SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30,
2004.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Transition period from
to
------------------------------ ----------------------------------
Commission File Number: 0-19671
LASERSIGHT INCORPORATED
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0273162
-------------------------- ----------
(State of Incorporation) (IRS Employer Identification No.)
6848 Stapoint Court., Winter Park, Florida 32792
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(407) 678-9900
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------ ------------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act
Yes No X
------------ ------------
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
------------ ------------
The number of shares of the registrant's common stock outstanding as of August
14, 2003 is 27,841,941. As detailed herein, the Company filed Chapter 11
bankruptcy on September 5, 2003. As a result of the bankruptcy, the company
canceled these shares and issued 9,997,195 new shares on June 30, 2004. As of
November 30, 2004, there are 9,997,195 common shares outstanding.
LASERSIGHT INCORPORATED AND SUBSIDIARIES
Except for the historical information contained herein, the discussion in this
report contains forward-looking statements (within the meaning of Section 21E of
the Securities Exchange Act of 1934) that involve risks and uncertainties.
LaserSight's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the sections entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Risk Factors and
Uncertainties" in this report and in LaserSight's Annual Report on Form 10-K for
the year ended December 31, 2003. LaserSight undertakes no obligation to update
any such factors or to publicly announce the results of any revisions to any of
the forward-looking statements contained herein to reflect any future events or
developments.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2004 3
Condensed Consolidated Statements of Operations for the Three Month
Periods and Nine Month Periods Ended September 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows for the Nine Month
Periods Ended September 30, 2004 and 2003 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 19
Page 2 of 21
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 30,
ASSETS 2004
------------
Current assets: (Unaudited)
Cash and cash equivalents $ 660,046
Accounts receivable - trade, net 341,905
Notes receivable - current portion, net 71,607
Inventories 2,728,360
Other current assets 41,921
------------
Total Current Assets 3,843,839
Property and equipment, net 119,889
Patents and acquired intangibles, net 458,291
Other assets, net 878,731
------------
$ 5,300,750
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Note payable, current portion $ 1,926,960
Accounts payable 481,753
Accrued expenses 349,901
Accrued warranty 231,200
Deferred revenue 1,039,240
------------
Total Current Liabilities 4,029,054
Deferred royalty revenue 4,098,271
Note Payables, long term portion 95,355
Note Payable DIP Financing Related Party 1,000,000
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock, par value $.001 per share;
authorized 10,000,000 shares: 0 issued
and outstanding -
Common stock - par value $.001 per share; authorized
100,000,000 shares; 9,997,195 (8,863,195 issued,
1,134,000 to be issued pending a creditor objection to claim) 9,997
Additional paid-in capital 104,618,070
Accumulated deficit (108,549,997)
------------
(3,921,930)
------------
$ 5,300,750
============
See accompanying notes to the condensed consolidated financial statements.
Page 3 of 21
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2004 2003 2004 2003
---------------------------- ----------------------------
Revenues:
Products (1) $ 930,816 $ 1,615,725 $ 3,936,184 $ 5,297,522
Royalties 234,810 234,810 704,430 704,430
---------------------------- ----------------------------
1,165,626 1,850,535 4,640,614 6,001,952
Cost of revenues:
Product cost 626,776 510,221 2,654,205 6,395,484
---------------------------- ----------------------------
Gross profit (loss) 538,850 1,340,314 1,986,409 (393,532)
Research and development and regulatory expenses 42,747 61,298 135,351 354,597
Other general and administrative expenses 707,258 2,154,653 2,225,494 8,036,266
Selling-related expenses 117,807 3,342,737 472,510 4,546,805
Allowed warranty claims - 4,640,319 - 4,640,319
Amortization of intangibles 8,379 8,286 25,137 238,404
Impairment of patents - - - 4,098,607
---------------------------- ----------------------------
833,444 10,145,995 2,723,141 21,560,401
---------------------------- ----------------------------
Income (Loss) from operations (337,341) (8,866,979) (872,083) (22,308,530)
Other income and expenses:
Interest and other income 275,476 10,422 331,117 48,393
Interest expense (189,509) (58,908) (419,330) (214.535)
---------------------------- ----------------------------
Income (loss) before income tax benefit (251,374) (8,915,465) (960,296) (22,474,672)
Income tax benefit - - - (57,708)
---------------------------- ----------------------------
Net income (loss) before extinguishment of debt (251,374) (8,915,465) (960,296) (22,416,964)
Gain on extingushment of debt - - 15,287,634 -
---------------------------- ----------------------------
Net income (loss) (251,374) (8,915,465) 14,327,338 (22,416,964)
Conversion discount on preferred stock - (487,861) - (1,447,559)
---------------------------- ----------------------------
Income (loss) attributable to common shareholders $ (251,374) $ (9,403,326) $ 14,327,338 $ (23,864,523)
============================ ============================
Income (loss) per common share
Basic: $ (0.03) $ (0.34) $ 0.66 $ (0.86)
============================ ============================
Diluted: $ (0.03) $ (0.34) $ 0.42 $ (0.86)
============================ ============================
Weighted average number of shares
outstanding
Basic: 9,997,000 27,842,000 21,828,000 27,842,000
============================ ============================
Diluted: 9,997,000 27,842,000 34,133,000 27,842,000
============================ ============================
(1) Including revenues from a related party of $ 778,804, $ 1,350,809, $ 3,509,714, and $ 4,223,577, respectively.
