<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X-QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JANUARY 31, 2000
Commission file number 1-10629
LASER VISION CENTERS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1530063
-------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer identification
or organization) number)
540 Maryville Centre Dr., Suite 200, St. Louis, Missouri 63141
--------------------------------------------------------------
(Address of principal executive offices)
(314) 434-6900
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock outstanding as of March 7, 2000 - 25,372,590 shares
<PAGE> 2
LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED JANUARY 31, 2000
INDEX
<TABLE>
<CAPTION>
PART OR ITEM PAGE
<S> <C>
Part I. FINANCIAL STATEMENTS (unaudited)
Item 1. Interim Consolidated Financial Statements
Consolidated Balance Sheet - January 31, 2000 and April 30, 1999.............................3-4
Consolidated Statement of Operations - Three months and nine months
ended January 31, 2000 and 1999.................................................................5
Consolidated Statement of Cash Flow - Nine months
ended January 31, 2000 and 1999...............................................................6-7
Consolidated Statement of Changes in Stockholders' Equity - Nine months
ended January 31, 2000..........................................................................8
Notes to Interim Consolidated Financial Statements...........................................9-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources.............................................................13-15
Results of Operations.......................................................................15-21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................22
Item 2. Changes in Securities..........................................................................22
Item 3. Defaults upon Senior Securities................................................................22
Item 4. Submission of Matters to a
Vote of Security Holders.......................................................................22
Item 5. Other Information..............................................................................22
Item 6. Reports on Form 8-K and exhibits...............................................................22
Signatures..............................................................................................23
</TABLE>
<PAGE> 3
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
JANUARY 31, April 30,
2000 1999
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $24,061,000 $ 8,173,000
Short-term investments 36,964,000 -
Accounts receivable, net 10,559,000 8,540,000
Inventory 2,862,000 2,723,000
Deferred tax asset 4,050,000 1,755,000
Prepaid expenses and
other current assets 1,374,000 1,713,000
Restricted cash - 507,000
----------- -----------
Total Current Assets 79,870,000 23,411,000
EQUIPMENT
Laser equipment 29,223,000 21,795,000
Medical equipment 4,931,000 3,274,000
Mobile equipment 10,299,000 7,611,000
Furniture and fixtures 2,465,000 1,722,000
-Accumulated depreciation (19,928,000) (13,419,000)
----------- -----------
Total Equipment, Net 26,990,000 20,983,000
OTHER ASSETS
Goodwill, net 6,682,000 7,148,000
Tradename and service mark costs, net 78,000 93,000
Deferred contract rights 567,000 451,000
Note receivable 170,000
Rent deposits and other, net 80,000 478,000
Restricted cash - 625,000
----------- ---------
Total Other Assets 7,577,000 8,795,000
--------- ---------
Total Assets $114,437,000 $53,189,000
============ ===========
</TABLE>
See notes to interim consolidated financial statements
3
<PAGE> 4
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
JANUARY 31, April 30,
2000 1999
<S> <C> <C>
CURRENT LIABILITIES
Current portion of notes payable $5,631,000 $4,552,000
Current portion of capitalized
lease obligations 1,062,000 1,290,000
Accounts payable 5,165,000 5,185,000
Taxes payable 726,000 266,000
Accrued compensation 1,297,000 2,004,000
Other accrued liabilities 1,952,000 3,009,000
----------- -----------
Total Current Liabilities 15,833,000 16,306,000
NON-CURRENT LIABILITIES
Notes payable 4,784,000 5,687,000
Capitalized lease obligations 2,016,000 2,097,000
----------- ---------
Total Non-Current Liabilities 6,800,000 7,784,000
MINORITY INTEREST 1,021,000 352,000
COMMITMENTS AND CONTINGENCIES
SERIES B CONVERTIBLE PREFERRED STOCK WITH
MANDATORY REDEMPTION PROVISIONS 2,241,000 2,086,000
STOCKHOLDERS' EQUITY
Common stock, par value of $.01 per
share, 50,000,000 shares authorized;
25,289,065 and 21,369,576 shares issued
and outstanding, respectively 253,000 214,000
Warrants and options 915,000 1,213,000
Paid-in capital 103,236,000 50,701,000
Accumulated deficit (15,862,000) (25,467,000)
------------ -----------
Total Stockholders' Equity 88,542,000 26,661,000
---------- ----------
Total Liabilities and Stockholders' Equity $114,437,000 $53,189,000
============ ===========
</TABLE>
See notes to interim consolidated financial statements
4
<PAGE> 5
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ended January 31, Ended January 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES $ 22,510,000 $ 14,062,000 $ 64,343,000 $ 33,574,000
COST OF REVENUES
Royalty fees and professional
medical services 8,159,000 4,510,000 21,835,000 11,416,000
Depreciation and amortization 2,462,000 1,532,000 6,585,000 3,885,000
Other costs 4,699,000 3,313,000 14,788,000 7,045,000
------------ ------------ ------------ ------------
GROSS PROFIT 7,190,000 4,707,000 21,135,000 11,228,000
Selling, general and
administrative expenses 4,196,000 3,049,000 12,211,000 7,927,000
Vendor program change expense 2,433,000 -- 2,433,000 --
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 561,000 1,658,000 6,491,000 3,301,000
Other income (expenses)
Minority interests in net income (16,000) (22,000) (197,000) (22,000)
Interest and other income 805,000 140,000 2,343,000 306,000
Interest and other expense (308,000) (316,000) (864,000) (835,000)
