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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(AMENDMENT NO. 2)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the Fiscal Year ended March 31, 1996.
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[ ] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from ______ to _______.
Commission File No. 0-23142
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VISTA TECHNOLOGIES INC.
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(Name of small business issuer in its charter)
NEVADA 13-3687830
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
167 S. San Antonio Road, Suite 9, Los Altos, California 94022
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (415) 947-1750
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, par value $.005
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such re-
ports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. YES [X] NO [ ]
State issuer's revenues for its most recent fiscal year: $2,130,000 for the
Fiscal Year ended March 31, 1996.
The aggregate market value of 1,721,112 shares of registrant's voting common
stock held by non-affiliates of the Registrant was $5,163,337 as of July 15,
1996, based upon the closing sale price of $3.00 per share for the Common
Stock in the over-the-counter market on such date.
Number of shares of common stock outstanding as of July 15, 1996:
7,006,112 shares of common stock.
Documents Incorporated By Reference: None.
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VISTA TECHNOLOGIES INC.
FORM 10-KSB ANNUAL REPORT
Table of Contents
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Item No. Page
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PART I:
1. Description of Business ......................................... 1
2. Description of Property ......................................... 19
3. Legal Proceedings ............................................... 20
4. Submission of Matters to a Vote of Security Holders ............. 21
PART II:
5. Market for Common Equity and Related Stockholder Matters ........ 21
6. Management's Discussion and Analysis or Plan of Operation ....... 21
7. Financial Statements ............................................ 27
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ..................................... 27
PART III:
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ............ 28
10. Executive Compensation .......................................... 32
11. Security Ownership of Certain Beneficial Owners and Management .. 38
12. Certain Relationships and Related Transactions .................. 41
13. Exhibits and Reports on Form 8-K ................................ 48
Consolidated Financial Statements ..................................... F-1
SIGNATURE PAGE
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EXPLANATORY NOTE
This Report on Form 10-KSB/A amends and restates in its entirety the
Annual Report on Form 10-KSB of Vista Technologies Inc. for the fiscal year
ended March 31, 1996.
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PART I
UNLESS OTHERWISE INDICATED, ALL SHARE AND PER SHARE DATA IN THIS REPORT
HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT A 1-FOR-5 REVERSE STOCK SPLIT AS
TO THE COMPANY'S COMMON STOCK EFFECTIVE AS OF MARCH 15, 1996.
Certain information in this Report includes forward-looking statements
within the meaning of applicable securities laws that involve risks and
uncertainties including, but not limited to, market acceptance of new
technologies, the sufficiency of financial resources available to the Company
and its corporate affiliates, economic, competitive, governmental and
technological factors affecting the Company's operations, markets, services
and prices, and other factors described in this Report and in prior filings
with the Securities and Exchange Commission. The Company's actual results
could differ materially from those suggested or implied by any forward-looking
statements as a result of such risks.
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Vista Technologies Inc. (the "Company" or "Vista"), through its European
operating subsidiaries and joint venture interests in other affiliated
companies in the United States and Canada, is primarily engaged in providing
access to advanced laser vision correction ("LVC") equipment and support
services (collectively "LVC Services") for use by licensed ophthalmologists in
the treatment of refractive vision disorders. Computer-controlled excimer
lasers can be used to treat refractive vision disorders such as
nearsightedness and astigmatism to eliminate or reduce the need for corrective
lenses. The Company's subsidiaries and affiliates provide individual
physicians and group ophthalmic practices with shared access to laser
equipment, thus eliminating capital costs, investment risk and maintenance of
such equipment by the health care professional. LVC Services provided by the
Company's subsidiaries and affiliates also include various support services,
such as physician and staff training, technical support services, equipment
maintenance, billing and accounting and other administrative services.
Vista's European operating subsidiaries have owned and operated excimer
laser facilities in Italy and Sweden since 1992 and 1994, respectively, and
currently maintain six excimer lasers in use at outpatient surgical centers,
four in Italy and two in Sweden. See "European Operating Subsidiaries" below.
In anticipation of recent approvals by the United States Food and Drug
Administration ("FDA") of excimer laser technology and equipment supplied by
two manufacturers to treat certain refractive vision disorders, the Company
developed a strategic plan commencing in June 1995 to organize and sponsor
additional companies to provide LVC Services in the United States and Canada
through regional joint venture alliances with certain prominent
ophthalmologists. A key part of Vista's strategy for expansion in the United
States and Canada is to develop, invest in, and act as a consultant to,
regional joint venture companies ("Regional Joint Ventures") that are to be
independently financed and offer advantages of equity incentives and
management control to skilled and prominent ophthalmologists experienced in a
variety of LVC treatments, procedures and post-operative care. To date, Vista
has organized and sponsored five Regional Joint Ventures in various stages of
development including four which have commenced operations in 1996,
collectively with an excimer laser at each of six locations. See "North
American Regional Joint Venture Investments and Affiliations".
During March 1996, Vista completed equity financing transactions with
Pharma Patch PLC ("Pharma Patch") that resulted in a change in control of
Vista. See "Agreements with Pharma Patch for Equity Financing and Change in
Control" in Item 12 of this Report.
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In July 1995, the Company abandoned efforts to acquire control of
Medical Development Resources, Inc. ("MDRI") and wrote off $5,643,000 of prior
investments in MDRI and its subsidiaries at the end of its prior fiscal year
on March 31, 1995. The joint venture operations of an excimer laser clinic in
London, England were discontinued in June 1995 in response to unfavorable
local pricing for PRK procedures due to overcrowding of the market, a history
of unprofitable operations and a change in business strategy of the joint
venture partner. See Items 6 and 12 of this Report.
Vista was incorporated under the laws of Nevada on June 15, 1992 and its
principal office is located at 167 South San Antonio Road, Suite 9, Los Altos,
California 94022, telephone number (415) 947-1750.
BACKGROUND AS TO LASER VISION CORRECTION SYSTEMS
Advanced LVC equipment supplied by various manufacturers has been
commercially available in recent years for use in foreign countries, including
Canada and various countries in Europe, among others. Two U.S. manufacturers,
Summit Technology, Inc. ("Summit") and VISX, Incorporated ("VISX"), recently
received FDA pre-market approval in October 1995 and March 1996, respectively,
for use of the Summit SVS Apex excimer laser system and VISX's excimer laser
systems Models "B" and "C" to perform photorefractive keratectomy ("PRK") to
treat low to moderate myopia (nearsightedness). PRK is a form of LVC
treatment involving the use of an excimer laser to reshape the cornea, thereby
adjusting refractive power of the eye. Excimer lasers manufactured by Summit
and VISX have also been approved for use in the United States and other
countries to treat a number of pathological superficial corneal disorders in a
procedure called phototherapeutic keratectomy ("PTK").
Other LVC procedures employed in Canada and other foreign countries
include the use of excimer lasers to perform a procedure known as laser in
situ keratomileusis ("LASIK") and holmium lasers for laser thermalkeratoplasty
("LTK") and laser sclerostomy ("LS") procedures. LASIK is primarily
prescribed for treatment of hyperopia (farsightedness), astigmatism and
extreme myopia; LTK may be prescribed for instances of mild hyperopia and
astigmatism; and LS is used for treatment of symptoms of glaucoma. In May
1996, the FDA advised U.S. eye care professionals that LASIK and bilateral
surgery (treatment of both eyes at the same time) are outside the scope of
currently FDA approved labeling for excimer lasers; although the FDA noted
that physician discussions with patients and decisions to conduct either of
those procedures are considered the practice of medicine, the FDA cautioned
that it expects excimer laser equipment manufacturers and health care
practitioners will advertise and promote the use of FDA approved lasers in the
United States only within the scope of their currently FDA approved use, i.e.
for PRK and PTK.
All of these LVC procedures are normally performed on an outpatient
basis and require from 15 to 30 minutes in addition to pre-operative
consultations and post-operative care. Depending upon the severity of the
patient's pre-treatment vision disorder, improved vision resulting from LVC
procedures either eliminates or significantly reduces the patient's need to
wear eyeglasses or contact lenses. Vista's existing European subsidiaries and
its existing and planned Regional Joint Ventures in the United States focus
primarily on PRK treatment to correct low and mild myopia. Regional Joint
Venture operations planned for at least two locations in Canada adjacent to
the U.S. border are expected to offer a wider variety of LVC services,
including LASIK, bilateral treatment and an advanced proprietary method of PRK
developed by Dr. Donald G. Johnson called the Johnson transepilthelial
multi-zone, multi-pass PRK procedure ("TMM PRK"). TMM PRK provides for a
smoother ablation zone than standard PRK procedures, thus reducing glare and
central islands side effects sometimes encountered in PRK procedures. The
epithelium (a layer of cells comprising the outer surface of the cornea) is
removed in the TMM PRK procedure by use of the laser, thus avoiding direct
contact with the eye by the physician or instruments. The Company believes
that the TMM PRK method promotes faster post-operative regrowth during the
period when risk of pain and infection risk is highest.
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Vision care professionals engaged by the Company and/or its Regional
Joint Ventures establish medical and operational standards relating to LVC
Services, train ophthalmologists and optometrists in advanced LVC procedures,
and establish advisory boards consisting of credentialed and prominent
ophthalmologists and optometrists with similar skills and experience. The
Company believes that its Regional Joint Ventures planned for targeted market
segments of North America will be capable of supporting a full range of LVC in
operation and procedures because of access to physicians skilled in advanced
methods and the ability to make appropriate referrals to medical professionals
in Canada offering certain LVC procedures not currently available in the U.S.
VISION DISORDERS AND ALTERNATE FORMS OF CORRECTIVE TREATMENT
The human eye is approximately 25 millimeters in diameter and functions
much like a camera, with a lens in front and a light sensitive screen, the
retina, in the rear. Images enter the human eye through the cornea, a
transparent domed window at the front of the eye. In a properly functioning
eye, the cornea bends (refracts) incoming images, causing the images to focus
on the retina. The inability of the cornea to properly refract incoming
images results in blurred vision and is called a refractive disorder.
Myopia (nearsightedness), hyperopia (farsightedness) and astigmatism are
three of the most common refractive disorders resulting from an inability of
the optic system to properly focus images on the retina. The amount of
refraction is dependent on the shape, specifically the curvature, of the
cornea. In a nearsighted (myopic) eye, images are focused in front of the
retina; in a farsighted (hyperopic) eye, images are focused behind the
retina; and in an astigmatic eye, images are not focused at any one single
point.
Conventional methods of correcting refractive disorders are by
prescription of eyeglasses and contact lenses. Over the last 15 years,
refractive vision disorders have also been treated by several surgical
techniques. These include radial keratotomy ("RK"), in which small incisions
approximately 400 to 450 microns deep in a radial configuration are made
around the periphery of the cornea to cause a flattening of the cornea. Other
surgical techniques are keratomileusis, which involves freezing the cornea and
reshaping it, and automated lamellar keratoplasty ("ALK"), which involves
using a microkeratone to remove microscopic amounts of corneal tissue.
Industry sources estimate that 200,000 RK procedures were performed in the
United States in 1994. Because RK is a manual procedure and not performed
with a computer-controlled device, RK is highly dependent on the surgical
skill of the ophthalmologist performing the procedure. Moreover, because RK
involves incisions into the corneal tissue, it weakens the structure of the
cornea which may have adverse consequences as patients age. RK has never
undergone a controlled clinical study under an FDA protocol because no medical
device, other than a scalpel, is used in the procedure. Compared to RK, the
Company believes that laser surgery involves reduced surgical risk, does not
weaken the corneal tissue, is less invasive and is less dependent on the
ophthalmologist's skill.
LASER VISION CORRECTION ("LVC") SYSTEMS
Lasers have been used routinely for a variety of medical purposes since
the 1960s. Lasers emit photons of light into a highly intense beam of energy
that is delivered to targeted tissue by means of optical mirrors or fiber
optics. The degree of absorption by the tissue varies with the choice of
wavelength and is an important variable in the application of laser technology
in treating various tissues. Surgical lasers emit light in a continuous
stream or in a series of very short duration "pulses", thus interacting with
tissue through heat or shock waves. Several factors, including the wavelength
of the laser and the frequency and duration of the exposure or pulse,
determine the amount of energy which interacts with the targeted tissue.
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Laser technology has been accepted in the ophthalmic community for the
treatment of certain eye disorders. In general, ophthalmic lasers are used to
coagulate, cut or ablate (remove) targeted tissue.
EXCIMER LVC SYSTEMS AND PROCEDURES
Excimer lasers were first developed in the late 1980s, and are
incorporated in a fully integrated ophthalmic surgical workstation for use by
ophthalmologists to perform procedures to treat refractive and other
ophthalmic disorders. The excimer laser system delivers pulses of ultraviolet
laser light to ablate (remove) submicron layers of tissue from the surface of
the cornea in a computer-assisted, predetermined pattern to reshape the
cornea. Most of the laser light generated by the excimer system is absorbed
by the removed corneal tissue during a procedure. As a result, the laser
light does not penetrate interior portions of the eye and does not create
substantial amounts of heat in the surrounding tissue. These attributes make
the excimer laser system well suited to corneal surgery.
PRK: Photorefractive keratectomy ("PRK") is a procedure
performed with a excimer laser system to treat primarily nearsightedness.
When performing PRK with the excimer laser, the ophthalmologist determines the
exact correction required (which is measured by the same type of examination
used to prescribe eyeglasses or contact lenses) and programs the correction
into the system's computer. The ophthalmologist removes the thin surface
layer of the cornea (the epithelium) and positions the patient for the laser
procedure. The average PRK procedure consists of approximately 150 laser
pulses, each of which lasts several billionths of a second over a period
ranging for 15 to 40 seconds. Cumulative exposure to the laser light is less
than one second. The entire procedure, including patient preparation and
post-operative dressing, generally lasts no more than thirty minutes.
Following the PRK procedure, the ophthalmologist may
prescribe topical pharmaceuticals to promote corneal healing and to alleviate
discomfort. A series of patient follow up visits is scheduled with the
ophthalmologist or an optometrist to monitor the corneal healing process, to
verify that there are no complications and to test the correction achieved by
the PRK procedure. Patients undergoing PRK generally experience discomfort
for approximately 24 hours, and blurred vision for approximately 48 to 72
hours after the procedure. Although most patients experience improvement in
uncorrected vision within a few days of the procedure, it generally takes from
two to six months for the correction to stabilize and for the full benefit of
the procedure to be realized. An individual typically has one eye treated in
a session, with the second eye treated three to six months thereafter. The
Company anticipates, however, that a significant percentage of patients at
Vista's Regional Joint Ventures planned for Canada may be eligible for
bilateral treatment in which both eyes are treated simultaneously.
Although a patient usually experiences a substantial
improvement in clarity of vision within a few days following the PRK
procedure, it generally takes from two to six months for the full benefit of
the procedure to occur. The PRK procedure is used today primarily to correct
the vision of patients with myopia (or nearsightedness) ranging from -1.5 to
up to -7.00 diopters, although the PRK procedure has also been performed in
foreign countries on higher diopter nearsighted and, occasionally, farsighted
and astigmatic patients. Approximately 90% of all myopic patients are
nearsighted up to -6.00 diopters and use of the PRK procedure to correct the
vision of nearsighted patients of up to -6.00 diopters therefore has received
the greatest degree of testing.
LASIK: Laser assisted in situ keratomileusis ("LASIK") is a
procedure performed with an excimer laser system primarily to treat extreme
cases of myopia. LASIK, although a more unusual and delicate surgical
procedure than PRK, offers advantages in that the epithelium is not touched by
the laser and
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therefore promotes quicker healing. The ophthalmologist uses a microkeratone
to open a flap on the surface of the cornea, laser energy is used to ablate
corneal cells on the exposed surface, and the flap is then folded back into
place. Glare and central islands are practically non-existent after LASIK
since ablation occurs in the stroma layer (under the surface epithelium
layer). Due to the corneal flap, subsequent retouches are facilitated with
minimal recovery time.
LASIK may be more predictable in treating high levels of
myopia, but the LASIK procedure not been specifically approved in the United
States by the FDA. The FDA has advised physicians that discussions with
patients and decisions to conduct LASIK or bilateral surgery (treatment of
both eyes at the same time) are considered the practice of medicine, and the
Company believes that certain surgeons in the U.S. are performing LASIK
procedures. The FDA has cautioned eye care professionals in the U.S. to
advertise and promote the use of FDA approved lasers only within the scope of
their currently FDA approved use, i.e. for PRK and PTK.
PTK: Phototherapeutic keratectomy ("PTK") is a procedure
performed with the excimer system to treat corneal pathologies. In this
procedure, submicron layers of tissue are ablated from the surface of the
cornea in order to remove diseased, scarred or sight-inhibiting tissue. The
goal of PTK is not necessarily to cure the corneal pathology, but to alleviate
symptoms associated with the pathology. The FDA has granted pre-market
approvals for use in the United States of PTK procedures with Summit excimer
laser equipment in February 1995 and for VISX equipment in October 1995.
OTHER: Excimer lasers may also be used to treat glaucoma by a
procedure known as Partial Excimer Traheculectomy ("PET"). The PET procedure
involves the use of the excimer laser to create a penetrating filter through
the scleral tissue (the tough, fibrous tissue covering all of the eye except
the cornea), which causes the permeation of fluids from within the eye, thus
reducing pressure levels. The Company believes that one laser manufacturer
has received an Investigational Device Exemption from the FDA to conduct
clinical trials for the PET procedure in the United States.
HOLMIUM LVC SYSTEMS AND PROCEDURES
LTK: Another recently developed LVC technology is the holmium
laser system. The holmium system delivers high intensity pulses of infrared
light to an eye by means of a fiber optic cable and a single-use, hand-held
probe that directly contacts the eye at the exact spots chosen by the
ophthalmologist. The Company is aware of two manufacturers that have
developed holmium laser systems. The Company believes that both of those
companies are in the process of conducting clinical trials for the FDA to
demonstrate the safety and efficacy of the holmium laser to perform laser
thermal keratoplasty ("LTK"). LTK is a refractive procedure performed to
treat farsightedness and astigmatism in which peripheral corneal tissue is
thermally shrunk, causing the central portion of the cornea to steepen.
LS: Laser Sclerostomy ("LS") is a surgical procedure performed
with the holmium system to treat the symptoms of glaucoma by making an opening
in the front chamber of the eye. Summit has received FDA pre-market approval
to sell its holmium system in the U.S. for treatment of glaucoma.
OTHER LVC SYSTEMS
The Company is aware of three companies that have reportedly developed
solid state lasers, ophthalmic laser surgical systems that apply a beam of
high intensity light to remove tissue from the inside, as opposed to the
surface of, the cornea. These solid state lasers are designed to ablate
tissue inside the cornea without violating the cornea's surface by computer
guiding the laser beam to the inner corneal tissue and vaporizing the targeted
tissue.
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EUROPEAN OPERATING SUBSIDIARIES
From February to May 1994, Vista negotiated and completed the
acquisition of controlling interests in certain foreign subsidiaries offering
access to excimer lasers at outpatient surgical centers in Italy, Sweden and
the United Kingdom. At the time of those acquisitions in 1994, these European
operating subsidiaries had excimer lasers at four refractive surgical centers,
two in Italy, one in Sweden and one in England. The center in England was
subsequently closed in June 1995 and three new centers, two in Italy and one
in Sweden, have been opened since these acquisitions were accomplished. Due
primarily to the limited operating history of these surgical centers including
charges for depreciation and amortization, Vista's operations in Europe have
not yet been profitable. However, Vista's European subsidiaries are currently
operating at levels that are neutral or positive in cash flows.
Vista's European LVC Services are operated under the trade name Vista
Vision(TM). As of March 31, 1996, Vista owned approximately 73.57% of Vista
Vision S.p.A. ("Vista-Italy") and 100% of Vista Vision Scandinavia AB
("Vista-Sweden"). Vista's interest in Vista-Sweden is held through a
wholly-owned Dutch company organized to facilitate administration of Vista's
European operations. A United Kingdom subsidiary of Vista, Vista Vision
International Ltd. ("Vista-UK"), owned a 50% joint venture interest in a
surgical center in London, England and was liquidated in mid-1995 when Vista
and its joint venture partner determined to close the London clinic.
Vista-Italy's locations include a Milan center originally opened in
February 1992 and relocated during 1995, a Pisa clinic established in March
1993 and relocated in January 1996 to Viareggio, a Rome center started in
January 1995 and a Palermo center established in July 1996. The Vista-Sweden
centers include a center in Stockholm purchased from a third party in June
1994 and a center in Malmo opened in August 1995.
Vista's European operating subsidiaries typically receive a fee or a
percentage of the surgeon's fee for each LVC surgical procedure performed,
which to date have consisted primarily of PRK procedures. The gross
professional fee for PRK procedures in Italy and Sweden currently ranges from
approximately $1,500 to $2,500 per procedure, with a single eye constituting
one procedure, and fees payable to Vista-Italy and Vista-Sweden generally
range from $800 to $1,800 per procedure. Certain operating expenses of
Vista-Italy and Vista-Sweden under cooperative agreements for their facilities
and equipment use are in turn based upon the number of procedures performed.
Vista-Italy and Vista-Sweden maintain a total of six VISX excimer
lasers. The following chart summarizes certain information as to the number of
LVC surgical procedures performed at Vista's European centers for the periods
indicated (excluding the center at Palermo, Italy opened in July 1996 after
the periods covered by the table):
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Fiscal Year Ended March 31,
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1996 1995 1994
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Milan, Italy (opened February 1992).......... 595 466 239
Viareggio, Italy (opened March 1993)......... 504 404 213
Rome, Italy (opened January 1995)............ 268 41 --
Stockholm, Sweden (see Note a)............... 581 524 420
Malmo, Sweden (opened August 1995)........... 77 -- --
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Totals....................................... 2,025 1,435 972
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(a) Includes procedures performed at this center for periods prior to the June
1994 purchase of assets by Vista-Sweden.
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NORTH AMERICAN REGIONAL JOINT VENTURE INVESTMENTS AND AFFILIATES
Having anticipated recent FDA pre-market approval of PRK equipment
supplied by Summit and VISX, Vista's business strategy developed in June 1995,
is to expand in North America by organizing and sponsoring independently
financed regional enterprises (the "Regional Joint Ventures") in which Vista
obtains an equity interest and long-term fee-based consulting arrangements.
The Company has obtained and will continue to seek affiliations for each of
its Regional Joint Venture subsidiaries with experienced LVC eye care
professionals; these regional enterprises will seek third-party financing with
Vista's assistance to provide equipment and other LVC support services to
vision care professionals in targeted regional markets operating under the
name "Vista Laser Centers".
In the five Regional Joint Ventures formed and sponsored by Vista to
date, Vista has acquired common stock of the Regional Joint Venture in
exchange for shares of Vista common stock. From July 1995 through May 1996, a
foreign corporate investor, Refractive Services 800, Inc., provided at least
$100,000 in initial seed capital to each of these five Regional Joint Ventures
(for an aggregate investment of $520,000) to finance initial organizational
expenses and costs of negotiating agreements with vision care professionals
and seeking additional financing. Vista recently negotiated an agreement on
July 18, 1996 to acquire the equity interest owned by Refractive Services-800,
Inc. in all five of these Regional Joint Ventures in exchange for 520,000
shares of Vista common stock.
After the initial organization of a Regional Joint Venture, negotiations
with one or more local prominent ophthalmologists are instituted and these
selected physicians have been offered the opportunity of providing additional
seed capital investments in common stock and/or common stock purchase warrants
issuable by the Regional Joint Venture. Agreements with professionals will be
negotiated for use of the Regional Joint Venture's equipment and other LVC
Services and for management to be provided to the Regional Joint Venture by
local vision care professionals or management personnel designated by them.
These agreements may be, in certain cases, conditioned upon receipt of
additional financing in the form of a subsequent private placement and/or
initial public offering of securities by the Regional Joint Venture. Although
some preliminary negotiations have taken place, no definitive arrangements
with any physicians have been reached, and there can be no assurance if and
when any agreements will be finalized.
Based upon the ownership structure of the Regional Joint Venture, the
Company may enter into a long-term consulting services agreement to provide
certain consulting services to the Regional Joint Venture discussed below.
Each Regional Joint Venture will seek to enter into associations and
agreements with additional ophthalmologists and optometrists who desire to
contract for access to LVC equipment and related support services offered by
the Regional Joint Venture. The Regional Joint Venture will be licensed by
Vista to operate under the name and style of "Vista Laser Centers" at
locations within its particular region. Vista is currently evaluating service
mark applications filed by the Company in the U.S. and Canada to determine
whether a modification to that particular name would enhance the Company's
rights to a service mark.
In the typical consulting services agreement between Vista and a
Regional Joint Venture, Vista expects to provide consulting service to the
Regional Joint Venture relating to LVC developments in Europe and at other LVC
Regional Joint Ventures sponsored by Vista in North America, advice as to
equipment and leasehold financing options and alternatives, information as to
certain legal matters relating to the operation of an LVC services business
and consulting advice as to locations for additional sites for expansion.
Vista, at its discretion, may also provide financial accommodations to the
Regional Joint Venture. Terms of such consulting services agreement may be
subject to negotiation between Vista and operating management of the Regional
Joint Venture, and will not necessarily be identical in all cases. In
addition to its equity investments to date Vista has advanced loans of
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approximately $1,400,000 and guaranteed equipment financing obligations of
approximately $500,000 for certain of the Regional Joint Venture operating
subsidiaries.
In exchange for its consulting services, Vista typically expects to
charge the Regional Joint Venture a certain percentage of the revenues
realized by the Regional Joint Venture from providing LVC equipment and
related services to physicians. The Regional Joint Venture's revenues from LVC
operations is generally defined as its fees for use of LVC equipment and
support services changed by the Regional Joint Venture to its affiliated
physicians and physician groups, and does not include non-operating revenues
such as gains or losses on the sale of equipment. An additional fee may be
charged as Vista develops advertising and marketing programs in which Regional
Joint Ventures may participate. Consulting fees will be payable to Vista on a
monthly basis. In one instance where the Regional Joint Venture has agreed to
purchase an established operation, Vista has agreed to a credit of $5,000 per
month against its monthly consulting fee that acknowledges a level of
operations attained without Vista's prior participation and consulting
services. To date, the Company has yet to derive revenues from any of its
Regional Joint Ventures and there is no assurance when or if revenues will be
received.
Each Regional Joint Ventures will derive its LVC operating revenues by
billing health care professionals at the time of equipment use, with such fees
normally based upon a negotiated percentage of the gross procedure fees
charged to patients by the professional. Health care professionals affiliated
with Regional Joint Ventures charge patients for their services on gross
procedure fee basis (each eye and the related pre-operative and post-operative
care and any corrective adjustment representing one procedure) and generally
collect payment in cash or by credit card before the procedure is performed.
The gross procedure fee is required by law to be established by the
professional; however, each Regional Joint Venture will require prior consent
for the gross procedures fee to be less than a stated minimum per LVC
procedure in an effort to insure recovery of estimated costs of operations and
a reasonable margin. Depending upon the particular circumstances, Regional
Joint Ventures generally will seek to charge an average of approximately 60%
of the gross procedure fee as a fair allocation for the costs and market value
of their LVC services, and the consulting fee payable to Vista in turn will be
based upon those revenues earned by the Regional Joint Venture. However, the
fees charged by the Regional Joint Ventures to individual physicians may vary
depending upon the skill and experience of the physician, the volume of his or
her anticipated use of LVC equipment offered by the Regional Joint Venture and
the individual policies of each Regional Joint Venture. One of the Regional
Joint Ventures has established a policy of charging a flat dollar amount for
each LVC procedure in lieu of a percentage of the physician's gross procedure
fee. The fees charged by each Regional Joint Venture to individual physicians
normally will be determined by negotiation between the Regional Joint Venture
and the physician, and each Regional Joint Venture will have the authority to
establish its own policies concerning these negotiations and the minimum
percentage or amount that the Regional Joint Venture will require as a fee
from each physician. Accordingly, the method of determining revenues that may
be obtained by each Regional Joint Venture, and upon which Vista's percentage
consulting fees will be based, are not within the direct control of Vista.
Such policies and methods may be changed from time to time without the prior
consent of Vista, which could adversely affect the amount of revenues
generated by Regional Joint Ventures on a per procedure basis and the
resulting consulting fee income to Vista.
Payment of fees charged to physicians by the Regional Joint Venture
normally will be received by the Regional Joint Venture when the professional
collects the gross procedure fee from the patient. For this purpose, the gross
procedure fee is generally defined to include all charges to the patient for
services of one or more professionals to perform an LVC procedure for one eye,
which typically includes professional services for the procedure,
post-operative care and re-operative care procedures, if required, plus all
charges to the patient for equipment use, medical supplies and related items.
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Generally speaking, gross procedure fees charged by professionals for LVC
treatment in most North American markets currently range from approximately
$1,500 to $2,200 per eye, although there can be no assurance these levels will
be maintained for the long term. Health insurance providers in both Canada and
the United States generally consider LVC procedures to be elective surgery and
do not provide insurance or other third-party reimbursement. Since
reimbursement is not available, the policy adopted by Regional Joint Ventures
and their associated physicians is to collect payment by credit card or by
check at or prior to the time the LVC procedure is performed. The gross
procedure fee is required by applicable laws and regulations to be determined
by the physician, is influenced in part by competitive pricing for LVC
procedures generally in the relevant market and by special requirements for
each patient's condition, and will therefore vary in amount. Although Regional
Joint Ventures cannot control the determination of the gross procedure fee,
each Regional Joint Venture requires prior consent for the gross procedures
fee to be less than a stated minimum per LVC procedure to insure recovery of
estimated costs of operations (except for one Regional Joint Venture which
charges the physician a flat fee per gross procedure.
Terms of the consulting services agreement between Vista and a Regional
Joint Venture may be subject to negotiation between Vista and operating
management of the Regional Joint Venture, and will not necessarily be
identical in all cases. In each instance, the initial term of the consulting
services agreement between the Company and the Regional Joint Venture will be
ten years from the execution date of the consulting agreement.
The Regional Joint Ventures sponsored by the Company are in various
stages of development. As noted below, four of the five Regional Joint
Ventures have commenced business operations during 1996. The Company expects
that it eventually will receive a certain percentage of the revenues realized
by each Regional Joint Venture. To date, however, the Company has yet to
derive revenues from any of the Regional Joint Ventures and there is no
assurance, and the Company is not able to predict, when, or if, revenues will
be received.
At September 30, 1996, Vista Laser Centers of Michigan, Inc.