See accompanying notes to the condensed consolidated financial statements.
Page 4 of 21
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSDED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
------------ -------------
Cash flows from operating activities
Net income (loss) $ 14,327,338 $ (22,416,964)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 80,466 571,011
Provision for uncollectable accounts - 3,028,604
Write off of inventory - 3,588,040
Impairment of patents - 4,098,607
Additions to notes payable for fees & penalities 305,211 -
Stock options issued for services - 4,251
Debt Forgiveness income (15,287,634) -
Changes in assets and liabilities:
Accounts and notes receivable (333,121) 3,336,607
Inventories 633,625 1,272,653
Accounts payable 447,758 329,358
Accrued expenses 231,449 6,390,970
Deferred revenue (704,430) (1,322,542)
Other (502,077) 500,396
------------- --------------
Net cash used in operating activities (801,415) (619,009)
Cash flows from investing activities
Purchases of property and equipment, net (109,689) (13,897)
------------- --------------
Net cash used in investing activities (109,689) (13,897)
Cash flows from financing activities
Payments on debt financing (243,823) (240,577)
Prcoeeds on DIP financing 1,250,000 -
Proceeds from stock subscription receivable - 32,336
------------- --------------
Net cash provided by (used) in financing activities 1,006,177 (208,241)
------------- --------------
Increase (Decrease) in cash and cash equivalents 95,073 (841,147)
Cash and cash equivalents, beginning of period 564,973 1,065,778
------------- --------------
Cash and cash equivalents, end of period $ 660,046 $ 224,631
============= ==============
See accompanying notes to the condensed consolidated financial statements.
Page 5 of 21
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended September 30, 2004 and 2003
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial
statements of LaserSight Incorporated and subsidiaries ("LaserSight"
or the "Company") as of September 30, 2004, and for the three-month
and nine-month periods ended September 30, 2004 and 2003 have been
prepared in accordance with accounting principles generally accepted
in the United States and the rules and regulations of the United
States Securities and Exchange Commission for interim financial
information. Accordingly, they do not include all of the information
and footnotes necessary for a comprehensive presentation of financial
position and the results of operation.
The Company's business is subject to various risks and uncertainties
which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable
future. The Company has suffered recurring losses from operations and
has a significant accumulated deficit that raises substantial doubt
about its ability to continue as a going concern. Management's plans
in regard to these matters are also described below. The condensed
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The condensed consolidated financial statements have been prepared in
accordance with the requirements for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include
all of the information and note disclosures required by accounting
principles generally accepted in the United States of America for
complete financial statements. These condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in LaserSight's annual
report on Form 10-K for the year ended December 31, 2003. In the
opinion of management, the condensed consolidated financial statements
include all adjustments necessary for a fair presentation of
consolidated financial position and the results of operations and cash
flows for the periods presented. There are no other components of
comprehensive loss other than the Company's consolidated net income
(loss) for the three-month and nine month periods ended September 30,
2004 and 2003. The results of operations for the three and nine month
period ended September 30, 2004 are not necessarily indicative of the
operating results for the full year.
NOTE 2 CRITICAL ACCOUNTING POLICIES
The Company's condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted
in the United States of America. Preparation of these statements
requires management to make judgments and estimates. Some accounting
policies have a significant impact on amounts reported in these
financial statements. A summary of significant accounting policies and
a description of accounting policies that are considered critical may
be found in our 2003 Annual Report on Form 10-K, filed in March 2005,
in the Critical Accounting Policies and Estimates section of "Item 7.
- Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Page 6 of 21
NOTE 3 PER SHARE INFORMATION
Basic income or loss per common share is computed using the weighted
average number of common shares and contingently issuable shares (to
the extent that all necessary contingencies have been satisfied).
Diluted loss per common share is computed using the weighted average
number of common shares, contingently issuable shares, and common
share equivalents outstanding during each period. Common share
equivalents include options and warrants to purchase Common Stock, are
included in the computation using the treasury stock method, and
convertible preferred stock using the if-converted method, if they
would have a dilutive effect. However, as a result of the September 5,
2003 Chapter 11 filing, all common and preferred shares outstanding at
and prior to June 30, 2004, including options and warrants were
cancelled and new shares were distributed, effective June 30, 2004, as
follows:
Creditors of LSI 1,116,000
Creditors of LST 1,134,000 (1)
Old Preferred Stockholders 360,000
Old common stockholders 539,997 (2)
Cancel Treasury Stock (2,802)
Conversion of $1 million DIP
Financing 6,850,000
---------
9,997,195
(1) These shares will be issued upon the resolution of a creditor
objection to claim.
(2) The old common stock was converted at a 51.828 to 1 ratio.
The following table presents earnings per share figures as if the
reorganization of the capital structure had taken place as of the
beginning of the first period presented.
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss) per common
share basic and diluted ......... ($0.03) ($0.84) $1.43 ($2.10)
Weighted average number of
common shares outstanding - basic
and diluted ..................... 9,997,195 9,997,195 9,997,195 9,997,195
NOTE 4 INVENTORIES
Inventories, which consist primarily of excimer and erbium laser
systems and related parts and components, are stated at the lower of
cost or market. Cost is determined using the standard cost method,
which approximates cost determined on the first-in first-out basis.
