transaction gains and losses are immaterial amounts and are included in
earnings currently.
LOSS PER SHARE
In March 1997, FASB issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" (FAS 128), which requires public entities to present
both basic and diluted earnings per share amounts on the face of their financial
statements, replacing the former calculations of primary and fully diluted
earnings per share. The Company adopted FAS 128 effective with the beginning of
its fiscal 1998 third quarter. See Note 3 for discussion of income (loss) per
share calculations.
SEGMENT DISCLOSURE
In June 1997, the FASB issued FAS 131, "Disclosures about Segments of an
Enterprise and Related Information", effective for periods beginning after
December 15, 1997. FAS 131 supersedes FAS 14, "Financial Reporting for Segments
of a Business Enterprise." FAS 131 establishes standards for the way
F-11
<PAGE> 61
public business enterprises report financial and descriptive information about
the reportable operating segments in their financial statements. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company continues to evaluate the provisions of FAS
131 to determine the impact of the revised disclosure requirements on its fiscal
1999 financial statements.
UNAUDITED INTERIM FINANCIAL INFORMATION
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 also contained
herein. The unaudited interim consolidated financial statements at January 31,
1999 and January 31, 1998, and for the nine months then ended, include all
normal recurring adjustments which management considers necessary for a fair
presentation. The results for 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 Laser Vision and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
3. INCOME (LOSS) PER SHARE
YEAR END LOSS PER SHARE AMOUNTS
The net loss per share was computed using the "Weighted average number of
common shares outstanding -- basic" during each period. The "Net loss per share"
for the fiscal years ended April 30, 1998, 1997 and 1996, reflects $198,000,
$126,000 and $439,000, respectively, of accrued preferred dividends. The
calculations for the fiscal years ended April 30, 1998, 1997 and 1996 exclude
the dilutive effect of stock options and warrants since their inclusion in such
calculations would have been antidilutive.
UNAUDITED INTERIM INCOME (LOSS) PER SHARE AMOUNTS
The "Net Income per Share -- Basic" for the nine months ended January 31,
1999, reflects $122,000 of accrued dividends on the Series B Convertible
preferred stock. The "Net loss per share -- basic" for the nine months ended
January 31, 1998 reflects $155,000 of accrued dividends on the Series B
Convertible Preferred Stock. The sum of the quarterly net income (loss) per
share amounts will not necessarily equal the year to date net income (loss) per
share. For nine months ended January 31, 1999, the Consolidated Statement of
Operations reflects an income tax benefit which was not applicable during the
nine months ended January 31, 1998.
"Weighted average number of common shares outstanding -- diluted" for the
nine months ended January 31, 1999 includes the dilutive effects of warrants and
options using the treasury stock method and the Series B Convertible Preferred
Stock. For the nine months ended January 31, 1999, dilutive warrants and options
were calculated using an average market price of $14.62. As of January 31, 1999,
2.9 million warrants and options were outstanding with an average exercise price
of about $9.50 each. Since MSS did not generate enough profitability during the
two months ended January 31, 1999 to earn the minimum
F-12
<PAGE> 62
contingent consideration, no shares have been included for any Laser Vision
stock issuable as contingent consideration. Diluted per share calculations
follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income (loss)........................................... $ 3,552,000 $(3,623,000)
Preferred dividends......................................... -- (155,000)
----------- -----------
Net income (loss) applicable to common stockholders.... $ 3,552,000 $(3,778,000)
=========== ===========
Weighted average number of common shares outstanding --
basic..................................................... 9,987,000 9,055,000
Dilutive securities:
Warrants and options...................................... 1,158,000 --
Preferred stock and preferred dividends................... 429,000 --
----------- -----------
Weighted average number of common shares outstanding --
diluted............................................... 11,574,000 9,055,000
=========== ===========
Net income (loss) per share -- diluted...................... $ .31 $ (.42)
</TABLE>
4. MANAGEMENT SERVICES AGREEMENTS
Effective January 1, 1997, the Company completed a management services
agreement with an ophthalmic practice whose president is a member of the
Company's Board of Directors and is also the Company's medical director. The
Company acquired certain contract rights and fixed assets for $288,000 of cash,
the issuance of 96,400 shares of common stock and 157,593 stock options with an
exercise price of $5.98 per share, the market price. The Company also assumed
certain lease obligations described in Note 9.
In April 1998, the previous management services agreement was terminated by
mutual agreement. In accordance with the termination, the ophthalmic practice
returned the previously issuable common stock and the stock options and agreed
to repay $163,000 of the cash paid by the Company upon consummation of the
original agreement. In addition the ophthalmic practice agreed to assume the
capital lease obligations that were previously transferred and the Company
returned the related ophthalmic equipment.
Upon termination of the management services agreement described above, a
new five year contract was entered with the president of the ophthalmic practice
and member of the Company's Board of Directors to provide ongoing service as the
Company's medical director for $60,000 per year. The Company has agreed to pay
another physician in the same practice $60,000 per year for five years to
provide services as a medical director for the Company. 160,000 unregistered
warrants with an average exercise price of $10.53 per share, $.28 above the
market price, were also issued to these physicians in exchange for their future
services. The practice has also agreed to exchange their right to purchase an
excimer laser at a discounted price in exchange for 60,000 stock options with an
exercise price of $10.25 per share, the market price. The ophthalmic practice
has committed to using this laser for a minimum number of procedures for five
years. These unregistered warrants and stock options are included in the
Warrants and options line in the Stockholders' equity section of the balance
sheet. The $466,000 of costs associated with these future medical services have
been deferred and will be amortized over the related service period (vesting
period when shorter).
5. ACQUISITIONS
In October 1996, the Company acquired the 49.998% minority interest in its
European subsidiary, Harley Street Laser Vision Centre, for approximately
$193,000 plus the issuance of 17,000 shares of restricted common shares with a
market value of $130,000.
In April 1996, the Company purchased certain European assets and assumed
certain liabilities of New Image Laser Centres Limited for approximately
$229,000 ($60,000 paid during fiscal 1997).