("VLC-Michigan") had received $187,500 in cash subscriptions and 200,000 Vista
common shares for 325,000 shares of VLC-Michigan common stock and convertible
preferred stock and 725,000 Class A warrants exercisable at $1 per share.
VLC-Michigan recently entered into an agreement to purchase the capital stock
of Windsor Excimer Corporation, an affiliate of Dr. Fouad Tayfour, effective
as of August 1, 1996. The agreement is subject to certain conditions to
closing. Dr. Tayfour will serve as Chairman of the Board and a Medical
Director for VLC-Michigan, and will agree to provide consulting services to
VLC-Michigan for a term of five years. Upon closing the agreements,
VLC-Michigan will pay a purchase price of approximately $1,000,000 for Windsor
Excimer Corporation, payable in two promissory notes bearing interest at 10%
per annum. One note for approximately $500,000 will be due in January 1997 and
the remaining $500,000 will be due in August, 1998. The operations of Windsor
Excimer Corporation are located in facilities leased at Windsor, Ontario.
Equipment owned by Windsor Excimer Corporation includes a Summit OmniMed UV
200 excimer laser, a Sunrise Technologies LTK holmium laser and related
equipment.
VLC-Michigan has assumed a lease obligation from one physician in
Michigan as to a Summit holmium laser with rental payments of $10,850 per
month until December 1999, at which point VLC-Michigan has the right to
purchase the equipment for a nominal payment of $1, plus an obligation in the
aggregate amount of $230,000, payable at the rate of $250 each time the
equipment is used by a physician.
Vista Laser Centers of the Southwest, Inc. ("VLC-Southwest") commenced
business operations at a location in Scottsdale, Arizona in February 1996.
VLC-Southwest has leased a newly acquired VISX excimer laser. As of June 30,
1996, VLC-Southwest had received cash subscriptions of $291,500 to 100,000
shares of its Series A preferred stock ($100,000), 35,000 shares of its common
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stock ($35,000), 315,000 Class A warrants ($31,500) exercisable at $1 per
share and a private placement ($125,0000) of units aggregating $125,000 in
principal amount of 11% convertible notes and 12,500 Class B warrants
exercisable at $4 per share. One of the investors in common stock and Class A
warrants of VLC-Southwest is Dr. J. Charles Casebeer, who is a member of
Vista's board of directors and Chairman of the Board of VLC-Southwest.
VLC-Southwest is currently operating at a leased facility in Scottsdale,
Arizona.
Vista Laser Centers of the Pacific, Inc. ("VLC-Pacific") commenced
business operations in June 1996 following receipt of $1,295,000 in cash
subscriptions to 100,000 shares of its Series A preferred stock ($100,000),
50,000 shares of its common stock ($50,000), 450,000 Class B warrants
($45,000) exercisable at $1 per share and a private placement ($950,000) of
units aggregating $950,000 in principal amount of 11% convertible notes and
95,000 Class A warrants exercisable at $4 per share. VLC-Pacific has assumed
equipment lease obligations from physicians affiliated with VLC-Pacific for
two VISX excimer lasers in Sacramento and San Jose, California and for a
Summit excimer laser in San Leandro, California, and is currently operating at
leased facilities in those three locations.
Vista Laser Centers Metro, Inc., to be renamed Vista Laser Centers of
the Northeast, Inc. ("VLC-Northeast") commenced business operations at a
center in Toronto, Ontario and received $100,000 in cash subscriptions to
100,000 shares of Series A preferred stock. Additional cash subscriptions to
common stock and warrants from local physicians and from a private placement
of 11% convertible note and warrants are pending. VLC-Northeast owns a newly
acquired VISX excimer laser and is engaged in negotiations to establish its
next location in the New York City metropolitan area. VLC-Northeast is
currently operating at a leased facility in Toronto, Ontario.
Vista Laster Centers of the Northwest, Inc. ("VLC-Northwest") has not
yet commenced business operations and has received $120,000 in cash
subscriptions for 100,000 shares of its common stock from Vista.
Vista has granted or is committed to grant irrevocable proxies to vote
certain shares in the Regional Joint Venture owned by Vista to one or more
local affiliates of each Regional Joint Venture. However, Vista has or will
retain the right to representation on the Board of Directors of the Regional
Joint Ventures. Although there can be no assurance one or more Regional Joint
Ventures will be successful in plans for an initial public offering or
additional private placement financing, each Regional Joint Venture plans to
ultimately effect a public offering of its securities that would reduce
Vista's beneficial ownership in the Regional Joint Venture to significantly
less than 50%.
<TABLE>
<CAPTION>
Vista Technologies
common stock issued
to acquire Series B
Preferred shares in Convertible Preferred Stock
Regional Joint Venture in Regional Joint Venture Owned by Vista
----------------------- -----------------------------------------------------
Number of Number of Preferred Shares % of Equity Interest (1)
Vista Common Date -------------------------- ------------------------
Regional Joint Venture Shares(1) Issued Series B(1) Series A(1) Primary (2) Diluted (3)
- ------------------------ ------------ -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Vista Laser Centers of
Michigan, Inc. ....... 200,000(1) 11-16-95 200,000(4) 100,000(4) 92.31% 28.32%
Vista Laser Centers of
the Southwest, Inc.... 350,000(5) 100,000(5) 94.02% 54.43%
Vista Laser Centers of
the Pacific, Inc...... 500,000(1) 5-08-96 500,000(6) 100,000(6) 92.31% 38.52%
Vista Laser Centers of
the Northeast, Inc.... 450,000(1) 5-08-96 500,000(7) 100,000(7) 100% 100%
Vista Laser Centers of
the Northwest, Inc.... 100,000(8) 100% 100%
Common Stock issued
to acquire
Series A Preferred.... 520,000 7-18-96
</TABLE>
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- ---------------
<TABLE>
<S> <C>
(1) Vista has granted or is committed to grant to one or more persons
associated with the Regional Joint Venture an irrevocable proxy granting
such person or persons the right to vote shares acquired by Vista in the
Regional Joint Venture for a five year term. Conversely, the Board of
Directors of Vista has received for the same period an irrevocable proxy
from the Regional Joint Venture to vote shares of Vista common stock
issued to the Regional Joint Venture. All of such proxies will terminate
as to any shares which are sold to a bona fide third party prior to
expiration of the proxy.
(2) Represents percentage of outstanding voting stock as of October 31,
1996. Does not give effect to the exercise of warrants and/or options
or to the conversion of certain notes issued by VLC-Southwest and
VLC-Pacific or to the possibility of additional offering of securities
planned by the Regional Joint Ventures.
(3) Calculated on a fully-diluted basis to give effect to the assumed
conversion or exercise into common stock of all convertible securities,
warrants and/or stock options issued by the Regional Joint Venture as of
September 30, 1996. Does not give effect to the possibility of
additional offerings of securities planned by the Regional Joint
Venture. Based upon current proposals, if a planned initial public
offering for VLC-Pacific is successfully completed, as to which there
can be no assurances, the beneficial ownership of shares held by the
Company in VLC-Pacific on a fully-diluted basis would decrease to
approximately 17.4%.
(4) Shares of 5% Series B preferred stock issued by VLC-Michigan have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Michigan on a one-for-one basis. The appraised value
of the Series B preferred shares in VLC-Michigan as of the date of
original issuance for financial purposes is $217,597. Shares of 10%
Series A preferred stock acquired by Vista for 100,000 shares of Vista
Common Stock on July 18, 1996 were originally issued by VLC-Michigan for
$1.00 per share in cash, have a preference in liquidation of $5.00 per
share and are convertible into common stock of VLC-Michigan on a
one-for-one basis.
(5) Shares of 5% Series B preferred stock issued by VLC-Southwest have a
preference in liquidation of $2.50 per share and are convertible into
VLC-Southwest common stock on a one-for-one basis. The appraised value
of the Series B preferred shares in VLC-Southwest as of the date of
original issuance for financial purposes is $236,428. Shares of 10%
Series A preferred stock acquired by Vista for 100,000 shares of Vista
Common Stock on July 18, 1996 were originally issued by VLC-Southwest
for $1.00 per share in cash, have a preference in liquidation of $5.00
per share and are convertible into common stock of VLC-Southwest on a
one-for-one basis. Vista has converted all of its VLC-Southwest
preferred stock into VLC-Southwest common stock. In addition, Vista has
agreed to purchase from Pharma Patch for $100,000 a VLC-Southwest note
in the principal amount of $100,000 plus 10,000 VLC-Southwest Class B
warrants; Vista further agreed with VLC-Southwest to convert the VLC-
Southwest note into an additional 100,000 shares of VLC-Southwest common
stock.
(6) Shares of 5% Series B preferred stock issued by VLC-Pacific have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Pacific on a one-for-one basis. The appraised value
of the Series B preferred shares in VLC-Pacific as of the date of
original issuance for financial reporting purposes is $487,855. Shares
of 10% Series A preferred stock acquired by Vista for 100,000 shares of
Vista Common Stock on July 18, 1996 were originally issued by
VLC-Pacific for $1.00 per share in cash, have a preference in
liquidation of $5.00 per share and are convertible into common stock of
VLC-Pacific on a one-for-one basis.
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(7) Shares of 5% Series B preferred stock issued by VLC-Northeast have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Northeast on a one-for-one basis. The value of the
Series B preferred shares in VLC-Northeast has not yet been appraised.
Shares of 10% Series A preferred stock acquired by Vista for 100,000
shares of Vista Common Stock on July 18, 1996 were originally issued by
VLC-Northeast for $1.00 per share in cash, have a preference in
liquidation of $6.00 per share and are convertible into common stock of
VLC-Northeast on a one-for-one basis.
(8) Shares of 10% Series A preferred stock acquired by Vista for 120,000
shares of Vista Common Stock on July 18, 1996 were originally issued by
VLC-Northwest for $1.20 per share in cash, have a preference in
liquidation of $6.00 per share and are convertible into common stock of
VLC-Northwest on a one-for-one basis.
</TABLE>
OTHER RELATIONSHIPS WITH PROFESSIONALS
Dr. Donald G. Johnson is Chairman of the Board and a director of Vista
and has agreed to render part-time consulting services to certain of Vista's
Regional Joint Ventures. The TMM PRK procedure was developed by Dr. Johnson,
who is one of the world's most experienced PRK surgeons. Dr. Johnson developed
TMM PRK procedures with VISX equipment and, as of December 31, 1995, has
successfully treated approximately 7,400 eyes with excimer laser procedures.
Dr. J. Charles Casebeer is an educator and trainer in the LASIK
procedure and has previously served other companies as a consultant in the
LASIK field. Dr. Casebeer is a director of Vista and has entered into a
Consulting Agreement with VLC-Michigan contingent upon completion of its
pending public offering. He is expected to continue his efforts in LASIK
procedures and to assist in managing programs for training vision care
professionals in the use and performance of LVC procedures and in recommending
standards to establish a program of credentialing and training health care
professionals in various aspects relating to LVC procedures and patient
treatment. If a proposed private placement of securities by VLC-Southwest is
successfully completed, Dr. Casebeer's professional corporation will receive
from VLC-Southwest compensation at the rate of $60,000 per annum.
Dr. Casebeer and Dr. Johnson are expected to promote advanced LVC
methods for both Vista and for various Regional Joint Ventures that have been
formed, or may be formed in the future by Vista, to service various North
American geographic markets.
SAFETY AND EFFICACY
The first PRK procedure for the treatment of nearsightedness using an
excimer laser system was performed in 1989, and the first PTK procedure for
the treatment of a corneal pathology using an excimer system was performed in
1988. A large majority of PRK and PTK procedures to date have been performed
only since 1990. PRK to correct myopia has been performed in at least 35
countries outside the U.S. prior to 1996.
Some potential medical risks have been identified in connection with the
use of LVC surgery and there may be other risks which will not be known until
the procedure has been more widely used and monitored over an extended period
of time.
Possible concerns with respect to the safety and efficacy of LVC excimer
laser systems for refractive surgery include predictability and stability of
results and potential complications, such as modest decreases in best
corrected vision and side effects from PRK, PTK, LASIK and LTK. Other possible
effects include postoperative discomfort; corneal haze during healing (an
increase in the light scattering properties of the cornea); glare/halos
(undesirable visual sensations produced by bright lights); decrease in
contrast sensitivity
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(diminished vision in low light); temporary increases in intraocular pressure
in reaction to post procedure medication; modest fluctuations in astigmatism
and modest decreases in best corrected vision (i.e., with eyeglasses);
unintended over or under corrections; instability, reversal or regression of
effect; corneal scars (blemishing marks left on the cornea); corneal ulcers
(inflammatory lesions resulting in loss of corneal tissue); and corneal
healing disorders (compromised or weakened immune system or connective tissue
disease which causes poor healing).
Summit has reported that two year follow-up data accumulated by Summit
during its Phase III PRK clinical trials indicate all of the individuals
undergoing PRK experienced an improvement in visual acuity without corrective
eyewear. Prior to PRK, 95% of the eyes in this group were 20/200 or worse. Of
the eyes treated, approximately 91% improved to 20/40 or better, the legal
requirement to obtain a driver's license in most states without corrective
eyewear, while the remaining 9% experienced improved vision without corrective
eyewear, but still required corrective eyewear to achieve 20/40 vision or
better.
MARKET POTENTIAL FOR LVC SERVICES
It is estimated that in excess of 100 million people in the U.S., and a
much larger number worldwide, use eyeglasses or contact lenses to correct
common vision disorders, with over 60 million of these individuals suffering
from nearsightedness. U.S. consumers spent an estimated $13.8 billion in
eyeglass and contact lens purchases in 1993. While excimer laser procedures
can treat people who are farsighted or are astigmatic, both the existing
technology and application for regulatory approvals for those uses are in an
earlier stage than for use of excimer lasers for treatment for
nearsightedness.
Refractive disorders generally are corrected with conventional methods
such as eyeglasses and contact lenses. Alternative treatments for permanently
reshaping the cornea to relieve nearsightedness, farsightedness and
astigmatism include surgical methods, the most popular of which has been RK,
discussed earlier in this Report. RK is used primarily to correct
nearsightedness, but is known to have potential limitations such as: (i)
weakening the cornea, (ii) potential for infection and (iii) producing
inconsistent visual correction results. However, RK procedures are generally
substantially less expensive than LVC procedures.
Vista believes that the market potential for alternative refractive care
utilizing excimer laser systems is commercially significant. Many eyeglass or
contact lens wearers are potential candidates for laser refractive surgery.
Generally speaking, Vista believes that younger persons are more apt to elect
refractive surgery than older people who have become accustomed to eyeglasses
or contact lenses over an extended period. However, the degree to which
Vista's LVC Services can penetrate the potential market for vision correction
will depend on a variety of factors including, but not limited to, medical and
public acceptance of laser vision correction procedures and alternative
technologies. None of these factors is under the immediate control of Vista
nor is any predictable at this time.
Vista's growth strategy includes: (a) increasing market penetration into
Canada and the United States through Vista's sponsorship, investment and
affiliation with Regional Joint Ventures; (b) continuing to promote alliances
with prominent ophthalmologists and other vision care professionals with a
goal of maximizing excimer laser usage for both its European operating
subsidiaries and North American Regional Joint Ventures; (c) targeting
Regional Joint Venture efforts toward specific markets and key demographic
groups within their regional markets; (d) expanding market acceptance of LVC
procedures by both vision care professionals and the general public through
Vista's participation in seminars and training programs and dissemination of
public information and advertising; and (e) on a longer-term basis, the
possible acquisition of other companies engaged in providing LVC Services.
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<PAGE>
LVC EQUIPMENT AND SUPPLIERS
Vista is not involved in the research, development or manufacture of
refractive laser systems, and is dependent on unrelated manufacturers for the
supply of laser equipment and systems to Regional Joint Venture companies and
for possible expansion in Europe. Vista believes there are four U.S. companies
that have conducted or are conducting clinical trials with excimer lasers for
refractive surgery: in addition to Summit and VISX, these include Chiron Corp.
and LaserSight Incorporated. As discussed earlier, Summit and VISX have
received pre-market approval to commercially sell and market in the United
States their excimer lasers for PRK treatment of low and mild myopia and for
PTK procedures.
The current cost of an excimer laser ranges from approximately $475,000
to $525,000, plus sales tax. For laser equipment purchased from VISX or
Summit, the manufacturer generally requires an additional royalty equal to
$250 per PRK procedure to be paid to Pillar Point Partners, a partnership
between VISX and Summit that holds certain patent rights with respect to their
excimer laser technology. The purchase price typically includes a one or two
year warranty on all parts except the optics (mirror and glass components)
which generally carry a 30-day warranty. Annual maintenance and service fees
are contracted for separately at the time of purchase and range from
approximately $40,000 to $60,000 per year, but these estimates may vary with
usage. Due to the equipment cost, Vista believes that most ophthalmologists
interested in LVC surgery will not be able or willing to purchase a laser,
seek financing for the purchase and/or arrange for required maintenance of the
laser equipment.
Equipment currently maintained or expected to be acquired by the
Company's European operating subsidiaries and Regional Joint Ventures are
summarized above under the captions "European Operating Subsidiaries", and
"North American Regional Joint Venture Investments and Affiliates". Reference
is also made to Note 12 of the Notes to the Consolidated Financial Statements.
Regional Joint Ventures in which Vista has acquired an interest plan to enter
into additional commitments to purchase and lease LVC equipment which may be
contingent in certain instances upon the respective Regional Joint Venture
obtaining additional financing.
In June 1996, Vista entered into two rental agreements with Summit for
the lease of two Summit Apex excimer lasers. The term of each rental agreement
commences upon equipment installation and will continue for a 27 month period.
After the first three months of operation, each equipment lease provides for a
minimum monthly rental fee of $6,500. Vista anticipates installing these
lasers at one or more of its Regional Joint Ventures under a sublease
arrangement.
FDA PRE-MARKET APPROVAL OF LVC EXCIMER SYSTEMS
Excimer laser systems are regulated as medical devices by the United
States Food and Drug Administration ("FDA") and require pre-market clearance
or pre-market approval (referred to as a "PMA") by the FDA prior to commercial
sale and use in the U.S. Medical devices in the U.S. are classified into one
of three classes on the basis of the controls deemed necessary by the FDA to
reasonably ensure safety and effectiveness. Class III devices, which include
medical lasers, generally are those which must receive PMA by the FDA to
ensure their safety and effectiveness and include, among other devices, new
devices which have been found not to be "substantially equivalent" to existing
legally marketed devices.
A PMA application must be supported by valid scientific evidence which
typically includes extensive preclinical and clinical trial data to
demonstrate the safety and effectiveness of the device. If human clinical
trials of a device are required, and the device presents a "significant risk,"
the sponsor of the trial (usually the manufacturer or distributor of the
device) will have to file an Investigational Device Exemption ("IDE")
application prior to commencing human clinical trials. The IDE application
-14-
<PAGE>
must be supported by data, typically including results of animal and
laboratory testing. If the IDE application is approved, human clinical trials
may begin at a specific number of investigational sites with a specific number
of patients, as approved by the FDA.
A PMA application must contain the results of clinical trials, the
results of all relevant bench tests, laboratory and animal studies, a complete
description of the device and its components, a detailed description of
methods, facilities and controls used to manufacture the device and certain
other information. FDA review of a PMA application generally takes one to two
years from the date the PMA is accepted for filing, but may take significantly
longer. The review time is often significantly extended by the FDA asking for
more information, including additional clinical trials for clarification of
information provided in the submission. When conditions have been fulfilled to
the satisfaction of the FDA, it will issue a PMA approval letter, authorizing
commercial distribution of the device for certain applications. If the FDA's
evaluation is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable letter". There are devices for which FDA approval
has been sought which have never been approved for marketing in the U.S. The
FDA may approve a device for some procedures but not others, or for certain
classes of patients and not others. Modifications to a device that is an
approved PMA also may require approval by the FDA of PMA supplements or new
PMAs.
GOVERNMENTAL REGULATION
The manufacturing, labeling, distribution, marketing and promotion of
medical devices such as excimer lasers to which Vista and its affiliated
companies provide access are subject to extensive and rigorous government
regulation in the United States and in certain other countries.
Excimer lasers in the United States are required to be the subject of an
approved PMA application. Summit and VISX have received approval of PMA
applications for use of their excimer lasers in PRK and PTK procedures for the
treatment of low to mild myopia. There can be no assurance that FDA approval
will be received by equipment manufacturers for use of PRK for other
refractive disorders, such as extreme myopia, astigmatism and hyperopia
(farsightedness) or that other LVC procedures, such as LASIK or TMM PRK, will
ever be approved by the FDA. Failure to receive such approvals could have the
effect of limiting the market for LVC procedures in the United States,
although the Company's plan in such event is that vision care professionals
affiliated with its Regional Joint Ventures will have an option of referring
patients desiring these alternative procedures to physicians in Canada
associated with one or more Regional Joint Ventures.
Users of medical devices in the United States are subject to continuing
FDA obligations. Medical devices are required to be manufactured in accordance
with regulations setting forth current Good Manufacturing Practices ("GMP"),
which require that devices be manufactured and records be maintained in a
prescribed manner with respect to manufacturing, testing and control
activities. It is the FDA's view that with respect to excimer lasers, users,
as well as manufacturers, are required to comply with FDA requirements with
respect to labeling and promotion. The Medical Device Reporting regulation
adopted by the FDA would require that the user provide information to the FDA
whenever there is evidence to reasonably suggest that one of its devices may
have caused or contributed to a death or serious injury, or that there has
occurred a malfunction that would be likely to cause or contribute to a death
or serious injury if the malfunction were to recur. Users of medical devices
are subject to periodic inspections by the FDA. Failure to comply with
applicable FDA requirements could subject one or more Regional Joint Ventures
subject to FDA regulation in the United States to enforcement action,
including product seizures, recalls, withdrawal of approvals, and civil and
criminal penalties, any one or more of which could have a material adverse
effect.
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Medical device laws and regulations are also in effect in Canada and
Europe. These range from comprehensive device approval requirements to
requests for product data or certifications. The number and scope of these
requirements are increasing. Medical device laws and regulations are also in
effect in some states in which the Company may plan to sponsor Regional Joint
Ventures. The failure of the Company's European operating subsidiaries or
Regional Joint Ventures to comply with applicable foreign or state medical
device laws and regulations may have a material adverse effect on the
Company's business.
Federal, state and foreign laws and regulations regarding the
manufacture and marketing of medical devices are subject to change. For
example, the FDA is currently considering significant changes to its GMP and
to other regulations. The Company cannot predict what impact, if any, such
changes might have on its business.
The operations of Vista's European subsidiaries and the Regional Joint
Ventures are also subject to extensive rules and regulations, both in the
United States and foreign countries at the federal, provincial, state and
local level, affecting the health care industry and the delivery of health
care. These include laws and regulations prohibiting the practice of medicine
and optometry by persons not licensed to practice medicine or optometry,
prohibiting the unlawful rebate or unlawful division of fees and limiting the
manner in which prospective patients may be solicited.
Current regulatory requirements and restrictions that relate to
corporate entities involved in the ownership and operation of healthcare
facilities include prohibitions against: the corporate practice of medicine
except by an entity owned by healthcare professionals and/or wherein the
professionals exercise control over medical judgments; patient referrals by
healthcare professionals (including ophthalmologists and optometrists) to a
facility owned or compensated by such referring professional (either
generally, or sometimes by defining such payments as "kick backs"); and "fee
splitting" between healthcare professionals and corporate entities. Other laws
in both the United States and foreign countries specifically regulate the
nature and compensation provisions of employment or management relationships
that healthcare professionals may have with a corporate-owned facility, may
affect the form of business entity to be utilized, may limit payments either
to the entity or to healthcare professionals to the "fair market value" of
their contributions, or affect the manner of marketing the service performed
at the healthcare facility. Additional regulations in some jurisdictions also
now affect, or in the future may affect, the administration and use of LVC
Services, including requirements for certificates of need and/or other
licensing and registration of medical equipment.
Laws and regulations affecting the manner in which LVC Services may be
marketed, administered or compensated for vary significantly from jurisdiction
to jurisdiction. In some instances these laws and regulations are ambiguous,
and sometimes regulators fail to provide adequate guidelines. Vista believes
that its European operating subsidiaries and Regional Joint Ventures have
adopted strategies that enables each of them to offer and administer LVC
Services in compliance with applicable regulatory requirements in their areas
of operations. However, federal, state and provincial regulatory attention may
continue to be directed to the practice of medicine, and any changes in
applicable law or regulations, or in governmental agency and judicial
interpretations of such laws and regulations, could cause one or more of these
strategies currently in compliance with applicable laws to cease to comply.
The use of excimer lasers and other medical equipment is also subject to
numerous government laws and regulations relating to such matters as safe
working conditions, environmental protection, fire hazard control and disposal
of potentially hazardous substances. There can be no assurance that the
Company's European operating subsidiaries and one or more Regional Joint
Ventures will not be required to incur significant costs to comply with such
laws and regulations in the future.
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INSURANCE AND INDEMNIFICATION
Health insurance providers in North America generally consider LVC
procedures to be elective surgery and do not provide insurance reimbursement.
In other countries, reimbursement programs vary by country and region, and
reimbursement is not generally available for European locations at which the
Company's European subsidiaries currently operate.
Use of laser systems by health care professionals using laser equipment
and other LVC Services may give rise to claims against Vista or its affiliates
by persons alleging injury. Vista's subsidiaries generally do not currently
have malpractice liability insurance due to limited capital resources.
Vista believes that claims alleging defects in laser systems will be
covered by manufacturers' warranties and the manufacturer's product liability
insurance, and that Vista and its affiliates could take advantage of such
insurance by adding such suppliers to potentially adverse lawsuits. There can
be no assurance that laser suppliers will carry product liability insurance or
that any such insurance will be adequate to protect Vista.
Generally speaking, the policy of Vista's operating subsidiaries and
Regional Joint Ventures are to require that ophthalmologists who perform laser
procedures by use of LVC equipment maintain their own professional liability
insurance.
At a future date, Vista intends to explore the availability and cost of
obtaining umbrella coverage with respect to any malpractice claims relating to
procedures performed by use of LVC Services and of obtaining errors and
omissions coverage with respect to the Company's staff. There can be no
assurance that Vista will be able to retain adequate liability insurance at
reasonable rates, or that insurance or indemnification provided by health care
providers will be adequate to cover claims asserted against Vista, in which
event Vista's business may be materially adversely affected.
PROPRIETARY RIGHTS
Vista has no licenses, patents, registered trademarks or registered
copyrights except that it has filed trademark applications in the United
States and Canada for the service mark "Vista Laser Centers" (TM) and its
European operating subsidiaries conduct business under the name of Vista
Vision (TM). Vista is currently evaluating service mark applications filed by
Vista in the U.S. and Canada to determine whether a modification to that
particular name would enhance Vista's rights to a service mark.
COMPETITION
The vision care industry is extremely competitive and includes numerous
companies that are substantially larger than Vista and have greater financial,
marketing and technical resources. Vista believes principal competitive
factors affecting revenues include market acceptance of LVC procedures by both
patients and vision care professionals, performance, success relative to
alternative refractive correction methods, pricing, regulatory requirements,
quality of equipment and convenience to the patient and physicians, some of
which are factors beyond the Company's control.
Vista competes with other surgical and non-surgical forms of treatments
for refractive disorders, including eyeglasses, contact lenses, manual
refractive surgery (such as RK), corneal transplants and possibly other new
technologies currently under development. Continued use of eyeglasses and
contact lens are expected to be the most popular methods of treating
refractive vision disorders due to low immediate cost and the avoidance of
surgery. Notwithstanding certain limitations and disadvantages compared to LVC
procedures, RK surgery is generally less expensive than are LVC procedures,
and RK may remain a competitive surgical treatment due to cost considerations
or the skills of particular physicians.
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<PAGE>
The market for access to excimer lasers is highly competitive and Vista
and its Regional Joint Ventures compete, or will compete, in various
geographic markets with other businesses formed since 1990 offering similar
access to LVC equipment and services in Europe, Canada and the United States.
These competitors are pursuing a variety of business and marketing strategies,
such as marketing directly to consumers through optical chains or affiliating
with hospitals or physician group practices.
Summit, a supplier of laser equipment, operating through a subsidiary
named Refractive Centers International, Inc., plans to open various laser
centers in the United States. Other companies which do not manufacture laser
equipment currently provide, or have indicated they intend to provide, access
to laser equipment in the United States, including: Beacon Eye Institute Inc.
(a subsidiary of Hawker Siddley Canada Inc.); Vision International, Inc.,
which operates PRK clinics in Mexico, Finland and Argentina; Laser Vision
Centers, Inc. ("LVCI"), which has operated centers in Canada since 1991 and in
Europe since 1993; Global Vision, Inc.; LCA Vision, Inc.; Sight Resources,
Inc.; Sterling Vision, Inc.; The Laser Centre; and 20/20 Laser Centers, Inc.
Additional competition also exists or may develop from hospital affiliated
groups, physician group practices and private ophthalmologists electing to
purchase refractive laser systems in certain markets, some of whom are
believed to operate equipment for which royalties are not payable to a laser
manufacturer. LVCI reportedly operates 12 sites in the U.S., and plans to open
additional U.S. locations, in conjunction with Columbia Healthcare
Corporation, formerly named Columbia/HCA, which operates ambulatory surgery
centers in approximately 27 states. LVCI has also announced plans to develop
self-contained mobile laser surgery centers and to apply for pre-market
approval of its mobile system with the FDA.
The ability of Vista and its Regional Joint Ventures to compete
successfully may also depend in the future on their ability to adapt to
technological changes and advances in the treatment of refractive vision
disorders. There can be no assurance that, as the market for excimer laser
surgery and other treatments of refractive disorders develops, that equipment
owned and/or leased by Vista and its affiliates will not become obsolete, and
if this occurs, there can be no assurance that Vista will be able to secure
new equipment to allow Vista and its affiliates to compete effectively.
INVESTMENT IN TECHNICAL CHEMICALS AND PRODUCTS, INC.
As part of an agreement between Vista and Pharma Patch generating
additional financing for Vista in March 1996, Vista received 200,000
restricted shares of Technical Chemicals and Products, Inc. ("TCPI") common
stock from Pharma Patch at a value of $2,662,500, or $13.31 per TCPI share.
