<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
[ ] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended: JUNE 30, 1997
-------------
Commission File No. 0-23142
VISTA TECHNOLOGIES INC.
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 13-3687830
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15100 North 78th Way, Suite 101, Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 483-3937
--------------------------
(Not applicable)
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(Former name, former address and former fiscal year,
if changed since last report)
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
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, par value
$.005 per share, outstanding as of December 10, 1997: 6,324,905 shares.
----------------
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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<PAGE>
VISTA TECHNOLOGIES INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Part I. FINANCIAL INFORMATION ........................................ 3
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 1997
and March 31, 1997 ...................................... 3
Consolidated Statements of Operations for the
Three Months ended June 30, 1997 and 1996 ............... 4
Consolidated Statements of Cash Flows for the
Three Months ended June 30, 1997 and 1996 ............... 5
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months ended June 30, 1997 ......... 6
Notes to Unaudited Consolidated Financial Statements
at June 30, 1997 ........................................ 7
Item 2. Management's Discussion and Analysis or Plan of Operation:
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 16
Part II. OTHER INFORMATION:
Item 5. Other Events ...................................... 22
Item 6. Exhibits and Reports on Form 8-K .................. 23
Signatures ............................................................. 23
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this Report includes forward-looking statements
within the meaning of applicable securities laws that involve substantial
risks and uncertainties including, but not limited to, the ability of the
Company to continue as a going concern and to obtain additional capital, as to
which there is no assurance, market acceptance of new technologies, economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, services and prices, and other factors described in this
Report, the cautionary statement filed as Exhibit 99.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997, 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. See "Management's
Discussion and Analysis or Plan of Operation" in this Report.
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<PAGE>
PART I. FINANCIAL INFORMATION
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 616,660 $ 558,086
Accounts receivable:
Trade - Net ...................................... 186,813 142.281
VAT .............................................. 14,193 18,479
Related Party .................................... -- 125,000
Prepaid expenses and other .......................... 126,267 147,099
------------ ------------
Total current assets .................................. 943,932 990,945
Long-term receivable - related party .................. 704,910 733,062
Long-term VAT receivables ............................. 174,300 178,890
Long term note receivable ............................. 260,838 260,838
Property and equipment, net ........................... 2,038,927 2,088,687
Other assets .......................................... -- 78,115
------------ ------------
Total assets .......................................... $ 4,122,908 $ 4,330,537
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable, trade ............................. $ 806,393 $ 1,100,296
Accounts payable, related parties ................... 357,083 365,417
Accrued expenses .................................... 887,964 776,385
Current portion of notes payable .................... 752,777 500,000
Current portion of long-term debt ................... 209,866 370,373
Current portion of obligation under capital leases .. 280,622 274,510
Advances from related party ......................... 1,072,794 722,753
------------ ------------
Total current liabilities ............................. 4,367,499 4,109,734
Notes payable, net of current portion ................. -- 277,777
Long-term debt, net of current portion ................ 842,054 766,665
Obligation under capital leases, net of current portion 997,210 1,059,769
------------ ------------
Total non-current liabilities ......................... 1,839,264 2,104,211
------------ ------------
Minority interest ..................................... 247,196 211,412
------------ ------------
Commitments and contingencies (Notes 1, 9, 10 and 11)
Total liabilities ..................................... 6,453,959 6,425,357
------------ ------------
Stockholders' deficiency:
Preferred stock, $.001 par value;
15,000,000 shares authorized; none issued ......... -- --
Common stock, $.005 par value;
15,000,000 shares authorized; 7,804,545 shares
issued and 6,324,905 shares outstanding .......... 39,023 39,023
Additional paid-in capital .......................... 21,406,295 21,406,295
Accumulated deficit ................................. (22,360,897) (22,142,284)
Foreign currency translation adjustments ............ 141,813 159,431
Less: 1,479,640 treasury common shares, at cost ..... (1,557,285) (1,557,285)
------------ ------------
Total stockholders' deficiency ........................ (2,331,051) (2,094,820)
------------ ------------
Total liabilities and stockholders' deficiency ........ $ 4,122,908 $ 4,330,537
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended June 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues ....................................... $ 1,230,061 $ 786,075
------------ ------------
Costs and expenses:
General and administrative .................. 1,235,403 1,004,567
Depreciation and amortization ............... 138,819 56,654
Foreign currency exchange loss .............. -- (4,480)
Provision for doubtful accounts ............. 16,036 --
Interest .................................... 79,366 8,439
Other ....................................... (56,735) --
------------ ------------
Total costs and expenses ............. 1,412,889 1,065,180
------------ ------------
Loss from operations ................. (182,828) (279,105)
Equity investees income (loss) ................. -- (472,665)
------------ ------------
Loss before income taxes
and minority interest .............. (182,828) (751,770)
Income taxes ................................... -- --
------------ ------------
Loss before minority interest ........ (182,828) (751,770)
Minority interest .............................. (35,785) (52,257)
------------ ------------
Net loss ............................. $ (218,613) $ (804,027)
============ ============
Net loss per common share ...................... $ (0.03) $ (0.12)
============ ============
Weighted average number of
common shares outstanding .................... 6,324,905 6,778,160
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months ended June 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES:
Net loss .............................................. $ (218,613) $ (804,027)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization .................... 138,819 56,654
Provision for doubtful accounts .................. 16,036 --
Minority interest ................................ 35,785 52,257
Changes in operating assets and liabilities,
net of foreign currency translation:
Accounts receivable:
Trade ...................................... (44,533) (46,097)
VAT ........................................ 8,876 38,461
Related parties ............................ 108,964 (553,777)
Prepaid expenses ............................. 20,832 36,453
Other assets ................................. 78,115 4,079
Accounts payable, trade ...................... (293,903) (101,034)
Accounts payable, related parties ............ (8,334) (29,535)
Net advances from related party .............. 385,041 --
Accrued expenses ............................. 111,579 102,032
Other liabilities ............................ -- 39,672
------------ ------------
Net Cash Provided By (Used By) Operating Activities ... 338,664 (1,204,863)
------------ -------------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchase of property and equipment .................... (89,059) (15,137)
Purchase of investment -- held to maturity ............ -- (919,835)
------------ -------------
Net Cash Provided By (Used By) Investing Activities ... (89,059) (934,972)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long term debt ........................... (85,118) --
Repayment of notes payable ............................ (25,000) --
Repayment of capital lease obligation ................. (56,447) --
Proceeds from long term receivable .................... 28,152 --
Sale of common stock .................................. -- 2,567,501
Note payable, related parties ......................... (35,000) --
------------ -------------
Net Cash Provided By (Used By) Financing Activities ... (173,413) 2,567,501
------------ -------------
EFFECT OF FOREIGN CURRENCY TRANSLATION ................ (17,618) (139,628)
------------ -------------
NET INCREASE (DECREASE) IN CASH ....................... 58,574 288,038
Cash and cash equivalents, beginning of period ........ 558,086 288,312
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .............. $ 616,660 $ 576,350
============ =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ........................................ $ 79,366 $ 24,655
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Common
Common Stock Additional Foreign Treasury Total
--------------------- Paid-in Accumulated currency Shares, Stockholders'
Number Amount Capital deficit adjustments at Cost Deficiency
---------- --------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
March 31, 1997 .. 7,804,545 $ 39,023 $ 21,406,295 $(22,142,284) $ 159,431 $ (1,557,285) $ (2,094,820)
Foreign
currency
adjustments .... -- -- -- -- (17,618) -- (17,618)
Net loss for
the three
months ended
June 30, 1997 .. -- -- -- (218,613) -- -- (218,613)
---------- --------- ------------ ------------ ----------- ------------ ------------
Balance at
June 30, 1997 ... 7,804,545 $ 39,023 $ 21,406,295 $(22,360,897) $ 141,813 $ (1,557,285) $ (2,331,051)
========== ========= ============ ============ =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 -- INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements of Vista
Technologies Inc., a Nevada corporation (the "Company" or "Vista") at June 30,
1997, and for the three month periods ended June 30, 1997 and 1996 have been
prepared by the Company pursuant to the rules of the Securities and Exchange
Commission (the "Commission"). In the opinion of the Company's management,
such unaudited financial statements include all adjustments necessary for a
fair presentation of financial position, results of operations and cash flows
for the interim periods covered by such statements. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the Commission's rules. Reference is made to Note 1 of
the Notes to Consolidated Financial Statements contained in the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997 for a
summary of significant accounting policies utilized by the Company. It is
suggested that the consolidated financial statements at June 30, 1997 be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's latest Annual Report on Form 10-KSB.