F-13
<PAGE> 63
In February 1996, the Company purchased the stock of Med-Source, Inc. for
21,845 restricted shares of the Company's common stock with a market price of
$265,000. In accordance with the purchase method of accounting, approximately
$282,000 of goodwill was recorded.
In August 1995, the Company acquired the stock and assumed certain
liabilities of Vision Correction, Inc. of Minnesota for 76,181 shares of the
Company's common stock with a market price of $648,000 issued. In accordance
with the purchase method of accounting, approximately $664,000 of goodwill was
recorded.
6. FIXED ASSET IMPAIRMENT PROVISIONS
In connection with the Company's continuing evaluation of the
recoverability of its assets, asset impairment charges were recognized in the
fourth quarter of fiscal 1997 ($2,772,000) and the fourth quarter of fiscal 1996
($3,063,000). International lasers were written down in fiscal 1996. In fiscal
1997 domestic and international lasers, as well as goodwill was written down.
The total original cost of the above equipment and goodwill written down in
fiscal 1997 was $4,534,000 and the accumulated depreciation and amortization at
the time of the write-downs was $1,404,000. The total original cost of the
equipment written down in fiscal 1996 was $9,542,000 and the accumulated
depreciation at the time of the write-downs was $4,044,000.
7. OTHER ASSETS
Other assets at April 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Goodwill, net of $261,000 and $103,000 amortization,
respectively (Notes 5 and 6).............................. $ 678,000 $ 836,000
Tradename and servicemark costs, net of $69,000 and $49,000
amortization, respectively................................ 113,000 136,000
Deferred contract rights, net of $42,000 amortization (Note
4)........................................................ -- 1,238,000
Future services obtained for issuance of warrants and
options................................................... 539,000 --
Restricted cash (Notes 8 and 12)............................ 974,000 1,239,000
Rent deposits and other, net................................ 59,000 49,000
---------- ----------
Total..................................................... $2,363,000 $3,498,000
========== ==========
</TABLE>
Restricted cash secures one of the Company's notes payable and the
Company's guarantee to a third party of notes by certain patients who elected to
finance a portion of the cost of their PRK or LASIK procedure.
8. NOTES PAYABLE
In September 1997, the Company borrowed $1,050,000 at 11.3% per annum with
a term of four years to finance the acquisition of lasers and mobile equipment.
The debt is collateralized by the same equipment. In October 1997 the Company
borrowed $813,000 from the lender which provided financing in March 1997. The
March 1997 debt agreement gave the lender the right to increase the amount
funded by the loan under similar financial terms including the receipt of 7,500
additional stock warrants. This debt bears interest at 13.6% with a term of four
years. In January 1998, the Company financed the purchase of a laser and other
medical equipment for $390,000, with interest at 9.5% for three years. The debt
is collateralized by the equipment purchased. In January and April 1998, the
Company borrowed a total of $1,837,000 at 5.8% for two to three year terms to
finance the purchase of six excimer lasers. The debt is collateralized by the
same lasers.
In October 1996 and March 1997, the Company entered into agreements to
borrow a total of $5.9 million from two different lenders over four to four and
one half years and bearing interest at 11% and 15% per annum, respectively.
These loans were secured by fifteen excimer lasers used in the U.S. The
F-14
<PAGE> 64
October loan was also secured by $1,650,000 of restricted cash which will become
available to the Company in proportion to the reduction in the principal balance
and, under certain circumstances, if financial targets are achieved. As of April
30, 1998, $353,000 of this restricted cash is classified as a current asset and
$914,000 is classified as a non-current asset. As part of the March loan
agreement, the Company also issued 25,000 warrants, exercisable within five
years, to the lender at the then current market price. At April 30, 1998 the
future maturity schedule for these notes was as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
- ---------------------
<S> <C>
1999........................................................ $2,365,000
2000........................................................ $2,538,000
2001........................................................ $2,894,000
2002........................................................ $ 475,000
</TABLE>
9. OBLIGATIONS UNDER CAPITAL LEASES
In January 1997, the Company assumed responsibility for an excimer laser
lease and a microkeratome lease with remaining lives of three and one half years
with principal payments totaling $381,000 and bearing interest at rates from 7%
to 9% per annum as part of a management services agreement, see Note 4. In
conjunction with the dissolution of the management services agreement in April
1998, the lease obligations have returned to the practice with which the
management services agreement was dissolved. In August 1996, the Company
financed an excimer laser purchase with a four year capital lease requiring
principal payments totaling $525,000 and bearing interest at 15%. During fiscal
1997, the Company financed a total of nine corneal topographer purchases for use
in the United States with three to five year capital leases requiring total
principal payments of $139,000 and bearing interest at rates from 6% to 12% per
annum.
In September 1995, the Company acquired two excimer lasers for use in the
United States. The lasers were financed by five year capital leases requiring
principal payments totaling $1,024,000 and bearing interest at 11% per annum. In
January 1996, the Company acquired two additional excimer lasers which were
financed by three and one-half year term capital leases requiring principal
payments totaling $912,000 and bearing interest at 12% per annum. Future minimum
payments under capital leases as of April 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, AMOUNT
--------------------- ----------
<S> <C>
1999........................................................ $ 793,000
2000........................................................ 585,000
2001........................................................ 117,000
2002........................................................ 26,000
----------
Total minimum lease payments................................ 1,521,000
Less amount representing interest........................... (171,000)
Less current portion........................................ (672,000)
----------
Long-term portion of obligations under capital leases....... $ 678,000
==========
</TABLE>
Assets under capital leases totaled $283,000 and $721,000, respectively, at
April 30, 1998 and 1997. Depreciation of leased assets was $136,000, $655,000
and $265,000 for the years ended April 30, 1998, 1997 and 1996, respectively. In
addition, the fixed asset impairment provision in fiscal 1997 included
$1,590,000 related to leased U.S. lasers.
10. CONVERTIBLE PREFERRED STOCK
The Company's amended Certificate of Incorporation authorize the Board of
Directors to issue 1,000,000 shares of preferred stock, in one or more series,
designated by them as to rights, preferences, terms and limitations.