At the time this transaction was completed and at March 31, 1996, shares of
TCPI acquired by Vista were restricted as to resale under federal securities
laws and have been valued at both dates for financial statement purposes at a
25% discount from the public market price. On March 21, 1996, the date Pharma
Patch and Vista closed the agreement, the closing price for TCPI common stock
was $17.75 per share. Subsequent closing prices for TCPI common stock were
$16.50 on March 31, 1996 and $10.63 on September 30, 1996.
TCPI is principally engaged in the design, development, manufacture and
marketing of a wide range of medical diagnostic products for use in physician
offices, at home and at other point-of-care locations. TCPI's medical
diagnostic products employ patented and proprietary membrane-based technology,
and include approximately 25 different tests to detect conditions such as
pregnancy, ovulation timing, cholesterol levels, blood glucose levels,
infectious diseases and drugs of abuse. TCPI markets diagnostic products
through a marketing and distribution alliance between TCPI and Boehringer
Mannheim and also markets products under its proprietary brand name and under
private label arrangements to drug, discount and supermarket chains. In
addition to its diagnostics business, TCPI is also involved, through its
Pharmetrix Division acquired from Pharma Patch PLC in November 1995, in
research, development and commercialization of transdermal and mucosal drug
delivery systems and skin permeation enhancers. For its fiscal year ended
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<PAGE>
December 31, 1995, TCPI reported net sales of $4,188,000 and a net loss of
$1,494,000.
TCPI's common stock is publicly-traded in the over-the-counter market
and quoted on the Nasdaq SmallCap Market under the symbol "TCPI". TCPI is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission
("Commission") which may be inspected and copied at the public reference
facilities maintained by the Commission at its principal office in Washington
D.C. and at its regional offices in Chicago and New York.
As the assignee of Pharma Patch with respect to its investment in TCPI,
the Company is entitled to certain benefits and subject to certain obligations
arising under prior agreements between Pharma Patch and TCPI. TCPI filed a
registration statement on Form S-3 to register certain shares of TCPI common
stock acquired by Pharma Patch from TCPI, including the 200,000 shares
assigned to Vista. The resale of these shares pursuant to such registration
was subject to a lock-up agreement executed by Vista. Under that lock-up, the
Company agreed it would not sell, contract to sell, grant any option for the
sale of, or otherwise directly or indirectly dispose of Vista's shares of TCPI
common stock during the period expiring 180 days following the closing of a
public offering of securities by TCPI on May 2, 1996 without the prior consent
of the representative of the underwriters of TCPI's public offering. The
Company sold most of its TCPI Shares in late November 1996 at prices ranging
from $7.50 to $8.00 per share.
EMPLOYEES
Vista's corporate operations employ the services of eight employees and
consultants, including three on a full time basis and five on a part-time
basis, all of which are involved in management or administrative functions.
Vista's European subsidiaries employ six persons at Vista-Italy and five
persons at Vista-Sweden. Management believes that the Company's relationship
with its employees is satisfactory. As the Company expands, it expects to add
additional employees, primarily in marketing, administrative and management
positions. The Company does not anticipate difficulty in hiring such personnel
when needed.
ITEM 2. DESCRIPTION OF PROPERTY
Vista's principal office is located at 167 S. San Antonio Road, Suite 9,
Los Altos, California 94022.
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The Company and its subsidiaries do not own any real property. The
following table summarizes information as to facilities utilized by the
Company and its European operating subsidiaries:
<TABLE>
<CAPTION>
Size and Lease
Location Use Expiration Date
- -------------------------- ------------- -------------------------
<S> <C> <C>
UNITED STATES FACILITIES:
Vista Technologies Inc.
Suite 9
167 S. San Antonio Road Corporate 1,042 square feet;
Los Altos, California office expires 7/31/01
EUROPEAN FACILITIES:
Vista Vision SpA:
Milan Center ................ LVC center 430 square feet;
Milan, Italy expires January 1997 (renewed every 3 years
unless notice given six months in advance)
Viareggio Center ............ LVC center shared use of facilities under operating
Viareggio, Italy agreement on month-to-month basis
Rome Center ................. LVC center 1,600 square feet;
Rome, Italy expires November 2000
Palermo Center .............. LVC center shared use of facilities under operating
Palermo, Italy agreement on month-to-month basis
Vista Vision Scandinavia AB:
Klara Clinic ................ LVC center shared use of facilities under operating
Stockholm, Sweden agreement on month-to-month basis
Malmo Center ................ LVC center shared use of facilities under operating
Malmo, Sweden agreement with Gustav Adolf Clinic expiring
on May 15, 1998 renewed every 3 years
unless notice given 12 months in advance)
</TABLE>
The Company believes that its facilities are in good operating condition
and repair and are adequate for their existing requirements. See Note 12 of
the Notes to Consolidated Financial Statements elsewhere herein for additional
information concerning lease obligations of the Company. The lease for the
Company's new corporate offices in Los Altos, California provides for a base
rental of $2,084 per month adjusted at the end of each year during the five-
year term for changes in the consumer price index and in any event not less
than a 3% nor more than a 7% increase per year.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS AS TO VISTA-ITALY
Vista-Italy is a party to pending litigation proceedings arising as a
result of prior transactions between Vista-Italy and Laser Vision Centers,
Inc. ("LVCI") of St. Louis, Missouri. The unfavorable determination in these
proceedings does not adversely affect the business operations of the Company
or Vista-Italy as presently conducted.
On October 8, 1993, LVCI filed civil litigation in the Circuit Court of
St. Louis County, Missouri against Vista-Italy alleging fraud and breach of
contract on the part of Vista-Italy arising from agreements made and partly
performed between the parties from May 1991 to March 1993. Vista-Italy did
not file responsive pleadings in this proceeding based upon its counsel's
advice, among other things, that the Missouri court did not have jurisdiction.
On December 17, 1993, a default judgment was entered in this action against
Vista-Italy (a) terminating and rescinding all agreements and proposed
agreements between LVCI and Vista-Italy, (b) awarding damages of $175,000
against Vista-Italy, and (c) ordering a return to LVCI of 275,000 shares of
its common stock previously issued or issuable to Vista-Italy (of which only
200,000 shares were delivered to Vista-Italy). Vista-Italy filed a motion to
vacate this judgment which was denied by the trial court; the trial court's
decision recently was affirmed on appeal and a petition for an appeal to the
Missouri Supreme Court has been denied.
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<PAGE>
In view of the default judgment, Vista recorded the following
transactions on its consolidated financial statements as of September 30,
1994: (i) the cancellation of 287,500 shares of Vista-Italy previously issued
to LVCI under the agreements that would be rescinded by the default judgment;
(ii) cancellation of 200,000 shares of LVCI stock previously delivered to
Vista-Italy; and (iii) an accrued liability of approximately $175,000 for
damages awarded by the default judgment. Vista-Italy does not believe that the
money damage portion of the default judgment would be enforced by a court of
competent jurisdiction in Italy.
SEC SUBPOENA RELATING TO TRADING IN U.S. SHOE CORP. SECURITIES
In June 1996, the Company received a subpoena duces tecum from the
Securities and Exchange Commission ("Commission") in connection with an
investigation by the Commission into trading in the securities of U.S. Shoe
Corp., Commission File Number HO-3018. Based on the subpoena, this
investigation is apparently focused on trading in U.S. Shoe Corp. securities
during the period from October 1, 1994 through March 3, 1995. The subpoena
requires the Company to furnish the Commission with various documents
relating, among other things, to the Company's bank accounts, brokerage
accounts, telephone records and documents referring or relating to 28 named
individuals and entities. As of July 29, 1996, Vista had transmitted to the
Commission copies of all documents then in its possession required by the
subpoena. (Additional documents received from storage files of a former
executive officer were delivered to Vista on July 29, 1996 and will be
produced for the Commission after review by the Company's counsel.) The
Company has never directly or indirectly traded in the securities of U.S. Shoe
Corp. and management therefore believes that Vista is not a target of the
Commission's investigation. Counsel for Jac. J. Lam, a former director of
Vista, has advised the Company that Mr. Lam purchased call options covering
securities of U.S. Shoe Corp. during 1994 based solely on then publicly-
available information. To avoid any possible complications arising as a
result of these proceedings, Mr. Lam resigned as a director of the Company on
July 2, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of Vista common stock were initially offered and sold to the
public in an initial public offering completed in December 1993. However, an
active trading market did not develop until March 18, 1996 following a
one-for-five reverse stock split as to the Company's common stock effective as
of March 15, 1996. The Company's common stock is traded in the
over-the-counter market and quoted on the NASD's Electronic Bulletin Board
under the trading symbol "VIII". The following table sets forth, for the
periods indicated, the high and low closing bid and asked prices for the
Company's common stock as reported by the National Quotation Bureau, Inc.
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual
transactions.
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<PAGE>
<TABLE>
<CAPTION>
Closing Bid Prices Closing Asked Prices
---------------------- ----------------------
High Bid Low Bid High Asked Low Asked
Period
- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996:
Quarter ended March 31
(from March 18)......... $ 2.50 $ 0.875 $ 2.625 $ 2.50
Quarter ended June 30 .... $ 4.50 $ 2.50 $ 6.00 $ 2.625
July 1, 1996 to
July 22, 1996 ......... $ 3.00 $ 2.50 $ 3.75 $ 3.00
</TABLE>
On July 15, 1996, the closing sale price for the Company's common stock
as reported in the over-the-counter market was $3.00 and the closing bid and
asked prices were $2.875 bid and $3.50 asked. As of July 8, 1996, there were
approximately 135 holders of record of the Company's Common Stock. Additional
beneficial owners of the Common Stock hold shares in street name or other
nominee accounts.
No cash dividends have been declared or paid by the Company since its
inception. Vista intends to employ all available funds for development of its
business and, accordingly, does not intend to pay cash dividends in the
foreseeable future. There are no contractual provisions that would prohibit
the Company from payment of dividends on its common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in
this Report.
INTRODUCTION AND PLAN OF OPERATION
Vista commenced business operations in February 1994. The Company
acquired controlling equity interests in European subsidiaries during 1994,
made substantial investments in Medical Development Resources, Inc. ('MDRI")
and its subsidiaries in 1994 and 1995, and developed a strategic plan in
mid-1995 to sponsor and invest in Regional Joint Ventures to conduct
additional businesses engaged in providing access to laser vision correction
("LVC") equipment and related services ("LVC Services") in regional markets of
North America.
Since commencing operations, the Company has financed its business
operations, acquisition and expansion activities primarily from the issuance
or sale of equity securities. From February 1994 through March 31, 1996, the
Company had received approximately $7,437,500 from the sale of 1,197,500
shares of common stock and 1,225,000 warrants, approximately $278,000 from the
sale of convertible debt instruments, and had issued an additional 3,692,756
shares of common stock and 259,000 warrants in connection with the acquisition
of other assets and investments.
Vista made significant investments in MDRI and its subsidiaries from May
1994 through March 1995. In July 1995, Vista terminated and rescinded all of
its executory agreements with MDRI and certain of its stockholders and
noteholders. The Company's investment in cash, securities issued and loans
advanced for its investment in MDRI of approximately $5,643,000 was
written-off at March 31, 1995.
At March 31, 1996, the Company had an accumulated deficit of $15,247,000
incurred as a result of the $5,643,000 write-off of its investment in MDRI in
fiscal 1995, a $3,826,000 impairment of goodwill during fiscal 1995 and
otherwise primarily as a result of losses from operations in the fiscal years
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<PAGE>
ended March 31, 1995 and 1996. The Company's net loss for the most recent
fiscal year ended March 31, 1996 was $3,815,000. Vista's European
subsidiaries have not operated profitably since their inception; although its
Italian subsidiary generated positive cash flow from operations in fiscal 1996
and Vista-Sweden's cash flow from operations was approximately cash neutral,
there can be no assurance that European operations will be profitable in the
future.
The Company's operating management anticipates Vista will continue to
incur losses for the immediate near term due to Vista's current level of fixed
expenses for general and administrative expenses and depreciation, but at a
lower rate than that experienced in the fiscal year ended March 31, 1996.
Losses are expected to continue until such time as revenues increase to a
level necessary to absorb fixed costs. No assurances can be given as to
whether or when revenue increases may be achieved. Revenue increases will be
dependent, among other things, in part upon expanding use of the Company's
services by physicians, general public acceptance of laser surgery to correct
refractive disorders and competitive factors.
Management's strategy developed in mid-1995 has been to expand its
participation in a developing market for LVC Services in the United States,
while at the same time minimizing Vista's short-term cash requirements for
such expansion. Since insurance reimbursement is not available, the Company's
management believes the skills and reputation of health care professionals
involved in recommending and performing refractive eye procedures are an
important and often critical element in the patient's decision to elect an LVC
refractive procedure. Vista has therefore designed and is implementing a
program to organize and sponsor U.S. and Canadian Regional Joint Ventures in
alliance with prominent physicians that are to be largely independently
financed and will offer advantages of equity incentives and management control
to skilled and prominent ophthalmologists experienced in a variety of LVC
treatments, procedures and post-operative care. See Item 1 of this Report.
Vista plans to continue to seek additional capital through the private
placement and/or public sale of its equity securities, use of equipment lease
financing, and sale of marketable securities to finance the Company's
operations and expansion plans in North America.
The Company's business activities are subject to both predictable and
unforeseen risks incident to the creation of new businesses with a limited
history of operations. Prospective investors should consider the frequency
with which newly developed businesses encounter unforeseen expenses,
difficulties, complications and delays, and other factors such as the
Company's losses from its continuing operations.
RESULTS OF OPERATIONS:
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
REVENUES: During the fiscal year ended March 31, 1996 (the "1996
Year"), Vista's consolidated revenues from operations were $2,130,000, an
increase of 76% compared to $1,210,000 in consolidated revenues for the prior
fiscal year ended March 31, 1995 (the "1995 Year"). Consolidated revenues in
the 1996 Year principally included $1,216,000 attributable to the operations
of Vista-Italy, approximately a 100% increase compared to the 1995 Year, and
$929,000 from the operations of Vista-Sweden, an increase of approximately 60%
over the 1995 Year. These increases were in part attributable to new LVC
Services centers opened in January 1995 and August 1995 in Rome, Italy and
Malmo, Sweden, respectively, and in part to increases in the number of LVC
procedures performed at other locations of Vista-Italy and Vista-Sweden.
OPERATING EXPENSES: Costs and expenses of operations for the 1996 Year
were $5,092,000, an increase of 51.8% compared to costs and expenses of
operations of $3,354,000 in the 1995 Year. The Company believes that
increases in costs and expenses of operation were generally commensurate with
the 76% increase in consolidated revenues. Costs and expenses in the 1996
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<PAGE>
Year consisted of $4,625,000 in general and administrative expenses, a 66.8%
increase compared to the 1995 Year, and $468,000 in depreciation and
amortization, a $113,000 decrease compared to the 1995 Year. General and
administrative expenses for the 1996 Year included $1,173,000 for Vista-Italy,
a 40% increase compared to the 1995 Year, and $1,198,000 for Vista-Sweden, a
127% increase compared to the 1995 Year due primarily to start-up operations
in Malmo. Costs and expenses for operations in England which were closed in
June 1995 were $152,000 for the 1996 Year compared to $199,000 in the prior
1995 Year. The Company's European subsidiaries accordingly sustained losses
from operations in the 1996 Year that were significantly reduced compared to
the 1995 Year and will not be impacted in future years by the England
operation closed in June 1995. Vista-Italy generated positive cash flow from
operations in fiscal 1996 and Vista-Sweden's cash flow from operations was
approximately cash neutral as a result of the start-up at Malmo. Profitable
operations from European operating subsidiaries in the future will be
dependent upon increasing revenues, as to which there can be no assurance.
Other major components of the Company's consolidated general and
administrative expenses in the 1996 Year included approximately $2,552,000 of
general and administrative expenses at the Vista parent corporation level.
OTHER EXPENSE AND INCOME: Other net expense in the 1996 year totalled
$843,000, a reduction of $3,012,000 compared to $3,855,000 in other net
expenses in the prior 1995 Year. The primary portion of such expenses in the
prior 1995 Year was nonrecurring charges of $3,826,000 for impairment of
goodwill relating to the Company's investments in its European subsidiaries
($2,762,000 relating to Vista-Italy, $633,000 as to Vista-UK and $431,000
relating to Vista-Sweden and Convista Vision B.V.). Approximately 53% of
other net expenses in the 1996 Year was a charge of $447,000 for the
impairment of idle equipment consisting of a laser acquired by the Company
from a corporate affiliate. Other major components of income and expense
items in the 1996 Year included a reserve of $135,000 for losses incurred in
closing operations in England, a $152,000 loss on trading securities and
$64,000 of interest expense. Interest expense increased by $54,000 compared
to the prior 1995 Year due to an increase in outstanding debt obligations.
NET LOSS: Net loss for the 1996 Year was $3,815,000, equal to a net
loss of $1.92 per common share, compared to a net loss in the 1995 Year of
$11,420,000, or $9.64 per common share.
FISCAL YEAR ENDED MARCH 31, 1995
REVENUES: During the fiscal year ended March 31, 1995 (the "1995
Year"), Vista's consolidated revenues from operations were $1,210,000.
Consolidated revenues principally included $607,000 attributable to the
operations of Vista-Italy and $580,000 to the operations of Vista-Sweden. No
revenues were recognized in the comparable prior year's twelve month period
ended March 31, 1994 because Vista had not acquired interests in operating
subsidiaries prior to March 31, 1994.
OPERATING EXPENSES: Costs and expenses of operations for the 1995 Year
were $3,354,000, consisting of $2,773,000 in general and administrative
expenses and $581,000 in depreciation and amortization. General and
administrative expenses for the 1995 Year included $836,000 for Vista-Italy,
$526,000 for Vista-Sweden and $199,000 for operations in England which were
closed in June 1995. The Company's European subsidiaries accordingly
sustained losses from operations in the 1995 Year, which increased as a result
of the start-up of a clinic in Rome and the relocation of the Milan clinic.
Other major components of general and administrative expenses in the 1995 Year
included approximately $463,000 in legal and accounting fees, a majority of
which were attributable to transactions with Medical Development Resources,
Inc. that were ultimately abandoned in July 1995, $226,000 in officers'
salaries, $208,000 in travel expenses and $131,000 in consulting fees.
OTHER EXPENSE AND INCOME: Other net expense in the 1995 year totalled
$3,855,000. The primary portion of such expenses was a $3,826,000 impairment
of goodwill charge relating to the Company's investments in its European
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<PAGE>
subsidiaries ($2,762,000 relating to Vista-Italy, $633,000 as to Vista-UK and
$431,000 relating to Vista-Sweden and Convista Vision B.V.). Other income and
expense items included an expense reserve of $186,000 for litigation, a
write-off of $125,000 in advances to a stockholder and $29,000 in foreign
currency exchange losses; these expenses were partially offset by $129,000 of
realized gains and $117,000 of unrealized gains on trading securities.
LOSS: During the 1995 Year, Vista recognized a loss of $5,643,000
attributable to the write-off of its investment in, and advances to, Medical
Development Resources, Inc. and its subsidiaries. See Item 12 of this Report
and the Notes to Consolidated Financial Statements included elsewhere herein.
NET LOSS: Net loss for the 1995 Year was $11,420,000, equal to a net
loss of $9.64 per common share. The 1995 Year includes results of operations
of consolidated subsidiaries only from their respective dates of acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Vista's principal capital requirements include working capital for
management and administration, cash resources to finance programs to acquire
additional LVC equipment and support activities of Regional Joint Ventures
sponsored by the Company since June 1995, and in the future, anticipated
requirement to finance sales and marketing and other working capital
requirements. Subject to the availability of adequate capital, as to which
there can be no assurance, expenditures for additional excimer laser equipment
may be significant during the foreseeable future to support the Company's
program of expanding LVC Services and supporting the activities of Regional
Joint Ventures. Due to a lack of capital and in order to sustain the Vista
parent corporation's operations from June 1995 through December 1995,
corporate activities during the 1996 Year were financed in part by the
issuance of 925,000 shares of common stock in December 1995 at a negotiated
cost of $1,470,000. See "Issuance of Shares for Expenses From June Through
December 1995" in Item 12 of this Report.
As of March 31, 1996, the Company had $288,000 in cash and consolidated
working capital of $107,000. An additional $1,675,000 in cash was generated
subsequent to March 31, 1996 by the collection of a $750,000 short-term note
from Pharma Patch and collection of a stock subscription receivable for
$212,500, both of which were included as current assets on the Company's
consolidated financial statements at March 31, 1996, the sale of common stock
in June 1996 for an additional $212,500 and the exercise of a stock option by
Pharma Patch in July 1996 for $500,000. The Company's long-term assets
include 200,000 restricted shares of TCPI common stock which were registered
under the Securities Act of 1933 on June 20, 1996 for resale by the Company
after approximately September 30, 1996. See "Investment in Technical
Chemicals and Products, Inc." in Item 1 of this Report. Vista plans to
continue to seek additional capital through the private placement and/or
public sale of its equity securities, use of equipment lease financing, and
sale of marketable securities in TCPI when possible to finance the Company's
operations and expansion plans in North America.
Although the Company's European operating subsidiaries appear to have
achieved positive or neutral cash flow levels of operations, Vista's
management anticipates that its consolidated operations will incur negative
cash flows for the immediate future, primarily due to fixed expenses for
corporate general and administrative overhead. There can be no assurance that
the Company's consolidated revenues will increase to the point that operating
expenses will be fully absorbed by revenues from operations.
EXPANSION PLANS
Vista plans to continue to seek additional capital through the private
placement and/or public sale of its equity securities, use of equipment lease
financing, and sale of marketable securities to finance the Company's
expansion plans in North America.
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<PAGE>
The Company's strategic plan is to expand its laser vision correction
center network and locations as quickly as possible within the limits of
available financial resources and prudent operating and financial policies.
This growth strategy includes: (i) rapidly increasing market penetration,
principally in the United States, through expansion of the number of locations
at which LVC equipment and services are offered by the Company's subsidiaries,
(ii) continuing to promote development of alliances with experienced
ophthalmologists and optometrists with the goal of maximizing excimer laser
usage; (iii) actively training additional physicians in advanced LVC
procedures; and (iv) developing marketing and advertising programs targeted to
specific regional markets and key demographic groups within those markets.
The Company and its Regional Joint Ventures plan to select strategically
located sites for additional expansion, each of which will be equipped with
state-of-the-art laser equipment systems permitted for commercial use in the
state or province in which such equipment is located, as well as diagnostic,
pre-operative and post-operative facilities. The Company or its corporate
affiliate will own or lease and maintain the LVC equipment at each site, will
lease real estate facilities for each location, and will offer physicians
billing, accounting, administrative, marketing and management services, as
well as access to a trained support staff and necessary LVC equipment and
supplies, so that health care professionals may concentrate their efforts on
patient care.
The current cost of an excimer laser ranges from approximately $475,000
to $525,000, plus sales tax. For laser equipment purchased from VISX,
Incorporated or Summit Technology, Inc., which currently offer the only laser
equipment approved to date for commercial use in the United States, the
manufacturer generally requires an additional royalty equal to $250 per PRK
procedure to be paid to Pillar Point Partners, a partnership between VISX and
Summit that holds certain patent rights with respect to their current laser
technology. The purchase price typically includes a one or two year warranty
on all parts except the optics (mirror and glass components) which generally
carry a 30-day warranty. Annual maintenance and service fees are contracted
for separately at the time of purchase and range from approximately $40,000 to
$60,000 per year, but these estimates may vary with usage. Due to the
equipment cost, the Company believes that most ophthalmologists interested in
LVC surgery will not be able or willing to purchase a laser, seek financing
for the purchase and/or arrange for required maintenance of the laser
equipment.
Vista's European subsidiaries currently own or lease and maintain six
excimer lasers, and at present the Company's Regional Joint Ventures in the
United States and Canada collectively own or lease and maintain six excimer
lasers. Expenditures for additional excimer laser equipment to support the
Company's program of expanding LVC Services offered by Vista and its corporate
affiliates may be significant. To date, the Company been able to provide a
deposit of approximately $50,000 per laser and has not experienced difficulty
in arranging for equipment financing of the balance of the purchase price,
either from the equipment manufacturer or a third party, by means of a capital
equipment lease or an installment note secured by the equipment. Due to
current demand for and the cost of excimer lasers, the Company believes that
the resale value of an excimer laser has facilitated obtaining equipment
financing for a substantial portion of the equipment price, especially when
the third party financing source has reason to believe the laser will be
utilized on a consistent basis by experienced professionals. The Company
intends to continue to rely upon such third party financing techniques to
finance a substantial portion of additional equipment acquisitions, as well as
raising additional capital through future offerings of equity securities by
the Company. In addition, Regional Joint Ventures sponsored by Vista each
plan to raise additional capital through either the private placement and/or
initial public offerings of their securities to enhance their ability to
obtain additional equipment to expand operations in their region. There can
be no assurance that additional equipment financing will continue to be
available to the Company or that either Vista or any of its Regional Joint
-26-
<PAGE>
Ventures will be successful in obtaining additional equity capital from
private and/or public offerings of their securities.
The Company intends to seek additional private placement equity capital
during fiscal 1997 in an amount of at least $5 million up to $10 million.
Although it has identified a source through which a financing may be sought,
the Company has not received any binding commitments to obtain such financing.
Subject to its ability to obtain additional private placement capital, as to
which there can be no assurance, Vista currently projects that additional
capital expenditures for investment in equipment and facilities of its
Regional Joint Ventures in North American during the six months ending June
30, 1997 will be as much as $6,600,00. Additional projected requirements
during that period for the implementation of sales and marketing programs are
approximately $400,000 and Vista anticipates it will also seek to expand its
administrative and management personnel and systems at an projected expense of
approximately $600,000 for that period. The Company's management anticipates
that substantial additional public and/or private financings in excess of the
above amounts will be required after June 30, 1997, in amounts not yet
determined, to finance continued growth of its laser vision correction center
network and that purchase money equipment financing and/or leasing
arrangements will be utilized to the extent available, if any, to leverage the
amount of additional equipment available to expand the Company's operations.
Vista's actual future capital requirements will depend on numerous factors,
including, but not limited to, progress in acquiring additional laser
equipment and facilities for LVC centers, the ability of the Company and
Regional Joint Ventures to establish additional affiliations with vision care
professionals, the availability, amount and terms of additional equipment
lease and/or installment purchase financing, competing technological and
market developments, and the cost of marketing and advertising programs. The
Company is currently unable to state the amount or potential source of
additional financing.
Because of the Company's potential long-term capital requirements, it
may undertake additional equity offerings whenever conditions are favorable,
even if it does not have an immediate need for additional capital at that
time. There can be no assurance that Vista will be able to obtain additional
funding when needed, or that such funding, if available, will be obtainable on
reasonable terms. Any such additional funding may result in significant
dilution to existing stockholders of Vista. If adequate funds are not
available, Vista may be required to accept unfavorable alternatives, including
(i) the delay, reduction or elimination of its planned expansion,
capital expenditures, marketing and advertising and other operating programs,
or (ii) arrangements with collaborative partners that may require Vista to
relinquish material interests in its operating subsidiaries that it would not
otherwise relinquish.
U.S. DOLLAR PRESENTATION AND FOREIGN CURRENCY FLUCTUATIONS
The Company publishes its consolidated financial statements in U.S.
dollars after translating transactions in foreign currencies to U.S. dollars.
A significant portion of the Company's consolidated revenues and expenses are
collected and paid in local currency of its European operating subsidiaries,
i.e. Italian lira and Swedish krona. Income and expense items in foreign
currencies are translated at the weighted average exchange rate prevailing
during the period, except that expenses related to nonmonetary assets and
liabilities are translated at historical rates. In periods when the U.S.
dollar depreciates against relevant foreign currencies, reported earnings
attributable to transactions in foreign currencies may be materially enhanced.
In periods when the U.S. dollar appreciates against the relevant foreign
currencies, however, reported earnings attributable to transactions in foreign
currencies may be materially reduced. Fluctuations in the exchange rate
between relevant foreign currencies and the U.S. dollar may also affect the
book value of the Company's consolidated assets and the amount of its
stockholders' equity. Except as otherwise stated in this Report, all monetary
amounts have been presented in U.S. dollars.
-27-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included later in this Report:
<TABLE>
<CAPTION>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31, 1996
<S> <C> <C>
Index to Consolidated Financial Statements ............................. F-1
Independent Auditors' Report ........................................... F-2
Independent Auditors' Report ........................................... F-3
Consolidated Financial Statements as of March 31, 1996:
Consolidated Balance Sheet at March 31, 1996 ...................... F-4
Consolidated Statements of Operations for the Years
ended March 31, 1996 and March 31, 1995 ......................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for the Years ended March 31, 1996 and March 31, 1995 ........... F-6
Consolidated Statements of Cash Flows for the Years
ended March, 31, 1996 and March 31, 1995 ........................ F-7
Notes to Consolidated Financial Statements ........................ F-8
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As reported in the Company's Current Report on From 8-K dated May 13,
1996, the Company changed its independent accountants in May 1996. The
accounting firm of A J. Robbins, PC acted as principal independent public
accountants to audit the consolidated financial statements of the Company for
its fiscal year ended March 31, 1995, the transition period of three months
ended March 31, 1994, the fiscal year ended December 31, 1993 and the fiscal
period from the Company's inception on June 15, 1992 to December 31, 1992. On
May 8, the Company's Board of Directors elected to change its independent
accountants and dismissed A J. Robbins, PC as the Company's independent
certifying public accountant. The Company's Board of Directors participated
in and approved the decision to change independent accountants.
The reports of A J. Robbins, PC on the consolidated financial statements
of the Company for the fiscal year ended March 31, 1995, the transition
period of three months ended March 31, 1994 and the fiscal year ended December
31, 1993.
did not contain an adverse opinion or a disclaimer of opinion, and was not
qualified as to uncertainty, audit scope, or accounting principles, except as
follows: The report of A J. Robbins, PC dated May 24, 1995 on the Company's
consolidated financial statements for its fiscal year ended March 31, 1995
contained a paragraph expressing certain doubts about the Company's ability to
continue as a going concern.
In connection with its audit for the fiscal year ended December 31,
1993, the transition period of three months ended March 31, 1994, the fiscal
year ended March 31, 1995 and thereafter through May 8, 1996, there have been
no disagreements of the Company with A J. Robbins, PC on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of A J. Robbins, PC would have caused them to make reference
thereto in their report on the financial statements for such year. During the
periods described above and through May 8, 1996, there have been no reportable
events as that term is defined in Regulation S-K, Item 304(a)(1)(v)
promulgated by the Securities and Exchange Commission.