------------ ------------ ------------ ------------
INCOME BEFORE TAXES 1,042,000 1,460,000 7,773,000 2,750,000
Income tax benefit 495,000 802,000 1,832,000 802,000
------------ ------------ ------------ ------------
NET INCOME 1,537,000 2,262,000 9,605,000 3,552,000
Deemed preferred dividends (52,000) (41,000) (155,000) (122,000)
------------ ------------ ------------ ------------
NET INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ 1,485,000 $ 2,221,000 $ 9,450,000 $ 3,430,000
============ ============ ============ ============
NET INCOME PER SHARE - BASIC $ 0.06 $ 0.11 $ 0.38 $ 0.17
============ ============ ============ ============
NET INCOME PER SHARE - DILUTED $ 0.05 $ 0.09 $ 0.34 $ 0.15
============ ============ ============ ============
Weighted average number of
common shares outstanding - basic 25,239,000 20,588,000 24,844,000 19,974,000
============ ============ ============ ============
Weighted average number of
common shares outstanding - diluted 28,297,000 24,626,000 28,630,000 23,148,000
============ ============ ============ ============
</TABLE>
See notes to interim consolidated financial statements
5
<PAGE> 6
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Nine Month Period
Ended January 31,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,605,000 $ 3,552,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,418,000 4,335,000
Deferred income taxes (2,295,000) (944,000)
Compensation paid in common stock,
options or warrants 355,000 311,000
Minority interest in net income of subsidiary 19,000 22,000
Increase in accounts receivable (2,019,000) (3,343,000)
Increase in inventory (139,000) (265,000)
(Increase) decrease in prepaid expenses
and other current asset increase 339,000 (710,000)
Increase (decrease) in accounts payable (20,000) 2,465,000
Decrease in accrued liabilities (1,304,000) (1,089,000)
------------- -------------
Net cash provided by operating activities 11,959,000 4,334,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (106,276,000)
Sale of short-term investments 69,312,000
Acquisition of equipment (5,871,000) (3,905,000)
Business acquisition (74,000) (3,214,000)
Proceeds from sale of minority interests 646,000
Issuance of note receivable (170,000)
Other, net (14,000) (32,000)
------------- -------------
Net cash used in investing activities (42,447,000) (7,151,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secondary stock offering 44,150,000
Stock offering costs (104,000)
Proceeds from exercise of stock options and warrants 8,326,000 5,578,000
Return of restricted cash 1,132,000 96,000
Principal payments under capitalized
lease obligations and notes payable (7,128,000) (3,015,000)
------------- -------------
Net cash provided by financing activities 46,376,000 2,659,000
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15,888,000 (158,000)
Cash and cash equivalents at beginning of period 8,173,000 8,430,000
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,061,000 $ 8,272,000
============= =============
</TABLE>
See notes to interim consolidated financial statements
6
<PAGE> 7
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Nine Month Period
Ended January 31,
2000 1999
<S> <C> <C>
Non-cash investing and financing:
Capital lease obligations and notes payable related
to laser and equipment purchases $6,995,000 $2,466,000
Accrued and deferred stock offering costs 412,000
Deemed preferred dividends 155,000 122,000
Adjustment of value of common stock and
stock or stock options issued for contract rights 250,000 96,000
Sale of assets to limited liability partnership 260,000
Notes payable issued to acquire RSR and MSS 3,141,000
</TABLE>
See notes to interim consolidated financial statements
7
<PAGE> 8
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value Warrants Total
------------------------ Paid-in and Accumulated Stockholders'
Shares Amount Capital Options Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Balance-
April 30, 1999 10,684,788 $ 107,000 $ 50,808,000 $ 1,213,000 ($ 25,467,000) $ 26,661,000
Stock offering 1,000,000 10,000 43,624,000 43,634,000
Acccretion of warrants and options 22,000 22,000
Exercise of
warrants and options 1,105,291 11,000 8,642,000 (327,000) 8,326,000
Stock issued for contract rights 23,400 250,000 250,000
Dividends accrued
on convertible
preferred stock (155,000) (155,000)
Stock split 12,462,981 125,000 (125,000) --
Warrants and
options issued 7,000 7,000
Shares issued to 401(k) plan
for employees 12,605 192,000 192,000
Net income for the
nine month period
ended January 31, 2000 9,605,000 9,605,000
------------- ------------- ------------- -------------- ------------- -------------
Balance -
January 31, 2000 25,289,065 $ 253,000 $ 103,236,000 $ 915,000 ($ 15,862,000) $ 88,542,000
============= ============= ============= ============= ============= =============
</TABLE>
See notes to interim consolidated financial statements
8
<PAGE> 9
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000
(Unaudited)
Item 1.
1. The information contained in the interim consolidated financial
statements and footnotes is condensed from that which would appear in
the annual consolidated financial statements. Accordingly, the interim
consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and related
notes thereto contained in the April 30, 1999 Annual Report on Form
10-K filed by Laser Vision Centers, Inc. ("LaserVision") with the
Securities and Exchange Commission. The unaudited interim consolidated
financial statements as of January 31, 2000, and for the three and nine
month periods ended January 31, 2000 and January 31, 1999, include all
normal recurring adjustments which management considers necessary for a
fair presentation. The results of operations for the interim periods
are not necessarily indicative of the results which may be expected for
the entire fiscal year. The interim consolidated financial statements
include the accounts and transactions of the Company and its
subsidiaries. All significant intercompany transactions and accounts
have been eliminated.