The components of inventories, net of reserves, at September 30, 2004
are summarized as follows:
September 30, 2004
------------------
Raw materials $1,959,971
Work-in-process 768,389
Finished goods -0-
Test equipment - clinical trials -0-
-----------------
2,728,360
==================
Page 7 of 21
NOTE 5 AMENDED LOAN AGREEMENT
On September 20, 2003 the Company announced that it had been advised
by Heller Healthcare Finance, Inc ("Heller") and GE Healthcare
Financial Services, Inc., as successor-in-interest to Heller
(collectively "GE"), that its loans to the Company were in default due
to an adverse material change in the financial condition and business
operations of the Company. The Company continued to negotiate with GE
and on August 30, 2004 the Company signed a three-year note expiring
on September 30, 2007. The note bears interest of 9%. Certain
covenants were modified as follows: net worth $750,000, tangible net
worth $1,000,000 and minimum quarterly revenues of $1,000,000. GE was
issued a warrant to purchase 100,000 shares of common stock at $0.25
per share, or $0.40 per share if the New Industries Investment Group
(the "China Group"), see Note 6, converts its DIP loan to equity. The
warrant expires September 30, 2008.The Company is currently not in
compliance with certain of its loan covenants and is attempting to
negotiate revised terms with the lender,accordingly, all amounts
outstanding under this loan agreement are classified as current
liabilities.
NOTE 6 CHINA BACKGROUND
The Company had been in continuous negotiations with the China Group
to secure immediate cash payments for the purchase of Company
products, further define the terms of the a long term strategy for the
Company in China, and to outline a framework for additional product
purchases. Further background on the China Group:
Shenzhen New Industries Medical Development Co., Ltd. ("NIMD") was
founded and incorporated by the Medical Investment Department of the
People's Republic of China in 1995 by its parent company, New
Industries Investment Group ("NII"). It specializes in marketing and
distribution of LASIK surgery devices and equipment, as well as in
investment and operation of LASIK clinical centers in Chinese market.
NIMD purchased more than $7.5 million value of LaserSight's products
and services after it was engaged in the exclusive distributorship
with LaserSight and before LaserSight went into Chapter 11. In the
past decade, NIMD invested and operated more than 20 PRK/LASIK excimer
laser refractive surgery centers in joint venture with the most
prestigious hospitals and medical institutes in China. NIMD is the
largest business in Mainland China, as measured by the amount of
investment in refractive surgery centers.
New Industries Investment Consultants (H.K.) Ltd ("NIIC") specializes
in hi-tech business investment and consulting services. It is
registered in Hong Kong. It was incorporated in 1994 by its principal
investor Mr. Xianding Weng (a major shareholder of NII, and NII's
CEO). NIIC with NIMD, pioneers in the laser refractive surgery
industry in China, introduced Schwind's excimer lasers into Mainland
China in early 1990's.
The China Group provided $2 million of debtor-in-possession ("DIP")
financing to the Company. On June 30, 2004, $1 million of the DIP
financing was converted into 6,850,000 shares of common stock and the
China Group owns 72% of the Company. Revenues to the China Group were
$3.5 million and $4.2 million in the nine months ended September 30,
2004 and 2003, respectively.Accounts receivable due from the China
Group as of September 30, 2004 was $ 475,469. The loss of the China
group as a customer would have a significant negative impact on the
Company's ability to continue as a going concern.
NOTE 7 STOCK BASED COMPENSATION
The Company accounts for stock-based employee compensation plans using
the intrinsic value method under Accounting Principles Board Opinion
No. 25 and related interpretations. Accordingly, stock-based employee
compensation cost is not reflected in net earnings, as all stock
options granted under the plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. As
previously announced, as a result of the Chapter 11 filing, the
Company cancelled all of the common and preferred shares, options and
warrants outstanding at September 30, 2004. Accordingly, there was no
stock based compensation for the three months and nine months ended
September 30, 2004.Had compensation cost for the Company's Stock-based
compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of
Statement No. 123, "Accounting for Stock Based Compensation," the
Company's net earnings and earnings per share would have been reduced
to the pro-forma amounts indicated below:
Page 8 of 21
Three months ended:
Sept. 30, 2004 Sept. 30, 2003
Net income (loss), as reported $ (251,374) $ (8,915,466)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects -- 190,527
---------- ------------
Pro forma net income (loss) $ (251,374) $ (9,105,993)
Conversion discount on preferred stock -- (487,861)
---------- ------------
Pro forma income (loss) attributable
to common shareholders $ (251,374) $ (9,593,854)
========== ============
Basic and diluted income (loss) per share:
As reported $(0.03) (0.34)
====== =====
Pro forma (0.03) (0.34)
====== =====
Nine months ended:
Sept. 30, 2004 Sept. 30, 2003
Net income (loss), as reported $ 14,327,338 $(22,416,964)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects -- 571,581
------------ ------------
Pro forma net income (loss) $ 14,327,338 $(22,988,545)
Conversion discount on preferred stock -- (1,447,559)
------------ ------------
Pro forma income (loss) attributable
to common shareholders $ 14,327,338 $(24,436,104)
============ ============
Basic income (loss) per share:
As reported $ 0.66 (0.86)
====== =====
Pro forma 0.66 (0.88)
====== =====
Diluted income (loss) per share:
As reported $ 0.42 (0.86)
====== =====
Pro forma 0.42 (0.88)
====== =====
NOTE 8 CONTINGENCIES
On September 5, 2003 LaserSight and two of its subsidiaries filed for
Chapter 11 bankruptcy protection and reorganization in the United
States Bankruptcy Court, Middle District of Florida, Orlando Division.
