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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A (AMENDMENT NO. 1)
[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.)
1250 OAKMEAD PARKWAY, SUITE 210, SUNNYVALE, CALIFORNIA 92088-3599
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (800) 249-3819
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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EXPLANATORY NOTE
This Report on Form 10-KSB/A amends and restates in its entirety Item 1
of the Annual Report on Form 10-KSB of Vista Technologies Inc. for the fiscal
year ended March 31, 1996 to correct certain typographical errors.
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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 five excimer lasers in use at outpatient surgical centers,
three in Italy and two in Sweden. Another laser owned by a third party is
shared by the Company at a recently established fourth center in Italy. 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, the
Company has organized and sponsored six Regional Joint Ventures in various
stages of development including one in Northern California that recently
commenced operations in June 1996 with an excimer laser at each of three
locations. See "North American Regional Joint Venture Investments and
Affiliations".
During March 1996, the Company completed equity financing transactions
with Pharma Patch PLC 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.
The Company was incorporated under the laws of Nevada on June 15, 1992
and its principal office is located at 1250 Oakmead Parkway, Suite 210,
Sunnyvale, California 92086-3599, telephone number (800) 249-3819. Commencing
in mid-August 1996, the Company will relocate its principal office to 167 S.
San Antonio Road, Suite 9, Los Altos, California 94022.
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. The Company's existing European
subsidiaries 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
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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.
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
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
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of the laser and the frequency and duration of the exposure or pulse,
determine the amount of energy which interacts with the targeted tissue.
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
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procedure than PRK, offers advantages in that the epithelium is not touched by
the laser and 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, the Company 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 four excimer lasers at 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, the Company's operations in Europe
have not yet been profitable. However, the Company's Italian subsidiary,
representing approximately 57% of Vista's consolidated revenues for its fiscal
year ended March 31, 1996, produced positive cash flow from operations during
its last fiscal year ended December 31, 1995.
The Company's European LVC Services are operated under the trade name
"Vista Vision"(TM). As of March 31, 1996, the Company 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
the Company's European operations. A United Kingdom subsidiary of the
Company, 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.
The Company'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 five VISX excimer
lasers. Another laser owned by a third party is shared by Vista-Italy at a
center recently opened in Palermo, Italy. 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):
<TABLE>
<CAPTION>
Fiscal Year ended March 31,
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1996 1995 1994
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<S> <C> <C> <C>
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 -- --
------ ------ ------
Totals ....................... 2,025 1,435 972
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</TABLE>
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_________________________________
(a) Includes procedures performed at this center for periods prior to the
June 1994 purchase of assets by Vista-Sweden.
NORTH AMERICAN REGIONAL JOINT VENTURE INVESTMENTS AND AFFILIATES
Having anticipated recent FDA pre-market approval of PRK equipment
supplied by Summit and VISX, the Company'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
will obtain a significant equity interest and long-term fee-based consulting
arrangements. The Company has obtained and will continue to seek affiliations
for its 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 typical Regional Joint Venture enterprise, the Company has
subscribed to a 5% Series B convertible preferred stock issue of the Regional
Joint Venture enterprise in exchange for shares of Vista common stock.
From July 1995 through June 1996, an 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.
After initial organization of a Regional Joint Venture, negotiations
with one or more local prominent ophthalmologists have been instituted and
these physicians are 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 are
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 are 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, Based upon its
experience in LVC Services and affiliations with prominent LVC specialists,
Vista also enters into a long-term consulting service agreement to provide
certain administrative and consulting services to the Regional Joint Venture
in exchange for a percentage of revenues realized by the Regional Joint
Venture, which is also contingent upon receipt of additional financing.
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The Regional Joint Venture is licensed by the Company on a non-exclusive
basis for no additional charge to operate under the name and style of "Vista
Laser Centers" of the particular region during the term of Vista's consulting
services agreement. The Company has adopted use of, and has filed trademark
applications in the United States and Canada to register, the service mark
"Vista Laser Centers"(TM). To date, the Company has organized and sponsored
six Regional Joint Ventures discussed below, all of which are incorporated
under the laws of Nevada.
Upon commencing business, each Regional Joint Venture plans to enter
into nonexclusive LVC Service agreements with additional ophthalmologists and
optometrists who desire to contract for access to equipment and LVC Services.