2. On February 22, 2000, Visx, Inc. ("Visx"), the manufacturer of
most of the lasers owned by LaserVision, announced a new program for
its customers, including LaserVision, that included a change in the
royalty fee charged by Visx from $250 per procedure to $100 per
procedure. Along with this pricing change Visx announced that it will
no longer provide procedure cards for enhancements at no charge, nor
will they provide credits for procedure cards used for past
enhancements or ambassadors. (An enhancement is a procedure subsequent
to the initial treatment that is performed to improve the surgical
result. An ambassador is a patient who is treated at no charge and is
frequently a celebrity or a member of the a surgeon's practice.) In
addition, Visx will not exchange the inventory of procedure cards held
by LaserVision at a cost of $250 per procedure card for procedure cards
at the reduced cost of $100. Accordingly, LaserVision has recorded a
one-time charge of approximately $2.4 million in the quarter ended
January 31, 2000 for actual and estimated expenses related to
enhancements and ambassadors (for procedures performed through January
31, 2000), and reductions in inventory value, which will not be
reimbursed by Visx and which LaserVision does not expect to collect
from its customers without legal assistance.
3. On May 14, 1999, LaserVision completed an underwritten public stock
offering selling 1,000,000 shares of common stock for $46.5 million
($43.6 million net of offering costs). Selling stockholders sold an
additional 978,000 shares of which 463,500 shares were sold pursuant to
the exercise of options and warrants. 258,000 of the shares sold by
selling stockholders were sold pursuant to the Underwriter's exercise
of their overallotment option. The exercise of these warrants and
options resulted in additional proceeds to LaserVision of $3.6 million.
The exercise of other warrants and options increased total warrant and
option proceeds for the
<PAGE> 10
nine months ended January 31, 2000 to $8.3 million.
4. On July 12, 1999, LaserVision's Board of Directors approved a 2-for-1
stock split effective August 9, 1999 to stockholders of record at the
close of business on July 23, 1999. The split was effected in the form
of a 100% stock dividend on August 9, 1999. All earnings per share
calculations reflect this split retroactively as if it had occurred on
May 1, 1998.
5. The net income per share was computed as described below using the
"Weighted average number of common shares outstanding - basic" during
each period.
"Weighted average number of common shares outstanding - diluted" for
the three and nine month periods ended January 31, 2000 and 1999
include the dilutive effects of warrants and options using the treasury
stock method and the Series B Convertible Preferred Stock. For the
three and nine month periods ended January 31, 2000, dilutive warrants
and options were calculated using an average market price of $10.85 and
$18.44, respectively, per common share. As of January 31, 2000, 4.5
million warrants and options with exercise prices below $15.00 per
share were outstanding and had an average exercise price of about $5.70
each. Diluted per share calculations follow:
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ended January 31, Ended January 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Income $ 1,537,000 $ 2,262,000 $ 9,605,000 $ 3,552,000
Deemed preferred dividends (52,000) (41,000) (155,000) (122,000)
------------ ------------ ------------ ------------
Net Income applicable to
common stockholders $ 1,485,000 $ 2,221,000 $ 9,450,000 $ 3,430,000
Weighted average number of
common shares outstanding-basic 25,239,000 20,588,000 24,844,000 19,974,000
Dilutive securities
Warrants and options 2,150,000 3,170,000 2,888,0000 2,316,000
Preferred stock 908,000 868,000 898,000 858,000
------------ ------------ ------------ ------------
Weighted average number of
common shares outstanding-diluted 28,297,000 24,626,000 28,630,000 23,148,000
Net Income per share - diluted $ 0.05 $ 0.09 $ 0.34 $ 0.15
</TABLE>
6. During the three months ended January 31, 2000, management
continued to reassess the likelihood of LaserVision realizing deferred
tax assets as a result of LaserVision's improving levels of and trend
in profitability. For the three and nine month periods ended January
31, 2000, LaserVision recognized a net tax benefit of $495,000 and
$1,832,000, respectively, on pretax income of $1,042,000 and
$7,773,000, respectively. The net tax benefit was recognized as a
current asset at January 31, 2000. As NOL carryforwards are not
available in all states where LaserVision operates, a current tax
provision of approximately $160,000 and $460,000,
10
<PAGE> 11
respectively, was recorded in "Taxes payable" for estimated state
liabilities for the three and nine month periods ended January 31,
2000.
7. Short-term investments have an original maturity of more than three
months and a remaining maturity of less than one year. These
investments are stated at cost as it is the intent of LaserVision to
hold these securities until maturity. The fair market value of
short-term investments approximates book value at January 31, 2000.