The cases filed were LaserSight Incorporated, ("LSI") Case No.
6-03-bk-10371-ABB; LaserSight Technologies, Inc., ("LST") Case No.
6-03-bk-10370-ABB; and LaserSight Patents, Inc., Case No.
6-03-bk-10369-ABB. Under Chapter 11, certain claims against the
Company in existence prior to the filing of the petitions for relief
under the federal bankruptcy laws are stayed while the Company
continues business operations as Debtor-in-possession. These claims
were reflected in the December 31, 2003 balance sheets as "liabilities
subject to compromise." Additional claims (liabilities subject to
compromise) may arise subsequent to the filing date resulting from
rejection of executory contracts, including leases, and from the
determination by the court (or agreed to by parties in interest) of
allowed claims for contingencies and other disputed amounts. Claims
secured against the Company's assets ("secured claims") also are
stayed, although the holders of such claims have the right to move the
court for relief from the stay. The majority of secured claims are
held by Heller Healthcare Finance, Inc and GE Healthcare Financial
Services, Inc., as successor-in-interest to Heller (collectively
"GE").
Page 9 of 21
The Company had incurred significant losses and negative cash flows
from operations in each of the years in the three-year period ended
December 31, 2003, and had an accumulated deficit of $108.5 million at
September 30, 2004. Cash flows were negative during the nine month
period ended September 30, 2004. The substantial portion of these
losses is attributable to an inability to sell certain products in the
U.S. due to delays in Food and Drug Administration (FDA) approvals for
the treatment of various procedures on the Company's excimer laser
system in the U.S. and continued development efforts to expand
clinical approvals of the Company's excimer laser and other products.
Additionally, the Company's continued lack of adequate funding and
working capital, and additional administrative and professional
expenses attributed to the Chapter 11 filing, have also contributed to
these losses.
Even with the Chapter 11 protection, the Company's ability to continue
as a going concern is uncertain and dependent upon continuing to
achieve improved operating results and cash flows or obtaining
additional equity capital and/or debt financing. These condensed
consolidated financial statements include substantial re-structuring
charges recorded during the second quarter of 2003 necessary to
reflect the diminution of asset carrying values and the Company's
re-focus of its products to core product lines.
On April 28, 2004, the Bankruptcy Court confirmed the Re-organization
Plan. The effective date of the Plan was June 30, 2004. On December
22, 2004 a final decree of bankruptcy was issued.
On June 30, 2004, the Company cancelled all outstanding stock, options
and warrants and issued 9,997,195 new shares of common stock. The
shares were distributed as follows:
Creditors of LSI 1,116,000
Creditors of LST 1,134,000 (1)
Old Preferred Stockholders 360,000
Old common stockholders 539,997 (2)
Cancel treasury stock (2,802)
Conversion of $1 million DIP
Financing 6,850,000
------------
9,997,195
(1) These shares were issued in January of 2005, after a creditor
objection to claim was settled.
(2) The old common stock was converted at a ratio of 51.828 to 1. Due
to rounding on conversion only 539,997 shares were issued.
In June of 2004, the effective date of the re-organization plan, the
following liabilities were relieved:
Accounts Payable $ 2,905,814
Accrued TLC license fee 825,500
Accrued salaried/severance 235,367
Accrued warranty 6,125,730
Accrued Ruiz license fees 3,471,613
Deposits/service contracts 720,399
Other accrued expenses 1,331,711
------------
15,616,134
Stock issued to creditors (328,500)
------------
Gain on forgiveness of debt $ 15,287,634
The new common stock issued to the creditors was valued at $0.146 per
share, or $328,500, which was deducted from the forgiven liabilities.
The stock value per shares is the same amount as the $1,000,000 of DIP
financing converted to equity.
As disclosed in the Company's Form 10-K filed for the year ended
December 31, 2003, the Company was involved in various litigations,
some of which were resolved as part of the September 2003 Chapter 11
filing.
Italian Distributor. In February 2003, an Italian court issued an
order restraining LaserSight Technologies from marketing our AstraPro
software at a trade show in Italy. This restraining order was issued
in favor of LIGI Tecnologie Medicali S.p.a. (LIGI), a distributor of
our products, and alleged that our AstraPro software product infringes
certain European patents owned by LIGI. We had retained Italian legal
counsel to defend us in this litigation, and we were informed that the
Italian court had revoked the restraining order and ruled that LIGI
must pay our attorney's fees in connection with our defense of the
restraining order. In addition, our Italian legal counsel informed us
Page 10 of 21
that LIGI had filed a motion for a permanent injunction. We believe
that our AstraPro software does not infringe the European patents
owned by LIGI, but due to limited cash flow the Company has not
defended its position. Management believes that the outcome of this
litigation will not have a material adverse impact on LaserSight's
business, financial condition or results from operations. Since the
Chapter 11 petition does not apply to foreign courts, this action is
still pending.
Routine Matters. In addition, we are involved from time to time in
routine litigation and other legal proceedings incidental to our
business. Although no assurance can be given as to the outcome or
expense associated with any of these proceedings, we believe that none
of such proceedings, either individually or in the aggregate, will
have a material adverse effect on the financial condition of
LaserSight.