-28-
<PAGE>
The Company requested that A J. Robbins, PC furnish the Company with a
letter addressed to the Securities and Exchange Commission stating whether or
not A J. Robbins, PC agrees with the above statements. A copy of such letter
was filed as Exhibit 16 to the Company Current Report on Form 8-K dated as of
May 13, 1996.
On May 9, 1996, the Company engaged the services of the independent
public accounting firm of KPMG Peat Marwick LLP to act as the principal
independent accountants as to the Company's consolidated financial statements
for its most recent fiscal year ended March 31, 1996. Prior to engaging KPMG
Peat Marwick LLP, the Company did not consult its new independent public
accountants as to the application of accounting principles to a specified
transaction, either completed or proposed, or as to the type of audit opinion
that might be rendered on the Company's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- -------------------------- --- -----------------------------------------
<S> <C> <C>
Donald G. Johnson, M.D. 57 Chairman of the Board; Director
Thomas A. Schultz 45 President and Chief Executive Officer;
Director
Murray D. Watson 52 Vice Chairman of the Board; Director
J. Charles Casebeer, M.D. 57 Director
Kenneth G. Howling 39 Vice President of Finance, Treasurer and
Chief Financial Officer
William M. Curtis 55 Secretary
</TABLE>
DR. DONALD G. JOHNSON was elected Chairman of the Board and a director
of the Company on February 16, 1996. Dr. Johnson, an ophthalmologist actively
practicing in Canada, has successfully treated approximately 7,400 eyes with
excimer laser procedures as of December 31, 1995. He also developed the
proprietary Johnson transepilthelial multi-zone, multi-pass PRK procedure
("TMM PRK"), which provides for a smoother ablation zone and substantially
reduces glare and central islands side effects sometimes encountered in
standard PRK procedures. Dr. Johnson has practiced in New Westminster,
British Columbia continuously since 1969, first participating in a group
practice for general ophthalmology from 1969 to 1981, then as a solo
practitioner from 1981 to 1985. He established the London Place Eye Centre in
New Westminster as an outpatient medical and surgical eye center in November
1985 where he still practices. Dr. Johnson has published 16 articles and
conducted 11 clinical investigation studies in the field of ophthalmology,
including clinical investigations of the VISX 20/20 and Nidek EC-5000 excimer
lasers and the Sunrise holmium laser. He has appeared as a guest speaker on
radio and television and at numerous hospital and professional seminars since
1991 on subjects relating to excimer lasers. Dr. Johnson has been affiliated
with St. Mary's Hospital, Royal Columbian Hospital and Surrey Memorial
Hospital since 1969 and Whitehorse General Hospital since 1970. He received
his M.D. degree from the University of Western Ontario, served his internship
at Toronto Western Hospital, his general surgery residency at Shaughnessy
Hospital, Vancouver, British Columbia, and his ophthalmology residency at the
University of British Columbia. His post graduate accomplishments include
certifications in the United States for radial keratotomy (1984),
-29-
<PAGE>
epikeratophakia (1986), advanced corneal transplantation (1987), small
incision cataract and advanced phacoemulsification (1990) and excimer laser
PRK and PTK (1990) and certification in Germany for non freeze B.S.K. method
of lamellar keratoplasty (1988).
THOMAS A. SCHULTZ was elected a director, President and Chief Executive
Officer of the Company on February 16, 1996. Mr. Schultz was a director and
employee of Chrystallume, Inc., from 1986 to January 16, 1996 and served as
its Chairman of the Board and Chief Executive Officer from April 15, 1993
until October 15, 1995. Chrystallume, a publicly-held company, produced
diamond film for electronic and industrial applications. From 1983 to 1986,
Mr. Schultz served as Corporate Vice President of Dole Food Co., formerly
named Castle and Cooke, Inc., a consumer foods company. From 1979 to 1983, he
was a staff member of Booz, Allen & Hamilton, an international business
consulting firm. Mr. Schultz holds a B.E.S. degree in Operations Research
from John Hopkins University and an M.B.A. from Harvard Business School.
MURRAY D. WATSON was elected a director of the Company on January 31,
1994 and Vice Chairman of the Board on February 16, 1996. He has served as
Chairman of the Board, Chief Executive Officer and a director of Pharma Patch
Plc, a publicly-traded company, since July 1993 and as a director of Technical
& Chemical Products, Inc., a publicly-traded company, from January 1996 to May
1996. Pharma Patch is an Irish public company and was engaged in the research
and development of both advanced transdermal drug delivery systems and
advanced skin penetration enhancers, a business sold by Pharma Patch in late
1995 to Technical & Chemical Products, Inc. Prior to July 1993, Mr. Watson
had been the President and Chief Operating Officer of Pharma Patch's
predecessor, Medipro Sciences Limited, from November 1987. Mr. Watson has
over 25 years of experience in the international health care industry,
including Vice President, Picker International, Inc.; President, Odyssey,
Inc.; and General Manager, American Hospital Supply Corp. of Canada. As
president since 1985 of the M.D.W. Group, Inc., a privately owned merchant
banking company, he has managed a broad spectrum of business ventures. Mr.
Watson received his B.A. Science in Civil Engineering in 1965 from the
University of Toronto and his M.B.A. in 1971 from York University, Toronto,
Canada.
DR. J. CHARLES CASEBEER was elected a director of the Company and its
Chairman of the Board on February 16, 1996. Dr. Casebeer is an
ophthalmologist actively practicing in the United States and his experience
since 1983 includes over 10,000 refractive procedures and the education of
more than 3,000 physicians worldwide in various refractive procedures ranging
from radial keratotomy ( RK ) to PRK and laser assisted in situ keratomileusis
("LASIK"). He has been engaged in private practice from 1971 to the present
time, including associations with the Northern Arizona Eye Clinic, Ltd.
Outpatient Surgery Center, Flagstaff, Arizona from 1971 to July 1994, where he
served as President and Medical Director; Northern Arizona Eye Clinic, Ltd.,
Scottsdale, Arizona from 1992 to May 1994; the J. Charles Casebeer
Laser/Refractive Surgery Center Ltd., Scottsdale, Arizona from May 1994 to
August 1994; and Casebeer Eye Centers, Ltd., Scottsdale, Arizona from August
1994 to the present. Dr. Casebeer's experience in keratorefractive surgery
dates from 1983 to the present, and includes more than 6,000 cases. From 1987
to the present, Dr. Casebeer has served as a Course Director in RK technique
and practice development and in automated lamellar keratoplasty ("ALK") at
numerous courses and symposiums worldwide. Since 1992, he has been a Clinical
Professor for the University of Utah Department of Ophthalmology. Dr.
Casebeer has lectured extensively since 1989 at over 150 seminars, courses and
symposiums on various refractive surgery topics including, among others, RK,
ALK and LASIK procedures. He has authored four books or book chapters on
refractive surgery, has 16 articles published in peer-reviewed medical
journals, and since July 1993 has authored a monthly ocular surgery news
column entitled "The Comprehensive Refractive Surgeon" in Ocular Surgery News.
He received his B.A. degree from Harvard University, his Doctor of Medicine
degree from the University of Southern California School of Medicine, served
his internship at the Medical College of Virginia, his residency in
ophthalmology at Stanford University Medical Center and currently holds
professional licenses in the States of Arizona, California and Utah.
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<PAGE>
KENNETH G. HOWLING was elected Vice President of Finance, Treasurer and
Chief Financial Officer of the Company on February 16, 1996. He has served
from November 8, 1993 until the present time as Vice President of Finance and
Chief Financial Officer of Pharma Patch Plc. From June 1988 until November
1993, Mr. Howling was employed by Roberts Company Canada Limited in the
capacities of corporate Secretary and Controller from June 1988 until May 1991
and as General Manager from June 1991 until November 1993. Prior to June
1988, he was employed for ten years in financial and general management
positions with Smith Kline Beecham, Bencard Allergy Laboratories, McGraw
Edison and Price Waterhouse. Mr. Howling has been involved in acquisitions,
corporate restructuring, cash flow management, human resource management and
management information systems. He received a Certified Public Accountant
license from the State of New Jersey in 1987 and holds a B.A. degree in
Accounting from Upsala College in East Orange, New Jersey.
WILLIAM M. CURTIS was elected corporate Secretary of Vista in October
1994. Mr. Curtis has been principally engaged in a private law practice in
Southern California since 1976 specializing in corporate, merger and
acquisition, finance and securities matters. Mr. Curtis holds a law degree
from Duke University.
There is no family relationship between any of the Company's directors
and executive officers. All directors hold office until the next annual
meeting of stockholders and until their successors are elected. Officers
serve at the discretion of the Board of Directors. There are no arrangements
or understandings between any director and any other person pursuant to which
any person was elected or nominated as a director.
The Board of Directors currently has a Compensation Committee and a
Stock Option Committee.
The Compensation Committee is responsible for reviewing and reporting to
the Board on the recommended annual compensation for the Company's executive
officers and for reviewing management recommendations concerning compensation
programs for other members of management. The Compensation Committee met once
during the fiscal year ended March 31, 1996 at a meeting of the full Board.
The Compensation Committee currently consists of Mr. Watson and a vacancy to
be filled by the Board.
The Stock Option Committee is responsible for granting options under the
Company's employee stock option plans, establishing the terms and conditions
of options granted under those plans, and administering employee stock
options. Actions by the Stock Option Committee during the fiscal year ended
March 31, 1996 were by unanimous written consent and at one meeting of the
full Board of Directors. The Stock Option Committee currently consists of Mr.
Watson and a vacancy to be filled by the Board.
The Company intends to establish an Audit Committee during 1996
responsible for meeting independently with representatives of Vista's
independent accountants and with representatives of senior management. The
Audit Committee will also be responsible for reviewing the general scope of
the audit and matters relating to internal control systems.
During the fiscal year ended March 31, 1996 the Board of Directors held
eight meetings and took certain actions by unanimous written consent of the
Board. No incumbent director attended fewer than 75% of all meetings of the
Board of Directors.
No director received compensation for his services as a director during
the fiscal year ended March 31, 1996, except that an award of 25,000 shares of
common stock was granted by Vista to each of its three then directors in
December 1995, including Murray D. Watson and two former directors. Although
the Company has no current compensation plan for directors other than stock
options, the Company's By-Laws permits compensation of directors and the Board
reserves the right of changing compensation policies for directors from time
to time. The salaries of all officers are subject to review and adjustment
from time to time by the Board of Directors.
-31-
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's executive officers and directors, and persons who
beneficially own more than 10% of the Company's stock, to file initial reports
of ownership and reports of changes in ownership with the Securities and
Exchange Commission. Based upon a review of the copies of such forms
furnished to the Company, responses from the Company's executive officers and
directors in reply to monthly questionnaires, and other information available
to the Company, the Company believes that as of March 31, 1996, all Section
16(a) filing requirements applicable to its executive officers and directors
were complied with.
Certain foreign corporate shareholders hold of record Vista common stock
and warrants and are believed in certain cases to share common management.
Beneficial ownership of Vista securities held by such foreign corporate
shareholders has not been disclosed to the Company. Based on information
available to the Company and a review of its list of shareholders of record at
July 8, 1996, Vista has no reason to believe that any of such parties are
currently required to file reports under Section 16(a) of the Exchange Act.
However, since the Company does not necessarily have access to all information
that may be relevant, Vista expresses no opinion whether any such group of
foreign investors that may share common management may be required to file
reports under Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY EXECUTIVE COMPENSATION
The following Summary Compensation Table indicates the cash compensation
paid by the Company as well as certain other compensation, paid or accrued for
its fiscal years ended March 31, 1996 and 1995 to each of its Chief Executive
Officer and other executive officers whose salary and bonus exceeded $100,000
for such periods.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------- -------------------------------
Awards Payouts
-------------------- ---------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Fiscal Salary Bonus Compen- Awards Options/ Payouts Compen-
Principal Position Year(1) ($) ($) sation($) ($) SARs(#) ($) sation($)
- ------------------ ------- --------- --------- -------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz 1996 $ 12,000 -0- -0- -0- 300,000 -0- (6)
President and
Chief Executive
Officer (2)
Jac. J. Lam 1996 $225,000 -0- -0- $18,750(7) -0- -0- -0-
President and
Chief Executive
Officer (3)
Drago A. Cerchiari 1996 $20,000 -0- $20,260(8) $25,000(8) -0- -0- -0-
President & 1995 $33,100 -0- $84,000(9) -0- 190,000 -0- -0-
Chief Executive
Officer (4)
G. Lennart Perlhagen 1995 $130,000 -0- -0- -0- -0- -0- -0-
Chairman or
President and
Chief Executive
Officer (5)
</TABLE>
________________________________________
(1) Information set forth in the table represents data for the fiscal years
ended March 31, 1996 ("1996") and March 31, 1995 ("1995").
(2) Mr. Schultz was elected President and Chief Executive Officer of the
Company on February 16, 1996.
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<PAGE>
(3) Mr. Lam was elected acting President and Chief Executive Officer of the
Company on June 9, 1995 and resigned from that position when he was
replaced on February 16, 1996.
(4) Mr. Cerchiari was elected President and Chief Executive Officer of the
Company on February 1, 1995 and resigned as an executive officer of the
Company on June 1, 1995.
(5) Mr. Perlhagen was elected Chairman, President and Chief Executive
Officer of the Company on February 1, 1994. On January 15, 1995, he
relinquished the titles of President and Chief Executive Officer. Mr.
Perlhagen resigned as an executive officer of the Company on June 1,
1995.
(6) Mr. Schultz's employment agreement provides he will be entitled to a
cash bonus of $75,000 upon the filing of the second of two registration
statements for an initial public offering by Regional Joint Ventures
sponsored by the Company.
(7) Represents the value of 25,000 shares of common stock awarded in
December 1995 to Mr. Lam for services as a director in the fiscal year
ended March 31, 1996 valued at $.75 per share.
(8) Includes 4,000 shares of in common stock valued at $20,260 paid in
settlement of claims for expenses and subject to a put option
subsequently exercised by Mr. Cerchiari and $25,000 in common stock
(5,000 shares valued at $5.00 per share) paid in settlement of a hiring
bonus claim under the terms of a Termination Agreement between the
Company and Mr. Cerchiari effective June 1, 1995.
(9) Includes $84,000 in consulting payments for the 1995 period paid prior
to Mr. Cerchiari's election as an officer and director.
STOCK OPTIONS
The following tables summarize stock option activity during the fiscal
year ended March 31, 1996 for each of the named officers shown in the table
"Summary Executive Compensation":
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year Ended March 31, 1996
----------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options/SARs Price Appreciation
Underlying Granted to Exercise or for Option Term
Options/SARs Employees in Base Price Expiration ------------------------
Name Granted (#) Fiscal Year ($/sh) Date 5%($) (3) 10%($) (3)
- --------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz 150,000 (1) 9.8 % $2.50 2/15/01 $103,606 $228,941
Thomas A. Schultz 150,000 (2) 9.8 % $2.50 2/15/01 $103,606 $228,941
Jac. J. Lam 150,000 (1) 9.8 % $2.50 2/15/01 $103,606 $228,941
Jac. J. Lam 150,000 (2) 9.8 % $2.50 2/15/01 $103,606 $228,941
Drago A. Cerchiari -0- -- n/a n/a n/a n/a
G. Lennart Perlhagen 50,000 (1) 3.3 % $2.50 2/15/01 $ 34,535 $ 76,314
</TABLE>
_________________________________________________
(1) Options granted under the Company's 1994 Stock Option Plan at an
exercise price of not less than fair market value on date of grant,
exercisable in 12 equal quarter-annual installments commencing May 15,
1996.
(2) Options granted under the Company's 1994 Stock Option Plan at an
exercise price of not less than fair market value on date of grant,
exercisable during the last 30 days of the five-year option term or
earlier if the Company's common stock has traded at $10.00 or more for
30 days which need not be consecutive.
(3) The 5% and 10% assumed annualized rates of compound stock price
appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent the Company's estimate or a projection
by the Company of future common stock prices.
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<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
-----------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
at Fiscal Year-End (#) at Fiscal Year-End ($)(A)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- --------------- ------------ ---------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz -0- n/a -0- 300,000 -0- $37,500
Jac. J. Lam -0- n/a -0- 300,000 -0- $37,500
Drago A. Cerchiari -0- n/a -0- -0- -0- -0-
G. Lennart Perlhagen -0- n/a -0- 50,000 -0- $ 6,250
</TABLE>
________________________________________________________________
(A) The value of unexercised in-the-money options is based upon an estimated
fair market value for the common stock on March 29, 1996 of $2.625 per
share, based on the last reported closing price for the common stock as
of that date.
<TABLE>
<CAPTION>
Long-Term Incentive Plans -- Awards in Last Fiscal Year (1)
------------------------------------------------------------------
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation
Name Rights or Payout Threshold Target Maximum
- ---------------------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Thomas A. Schultz -0- n/a n/a n/a n/a
Jac. J. Lam -0- n/a n/a n/a n/a
Drago A. Cerchiari -0- n/a n/a n/a n/a
G. Lennart Perlhagen -0- n/a n/a n/a n/a
</TABLE>
_____________________________________________
(1) The Company does not have any compensation plans involving stock
appreciation rights or long-term incentive or deferred pension or
profit-sharing plans.
EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER
The Company has entered into a written employment agreement dated as of
January 31, 1996 with Thomas A. Schultz, who was elected President and Chief
Executive Officer on February 16, 1996. The employment agreement with Mr.
Schultz is for a term of 36 months from January 15, 1996 and is renewable
thereafter on a year-to-year basis unless either party provides at least 60
days prior notice of termination before the expiration of its original term or
any renewal term. The agreement provides for an annual base salary of
$150,000, participation in group benefit programs, payment of Mr. Schultz's
existing insurance premiums for long-term disability and life insurance for
the initial 12 months of the agreement, and an amount not exceeding 7 1/2% of
his base salary for personal benefit expenses relating to Mr. Schultz and his
family members as he shall determine. Mr. Schultz is eligible to receive an
annual performance bonus of up to 100% of his annual base salary based upon
achievement of Company goals to be determined by the Board of Directors. In
addition, he is entitled to a cash bonus of $75,000 upon the filing of the
second of two registration statements for an initial public offering by
Regional Joint Ventures sponsored by the Company.
Mr. Schultz's employment agreement further provides he is entitled to
severance benefits if his employment is involuntarily terminated, other than
for cause (as defined in the agreement), death or disability, equal to (i) a
lump-sum payment equal to his annual base salary, (ii) continuation of
insurance benefits for life, health, dental and long-term disability for a
period of 12 months after employment termination, and (iii) continued vesting
of his outstanding stock options for a period of 12 months after employment
termination. Mr. Schultz is required to devote his full business time to the
affairs of the Company except for such investment, business, professional and
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continuing education activities that do not interfere with the performance of
his duties as the Company's President and Chief Executive Officer. The
employment agreement contains confidentiality and non-competition provisions
in favor of the Company. Mr. Schultz's employment agreement was approved by
the Board of Directors on February 6, 1996.
OTHER RECENT COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS
On February 6, 1996, the Company approved compensation for certain
executive officers and directors. A corporate affiliate of Murray D. Watson,
effective April 1, 1996, receives base compensation of $100,000 per year plus
a bonus to be reviewed by the Board at the end of each fiscal year up to 100%
of the base compensation. A corporate affiliate of Kenneth G. Howling,
effective April 1, 1996, receives base compensation of $60,000 per year plus a
bonus to be reviewed by the Board at the end of each year up to 100% of the
base compensation. A corporate affiliate of Dr. J. Charles Casebeer,
effective upon his election as a director of Vista on February 16, 1996 and in
further consideration of his agreement to provide certain consulting services
to be defined by the Board, receives base compensation of $60,000 per year.
Dr. Casebeer also serves as a director of certain Regional Joint Ventures and
is Chairman of the Board and Chief Executive Officer of Vista Laser Centers of
the Southwest, Inc. Upon successful completion of an initial public offering
by three of those Regional Joint Ventures, Dr. Casebeer's corporate affiliate
will become entitled to annual compensation of $60,000 per year from each of
three Regional Joint Ventures. Dr. Donald G. Johnson, effective upon his
election as Chairman of the Board and a director of the Company on February
16, 1996 and in further consideration of his agreement to provide certain
consulting services to be defined by the Board, receives a base salary of
$60,000 per year.
In December 1995, the Company's Board of Directors authorized the
issuance of 25,000 shares of the Company's common stock to each of its then
three directors, Messrs. Jac. J. Lam, Malcolm J. Rowe and Murray D. Watson, or
their nominees, as compensation for their services as directors during the
fiscal year ending March 31, 1996. Due to the absence of an active trading
market for the common stock at the time of this award and other factors deemed
relevant by the Board, these shares were valued by the Company at $.75 per
share.
TERMINATION AGREEMENTS WITH FORMER EXECUTIVE OFFICERS
The Company previously had employment agreements with: Robert L.
Ferrera, who resigned as the Company's Chief Financial Officer on April 14,
1995; Drago A. Cerchiari, who resigned as the Company's President and Chief
Executive Officer on June 1, 1995; and G. Lennart Perlhagen, who resigned as
the Company's Chairman on June 1, 1995.
Under an agreement dated as of July 5, 1995, the Company issued 16,000
shares of its common stock to Mr. Perlhagen in payment of $80,000 of
unreimbursed business expenses.
Under an agreement dated as of June 1, 1995, the Company paid Mr.
Cerchiari $8,740 in cash and issued 4,000 shares of common stock for
reimbursement of a total of $29,000 of unreimbursed business expenses. Vista
agreed that Mr. Cerchiari had the right to put the 4,000 shares of common
stock to the Company after January 31, 1996 at a price equal to $20,260 plus
interest from June 1, 1995 at the rate of 1% per month. Mr. Cerchiari
exercised that option on February 1, 1996. The Company also issued 5,000
shares of common stock to Mr. Cerchiari under the June 1, 1995 agreement as a
negotiated settlement for a one-time hiring bonus in his original employment
agreement of January 15, 1995.
STOCK OPTION PLANS
Vista's Board of Directors has adopted a policy of providing long-term
incentive to members of its Board and senior management tied to performance of
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Vista's common stock through stock option plans. These plans are intended to
foster management incentive and positively align and reinforce management and
stockholder interests. The plans are structured to allow the Board of
Directors or its Stock Option Committee discretion in creating management and
key employee equity incentives which assist the Company in motivating and
retaining the appropriate talent needed to conduct its business successfully.
The Company's Board of Directors and stockholders adopted two stock
option plans in 1994, the 1994 Stock Option Plan (the "1994 Plan") and the
Restricted Stock Option Plan (the "Restricted Plan"). The 1994 Plan covers
an aggregate of 150,000 shares of common stock and on February 6, 1996 and
October 22, 1996 the Board increased the total number of shares subject to
the 1994 Plan to a total of 2,500,000 shares subject to ratification and
approval of that increase by stockholders of the Company with one year. The
Restricted Plan covers a total of 50,000 shares of common stock. Under both
Plans, the number of shares available for options and subject to option, and
the option exercise price of outstanding options, is to be adjusted upward or
downward, as the case may be, in the event of any stock dividend,
recapitalization, merger, consolidation, split up or similar transaction
affecting shares of the Company's common stock.
Both Plans are by the Board of Directors or by a Stock Option Committee
of two or more members of the Board of Directors of the Company. The Stock
Option Committee currently consists of Mr. Watson and a vacancy to be filled
by the Board. The Stock Option Committee, or the Board in the absence of a
Committee, determines the persons to receive options under the Plans, the
terms of options granted, including the exercise price, the number of shares
subject to the option and the terms and conditions of exercise.
Both Plans contains provisions which authorize the Stock Option
Committee, in the event of a sale or merger of all or substantially all of the
Company's assets, or a merger or consolidation in which the Company is not the
surviving corporation, to take certain action in its discretion. In the event
of such a transaction, the Committee may accelerate the exercisability of any
option to permit its exercise in full during such period as the Committee may
prescribe following the public announcement of a sale of assets or merger, or
may elect to earlier grant that right at the time an individual option is
granted. The Committee may also require in the event of such a transaction
that an optionee surrender an option in return for a substitute option issued
by a surviving corporation which is determined by the Committee to have a
value substantially equal to the value of the surrendered option.
Each of the Plans provides that shares of common stock acquired upon
exercise of options will be paid for in cash or, in the sole discretion of the
Committee, through the delivery of shares of the Company's common stock with a
market value equal to the option exercise price. The ability to pay the
option price in shares would, if permitted by the Committee, enable an
optionee to engage in a series of successive stock for stock exercises of an
option (sometimes referred to as "pyramiding") and thereby fully exercise an
option with little or no cash investment by the optionee. The Board of
Directors has not established any policy as to whether it will permit
exercises of options through payment with shares.
The maximum term for each option under both Plans is ten years; to date
no option has been granted for a term in excess of five years under either
Plan. If any option granted under either Plan expires or terminates without
having been exercised in full, the shares covered by the unexercised portion
of the option may be used again for new grants under that Plan. No option
granted under the Plans may be transferred by the optionee other than by will,
the laws of descent and distribution, or by a qualified domestic relations
order, and each option is exercisable during the lifetime of the optionee only
by such optionee or a corporate entity controlled by the optionee.
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1994 STOCK OPTION PLAN
The 1994 Plan provides that options granted thereunder may be either
incentive stock options pursuant to Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"), or, at the discretion of a Stock Option
Committee, non-qualified stock options which do not qualify as incentive stock
options under the Code. The 1994 Plan provides that incentive stock options
must be granted at an option price which is not less than the fair market
value of the Common Stock on the date of grant, and that any non-qualified
option granted must be at an option price which is not less than 50% of the
fair market value of the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting rights of the Company's
outstanding capital stock, the exercise price of any incentive stock option
under the 1994 Plan must be not less than 110% of fair market value on the
date of grant. To date, all options granted under the 1994 Plan were granted
at fair market value on date of grant. Options under the 1994 Plan may be
granted to officers, directors, key employees of, and consultants to, the
Company and its subsidiaries.
In the event of termination of employment, the optionee's option will
terminate and may be exercised during a three month period after termination
to the extent the option was exercisable on the date of termination. In the
event termination of employment was caused by death or permanent disability,
the period of exercisability is extended under the 1994 Option Plan to one
year after the date of termination, but in no event after the date the option
would have expired in the absence of termination of employment. No shares
acquired on exercise of an option granted under the 1994 Plan may be sold or
otherwise disposed of by an optionee until the expiration of at least six
months following the date on which the exercised option was originally granted
by the Company.
At July 15, 1996, no options had been exercised under the 1994 Plan, and
unexercised options were outstanding to purchase 1,567,000 shares of common
stock at an average option exercise price of $2.73 per share, of which options
covering 1,520,000 shares at an option exercise price of $2.50 per share are
subject to stockholder ratification of increases in the number of shares
covered by the 1994 Plan approved by the Board on February 6, 1996 and October
22, 1996, and up to 933,000 shares were available for future grants of options
under the 1994 Plan. Of the total options outstanding at July 15, 1996,
options to purchase 383,000 shares are exercisable in the fiscal year ending
March 31, 1997 without regard to the market price of the Company's common
stock and 450,000 shares are exercisable during the last 30 days of the
five-year option term or earlier if the Company's common stock has traded at
$10.00 per share or more for at least 30 days, which need not be consecutive
days. Of the unexercised options outstanding, options covering 828,000 shares
are held by five current officers and directors (of which options covering
181,333 shares are exercisable in the fiscal year ending March 31, 1997
without regard to the market price of the Company's common stock and 300,000
shares are exercisable at such time as the Company's common stock has traded
at $10.00 per share or more for at least 30 days,) at an average exercise
price of $2.57 per share.
RESTRICTED STOCK OPTION PLAN
The Restricted Plan provides that options granted thereunder must be
granted at an option price which is the lesser of $0.50 per share or 10% of
the fair market value of the Common Stock on the date of grant. No options
granted under the Restricted Plan may be exercised until the expiration of at
least two years following the date on which the option was originally granted
by the Company. Options under the Restricted Plan may be granted only to
directors and senior management of the Company, including its Chairman of the
Board, its President, and any other persons appointed to act as Chief
Executive Officer, Chief Operating Officer or Chief Financial Officer of the
Company.
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In the event of termination of an optionee's service as a director or
member of senior management, the optionee's option will terminate and may be
exercised during a 12 month period after termination to the extent the option
was exercisable on the date of termination. In the event termination of
employment was caused by death or permanent disability, the amount exercisable
is extended under the Restricted Plan to the extent the option would have
become exercisable during the 12 month period if not prevented by the
optionee's death or disability. In no event may any option be exercised after
the date the option would have expired in the absence of termination of
employment.
At July 15, 1996, no options had been exercised under the Restricted
Plan, unexercised options were outstanding to purchase 8,000 shares of common
stock (all of which are exercisable in the fiscal year ending March 31, 1997)
at an average exercise price of $.50 per share, and up to 42,000 shares were
available for future grants of options under the Restricted Plan.
1996 STOCK COMPENSATION PLAN
On February 6, 1996, the Company's Board of Directors adopted a 1996
Stock Compensation Plan (the "Stock Plan") subject to approval of the Stock
Plan within one year thereafter by stockholders of the Company. The purpose
of the Stock Plan is to permit the Board or a Committee of the Board the
flexibility of issuing shares of Vista common stock in lieu of cash to
compensate officers, directors, employees and other individuals acting as
professionals, consultants and/or advisers to the Company for services
rendered to Vista and its subsidiaries. A "subsidiary" of the Corporation for
purposes of the Stock Plan is any corporation in which Vista at the time of a
compensation award owns or controls, directly or indirectly, at least 50% or
more of the outstanding voting capital stock.
Shares may be issued under the Stock Plan solely in payment for the
value of services actually rendered to Vista. In no event may shares be
issued as compensation under the Stock Plan: (i) for services which are either
directly or indirectly related to the offer or sale of securities in a
capital-raising transaction by Vista or its corporate affiliates; or (ii) for
the sale of goods, merchandise, products or other tangible assets. Common
stock issued as compensation under the Stock Plan will be valued at their fair
market value on the date such shares are authorized to be issued to a
participant for designated services rendered in a specified dollar amount. In
determining the fair market value of any such payment, the Board or a
Committee of the Board will take into consideration the quoted prices in the
public market for common stock on the date shares are authorized for issuance
and, if deemed applicable by the Board or the Committee to its determination
of fair market value, a reasonable discount to quoted market prices not
exceeding 25% of the low bid price on the date of such authorization if such
discount is deemed appropriate to allow for price volatility and/or possible
lack of liquidity based on reported prices and trading volume in the public
market for the common stock when compared to the number of shares authorized
for issuance as compensation and any applicable forfeiture or restrictive
provisions relating to the award.