8. The table below presents information about net income and segment
assets used by the chief operating decision maker of LaserVision as of
and for the periods ended January 31, 2000 and 1999:
11
<PAGE> 12
<TABLE>
<CAPTION>
North American Other
Refractive Refractive Cataract Reconciling TOTAL
THREE MONTHS ENDED JANUARY 31, 2000
<S> <C> <C> <C> <C> <C>
REVENUE $19,061,000 $810,000 $2,639,000 $ - $22,510,000
Interest and other income 805,000 805,000
Interest and other expense (308,000) (308,000)
Income before taxes 1,166,000 45,000 295,000 (464,000) 1,042,000
Income tax benefit 495,000 495,000
NET INCOME 1,166,000 45,000 295,000 31,000 1,537,000
Three months ended January 31, 1999
Revenue 12,292,000 448,000 1,322,000 - 14,062,000
Interest and other income 140,000 140,000
Interest and other expense (316,000) (316,000)
Income before taxes 2,409,000 (33,000) 116,000 (1,032,000) 1,460,000
Income tax benefit 802,000 802,000
Net Income 2,409,000 (33,000) 116,000 (230,000) 2,262,000
NINE MONTHS ENDED JANUARY 31, 2000
REVENUE 53,589,000 2,256,000 8,498,000 - 64,343,000
Interest and other income 2,343,000 2,343,000
Interest and other expense (864,000) (864,000)
Income before taxes 7,909,000 134,000 1,271,000 (1,541,000) 7,773,000
Income tax benefit 1,832,000 1,832,000
NET INCOME 7,909,000 134,000 1,271,000 291,000 9,605,000
Nine months ended January 31, 1999
Revenue 30,792,000 1,460,000 1,322,000 - 33,574,000
Interest and other income 306,000 306,000
Interest and other expense (835,000) (835,000)
Income before taxes 5,684,000 (113,000) 116,000 (2,937,000) 2,750,000
Income tax benefit 802,000 802,000
Net Income $5,684,000 $(113,000) $116,000 $(2,135,000) $3,552,000
</TABLE>
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
Except for historical information, statements relating to LaserVision's
plan, objectives and future performance are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations. Because of various
risks and uncertainties, actual strategies and results in future periods may
differ materially from those currently expected. Those risks and uncertainties
are more fully described in LaserVision's filings with the Securities and
Exchange Commission, which should be carefully reviewed.
The discussion set forth below analyzes certain factors and trends
related to the financial results for the three and nine month periods ended
January 31, 2000 and 1999. This discussion should be read in conjunction with
the related consolidated financial statements and notes to the consolidated
financial statements.
(A) LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended July 31, 1999, LaserVision completed an underwritten
public stock offering raising $43.6 million net of offering costs. While we
currently have no specific plan for the net proceeds we received from this
offering, we will likely use the proceeds for the purchase of additional
equipment and funding for possible future strategic acquisitions or other
strategic initiatives. We currently have no agreements or understandings with
respect to any material future acquisitions or transactions outside our normal
course of business. Until we use the proceeds for business purposes, we are
investing the net proceeds in short-term, government securities and other
investment-grade, interest-bearing securities.
In addition, during the nine months ended January 31, 2000 LaserVision received
$8.3 million in proceeds from the exercise of warrants and options. Cash and
cash equivalents increased 194% or $15.9 million to $24.1 million at January 31,
2000 from $8.2 million at April 30, 1999. Short-term investments maturing in
less than one year increased to $37.0 million at January 31, 2000 from $0 at
April 30, 1999. The ratio of current assets to current liabilities at January
31, 2000 was 5.04 to one, compared to 1.44 to one at April 30, 1999.
Cash Flows from Operating Activities
Net cash provided by operating activities increased by $7.7 million to $12.0
million for the nine months ended January 31, 2000 from $4.3 million for the
nine months ended January 31, 1999, primarily reflecting the growth of the
Company's business and profitability. The cash flows provided by operating
activities during the nine months ended January 31, 2000 primarily represent the
net income in this period plus depreciation and amortization, plus compensation
paid in common stock, plus decreases in prepaid expenses and other current
assets, less decreases in current liabilities, and less increases in accounts
receivable, inventory, and deferred taxes. The cash flows provided by operating
13
<PAGE> 14
activities during the nine months ended January 31, 1999 primarily represent the
net income in this period plus depreciation and amortization and net increases
in current liabilities, less increases in accounts receivable, inventory and
prepaid expenses and other current assets.
Cash Flows from Investing Activities
Net cash used for investing activities increased by $35.2 million to $42.4
million for the nine months ended January 31, 2000 from $7.2 million for the
nine months ended January 31, 1999. Cash used for investing during the nine
months ended January 31, 2000 was used to acquire short-term investments, issue
notes receivable and acquire equipment partially offset by the sale of minority
interests. Cash used for investing during the nine months ended January 31, 1999
was used to acquire Refractive Surgical Resources (RSR) and Midwest Surgical
Services (MSS) and to acquire equipment for the expanding U.S. market. In
certain markets LaserVision intends to enter into partnerships with key surgeons
as a means of securing long-term contracts with these surgeons. These
partnerships, in which LaserVision would own a controlling interest, require
additional acquisitions of equipment offset by proceeds from sales of minority
interests.
Cash Flows from Financing Activities
Net cash provided by financing activities increased by $43.8 million to $46.4
million for the nine months ended January 31, 2000 from $2.6 million for the
nine months ended January 31, 1999. Cash provided by financing during the nine
months ended January 31, 2000 was primarily provided by the underwritten public
stock offering, the exercise of stock options and warrants and the return of
restricted cash and was partially offset by principal payments under capitalized
lease obligations and notes payable. Cash provided by financing during the nine
months ended January 31, 1999 was primarily provided by proceeds from exercise
of stock options and warrants offset by principal payments under capitalized
lease obligations and notes payable.
Taxes
During fiscal 1999 LaserVision began recognizing deferred tax assets related to
NOL carryforwards as management believed it was more likely than not that they
will be realized before expiration. These NOL carryforwards could be fully
utilized for financial reporting purposes during the next twelve months. A
portion of the tax benefit from the NOL carryforwards will be directly reflected
in stockholders' equity upon release of the valuation allowance. This tax
benefit relates to certain equity transactions that did not impact operating
results, such as those arising from the exercise of non-qualified stock options
and warrants.