NOTE 9 SEGMENT INFORMATION
The Company's operations principally include refractive products. Refractive
product operations primarily involve the development, manufacture and sale of
ophthalmic lasers and related devices for use in vision correction procedures.
Patent services involve the revenues and expenses generated from the ownership
of certain refractive laser patents.
Operating profit is total revenue less operating expenses. In determining
operating profit for operating segments, the following items have not been
considered: general corporate expenses, non-operating income and expense and
income tax expense. Identifiable assets by operating segment are those that are
used by or applicable to each operating segment. General corporate assets
consist primarily of cash and income tax accounts.
The table below summarizes information about reported segments
as of and for the three months ended September 30 :
Operating Operating Profit Depreciation and Capital
Revenues (Loss) Assets Amortization Expenditures
-------- ------ ------ ------------ ------------
2004
----
Operating segments:
Refractive products 930,816 (337,341) 4,652,012 12,736 -
Patent services 234,810 234,810 - - -
General corporate - (135,012) 648,738 - -
----------------------------------------------------------------------------------------
Consolidated total 1,165,626 (845,779) 5,300,750 12,736 -
========================================================================================
2003
----
Operating segments:
Refractive products 1,615,725 (8,325,360) 5,622,761 223,896 -
Patent services 234,810 234,810 - - -
General corporate - (776,429) 245,086 141 -
----------------------------------------------------------------------------------------
Consolidated total 1,850,535 (8,866,979) 5,867,847 224,037 -
========================================================================================
Operating Operating Profit Depreciation and Capital
Revenues (Loss) Assets Amortization Expenditures
-------- ------ ------ ------------ ------------
2004
----
Operating segments:
Refractive products 3,936,184 (872,083) 4,652,012 80,466 109,689
Patent services 704,430 704,430 - - -
General corporate - (299,047) 648,738 - -
----------------------------------------------------------------------------------------
Consolidated total 4,640,614 (466,700) 5,300,750 80,466 109,689
========================================================================================
2003
----
Operating segments:
Refractive products 5,297,522 (21,442,871) 5,622,761 570,588 13,897
Patent services 704,430 704,430 - - -
General corporate - (1,570,089) 245,086 423 -
----------------------------------------------------------------------------------------
Consolidated total 6,001,952 (22,308,530) 5,867,847 571,011 13,897
========================================================================================
Page 11 of 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements and Associated Risks
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT
HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT'S
CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS, BELIEFS AND ASSUMPTIONS. WORDS
SUCH AS "ANTICIPATES", "EXPECTS", "INTENDS", "PLANS", "BELIEVES", "SEEKS",
"ESTIMATES", VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE DISCUSSED IN "PART I -
ITEM 1 - DESCRIPTION OF BUSINESS - RISK FACTORS" AND PART II - ITEM 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS" CONTAINED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2003, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. UNLESS REQUIRED BY
LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
INVESTORS SHOULD REVIEW THIS QUARTERLY REPORT IN COMBINATION WITH THE COMPANY'S
ANNUAL REPORTON FORM 10-K IN ORDER TO HAVE A MORE COMPLETE UNDERSTANDING OF THE
PRINCIPAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY'S STOCK.
Overview
LaserSight is principally engaged in the manufacture and supply of
narrow beam scanning excimer laser systems, topography-based diagnostic
workstations, and other related products used to perform procedures that correct
common refractive vision disorders such as nearsightedness, farsightedness and
astigmatism. Since 1994, we have marketed our laser systems commercially in over
30 countries worldwide and currently have an installed base of approximately 434
laser systems, including over 234 of our LaserScan LSX(TM) laser systems. We are
currently focused on selling in selected international markets; primarily China.
We have significant liquidity and capital resource issues relative to
the timing of our accounts receivable collection and the successful completion
of new sales compared to our ongoing payment obligations and our recurring
losses from operations and net capital deficiency raises substantial doubt about
our ability to continue as a going concern. We have experienced significant
losses and operating cash flow deficits, and we expect that operating cash flow
deficits will continue without improvement in our operating results. In August
2002, we executed definitive agreements relating to our China Transaction (see
"China Transaction").
Bankruptcy
On September 5, 2003 the company filed for Chapter 11 bankruptcy
protection and reorganization. Under Chapter 11, certain claims against the
Company in existence prior to the filing of the petitions for relief are stayed
while the Company continues business operations as debtor-in-possession. The
Company operated in this manner from September 5, 2003 through June 10, 2004,
when a final bankruptcy release was obtained. As a result of the bankruptcy
re-structuring, the Company has recorded credits for debt forgiveness of
approximately $15.3 during the three months ended June 30, 2004. Additionally,
the Company recognized charges of approximately $8.0 million during 2003 for
patent impairment, accounts receivable, and inventory write offs. The Company
cancelled all of its outstanding common and preferred stock, including warrants
and options, and issued 9,997,195 new common shares on June 30, 2004. The
Company emerged from bankruptcy with approximately $0.7 million in unsecured
liabilities, approximately $2.1 million in secured debt to GE, approximately
$5.4 million in deferred revenue and approximately $1.0 million of DIP financing
provided by NIIC, as part of the approved bankruptcy plan. NIIC converted $1.0
million of the DIP financing for additional 6,850,000 common shares. $66,000 and
$450,000 were paid for bankruptcy related professional fees for legal, financial
advisor, bankruptcy trustee, transfer agent, new stock certificates, priority
claims, printing and postage for the three and nine months ended September 30,
2004, respectively.