Shares of common stock authorized by the Stock Plan may be issued as
compensation only upon the execution of an agreement by the recipient to
accept the same in lieu of all or a designated portion of cash compensation
otherwise payable for his or her services. If the award of shares is subject
to contractual restrictions or performance conditions that may result in a
forfeiture, the recipient's interest in the shares may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date on which any
applicable restriction or performance condition and period shall lapse without
the requirement of forfeiture.
The Stock Plan will be administered by the Board or by a Committee of
not less than two directors. No member of the Committee will be eligible to
participate in the Stock Plan while serving on the Committee. The Committee
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has the authority to (i) select the participants to whom common stock
compensation may be granted; (ii) determine the number of shares and the fair
market value thereof for each payment of common stock compensation; (iii)
determine any other terms and conditions of common stock compensation
payments, including but not limited to any restrictions or forfeiture
conditions relating to the performance of services by the participant; (iv)
determine whether, to what extent and under what circumstances a common stock
payment of compensation under the Stock Plan may be deferred either
automatically or at the election of the participant under a written agreement;
and (v) approve any agreement executed by participants under the Stock Plan.
Subject to approval of the Stock Plan by Vista stockholders, 250,000
shares of common stock will be available for payment of compensation under the
Stock Plan. If any shares are issued under the Stock Plan and subsequently
cease to be outstanding as a result of any forfeiture or failure to satisfy
restrictive conditions, such shares will again be available for compensation
payments under the Stock Plan. No compensation awards under the Stock Plan
have been made as of July 30, 1996.
OTHER
The Company currently has no pension, retirement, annuity, savings or
similar benefit plan which provides compensation to its executive officers or
directors except for group health and life insurance plans.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information (except as otherwise
indicated by footnote) as of October 31, 1996 as to Vista's common stock owned
by (i) each person known by management to beneficially own more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's directors, and
(iii) all executive officers and directors as a group:
<TABLE>
<CAPTION>
Common Stock (1)
----------------------------------------------------------------
Shares Beneficially Owned,
Before Effect of Proxies
Granted to the Company's
Board of Directors (2) Voting Rights Only (3)
--------------------------------- -----------------------------
Name or Group (1) No. of Shares % of Class No. of Shares % of Class
- ------------------------------- -------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Directors:
Dr. J. Charles Casebeer ........ 15,000 (4) 0.2% -- --
Dr. Donald G. Johnson .......... 15,000 (5) 0.2% -- --
Thomas A. Schultz .............. 37,500 (6) 0.5% -- --
Murray D. Watson ............... 3,484,500*(7) 45.1% 3,435,000*(7) 45.0%
Proxies grated to the
Board of Directors by
Regional Joint Ventures ...... -- (8) -- 1,150,000*(8) 15.1%
All officers and directors
as a group [6 persons] ....... 3,827,000 (9) 49.0% 4,585,000*(9) 60.1%
Other 5% Shareholders:
Pharma Parch PLC ............... 3,410,000*(10) 44.4% 3,410,000*(10) 44.7%
15/16 FitzWilliam Place
Dublin 2, Ireland
Refractive Services-800, Inc. .. 520,000 (11) 6.8% 520,000 (11) 6.8%
Reaal 5-V, P.O. Box 4
2350 AA Leiderdorp
The Netherlands
Vista Laser Centers of
the Northeast, Inc. ............ 450,000 (12) 5.9% -- --
131 Bloor Street West, Suite 210
Toronto, Ontario M5S 1R1, Canada
Vista Laser Centers
of the Pacific, Inc. ........... 500,000 (13) 6.5% -- --
14895 East 14th Street, Ste 400
San Leandro, California 94578
</TABLE>
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______________________________________________
<TABLE>
<S> <C>
* Includes certain shares that are listed elsewhere in the table. See
Notes 7, 8 and 10 below.
(1) To the best knowledge of the Company's management, the persons named in
the table have sole voting and investment power with respect to all
shares shown to be beneficially owned by them, except as otherwise
indicated in the information contained in the footnotes below and, where
applicable, community property laws.
(2) Based on 7,676,112 shares of Common Stock outstanding at October 31,
1996 plus, where applicable, shares issuable upon exercise of stock
options held only by the person or group indicated that were fully
exercisable or exercisable within a period of 60 days from October 31,
1996.
(3) Voting rights in these columns includes only those shares of Common
Stock that the named person or group is entitled to vote as of the
Record Date and the percentage shown is based upon 7,676,112 shares
outstanding as of October 31, 1996. As described in Note 8 below, three
Regional Joint Ventures holding an aggregate of 1,150,000 shares of
Vista Common Stock have granted irrevocable proxies to Vista's Board of
Directors expiring in each instance approximately five years after the
Regional Joint Venture has completed a planned initial public offering
of its securities. All other rights of beneficial ownership as to such
shares are retained by the respective Regional Joint Venture, including
the power to dispose of the shares in a bona fide sale transaction free
of the proxy restrictions. See Notes 7 and 10 below as to the interest
of a director in shares owned by Pharma Patch PLC.
(4) Includes 15,000 shares issuable upon exercise of stock options held
directly by Dr. Casebeer that are exercisable within 60 days after
October 31, 1996. Does not include shares owned by other Regional Joint
Ventures for which Vista's Board of Directors holds irrevocable voting
proxies but has no other rights of ownership (see Note 8 below). Dr.
Casebeer's business address is 15100 North 78th Way, Suite 100,
Scottsdale, Arizona 85260.
(5) Includes 15,000 shares issuable upon exercise of stock options held
directly by Dr. Johnson that are exercisable within 60 days after
October 31, 1996. Does not include shares owned by other Regional Joint
Ventures for which Vista's Board of Directors holds irrevocable voting
proxies but has no other rights of ownership (see Note 8 below). Dr.
Johnson's business address is 918 12th Street, New Westminster, British
Columbia V3M 6B1, Canada.
(6) Includes 37,500 shares issuable upon exercise of stock options held
directly by Mr. Schultz that are exercisable within 60 days after
October 31, 1996. Does not include shares owned by other Regional Joint
Ventures for which Vista's Board of Directors holds irrevocable voting
proxies but has no other rights of ownership (see Note 8 below). Mr.
Schultz's business address is 167 S. San Antonio Road, Suite 9, Los
Altos, California 94022.
(7) Includes: (i) 25,000 shares of Common Stock and 49,500 shares issuable
upon exercise of stock options held directly by Trident Management, a
corporate affiliate of Mr. Watson, that are exercisable within 60 days
after October 31, 1996; plus (ii) 3,410,000 shares of Common Stock owned
by Pharma Patch PLC (see Note 10 below) in which Mr. Watson is Chairman
of the Board and Chief Executive Officer. Mr. Watson disclaims
beneficial ownership of shares owned by Pharma Patch PLC. Does not
include shares owned by Regional Joint Ventures for which Vista's Board
of Directors holds irrevocable voting proxies but has no other rights of
ownership (see Note 8 below). Mr. Watson's business address is 15/16
FitzWilliam Place, Dublin 2, Ireland.
(8) The following Regional Joint Ventures, holding an aggregate of 1,500,000
shares of Vista Common Stock, have agreed to grant irrevocable proxies
to Vista's Board of Director's expiring in each instance approximately
five years after the Regional Joint Venture has completed a planned
financing: Vista Laser Centers of the Northeast, Inc. -- 450,000 shares;
Vista Laser Centers of the Pacific, Inc. -- 500,000 shares; and Vista
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Laser Centers of Michigan, Inc. -- 200,000 shares. All other rights of
beneficial ownership are retained by the respective Regional Joint
Venture including the power to dispose of the shares in a bona fide sale
transaction free of the proxy restrictions.
(9) Includes shares described in Notes 4 through 8 above plus 25,000 shares
issuable upon exercise of stock options held directly by one other
executive officer that are exercisable within 60 days after October 31,
1996.
(10) Includes 3,410,000 shares of Common Stock owned by Pharma Patch PLC.
These securities are also included in the table under beneficial
ownership of Murray D. Watson (see Note 7 above). The ownership of
Pharma Patch PLC shown in the table does not include: (i) 500,000 Class
C Warrants owned by Pharma Patch PLC which are exercisable during the
month of February 1997 and/or the month of February 1998, and expire
thereafter to the extent not exercised; or (ii) shares owned by Regional
Joint Ventures for which Vista's Board of Directors holds irrevocable
voting proxies (see Note 8 above).
(11) Includes 520,000 shares beneficially owned by Refractive Services-800,
Inc., a Panama corporation reportedly owned and controlled by Marcel
Jouby, a Dutch citizen, Kerry Lynne O'Rourke, a South African citizen
residing in The Netherlands, and Sukumal Chintagavongse, a Thailand
citizen.
(12) Includes 450,000 shares beneficially owned by Vista Laser Centers of the
Northeast, Inc. which are subject to an irrevocable proxy in favor of
the Company's Board of Directors (see Note 8 above).
(13) Includes 500,000 shares beneficially owned by Vista Laser Centers of the
Pacific, Inc. which are subject to an irrevocable proxy in favor of the
Company's Board of Directors (see Note 8 above).
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH PHARMA PATCH PLC FOR EQUITY FINANCING AND CHANGE IN CONTROL
During February 1996, Vista negotiated agreements with Pharma Patch Plc
("Pharma Patch"), a publicly-traded company with its principal office in
Dublin, Ireland. Pharma Patch sold its operating assets and proprietary
transdermal patch and penetration enhancer business in November 1995 in
exchange for 786,214 shares of common stock in Technical & Chemical Products,
Inc. ("TCPI") and the satisfaction of approximately $5,000,000 of Pharma Patch
indebtedness by TCPI. TCPI is a publicly-traded company engaged primarily in
the design, development, manufacture and marketing of medical diagnostic
products for use in physician offices, at home and at other point-of-care
locations, and the research, development and commercialization of transdermal
and mucosal drug delivery systems and skin permeation enhancers. See
"Investment In Technical Chemicals and Products, Inc." in Item 1 of this
Report.
Vista's Board on February 6, 1996 authorized the negotiation of equity
financing agreements with Pharma Patch. On February 15, 1996, Pharma Patch
publicly announced its board of directors had approved the acquisition of a
controlling interest in Vista subject to negotiation of definitive agreements.
Definitive agreements negotiated between the Company and Pharma Patch were
executed on March 1 and March 4, 1996 and were closed on or prior to March 31,
1996. The Company's financing transactions and agreements with Pharma Patch
are summarized as follows:
STOCK PURCHASE AGREEMENT FOR $500,000 (200,000 VISTA COMMON SHARES)
On March 1, 1996, Vista and Pharma Patch executed a Stock Purchase
Agreement providing for the first stage of financing transactions. The Stock
Purchase Agreement provided for 200,000 newly issued shares of Vista common
stock to be sold to Pharma Patch for a cash price of $500,000, or $2.50 per
share. These funds were received by Vista in March 1996.
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<PAGE>
EXCHANGE OF NOTE AND TCPI SECURITIES FOR $5,150,000 (2,060,000 VISTA
COMMON SHARES) AND EXERCISE OF STOCK OPTION
On March 4, 1996, the Company and Pharma Patch executed an Agreement
(the "Exchange Agreement") that was closed on March 31, 1996. Under the
Exchange Agreement, the Company delivered to Pharma Patch 2,060,000 newly
issued shares of Vista common stock at a stated value of $5,150,000, or $2.50
per Vista share, plus 500,000 Vista Class C common stock purchase warrants
("Class C Warrants"). In exchange, Vista received from Pharma Patch: (i) an
interest-free note due in six months from Pharma Patch in the principal amount
of $750,000, which was fully paid by Pharma Patch on May 3, 1996; and (ii)
200,000 restricted shares of Technical Chemicals and Products, Inc. ("TCPI")
common stock to be transferred from Pharma Patch to the Company at a value of
$2,662,500, or $13.31 per TCPI share. At the time this transaction was
completed and at March 31, 1996, shares of TCPI acquired by the Company were
restricted as to resale under federal securities laws and were valued at both
dates for financial statement purposes at a 25% discount from the public
market price. On March 21, 1996, the date Pharma Patch and Vista closed
transactions provided by the Exchange Agreement, the closing price for TCPI
common stock was $17.75 per share. Subsequent closing prices for TCPI common
stock were $16.50 on March 31, 1996 and $10.25 on July 29, 1996.
As additional consideration for these transactions, the Exchange
Agreement granted Pharma Patch an option exercisable at any time on or before
September 30, 1996 to purchase up to an additional 250,000 newly issued shares
of the Company's common stock at an option exercise price of $2.50 per share
in cash (the "Six Month Option"). On July 18, 1996, Pharma Patch exercised
200,000 shares subject to the Six Month Option at an exercise price of
$500,000 paid to the Company in cash.
DESCRIPTION OF CLASS C WARRANTS
The 500,000 Class C Warrants issued to Pharma Patch under the Exchange
Agreement each represent the right to purchase one (1) share of the Company's
common stock during the month of February 1997 and/or the month of February
1998, and expire thereafter to the extent not exercised. In each instance,
the exercise price per share will be determined by the average of the quoted
closing prices for the Company's common stock in the over-the-counter market
during the month of January immediately preceding the date Class C Warrants or
any portion thereof are exercised, except that the Class C Warrant exercise
price per share in any event will not exceed $10.00 per share. The exercise
price and number of shares issuable on exercise of Class C Warrants are
subject to adjustment in certain events to prevent dilution in the event of
any subsequent stock split, stock dividend, reclassification or
recapitalization affecting the outstanding common stock as a class.
EXCHANGE OF 900,000 VISTA COMMON SHARES BY CERTAIN STOCKHOLDERS
At the time Vista negotiated and concluded its agreements with Pharma
Patch, Vista was advised that three Vista stockholders, including Therapeutic
Patch Research N.V. ("TPR"), Saliva Research Limited ("SRL") and Westcliff
Partners Inc. ("WPI"), exchanged a total of 900,000 shares of Vista's
outstanding common stock for newly issued securities of Pharma Patch in a
privately-negotiated transaction. Those securities had been acquired by TPR,
SRL and WPI in December 1995 as a result of prior transactions financing the
operations of Vista through December 1995. See "Issuance of Shares for
Expenses from June Through December 1995" below.
CHANGE IN CONTROL AND OTHER INFORMATION
As a result of the agreements described above, Pharma Patch acquired a
controlling interest in Vista during March 1996. At March 31, 1996, Vista
had 5,256,105 common shares outstanding, including the 2,260,000 Vista shares
issued to Pharma Patch under the Stock Purchase Agreement and the Exchange
Agreement, but excluding common stock reserved for outstanding stock options,
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warrants, conversion or exchange of debt obligations or reserved for
investments in certain Regional Joint Ventures. Pharma Patch's total
ownership of 3,160,000 Vista common shares represented approximately 60.1% of
the total Vista common stock outstanding at March 31, 1996 and approximately
46.4% of 6,806,112 shares of Vista common stock outstanding at July 15, 1996.
Vista and Pharma Patch both recognized in March 1996 that Pharma Patch's
percentage ownership of the Company may fluctuate in the future as a result of
continuing changes in Vista's capitalization, the right of Pharma Patch to
exercise its Six Month Option for 250,000 Vista common shares expiring on
September 30, 1996 and/or 500,000 Class C Warrants exercisable in February
1997 and February 1998, described above, or as a result of a future decision
by Pharma Patch to sell or otherwise dispose of all or a portion of its
investment in Vista.
Vista entered into a registration rights agreement with Pharma Patch
upon closing the Exchange Agreement. Subject to certain limitations, this
agreement grants Pharma Patch two "piggy-back" registration rights in the
event Vista files registration statements covering offerings of its securities
under the Securities Act of 1933. In addition, Pharma Patch will have the
right on three occasions after March 31, 1997 and until July 31, 2006 to
demand that all or a portion of the Company's common stock held by Pharma
Patch and issuable upon exercise of Class C Warrants and the Six Month Option
be registered under the Securities Act of 1933. Any such registrations of
Vista common stock for the account of Pharma Patch will be at Vista's expense.
Murray D. Watson, a director of Vista since January 31, 1994, has served
since July 1993 as Chairman of the Board, Chief Executive Officer and a
director of Pharma Patch. On February 16, 1996, Mr. Watson was elected
Vista's Vice Chairman of the Board and Kenneth G. Howling, Vice President and
Chief Financial Officer of Pharma Patch, was elected Vista's Treasurer and
Chief Financial Officer. In each case, their election as Vista officers was
subject to a condition that definitive agreements for the contemplated
transactions between Vista and Pharma Patch be executed; these agreements were
executed on March 1, 1996 and completed on March 21, 1996.
Transactions contemplated by the Stock Purchase Agreement and the
Exchange Agreement were authorized and approved by Vista's board of directors
("Board") at a Board meeting held on February 6, 1996 attended by all three of
Vista's then directors. Vista's Board approved the Stock Purchase Agreement
and Exchange Agreement transactions with knowledge and disclosure of the
proposed exchange by TPR, SRL and WPI of 900,000 shares of Vista common stock
with Pharma Patch. Mr. Watson, a Vista director, abstained from voting on the
proposed transactions due to his position as the Chief Executive Officer and a
director of Pharma Patch. Messrs. Jac. J. Lam and Malcolm J. Rowe, Vista's
other two directors at that time, voted in favor of approving the
transactions. Mr. Rowe also served at the time as a member of Pharma Patch's
board of directors.
PURCHASE OF CERTAIN ASSETS FROM REFRACTIVE SERVICES-800, INC.
From July 1995 through June 1996 date, a foreign corporate investor
named Refractive Services-800, Inc. invested $520,000 in cash in five Regional
Joint Ventures sponsored by the Company. See "North American Regional Joint
Venture Investments and Affiliates" in Item 1 of this Report. In exchange for
that investment, and in view of the high risks associated with making the
initial investment in start-up enterprises that had yet to negotiate any
agreements for proposed business operations, Refractive Services-800, Inc.
received shares of a 10% Series A convertible preferred issue of the five
Regional Joint Ventures with a liquidation preference equal to five times its
cash investment (six times its cash investment in the case of VLC-Northeast).
The Company has been advised that Refractive Services-800, Inc. is a Panama
corporation owned and controlled by Marcel Jouby, a Dutch citizen, Kerry Lynne
O'Rourke, a South African citizen residing in The Netherlands, and Sukumal
Chintagavongse, a Thailand citizen.
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Vista negotiated an agreement on July 18, 1996 to acquire all Series A
Preferred shares in five Regional Joint Ventures originally purchased by
Refractive Services-800, Inc. for $520,000. In exchange, Vista has agreed to
issue to Refractive Services-800, Inc. a total of 520,000 shares of Vista
common stock. The Company also agreed to purchase for $50,000 in cash all of
the capital stock in Refractive Services 800 Corp., a Nevada corporation
("RS-800") organized by Refractive Services-800, Inc. in 1995 to acquire
rights to certain 800 and 900 telephone numbers for telemarketing purposes at
the election of Regional Joint Ventures.
OFFSHORE SALES OF COMMON STOCK UNDER REGULATION S
On March 29, 1996, Vista received $212,500 in proceeds from the sale of
100,000 shares of the Company's common stock at $2.125 per share under a
Regulation S offshore private placement transaction with one foreign investor,
Corundum B.V. The quoted closing market price for the Company's common stock
on March 29, 1996 was $2.625 per share. No fees or commissions to third
parties were paid in connection with this offering.
On June 13, 1996, Vista received $212,500 in proceeds from the sale of
100,000 shares of the Company's common stock at $2.125 per share under a
separate Regulation S offshore private placement transaction with two foreign
investors, Solar Ventures Limited as to 50,000 shares and Armilla Holdings
Limited as to 50,000 shares. The quoted closing market price for the
Company's common stock on June 13, 1996 was $3.25 per share. No fees or
commissions to third parties were paid in connection with this offering.
On August 14, 1996, the Company received $212,500 in proceeds from the
sale of 100,000 shares of the Company's common stock at $2.125 per share under
a Regulation S offshore private placement transaction with one foreign
investor, Paget Trading Ltd. The quoted closing market price for the
Company's common stock on August 9, 1996, the date of the agreement, was
$2.875 per share. No fees or commissions to third parties were paid in
connection with this offering.
PURCHASE OF LASER EQUIPMENT FROM AFFILIATE OF A DIRECTOR
On February 1, 1996, the Company entered into an asset purchase and
lease assumption agreement with a corporate affiliate of Dr. J. Charles
Casebeer providing for the purchase by Vista of an excimer laser system. The
purchase price for the equipment was $75,000 in cash, a $96,591 promissory
note with interest at 8% per annum originally due May 31, 1996, and the
assumption of outstanding obligations under an existing lease of the laser
including future lease payments not to exceed $328,409. Dr. Casebeer was
subsequently elected a director of the Company on February 16, 1996. Vista
later determined to replace its intended use of this equipment with newer
technology, resulting in a charge to earnings in the amount of $446,636 for
the impairment of an idle asset. As of July 12, 1996, the note to Dr.
Casebeer's corporate affiliate remained unpaid and is expected to be paid by
Vista later in the current fiscal year ending March 31, 1997.
ISSUANCE OF SHARES FOR EXPENSES FROM JUNE THROUGH DECEMBER 1995
During the period from June to December 1995, certain clients of the
Company's then acting President, Jac. J. Lam, invested approximately
$1,470,000 to sustain Vista's corporate operations during that period. These
advances included approximately $700,000 for travel by the Company's officers
and consultants and corporate office expenses in New York and Europe,
approximately $100,000 in out-of-pocket advances for various expenses, and
$670,000 in compensation paid for personnel assigned to support the Company's
corporate activities and its program to establish various Regional Joint
Ventures in North America under the "Vista Laser Centers" name. The $670,000
figure for personnel included $200,000 paid or payable to the Company's then
acting President, Jac. J. Lam, and $60,000 accrued for its then acting
Treasurer and Chief Financial Officer, Theodore J. Mayer. The Company's Board
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of Directors agreed these charges should be billed at a flat negotiated rate
of $1,470,000 and in December 1995 authorized the issuance of 925,000 shares
of the Company's common stock in payment of these obligations.
These shares were issued to Therapeutic Patch Research, N.V. (300,000
shares), Saliva Research Ltd. (325,000 shares) and Westcliff Partners Inc.
(300,000 shares). Mr. Lam acted at the time as a managing director for
Saliva Research Ltd. and Westcliff Partners Inc., but disclaimed any
beneficial interest in the securities held by those entities.
REPURCHASE OF SHARES FROM SEMERA AB
In June 1994, the Company formed a subsidiary in Sweden, Vista Vision
Scandinavia AB ("Vista-Sweden"). Under an agreement dated June 1, 1994,
Vista-Sweden purchased certain assets of a PRK surgical center clinic in
Stockholm, Sweden, from Semera AB, an unaffiliated company. The price paid
for the assets was approximately $100,000 in cash, 28,600 shares of Vista
common stock and 28,600 Class A Warrants. Vista-Sweden concurrently engaged
the services of Professor Bjorn Tengroth, a noted authority in PRK procedures.
All of the capital stock of Vista-Sweden is owned by Convista Vision BV, an
inactive Dutch company ("Convista") purchased by Vista in April 1994 as a
subsidiary to administer financing and management of the Company's
international operations.
As part of the negotiated agreement with Semera AB, 20% of Convista's
capital stock was sold to Professor Tengroth for $3,000 and Vista-Sweden
advanced a loan of approximately $134,000 to Professor Tengroth. Exercising
an option granted in June 1994, Convista subsequently repurchased Professor
Tengroth's 20% interest in Convista for SEK 1,250,000 (approximately
$167,000), and his loan was repaid from the proceeds. In June 1995, the
Company repurchased 25,640 shares of Vista common stock and 25,640 Class A
Warrants from Semera AB for the sum of $277,777 pursuant to a commitment made
in June 1994.
The funds required for the $277,777 payment to Semera AB in June 1995
were obtained by the Company from proceeds of 12% convertible promissory notes
issued by Vista in June 1995. These 12% notes were issued and sold to G.
Lennart Perlhagen ($177,777), then a director of the Company, and Quintillion
B.V., an affiliate of Jac. J. Lam (who was elected a director and acting
President of the Company in June 1995). The 12% notes are due on June 15,
1998 and are convertible into shares of Vista common stock at $5.00 per share.
Payment obligations on the 12% notes are collateralized by the pledge of 51%
of the outstanding shares of Vista-Sweden. In consideration of these loans,
Vista-Sweden is obligated to pay the noteholders a royalty of $100 for each
Incremental PRK procedure performed by Vista-Sweden during the three years
ending May 31, 1996, 1997 and 1998. Incremental PRK procedures for this
purpose are generally defined as the number of PRK procedures performed by
Vista-Sweden in excess of its first 800 PRK procedures for the twelve months
ended May 31, 1996, and the number of PRK procedures in each following 12
month period that exceed PRK procedures performed for the prior 12 month
period.
ABANDONMENT OF OPERATIONS BY VISTA VISION INTERNATIONAL LTD. (UNITED KINGDOM)
Vista Vision International Ltd. ("Vista-UK"), formed in July 1992, owned
a 50% interest in Precision Laser Eye Centres Ltd., a joint venture with
Optika Holdings Limited formed in June 1993, which owned and operated an
excimer laser eye surgical clinic in London, England. G. Lennart Perlhagen,
President and Chief Executive Officer of the Company from February 1994 to
January 15, 1995, served as the managing director of Vista-UK since its
organization. The Company purchased all of the capital stock of Vista-UK and
advances to Vista-UK of approximately 24,000 British pounds from an
unaffiliated third party under an agreement dated March 31, 1994. The
consideration paid by the Company included $134,000 in cash (U.S. funds) and
250,000 shares of the Company's common stock issued to the seller, Laser
Technologies (Jersey) Ltd.
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In June 1995, Vista closed the operations of Vista-UK and Precision
Laser Eye Centres Ltd. due to their unprofitable history, a change in business
strategy of the joint venture partner and extremely competitive market
conditions in London.
ABANDONMENT OF PROPOSED ACQUISITION OF MEDICAL DEVELOPMENT RESOURCES, INC.
Medical Development Resources, Inc. ("MDRI") is a privately-held
Delaware corporation engaged in research and development of a proprietary
production process for the manufacture of scalpels and other cutting
instruments from natural obsidian and/or an obsidian formulation. MDRI owned
100% of two operating subsidiaries, KMI I, Inc. ("KMI") which designs,
manufactures and markets precision surgical instruments and related products,
and Micra Instruments Limited ("Micra"), a company was formed by MDRI in July
1993 to purchase the assets of a business involved in design, development,
manufacturing and marketing of titanium microsurgical instruments for
ophthalmology and neurosurgery.
As previously reported in the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1995 and Reports on Form 10-QSB for the
quarterly periods ended June 30, 1995 and September 30, 1995, the Company
engaged in a series of transactions and proposed transactions relating to
investments in MDRI and its subsidiaries from April 1994 through June 1995.
Vista wrote-off all of its investment in MDRI and loans advanced for MDRI's
account, aggregating $5,643,000, as of March 31, 1995.
INITIAL INVESTMENT BY VISTA IN MDRI. On April 1, 1994, Vista entered
into an agreement with Obsidian Research N.V., an unaffiliated partnership, to
acquire 715,563 shares of MDRI common stock and warrants to purchase up to
601,073 shares of MDRI common stock exercisable at $6.60 per share until
December 31, 1996. The purchase price paid by Vista for these MDRI securities
consisted of 200,000 shares of Vista Common Stock and 200,000 Vista Class A
Warrants. The MDRI common stock and warrants were originally acquired by
Obsidian Research N.V. at a cost of $1,125,000 in February 1993. Vista's
purpose in acquiring this interest in MDRI was to establish a long-term
relationship with the KMI subsidiary for future access to U.S.
ophthalmologists.
ADDITIONAL MDRI INVESTMENTS IN MAY 1994. On May 5, 1994, Vista entered
into a Stock Purchase Agreement (the "May 1994 Stock Agreement") with six
individuals who were principal stockholders of MDRI and included certain
members of MDRI and KMI's management (the "MDRI Management Stockholders").
Under the May 1994 Stock Agreement, Vista purchased 1,000,000 newly issued
shares of MDRI common stock from MDRI on May 6, 1994 for $1,250,000 in cash
and acquired 1,000,000 shares of MDRI common stock from the MDRI Management
Stockholders in exchange for $2 million in principal amount of non-interest
bearing promissory notes due on December 31, 1994. At the time of this
investment, MDRI's management projected MDRI would generate net income for
fiscal 1994 of at least $900,000 and there was proposed an initial public
offering of MDRI securities in which Vista would participate as a selling
stockholder.
Concurrent with the closing of the May 1994 Stock Agreement, seven
foreign private investors purchased an additional 1,000,000 shares of MDRI
common stock from the MDRI Management Stockholders for $2 million in
non-interest bearing promissory notes due in ten equal bi-weekly installments
from July 5, 1994 through November 9, 1994. Under separate agreements on May
24, 1994, Vista acquired these 1,000,000 MDRI shares from the seven foreign
investors in exchange for 200,000 shares of Vista common stock and 100,000
Vista Class A Warrants (all of which Vista shares and warrants were
subsequently cancelled, as described below). With the consent of the MDRI
Management Stockholders, Vista common stock issued to the seven foreign
investors were substituted as a collateral pledge to secure obligations of the
foreign investors on their non-interest bearing notes to the MDRI Management
Stockholders.
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In July 1994, Vista was advised that the seven foreign investors were
unable at that time to make payment of the installments due on their $2
million in notes to the MDRI Management Stockholders. As an accommodation to
the MDRI Management Stockholders, during July and August 1994 Vista prepaid
$600,000 in principal amount of Vista's $2 million note obligations otherwise
maturing on December 31, 1994 to the MDRI Management Stockholders.
EXCHANGES WITH TNC MEDIA, INC. FOR MDRI SECURITIES. Under an agreement
dated October 11, 1994, MDRI transferred shares of common stock in TNC Media,
Inc. ("TNC") to TNC in exchange for the forgiveness of $450,000 in principal
and $56,140 of accrued interest due from MDRI and KMI to TNC and for the
cancellation of 155,000 shares of MDRI common stock then held by TNC. As a
consequence of the cancellation of these shares, Vista's then percentage
ownership of MDRI capital stock increased from 52.41% to approximately 53.48%.