Regional Joint Ventures will earn fees for the fair market value of their LVC
Services by billing health care professionals at the time of use, with such
fees typically based upon a negotiated percentage of the gross procedure fees
charged to patients by the professional; payment normally will be received
when the professional collects its gross procedure fee from the patient. The
gross procedure fee is established by the professional, except that consent of
the Regional Joint Ventures will be required for gross procedures fees at less
than a specified minimum per eye. Generally speaking, gross procedure fees
charged by professionals for LVC treatment in most markets in the United
States and Canada currently ranges from approximately $1,500 to $2,000 per
eye, although there can be no assurance these levels will be maintained for
the long term. Support services offered by the Regional Joint Ventures will
include, among others, access to equipment, supplies and support personnel;
administration of accounting, billing, collection and other information
processing functions; training and education in advanced LVC procedures; and
marketing support. There can be no assurance that ophthalmologists and
optometrists will require and contract for LVC Services of these Regional
Joint Ventures, and independent professionals and groups that do contract for
such services cannot be required under applicable laws and regulation to agree
that they will use the services of any single provider for their LVC practice
on an exclusive basis.
VISTA LASER CENTERS OF MICHIGAN, INC.
The first Regional Joint Venture sponsored by the Company is Vista Laser
Centers of Michigan, Inc. ("VLC-Michigan"). To date, the activities of VLC-
Michigan have consisted primarily of market research, seeking affiliations 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 of 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 an pending initial public
offering by VLC-Michigan.
The Company issued 200,000 shares of Vista common stock in November 1995
to VLC-Michigan in exchange for 200,000 shares of VLC-Michigan Series B
preferred stock, which have been recorded for financial statement purposes at
an appraised value of $217,597. VLC-Michigan also received $157,000 in cash
subscriptions to 100,000 shares of its Series A preferred stock ($100,000),
30,000 shares of its common stock ($30,000) and 270,000 Class A warrants
($27,000) exercisable at $1 per share. As noted above, Vista has agreed to
purchase the 100,000 shares of Series A preferred stock previously issued 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
($4,000,000 total). There can be no assurance that VLC-Michigan will
successfully complete an initial public offering of its securities, failing
which it may not have sufficient capital to engage in business operations.
<PAGE> 11
Vista 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 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.
RS-800, currently a wholly-owned subsidiary of the Company, has granted
VLC-Michigan the right to use certain 800 and 900 area code telephone numbers,
including among others 800-WE-DO-PRK, for its marketing and public education
programs. If VLC-Michigan elects to use the telephone numbers, RS-800 will
receive 2 1/2% of the revenues generated only as a direct result of responses
to telemarketing activities of VLC-Michigan by use of the licensed 800 and 900
telephone numbers.
VLC-Michigan's LVC services are planned to be offered at locations in
southern Ontario and Michigan. Dr. Fouad Tayfour, an Ontario ophthalmologist,
has agreed to act as a consultant and to enter into a facilities use agreement
with VLC-Michigan effective upon the completion of its initial public
offering. Dr. Tayfour has performed approximately 2,000 LASIK procedures
through 1995 in Ontario. Under the terms of a Facilities Agreement between
VLC-Michigan and Dr. Tayfour, upon completion of a public offering, VLC-
Michigan will receive approximately 50% of the gross procedure fee (as defined
in the agreement) charged to patients by Dr. Tayfour as compensation for his
use of VLC-Michigan's facilities and support services. The Facilities
Agreement between VLC-Michigan and Dr. Tayfour will be for a term of five
years effective upon successful completion of a public offering and will be
renewed thereafter on a year-to-year basis unless either party has provided
the other with at least three months' notice not to renew the agreement.
Equipment for the first location of VLC-Michigan in Windsor, Ontario
will be purchased by VLC-Michigan under an Agreement of Purchase of Assets
with Windsor Excimer Corporation, an affiliate of Dr. Tayfour, and its
operations will be located in a portion of facilities to be subleased from
Windsor Excimer Corporation upon completion of VLC-Michigan's initial public
offering. The equipment includes a Summit OmniMed UV 200 excimer laser, a
Sunrise Technologies LTK holmium laser and related equipment for a price of
$1,000,000, payable $500,000 at completion of VLC-Michigan's initial public
offering and $500,000 payable in a 10% promissory note due two years
thereafter and collateralized by the equipment.
VLC-Michigan has also assumed lease obligations from another 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.
VLC-Michigan has entered into a consulting agreement with Dr. Tayfour
effective upon the completion of its public offering. Under that agreement,
Dr. Tayfour will act as a professional consultant to VLC-Michigan concerning
the establishment of ethical standards and procedures for LVC Services and
care, and will periodically conduct training and education seminars sponsored
by VLC-Michigan. Compensation payable to Dr. Tayfour under this consulting
agreement will include a percentage of VLC-Michigan's fees, after deduction of
certain operating expenses, attributable to the first 20 LVC procedures
performed in each month at its Windsor location by credentialed physicians
other than Dr. Tayfour. The consulting agreement with Dr. Tayfour is for a
term of five years effective upon successful completion of a public offering
and will be renewed thereafter on a year-to-year basis unless either party has
provided the other with at least three months' notice not to renew the
agreement.