Results of operations for the three months ended June 30, 1997 and 1996 may
not necessarily be indicative of results for the full fiscal year.
NOTE 2 -- GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern and realization of assets and
settlement of liabilities and commitments in the normal course of business.
The Company has experienced significant net losses, including among other
losses a loss from operations of approximately $5,100,000 for its last fiscal
year ended March 31, 1997 and approximately $183,000 for the three months
ended June 30, 1997, has a working capital deficit of approximately $3,249,000
at June 30, 1997 and utilized cash for operating activities of approximately
$2,300,000 for the year ended March 31, 1997 and $339,000 for the three months
ended June 30, 1997. In addition, the Company has serious liquidity problems
primarily due to unsuccessful attempts to raise money both at the parent level
and at the subsidiary level and significant costs associated with the
Company s failed attempts to penetrate the North American vision correction
market resulting in losses from operations. The Company plans to satisfy its
ongoing cash needs over the next twelve months by significantly decreasing
expenses and cash requirements, selling assets or incurring additional
borrowings, to proposing a debt compromise plan with the Company's creditors
or possibly converting the debt to equity, increasing its revenues at its
existing vision correction centers and raising additional capital.
The consolidated financial statements included with this Report do not include
any adjustments that might be necessary if the Company is unable to continue
as a going concern. The continuation of the Company as a going concern is
dependent upon the success of these plans. There can be no assurance of the
success of these plans.
NOTE 3 -- REGIONAL JOINT VENTURES
The Company's business strategy during fiscal 1997 was to expand in North
America by organizing and sponsoring independently financed regional
enterprises ("Regional Joint Ventures") in which the Company would obtain a
significant equity interest and long-term fee-based consulting arrangements.
During the quarter ended December 31, 1996, the Company's negotiations to
acquire interests in additional laser vision center ("LVC") operations, based
primarily in Canada, were abandoned, the Company sold all of its interest in a
Regional Joint Venture formed to service the Northern California market, and
the Company's equity ownership in a Regional Joint Venture formed in March
1996 and based in Arizona was increased to 94%. Unsuccessful efforts by the
-7-
<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 3 -- REGIONAL JOINT VENTURES -- (CONTINUED)
Company's former management to obtain additional private placement equity
financing necessary to finance the Company's Regional Joint Venture expansion
plans and to support general and administrative expenses in North America were
terminated during March 1997.
The Company's management intends to reactivate a strategic expansion plan if a
debt compromise plan with the Company's creditors is proposed and accepted or
to convert debt obligations to an equity position (subject to approval by
creditors and, if applicable, by shareholders) and if significant additional
capital is obtained. There can be no assurance that the Company will be
successful in accomplishing these objectives. Pending further developments,
the Company has been advised that its controlling stockholder, Atlantic
Central Enterprises Limited ("Atlantic Central"), plans to pursue a strategic
plan of negotiating to acquire or develop Regional Joint Ventures in North
America for LVC facilities and services. The Company has been advised that if
Atlantic Central can successfully implement a strategy of North American
expansion in the field of laser vision correction, the Company anticipates
that Vista will be provided a right to acquire such operations at Atlantic
Central's cost if Vista completes a debt compromise plan with its creditors
and if significant additional capital is obtained.
NOTE 4 -- CERTAIN PRINCIPLES OF CONSOLIDATION
Reference is made to Note 1 of the Notes to Consolidated Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1997 for a summary of significant accounting policies utilized
by the Company.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements at June 30, 1997 and for the three
months then ended include accounts of the Company and all wholly-owned and
majority-owned subsidiaries, including Vista Vision S.p.A. ("Vista-Italy"),
Vista Vision Scandinavia A.B. ("Vista-Sweden") and Vista Laser Centers of the
Southwest, Inc. ("Vista-Southwest"). All significant intercompany accounts
and transactions have been eliminated.
(b) RISK CONCENTRATIONS
Financial instruments that potentially subject the Company to concentrations
of credit risk include cash and cash equivalents arising from its normal
business activities. The Company had approximately $571,000 on deposit in
Italy and Sweden at June 30, 1997. Italy and Sweden do not have federal
insurance on balances maintained in banks. There is no collateral in relation
to deposits.
(c) OPERATIONS IN FOREIGN COUNTRIES
The Company is subject to numerous factors relating to conducting business in
foreign countries (including, without limitation, economic, political and
currency risks), any of which could have a significant impact on the Company's
operations.
(d) FOREIGN CURRENCY TRANSLATION
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and an 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.