F-15
<PAGE> 65
In June 1997, the Company received $6,000,000, less $513,000 of offering
costs, from the issuance of 6,000 shares of restricted Series B Convertible
preferred stock, par value $1,000, 100,000 vested stock warrants with an
exercise price of $9.39 per warrant and, effective June 1998, 100,000 vested
stock warrants with an exercise price of $17.85 per warrant. The Series B shares
accrue a 5% non-cash dividend equivalent in preferred stock per year, $198,000
for the year ended April 30, 1998. The underlying common stock was registered
with the SEC in August 1997. During fiscal 1998, a total of 2,750 Series B
preferred shares were converted to 452,146 shares of common stock. The 3,250
Series B preferred shares outstanding have a mandatory conversion requirement by
June 2001 which varies with the future market price of the Company's common
stock and is subject to an $8.05 per share maximum conversion price. As of April
30, 1998, the outstanding Series B preferred stock including accrued dividends
would have converted to 421,109 shares of common stock. The Series B preferred
shares are non-voting except in regard to issues directly affecting the
preferred stock as a class.
In October 1995, the Company received $14,100,000, less $1,242,000 of
offering costs, from the sale of 141,000 shares of restricted convertible
preferred stock with a mandatory redemption provision in 2005. These restricted
preferred shares, par value $100, converted into 2,349,991 shares of common
stock during the first half of fiscal 1997 and were registered with the SEC in
March 1997. For the fiscal years ended April 30, 1997 and 1996, dividends of
$126,000 and $439,000, respectively, were accrued and reflected in the
calculation of basic and diluted loss per common share.
11. INCOME TAXES
YEAR END INCOME TAX AMOUNTS
At April 30, 1998, the Company has net operating loss carryforwards of
approximately $31 million available to offset future taxable income, expiring
2006 through 2013. The Company has recorded a deferred tax asset of
approximately $13 million with offsetting valuation allowances at April 30,
1998. The "Valuation allowance, equity" affects equity and will not reduce
income tax expense. For purposes of recording deferred tax assets, no future
taxable income is assumed given the results of operations of the Company to
date. The amount of the valuation allowance could be reduced in the near term if
estimates of future taxable income are increased.
The components of deferred taxes at April 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforwards............................ $ 11,773,000 $ 9,403,000
Depreciation................................................ 1,124,000 1,769,000
Other....................................................... 117,000 81,000
------------ ------------
Net asset................................................... 13,014,000 11,253,000
Valuation allowance, provision for income taxes............. (12,073,000) (10,747,000)
Valuation allowance, equity................................. (941,000) (506,000)
------------ ------------
Total deferred taxes...................................... $ -- $ --
============ ============
</TABLE>
The components of income tax expense are as follows for the fiscal years
ending April 30:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax benefit..................... $ 1,189,000 $ 4,103,000 $ 2,993,000
Change in valuation allowance, provision for
income taxes.................................... (1,327,000) (4,593,000) (3,178,000)
State income taxes, net of federal benefit........ 138,000 478,000 349,000
Other............................................. -- 12,000 (164,000)
----------- ----------- -----------
Income tax expense.............................. $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-16
<PAGE> 66
UNAUDITED INTERIM TAX AMOUNTS
During the three months ended January 31, 1999, management reassessed the
realizability of Laser Vision's deferred tax assets as a result of Laser
Vision's improving levels of and trend in profitability. For the nine months
ended January 31, 1999, Laser Vision recognized a net tax benefit of $802,000 on
pretax income of $2,750,000. 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 are more
likely than not realizable in the next fiscal year. Accordingly, the net tax
benefit was recognized as a current asset at January 31, 1999. Because net
operating losses are not available in all states where Laser Vision operates and
are limited for alternative minimum tax ("AMT") purposes, a current tax
provision of $142,000 was recorded in "Other accrued liabilities" for estimated
state and AMT liabilities. The valuation allowance on deferred tax assets could
be further reduced in the fourth quarter and future periods if Laser Vision's
profitability continues to improve and estimates of future taxable income are
increased.
12. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
During fiscal 1996, the Company entered into three-year agreements with
four executive officers of the Company to provide for base salaries, the
potential payment of certain bonuses and severance payments equal to 18 months
of base compensation. Three other key employees have employment agreements with
unexpired terms ranging from twelve to twenty four months.
OPERATING LEASES
The Company has office and laser center lease agreements in St. Louis,
Missouri and London, England. The respective leases commenced in 1994 and 1996
and shall end in 1999 and 2001. Approximate future minimum rental payments under
the leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, MINIMUM RENTAL PAYMENTS
--------------------- -----------------------
<S> <C>
1999........................................................ $329,000
1000........................................................ 306,000
2001........................................................ 283,000
2002........................................................ 4,000
</TABLE>
Related rental expenses totaled $443,000, $545,000, and $184,000 for the
years ended April 30, 1998, 1997 and 1996, respectively.
NOTES WITH RECOURSE
As of April 30, 1998, the Company had guaranteed notes payable totaling
$959,000 to a third party by certain patients who elected to finance a portion
of the cost of their refractive surgery. Interest bearing deposits with the
third party, classified as current and non-current restricted cash on the
balance sheet, secure $178,000 of this contingent obligation.
13. LEGAL PROCEEDINGS
In March 1998 the Company was served with a subpoena by the United States
Department of Justice. The Company understands that the subpoena is part of an
industry wide investigation into the so-called "international card" software
that enabled the excimer lasers to be used to perform laser eye surgeries for
higher myopia cases (greater than -6.0 diopters) than what was initially
approved by the FDA. The FDA ultimately did approve use of an excimer laser for
higher myopia cases in January 1998. Many ophthalmologists have taken the
position that FDA restrictions on physicians' use of laser equipment through
software control, rather than the traditional means of labeling, deny physicians
the flexibility to treat individual patients as the physician deems medically
necessary, and represent an unwarranted intrusion upon physicians' rights to
practice medicine according to their best medical judgment. The
F-17
<PAGE> 67
subpoena requests that the Company produce several specified categories of
documents. The Company has provided the documents as requested and intends to
continue to fully cooperate in this matter. Although it is impossible to assess
the effect, if any, of this investigation on the operating results and cash flow
for a particular period, the Company's management does not believe that it
should be material to the financial condition of the Company.