In consideration of this increase in Vista's ownership of MDRI, TNC received
from Vista redeemable Class B warrants to purchase up to 31,000 shares of
Vista common stock exercisable at $10.00 per share at any time through October
11, 1999 unless earlier called for redemption. Vista has the optional right
of calling the Class B warrants for redemption if the Vista common stock
issuable upon exercise of Class B Warrants have been registered for sale under
the Securities Act of 1933 and if Vista common stock is traded in the NASDAQ
over-the-counter market or on a national securities exchange and the closing
sale price is $22.50 per share or more for at least 20 consecutive trading
days on the date Class B Warrants are called for redemption.
During December 1994, Vista acquired 778,777 shares of MDRI common stock
(representing approximately 11.2% of the MDRI shares then outstanding) from
TNC in exchange for 155,755 shares of Vista common stock in order to increase
its voting position in MDRI. Vista demanded that MDRI call an annual meeting
of its stockholders to elect directors, but this demand was ignored by MDRI.
As a result of the above transactions, Vista owned 4,809,340 shares of
MDRI capital stock, or approximately 69.13% of the total then outstanding, at
December 31, 1994. The MDRI Management Stockholders continued to manage MDRI
and its subsidiaries and controlled the policies and operations of MDRI and
its subsidiaries.
DECEMBER 1994 REORGANIZATION AGREEMENT WITH MDRI. In order to resolve
certain disputes which arose between MDRI Management Stockholders and the
seven foreign investors, on the one hand, and between MDRI Management
Stockholders and Vista on the other hand, and in an effort to obtain control
over the operating policies and management of MDRI and its subsidiaries, Vista
entered into an Agreement and Plan of Reorganization with MDRI and the MDRI
Management Stockholders dated as of December 15, 1994 (the "Reorganization
Agreement") and amended in January and March 1995. In order to obtain access
to historical financial records retained by independent public accountants for
MDRI, Vista further agreed that upon the closing of the Reorganization
Agreement Vista would assume $70,000 of MDRI's indebtedness to its independent
public accountants and would guarantee an additional $70,000 of such
indebtedness assumed by KMI. Vista advanced $40,000 of the funds
contemplated by these obligations prior to closing the Reorganization
Agreement as an accommodation to MDRI and KMI.
Due to numerous problems observed by Vista during its due diligence
review of the operations and reported financial condition of MDRI and its
subsidiaries, the original closing contemplated by the Reorganization
Agreement was postponed pending a renegotiation of certain terms and
provisions of the Reorganization Agreement. Vista also extended an exchange
offer to the holders of certain MDRI notes and warrants as required by the
Reorganization Agreement, subject to the closing of the Reorganization
Agreement. The Reorganization Agreement further provided for a proposed
merger later in 1995 of MDRI with a wholly-owned subsidiary of Vista.
EXCHANGE AGREEMENT FOR LOAN TO MICRA. In June 1995, Quintillion B.V.,
an affiliate of the Company's then acting President, Jac. J. Lam, advanced the
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sum of $100,000 to Micra Instruments Ltd. for working capital to sustain
Micra's operations in exchange for a 15% debenture issued by Micra. The 15%
debenture was for a term of six months and payable thereafter on three months
written notice and secured by a fixed and floating charge on the assets of
Micra. In consideration of this financial accommodation, Vista entered into
an Exchange Agreement with Quintillion B.V. which grants Quintillion the right
to exchange the 15% Micra debenture for shares of the Company's common stock
at an exchange price of $1.25 per share of Vista common stock.
TERMINATION AND RESCISSION OF AGREEMENTS RELATING TO MDRI. Following
the failure of MDRI and the MDRI Management Stockholders to comply with
conditions set forth in the Reorganization Agreement and the inadequacy of
MDRI's financial records, Vista elected on July 7, 1995 to terminate all
obligations on its part under the Reorganization Agreement and advised MDRI
and the MDRI Management Stockholders that Vista was further rescinding all
transactions with the MDRI Management Stockholders contemplated by the May
1994 Purchase Agreement including all obligations under promissory notes
previously issued by Vista. The reasons given by Vista for these actions
included Vista's allegations of fraud, intentional misconduct and breach of
fiduciary duties on the part of the MDRI Management Stockholders,
misrepresentations of material facts by the MDRI Management Stockholders and
MDRI, and failures in the timely performance of conditions precedent to
Vista's obligations. Vista further demanded that the MDRI Management
Stockholders make full restitution to Vista of $600,000 in cash previously
paid by Vista to the MDRI Management Stockholders under notes issued pursuant
to the May 1994 Stock Purchase Agreement.
As a result of this action, all shares issued by Vista under the
Reorganization Agreement and to seven foreign investors in exchange for Vista
securities were cancelled and Vista returned to the MDRI Management
Stockholders all certificates representing shares of MDRI common stock
previously received by Vista except for 2,794,340 MDRI shares, believed to
represent approximately 40% of MDRI's outstanding common stock, paid for in
cash by Vista. Vista wrote-off all of its investment in MDRI and loans
advanced for MDRI's account, aggregating $5,643,000 as of March 31, 1995.
TRANSACTIONS WITH FORMER OFFICERS AND DIRECTORS
In June 1994, Vista engaged the services of Drago A. Cerchiari to render
consulting services relating to financial and accounting matters, including
identification of suitable candidates for the position of the Company's Chief
Financial Officer. Vista issued 7,000 Class A Warrants in consideration of
this agreement, and agreed to repurchase all or any portion of these Class A
Warrants at the price of $5.00 per warrant. Mr. Cerchiari exercised his put
option and the 7,000 Class A Warrants were cancelled in June 1995.
The Company previously had employment agreements with Robert L. Ferrara,
who resigned as the Company's Chief Financial Officer on April 14, 1995; Drago
A. Cerchiari, who resigned as the Company's President, Chief Executive Officer
and a director on June 1, 1995; and G. Lennart Perlhagen, who resigned as the
Company's Chairman on June 1, 1995 and as a director on July 4, 1995.
Under an agreement dated as of July 5, 1995, the Company issued 16,000
shares of its common stock to Mr. Perlhagen in payment of $80,000 of
unreimbursed business expenses.
Under an agreement dated as of June 1, 1995, the Company paid Mr.
Cerchiari $8,740 in cash and issued 4,000 shares of common stock for
reimbursement of a total of $29,000 of unreimbursed business expenses. Vista
agreed that Mr. Cerchiari had a put option right to sell the 4,000 shares of
common stock to the Company after January 31, 1996 at a price equal to $20,260
plus interest from June 1, 1995 at the rate of 1% per month. Mr. Cerchiari
exercised that option on February 1, 1996. The Company also issued 5,000
shares of common stock to Mr. Cerchiari under the June 1, 1995 agreement as a
negotiated settlement for a one-time hiring bonus in his original employment
agreement dated as of January 15, 1995.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following exhibits are incorporated by reference to
prior filings.
# Incorporated by reference to exhibit of the same number filed with
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1996, as previously filed with the Securities and Exchange
Commission on August 9, 1996.
(M) Denotes management contract or compensation plan or arrangement.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -------------------------------------------------------
<S> <C> <C>
2.1 Stock Purchase Agreement and Regulation S Private Placement
Agreement dated March 31, 1994 among the Registrant, Laser
Technologies (Jersey) Limited and Storford Limited as to the
Registrant's purchase of the capital stock of Vista Vision
International Ltd. [incorporated by reference to Exhibit 10.8 filed
with Registrant's Annual Report on Form 10-KSB for the Fiscal Year
ended December 31, 1993].
2.1.2 Shareholders Agreement dated June 1993 between Vista Vision
International Limited and Optika Holdings Limited as to Precision
Laser Eye Centres Limited joint venture [incorporated by reference
to Exhibit 10.9 filed with Registrant's Annual Report on Form 10-KSB
for the Fiscal Year ended December 31, 1993].
2.2.1 Revised Stock Purchase Agreement dated March 9, 1994 among
Registrant, Global Funding Holding Ltd., Penguin Investments
Limited, Murren Investments Limited and Intesar SpA as to the
Registrant's purchase of 231,995 shares of Vista Vision SpA and
81,456 Class A warrants of Vista Vision Spa for the sum of one
billion Italian Lira [incorporated by reference to Exhibit 10.10
filed with Registrant's Annual Report on Form 10-KSB for the Fiscal
Year ended December 31, 1993].
2.2.2 Form of Exchange Agreement and Regulation S Private Placement
Agreement between Registrant and foreign sellers of shares in Vista
Vision SpA [incorporated by reference to Exhibit 10.11 filed with
Registrant's Annual Report on Form 10-KSB for the Fiscal Year ended
December 31, 1993].
2.2.3 Form of Exchange Agreement and Regulation D Private Placement
Agreement between Registrant and United States sellers of shares in
Vista Vision SpA [incorporated by reference to Exhibit 10.12 filed
with Registrant's Annual Report on Form 10-KSB for the Fiscal Year
ended December 31, 1993].
3.1.1 Articles of Incorporation of Registrant filed with the Secretary of
State of Nevada on June 15, 1992 [incorporated by reference to
Exhibit 3.1 filed with Registrant's Registration Statement on Form
SB-2, Commission File No. 33-51194-NY].
3.1.2 Certificate of Amendment to Articles of Incorporation of Registrant,
filed with the Secretary of State of Nevada on February 23, 1994
[incorporated by reference to Exhibit 3.1.2 filed with Registrant's
Current Report on Form 8-K dated as of February 15, 1994].
3.1.3 Certificate of Amendment to Articles of Incorporation of Registrant,
filed with the Secretary of State of Nevada on September 12, 1995
[incorporated by reference to Exhibit 3.1.3 filed with Registrant's
Annual Report on Form 10-KSB for the fiscal year ended March 31,
1995].
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3.2 Bylaws of the Registrant, as amended and restated on February 3,
1994 [incorporated by reference to Exhibit 3.2 filed with
Registrant's Current Report on Form 8-K dated as of February 15,
1994].
4.1 Specimen of Registrant's Common Stock certificate [incorporated by
reference to Exhibit 4.1 filed with Registrant's Annual Report on
Form 10-KSB for the Fiscal Year ended December 31, 1993].
(M) 10.1.1 Registrant's 1994 Stock Option Plan [incorporated by reference to
Exhibit 10.1.1 filed with Registrant's Current Report on Form 8-K
dated as of February 15, 1994].
(M) 10.1.2 Stock option agreement under 1994 Stock Option Plan dated February
3, 1994 granted by Registrant to corporate designee of Murray D.
Watson covering 8,000 shares after giving effect to 1-for-5 reverse
stock split [incorporated by reference to Exhibit 10.1.4 filed with
Registrant's Current Report on Form 8-K dated as of February 15,
1994].
# (M) 10.1.3 Stock Option Agreement dated February 15, 1996 between Registrant
and Trident Management, corporate designee of Murray D. Watson,
covering 150,000 shares of common stock exercisable in the last 30
days of option term or earlier if stock price goal of at least $10
per share is attained.
# (M) 10.1.4 Stock Option Agreement dated February 15, 1996 between Registrant
and Jac J. Lam covering 150,000 shares of common stock exercisable
in the last 30 days of option term or earlier if stock price goal of
at least $10 per share is attained.
# (M) 10.1.5 Stock Option Agreement dated February 15, 1996 between Registrant
and Thomas A. Schultz covering 150,000 shares of common stock
exercisable in the last 30 days of option term or earlier if stock
price goal of at least $10 per share is attained.
(M) 10.1.6 Stock Option Agreement dated February 15, 1996 between Registrant
and Trident Management, corporate designee of Murray D. Watson,
covering 150,000 shares of common stock vesting in installments over
a 36 month period [incorporated by reference to Exhibit 10.1.9 filed
with Registrant's Quarterly Report on Form 10-QSB for the Period
ended December 31, 1995].
(M) 10.1.7 Stock Option Agreement dated February 15, 1996 between Registrant
and Jac. J. Lam covering 150,000 shares of common stock vesting in
installments over a 36 month period [incorporated by reference to
Exhibit 10.1.10 filed with Registrant's Quarterly Report on Form
10-QSB for the Period ended December 31, 1995].
(M) 10.1.8 Stock Option Agreement dated February 15, 1996 between Registrant
and Thomas A. Schultz covering 150,000 shares of common stock
vesting in installments over a 36 month period [incorporated by
reference to Exhibit 10.1.11 filed with Registrant's Quarterly
Report on Form 10-QSB for the Period ended December 31, 1995].
(M) 10.1.9 Stock Option Agreement dated February 15, 1996 between Registrant
and J. Charles Casebeer, M.D. covering 60,000 shares of common stock
vesting in installments over a 36 month period [incorporated by
reference to Exhibit 10.1.12 filed with Registrant's Quarterly
Report on Form 10-QSB for the Period ended December 31, 1995].
(M) 10.1.10 Stock Option Agreement dated February 15, 1996 between Registrant
and Donald G. Johnson, M.D. covering 60,000 shares of common stock
vesting in installments over a 36 month period [incorporated by
reference to Exhibit 10.1.13 filed with Registrant's Quarterly
Report on Form 10-QSB for the Period ended December 31, 1995].
(M) 10.1.11 Stock Option Agreement dated February 15, 1996 between Registrant
and Kenneth G. Howling covering 100,000 shares of common stock
vesting in installments over a 36 month period [incorporated by
reference to Exhibit 10.1.14 filed with Registrant's Quarterly
Report on Form 10-QSB for the Period ended December 31, 1995].
-50-
<PAGE>
(M) 10.2.1 Registrant's Restricted Stock Option Plan [incorporated by reference
to Exhibit 10.2.1 filed with Registrant's Current Report on Form 8-K
dated as of February 15, 1994].
(M) 10.2.2 Stock option agreement under Restricted Stock Option Plan dated
February 3, 1994 granted by Registrant to corporate designee of
Murray D. Watson covering 4,000 shares after giving effect to
1-for-5 reverse stock split [incorporated by reference to Exhibit
10.2.4 filed with Registrant's Current Report on Form 8-K dated as
of February 15, 1994].
(M) 10.3.1 Indemnification Agreement dated February 1, 1994 between Registrant
and Murray D. Watson [incorporated by reference to Exhibit 10.6
filed with Registrant's Current Report on Form 8-K dated as of
February 15, 1994].
(M) 10.3.2 Indemnification Agreement dated February 14, 1996 between Registrant
and Thomas A. Schultz [incorporated by reference to Exhibit 10.3.6
filed with Registrant's Quarterly Report on Form 10-QSB for the
Period ended December 31, 1995].
(M) 10.3.3 Indemnification Agreement dated February 14, 1996 between Registrant
and J. Charles Casebeer, M.D. [incorporated by reference to Exhibit
10.3.7 filed with Registrant's Quarterly Report on Form 10-QSB for
the Period ended December 31, 1995].
(M) 10.3.4 Form of Indemnification Agreement dated February 14, 1996 between
Registrant and Donald G. Johnson, M.D. [incorporated by reference
to Exhibit 10.3.8 filed with Registrant's Quarterly Report on Form
10-QSB for the Period ended December 31, 1995].
# (M) 10.3.5 Indemnification Agreement dated February 16, 1996 between Registrant
and Kenneth G. Howling.
10.4 Form of Redeemable Class A Common Stock Purchase Warrants
exercisable at $15.00 per share, after giving effect to 1-for-5
reverse stock split, and expiring on December 31, 1998 [incorporated
by reference to Exhibit 10.3 filed with Registrant's Current Report
on Form 8-K dated as of February 15, 1994].
10.5 Form of Regulation S Private Placement Subscription Agreement
between Registrant and various foreign investors subscribing to the
purchase of units of Registrant's common stock and redeemable Class
A common stock purchase warrants, without lock-up agreement
[incorporated by reference to Exhibit 10.18 filed with Registrant's
Annual Report on Form 10-KSB for the Fiscal Year ended December 31,
1993].
10.6 Form of Regulation S Private Placement Subscription Agreement
between Registrant and various foreign investors subscribing to the
purchase of units of Registrant's common stock and redeemable Class
A common stock purchase warrants, with lock-up agreement
[incorporated by reference to Exhibit 10.19 filed with Registrant's
Annual Report on Form 10-KSB for the Fiscal Year ended December 31,
1993].
10.7 Form of Subscription Agreement and Investment Letter between
Registrant and various United States investors subscribing to the
purchase of units of Registrant's common stock and redeemable Class
A common stock purchase warrants [incorporated by reference to
Exhibit 10.20 filed with Registrant's Annual Report on Form 10-KSB
for the Fiscal Year ended December 31, 1993].
10.8 Form of Regulation S Offshore Transaction Subscription Agreement
between Registrant and various foreign investors subscribing to the
purchase of units of Registrant's common stock and redeemable Class
A common stock purchase warrants [incorporated by reference to
Exhibit 10.8 filed with Registrant's Annual Report on Form 10-KSB
for the Fiscal Year ended March 31, 1995].
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<PAGE>
10.9 Form of Regulation D Private Placement Subscription Agreement
between Registrant and various U.S. investors subscribing to the
purchase of units of Registrant's common stock and redeemable Class
A common stock purchase warrants [incorporated by reference to
Exhibit 10.9 filed with Registrant's Annual Report on Form 10-KSB
for the Fiscal Year ended March 31, 1995].
10.10 Private Agreement Concessionary Contract for the Use of Technical
Services and Buildings dated February 22, 1993 between Vista Vision
SpA, under its former name of Laser Vision Centers International
SpA, and Casa di Cura Privata San Rossore S.r.l. relating to the
operation of an outpatient clinic in Pisa, Italy, as translated from
the original in Italian [incorporated by reference to Exhibit 10.21
filed with Registrant's Annual Report on Form 10-KSB for the Fiscal
Year ended December 31, 1993].
10.11 Agreement dated June 1, 1994 between Vista Vision Scandinavia AB and
Semera AB as to the Registrant's purchase of certain assets of a PRK
surgical center in Stockholm, Sweden [incorporated by reference to
Exhibit 10.37 filed with Registrant's Annual Report on Form 10-KSB
for the transition fiscal period ended March 31, 1994].
10.12 Agreement dated July 1, 1994 between the Registrant and Professor
Bjorn Mortimer Tengroth for the sale to Professor Tengroth of eight
shares representing 20% of the outstanding capital stock of Convista
Vision B.V. [incorporated by reference to Exhibit 10.38 filed with
Registrant's Annual Report on Form 10-KSB for the transition fiscal
period ended March 31, 1994].
10.13.1 Stock Purchase Agreement and Regulation S Private Placement
Agreement dated as of April 1, 1994 between the Registrant and
Obsidian Research N.V. as to the Registrant's purchase of capital
stock and warrants in Medical Development Resources, Inc.
[incorporated by reference to Exhibit 10.13 filed with Registrant's
Annual Report on Form 10-KSB for the Fiscal Year ended December 31,
1993].
10.13.2 Stock Purchase Agreement dated May 5, 1994 among the Registrant,
Medical Development Resources, Inc, Robert M. Gruschow, Francis J.
King, Louise M. King, William Knepshield, William Knepshield, Jr.
and Kristen K. Fay as to Registrant's purchase of 1,000,000 shares
of common stock from Medical Development Resources, Inc. for
$1,250,000 in cash and 1,000,000 shares of common stock in Medical
Development Resources, Inc. from certain selling shareholders for
$2,000,000 in non-interest bearing notes due December 31, 1994
[incorporated by reference to Exhibit 10.14 filed with Registrant's
Annual Report on Form 10-KSB for the Fiscal Year ended December 31,
1993].
10.13.3 Full Recourse Installment Promissory Notes due December 31, 1994 and
dated May 5, 1994 in the aggregate principal amount of $2,000,000
issued by the Registrant and its wholly-owned subsidiary, Pawnee
Finance B.V., subsequently renamed ConVista Vision B.V., for the
purchase of 1,000,000 shares of common in Medical Development
Resources, Inc. from certain selling shareholders [incorporated by
reference to Exhibit 10.15 filed with Registrant's Annual Report on
Form 10-KSB for the Fiscal Year ended December 31, 1993].
10.13.4 Side Letter Agreement dated May 5, 1994 among the Registrant, Robert
M. Gruschow, Francis J. King and William Knepshield as to the escrow
of 315,000 shares of common stock in Medical Development Resources,
Inc. [incorporated by reference to Exhibit 10.16 filed with
Registrant's Annual Report on Form 10-KSB for the Fiscal Year ended
December 31, 1993].
10.13.5 Form of Regulation S Offshore Transaction Exchange Agreement dated
May 24, 1994 between Registrant and seven foreign investors
providing for the exchange of units of Vista common stock and Class
A Warrants for 1,000,000 shares of Medical Development Resources,
Inc. [incorporated by reference to Exhibit 10.34 filed with
Registrant's Report on Form 8-K dated as of May 31, 1994].
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<PAGE>
10.13.6 Letter agreement dated June 20, 1994 among five management
stockholders of Medical Development Resources, Inc. and KMI I, Inc.
as holder, and seven foreign investors, as makers, of certain
promissory notes to substitute shares of Vista common stock for
shares of Medical Development Resources, Inc. common stock held as
collateral for the notes [incorporated by reference to Exhibit 10.35
filed with Registrant's Report on Form 8-K dated as of May 24,
1994].
10.13.7 Agreement and Plan of Reorganization dated as of December 15, 1994
among the Registrant, Medical Development Resources, Inc., Robert M.
Gruschow, Francis J. King, Louise M. King, William R. Knepshield,
William R. Knepshield, Jr. and Kristen F. Fay [incorporated by
reference to Exhibit 2.10.1 filed with Registrant's Amendment No. 1
to Report on Form 10-QSB for the Quarter ended June 30, 1994].
10.13.8 Amendment dated as of January 13, 1995 to Agreement and Plan of
Reorganization among Registrant, Medical Development Resources,
Inc., Robert M. Gruschow, Francis J. King, Louise M. King, William
R. Knepshield, William R. Knepshield, Jr. and Kristen F. Fay
[incorporated by reference to Exhibit 2.10.2 filed with Registrant's
Amendment No. 1 to Report on Form 10-QSB for the Quarter ended June
30, 1994].
10.13.9 Second Amendment dated as of March 31, 1995 to Agreement and Plan of
Reorganization among Registrant, Medical Development Resources,
Inc., Robert M. Gruschow, Francis J. King, Louise M. King, William
R. Knepshield, William R. Knepshield, Jr. and Kristen F. Fay
[incorporated by reference to Exhibit 10.13.9 filed with
Registrant's Annual Report on Form 10-KSB for the Fiscal Year ended
March 31, 1995].
10.13.10 Letter dated July 7, 1995 on behalf of Registrant terminating and
rescinding prior agreements of Registrant with Medical Development
Resources, Inc., Robert M. Gruschow, Francis J. King, Louise M.
King, William R. Knepshield, William R. Knepshield, Jr. and Kristen
K. Fay [incorporated by reference to Exhibit 10.13.10 filed with
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995].
10.14.1 Put Option Agreement dated June 13, 1994 between the Registrant and
Drago Cerchiari as to 35,000 Class A Warrants [incorporated by
reference to Exhibit 10.14.1 filed with Registrant's Annual Report
on Form 10-KSB for the Fiscal Year ended March 31, 1995].
10.14.2 Amendment dated March 31, 1995 to Put Option Agreement dated June
13, 1994 between the Registrant and Drago Cerchiari [incorporated
by reference to Exhibit 10.14.2 filed with Registrant's Annual
Report on Form 10-KSB for the Fiscal Year ended March 31, 1995].
10.15 Agreement dated October 11, 1994 among TNC Media, Inc., the
Registrant, Medical Development Resources, Inc. and KMI I, Inc.
[incorporated by reference to Exhibit 10.40 filed with Registrant's
Amendment No. 1 to Report on Form 10-QSB for the Quarter ended June
30, 1994].
10.16 Form of Registrant's Redeemable Class B Common Stock Purchase
Warrants exercisable at $10.00 per share, after giving effect to
1-for-5 reverse stock split, and expiring on October 11, 1999
[incorporated by reference to Exhibit 10.41 filed with Registrant's
Amendment No. 1 to Report on Form 10-QSB for the Quarter ended June
30, 1994].
10.17 Letter agreement dated December 14, 1994 between Registrant and TNC
Media Inc. as to exchange of shares in Medical Development
Resources, Inc. for shares of Registrant's common stock
[incorporated by reference to Exhibit 10.17 filed with Registrant's
Annual Report on Form 10-KSB for the Fiscal Year ended March 31,
1995].
10.18 10% promissory note date March 31, 1995 issued to Registrant by
Honing Handel Holland B.V. [incorporated by reference to Exhibit
10.18 filed with Registrant's Annual Report on Form 10-KSB for the
Fiscal Year ended March 31, 1995].
-53-
<PAGE>
10.19 Exchange Agreement dated June 28, 1995 between the Registrant and
Quintillion B.V. as to right of exchanging $100,000 debentures
issued by Micra Instruments Limited into Registrant's common stock
at $0.25 per share, or $1.25 per share after giving effect to
1-for-5 reverse stock split [incorporated by reference to Exhibit
3.1.3 filed with Registrant's Annual Report on Form 10-KSB for the
Fiscal Year ended March 31, 1995].
10.20 Agreement dated as of July 5, 1995 between Registrant and G. Lennart
Perlhagen for issuance of common stock in payment of reimbursable
expenses [incorporated by reference to Exhibit 10.20 filed with
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995].
10.21.1 Termination Agreement dated as of June 7, 1995 between Registrant
and Drago A. Cerchiari [incorporated by reference to Exhibit
10.21.1 filed with Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1995].
10.21.2 Exercise of put option dated February 1, 1996 as to 4,000 shares of
Registrant's common stock, after giving effect to 1-for-5 reverse
stock split, for $20,260 by Drago A. Cerchiari under Termination
Agreement dated as of June 7, 1995 between Registrant and Drago A.
Cerchiari [incorporated by reference to Exhibit 10.21.2 filed with
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995].
10.22.1 Form of Regulation S Offshore Transaction Subscription Agreement
between Registrant and G. Lennart Perlhagen for sale of $177,777 in
principal amount of 12% Convertible Promissory Notes due June 15,
1998 [incorporated by reference to Exhibit 10.22.1 filed with
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995].
10.22.2 Form of Regulation S Offshore Transaction Subscription Agreement
between Registrant and Quintillion B.V. for sale of $100,000 in
principal amount of 12% Convertible Promissory Notes due June 15,
1998 [incorporated by reference to Exhibit 10.22.2 filed with
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995].
10.22.3 Form of $177,777 in principal amount of 12% Convertible Promissory
Notes due June 15, 1998 issued by Registrant to G. Lennart Perlhagen
dated June 1, 1995 [incorporated by reference to Exhibit 10.22.3
filed with Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1995].
10.22.4 Form of $100,000 in principal amount of 12% Convertible Promissory
Notes due June 15, 1998 issued by Registrant to Quintillion B.V.
dated June 15, 1995 [incorporated by reference to Exhibit 10.22.4
filed with Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1995].
10.22.5 Form of Royalty Agreement dated as of June 15, 1995 by Vista Vision
Scandinavia in favor of G. Lennart Perlhagen and Quintillion B.V.
[incorporated by reference to Exhibit 10.22.5 filed with
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995].
10.23.1 Consulting Services Agreement dated as of October 16, 1995 between
Registrant and The Laser Eye Sites of Michigan, Inc., since renamed
Vista Laser Centers of Michigan, Inc. [incorporated by reference to
Exhibit 10.23 filed with Registrant's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1995].
# 10.23.2 Irrevocable Proxy and Voting Agreement in favor of Ghassan Barazi
and Dr. Fouad Tayfour executed by the Registrant as to shares of 5%
Series B Cumulative Convertible Preferred Stock in Vista Laser
Centers of Michigan, Inc. owned by the Registrant.
# 10.23.3 Irrevocable Proxy in favor of the Registrant's Board of Directors
executed by Vista Laser Centers of Michigan, Inc. as to 200,000
shares of Registrant's common stock.
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<PAGE>
10.24 Option Agreement dated as of November 15, 1995 between Registrant
and Refractive Services-800, Inc. granting Registrant an option to
purchase capital stock of Refractive Services 800 Corp.
[incorporated by reference to Exhibit 10.24 filed with Registrant's
Annual Report on Form 10-KSB for the fiscal year ended March 31,
1995].
(M) 10.25 Employment Agreement dated as of January 31, 1996 between the
Registrant and Thomas A. Schultz [incorporated by reference to
Exhibit 25 filed with Registrant's Quarterly Report on Form 10-QSB
for the Period ended December 31, 1995].
10.26 Stock Purchase Agreement dated March 1, 1996 between the Registrant
and Pharma Patch Plc as to the sale of 200,000 shares of Vista
common stock for $500,000 [incorporated by reference to Exhibit
10.26 filed with Registrant's Current Report on Form 8-K dated as of
March 1, 1996].
10.27.1 Agreement dated as of March 1, 1996 between the Registrant and
Pharma Patch Plc. as to sale of 2,060,000 shares of Vista common
stock for $5,150,000 [incorporated by reference to Exhibit 10.27
filed with Registrant's Current Report on Form 8-K dated as of March
1, 1996].
10.27.2 Form of $750,000 Promissory Note issued by Pharma Patch Plc to the
Registrant [incorporated by reference to Exhibit 10.28 filed with
Registrant's Current Report on Form 8-K dated as of March 1, 1996].
10.27.3 Form of Registration Rights Agreement between the Registrant and
Pharma Patch Plc [incorporated by reference to Exhibit 10.30 filed
with Registrant's Current Report on Form 8-K dated as of March 1,
1996].
10.28 Form of the Registrant's Class C common stock purchase warrants
expiring February 28, 1998 [incorporated by reference to Exhibit
10.29 filed with Registrant's Current Report on Form 8-K dated as of
March 1, 1996].
# 10.30 Regulation S Offshore Transaction Subscription Agreement dated March
30, 1996 between the Registrant and Corundum B.V. as to the sale of
100,000 shares of common stock for $212,500.
# 10.31.1 Irrevocable Proxy and Voting Agreement in favor of the board of
directors of Vista Laser Centers of the Pacific, Inc. as to all
shares of voting capital stock in Vista Laser Centers of the
Pacific, Inc. owned by the Registrant.
# 10.31.2 Irrevocable Proxy in favor of the Registrant's Board of Directors
executed by Vista Laser Centers of the Pacific, Inc. as to 500,000
shares of Registrant's common stock.