As net operating losses are not available in all states where LaserVision
operates, a current tax provision of approximately $160,000 and $460,000,
respectively, has been recorded for the three and nine months ended January 31,
2000.
Future operations
The Company expects to continue to fund future operations from existing cash and
cash equivalents and
14
<PAGE> 15
short-term investments, revenues received from providing laser access and market
services, the potential exercise of stock options and warrants and future
financing as required. There can be no assurance that capital will be available
when needed or, if available, that the terms for obtaining such funds will be
favorable to the Company.
(B) RESULTS OF OPERATIONS
The following table breaks out revenue by source. This table also
includes "net revenue contribution." Net revenue contribution is revenue less
license fees paid to Visx, the supplier of our lasers, and amounts paid to eye
surgeons for professional medical services rendered at some of our fixed laser
sites. Management believes that net revenue contribution provides relevant and
useful information to investors because it reflects the dollars available to
cover LaserVision's fixed and variable costs after excluding variable costs
which LaserVision pays to third parties. Net revenue contribution should not be
considered as an alternative to gross profit, operating income and net income as
a measure of profitability. Finally, the table includes certain profitability
amounts as a percentage of total revenue and net revenue contribution.
Due to the unexpected one-time vendor program change expense and its
effect upon comparability, certain profitability percentages, as noted below,
are shown excluding this item.
15
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUE
North American refractive $19,061,000 $12,292,000 $53,589,000 $30,792,000
Other refractive 810,000 448,000 2,256,000 1,460,000
Cataract 2,639,000 1,322,000 8,498,000 1,322,000
----------- ----------- ----------- -----------
TOTAL REVENUE 22,510,000 14,062,000 64,343,000 33,574,000
Royalty fees and professional
medical services 8,159,000 4,510,000 21,835,000 11,416,000
Revenue less royalty fees and professional
medical services, "net revenue
contribution" 14,351,000 9,552,000 42,508,000 22,158,000
Gross profit 7,190,000 4,707,000 21,135,000 11,228,000
% of total revenue 32% 33% 33% 33%
% of net revenue contribution 50% 49% 50% 51%
Income from operations 561,000 1,658,000 6,491,000 3,301,000
% of total revenue 2% 12% 10% 10%
% of net revenue contribution 4% 17% 15% 15%
Income from operations excluding effect
of vendor program change expense 2,994,000 1,658,000 8,924,000 3,301,000
% of total revenue 13% 12% 14% 10%
% of net revenue contribution 21% 17% 21% 15%
Net income before taxes 1,042,000 1,460,000 7,773,000 2,750,000
% of total revenue 5% 10% 12% 8%
% of net revenue contribution 7% 15% 18% 12%
Net income before taxes excluding effect
of vendor program change expense 3,475,000 1,460,000 10,206,000 2,750,000
% of total revenue 15% 10% 16% 8%
% of net revenue contribution 24% 15% 24% 12%
</TABLE>
On February 22, 2000, Visx the manufacturer of most of the lasers owned by
LaserVision, announced a new program for its customers, including LaserVision,
that included a change in the royalty fee charged by Visx from $250 per
procedure to $100 per procedure. Along with this pricing change Visx announced
that it will no longer provide procedure cards for enhancements at no charge,
nor will they provide credits for procedure cards used for past enhancements or
ambassadors. (An enhancement is a procedure subsequent to the initial treatment
that is performed to improve the surgical result. An ambassador is a patient who
is treated at no charge and is frequently a celebrity or a member of the a
surgeon's practice.) In addition, Visx will not exchange the inventory of
procedure cards held by LaserVision at a cost of $250 per procedure card for
procedure cards at the reduced cost of $100. Accordingly, LaserVision has
recorded a one-time charge of approximately $2.4 million in the quarter ended
January 31, 2000 for actual and estimated expenses related to enhancements and
ambassadors (for surgical procedures performed through January 31, 2000), and
for reductions in inventory value which will not be reimbursed by Visx and which
Laser Vision does not expect to collect from customers without legal
assistance.
16
<PAGE> 17
Approximately 80% of this $2.4 million expense was related to enhancement and
ambassador procedures which were performed before Visx reduced its royalty. Visx
has refused to credit LaserVision for the prepaid royalty and card costs
associated with these procedures. Documentation for enhancements was accumulated
each month in order for credits to be processed more efficiently in bulk rather
than individually as enhancements were performed. Because of the logistics
involved with collecting the documentation required by Visx for each enhancement
from more than 650 surgeons performing procedures on more than 70 lasers at more
than 275 locations, there could be a lag time of about five months between the
time an enhancement procedure was performed and the time credit was received
from Visx. The balance of this expense relates to several inventory issues
associated with procedure cards and spare parts.
Future Revenue and Gross Profit - After March 2000, the Visx program change will
reduce LaserVision's domestic refractive revenue per procedure and the royalty
cost of revenue per procedure. Other aspects of this new program reduce
volume-related incentives to LaserVision and will increase cost of revenue,
other than royalty fees, above the levels recorded in calendar 1999, as
described in following sections. Although the net effect of this program change
upon gross profit per procedure is expected to be unfavorable, any global fee
decreases for patients are expected to have a favorable effect upon volume due
to price elasticity. The effect upon total gross profit in future periods will
be dependent upon, among other things: (1) volume changes, (2) the mix between
mobile and fixed sites, and (3) the number and type of new contractual
relationships with ophthalmic surgeons.