Other than as described above, management does not expect that any
outstanding or pending legal proceedings, individually or in the aggregate, will
have a material adverse effect upon the Company's future results of operations,
liquidity or financial condition.
14. CAPITAL STOCK
In September 1994, stockholders approved an increase in the number of
authorized common shares from 10,000,000 to 50,000,000 and an amendment to the
Company's Certificate of Incorporation requiring super majority (80%) approval
of certain business combinations.
15. STOCK OPTIONS AND WARRANTS
The Company has three plans under which registered stock options and
warrants may be granted and also has issued unregistered warrants and options.
These plans are administered by the Board of Directors whose Compensation
Committee recommends option and warrant grants for officers, directors and key
consultants of the Company.
The 1990 Incentive Stock Option Plan (the Option Plan) was approved by
stockholders of the Company on March 5, 1990 and amended by the stockholders on
April 22, 1992, January 19, 1996 and March 19,1998. Under the terms of the
Option Plan, the Company has reserved 1,000,000 shares for issuance upon
exercise of options granted to employees and officers of the Company. The
exercise price may not be less than the market price of the common stock on the
date of grant. Options are nonassignable and may be exercised only by the
employee while employed by the Company or within three months after termination
of employment unless due to death or disability. Options are exercisable in
increments over four years and expire no later than ten years from the date of
the grant. All outstanding options had an initial expiration date of five years.
A total of 371,405 options were available for issuance under this plan at April
30, 1998.
The 1990 Non-Qualified Stock Option Plan (the Plan) was approved by the
stockholders of the Company on March 5, 1990, and amended by the stockholders on
April 22, 1992 and January 19, 1996. Under the terms of the Plan, as amended,
the Company has reserved 600,000 shares of common stock for issuance upon
exercise of options granted to outside directors and consultants. Such options
vest over various lengths of time and expire after five years. A total of
165,237 options were available for issuance under this plan at April 30, 1998.
Under the 1994 Non-Qualified Warrant Plan, as amended on January 19, 1996
and March 19, 1998, the Company has reserved 2,200,000 shares of common stock
for issuance upon exercise of registered warrants granted to certain employees,
directors and consultants. Such warrants generally vest ratably over periods of
up to twenty-four months and are exercisable over a five year period. A total of
527,000 warrants were available for issuance under this plan at April 30, 1998.
Unregistered warrants are exercisable over a five year period and vest at
varying rates ranging from immediately to four years. Of the 680,300
unregistered warrants outstanding as of April 30, 1998, 325,000 were issued to
officers, employees and consultants during fiscal 1995 at $9.00 per share, above
the market price, 100,000 were issued to a consultant during fiscal 1996 at
$5.25 per share, below the market price, 60,000 were issued to medical advisors
during fiscal 1998 at $11.00 per share, above the market price, and the balance
were issued at the market price.
F-18
<PAGE> 68
Information with respect to the previous plans is as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED
INCENTIVE STOCK STOCK UNREGISTERED NON-QUALIFIED
OPTION PLAN OPTION PLAN WARRANTS WARRANT PLAN
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Outstanding at April 30, 1995............ 286,695 192,000 355,000 944,500
Exercised ($3.00 to $7.75)............... (59,210) (41,000) (30,000) (104,250)
Granted ($5.25 to $16.63)................ 59,000 -- 110,000 61,000
Canceled................................. (3,000) -- -- --
-------- -------- -------- ----------
Outstanding at April 30, 1996............ 283,485 151,000 435,000 901,250
Exercised ($3.00 to $7.75)............... (10,283) (16,957) -- (1,550)
Exchanged ($5.00 to $8.13)............... 19,000 -- -- (19,000)
Granted ($5.75 to $12.44)................ 55,000 63,306 75,000 319,000
Canceled ($6.88 to $8.75)................ (31,000) (40,000) -- (100,000)
-------- -------- -------- ----------
Outstanding at April 30, 1997............ 316,202 157,349 510,000 1,099,700
Exercised ($3.00 to $8.75)............... (74,350) (30,000) -- (243,700)
Granted ($5.75 to $11.00)................ 311,150 222,500 170,300 467,500
Canceled ($5.75 to $16.63)............... (69,850) (13,043) -- --
-------- -------- -------- ----------
Outstanding at April 30, 1998............ 483,152 336,806 680,300 1,323,500
======== ======== ======== ==========
Average price per share at April 30,
1996................................... $ 7.42 $ 5.78 $ 8.11 $ 6.40
1997................................... 7.28 6.37 8.04 7.03
1998................................... 7.70 7.76 8.60 7.43
Exercisable at April 30,
1996................................... 170,235 151,000 239,583 827,041
1997................................... 241,452 123,189 409,375 969,156
1998................................... 249,602 223,663 492,025 973,073
</TABLE>
The Company also has the following warrants and options outstanding as of
April 30, 1998:
47,388 underwriter warrants-exercisable for one share of common stock, at a
price of $7.25 per share, expire in November 1998
100,000 warrants-exercisable for one share of common stock, at a price of
$9.39 per share, expire in June 2002
At the January 1998 Board of Directors meeting, 33,500 incentive stock
options issued in January 1996 and April 1996 to non-officer employees had the
exercise price reduced from a weighted average of $12.63 per option to $8.75 per
option, above the market price at that time.
During fiscal 1997, the Company adopted SFAS 123, which addresses
accounting for stock option and warrant plans and selected the "intrinsic value
based method" for valuing stock options granted to employees. Had compensation
cost for all of the Company's stock option and warrant plans been determined
based upon the fair value at the grant dates consistent with the methodology
prescribed in SFAS 123, the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated below using the weighted average
fair values indicted:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, 1998 1997 1996
- --------------------- ------- ------- -------
<S> <C> <C> <C>
Net loss as reported (thousands)............................ $ 3,496 $12,069 $ 8,803
Pro forma net loss (thousands).............................. 4,309 12,862 9,064
Loss per share as reported.................................. .40 1.45 1.75
Pro forma loss per share.................................... .49 1.54 1.80
Weighted average fair value of grants at market............. 2.55 2.75 2.41
Weighted average fair value of grants below market.......... -- -- 4.06
</TABLE>
F-19
<PAGE> 69
The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions for grants in fiscal 1998, 1997 and 1996: risk-free interest rates
ranging from 5.0% to 6.5%, expected volatility of 30% to 45%, no dividends, and
an expected life of two and one half years. Since employee stock options and
warrants are not traded on a secondary exchange, employees receive no benefit
and derive no value from holding stock options and warrants under these plans
without an increase in the market price of the Company's stock. Such an increase
would benefit all stockholders.