# 10.32 Los Altos Financial Center Lease Agreement dated June 28, 1996
between Los Altos Financial Center as lessor and Registrant as
lessee covering office premises in Los Altos, California.
# 10.33 Registrant's 1996 Stock Compensation Plan.
# 10.34 Exchange Agreement and Regulation S Offshore Transaction dated July
18, 1996 between Registrant and Refractive Services-800 Inc.
10.35 Regulation S Offshore Transaction Subscription Agreement dated June
7, 1996 between the Registrant and Armilla Holdings Limited as to
the sale of 50,000 shares of common stock for $106,250
(incorporated by reference to Exhibit 10.35 filed with Registrant's
Report on Form 10-QSB for the Period Ended June 30, 1996 as filed
with the Securities and Exchange Commission on September 6, 1996).
10.36 Regulation S Offshore Transaction Subscription Agreement dated June
7, 1996 between the Registrant and Solar Ventures Ltd. as to the
sale of 50,000 shares of common stock for $106,250 (incorporated
by reference to Exhibit 10.36 filed with Registrant's Report on Form
10-QSB for the Period Ended June 30, 1996 as filed with the
Securities and Exchange Commission on September 6, 1996).
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<PAGE>
10.37 Notice of Election to Exercise Stock Option dated July 18, 1996 by
Pharma Patch PLC as to 200,000 shares at $2.50 per share
(incorporated by reference to Exhibit 10.37 filed with Registrant's
Report on Form 10-QSB for the Period Ended June 30, 1996 as filed
with the Securities and Exchange Commission on September 6, 1996).
10.38 Regulation S Offshore Transaction Subscription Agreement dated
August 9, 1996 between the Registrant and Paget Trading Ltd. as to
the sale of 100,000 shares of common stock for $212,500
(incorporated by reference to Exhibit 10.38 filed with Registrant's
Report on Form 10-QSB for the Period Ended June 30, 1996 as filed
with the Securities and Exchange Commission on September 6, 1996).
10.39 8% Secured Promissory Note for $800,000 dated August 26, 1996 issued
by the Registrant to Pharma Patch PLC (incorporated by reference to
Exhibit 10.39 filed with Registrant's Report on Form 10-QSB for the
Period Ended June 30, 1996 as filed with the Securities and Exchange
Commission on September 6, 1996).
10.40 Pledge Agreement dated August 26, 1996 between the Registrant and
Pharma Patch PLC as to collateral security interest in 200,000
shares of Technical Chemicals and Products, Inc. common stock
securing Registrant's $800,000 secured promissory note
(incorporated by reference to Exhibit 10.40 filed with Registrant's
Report on Form 10-QSB for the Period Ended June 30, 1996 as filed
with the Securities and Exchange Commission on September 6, 1996).
16 Letter from A J. Robbins P.C. responding to disclosures set forth in
Item 4 of Registrant's Report on Form 8-K dated as of May 13, 1996
[incorporated by reference to Exhibit 16 filed with Registrant's
Report on Form 8-K dated as of May 13, 1996].
# 21 Subsidiaries of the Registrant.
# 27 Financial Data Schedule at March 31, 1996.
(b) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K dated as of March 1, 1996
relating to financing transactions between Vista and Pharma Patch PLC
described in Item 12 of this Report under the caption "Agreements With Pharma
Patch PLC For Equity Financing and Change In Control".
The Company also filed a Current Report on Form 8-K dated as of May 13,
1996 as to a change in independent public accountants discussed in Item 8 of
this Report.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Independent Auditors' Report F-3
Consolidated Financial Statements:
Consolidated Balance Sheet F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Vista Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Vista
Technologies, Inc. and subsidiaries as of March 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vista
Technologies, Inc. and subsidiaries as of March 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
July 12, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Vista Technologies, Inc. and Subsidiaries
Sunnyvale, California
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows for the year ended March 31,
1995, of Vista Technologies, Inc. and subsidiaries. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of its operation and
cash flows for the year ended March 31, 1995, of Vista Technologies, Inc. and
subsidiaries in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course
of business. The Company has incurred significant operating losses from
inception totaling $11,432,110, has substantial commitments and contingencies
relating to the rescission of an incomplete acquisition, recognized a
permanent impairment of goodwill incurred in the acquisitions of subsidiaries
in the amount of $3,825,990 and the Company is a party in a lawsuit more fully
discussed at note 7. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters are to abandon its UK operations, complete a private placement of
common stock, attempt to generate revenues from other European operations and
establish laser centers in the United States. The consolidated financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
AJ. Robbins, P.C.
Certified Public Accountants
and Consultants
Denver, Colorado
May 24, 1995
F-3
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash......................................................................... $ 288,312
Accounts receivable:
Trade..................................................................... 29,515
VAT....................................................................... 41,434
Related parties........................................................... 214,454
Stock subscriptions receivable (notes 1, 2 and 17)........................... 962,500
Prepaid expenses and other................................................... 256,081
------------
Total current assets................................................. 1,792,296
Investment securities (note 5):
Available for sale........................................................... 2,475,000
Held-to-maturity............................................................. 115,468
Long-term VAT receivables...................................................... 191,571
Property and equipment, net (note 4)........................................... 1,219,798
Investment in equity investees (note 1)........................................ 468,350
Other assets................................................................... 7,299
------------
$ 6,269,782
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade...................................................... $ 520,825
Accounts payable, officers................................................... 29,535
Accrued expenses (note 7).................................................... 833,206
Current portion of notes payable (note 10)................................... 96,591
Current portion of long-term debt (note 11).................................. 137,351
Current portion of obligation under capital lease (note 12).................. 67,588
------------
Total current liabilities............................................ 1,685,096
Notes payable, net of current portion (note 10)................................ 277,777
Long-term debt, net of current portion (note 11)............................... 463,240
Obligation under capital lease, net of current portion (note 12)............... 196,956
------------
937,973
Minority interest (note 2)..................................................... 653,306
------------
Commitments and contingencies (notes 7, 10, 12 and 17)
Total liabilities.................................................... 3,276,375
------------
Stockholders' equity (notes 7, 8, 9 and 17):
Preferred stock, $.001 par value; 15,000,000 shares authorized; none
issued.................................................................... --
Common stock, $.005 par value; 15,000,000 shares authorized; 5,256,106 shares
issued and outstanding.................................................... 26,281
Additional paid-in capital................................................... 18,026,096
Unrealized loss on securities available for sale............................. (187,500)
Accumulated deficit.......................................................... (15,247,045)
Foreign currency translation adjustments..................................... 375,575
------------
Total stockholders' equity........................................... 2,993,407
------------
$ 6,269,782
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Revenues.......................................................... $ 2,130,073 1,209,673
Costs and expenses:
General and administrative...................................... 4,624,630 2,773,390
Rescinded acquisition........................................... -- 5,642,887
Depreciation and amortization................................... 467,509 580,870
Foreign currency exchange loss.................................. 695 28,887
Unrealized (gains) loss on trading securities................... -- (116,707)
Realized loss (gains) on trading securities..................... 148,005 (129,621)
Impairment of idle equipment (note 3)........................... 446,636 --
Legal judgment (note 7)......................................... -- 186,055
Impairment of goodwill (note 1)................................. -- 3,825,990
Write off of note receivable, stockholder (note 1).............. -- 125,000
Interest........................................................ 63,645 9,781
Loss on sale of equipment....................................... -- 1,053
Loss on closure of UK clinic (note 1)........................... 135,097 --
Other........................................................... 49,405 (75,758)
----------- ------------
Loss from operations.................................... (3,805,549) (11,642,154)
Equity investees (loss) income (note 1 and 6)..................... (11,202) 28,132
----------- ------------
Loss before income taxes and minority interest.......... (3,816,751) (11,614,022)
Income taxes (note 13)............................................ -- --
----------- ------------
Loss before minority interest........................... (3,816,751) (11,614,022)
Minority interest................................................. 1,816 193,842
----------- ------------
Net loss................................................ $(3,814,935) (11,420,180)
=========== ============
Net loss per common share......................................... $ (1.92) (9.64)
=========== ============
Weighted average number of common shares outstanding.............. 1,985,675 1,184,976
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK SUBSCRIBED STOCK ADDITIONAL FOREIGN TOTAL
------------------ --------------------- PAID-IN UNREALIZED ACCUMULATED CURRENCY STOCKHOLDERS'
NUMBER AMOUNT NUMBER AMOUNT CAPITAL LOSS DEFICIT ADJUSTMENTS EQUITY
--------- ------- -------- ----------- ----------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1994.... 712,613 $ 3,564 125,000 $ 1,132,152 $ 5,310,161 $ -- $ (11,930) $ (1,962) $ 6,431,985
Common stock issued
for cash proceeds,
net of offering
costs of $471,991
(note 8).......... 335,000 1,675 (125,000) (1,132,152) 2,876,334 -- -- -- 1,745,857
Common stock issued
in exchange for
Medical Development
Resources Inc.
(MDRI) (note 1)
stock and
warrants.......... 200,000 1,000 -- -- 1,999,000 -- -- -- 2,000,000
Private placement
issued in exchange
for the assets of
Klara Clinic...... 2,960 15 -- -- 8,208 -- -- -- 8,223
Common stock
adjustment for
Vista-Italy
acquisition
(note 1).......... 2,381 11 -- -- 23,807 -- -- -- 23,818
Common stock issued
to acquire MDRI
stock from
TNC Media, Inc.... 155,756 779 -- -- 1,556,775 -- -- -- 1,557,554
Foreign currency
adjustment........ -- -- -- -- -- -- -- 234,327 234,327
Net (loss) for the
period............ -- -- -- -- -- -- (11,420,180) -- (11,420,180)
--------- ------- -------- ----------- ----------- --------- ------------ --------- ------------
Balance,
March 31, 1995.... 1,408,710 7,044 -- -- 11,774,285 -- (11,432,110) 232,365 581,584
Common stock, issued
for services and
cash advances, net
of repurchases
(note 3).......... 1,021,000 5,105 -- -- 1,632,395 -- -- -- 1,637,500
Common stock issued
to Pharma Patch
Plc. (note 1)..... 2,260,000 11,300 -- -- 3,901,200 -- -- -- 3,912,500
Common stock issued
to Vista Laser
Centers of Michigan,
Inc. (VLC-Michigan)
in exchange for
200,000 shares of
Series B preferred
stock of
VLC-Michigan
(note 1).......... 200,000 1,000 -- -- 216,600 -- -- -- 217,600
Common stock issued
to Vista Laser
Centers of
Southwest, Inc.
(VLC-Southwest)
in exchange for
350,000 shares of
Series B preferred
stock of
VLC-Southwest
(note 1).......... 250,000 1,250 -- -- 270,500 -- -- -- 271,750
Common stock issued
for stock
subscriptions
receivable
(note 2).......... 100,000 500 -- -- 212,000 -- -- -- 212,500
Common stock issued
in exchange for
Vista Vision SpA
stock............. 16,396 82 -- -- 8,116 -- -- -- 8,198
Unrealized loss on
securities available
for sale.......... -- -- -- -- -- (187,500) -- -- (187,500)
Compensation expense
for non employee
stock options..... -- -- -- -- 11,000 -- -- -- 11,000
Foreign currency
adjustment........ -- -- -- -- -- -- -- 143,210 143,210
Net loss............ -- -- -- -- -- -- (3,814,935) -- (3,814,935)
--------- ------- -------- ----------- ----------- --------- ------------ --------- ------------
Balance,
March 31, 1996.... 5,256,106 $26,281 -- $ -- $18,026,096 $(187,500) $(15,247,045) $ 375,575 $ 2,993,407
========= ======= ======== =========== =========== ========= ============ ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows used by operating activities:
Net loss............................................................................ $(3,814,935) (11,420,180)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization..................................................... 467,509 580,870
Loss from advanced funds for rescinded acquisition................................ -- 5,642,887
Write off of impaired and abandoned assets, net................................... 453,467 --
Impairment of goodwill............................................................ -- 3,825,990
Legal judgment.................................................................... -- 186,055
Write off of note receivable, stockholder......................................... -- 125,000
Loss on sale of equipment......................................................... -- 1,053
Unrealized loss (gain) on trading securities...................................... -- (116,707)
Realized loss (gain) on trading securities........................................ 148,005 (129,621)
Minority interest................................................................. (1,816) (193,842)
Interest income received in common stock.......................................... -- (50,000)
Foreign currency translation on operating assets and liabilities.................. 146,656 (39,462)
Equity investees loss (income), net............................................... 11,202 (28,132)
Stock issued for services......................................................... 1,637,500 --
Compensation related to stock options issued to non-employees..................... 11,000 --
Proceeds from sales of trading securities......................................... 417,652 432,859
Purchase of trading securities.................................................... (162,531) (589,657)
Changes in operating assets and liabilities, net of foreign currency translation:
Accounts receivable:
Trade......................................................................... 41,326 (70,841)
VAT........................................................................... 99,142 (140,576)
Related parties............................................................... 99,293 (482,132)
Prepaid expenses................................................................ 6,864 (5,401)
Other current assets............................................................ (179,250) 70,800
Other assets.................................................................... (16,793) 109,774
Bank overdraft protection....................................................... (86,913) 86,913
Accounts payable, trade......................................................... 73,484 371,560
Accounts payable, officers...................................................... (99,516) 129,051
Accrued expenses................................................................ 309,909 (38,526)
Other liabilities............................................................... 145,234 --
----------- -----------
Net cash used by operating activities......................................... (293,511) (1,742,265)
----------- -----------
Cash flows used by investing activities:
Repayment of notes receivable....................................................... -- 753,526
Repayment of capital lease obligation............................................... (10,501) --
Proceeds from sale of equipment..................................................... -- 7,656
Redemption of equity investment in partnership...................................... -- 595,313
Issuance of notes receivable........................................................ -- (254,870)
Purchase of property and equipment.................................................. (302,121) (95,557)
Sale purchase of investment -- held to maturity..................................... 11,875 (145,215)
Purchase of investment, at cost..................................................... -- (1,850,000)
Loss on investment -- held to maturity.............................................. 29,813 --
Purchase of equity investment....................................................... -- (419,675)
Foreign currency translation........................................................ -- 11,749
Purchase of Klara Clinic assets..................................................... -- (102,225)
Purchase of ConVista................................................................ -- (163,597)
Advances to investee companies...................................................... (214,454) --
----------- -----------
Net cash used by investing activities......................................... (485,388) (1,662,895)
----------- -----------
Cash flows from financing activities:
Payment of note payable............................................................. -- (90,876)
Payment of long-term debt........................................................... (107,497) (190,410)
Sale of common stock................................................................ 500,000 3,350,000
Payment of offering costs........................................................... -- (864,488)
Issuance of notes payable........................................................... 302,777 --
Redeemed stock of subsidiary........................................................ (277,777) --
----------- -----------
Net cash provided by financing activities..................................... 417,503 2,204,226
----------- -----------
Net increase (decrease) in cash....................................................... (361,396) (1,200,934)
Cash, beginning of period............................................................. 649,708 1,850,642
----------- -----------
Cash, end of period................................................................... $ 288,312 649,708
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information: See note 15.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Vista Technologies, Inc. (the Company), formerly Mercury Acquisitions,
Inc., was organized under the laws of the State of Nevada on June 15, 1992.
Since inception, the Company has devoted its efforts to raising capital,
locating merger and acquisition candidates and establishing excimer laser
clinics throughout Europe and North America to provide facilities and support
services for photorefractive keratectomy (PRK) and other laser surgical
procedures. On February 23, 1994 the Company changed its name from Mercury
Acquisitions, Inc. and amended certain provisions relating to its authorized
and unissued preferred stock. The Company was in the development stage as
defined by Financial Accounting Standards Board Statement Number 7, until
March 31, 1994, at which date it acquired operating subsidiaries. During March
1994 the Company changed its year end from December 31 to March 31.
(a) Vista Vision SpA
On March 31, 1994 the Company acquired 61.83% of the common stock of
Vista Vision, SpA (Vista-Italy) for cash of approximately $625,000 and 262,760
shares of the Company's common stock.
As the result of a default judgment entered against the Company which
terminates and rescinds the provisions of the agreement between Vista-Italy
and Laser Vision Centers, Inc. (LVCI) (note 7 (c)), the Company's ownership
interest in Vista-Italy increased to 69.87% as of March 31, 1995. During
fiscal year 1996, the Company's ownership interest was increased to 73.57%.
The acquisition of Vista-Italy was recorded using the purchase method of
accounting resulting in goodwill of $2,997,506 which was being amortized over
10 years using the straight-line method. At March 31, 1995, the Company's
management determined that the goodwill was impaired. As a result, the Company
wrote off goodwill of $2,761,506 (note 2). The Company wrote-off the asset
after it determined that the amortization of the asset's balance over its
remaining life could not be recovered through projected future discounted cash
flows.
(b) Vista Vision International Ltd.
On March 31, 1994 the Company acquired all of the outstanding common
stock of Vista Vision International Ltd. (Vista-UK) from Laser Technologies
(Jersey) Ltd. for $134,000 in cash and 50,000 shares of the Company's common
stock.
The acquisition of Vista-UK was recorded using the purchase method of
accounting resulting in goodwill of $703,159 which was being amortized over
ten years using the straight-line method. As of March 31, 1995, the Company's
management determined that the goodwill was impaired. As a result, the Company
wrote off goodwill of $633,159 (note 2). The Company wrote-off the asset after
it determined that the amortization of the asset's balance over its remaining
life could not be recovered through projected future discounted cash flows.
Effective June 1, 1995, the Company abandoned its Vista-UK operations.
Vista-UK owned 50% of Precision Laser Eye Centers Limited (PLEC), a
joint venture that leased laser equipment, which was recorded using the equity
method of accounting. The Company's proportionate share of the loss from its
equity investment in the joint venture was $147,506 for the year ended March
31, 1995.
F-8
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
(c) ConVista Vision BV
During April 1994, the Company acquired 100% of Pawnee Finance B.V., an
inactive company in the Netherlands, since renamed ConVista Vision B.V.
(ConVista), to serve as a future vehicle for financing and management of its
international operations. The Company acquired ConVista for approximately
$20,986 and subsequently contributed additional capital of $163,597 for a
total investment of approximately $184,583. The acquisition of ConVista was
recorded using the purchase method of accounting resulting in goodwill of
$163,597 which was being amortized using the straight-line method over ten
years beginning May 1, 1994. At March 31, 1995, the Company's management
determined that the goodwill was impaired. As a result, the Company wrote off
goodwill of $149,597 (note 2). The Company wrote-off the asset after it
determined that the amortization of the asset's balance over its remaining
life could not be recovered through projected future discounted cash flows.
ConVista's results of operations from the date of acquisition are
included
in the statement of operations for the year ended March 31, 1995.
During June 1994 ConVista acquired 100% of Vista-Sweden for $6,494. On
June 1, 1994 Vista-Sweden acquired the assets of a PRK surgical center in
Sweden for
cash and a note payable totaling $383,000.
Vista-Sweden's investment resulted in goodwill of $324,211 which was
being amortized over three years using the straight-line method. At March 31,
1995, the Company's management determined that goodwill was impaired. As a
result, the Company write off goodwill of $281,728 (note 2).
(d) Medical Development Resources, Inc.
During 1995, the Company was unsuccessful in its attempt to acquire a
controlling interest in MDRI and its subsidiaries due to the failure of MDRI
and its principal stockholders to satisfy certain conditions of the
acquisition. Therefore, the Company rescinded and terminated the acquisition
agreements entered into with MDRI and its principal stockholders. MDRI and its
wholly-owned subsidiaries are engaged in the design, development, manufacture
and marketing of surgical instruments and related products for ophthalmology
and neurosurgery.
On July 7, 1995, the Company notified MDRI, the MDRI principal
stockholders and the MDRI 8% promissory noteholders that it rescinded all
transactions contemplated by the MDRI Stock Agreement and the MDRI Agreement
among the Company, MDRI and the MDRI principal stockholders. The Company's
reasons for rescinding the MDRI Stock Agreement and the MDRI Agreement include
alleged fraud, intentional misconduct, breach of fiduciary duties,
misrepresentation of material facts and failure of MDRI and its principal
stockholders to satisfy conditions to the obligations of the Company under the
MDRI Agreement. As a result, the Company canceled 1) the 200,000 shares of its
common stock and the 100,000 Class A Warrants issued to the foreign investors;
2) the promissory notes totaling $1,400,000 issued to the MDRI stockholders;
3) the 67,800 shares of its common stock issued to terminate employment and
consulting agreements; 4) the obligation to issue 67,617 shares of its common
stock upon completion of the exchange stage of the MDRI agreement; 5) the
obligation to issue 60,000 shares of its common stock to secure certain MDRI
indebtedness; and 6) the Company's 8% convertible promissory note and Class A
Warrants issued under the Exchange Offer. However, a contingent liability may
exist relating to the cancellation of the above items.
F-9
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
As a result of the rescission, the Company owns 2,794,340 shares of MDRI
common stock, or a 40.1% ownership interest, which was acquired for
consideration valued at $5,407,554, which was comprised of $1,850,000 in cash
and $3,557,554 ($10.00 per share) in the Company's common stock.
Because the Company never had the ability to influence the financial and
operating activities of MDRI, the Company's 40.1% investment in MDRI was
recorded using the cost method of accounting. In addition, the Company made
advances totaling $235,333 to fund the operations of MDRI and its subsidiaries
during 1995.
As of March 31, 1995, the Company's investment in MDRI of $5,407,554 and
advances made to MDRI and its subsidiaries of $235,333 have been written off
to reflect a permanent impairment due to the deterioration of MDRI's financial
condition. As a result, the Company recorded a loss of $5,642,887 for the
misappropriation of advances made to MDRI and the investment in MDRI for the
year ended March 31, 1995.
During 1995, the Company advanced $125,000 to a stockholder subject to a
promissory note due December 31, 1995, bearing interest at 10% per annum,
payable upon maturity. The note was collateralized by not less than 100,000
shares of the Company's common stock issued to the stockholder as part of the
MDRI acquisition. As a result of the rescission of the MDRI Agreement, a
majority of the shares of the Company's common stock pledged as collateral
have been canceled. As of March 31, 1995, the note receivable has been written
off as collection is doubtful.
(e) Agreements with Pharma Patch Plc
In March 1996, the Company executed Agreements with Pharma Patch Plc (PP
Plc) which resulted in PP Plc acquiring approximately 60% of the voting
interest of the Company.
Under these Agreements, the Company issued to PP Plc: (a) 2,260,000
shares of new common stock; (b) 500,000 Class C common stock purchase warrants
(note 8); and, (c) an option to purchase an additional 250,000 shares of new
common stock for cash, on or before September 30, 1996, at an exercise price
of $2.50 per share (note 17). In return, the Company received (a) $500,000
cash; (b) a $750,000 subscription note, which was subsequently paid in May,
1996; and, (c) 200,000 shares of Technical Chemicals and Products, Inc. (TCPI)
restricted stock previously held by PP Plc, valued at $2,662,550. The value of
the TCPI stock was based on the trading value of unrestricted TCPI stock on
the date of the closing of the transaction after making appropriate
adjustments for the restrictions placed on the TCPI stock received by the
Company.
In a separate transaction, PP Plc agreed to provide 4,500,000 newly
issued PP Plc Common Shares to three Company shareholders in exchange for a
total of 900,000 shares of the Company's outstanding common stock.
(f) Regional Joint Ventures
The Company's business strategy is to expand in North America by
organizing and sponsoring independently financed regional enterprises
(Regional Joint Ventures) in which the Company will obtain a significant
equity interest and long-term fee-based consulting arrangements. As of March
31, 1996, two such Regional Joint Ventures, Vista Laser Centers of Michigan,
Inc. and Vista Laser Centers of the Southwest, Inc. had been formed.
Subsequent to March 31, 1996 several more Regional Joint Ventures were formed
(note 17).
F-10
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
Investment in Vista Laser Centers of Michigan, Inc.
In November 1995, the Company issued 200,000 shares of its common
stock in exchange for 200,000 shares of 5% Series B convertible
preferred stock in Vista Laser Centers of Michigan, Inc. (VLC-Michigan).
VLC-Michigan is a development stage enterprise organized on June 30,
1995 to establish, own and manage laser vision correction centers in
Southern Ontario and Michigan.
To date, the activities of VLC-Michigan have consisted primarily
of market research, seeking affiliation and negotiating agreements with
experienced vision care professionals in the United States and Canada,
and negotiating to acquire equipment for establishing a laser vision
correction center in Windsor, Ontario after an initial public offering
on its securities has been completed. VLC-Michigan is also negotiating
to enter into a joint venture arrangement with a group of physicians in
Michigan following completion of a pending initial public offering by
VLC-Michigan. VLC-Michigan has filed a registration statement with the
Securities and Exchange Commission for a proposed initial public
offering of 800,000 shares of its 10% Series A cumulative convertible
preferred stock at $5.00 per share. There can be no assurance that
VLC-Michigan will successfully complete an initial public offering of
its securities, failing which it will not have sufficient capital to
engage in business operations.
The Company entered into a consulting services agreement to
provide certain consulting services to VLC-Michigan in exchange for 5%
of VLC-Michigan's revenues attributable to its charges to health care
professionals for the use of equipment and laser vision correction (LVC)
services, less a credit to VLC-Michigan of $5,000 per month. The
consulting services agreement is for a term of ten years from the date
of an initial public offering by VLC-Michigan, and is automatically
renewed thereafter for periods of five years unless either party
provides six months prior notice of an intent not to extend the term.
Certain directors of the Company have been elected to serve as
directors of VLC-Michigan. The Company has assigned the voting rights
for its shares of VLC-Michigan Series B convertible preferred stock to
local affiliates of VLC-Michigan.
The Company's initial investment in VLC-Michigan represented an
approximate 61% ownership interest. Such interest is expected to be
reduced to approximately 21% upon completion of VLC-Michigan's initial
public offering. The Company does not have voting rights related to its
ownership interest but does have the ability to exercise significant
influence through its 25% Board representation. Upon completion of
VLC-Michigan's initial public offering the Company will have the right
to retain a minimum of 20% representation on the VLC-Michigan Board of
Directors. Accordingly, the Company accounts for this investment using
the equity method of accounting. The initial value of the investment of
$217,600 was determined based upon an independent appraisal.
As of March 31, 1996, the Company had advanced approximately
$176,000 to VLC-Michigan.
Investment in Vista Laser Centers of the Southwest, Inc.
In March, 1996, the Company issued 250,000 shares of its common
stock in exchange for 350,000 shares of 5% Series B convertible
F-11
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
preferred stock in Vista Laser Centers of the Southwest, Inc.
(VLC-Southwest). VLC-Southwest is a development stage enterprise
organized on January 30, 1996 to establish, own and manage laser vision
correction centers in Arizona, New Mexico, Texas and Nevada. The Company
intends to assign the voting rights for its shares of VLC-Southwest
Series B convertible preferred stock to local affiliates of
VLC-Southwest while retaining the right to a minimum of 20%
representation on VLC-Southwest Board of Directors.
The Company has granted VLC-Southwest the use of their service
mark and has entered into a consulting agreement with VLC-Southwest.
Under this agreement, the Company has agreed to provide advice and
assistance to VLC-Southwest for the development of their business in
consideration for 5% of VLC-Southwest's revenues from wholly-owned
subsidiaries of VLC-Southwest and 2.5% of revenues from non-majority
owned subsidiaries, less $5,000 per month. The Company has agreed to
establish and maintain a Medical Advisory Board and adopt a stock option
program for the members of such board. This consulting services
agreement will be effective with the successful completion of
VLC-Southwest's initial public offering and shall continue for a period
of ten years. If the initial public offering has not been successfully
completed on or before August 31, 1996, the Company may terminate the
agreement at its discretion with 30 days written notice.
The Company's initial investment in VLC-Southwest was valued at
$271,750 and represented an approximate 72% ownership interest. Such
interest is expected to be reduced to approximately 20% upon completion
of VLC-Southwest's initial public offering. The Company will not have
voting rights related to its ownership interest but will have the
ability to exercise significant influence through its Board
representation. Accordingly, the Company accounts for this investment
using the equity method of accounting.
The Company has a commitment to pay an officer of the Company a
bonus of $75,000 in connection with the initial public offering of
VLC-Southwest.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include accounts of the Company,
and all wholly-owned and majority-owned subsidiaries. Investments in companies
in which the Company's ownership interests range from 20 to 50 percent, and in
which the Company exercises significant influence over operating and financial
policies, are accounted for using the equity method. Investments in companies
in which the Company's ownership interest is currently in excess of 50% but
for which majority interest is considered only temporary and investments in
companies in which the Company's financial interest exceeds 20 percent and in
which the Company has the ability to exercise significant influence but in
which the Company may have limited or no voting rights are accounted for using
the equity method. Other investments are accounted for using the cost method.
All significant intercompany accounts and transactions have been eliminated.
The Company's subsidiaries in Italy, United Kingdom, Sweden and the
Netherlands have been consolidated at March 31, 1996 using the subsidiaries'
respective fiscal year ends, which were December 31, 1995; and have been
consolidated at March 31, 1995 using December 31, 1994 for the Company's
subsidiary in Italy and March 31, 1995 for the Company's subsidiaries in
Sweden, the Netherlands and the United Kingdom. The three month period ending
March 31, 1995 for the Company's subsidiaries in Sweden and the Netherlands
have been included in the results of operations for the years ended March 31,
1996 and 1995.
F-12
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(b) Foreign Currency Translation
Financial statements of international subsidiaries are translated into
US dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses. Where the local currency is the functional
currency, translation adjustments are recorded as a separate component of
stockholders' equity.
The balance sheet and income statement data for the foreign subsidiaries
have been translated from their respective foreign currency to U.S. dollars
using the following exchange rates:
<TABLE>
<CAPTION>
Average rate Average rate
for the for the
Foreign March 31, 1996 Year Ended Year Ended
Subsidiary Currency Spot Rate March 31, 1996 March 31, 1995
- ------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Vista-UK Pounds Sterling 1.527 1.563 1.565
Vista-Italy Lira .001 .001 .001
ConVista Gilders .606 .624 .577
Vista-Sweden Krona .150 .144 .133
</TABLE>
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are calculated using the straightline method over the estimated
useful lives of the assets ranging from three to ten years.
(d) Intangible Assets
The Company determined that the goodwill resulting from the acquisitions
of its subsidiaries was impaired on March 31, 1995. As a result, the Company
wrote off goodwill of $3,825,990, resulting in zero value of goodwill.