China Transaction
In February 2004, we received a commitment to purchase at least $12.0
million worth of our products during the 12-month period ending February 2005,
to distribute our products in Mainland China, Hong Kong, Macao and Taiwan.
12 of 21
From February 2004 through September 30, 2004, approximately $3.5 million worth
of products were sold under these agreements and subsequent modifications. The
purchase agreement provides for two one year extensions.
Results of Operations
The following table sets forth for the periods indicated information
derived from our statements of operations for those periods expressed as a
percentage of net sales, and the percentage change in such items from the
comparable prior year period. Any trends illustrated in the following table are
not necessarily indicative of future results.
Percent Increase (Decrease)
As a Percentage of Net Sales Over Prior Periods
-------------------------------------------- --------------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
----------------- ----------------- ------------- -------------
2004 2003 2004 2003 2004 vs. 2003 2004 vs. 2003
---- ---- ---- ---- ------------- -------------
Statement of Operations Data:
Net Revenues:
Refractive products 79.9% 87.3% 84.8% 88.3% -42.4% -25.7%
Patent services 20.1% 12.7% 15.2% 11.7% 0.0% 0.0%
---- ---- ---- ---- --- ---
Net Revenues 100.0% 100.0% 100.0% 100.0% -37.0% -22.7%
Cost of Revenue 53.8% 27.6% 57.2% 106.6% 22.8% -58.5%
---- ---- ---- ----- ---- ----
Gross Profit (1) 46.2% 72.4% 42.8% -6.6% -59.8% -604.8%
Research, development and -30.3% -61.8%
regulatory expenses (2) 3.7% 3.3% 2.9% 5.9%
Other general and administrative -67.2% -72.3%
expenses 60.7% 116.4% 48.0% 133.9%
Selling-related expenses (3) 10.1% 180.6% 10.2% 75.8% -96.5% -89.6%
Impairment charge 0.0% 0.0% 0.0% 68.3% 100.0% -100.0%
Allowed warranty claims 0.0% 250.8% 0.0% 77.3% -- --
Amortization of intangibles 0.7% 0.4% 0.5% 4.0% 1.1% -89.5%
---- ----- ---- ----- ---- ----
Loss from continuing operations -28.9% -228.4% -18.8% -226.1% -96.2% -96.1%
---- ----- ---- ----- ---- ----
(1) As a percentage of net revenues, the gross profit for refractive
products only for the three months ended September 30, 2004 and 2003,
and the nine months ended September 30, 2004 and 2003, were 33%, 68%,
33% and (21%), respectively.
(2) As a percentage of refractive product net sales, research, development
and regulatory expenses for the three months ended September 30, 2004
and 2003, and the nine months ended September 30, 2004 and 2003, were
5%, 4%, 3% and 7%, respectively.
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(3) As a percentage of refractive product net sales, selling-related
expenses for the three months ended September 30, 2004 and 2003, and
the nine months ended September 30, 2004 and 2003, were 13%, 207%, 12%
and 86%, respectively.
Three Months Ended September 30, 2004, Compared to Three Months Ended
September 30, 2003
Revenues. Net revenues for the three months ended September 30, 2004
decreased by $685,000, or 33%, to $1.2 million from $1.9 million for the
comparable period in 2003.
During the three months ended September 30, 2004 refractive products
revenues decreased $685,000, or 42%, to $0.9 million from $1.6 million for the
comparable period in 2003. This revenue decrease was primarily the result of
higher sales of lasers offset by lower sales of parts for laser systems. During
the three months ended September 30, 2004, excimer laser system sales accounted
for approximately $0.7 million in revenues compared to no revenues over the same
period in 2003. During the three months ended September 30, 2004, three laser
systems were sold compared to none for the comparable period in 2003. During the
three months ended September 30, 2004, parts revenues accounted for
approximately $0.1 million in revenues compared to $1.4 million in revenues over
the same period in 2003.
Net revenues from patent services for the three months ended September
30, 2004 remained the same at $235,000 for the comparable period in 2003.
Geographically, China has become our most significant market with $0.9
million in revenue during the three months ended September 30, 2004, as compared
to $1.4 million for the three months ended September 30, 2003.
Cost of Revenues; Gross Profit. For the three months ended September
30, 2004 and 2003, gross profit margins were 46% and 72%, respectively. The
gross margin decrease during the three months ended September 30, 2004 was
primarily attributable to lower margins on parts sales.
Research, Development and Regulatory Expenses. Research, development
and regulatory expenses for the three months ended September 30, 2004 decreased
approximately $19,000, or 30%, to $43,000 from $61,000 for the comparable period
in 2003. While decreasing our expenses, we continued to develop our AstraMax
diagnostic workstation.
Other General and Administrative Expenses. Other general and
administrative expenses for the three months ended September 30, 2004 decreased
$1.4 million, or 67%, to $0.7 million from $2.2 million for the comparable
period in 2003. This decrease was primarily due to a decrease of cost reductions
to the sales and marketing, customer support, administration, and professional
services departments.