The following table summarizes information for stock warrants and options
outstanding at April 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE EXERCISABLE
-------------------- ----------------------------
RANGE OF AVERAGE NUMBER REMAINING EXERCISE NUMBER WEIGHTED
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING EXERCISE PRICE
- ---------------- ----------- --------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.00................................ 37,652 1.8 years $ 3.00 37,652 $ 3.00
$5.00 -- $6.50....................... 671,300 1.0 years 5.51 646,150 5.51
$7.25 -- $9.00....................... 721,888 1.7 years 8.34 713,838 8.34
$7.43 -- $8.75....................... 948,806 4.1 years 7.58 368,612 7.62
$9.25 -- $11.00...................... 447,500 4.8 years 10.02 185,500 9.72
$12.44............................... 144,000 3.0 years 12.44 144,000 12.44
--------- --------- ------ --------- ------
2,971,146 2.8 years $ 7.84 2,095,752 $ 7.65
========= ========= ====== ========= ======
</TABLE>
The fiscal 1998 financial statements reflect $262,000 of expense for
warrants and options issued as compensation to consultants and lenders, $718,000
of cost for warrants issued to acquire equipment and non-current contract rights
from medical advisors and $362,000 of cost assigned to the warrants issued or
issuable as part of the issuance of preferred stock. Fiscal 1997 operating
results reflect $36,000 of expense for warrants and options issued as
compensation to consultants and lenders.
16. BUSINESS SEGMENT INFORMATION
After allocating certain corporate expenses and determining the primary
geographic area for mobile equipment, business segment information for the years
ended April 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
FOREIGN
-------------------------
DOMESTIC CANADA EUROPE TOTAL
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1998
Revenues............................... $20,721,000 $ 836,000 $ 1,912,000 $ 23,469,000
Income (loss) from operations.......... (2,127,000) 25,000 (771,000) (2,873,000)
Interest/other income.................. -- -- -- 377,000
Interest expense....................... -- -- -- (1,000,000)
Net Loss............................... -- -- -- (3,496,000)
Identifiable assets.................... 27,064,000 893,000 2,872,000 30,829,000
Capital expenditures................... 6,130,000 -- 179,000 6,309,000
Depreciation and amortization.......... 3,767,000 225,000 933,000 4,925,000
YEAR ENDED APRIL 30, 1997
Revenues............................... $ 5,279,000 $ 928,000 $ 2,031,000 $ 8,238,000
Income (loss) from operations.......... (9,155,000) (725,000) (1,963,000) (11,843,000)
Minority interest in net loss of
subsidiary........................... -- -- -- 103,000
Interest/other income.................. -- -- -- 268,000
</TABLE>
F-20
<PAGE> 70
<TABLE>
<CAPTION>
FOREIGN
-------------------------
DOMESTIC CANADA EUROPE TOTAL
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Interest expense....................... -- -- -- $ (597,000)
Net Loss............................... -- -- -- (12,069,000)
Identifiable assets.................... $18,310,000 $ 876,000 $ 3,684,000 22,870,000
Capital expenditures................... 6,423,000 436,000 1,363,000 8,222,000
Depreciation and amortization.......... 2,642,000 285,000 983,000 3,910,000
Revenues............................... 1,720,000 943,000 1,255,000 3,918,000
Income (loss) from operations.......... (3,554,000) (1,350,000) (4,312,000) (9,216,000)
Minority interest in net loss of
subsidiary........................... -- -- -- 192,000
Interest/other income.................. -- -- -- 437,000
Interest expense....................... -- -- -- (216,000)
Net loss............................... -- -- -- (8,803,000)
Identifiable assets.................... 24,325,000 561,000 4,027,000 28,913,000
Capital expenditures................... 7,197,000 426,000 981,000 8,604,000
Depreciation and amortization.......... 306,000 467,000 1,430,000 2,203,000
</TABLE>
17. SUBSEQUENT EVENTS
On September 1, 1998, Laser Vision acquired all of the outstanding stock of
Refractive Surgical Resources, Inc. (RSR) for $468,000 in cash and $2.1 million
in notes payable (of which $1.1 million is due within one year). Richard L.
Lindstrom, M.D., one of Laser Vision's outside directors, held a minority
ownership position of less than 7% in RSR. RSR provides microkeratome access and
the related disposable blades used by ophthalmologists during the LASIK
procedure. This acquisition complements our existing refractive surgery business
and has been integrated with our existing field operations. The acquisition was
accounted for as a purchase and the resulting goodwill of $2.6 million will be
amortized over 15 years. The results of operations of RSR are included with
Laser Vision's results since the date of acquisition. For the fiscal year ended
April 30, 1998, RSR revenue was $1.8 million and assets, which consisted
primarily of microkeratome equipment and current assets, were over $1.5 million.
On December 4, 1998, Laser Vision acquired all of the outstanding stock of
Midwest Surgical Services, Inc. (MSS) for $3.8 million (including accrued
dividends) and, based on MSS's operating performance, up to $8.25 million of
contingent consideration in cash and Laser Vision common stock. Laser Vision
paid $2.8 million of the purchase price during the third quarter and owes $1
million which is payable in April 1999. Richard L. Lindstrom, M. D. held a
minority position of less than 9% in MSS. MSS provides mobile access to cataract
surgery technology. This acquisition allows us to provide another type of mobile
service to our ophthalmic surgeon customers. MSS will be initially operated as a
separate subsidiary while MSS's operating results will determine the amount of
any additional consideration. The acquisition was accounted for as a purchase
and the resulting goodwill of $3.4 million will be amortized over 15 years. Any
additional consideration required to be paid will be recorded as goodwill at
that time and amortized over the remaining life of the goodwill recorded. The
results of operations of MSS are included with Laser Vision's results since the
date of the acquisition. For the fiscal year ended April 30, 1998, MSS revenue
was $6.2 million and assets, which consisted primarily of equipment and current
assets, were over $4.3 million.