Future Operating Expenses - Future contractual relationships with ophthalmic
surgeons are expected to increase LaserVision's portion of both the global fee
paid by patients and the total operating costs associated with providing the
procedure. After a start-up period of up to four months, management expects the
additional benefits to exceed the additional expenses.
QUARTER ENDED JANUARY 31, 1999 COMPARED TO QUARTER ENDED JANUARY 31, 2000
LaserVision has continued to provide excimer laser access to additional sites
throughout the U.S. In addition, the acquisition of RSR on September 1, 1998 has
enabled us to provide microkeratome access, and the acquisition of Midwest
Surgical Services on December 4, 1998 has allowed us to provide mobile cataract
services. Our strategy now anticipates the establishment of more fixed sites and
the signing of other contractual agreements with ophthalmic surgeons.
Revenues
Total revenues increased by 60%, or $8.4 million, to $22.5 million for the three
months ended January 31, 2000 from $14.1 million for the three months ended
January 31, 1999. Total refractive procedures increased by 74% to 27,520 for the
three months ended January 31, 2000 from 15,861 for the three months ended
January 31, 1999. Total refractive procedures in future quarters are expected to
continue to increase but at a lower rate.
The increase in revenue was attributable to a $6.8 million increase in North
American refractive revenue, a $0.4 million increase in other refractive revenue
and a $1.3 million increase in cataract
17
<PAGE> 18
revenue. The increase in North American revenue was attributable to an increase
of 36 U.S. lasers in operation to 71 lasers at January 31, 2000 from 35 lasers
at January 31, 1999. The increase in cataract revenue was a result of a full
quarter of revenue for the quarter ended January 31, 2000 compared to two months
of revenue for the quarter ended January 31, 1999 due to the acquisition of MSS
on December 4, 1998 and increased cataract procedures during the quarter ended
January 31, 2000.
After existing inventory levels of procedure cards valued at $250 each are used
in the fourth quarter of fiscal 2000, LaserVision expects to reduce the fees we
charge to our customers with long-term contracts by a portion of the net benefit
of the program change from Visx described previously. Accordingly, gross revenue
per procedure will decrease.
Cost of Revenues/Gross Profit
Cost of revenues increased by 64%, or $6.1 million, to $15.3 million for the
three months ended January 31, 2000 from $9.4 million for the three months ended
January 31, 1999. This was primarily due to an increase of $2.8 million in total
domestic royalties, an increase of $0.8 million in mobile laser engineer
salaries and travel costs, an increase of $0.9 million in professional medical
services, an increase of $0.8 million in depreciation and an increase of $1.0
million of costs related to the cataract business pursuant to the MSS
acquisition in December 1998. The increases in royalty expenses, salaries and
travel, professional medical services, and depreciation was primarily due to
increased lasers and refractive procedure volume.
Total gross profit increased by 53%, or $2.5 million, to $7.2 million for the
three months ended January 31, 2000 from $4.7 million for the three months ended
January 31, 1999. The variable gross profit, excluding depreciation, increased
by 55%, or $3.5 million, to $9.7 million for the three months ended January 31,
2000 from $6.2 million for the three months ended January 31, 1999. This was
primarily due to increased procedures performed at an increased number of sites.
As a percentage of total revenue, total gross profit decreased to 32% from 33%
for the three months ended January 31, 2000 and 1999, respectively. This decline
was primarily due to lower average sales prices to the surgeons using our
equipment, particularly in newer domestic fixed sites. The increasing percentage
of cases performed at fixed sites versus mobile sites will tend to lower the
average sales price per procedure. LaserVision's plans to establish new
contractual relationships with eye surgeons, whereby LaserVision assumes more
marketing responsibilities, will tend to increase the average sales price per
procedure.
We anticipate increased laser maintenance expense in future quarters based upon
the Visx program change. In future periods LaserVision will collect the cost of
procedure cards used for enhancements and ambassadors from the eye surgeon. (Eye
surgeons may pass this cost on to the patient.)
Operating Expenses
Selling, general and administrative expenses increased by 40%, or $1.2 million,
to $4.2 million for the three months ended January 31, 2000 from $3.0 million
for the three months ended January 31, 1999. The increase was attributable to
increased operating expenses related to the cataract business of $0.1 million,
an increase in marketing expenditures of $0.3 million, an increase in salaries
and related expenses of $0.3 million and an increase in general and
administrative expenses of $0.3 million.
18
<PAGE> 19
Selling, general and administrative expenses as a percentage of revenue
decreased to 19% from 22% for the three months ended January 31, 2000 and 1999,
respectively, due to the leverage obtained in implementing our low fixed cost
business model.
Vendor program change expenses increased $2.4 million to $2.4 million for the
three months ended January 31, 2000 from $0 for the three months ended January
31, 1999 as described above.
Income from Operations
The income from operations decreased by $1.1 million to $0.6 million for the
three months ended January 31, 2000 from $1.7 million for the three months ended
January 31, 1999. This was primarily related to the $2.4 million one-time charge
related to the vendor program change, offset by increased domestic refractive
profitability and the effects of the acquisition of MSS in December 1998 as
previously described.
Other Income (Expenses)
Higher interest income and lower interest expense caused a $679,000 increase in
other income (expense) to a net $481,000 of income during the three months ended
January 31, 2000 from a net $198,000 expense during the three months ended
January 31, 1999. This was primarily due to the interest income earned on the
proceeds from the underwritten public stock offering and option and warrant
exercises.