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<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 4 -- CERTAIN PRINCIPLES OF CONSOLIDATION -- (CONTINUED)
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
Three Months Three Months
Foreign June 30, 1997 Ended Ended
Subsidiary Currency Spot Rate June 30, 1997 June 30, 1996
- ---------- -------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Vista-Italy Lira $0.001 $0.001 $0.001
ConVista Gilders $0.509 $0.524 $0.614
Vista-Sweden Krona $0.128 $0.128 $0.144
</TABLE>
(e) MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate share of
the equity in Vista-Italy and Vista-Southwest. At June 30, 1997, the Company
owned 74.73% of the capital stock of Vista-Italy and 94% of the capital stock
of Vista-Southwest.
NOTE 5 -- 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.
NOTE 6 -- RECLASSIFICATION
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
NOTE 7 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 1997 and March 31,
1997:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
------------ ------------
<S> <C> <C>
Excimer lasers and other technical equipment .. $ 2,861,604 $ 2,861,604
Office furniture and equipment ................ 468,340 379,281
----------- -----------
3,329,944 3,240,885
Less accumulated depreciation and amortization. (1,291,017) (1,152,198)
----------- -----------
Net property and equipment .................... $ 2,038,927 $ 2,088,687
=========== ===========
</TABLE>
-9-
<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 7 -- PROPERTY AND EQUIPMENT -- (CONTINUED)
The following is a summary of property held under capital leases at June 30,
1997 and March 31, 1997:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
------------ ------------
<S> <C> <C>
Medical equipment ............................. $ 3,228,308 $ 3,228,308
----------- -----------
Total property held under capital leases ...... 3,228,308 3,228,308
Less: Accumulated amortization ............... (1,088,117) (952,990)
----------- -----------
Net capitalized lease obligations ............. $ 2,164,396 $ 2,275,318
=========== ===========
</TABLE>
NOTE 8 -- AGREEMENTS WITH, AND ADVANCES FROM, ATLANTIC CENTRAL
In March 1996, the Company executed agreements with Pharma Patch Plc, the
predecessor-in-interest to Atlantic Central Enterprises Limited (collectively,
"Atlantic Central") which resulted in Atlantic Central acquiring a voting
interest in the Company then representing approximately 60%. At June 30,
1997, the voting interest of Atlantic Central in the Company was approximately
54.1%.
Under these agreements, the Company issued to Atlantic Central: (a) 2,260,000
shares of new common stock; (b) 500,000 Class C common stock purchase
warrants; 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. These options were exercised for net proceeds to the
Company of $625,000 in 1996. In return, the Company received (a) $500,000 in
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 Atlantic Central, valued at
$2,662,550. The value of the TCPI shares 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 shares
received by the Company. All of the TCPI shares were subsequently sold by the
Company in late 1996.
In a separate transaction, Atlantic Central agreed to provide 450,000 newly
issued Atlantic Central common shares to three Company shareholders in
exchange for a total of 900,000 shares of the Company's outstanding common
stock.
In August 1996, the Company borrowed $800,000 from Atlantic Central in
exchange for an 8% secured promissory note (the "8% Secured Note"). Principal
and interest on the 8% Secured Note were fully paid in December 1996.
On December 5, 1996, the Company agreed to reimburse Atlantic Central for
advances in the amount of $265,308 made for the Company's account to a
Regional Joint Venture. The Company paid the Regional Joint Venture an amount
equal to $75,000 of such advances plus accrued interest. The remaining
advances made by Atlantic Central to the Regional Joint Venture for the
Company's account in the amount of $190,308 represent a portion of advances
and loans sold by the Company to an unaffiliated third party for the sum of
$1.00 as part of a settlement agreement among the Company, Atlantic Central,
the Regional Joint Venture and its management and their affiliates.
-10-
<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 8 -- AGREEMENTS WITH, AND ADVANCES FROM, ATLANTIC CENTRAL -- (CONTINUED)
During the period from August 1, 1996 to March 31, 1997, the Company borrowed
$718,976 from Atlantic Central and incurred accrued expenses payable to
Atlantic Central for allocations of executive officer salaries, office and
travel expenses for two executive officers of the Company in the aggregate
amount of $264,926. The total amounts incurred by the Company for such
advances and Atlantic Central expenses for the fiscal year ended March 31,
1997 year was $983,902. Net outstanding advances from Atlantic Central at
March 31, 1997 were $722,753.
An additional $404,000 was advanced to the Company by Atlantic Central during
the three months ended June 30, 1997 and approximately $107,000 was advanced
during the three months ended September 30, 1997.
Outstanding advances from Atlantic Central in the total amount of $1,073,000
at June 30, 1997 (increased to approximately $1,180,000 at September 30, 1997)
are classified as short-term notes and, together with interest and any future
advances, are collateralized by the Company's agreement to pledge shares of
its European operating subsidiaries as security for repayment of the advances
by Atlantic Central. No interest has been accrued on outstanding advances
from Atlantic Central during the calendar year 1997 and there is currently no
agreement as to when interest will commence or the rate of such interest.
The Company's management intends to reactivate a strategic expansion plan if a
debt compromise plan with the Company's creditors is proposed and accepted or
if its primary debt obligations are converted to an equity position (subject
to approval of creditors and, if applicable, stockholder approval) and if
significant additional capital is obtained. There can be no assurance that
the Company will be successful in accomplishing these objectives. Pending
further developments, the Company has been advised that its controlling
stockholder, Atlantic Central, plans to pursue a strategic plan of negotiating
to acquire or develop Regional Joint Ventures in North America for laser
vision correction facilities and services. The Company has been advised that
if Atlantic Central can successfully implement a strategy of North American
expansion in the field of laser vision correction, the Company anticipates
that Vista will be provided a right to acquire such operations at Atlantic
Central's cost if Vista completes a debt compromise plan with its creditors
and if significant additional capital is obtained.
NOTE 9 -- LONG-TERM RECEIVABLE -- FORMER RELATED PARTY
The Company and a wholly-owned subsidiary are parties to two lease agreements
for two excimer vision correction lasers. The Company is not using the
lasers, nor does the Company receive any benefit from the procedures performed
on these lasers. The lasers are in the possession of a company previously
affiliated with Vista as a former Regional Joint Venture company. As the
Company is party to the leases, the lease obligations are reflected on the
Company's financial statements as current and long-term debt. The lease
payments are guaranteed and made by the formerly affiliated Regional Joint
Venture company directly to the lessor. The Company reflects the lease
obligations of $701,000 and a long-term receivable from the related party of
$705,000 at June 30, 1997. See Note 10(d) below.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
(a) LITIGATION
(i) FORMER OFFICERS AS TO SEVERANCE OBLIGATIONS -- In June
1997, the Company was named as the defendant in a civil action filed in
California state court by two former executive officers. The complaint
alleges that the Company breached written employment agreements with each of
the two executives, both of whom were terminated as employees of the Company
-11-
<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 10 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
on March 6, 1997, and seeks damages of $231,073 plus interest and costs for
the Company's former President, damages of $241,902 plus interest and costs
for the Company's former Executive Vice President, and restoration of stock
options previously issued to the executives under the terms of their
employment agreements.