Amortization expense was $-0- and $374,900 for the years ended March 31, 1996
and 1995, respectively.
The Company assesses the recoverability of intangible assets by
determining whether the amortization of the asset's balance over its remaining
life can be recovered through projected future discounted cash flows.
(e) Revenue Recognition
Revenues for medical services are recognized when services are
performed. Revenues related to consulting services to Regional Joint Ventures
are recognized as the Regional Joint Venture earns its revenue and amounts
become due to the Company.
(f) Minority Interest
Minority interest represents the minority stockholders' proportionate
share of the equity in Vista-Italy. At March 31, 1996, the Company owned
73.57% of the capital stock of Vista-Italy.
(g) Loss Per Common Share
Loss per common share is based on the weighted average number of common
shares outstanding. Common equivalent shares relating to stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
F-13
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(h) Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which
requires the use of the asset and liability method of accounting for deferred
income taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. A valuation allowance is required to the extent it is
more likely than not that a deferred tax asset will not be realized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(i) Use of Estimates in the Preparation of Financial Statements
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents.
(k) Stock Subscriptions Receivable
The Company has recorded stock subscriptions receivable as a current
asset as of March 31, 1996, because all such receivables were paid before the
issuance of the Company's financial statements.
(l) Investment Securities
The Company accounts for investment securities under the provisions of
SFAS No. 115. This standard requires that individual debt and equity
securities be classified into one of three categories: trading,
held-to-maturity or available-for-sale.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale.
Trading securities and available-for-sale securities are recorded at
fair value. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings and are reported
as a separate component of stockholders' equity until realized. Realized gains
and losses from the sale of securities are determined on a specific
identification basis.
F-14
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary
results in a reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is established.
Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
(m) Offering Costs
Costs associated with public and private offerings by the Company of its
stock have been charged against the proceeds of the offering.
(n) Newly Issued Accounting Standards
In October 1995, Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation (SFAS 123) was issued. SFAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. This
statement defines a fair value based method of accounting for employee stock
options or similar equity instruments, and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value-based method of accounting prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees. Entities
electing to remain with the accounting in Opinion 25 must make proforma
disclosures of net income and, if presented, earnings per share, as if the
fair value based method of accounting defined by SFAS 123 had been applied.
SFAS 123 is applicable to fiscal years beginning after December 15, 1995. The
Company currently accounts for its equity instruments using the accounting
prescribed by Opinion 25. The Company does not currently expect to adopt the
accounting prescribed by SFAS 123; however, the Company will include the
disclosures required by SFAS 123 as required in future consolidated financial
statements included in Form 10-KSB.
(o) Reclassification
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
(3) RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere are disclosed in the
following:
On February 1, 1996, the Company entered into an asset purchase
and lease assumption agreement with a related party for an excimer laser
system. The purchase price for the asset was $75,000 in cash, a $96,591
promissory note with annual interest at 8% originally due May 31, 1996,
and the assumption of outstanding obligations under the existing lease
on the laser, including future lease payments not to exceed $328,409.
Subsequent to February 1, 1996, the Company replaced this laser with
newer technology resulting to a charge to the statement of operations in
the amount of $446,636 for the impairment of an idle asset. As of July
12, 1996, the note payable for $96,591 had not been paid. The Company
expects to pay the note in fiscal year 1997.
F-15
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
During the period from June to December 1995, certain clients of
the Company's then acting president invested approximately $1,470,000 to
sustain the Company's corporate operations during that period. These
advances included approximately $700,000 for travel by the Company's
officers and consultants and corporate office expenses in New York and
Europe, approximately $100,000 in out-of-pocket advances for various
expenses, and $670,000 in compensation paid for personnel assigned to
support the Company's corporate activities and its program to establish
various Regional Joint Ventures in North America. The $670,000 figure
for personnel included $200,000 paid or payable to the Company's then
acting president, and $60,000 accrued for its then acting treasurer and
chief financial officer. The Company's Board of Directors agreed these
charges should be billed at a flat negotiated rate of $1,470,000 and in
December 1995 authorized the issuance of 925,000 shares of the Company's
common stock in payment of these obligations.
These shares were issued to Therapeutic Patch Research, N.V.
(300,000 shares), Saliva Research Ltd. (325,000 shares) and Westcliff
Partners Inc. (300,000 shares). The Company's then acting president
acted at the time as a managing director for Saliva Research Ltd. and
Westcliff Partners Inc., but disclaimed any beneficial interest in the
securities held by those entities.
Under an agreement dated July 5, 1995, the Company issued 16,000
shares of its common stock to a former chairman of the Company in
payment of $80,000 of unreimbursed business expenses.
Under an agreement dated as of June 1, 1995, the Company paid a
former president of the Company $8,740 in cash and issued 4,000 shares
of common stock for reimbursement of a total of $29,000 of unreimbursed
business expenses. The Company agreed that the former president had a
put option right to sell the 4,000 shares of common stock to the Company
after January 31, 1996 at a price equal to $20,260 plus interest from
June 1, 1995 at the rate of 1% per month. The former president exercised
that option on February 1, 1996. The Company also issued 5,000 shares of
common stock to the former president under the June 1, 1995 agreement as
a negotiated settlement for a one-time hiring bonus in his original
employment agreement dated as of January 15, 1995.
In December, 1995 the Company issued 25,000 shares of common stock
to each of its then three directors in exchange for services performed.
During fiscal year 1995, the Company advanced $125,000 to a
stockholder subject to a promissory note due December 31, 1995, bearing
interest at 10% per annum, payable upon maturity in connection with the
Company's attempt to acquire MDRI. At March 31, 1995 the note receivable
had been written off as collection is doubtful.
Certain relationships existed from inception of the Company
through March 31, 1995 between the Company's original management, their
affiliates and the Company. Original management had other interest
including business interest to which they devoted their primary
attention.
Effective January 15, 1995 the Company hired a new chief executive
officer and president who was also made a member of the Company's board
of directors. The Company paid $84,000 to the new chief executive
officer and president of the company for consulting services provided
prior to his employment with the Company.
F-16
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
During the fiscal year ended March 31, 1995, the Company paid
SEK100,000 (approximately $13,630) to the managing director of
Vista-Sweden for consulting prior to his employment with Vista-Sweden.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31, 1996:
<TABLE>
<S> <C>
Excimer lasers and other technical equipment............... $1,896,394
Office furniture and equipment............................. 67,385
----------
1,963,779
Less accumulated depreciation and amortization............. (743,981)
----------
$1,219,798
==========
</TABLE>
Depreciation and amortization expense was $467,509 and $205,600 for the
years ended March 31, 1996 and 1995, respectively.
(5) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for available-for-sale and held-to-maturity
securities by major security type and class of security at March 31, 1996,
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities..... $2,662,500 -- $ (187,500) $2,475,000
Held-to-maturity:
8.75% Italian bonds... 115,468 -- (5,343) 110,125
</TABLE>
The 8.75% Italian bonds mature in 1997.
Proceeds from sales of trading securities were $417,652 and $432,859,
resulting in gross realized losses of $152,431 in the year ended March 31,
1996 and gross realized gains of $129,621, for the year ended March 31, 1995
respectively.
(6) EQUITY INVESTMENT IN PARTNERSHIP
During July 1994, the Company acquired a 36% ownership interest in Keech
One Partnership (Partnership) for $419,675. During December 1994 the
Partnership was liquidated. The Company's proportionate share of the income
from its equity investment in the partnership was $175,638 for the year ended
March 31, 1995.
F-17
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(7) COMMITMENTS AND CONTINGENCIES
(a) Employment Agreements
The Company has employment agreements with its executive officers, the
terms of which expire at various times through January 15, 1999. Such
agreements provide for minimum salary levels, as well as for incentive bonuses
which are payable if specified management and operational goals are attained.
(b) Exchange Agreement
In order to induce a stockholder to advance $100,000 under a deed of
debenture to MICRA (a wholly owned subsidiary of MDRI), the Company entered
into an exchange agreement on June 28, 1995 with the stockholder. The exchange
agreement provides the stockholder with the option of exchanging the unpaid
principal and interest of the debenture for fully paid and nonassessable
shares of the Company's common stock issued under Regulation S at a conversion
price of $1.25 per share at any time prior to repayment of the debenture by
MICRA. As of March 31, 1996, the stockholder has not exercised this option.
(c) Legal Judgment
In 1991 and 1993, Vista-Italy and LVCI entered into agreements to
license trademarks and develop territorial marketing strategies. The companies
exchanged shares of their respective common stock as consideration under the
agreements.
In 1993, LVCI filed suit for termination of these agreements and a
default judgment was entered in their favor. In connection with this judgment,
Vista-Italy canceled the shares of the common stock they had issued to LVCI,
returned the shares of LVCI which they held and recorded a note payable for
$175,000 plus related legal fees. Vista-Italy filed a motion to vacate the
judgment which was denied by the trial court; the trial court's decision was
recently affirmed on appeal. Vista-Italy intends to apply for a rehearing by
the appellate court, or in the alternative, to petition for an appeal to the
Missouri Supreme Court.
(d) Insurance and Indemnification
Use of laser systems by health care professionals using laser equipment
and other LVC services may give rise to claims against the Company or its
affiliates by persons alleging injury. The Company's subsidiaries generally do
not currently have malpractice liability insurance due to limited capital
resources.
The Company believes that claims alleging defects in laser systems will
be covered by manufacturers' warranties and the manufacturer's product
liability insurance, and that the Company and its affiliates could take
advantage of such insurance by adding such suppliers to potentially adverse
lawsuits. There can be no assurance that laser suppliers will carry product
liability insurance or that any such insurance will be adequate to protect the
Company.
Generally speaking, the policy of the Company's operating subsidiaries
and regional joint ventures is to require that ophthalmologists who perform
laser procedures by use of LVC equipment maintain their own professional
liability insurance.
F-18
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(7) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
(e) Physician Commitments
In two separate instances, a physician planning to associate with a
Regional Joint Venture sponsored by the Company has been advised by a third
party that it contends the physician breached commitments or obligations to
the third party by the physician's decision to associate with one of the
Company's Regional Joint Ventures. In one of these matters, the third party
contends that its plan of operations to enter the business of providing access
to LVC equipment in association with the physician has been damaged. In the
other, the third party contends that the physician breached fiduciary duties
to the third party and misappropriated client lists and data, and the claimant
also has threatened to hold the Company and certain other parties responsible
as well as the physician. To date, neither dispute has resulted in the filing
of legal proceedings although legal proceedings have been threatened. Based on
information currently known to the Company, the Company believes these claims
are without merit and will not result in material liability to either of the
Regional Joint Ventures involved or to the Company.
(8) COMMON STOCK
(a) Stock Offerings
During fiscal 1996, the Company issued 1,021,000 shares of common stock
in exchange for services and cash advances (note 3), 2,260,000 shares to
Pharma Patch Plc in exchange for cash, a subscription note and tradable equity
securities (note 1(e)), 450,000 shares of common stock in exchange for
interests in two Regional Joint Ventures (note 1(f)), 100,000 shares of common
stock in exchange for a $212,500 note which was paid subsequent to the
Company's March 31, 1996 year end and 16,393 shares of common stock in
exchange for an additional approximate 5% interest in Vista Vision SpA.
During May 1994, the Company's Board of Directors authorized an offering
of units (Foreign "B" Units) consisting of 5,000 shares of the Company's
common stock and 2,500 Class A Warrants for $50,000 per Foreign "B" Unit. As
of March 31, 1995, the offering of Foreign "B" Units was completed and the
Company received and accepted subscriptions totaling $1,250,000 for 25 units
to qualified foreign investors representing 125,000 shares of the Company's
common stock and 62,500 Class A Warrants. As of March 31, 1995, the Company
received proceeds of $1,051,192 (net of offering costs of $198,808) for the
sale of 25 Foreign "B" Units. The Company has agreed to register the Class A
Warrants.
During May 1994, the Company's Board of Directors authorized an offering
of units (U.S. "B" Units) consisting of 5,000 shares of the Company's common
stock and 5,000 Class A Warrants for $50,000 per U.S. "B" Unit. As of March
31, 1995, the Company had received and accepted subscriptions totaling
$850,000 for 17 U.S. "B" Units to accredited investors representing 85,000
shares of the Company's common stock and 85,000 Class A Warrants. As of March
31, 1995 the Company received proceeds of $714,690 (net of offering costs of
$135,310) from the sale of 17 U.S. "B" Units. The Company has agreed to
register the Class A Warrants.
In connection with the above offerings, the Company also issued 90,000
Class A Warrants to the placement agent.
F-19
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(8) COMMON STOCK -- (CONTINUED)
(b) Class A Warrants
As of March 31, 1996, 677,960 Class A Warrants were issued and
outstanding. Each Class A Warrant represents the right to purchase one share
of the Company's common stock with an exercise price of $15.00 per share at
any time between June 30, 1994 through December 31, 1998, unless earlier
called for redemption by the Company. The Company has the option to call the
rights for redemption if the warrants have been registered for sale under the
Securities Act of 1933 and if the Company's common stock is trading in the
NASDAQ over the counter market or on a national securities exchange and the
closing sale price is $22.50 per share for at least 20 consecutive trading
days on the date the warrants are called for redemption.
No warrants have been exercised to date.
(c) Class B Warrants
As of March 31, 1996, 31,000 Class B Warrants were issued and
outstanding. Each Class B Warrant represents the right to purchase one share
of the Company's common stock with an exercise price of $11.00 per share,
expiring October 11, 1999 unless earlier called for redemption by the Company.
The Company has the option to call the rights for redemption if the warrants
have been registered for sale under the Securities Act of 1933 and if the
Company's common stock is trading in the NASDAQ over the counter market or on
a national securities exchange and the closing sale price is $22.50 per share
for at least 20 consecutive trading days on the date the warrants are called
for redemption.
No warrants have been exercised to date.
(d) Class C Warrants
As of March 31, 1996, 500,000 Class C Warrants were issued and
outstanding. The Class C Warrants represent the right to purchase one share of
the Company's common stock during the month of February 1997 and/or the month
of February 1998 and expire thereafter if not exercised. The exercise price
per share will be determined by the average of the quoted closing prices for
the Company's common stock in the over the counter market during the month of
January immediately preceding the date of exercise. In no event will the
exercise price per share exceed $10 per share.
No warrants have been exercised to date.
(e) Reservation of Common Stock
At March 31, 1996, the Company designated 3,000,000 shares of its common
stock for sale in future private placements to finance the Company's
operations in 1996 and to acquire equity interests in additional laser vision
correction centers sponsored by the Company.
(f) Reverse Stock Split
Effective March 15, 1996, the Company completed a one share for five
shares reverse stock split of its common stock. All shares and per share
amounts have been restated retroactively as a result of this reverse split. As
a result, any fractional shares will be rounded up to the nearest full share.
F-20
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(9) STOCK OPTION AND STOCK COMPENSATION PLANS
(a) The 1994 Stock Option Plan
During February 1994, the Company's Board of Directors adopted and the
stockholders approved the 1994 stock option plan (the 1994 Plan).
The 1994 Plan provides that options granted thereunder may be either
incentive stock options or nonqualified stock options. The 1994 Plan provides
that incentive stock options must be granted at a option price which is not
less than the fair market value of the common stock on the date of grant and
that nonqualified options must be granted at an option price which is not less
than 50% of the fair market value of the common stock on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting rights of the Company's outstanding capital stock, the exercise price
of any incentive stock option under the 1994 Plan must be not less than 110%
of the fair market value on the date of grant. The options shall expire within
ten years from the date of the grant, except for options granted to optionees
owning more than 10% of the voting stock of the Company for which the options
shall expire within five years from the date of grant. In the event of
termination of employment, the optionee's option will terminate and may be
exercised during a three month period after termination to the extent the
option was exercisable on the date of termination.
A summary of stock option activity under the 1994 Plan is as follows:
<TABLE>
<CAPTION>
Outstanding Options
---------------------- Price
Reserved Granted Per
Shares Shares Share
--------- --------- ------
<S> <C> <C> <C>
Reserved, February 3, 1994.......... 80,000 -- $ --
Granted........................... -- 56,000 10.00
--------- ---------
Balance, March 31, 1994............. 80,000 56,000
Reserved.......................... 70,000 -- --
Granted........................... -- 44,000 10.00
--------- ---------
Balance, March 31, 1995............. 150,000 100,000
--------- ---------
Reserved.......................... 1,750,000 -- --
Granted........................... -- 1,467,000 2.50
--------- ---------
Balance, March 31, 1996............. 1,900,000 1,567,000
========= =========
</TABLE>
At March 31, 1996, options for 47,000 shares were exercisable and
options for 333,000 shares were available for future grants under the 1994
Plan. To date, no options have been exercised under the 1994 Plan.
A portion of the options granted during fiscal year 1996 will vest and
may be exercised after the 30th trading day (whether or not consecutive)
following the date of grant on which the closing price for the Company's
common stock price equals or exceeds $10.00 per share or five years after the
date of grant, whichever occurs sooner. The remaining options will vest and
may be exercised in 12 equal quarter-annual installments commencing on May 15,
1996 subject to the optionee's continued employment by, or active service as a
director or consultant for, the Company at the time each installment vests.
Each option is for a term of five years subject to possible earlier
termination in accordance with provisions of the 1994 Plan.
F-21
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(9) STOCK OPTION AND STOCK COMPENSATION PLANS -- (CONTINUED)
(b) The Restricted Stock Option Plan
During February 1994, the Company's Board of Directors adopted and the
stockholders approved the restricted stock option plan (the Restricted Plan)
under which shares of the Company's common stock were reserved for issuance to
senior management at prices the lesser of $.50 per share or 10% of the fair
market value of the Company's common stock on the date of grant. The options
expire within ten years from the date of grant or to the extent exercisable
within 12 months after termination. The options may not be exercised until the
optionee has remained in continuous employment as a senior executive officer
or as a director of the Company for a period of at least two years from the
date of grant.
A summary of stock option activities under the Restricted Plan is as
follows:
<TABLE>
<CAPTION>
Outstanding Options
---------------------- Price
Reserved Granted Per
Shares Shares Share
--------- --------- ------
<S> <C> <C> <C>
Reserved, February 3, 1994.......... 20,000 -- $ --
Granted........................... -- 20,000 .50
-------- --------
Balance, March 31, 1994............. 20,000 20,000
Reserved.......................... 30,000 -- --
Granted........................... -- 12,000 .50
-------- --------
Balance, March 31, 1995............. 50,000 32,000
-------- --------
Canceled.......................... -- (24,000) .50
-------- --------
Balance, March 31, 1996............. 50,000 8,000
======== ========
</TABLE>
As of March 31, 1996, 42,000 shares were available for future grants
under the Restricted Plan. To date no options have been exercised under the
Restricted Plan.
(c) The 1996 Stock Compensation Plan
On February 6, 1996, the Company's Board of Directors adopted a 1996
Stock Compensation Plan (the Stock Plan) subject to approval of the Stock Plan
within one year thereafter by stockholders of the Company. The purpose of the
Stock Plan is to permit the Board or a Committee of the Board the flexibility
of issuing shares of the Company's common stock in lieu of cash to compensate
officers, directors, employees and other individuals acting as professionals,
consultants and/or advisers to the Company for services rendered to the
Company and its subsidiaries.
Subject to approval of the Stock Plan by Vista stockholders, 250,000
shares of common stock will be available for payment of compensation under the
Stock Plan. No compensation awards under the Stock Plan have been made.
F-22
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(10) NOTES PAYABLE
Notes payable consist of the following at March 31, 1996:
<TABLE>
<S> <C>
12% convertible promissory notes due to related parties;
maturing June 15, 1998...................................... $ 277,777
8% note payable to a related party under an asset purchase
and lease assumption agreement due May 31, 1996 (note 3).... 96,591
---------
374,368
Less current portion.......................................... (96,591)
---------
$ 277,777
=========
</TABLE>
The 12% notes are convertible, at the option of the holder, to convert
the principal amount and accrued interest on the notes into shares of the
Company's common stock at a conversion price of $5.00 per share. The notes are
collateralized by 51% of the issued and outstanding shares of Vista-Sweden
common stock. Vista-Sweden has also signed a royalty agreement with each
noteholder expiring on May 31, 1998. Under the royalty agreements, Vista-
Sweden will pay royalties to each noteholder for each incremental PRK
procedure performed by Vista-Sweden during the three years ended May 31, 1996,
1997 and 1998.
(11) LONG-TERM DEBT
Long-term debt consists of the following as of March 31, 1996:
<TABLE>
<S> <C>
Note payable with interest accrued monthly at 10%; payments
due quarterly of approximately $22,003; maturing
January 10, 1999; collateralized by laser equipment......... $ 361,167
Note payable with interest accrued monthly at 10%; payments
of $6,789 due monthly; maturing June 30, 1999;
collateralized by laser equipment........................... 239,424
---------
600,591
Less current portion.......................................... (137,351)
---------
$ 463,240
=========
</TABLE>
Future maturities of long-term debt are as follows for the years ended
March 31:
<TABLE>
<S> <C>
1997.......................................................... $ 137,351
1998.......................................................... 151,903
1999.......................................................... 167,809
2000.......................................................... 143,528
---------
$ 600,591
=========
</TABLE>
F-23
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(12) LEASES
The Company leases equipment, vehicles and office space under
noncancelable operating leases and leases certain equipment under capital
leases.
As of March 31, 1996, future minimum lease payments under the operating
and capital leases are as follows:
<TABLE>
<CAPTION>
Operating
--------------------------
Vehicles Laser
and Equipment Centers Capital Total
------------- -------- -------- --------
<S> <C> <C> <C> <C>
1997........................................ $24,360 $ 73,226 $ 95,696 $193,282
1998........................................ 24,360 76,362 95,696 196,418
1999........................................ -- 73,362 129,748 203,110
2000........................................ -- 57,645 -- 57,645
------------- -------- -------- --------
Total minimum lease payments................ $48,720 $280,595 $321,140 $650,455
=========== ======== ========
Less amount representing interest (12%)..... (56,596)
--------
Present value of net minimum lease payments. 264,544
Less current portion........................ (67,588)
--------
Total............................. $196,956
========
</TABLE>
Rent expense relating to operating leases totaled approximately $161,000
and $125,000 for the years ended March 31, 1996 and 1995, respectively.
(13) INCOME TAXES
The Company is obligated to file U.S. federal income tax returns and
separate tax returns in Italy, United Kingdom, Netherlands and Sweden.
As of March 31, 1996, the Company has not recorded any deferred tax
assets or liabilities. The Company's income tax net operating loss
carryforwards, if any, were not determinable at March 31, 1996. The annual use
of income tax loss carryovers may be limited by Section 382 of the Internal
Revenue Code.
(14) FOREIGN SEGMENT OPERATIONS
The Company's operations are in a single industry, providing PRK
treatments and laser surgical procedures to patients through the establishment
and operation of eye clinics.
The Company's headquarters are located in the United States, however,
all of the Company's operating assets are located in Italy, Sweden and the
Netherlands.
Revenue by geographic areas is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Domestic.................................... $ -- $ --
Foreign (Western Europe).................... 2,130,073 1,209,673
----------- ------------
$ 2,130,073 $ 1,209,673
=========== ============
</TABLE>
F-24
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(14) FOREIGN SEGMENT OPERATIONS -- (CONTINUED)
Net loss by geographic areas is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Domestic................................. $(3,428,987) $(10,238,767)
Foreign.................................. (385,948) (1,181,413)
----------- ------------
$(3,814,935) $(11,420,180)
=========== ============
</TABLE>
Identifiable assets by geographic areas are as follows:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Domestic................................................. $ 4,216,830
Foreign.................................................. 2,052,952
-----------
$ 6,269,782
===========
</TABLE>
(15) SUPPLEMENTAL CASH FLOWS INFORMATION FOR NONCASH INVESTING AND FINANCING
ACTIVITIES
<TABLE>
<CAPTION>
For the Years Ended
March 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Common stock issued in exchange for Vista Vision SpA
stock..................................................... $ 8,198 $ --
========== ==========
Issuance of common stock for investment in VLC-Michigan..... $ 217,600 $ --
========== ==========
Issuance of common stock for investment in VLC-Southwest.... $ 271,750 $ --
========== ==========
Issuance of common stock for investment in TCPI stock
received from PP Plc...................................... $2,662,500 $ --
========== ==========
Issuance of common stock for stock subscriptions
receivable................................................ $ 962,500 $ --
========== ==========
Note payable issued to acquire equipment.................... $ 96,591 $ --
========== ==========
Capital lease assumed to acquire equipment.................. $ 275,045 $ --
========== ==========
Long-term debt issued to acquire laser equipment............ $ -- $ 901,112
========== ==========
Common stock issued to acquire MDRI......................... $ -- $3,557,554
========== ==========
Note payable to acquire assets of Klara Clinic.............. $ -- $ 286,000
========== ==========
Common stock issued to retire note payable issued to acquire
assets of Klara Clinic.................................... $ -- $ 286,000
========== ==========
Rescission and cancellation of stock issued to acquire
investment in LVCI........................................ $ -- $ 968,907
========== ==========
Note payable issued to LVCI for legal settlement............ $ -- $ 175,618
========== ==========
Cash paid during the period for interest.................... $ 61,415 $ 9,781
========== ==========
</TABLE>
F-25
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(16) FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1995, the Company recorded the following
year-end adjustments which it believes are material to the results of that
quarter:
<TABLE>
<S> <C>
Loss from advanced funds for rescinded acquisition............ $5,642,887
Impairment of goodwill........................................ 3,825,990
Accrual of payroll and payroll taxes.......................... 113,836
----------
$9,582,713
==========
</TABLE>
(17) SUBSEQUENT EVENTS
(a) Cash Received
Subsequent to March 31, 1996 the Company received $1,675,000 in cash
related to the following:
(i) In May 1996, payment was received for the $962,500 of stock
subscriptions receivable reflected in the Company's financial
statements as of March 31, 1996.
(ii) In June 1996, the Company completed the sale of 100,000 shares of
its common stock on a Regulation S basis for cash proceeds of
$212,500.
(iii) In July 1996, PP Plc exercised options to purchase 200,000 shares
of the Company's common stock resulting in proceeds to the Company
of $500,000.
(b) Rental Agreements
In June 1996, the Company entered into two rental agreements with Summit
Technologies, Inc. to rent two Summit Apex excimer lasers. The term of each
rental agreement commences upon installation of the equipment and shall
continue for a period of 27 months. After the first three months of operation,
each equipment lease provides for a minimum monthly rental fee of $6,500. The
Company anticipates installing these lasers at one or more of its Regional
Joint Ventures under a sublease arrangement.
In June 1996, the Company entered into a five year lease agreement for
additional office space. The lease provides for a base rental of $2,084 per
month which will be adjusted at the end of each year for changes in the
consumer price index and in any event not less than three percent increase per
year.
(c) Establishment of Regional Joint Ventures
In May 1996, the Company issued 450,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in
Vista Laser Centers of New York, Inc. (VLC-New York). At March 31, 1996, the
Company had advanced VLC-New York approximately $38,000.
In May 1996, the Company issued 500,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in
Vista Laser Centers of the Northwest, Inc. (VLC-Northwest).
F-26
<PAGE>
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(17) SUBSEQUENT EVENTS -- (CONTINUED)
In May 1996, the Company issued 500,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in
Vista Laser Centers of the Pacific, Inc. (VLC-Pacific).
VLC-New York, VLC-Northwest and VLC-Pacific have been organized to
establish, own and manage laser vision correction centers.
The Company does not exercise control over any of the Regional Joint
Ventures insofar as it has granted or has committed to grant to one or more
local affiliates of each of the Regional Joint Ventures an irrevocable five
year proxy to vote the Series A and Series B preferred shares owned by the
Company.
In assigning value to the Vista common stock issued to the Regional
Joint Venture, Vista gave consideration to an independent appraisal obtained
on the value for the consideration received from the Regional Joint Ventures
in exchange for such common stock, the estimated market value of Vista's
common stock based upon recent private placements, the quoted price of Vista's
common stock in the OTC market, and the voting and other restrictions on the
issued stock.
(d) Agreement to Acquire Refractive Services-800 (unaudited)
From July 1995 through June 1996, a foreign corporate investor named
Refractive Services-800, Inc. provided at least $100,000 in initial seed
capital to each of five Regional Joint Ventures (for an aggregate investment
of $520,000) to finance initial organizational expenses and costs of
negotiating agreements with vision care professionals and seeking additional
financing. In exchange for that investment, and in view of the high risks
associated with a start-up enterprise, Refractive Services-800, Inc. received
shares of a 10% Series A convertible preferred issue of the Regional Joint
Venture with a liquidation preference equal to five times its cash investment
in four Regional Joint Ventures and six times its cash investment in one other
Regional Joint Venture.
The Company recently negotiated an agreement effective July 18, 1996 to
acquire the Series A preferred shares owned by Refractive Services-800, Inc.
in all five of these Regional Joint Ventures in exchange for 520,000 shares of
Vista common stock. In addition, Vista agreed to purchase all of the capital
stock in Refractive Services 800 Corp., a Nevada corporation ("RS-800") for
$50,000 from Refractive Services-800, Inc. Refractive Services-800, Inc.
organized RS-800 to acquire rights to, and offer the use of, certain 800 and
900 telephone numbers for telemarketing purposes at the election of Regional
Joint Ventures.
In assigning value to the Vista common stock issued to Refractive
Services-800, Inc., Vista gave consideration to an independent appraisal
obtained on the value of the consideration received from the Regional Joint
Ventures in exchange for Vista common stock, the estimated market value of
Vista's common stock based upon recent private placements, the quoted price of
Vista's common stock in the OTC market, and the voting and other restrictions
on the issued stock.
F-27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 6, 1996
VISTA TECHNOLOGIES INC.
(Registrant)
By: /s/ Thomas A. Schultz
---------------------------------
Thomas A. Schultz, President and Chief Executive Officer
(principal executive officer)
By: /s/ Kenneth G. Howling
---------------------------------
Kenneth G. Howling, Vice President of Finance and Treasurer
(principal financial officer; principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- ----------------------- ------------ ----------------
<S> <C> <C>
/s/ J. Charles Casebeer
- ------------------------ Director December 6, 1996
J. Charles Casebeer, M.D.
- ------------------------ Director
Donald G. Johnson, M.D.
/s/ Thomas A. Schultz
- ------------------------ Director December 9, 1996
Thomas A. Schultz
/s/ Murray D. Watson
- ------------------------ Director December 9, 1996
Murray D. Watson
</TABLE>