Taxes
Income tax benefit decreased $307,000 to $495,000 for the three months ended
January 31, 2000 from $802,000 for the three months ended January 31, 1999.
Based upon LaserVision's improving levels of and trend in profitability,
management has continued to assess the likelihood of realizing deferred tax
assets and has recorded a tax benefit reducing the valuation allowance on the
deferred tax assets related to the NOL carryforwards.
NINE MONTHS ENDED JANUARY 31, 2000 COMPARED TO NINE MONTHS ENDED JANUARY 31,
1999
Revenues
Total revenue increased by 92%, or $30.7 million, to $64.3 million for the nine
months ended January 31, 2000 from $33.6 million for the nine months ended
January 31, 1999. Total refractive procedures increased by 87% to 74,345 for the
nine months ended Janaury 31, 2000 from 39,655 for the nine months ended January
31, 1999.
The increase in revenue was attributable to a $22.8 million increase in North
American refractive revenue, a $0.8 million increase in other refractive revenue
and a $7.2 million increase in cataract revenue. The increase in North American
revenue was attributable to an increase of 36 U.S. lasers in operation to 71
lasers at January 31, 2000 from 35 lasers at January 31, 1999. The increase in
cataract revenue was a result of nine months of revenue for the period ended
January 31, 2000 compared to two months of revenue for the period ended January
31, 1999 due to the acquisition of MSS on December 4,
19
<PAGE> 20
1998. Also contributing to the increase was an increase in cataract procedures
during the quarter ended January 31, 2000 compared to the quarter ended January
31, 1999.
Cost of Revenues/Gross Profit
Cost of revenues increased by 93%, or $20.9 million, to $43.2 million for the
nine months ended January 31, 2000 from $22.3 million for the nine months ended
January 31, 1999. This was primarily due to an increase of $8.6 million in total
domestic royalties, an increase of $3.1 million in mobile laser engineer
salaries and travel costs, an increase of $1.9 million in professional medical
services, a $1.9 million increase in depreciation, a $0.6 million increase in
gases, medical supplies and maintenance and $4.6 million of costs related to the
cataract business pursuant to the MSS acquisition in December 1998. The
increases in royalty expenses, salaries and travel, professional medical
services, depreciation, and gases, medical supplies and maintenance were
primarily due to increased lasers and refractive procedure volume.
Total gross profit increased by 88%, or $9.9 million, to $21.1 million for the
nine months ended January 31, 2000 from $11.2 million for the nine months ended
January 31, 1999. The variable gross profit, excluding depreciation, increased
by 83%, or $12.6 million, to $27.7 million for the nine months ended January 31,
2000 from $15.1 million for the nine months ended January 31, 1999. This was
primarily due to increased procedures performed at an increased number of sites.
As a percentage of total revenue, total gross profit remained consistent at 33%
for the nine month periods ended January 31, 2000 and 1999.
Operating Expenses
Selling, general and administrative expenses increased by 54%, or $4.3 million,
to $12.2 million for the nine months ended January 31, 2000 from $7.9 million
for the nine months ended January 31, 1999. The increase was attributable to
increased expenses related to the cataract business of $1.2 million, increased
general and administrative expenses of $1.0 million, increased salaries and
related expenses of $1.1 million and increased selling and marketing expenses of
$0.8 million. Selling, general and administrative expenses as a percentage of
revenue decreased to 19% from 24% for the nine months ended January 31, 2000 and
1999, respectively, due to the leverage obtained in implementing our low fixed
cost business model.
Vendor program change expenses increased $2.4 million to $2.4 million for the
nine months ended January 31, 2000 from $0 for the nine months ended January 31,
1999 as described above.
Income from Operations
The income from operations increased by $3.2 million to $6.5 million for the
nine months ended January 31, 2000 from $3.3 million for the nine months ended
January 31, 1999. This was primarily related to increased domestic profitability
and the effects of the acquisition of MSS in December 1998 partially offset by
the $2.4 million charge related to the vendor program change.
20
<PAGE> 21
Other Income (Expenses)
Higher interest income partially offset by higher interest expense and by higher
minority interests in net income of subsidiaries caused a $1.9 million increase
in other income (expense) to a net $1.3 million of income during the nine months
ended January 31, 2000 from a net $0.6 million of expense during the nine months
ended January 31, 1999. This was primarily due to the interest income earned on
the proceeds from the underwritten public stock offering and option and warrant
exercises.
Taxes
Income tax benefit increased $1.0 million to $1.8 million for the nine months
ended January 31, 2000 from $0.8 million for the nine months ended January 31,
1999. Based upon LaserVision's improving levels of and trend in profitability,
management has reassessed the likelihood of realizing deferred tax assets and
has recorded a tax benefit reducing the valuation allowance on the deferred tax
assets related to the NOL carryforwards.
Year 2000
We have experienced no adverse impact to date related to the onset of the year
2000. Our services, operations, customers, suppliers and service providers have
all continued to operate as usual. We do not anticipate any future problems with
respect to the onset of the year 2000.
21
<PAGE> 22
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material change in the status of any litigation from
that reported in the Form 10-Q for the quarter ended October 31, 1999, nor has
any other material litigation been initiated.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Reports on Form 8-K during the period covered by this report:
None
Exhibits -
10. Letter Agreement, dated as of March 6, 2000, between Registrant and Visx,
Incorporated (an application for confidential treatment has been made with
respect to a portion of Exhibit 10.)