The Company's written employment agreement with its former President provided
he would be entitled to severance benefits if his employment was involuntarily
terminated, other than for cause, death or disability, equal to (i) a lump-sum
payment equal to his annual base salary of $175,000, (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. The Company's written employment agreement with its former
Executive Vice President provided he would be entitled to severance benefits
if his employment was involuntarily or constructively terminated, other than
for cause, death or disability, equal to (i) a lump-sum payment equal to his
annual base salary of $175,000, and (ii) continuation of insurance benefits
for life, health, dental and long-term disability for a period of 12 months
after employment termination.
The Company intends to vigorously contest claims of the plaintiffs for damages
based upon the Company's claim that their employment was terminated for cause.
However, these proceedings are at a preliminary stage and no discovery has
taken place. Special counsel engaged to represent the Company accordingly has
advised it cannot render an opinion as to whether the likelihood of an adverse
determination would be remote, reasonably possible or probable, until
discovery proceedings have been conducted. The Company has accrued a
liability for these legal proceedings. An adverse determination in these
proceedings would have a material adverse effect on the current financial
condition of the Company.
(ii) LEGAL JUDGMENT -- In 1991 and 1993, Vista-Italy and
another company in the laser vision correction service industry 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, the other party 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 Vista-Italy had issued in the exchange, wrote-off the value
of the other company's shares which had been issued to Vista-Italy and
recorded an accrued liability for $175,000 equal to the principal amount of
the default judgment. The plaintiff has instituted legal proceedings in Italy
seeking to collect the cash portion of its default judgment plus interest and
costs.
(iii) OTHER LITIGATION -- The Company, from time to time, may be
a defendant in various other legal proceedings. In the opinion of management,
the final outcome of any such current proceedings will not have a material
effect on the financial position, results of operations, or cash flows of the
Company. Management's opinion, however, may change in the near term due to
the uncertainty of litigation.
(b) EXCHANGE AGREEMENT -- In order to induce a stockholder to
advance $100,000 under a deed of debenture to MICRA Instruments Limited (a
wholly owned subsidiary of Medical Development Research, Inc.), the Company
entered into an exchange agreement on June 28, 1995 with the stockholder. The
stockholder is an affiliate of Jac. J. Lam, a former director and chief
executive officer of the Company who was serving in those capacities at the
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<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 10 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
time of the transaction. The exchange agreement provided 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 December 28, 1996, the
stockholder exercised this option for $122,500 (total principal plus accrued
interest on the debenture as of December 31, 1996) and the Company issued
98,000 shares of its common stock in exchange for rights to an assignment to
the Company of the MICRA debenture. As of June 30, 1997, the sum of $42,917
had been collected under the MICRA debenture and was applied to reduce a
$50,000 liability of the Company to an affiliate of the stockholder. Any
amounts collected on the MICRA debenture in excess of that accrued liability
are to be paid to the Company. The Company's investment of $91,867 in the
MICRA debenture was written-off as doubtful of collection as of March 31,
1997.
(c) INSURANCE AND INDEMNIFICATION -- Use of laser systems by health
care professionals using laser equipment and other laser vision correction
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 laser vision correction equipment maintain their own
professional liability insurance.
(d) LEASE COMMITMENTS RELATING TO ABANDONED ACQUISITION -- On
November 15, 1996, the Company entered into an equipment lease for a VISX
20/20B excimer laser system with an initial value of $267,500, which
represents the total lease payments of $317,145 less interest of $76,395. The
equipment was leased for the benefit of London Place Eye Centre, Inc.
("LPEC"), an affiliate of Dr. Donald G. Johnson, former Chairman of the Board
and a former director of the Company. LPEC has guaranteed the obligations of
the Company under this equipment lease. The equipment is to be used
exclusively by LPEC in British Columbia, and LPEC has agreed to make all
equipment lease payments. The Company will not own a beneficial interest in
the equipment or in proceeds from use of the equipment unless LPEC defaults in
its obligations to make equipment lease payments. The Company reflects the
lease obligation of $220,377 and a long-term receivable from the related party
of $235,038 at June 30, 1997.
On October 19, 1996, the Company and LPEC executed a lease guarantee for an
equipment lease entered into by VLC-Northwest for a VISX Star laser system
with an initial value of $525,000, which represents the minimum future lease
payments of $720,000 less interest of $247,500. The equipment was leased for
the benefit of LPEC. The equipment is to be used exclusively by LPEC in
British Columbia, and LPEC has agreed to make all equipment lease payments.
The Company and VLC-Northwest will not own a beneficial interest in the
equipment or in proceeds from use of the equipment unless LPEC defaults in its
obligations to make equipment lease payments. The Company reflects the lease
obligation of $480,792 and a long-term receivable from the related party of
$469,872 at June 30, 1997.
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<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 10 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
On March 29, 1996, the Company signed a lease guarantee for an equipment lease
by LPEC of a VISX Star laser system with an initial value of $450,000. The
Company does not own a beneficial interest in the equipment or in proceeds
from use of the equipment.
The Company entered into these equipment lease arrangements as an
accommodation to LPEC during the course of continuing negotiations for the
purchase of LPEC by the Company subject to obtaining additional financing
required to make such an acquisition. Negotiations to acquire LPEC were
terminated in late 1996 and the Company remains contingently liable as to the
lease obligations and guarantee.
(e) FACILITIES AND EQUIPMENT LEASE GUARANTEES FOR VLC-NORTHEAST --
The Company has executed guarantees of certain equipment lease and premises
lease obligations of Vista Laser Centers of the Northeast ("VLC-Northeast"),
subject to the agreement of VLC-Northeast to use its best efforts to obtain a
release of such guarantees in the event of a change in control of VLC-
Northeast or should the Company successfully complete a private placement
offering of at least $2 million, failing which VLC-Northeast will agree to
indemnify the Company for any liabilities incurred as a result of the
guarantees. The equipment lease guarantee executed on October 25, 1996 is
for a VISX Star laser system with an initial value of $809,000. The equipment
is to be used exclusively by VLC-Northeast in Toronto, Ontario, and VLC-
Northeast is primarily obligated to make all equipment lease payments. The
Company does not own a beneficial interest in the equipment or in proceeds
from use of the equipment. The premises lease executed on March 21, 1996 is
for a rental of approximately $9,058 per month expiring on May 14, 2006. See
Note 11 below.