Selling-Related Expenses and allowed warranty claims. Selling-related
expenses consist of those items directly related to sales activities, including
commissions on sales, royalty or license fees, warranty expenses, and costs of
shipping and installation. Commissions and royalties, in particular, can vary
significantly from sale to sale or period to period depending on the location
and terms of each sale. Selling-related expenses for the three months ended
September 30, 2004 decreased $3.2 million, or 96%, to $118,000 from $3.3 million
during the comparable period in 2003. This decrease was primarily attributable
to a $3.2 million decrease in costs of license fees, 2003 included $3.5 million
of license fees primarily related to future keratome license fees due
immediately because of a default on our agreement and a increase of $0.3 million
of warranty expense. A $4.6 million expense for warranty claims allowed in
bankruptcy was taken in the three months ended September 30, 2003.
Amortization of Intangibles. Costs relating to the amortization of
intangibles for the three months ended September 30, remained substantially
unchanged from the comparable period in 2002. Items directly related to the
amortization of intangible assets are acquired technologies, patents and license
agreements.
14 of 21
During 2003, the Company wrote off approximately $4.1 million of impaired
intangibles, leaving approximately $500,000 of un-impaired intangibles.
Accordingly, the Company expects future amortization amounts to be minimal,
although the Company will continue to review the carrying values for further
impairments on a periodic basis.
Loss From Operations. The operating loss for the three months ended
September 30, 2004 was $337,000 compared to the operating loss of $8.9 million
for the same period in 2003. This decrease in the loss from operations was
primarily due to reductions in warranty costs, in 2003 $4.6 million was expensed
due to allowed claims in bankruptcy, and cost reductions to the sales and
marketing, customer support, administration, and professional services
departments.
Other Income and Expenses. Interest and other income for the three
months ended September 30, 2004 was $275,000, an increase of $265,000 over the
comparable period in 2003. Interest and other income were earned from the
investment of cash and cash equivalents and the proceeds from a shareholder
derivative lawsuit. During the three months ended September 30, 2004, interest
expense increased by $132,000, or 224%, from $59,000 to $190,000 as a result of
increased borrowings and penalties and fees as part of our re-structuring.
Income Taxes. During the three months ended September 30, 2004 and
2003, we had no income tax expense.
Net Loss. Net loss for the three months ended September 30, 2004, was
$251,000 compared to a net loss of $8.9 million for the comparable period in
2003. The decrease in net loss for the three months ended September 30, 2004 can
be primarily attributed to reductions in warranty costs and license fees.
Loss Per Share. The loss per basic and diluted share was $0.03 for the
three months ended September 30, 2004 and $0.34 for the comparable period in
2003. However, as previously announced the Company canceled all of the common
and preferred stock outstanding, including options and warrants, at September
30, 2004. On September 30, 2004 the Company issued 9,997,195 new common shares.
Nine Months Ended September 30, 2004, Compared to Nine Months Ended September
30, 2003
Revenues. Net revenues for the nine months ended September 30, 2004
decreased by $1.4 million, or 23%, to $4.6 million from $6.0 million for the
comparable period in 2003.
During the nine months ended September 30, 2004, refractive products
revenues decreased $1.4 million, or 26%, to $3.9 million from $5.3 million for
the comparable period in 2003. This revenue decrease was primarily the result of
higher excimer laser unit sales offset by lower parts revenue. During the nine
months ended September 30, 2004, excimer laser system sales accounted for
approximately $3.0 million in revenues compared to $2.3 million in revenues over
the same period in 2003. During the nine months ended September 30, 2004, 14
laser systems were sold compared to 11 laser systems sold during the comparable
period in 2003. During the nine months ended September 30, 2004, parts revenues
decreased $1.9 million to $0.5 million from $2.4 million for the comparable
period in 2003.
Net revenues from patent services for the nine months ended September
30, 2004 remained the same at $704,000 for the comparable period in 2003.
Geographically, China has become our most significant market with $3.7
million in revenue during the nine months ended September 30, 2004, from $3.9
million for the comparable period in 2003. We expect China to continue as our
most significant market.
Cost of Revenues; Gross Profit. For the nine months ended September 30,
2004 and 2003, gross profit margins were 44% and (13%), respectively. The gross
margin increase during the nine months ended September 30, 2004 was primarily
attributable to a charge of $3.6 million which was recorded for inventory
obsolescence reserve during the three months ended June 30,2003. The Company's
reorganization plan, as confirmed by the bankruptcy court, called for a refocus
of the Company's products lines and the reduction of keratome and other obsolete
inventory.
15 of 21
Research, Development and Regulatory Expenses. Research, development
and regulatory expenses for the nine months ended September 30, 2004 decreased
approximately $219,000, or 62%, to $135,000 from $355,000 for the comparable
period in 2003. While decreasing our expenses, we continued to develop our
AstraMax diagnostic workstation.
Other General and Administrative Expenses. Other general and
administrative expenses for the nine months ended September 30, 2004 decreased
$5.5 million, or 71%, to $2.2 million from $8.0 million for the comparable
period in 2003. This decrease was primarily due to a decrease of approximately
$4.5 million related to cost reductions to the sales and marketing, customer
support, administration, and professional services departments, a $0.2 reduction
in depreciation expense and a reduction of $0.8 million in bad debt expense.