The unaudited pro forma Laser Vision results from operations assuming both
the RSR and MSS acquisitions were consummated as of May 1, 1997 are as follows:
F-21
<PAGE> 71
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1999 JANUARY 31, 1998
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue................................................... $39,805,000 $21,544,000
Net income (loss)......................................... $ 3,535,000 $(3,727,000)
Net income (loss) per share -- basic...................... $.34 ($.43)
Net income (loss) per share -- diluted.................... $.31 ($.43)
</TABLE>
On January 1, 1999 Laser Vision established a limited liability partnership
to own and operate one transportable refractive laser and related equipment and
services in the State of Minnesota (the "partnership"). Laser Vision is the
general partner and owns 60% of the partnership, Minnesota Eye Consultants, P.
A. ("MEC") is a limited partner and owns 40% of the partnership. Richard L.
Lindstrom, M. D. is President of MEC. Laser Vision contributed equipment valued
at $650,000 to the partnership and will receive $260,000 from MEC for this
minority interest. The $260,000 amount due from MEC is recorded as part of
"Prepaid expenses and other current assets" and "Minority interest" on the
January 31, 1999 balance sheet. Laser Vision will receive a revenue-based
management fee from the partnership. The partnership will pay dividends
quarterly based upon cash flows. The partnerships operating results are included
in the Consolidated Statement of Operations.
F-22
<PAGE> 72
LASER VISION CENTERS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The unaudited pro forma financial statements present a combination of the
historical financial statements for Laser Vision Centers, Inc. (LVCI),
Refractive Surgical Resources, Inc. (RSR) and Midwest Surgical Services, Inc.
(MSS) as adjusted to reflect purchase transactions in accordance with the
purchase method of accounting. Pro forma income statements are presented for the
year ended April 30, 1998 and the nine months ended January 31, 1999 as if the
acquisitions had occurred as of May 1, 1997.
On September 1, 1998, LVCI acquired all of the outstanding stock of RSR,
for $680,000 in cash (including $212,000 of transaction expenses) and $2.1
million in notes payable (of which $1.1 million is due within one year). The
acquisition was accounted for under the purchase method of accounting and
resulted in the recognition of goodwill of $2.6 million. RSR provides
microkeratome access and the related disposable blades used by ophthalmologists
during the LASIK procedure.
On December 4, 1998 LVCI acquired all of the outstanding stock of MSS, for
$3.2 million in cash (including $373,000 of transaction expenses and $300,000 of
dividends payable to MSS stockholders) and $1.0 million in notes payable with
potential additional consideration of up to $8.25 million in cash and LVCI
common stock based on the performance of MSS through July 2001. LVCI has the
option to pay all future payments in cash. MSS provides mobile cataract services
to U.S. ophthalmologists primarily in small markets. The acquisition was
accounted for under the purchase method of accounting and resulted in
recognition of goodwill of $3.4 million. MSS provides mobile access to cataract
surgery technology.
The Pro Forma Combined Statements of Operations for the year ended April
30, 1998 include LVCI's, RSR's and MSS's results of operations for the year
ended April 30, 1998. The Pro Forma Combined Statements of Operations for the
nine months ended January 31, 1999 include LVCI's results of operations for this
period (including RSR from September 1, 1998 to January 31, 1999 and MSS from
December 4 1998 to January 31, 1999), RSR's results of operations for the period
May 1, 1998 to August 31, 1998, and MSS's results of operations for the seven
months ended November 30, 1998.
The unaudited pro forma financial information is based on assumptions that
management believes are reasonable and such information is presented for
comparative and informational purposes only. The unaudited pro forma financial
information does not purport to represent what the Company's results of
operations or financial condition would actually have been had such transactions
occurred on May 1, 1997 or to project the Company's results of operations for
any future period or financial condition at any future date.
F-23
<PAGE> 73
LASER VISION CENTERS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PRO FORMA PRO FORMA
LVCI RSR MSS ADJUSTMENTS TOTAL
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue......................... $23,469,000 $1,764,000 $6,150,000 $(117,000)(a) $31,266,000
Cost of revenue................. 16,750,000 1,102,000 3,624,000 (117,000)(a) 21,359,000
----------- ---------- ---------- --------- -----------
Gross profit.................... 6,719,000 662,000 2,526,000 -- 9,907,000
Selling, general and
administrative expense........ 9,592,000 492,000 1,910,000 383,000(b) 12,377,000
----------- ---------- ---------- --------- -----------
Income (loss) from operations... (2,873,000) 170,000 616,000 (383,000) (2,470,000)
Net interest expense and
other......................... (623,000) (31,000) (182,000) (444,000)(c) (1,280,000)
----------- ---------- ---------- --------- -----------
Net income (loss)............... (3,496,000) 139,000 434,000 (827,000) (3,750,000)
Preferred dividends............. (198,000) -- -- -- (198,000)
----------- ---------- ---------- --------- -----------
Net income (loss) applicable to
common stockholders(d)........ $(3,694,000) $ 139,000 $ 434,000 $(827,000) $(3,948,000)
=========== ========== ========== ========= ===========
Loss per share:
Basic and diluted............. $(.40) $(.43)
Weighted average number of basic
and diluted shares
outstanding................... 9,178,000 9,178,000
</TABLE>
- ---------------
(a) Adjustment to eliminate intercompany revenue from RSR to LVCI.
(b) Selling, general and administrative expense has been adjusted to reflect the
increase in the amortization of goodwill attributable to the acquisitions of
RSR and MSS. Total goodwill related to the RSR acquisition of $2.6 million
and the MSS acquisition of $3.4 million is being amortized over a 15 year
period.