NOTE 11 -- SETTLEMENT WITH VLC-NORTHEAST
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 Metro Inc., doing business as Vista Laser Centers of the Northeast
("VLC-Northeast"), a development stage enterprise. Effective July 18, 1996,
the Company also acquired 100,000 VLC-Northeast Series A preferred shares from
a third party in exchange for 100,000 shares of the Company's common stock
with an estimated value of approximately $0.99 a share at the date of
issuance.
In January 1997, the Company, Atlantic Central, VLC-Northeast and certain
members of VLC-Northeast operating management and their affiliates entered
into a settlement agreement to terminate all relationships between the
parties. The Company sold all of its equity investment in VLC-Northeast for
the sum of $1.00 and agreed to assign to a nonrelated entity for the sum of
$1.00 all prior advances and loans by the Company to VLC-Northeast in the
aggregate amount of $511,460. The Company further agreed: (i) to pay $50,000
as a settlement of prior obligations to VLC-Northeast; (ii) to pay VLC-
Northeast an amount equal to $75,000 plus $6,271 in interest accrued on
certain promissory notes previously issued by VLC-Northeast to Atlantic
Central (and secured by a pledge of certain shares of Company's common stock
owned by VLC-Northeast), against the receipt from Atlantic Central of
releases in favor of the Company and of all collateral security claims to
shares of the Company's common stock owned by VLC-Northeast; (iii) to advance
$50,000 to an escrow fund for use by VLC-Northeast under prescribed conditions
for expenses relating to its future capital-raising expenses, which advances
are to be repaid to the Company in the event VLC-Northeast completes
additional debt or equity financings in the aggregate amount of at least
$500,000; and (iv) to pay $275,000 (of which $200,000 is to be deposited into
an escrow account) from proceeds of a private placement offering of at least
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<PAGE>
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 11 -- SETTLEMENT WITH VLC-NORTHEAST -- (CONTINUED)
$2 million by the Company. VLC-Northeast has agreed to release its license to
use the Company's service marks, to change the name of VLC-Northeast and
signage to eliminate use of the "Vista" name by VLC-Northeast (subject to a
non-assignable license to VLC-Northeast for use of certain promotional and
marketing materials of the Company within the greater Toronto, Ontario area so
long as such materials do not use the word "Vista" or the Company's associated
logo), and to return for cancellation 450,000 shares of the Company's common
stock currently owned by VLC-Northeast at the time all escrow funds have been
deposited by the Company. Of the $200,000 in funds to be deposited into an
escrow account, $50,000 is to be released to VLC-Northeast upon completion of
actions necessary for termination of its use of the name "Vista" and the
Company's service marks by July 1, 1997, and the remaining $150,000 is to be
released to VLC-Northeast at the rate of $25,000 per month, except that any
undisbursed escrow funds are to be refunded to the Company in the event VLC-
Northeast completes additional debt or equity financings in the aggregate
amount of at least $500,000.
The Company has paid $150,000 under the settlement and will be obligated to
deposit an additional $275,000 from proceeds of a private placement offering
of at least $2 million by the Company. The Company has also agreed to remain
obligated as a guarantor of certain equipment lease and premises lease
obligations of VLC-Northeast, subject to the agreement of VLC-Northeast to use
its best efforts to obtain a release of such guarantees in the event of a
change in control of VLC-Northeast or should the Company successfully complete
a private placement offering of at least $2 million, failing which VLC-
Northeast will agree to indemnify the Company for any liabilities incurred as
a result of the guarantees.
As a result of these transactions, the Company did not own an equity interest
in VLC-Northeast capital stock and has written off its investments in VLC-
Northeast as of March 31, 1997.
NOTE 12 -- RELATED PARTIES
Related party transactions or relationships not disclosed elsewhere are
as follows:
Murray D. Watson, an executive officer and director of the Company, is a
former director and former chief executive officer of Atlantic Central and was
the beneficial owner of equity securities in Atlantic Central. Kenneth G.
Howling, an executive officer of the Company until his resignation on November
14, 1997, also served as an executive officer of Atlantic Central until
November 14, 1997 and is the beneficial owner of equity securities in Atlantic
Central. Allan W. Leppik, elected an executive officer of the Company on
November 14, 1997, was also elected as an executive officer of Atlantic
Central in November 1997.
NOTE 13 -- SUBSEQUENT EVENTS
On December 6, 1996, the Company sold $300,000 in principal amount of its 12%
promissory note and 30,000 Class E common stock purchase warrants for a cash
consideration of $300,000. All of these securities were sold to an
accredited investor in a private placement offering. The 12% promissory note
is collateralized by all of the Company's assets and the note matured on June
30, 1997. Interest on the note accrued through June 30, 1997 has been paid.
The Company has been negotiating with the holder of the 12% promissory note to
extend the maturity date of the 12% promissory note.
-15-
<PAGE>
VISTA TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATION
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in
this Report.
CERTAIN INFORMATION IN THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF APPLICABLE SECURITIES LAWS THAT INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THE ABILITY OF THE
COMPANY TO CONTINUE AS A GOING CONCERN AND TO OBTAIN ADDITIONAL CAPITAL, AS TO
WHICH THERE IS NO ASSURANCE, MARKET ACCEPTANCE OF NEW TECHNOLOGIES, ECONOMIC,
COMPETITIVE, GOVERNMENTAL AND TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S
OPERATIONS, MARKETS, SERVICES AND PRICES, AND OTHER FACTORS DESCRIBED IN THIS
REPORT, THE CAUTIONARY STATEMENT FILED AS EXHIBIT 99.1 WITH THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR ITS FISCAL YEAR ENDED MARCH 31, 1997, 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.
INTRODUCTION, GOING CONCERN 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")
in 1994 and 1995, and developed a strategic plan in mid-1995 to sponsor and
invest in regional joint ventures in alliance with prominent physicians (the
"Regional Joint Ventures") to acquire and develop additional businesses
providing access to laser vision correction ("LVC") equipment and related
services in regional markets of the United States and Canada. Pursuant to
that expansion plan, the Company acquired a controlling interest during 1996
in Vista Laser Centers of the Southwest, Inc. ("Vista-Southwest"), an
operating company based in Arizona.
The Company made significant investments in MDRI and its subsidiaries
from May 1994 through March 1995 and in certain Regional Joint Ventures during
1995 and 1996, for which the proposed business acquisitions and related third-
party financing negotiations have been abandoned. 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 and additional
investments in cash, securities issued and loans advanced to former Regional
Joint Ventures of approximately $1,934,000 were written-off primarily during
the fiscal year ended March 31, 1997.