<PAGE> 12
Under the agreements with Dr. Tayfour, VLC-Michigan elected Ghassan
Barazi as its President and Chief Executive Officer. Mr. Barazi acted as the
Administrative Director and Business Manager for the Windsor Laser Eye
Institute founded by Dr. Tayfour in 1991. The Company has agreed that its
preferred shares in VLC-Michigan will be voted to cause Mr. Barazi and two
vision care professionals to be designated by Dr. Tayfour to be elected
directors of VLC-Michigan. Dr. J. Charles Casebeer and Dr. Donald G. Johnson,
directors of Vista, have been elected to serve as directors of VLC-Michigan
and Dr. Casebeer also serves as VLC-Michigan's Chairman of the Board.
OTHER VISTA LASER CENTERS REGIONAL JOINT VENTURES
Other Regional Joint Ventures sponsored by the Company are in the
process of seeking affiliations and negotiating agreements with experienced
vision care professionals in their primarily geographic markets and are at
various stages in implementing plans to raise additional capital and acquire
excimer laser equipment and related facilities. As noted below, three of
these Regional Joint Ventures commenced business operations during 1996.
From November 1995 to May 1996, Vista issued 1,900,000 shares of its
common stock in exchange for the purchase of 5% Series B cumulative
convertible preferred shares in five of these Regional Joint Ventures as
summarized in the table below. In each instance, it is anticipated that
Vista's investment in Series B preferred shares of the Regional Joint Venture
has or will be valued by independent appraisals for the purpose of determining
the value of the shares exchanged for financial statement purposes. The
Company also recently agreed to issue 520,000 shares of Vista common stock in
exchange for the purchase by Vista of Series A convertible preferred shares in
each of those five Regional Joint Ventures. See "Purchase of Certain Assets
from Refractive Services-800, Inc." Item 12 of this Report
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
stock ($35,000), 315,000 Class A warrants ($31,500) exercisable at $1 per
share and a private placement ($125,000) 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. If VLC-Southwest
successfully completes additional financing activities, as to which there can
be no assurance, it is expected that VLC-Southwest will negotiate the purchase
of certain assets from an affiliate of Dr. Casebeer, who is Chairman of the
Board and a director of VLC-Southwest and also a director of Vista.
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.
<PAGE> 13
Vista Laser Centers of the Northwest, Inc. ("VLC-Northwest") has not yet
commenced business operations and has received $191,250 in cash subscriptions
for 100,000 shares of Series A preferred stock ($120,000), 37,500 shares of
its common stock ($37,500) and 337,500 Class A warrants ($33,750) exercisable
at $1 per share. The investor in common stock and Class A warrants of VLC-
Northwest is Dr. Donald G. Johnson. VLC-Northwest is currently engaged in
negotiating agreements for its plan of operations and to raise additional
capital, failing which it may not have sufficient capital to engage in
business operations. If VLC-Northwest successfully completes an initial
public offering or private placement of its securities, as to which there can
be no assurance, it is expected that VLC-Northwest will negotiate the purchase
of capital stock for an existing LVC services business from an affiliate of
Dr. Johnson, who is Chairman of the Board and a director of VLC-Northwest and
also Chairman of the Board and a director of Vista.
Vista Laser Centers of the South, Inc. ("VLC-South") has established an
office at Baton Rouge, Louisiana and is in the preliminary stages of
organization and negotiating agreements.
The Company does not exercise control over the Regional Joint Ventures
and Vista has granted irrevocable proxies to vote all shares in the Regional
Joint Ventures owned by Vista to one or more local affiliates of each Regional
Joint Venture. 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%. After giving effect to Vista's recent agreement to purchase
Series A preferred shares in five Regional Joint Ventures in exchange for
520,000 shares of Vista Common Stock, the Company's investments in the
Regional Joint Ventures described above as of July 30, 1996 are summarized in
the following table:
<TABLE>
<CAPTION>
Vista Technologies
common stock issued to
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 11-16-95 200,000 (4) 100,000 (4) 90.9 % 46.2 %
Vista Laser Centers of
the Southwest, Inc. .... 250,000 3-18-96 350,000 (5) 100,000 (5) 87.2 % 47.7 %
Vista Laser Centers of
the Pacific, Inc. ...... 500,000 5-08-96 500,000 (6) 100,000 (6) 67.6 % 38.5 %
Vista Laser Centers of
the Northeast, Inc. .... 450,000 5-08-96 675,000 (7) 100,000 (7) 100.0 % 100.0 %
Vista Laser Centers of
the Northwest, Inc. .... 500,000 5-08-96 500,000 (8) 100,000 (8) 94.1 % 51.1 %
Vista Laser Centers of
the South, Inc. ........ 0 -- (9) -- -- --
</TABLE>
- -----------------------------------
(1) In each case, 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.