(c) Interest expense of $251,000 (at 8%) has been adjusted to reflect the
interest expense on the $1.0 million of notes payable issued in connection
with the MSS acquisition and $2.1 million issued in connection with the RSR
acquisition. Interest income of $193,000 (at 5%) has been adjusted to
reflect the reduction in interest income related to the $3.2 million of cash
on hand utilized to finance the MSS acquisition and $680,000 of cash on hand
utilized to finance the RSR acquisition.
(d) Prior to being acquired by LVCI, RSR and MSS had elected S corporation
status under the provisions of the Internal Revenue Code. As such, all
pre-acquisition income subsequent to this election flowed through to the
shareholders of RSR and MSS, respectively, who were liable for all
applicable taxes. Accordingly, no provision is presented for federal and
state income taxes in the RSR and MSS historical Statements of Operations.
No pro forma adjustment for income tax provision is included since any
taxable income would be offset by the utilization of net operating loss
carryforwards of LVCI. For purposes of recording deferred tax assets of
LVCI, no future taxable income has been assumed given the results of
operations of LVCI through April 30, 1998. Accordingly, LVCI's deferred tax
asset, related primarily to net operating loss carryforwards, is fully
reserved with an offsetting valuation allowance. Therefore any utilization
of the net operating losses as a result of pro forma taxable income from
MSS or RSR would result in an offsetting reduction in the valuation
allowance.
F-24
<PAGE> 74
LASER VISION CENTERS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LVCI RSR* MSS* ADJUSTMENTS TOTAL
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue....................... $33,574,000 $1,133,000 $5,145,000 $ (47,000)(a) $39,805,000
Cost of revenue............... 22,346,000 913,000 3,272,000 (47,000)(a) 26,484,000
Gross profit.................. 11,228,000 220,000 1,873,000 -- 13,321,000
----------- ---------- ---------- --------- -----------
Selling, general and
administrative expense...... 7,927,000 160,000 1,379,000 191,000(b) 9,657,000
----------- ---------- ---------- --------- -----------
Income from operations........ 3,301,000 60,000 494,000 (191,000) 3,664,000
Net interest expense and
other....................... (551,000) (20,000) (152,000) (208,000)(c) (931,000)
----------- ---------- ---------- --------- -----------
Net income before taxes....... 2,750,000 40,000 342,000 (399,000) 2,733,000
Income tax benefit............ 802,000 -- -- -- 802,000
----------- ---------- ---------- --------- -----------
Net income.................... 3,552,000 40,000 342,000 (399,000) 3,535,000
Preferred dividends........... (122,000) -- -- -- (122,000)
----------- ---------- ---------- --------- -----------
Net income (loss) applicable
to common stockholders(d)... $ 3,430,000 $ 40,000 $ 342,000 $(399,000) $ 3,413,000
=========== ========== ========== ========= ===========
Net income per share:
Basic....................... $.34 $.34
Diluted..................... $.31 $.31
Weighted average number of
common shares outstanding --
basic....................... 9,987,000 9,987,000
Weighted average number of
common shares outstanding --
diluted..................... 11,574,000 11,574,000
</TABLE>
- ---------------
* RSR statement of income is for the four months ended August 31, 1998, RSR
operating results since the acquisition on September 1, 1998 are included in
the LVCI operating results. MSS statement of income is for the seven months
ended November 30, 1998. MSS operating results since the acquisition on
December 4, 1998 are included in the LVCI operating results.
(a) Adjustment to eliminate intercompany revenue from RSR to LVCI.
(b) Selling, general and administrative expense has been adjusted to reflect the
increase in the amortization of goodwill attributable to the acquisitions of
RSR and MSS. Total goodwill related to the RSR acquisition of $2.6 million
and the MSS acquisition of $3.4 million is being amortized over a 15 year
period.
(c) Interest expense of $104,000 (at 8%) has been adjusted to reflect the
interest expense on the $1.0 million of notes payable issued in connection
with the MSS acquisition and $2.1 million issued in connection with the RSR
acquisition. Interest income of $104,000 (at 5%) has been adjusted to
reflect the reduction in interest income related to the $3.2 million of cash
on hand utilized to finance the MSS acquisition and $680,000 of cash on hand
utilized to finance the RSR acquisition.
(d) Prior to being acquired by LVCI, RSR and MSS had elected S corporation
status under the provisions of the Internal Revenue Code. As such, all
pre-acquisition income subsequent to this election flowed through to the
shareholders of RSR and MSS, respectively, who were liable for all
F-25
<PAGE> 75
applicable taxes. Accordingly, no provision is presented for federal and
state income taxes in the RSR and MSS historical Statements of Operations.
No pro forma adjustment for income tax provision is included since any
taxable income would be offset by the utilization of net operating loss
carryforwards of LVCI. For purposes of recording deferred tax assets of
LVCI at January 31, 1999 future income of RSR and MSS was considered.
F-26
<PAGE> 76
THE LASIK PROCEDURE
[Picture showing an eye surgeon performing a
LASIK surgery with one of our excimer lasers.]
VISION DISORDERS TREATED WITH OUR EQUIPMENT AND SERVICES
[Four schematic diagrams are shown, depicting
nearsightedness, farsightedness, astigmatism
and cataracts.]