Since commencing operations, the Company has financed its business
operations, acquisition and expansion activities primarily from the issuance
or sale of equity securities, debt financing and loans from its controlling
stockholder, Atlantic Central Enterprises Limited ("Atlantic Central"). From
February 1994 through March 31, 1997, the Company received approximately
$8,488,000 from the sale of equity securities and issued additional equity
securities in connection with the acquisition of other assets and investments.
During the fiscal year ended March 31, 1997, the Company received $300,000
from the sale of debt that became due at June 30, 1997 and is secured by all
of the Company's assets, plus net advances of $722,753 as current loans from
its majority stockholder, Atlantic Central (increased to a total of $1,073,000
at June 30, 1997) which, together with subsequent advances from Atlantic
Central, are secured by an agreement to pledge the Company's shares in its
European operating subsidiaries. In addition, approximately $278,000 in
principal amount of loans received in 1995 from the sale of convertible debt
is collateralized by the pledge of a majority interest in its Vista-Sweden
operating subsidiary.
At June 30, 1997, the Company had an accumulated deficit of $22,361,000
incurred largely as a result of write-offs during fiscal 1995 through fiscal
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<PAGE>
1997 and losses from operations since 1994. The Company's net losses for the
fiscal years ended March 31, 1997 and 1996 were $6,999,000 and $3,815,000,
respectively, and its net loss for the three months ended June 30, 1997 was
$219,000. At June 30, 1997, the Company had a negative working capital of
$3,249,000 and a stockholders' deficiency of $2,331,000. The Company has
serious liquidity problems primarily due to unsuccessful attempts in 1996 to
raise additional capital and significant costs in 1995 and 1996 associated
with failed attempts to penetrate North American laser vision correction
markets.
AS A RESULT OF THE ABOVE FACTORS, THE REPORT OF MOORE STEPHENS, P.C. ON
THE FINANCIAL STATEMENTS OF THE COMPANY FOR THE FISCAL YEAR ENDED MARCH 31,
1997 CONTAINS A PARAGRAPH EXPRESSING SUBSTANTIAL DOUBT CONCERNING THE ABILITY
OF THE COMPANY TO CONTINUE AS A GOING CONCERN. Management's plans to address
these matters are to significantly decrease expenses and cash requirements,
sell assets or incur additional borrowings, propose a debt compromise plan
with the Company's creditors, raise additional capital, continue in the
interim to defer payments to creditors or to possibly convert debt to equity,
and increase its revenues at its existing vision correction centers. 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. The
accompanying financial statements do not reflect any adjustments to the
carrying value or classifications of assets or liabilities which might become
necessary if the Company is unable to continue as a going concern. The
continuation of the Company as a going concern is dependent upon the success
of these plans. There can be no assurance that the Company will be successful
in implementing these plans.
Management's strategy to expand the Company's participation in a
developing market for LVC Services in North America by sponsoring Regional
Joint Ventures in alliance with prominent physicians has been deferred for an
indefinite period due to the Company's limited capital. The Company plans to
continue to seek additional debt and/or equity capital through the private
placement and/or public sale of its equity securities and use of equipment
lease financing to finance the Company's expansion. However, efforts by
former management in late 1996 to obtain additional equity capital were non-
productive, no negotiations are currently in process to obtain additional
capital and the Company has been dependent in recent periods upon advances
from its majority stockholder, Atlantic Central, for funds to maintain
operations. Outstanding advances due to Atlantic Central are classified as
short-term obligations, totalled $1,073,000 as of June 30, 1997, and have
subsequently increased to approximately $1,180,000 as of September 30, 1997.
There can be no assurance that Atlantic Central will continue to provide
advances to Vista or that the Company will be successful in obtaining capital
from other sources.
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. In addition to the factors discussed above,
prospective investors should consider the Company's current financial
condition, its history of losses from operations, the frequency with which
newly developed businesses encounter unforeseen expenses, difficulties,
complications and delays, and other risk factors such as the competitive
industry in which the Company operates.
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1996
REVENUES: During the three months ended June 30, 1997 (the "1997
Period"), the Company's consolidated revenues from operations were $1,230,000,
an increase of 56% compared to $786,000 in consolidated revenues for the three
months ended June 30, 1996 (the "1996 Period"). This revenue increase was
attributable to acquisition of the Company's operating subsidiary in
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<PAGE>
Scottsdale, Arizona ($303,000) and volume increases in Europe ($141,000). For
the three months ended June 30, 1997, total laser vision correction procedures
processed by use of the Company's facilities and services were 1,324
procedures versus 697 procedures for the three months ended June 30, 1996,
reflecting an increase of 90%. Revenues of Vista-Italy in the 1997 Period
were $524,000, approximately a 38% increase compared to $379,000 in the 1996
Period, and revenues of Vista-Sweden were $403,000, approximately equal to
$402,000 in the 1996 Period.
The following chart summarizes certain information as to the number of
LVC surgical procedures performed at Vista's laser vision correction centers
for the periods indicated.
<TABLE>
<CAPTION>
3 Months ended June 30,
-------------------------
1997 1996
------ ------
<S> <C> <C>
Italy (3 centers in each period)............ 639 (A) 431 (A)
Sweden (3 centers in 1997 Period
and 2 centers in 1996 Period) ........... 333 (B)(C) 266 (B)
United States (1 center in 1997 Period) .... 352 -- (D)
------ ------
Totals ......................... 1,324 697
====== ======
</TABLE>
____________
(A) Represents three centers, including the Milan Center opened in 1992, a
Rome Center opened in January 1995 and the Palermo Center opened in July 1996.
Does not include procedures at a center in Pisa closed in May 1996 or an
abandoned joint venture for a center in Viareggio to replace the Pisa center.
(B) Includes the Stockholm center purchased in June 1994 and the Malmo
center opened in August 1995.
(C) Includes a new replacement center in Malmo, Sweden, opened in February,
1997.
(D) The center in Arizona, established in May 1996, was not included in
consolidated results of operations until the quarter ended December 31, 1996.
OPERATING EXPENSES: Costs and expenses of operations for the 1997
Period were $1,374,000 an increase of 29.5% compared to costs and expenses of
operations of $1,061,000 in the 1996 Period. Costs and expenses in the 1997
Period consisted of $1,235,000 in general and administrative expenses, a 23%
increase compared to $1,005,000 in the 1996 Period, and $139,000 in
depreciation and amortization, an $82,000 increase compared to $57,000 in the
1996 Period. General and administrative expenses for the 1997 Period included
$305,000 for Vista-Italy and $404,000 for Vista-Sweden, compared to $136,000
and $308,000, respectively, in the 1996 Period. Other major components of the
Company's general and administrative expenses in the 1997 Period included
approximately $132,000 of general and administrative expenses at the Vista
parent corporation level, a decrease of $386,000 compared to $518,000 in the
1996 Period.
OTHER EXPENSES AND INCOME: Other net expenses in the 1997 Period
totalled $39,000 compared to $4,000 in other net expenses in the prior 1996
Period. Interest expense in the 1997 Period increased to $79,000 from $8,000
in the 1996 Period due to an increase in outstanding debt.