27. Financial Data Schedule
22
<PAGE> 23
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASER VISION CENTERS, INC.
\s\John J. Klobnak March 16, 2000
- ------------------------------------- ------------------
John J. Klobnak Date
Chairman of the Board and Chief Executive Officer
\s\B. Charles Bono, III March 16, 2000
- ------------------------------------- -------------------
B. Charles Bono Date
Chief Financial Officer and
Principal Accounting Officer
23
<PAGE> 1
Exhibit 10
March 06, 2000
Jim Wachtman
President/COO
Laser Vision Centers, Inc.
540 Maryville Centre Drive
St. Louis, Missouri 63141
Dear Jim:
As we discussed, the 1999 annual customer support programs that were in place
for the US market ended on 2/29/00 and VISX is offering LVCI a new annual
program for 2000(effective 3/1/00).
In order to be even more strategically aligned with our U.S. customers, VISX is
offering LVCI an enhanced customer support program for 2000. We strongly believe
that this new program will significantly help accelerate U.S. market growth. If
you decide not to select the new enhanced program, the License Fee paid for all
LVCI systems will remain $250. Listed below are the enhanced U.S. program
specifics for 2000:
1. License Fee
$100 per Licensed Procedure
2. Vision Key(R) Card
$10 per card
3. Retreatment and Promotional VisionKey(R) Cards
There are no retreatment or promotional VisionKey(R) cards (eg.
Ambassador cards) of any kind available from VISX. Any cards used for these type
of activities will need to be purchased for the total price of $110 per card.
Credits for past retreatments or ambassador cards will not be accepted as this
program is terminated 2/22/00.
4. Laser maintenance/ field service
The price of an annual full service agreement for a fixed site is
$52,500 per laser per year. Non-contract support is available at $170 per hour
(minimum of 4 hours) plus actual travel expenses. Non-covered replacement parts
or spare inventory are charged at list price. Parts-only agreements ($31,500),
multiple laser discounts, and monthly payment plans are available. The parts
only volume discount for over 30 lasers is 14% for a one year contract, 16% for
a 2 year contract, and 18% for a 3 year contract.
<PAGE> 2
LVCI Letter continued
5. Discount on New Laser Purchases
The new laser price is $[*] per system. If LVCI commits to purchase [*]
or more lasers this year, the laser price per system is $[*]. As outlined in
my 12/16/99 letter, LVCI has two credits that can be used with your next two
laser purchases. The $[*] credit can be used with your first VISX STAR S2(TM)
purchase and the $[*] can be used with your second VISX STAR S2 purchase.
6. Marketing and Advertising Support
VISX will provide $[*] in marketing/advertising support following the
purchase of each laser purchased by LVCI under this 2000 program. This support
would be paid within 30 days of acceptance of each laser purchased in 2000. In
order to remain eligible for any of this support, LVCI agrees to remain current
in all of its payment obligations to VISX. VISX agrees to continue with the
marketing commitment (outlined in my 3/14/99 letter) in which we would
contribute $[*] per month/per market for 12 markets over 12 months for a total
of $[*] . LVCI agrees to use the VISX name and logo in all print materials. I
understand approximately $[*] of the $[*] was paid in 1999, so the remaining
$[*] will be paid in 2000.
The terms of this enhanced program are highly confidential. LVCI agrees to
maintain in confidence the terms of this enhanced program and to refrain from
disclosing the terms of this enhanced program to any person other than to its
officers, directors, attorneys, or accountants who have a genuine need to know
the terms of this enhanced program.
Please sign below and forward to me as soon as possible if LVCI is going forward
with this enhanced program. This new program will take effect as soon as a
signed agreement is faxed back and received by me here at VISX. If this
agreement is signed and received at VISX by 3/7/00, VISX will provide LVCI with
[ * ] to assist you in taking advantage of VISX's new pricing
program. My fax number is 1-408-730-1399. Upon receiving faxed version, a clean
hard copy will be sent to you via express mail for final signature. This offer
expires on March 10, 2000 and this program expires December 31, 2000.
Signed and Accepted: Signed and Accepted:
\S\ JIM McCOLLUM \S\ JIM WACHTMAN
- --------------------------------- ----------------------------------
Jim McCollum Jim Wachtman
Vice President, Marketing & Sales President, COO
Date 3/7/00 Date 3/7/00
----------------- -----------------
* Confidential portion which has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 24,061,000
<SECURITIES> 36,964,000
<RECEIVABLES> 10,559,000
<ALLOWANCES> 540,000
<INVENTORY> 2,862,000
<CURRENT-ASSETS> 79,870,000
<PP&E> 46,918,000
<DEPRECIATION> 19,928,000
<TOTAL-ASSETS> 114,437,000
<CURRENT-LIABILITIES> 15,833,000
<BONDS> 4,784,000
2,241,000
0
<COMMON> 253,000
<OTHER-SE> 88,289,000
<TOTAL-LIABILITY-AND-EQUITY> 114,437,000
<SALES> 22,510,000
<TOTAL-REVENUES> 22,510,000
<CGS> 15,320,000
<TOTAL-COSTS> 15,320,000
<OTHER-EXPENSES> 6,629,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 308,000
<INCOME-PRETAX> 1,042,000
<INCOME-TAX> (495,000)
<INCOME-CONTINUING> 1,537,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,537,000
<EPS-BASIC> .06
<EPS-DILUTED> .05
</TABLE>