<PAGE> 14
(2) Represents percentage of common and common equivalent shares of the
Regional Joint Venture that would be outstanding if all its convertible
securities issued as of July 30, 1996 were converted into common stock.
Does not give effect to the exercise of warrants and/or stock options
issued by the Regional Joint Venture or to the possibility of additional
offerings of securities planned by the Regional Joint Venture.
(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
July 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 planned initial public offerings for VLC-
Michigan and VLC-Pacific are successfully completed, as to which there
can be no assurance, the beneficial ownership of shares held by the
Company in VLC-Michigan and VLC-Pacific on a fully-diluted basis would
decrease to approximately 20.7% and 20.3% respectively.
(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 reporting 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 value of the
Series B preferred shares in VLC-Southwest 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-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.
(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.
(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 5% Series B preferred stock issued by VLC-Northwest have a
preference in liquidation of $3.00 per share and are convertible into
common stock of VLC-Northwest on a one-for-one basis. The value of the
Series B preferred shares in VLC-Northwest not yet been appraised.
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.
(9) VLC-South is still in the organization stages. It is anticipated the
Company will acquire Series B preferred shares of VLC-South in exchange
for shares of Vista common stock.
<PAGE> 15
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 the
Company'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 an initial public offering of securities by VLC-Michigan is
successfully completed, Dr. Casebeer's professional corporation will receive
from VLC-Michigan compensation at the rate of $60,000 per annum plus
additional compensation for each vision care professional that enters a
credentialing program to be established by VLC-Michigan.
Dr. Casebeer and Dr. Johnson are expected to promote advanced LVC
methods for both the Company and for various Regional Joint Ventures that have
been formed, or may be formed in the future, by the Company 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 (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
<PAGE> 16
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.
The Company 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, the Company 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 the Company'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 the Company nor is any predictable at this time.
The Company's growth strategy includes: (a) increasing market
penetration into Canada and the United States through the Company'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 Company 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.
LVC EQUIPMENT AND SUPPLIERS
The Company 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. The Company 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.
<PAGE> 17
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
described above under the captions "European Operating Subsidiaries", "Vista
Laser Centers of Michigan, Inc." and "Other Vista Laser Centers Regional Joint
Ventures". Reference is also made to Note 12 of the Notes to the Consolidated
Financial Statements. Regional Joint Ventures in which the Company 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, the Company 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. The Company 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
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
<PAGE> 18
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.
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.
<PAGE> 19
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. The Company
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.
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 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.
Vista 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
<PAGE> 20
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 are to require that ophthalmologists who perform
laser procedures by use of LVC equipment maintain their own professional
liability insurance.
At a future date, the Company 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 the Company 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 the
Company, in which event the Company's business may be materially adversely
affected.
PROPRIETARY RIGHTS
The Company 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).
COMPETITION
The vision care industry is extremely competitive and includes numerous
companies that are substantially larger than the Company and have greater
financial, marketing and technical resources. The Company 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.
The Company 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.
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.
<PAGE> 21
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 the Company 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 the Company and its affiliates will not become
obsolete, and if this occurs, there can be no assurance that the Company 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 the Company and Pharma Patch PLC
generating additional financing for the Company in March 1996 (see Item 12 of
this Report), the Company 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 the Company
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 $10.25 on July 29, 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
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. Vista has been
advised that TCPI filed a registration statement on Form S-3 to register
<PAGE> 22
certain shares of TCPI common stock acquired by Pharma Patch from TCPI,
including the 200,000 shares assigned to Vista, which became effective on
approximately June 20, 1996. The resale of these shares pursuant to such
registration is subject to a lock-up agreement executed by Vista. Under that
lock-up, Vista has agreed it will 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 a 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.
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.
<PAGE>
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 14, 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 amendment 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 August 14, 1996
J. Charles Casebeer, M.D.
- ------------------------ Director
Donald G. Johnson, M.D.
/s/ Thomas A. Schultz
- ------------------------ Director August 14, 1996
Thomas A. Schultz
/s/ Murray D. Watson
- ------------------------ Director August 14, 1996
Murray D. Watson
</TABLE>