NET LOSS: Net loss for the 1997 Period was $219,613, equal to a net
loss of $0.03 per common share, compared to a net loss in the 1996 Period of
$804,000, or $0.12 per common share.
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<PAGE>
The reduction in net loss is primarily due to the revenue increases
described above and a reduction in corporate general and administrative
expenses. The net loss for the three months ended June 30, 1997 includes a
net loss of approximately $60,000 from the Company's operations in Sweden
primarily due to the opening of a new center. Continued 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements include cash requirements
for management and administration and to support activities of Vista-
Southwest. Subject to the availability of additional capital, as to which
there can be no assurance, the Company may also incur additional expenditures
in the future for marketing activities and to expand operations by acquiring
or developing additional LVC centers and for additional excimer laser
equipment.
As of June 30, 1997, the Company had $617,000 in cash (of which $571,000
was held by its European subsidiaries) and a consolidated working capital
deficit of $3,249,000. Consolidated working capital at June 30, 1997
decreased by $130,000 from the consolidated working capital deficit of
$3,119,000 at March 31, 1997. Consolidated working capital during the three
months ended June 30, 1997 was reduced primarily by a $219,000 net loss for
that period. Since its inception, the Company generally has not withdrawn
cash from its European subsidiaries. As of September 30, 1997, the Company
has exhausted substantially all cash resources available to the Company in the
United States.
The Company's European operating subsidiaries have been self-sufficient
for their cash requirements for the last two fiscal years and during the three
months ended June 30, 1997. The Company plans to satisfy its cash needs for
the balance of its current fiscal year by decreasing expenses and cash
requirements, proposing a debt compromise plan with the Company's creditors,
continuing in the interim to defer payments to creditors or possibly
converting debt to equity, increasing its revenues at its existing vision
correction centers, selling assets, raising additional capital and/or
incurring additional borrowings.
As noted above, consolidated revenues for the three month period ended
June 30, 1997 of approximately $1,230,000 reflect an increase of 56% over the
prior year equivalent period. This revenue increase was attributable to
acquisition of the Company's operating subsidiary in Scottsdale, Arizona
($303,000) and volume increases in Europe ($141,000). For the three months
ended June 30, 1997, total laser vision correction procedures processed by use
of the Company's facilities and services were 1,324 versus 697 for the three
months ended June 30, 1996, reflecting an increase of 90% in LVC procedures.
The consolidated net loss for the three months ended June 30, 1997 was
$219,000 versus a net loss of approximately $804,000 for the three months
ended June 30, 1996. The reduction in net loss is primarily due to the
revenue increases described above and a reduction in corporate general and
administrative expenses. The loss of $219,000 for the three months ended June
30, 1997 includes a net loss of approximately $60,000 from the Company's
operations in Sweden primarily due to the opening of a new center. Continued
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.
For the quarter ended September 30, 1997, revenues were reduced compared
to the quarter ended June 30, 1997 as a result of the normal seasonal closing
of operations during a holiday month in Europe.
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<PAGE>
The accompanying financial statements do not reflect any adjustments to
the carrying value or classifications of assets or liabilities which might
become necessary if the Company is unable to continue as a going concern. The
continuation of the Company as a going concern is dependent upon the success
of these plans. There can be no assurance that the Company will be successful
in implementing these plans.
Prior management's efforts to raise additional capital in late 1996 were
not productive, and the Company's current management is focusing its attention
at present on increasing the Company's revenues and reducing negative cash
flows. The Company has been dependent in recent periods upon advances from
its majority stockholder, Atlantic Central, for funds to sustain the Company's
operations. Outstanding advances due to Atlantic Central are classified as
short-term obligations, totalled $1,073,000 as of June 30, 1997, and have
increased to approximately $1,180,000 as of September 30, 1997. The advances
from Atlantic Central are secured by the Company's agreement to pledge shares
of its European subsidiaries as collateral security. There can be no
assurance that Atlantic Central will continue to provide advances to the
Company or that Vista will be able to obtain additional capital from other
sources. Accordingly, there can be no assurance that the Company will have
cash resources necessary to sustain its operations in the United States for
any specific period of time.
All of the Company's assets are subject to a security interest granted
to the holder of a 12% promissory note in the principal amount of $300,000
that became due with accrued interest of $19,923 on June 30, 1997. Interest
on the note through June 30, 1997 has been paid by the Company. The Company
has been negotiating with the holder of the 12% promissory note due June 30,
1997 to extend the maturity date of the note.
Additional financing, if any, may result in significant dilution to
existing stockholders. If adequate funds are not available from Atlantic
Central and/or other third parties and if creditors refuse to agree to future
debt compromise plans, the Company may be required to accept unfavorable
alternatives, including (i) seeking protection from creditors at the parent
Company level under the bankruptcy laws, (ii) arrangements with collaborative
partners that may require the Company to relinquish material interests in its
operating subsidiaries that it would not otherwise relinquish, or (iii) the
delay, reduction or elimination of its planned expansion, capital
expenditures, marketing and advertising and other operating expenses.
Should the Company obtain sufficient capital to expand its LVC
operations, 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.
Vista's European subsidiaries currently own or lease and maintain five
excimer lasers, and at present the Company is obligated to lease and maintain
four excimer lasers in the United States and Canada. Of the four lasers in
the United States and Canada, one is in active use at Vista-Southwest, one is
in storage, and two are used exclusively by a corporate affiliate of a former
director, Dr. Donald G. Johnson, in which the Company currently has no
beneficial interest. Dr. Johnson's corporate affiliate is primarily obligated
-20-
<PAGE>
to make lease payments and to maintain equipment used by his corporate
affiliate. See Notes 9 and 10(d) of the Notes to Consolidated Financial
Statements elsewhere in this Report. The Company is also obligated as a
guarantor of certain equipment lease and premises lease obligations of a
former Regional Joint Venture aggregating approximately $1,517,000 as of June
30, 1997. See Notes 10(e) and 11 of the Notes to Consolidated Financial
Statements elsewhere in this Report.
AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", and
SFAS No. 129, "Disclosure of Information About Capital Structure". Both are
effective for financial statements issued for periods ending after December
15, 1997. SFAS No. 128 simplifies the computation of earnings per share by
replacing the presentation of primary earnings per share with a presentation
of basic earnings per share. The statement requires dual presentation of
basic and diluted earnings per share by entities with complex capital
structures. Basic earnings per share include no dilution and is computed by
dividing income available to common stockholders by the weighted average
number of shares outstanding for the period. Diluted earnings per share
reflect the potential dilution of securities that could share in the earnings
of an entity similar to fully diluted earnings per share.