<PAGE> 77
- ---------------------------------------------------------
- ---------------------------------------------------------
YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE
OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 7
The Company.............................. 15
Use of Proceeds.......................... 15
Price Range of Common Stock.............. 16
Capitalization........................... 17
Dilution................................. 18
Selected Consolidated Financial Data..... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Industry Background...................... 26
Business................................. 28
Directors and Executive Officers......... 38
Certain Relationships of Officers and
Directors.............................. 39
Principal and Selling Stockholders....... 39
Description of Securities................ 42
Shares Eligible for Future Sale.......... 42
Underwriting............................. 44
Legal Matters............................ 45
Experts.................................. 45
Forward Looking Statements............... 47
Where You Can Find More Information...... 48
Information Incorporated by Reference.... 48
Index to Financial Information........... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
1,720,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES
1999
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 78
PART II
- --------------------------------------------------------------------------------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by Laser Vision in connection with the sale
of common stock being registered hereunder:
<TABLE>
<S> <C>
SEC Registration fees....................................... $ 15,122
Blue Sky and Nasdaq National Market fees and expense........ $ *
Printing cost............................................... $ *
Transfer agent fees......................................... $ *
Legal fees and expenses..................................... $ *
Accounting fees and expenses................................ $ *
Miscellaneous............................................... $ *
NASD filing fee............................................. $ *
Nasdaq listing fee.......................................... $ *
--------
Total..................................................... $ *
========
</TABLE>
- ---------------
* To be provided supplementally.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6 of Laser Vision's Certificate of Incorporation provides for
indemnification of the officers and directors of Laser Vision to the fullest
extent permitted by the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware
provides generally and in pertinent part that a Delaware corporation may
indemnify its directors and officers against expenses, judgments, fines and
settlements actually and reasonably incurred by them in connection with any
civil suit or action, except actions by or in the right of the corporation, or
in connection with any administrative or investigative proceedings if, in
connection with the matters in issue, they acted in good faith and in a manner
they reasonable believed to be in, or not opposed to, the best interests of the
corporation and in connection with any criminal suit or proceeding, if in
connection with the matters in issue, they had no reasonably cause to believe
their conduct was unlawful. Section 145 further permits a Delaware corporation
to grant its directors and officers additional rights of indemnification through
bylaw provisions and otherwise and to purchase indemnity insurance on behalf of
its directors and officers.
The Registrant maintains a policy of insurance under which the directors
and officers of the Registrant are insured, subject to the limits of the policy,
against certain losses arising from claims made against such directors and
officers by reason of any acts or omissions covered under such policy in their
respective capacities as directors or officers.
II-1
<PAGE> 79
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1+ Underwriting Agreement
4.1* Specimen Stock Certificate
5.1+ Opinion of Dankenbring Greiman Osterholt & Hoffmann, P.C.
with respect to the shares being registered
23.1** Consent of Independent Accountants, PricewaterhouseCoopers
LLP
23.2+ Consent of Dankenbring Greiman Osterholt & Hoffmann, P.C. to
use its opinion letter filed herewith (contained in Opinion
Letter at Exhibit 5.1)
24.1** Power of Attorney executed by Laser Vision's officers and
directors appointing John J. Klobnak and Robert W. May as
attorneys-in-fact (contained at page II-5)
</TABLE>
- ---------------
* Incorporated by reference from registration statement No. 33-33843 effective
on April 3, 1991
** Filed herewith
+ To be filed by amendment
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Laser Vision hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
Post-Effective Amendment to this registration statement:
(i) To include any prospectus required by section 10(a) of the Securities
Act;
(ii) To reflect in the prospectus any facts or events arising after the
Effective Date of the registration statement (or the most recent
Post-Effective Amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining liability under the Securities Act,
each Post-Effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a Post-Effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE> 80
(4) That, for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of the
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) That for purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act (and where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) That for the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 81
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of St.
Louis, Missouri on the 25th day of February, 1999.
LASER VISION CENTERS, INC.
By: /s/ JOHN J. KLOBNAK
------------------------------------
John J. Klobnak,
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN J. KLOBNAK Chief Executive Officer and Chairman February 25, 1999
- --------------------------------------------- of the Board of Directors
JOHN J. KLOBNAK
/s/ ROBERT W. MAY Vice-Chairman of the Board, General February 25, 1999
- --------------------------------------------- Counsel and Secretary
ROBERT W. MAY
/s/ B. CHARLES BONO, III Executive Vice President, Principal February 25, 1999
- --------------------------------------------- Accounting Officer, Chief Financial
B. CHARLES BONO, III Officer and Treasurer
/s/ RICHARD L. LINDSTROM, M.D. Director February 25, 1999
- ---------------------------------------------
RICHARD L. LINDSTROM, M.D.
/s/ DR. HENRY SIMON Director February 25, 1999
- ---------------------------------------------
DR. HENRY SIMON
/s/ JAMES M. GARVEY Director February 25, 1999
- ---------------------------------------------
JAMES M. GARVEY
/s/ STEVEN C. STRAUS Director February 25, 1999
- ---------------------------------------------
STEVEN C. STRAUS
By: /s/ JOHN J. KLOBNAK February 25, 1999
----------------------------------------
John J. Klobnak, individually
and as Attorney-in-fact
</TABLE>
II-4
<PAGE> 82
POWER OF ATTORNEY
Each of the undersigned hereby appoints John J. Klobnak and Robert W. May,
and each of them (with full power to act alone), as attorneys and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, any and all amendments
and exhibits to this registration statement and any and all applications,
instruments and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby with
full power and authority to do and perform any and all acts and things
whatsoever requisite or desirable.
<TABLE>
<CAPTION>
DATE
----
<S> <C>
By: /s/ JOHN J. KLOBNAK February 25, 1999
- ----------------------------------------------------
John J. Klobnak
By: /s/ ROBERT W. MAY February 25, 1999
- ----------------------------------------------------
Robert W. May
By: /s/ B. CHARLES BONO, III February 25, 1999
- ----------------------------------------------------
B. Charles Bono, III
By: /s/ RICHARD L. LINDSTROM, M.D. February 25, 1999
- ----------------------------------------------------
Richard L. Lindstrom, M.D.
By: /s/ DR. HENRY SIMON February 25, 1999
- ----------------------------------------------------
Dr. Henry Simon
By: /s/ JAMES M. GARVEY February 25, 1999
- ----------------------------------------------------
James M. Garvey
By: /s/ STEVEN C. STRAUS February 25, 1999
- ----------------------------------------------------
Steven C. Straus
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
LASER VISION AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
II-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
June 12, 1998, which appears on page F-1 of Laser Vision Center Inc.'s Annual
Report on Form 10-K for the year ended April 30, 1998. We also consent to the
incorporation by reference of our report dated August 27, 1998, except Note 13,
which is as of December 4, 1998, which appears on page 4 of the Current Report
on Form 8-K/A dated February 12, 1999. We also consent to the incorporation by
reference of our report dated August 27, 1998, except Note 7, which is as of
September 1, 1998, which appears on page 22 of the Current Report on Form 8-K/A
dated February 12, 1999. We also consent to the reference to us under the
heading "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 25, 1999