While the Company has not analyzed SFAS No. 128 sufficiently to
determine its long-term impact on per share reported amounts, SFAS No. 128
should not have a significant effect on historically reported per share loss
amounts.
SFAS No. 129 does not change any previous disclosure requirements, but
rather consolidates existing disclosure requirements for ease of retrieval.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. SFAS No.
130 is not expected to have a material impact on the Company.
The FASB has issued FASB No. 131, "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 changes how operating
segments are reported in annual financial statements and requires the
reporting of selected information about operating segments in interim
financial reports issued to stockholders. SFAS No. 131 is effective for
periods beginning after December 15, 1997, and comparative information for
earlier years is to be restated. SFAS No. 131 need not be applied to interim
financial statements in the initial year of its application. SFAS No. 131 is
not expected to have a material impact on the Company.
U.S. DOLLAR PRESENTATION AND FOREIGN CURRENCY FLUCTUATIONS
Except as otherwise stated in this Report, all monetary amounts have
been presented in U.S. dollars. The Company's European operating subsidiaries
in Italy and Sweden currently represent a significant portion of the Company's
revenues and expenses that are collected and paid in foreign currencies. The
Company publishes its consolidated financial statements in U.S. dollars after
translating transactions in foreign currencies into U.S. dollars. In periods
when the U.S. dollar depreciates against the 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 foreign currencies and the U.S. dollar may also
affect the book value of the Company's assets and the amount of its
stockholders' equity.
-21-
<PAGE>
PART II -- OTHER INFORMATION
ITEM 5. OTHER EVENTS
CHANGES IN MANAGEMENT
Two of the Company's directors, Dr. Donald G. Johnson and Dr. J. Charles
Casebeer, each of whom had been elected Chairman of the Board, resigned as
directors of Vista on June 19, 1997 and September 23, 1997, respectively.
Jeffrey Dickson was elected a director on November 14, 1997 to fill one of the
two vacancies on the Company's Board.
Mr. Larry F. Lang, elected President of Vista on July 22, 1997, resigned
as an officer of Vista on September 8, 1997. Murray D. Watson, Vice Chairman
and a director of the Company, has served as acting President and Chief
Executive Officer of Vista since November 14, 1997.
On November 14, 1997, Kenneth G. Howling resigned as the Company's
Treasurer and Chief Financial Officer to accept another employment offer. Mr.
Allan W. Leppik was elected as Vista's Secretary, Treasurer and Chief
Financial Officer on November 14, 1997.
CONTROLLING INFLUENCE OF ATLANTIC CENTRAL AND PATRICK J. ROONEY IN MANAGEMENT
Atlantic Central owns 3,423,800 shares of Vista common stock,
representing approximately 54.1% of the Company's outstanding common stock at
September 30, 1997. In addition, the Company is indebted to Atlantic Central
in the amount of approximately $1,180,000 as of September 30, 1997, which
advances are classified as short-term indebtedness and are secured by the
Company's agreement to pledge shares of its European subsidiaries as
collateral security. The Company is currently dependent on additional
advances from Atlantic Central to finance the Company's continuing operations,
although Atlantic Central is not obligated to provide additional advances. In
view of the foregoing, the policies and business operations of the Company for
all practical purposes are subject to the control of Atlantic Central and its
principal executive officers.
Patrick J. Rooney, a resident of Bermuda, has served as the President
and Chief Executive Officer of Atlantic Central since June 5, 1997. Prior to
his election as Atlantic Central's Chief Executive Officer, Mr. Rooney was
engaged for more than five years primarily as a consultant to EC/American
Ltd., previously a financial consultant to the Company, Atlantic Central,
other business enterprises and certain investors based outside of the United
States. From June 1978 to September 1985, Mr. Rooney was associated with
Rooney Pace, Inc., a broker dealer firm based in New York.
As the result of losing an appeal from his conviction in June 1988 of
filing a false income tax return for 1983, Mr. Rooney has been subject for
more than the last five years to the terms of a consent decree order issued on
December 20, 1988 by the U.S. Securities and Exchange Commission which bars
Mr. Rooney from association with any broker or dealer, investment company,
investment adviser or municipal securities dealer. The terms of such order
provide that Mr. Rooney may reapply to the Securities and Exchange Commission
for such association, but he has advised the Company that to date he has not
elected to do so.
-22-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: The following exhibits are filed with this Report.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ ---------------------------------------------------
<S> <C>
27 Financial Data Schedule at June 30, 1997.
</TABLE>
(b) REPORTS ON FORM 8-K:
During the quarter ended June 30, 1997, the Company filed Current
Reports on Form 8-K, as follows:
(1) The Company filed a Current Report on Form 8-K dated as of
May 28, 1997 and amended by Amendment No. 1 thereto dated June 24, 1997
announcing that the client-auditor relationship between the Company and KPMG
Peat Marwick LLP had been terminated and the appointment of Moore Stephens,
P.C. to act as the principal independent accountants for its fiscal year ended
March 31, 1997. The amendment to that filing also reported that the Company
had changed its principal office to 15100 North 78th Way, Suite 101,
Scottsdale, Arizona 85260, telephone number (602) 483-3937.
(2) The Company filed a Current Report on Form 8-K dated as of
June 19, 1997 reporting that (i) Dr. Donald G. Johnson had resigned as
Chairman of the Board and a director of the Company on June 19, 1997, and (ii)
Dr. J. Charles Casebeer, an incumbent director of the Company, was elected
Chairman of the Board on June 24, 1997 to succeed Dr. Johnson. (Dr. Casebeer
subsequently resigned as Chairman of the Board and a director on September 23,
1997.)
SIGNATURES
Pursuant to the requirements of Section 13 of 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.
Date: December 11, 1997
VISTA TECHNOLOGIES INC.
---------------------------------
(Registrant)
By: /s/ Murray D. Watson
-----------------------------
Murray D. Watson, Vice Chairman and
Acting President and Chief Executive Officer
By: /s/ Allan W. Leppik
-----------------------------
Allan W. Leppik,
Secretary-Treasurer and Chief Financial Officer
-23-
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from
the Consolidated Statements of Operations and Consolidated
Balance Sheets of Vista Technologies Inc. and Subsidiaries
and is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<CIK> 0000895725
<NAME> VISTA TECHNOLOGIES INC.
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-START> Apr-01-1997
<PERIOD-END> Jun-30-1997
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<CASH> 617
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