Selling-Related Expenses and allowed warranty claims. Selling-related
expenses consist of those items directly related to sales activities, including
commissions on sales, royalty or license fees, warranty expenses, and costs of
shipping and installation. Commissions and royalties, in particular, can vary
significantly from sale to sale or period to period depending on the location
and terms of each sale. Selling-related expenses for the nine months ended
September 30, 2004 decreased $9.0 million, or 95%, to $0.5 million from $9.2
million during the comparable period in 2003. This decrease was primarily
attributable to a $4.2 million decrease in costs of license fees, a decrease of
$4.6 million of warranty expense primarily related to the terms on our excimer
laser system sales and a decrease of $0.2 of shipping expenses related to the
cost of shipping our finished products.
Amortization of Intangibles. Costs relating to the amortization of
intangibles for the nine months ended September 30, 2004 decreased $213,000, or
89%, to $25,000 from $238,000 during the comparable period in 2003. Items
directly related to the amortization of intangible assets are acquired
technologies, patents and license agreements. During 2003, as a result of
bankruptcy related re-structuring costs the Company wrote off approximately $4.1
million of impaired intangibles, leaving approximately $500,000 of un-impaired
intangibles. Accordingly, the Company expects future amortization amounts to be
minimal, although the Company will continue to review the carrying values for
further impairments on a periodic basis.
Impairment of Patents. In the second quarter of 2003 the Company
recorded an impairment loss of approximately $4.1 million related to Keratome,
acquired technology and diagnostic patents. Management decided to write-off the
assets due to a lack of a potential market for its acquired technology.
Loss From Operations. The operating income for the nine months ended
September 30, 2004 was $0.9 million compared to the operating loss of $22.3
million for the same period in 2003. This decrease in the loss from operations
was primarily due to the reductions in warranty claims and license fees,
inventory write offs and patent impairment charges.
Other Income and Expenses. Interest and other income for the nine
months ended September 30, 2004 was $331,000, an increase of $282,000 over the
comparable period in 2003. Interest and other income were earned from the
investment of cash and cash equivalents and proceeds from a shareholder
derivative lawsuit. During the nine months ended September 30, 2004, interest
expense increased by $187,000, or 87%, from $215,000 to $419,000 as a result of
increased borrowings and related loan cost.
Income Taxes. For the nine months ended September 30, 2004, we had no
income tax expense. For the nine months ended September 30, 2003, income tax
benefit amounted to approximately $58,000, which was related to a refund the
Company received from a settlement with the IRS on its 1995 return.
Net Income (Loss). Net income for the nine months ended September 30,
2004, was $14.3 million compared to a net loss of $22.4 million for the
comparable period in 2003. The decrease in net loss for the nine months ended
September 30, 2004 can be attributed to reductions in warranty expense, license
fees, inventory write offs and patent impairment charges offset by the gain on
extinguishment of debt.
16 of 21
Loss Attributable to Common Shareholders. For the nine months ended
September 30, 2003, the Company's loss attributablIe to common shareholders was
impacted by the accretion of the value of the conversion discount on the Series
H Preferred Stock. This discount was fully accreted as of December 31,2003. The
Series H Preferred Stock was cancelled as part of the Company's re-organization
plan in bankruptcy.
Income (Loss) Per Share. The income (loss) per basic and diluted share
was $0.66 and $0.42, respectively, for the nine months ended September 30, 2004
and ($0.88) for the comparable period in 2003. As a result of the September 5,
2003 chapter 11 petition, the company cancelled all of its outstanding common
and preferred shares, including options and warrants. On September 30, 2004 the
Company issued 9,997,195 new common shares.
Inflation and Currency Fluctuation
Inflation and currency fluctuations have not previously had a material
impact upon the results of operations and are not expected to have a material
impact in the near future.
Liquidity and Capital Resources
On September 5, 2003 the company filed for Chapter 11 bankruptcy
protection and reorganization. Under Chapter 11, certain claims against the
Company in existence prior to the filing of the petitions for relief are stayed
while the Company continues business operations as Debtor-in-possession. The
Company operated in this manner from September 5, 2003 through September 10,
2004, when a final bankruptcy release was obtained. As a result of the
bankruptcy re-structuring, the Company recorded credits for debt forgiveness of
approximately $15.6 during the three months ended June 30, 2004 for patent
impairments, accounts receivable and inventory write offs. Additionally, the
Company recognized re-structuring charges of approximately $7.0 million during
2003. The Company cancelled all of its outstanding common and preferred stock,
including warrants and options, and issued 9,997,195 new common shares on
September 30, 2004. The Company emerged from bankruptcy with approximately $0.7
million in unsecured liabilities, approximately $2.1 million in secured debt to
GE, approximately $5.3 million in deferred revenue and approximately $1.0
million of DIP financing provided by NIIC. NIIC converted $1.0 million of the
DIP financing for additional equity.
With the new revenues being generated from the China Group and
projected sales to other customers, management expects that LaserSight's cash
and cash equivalent balances and funds from operations (which are principally
the result of sales and collection of accounts receivable) will be sufficient to
meet its anticipated operating cash requirements for the next several months.
This expectation is based upon assumptions regarding cash flows and results of
operations over the next several months and is subject to substantial
uncertainty and risks beyond our control. If these assumptions prove incorrect,
the duration of the time period during which LaserSight could continue
operations could be materially shorter. We continue to face liquidity and
capital resource issues relative to the timing of the successful completion of
new sales compared to our ongoing payment obligations. To continue our
operations, we will need to generate increased revenues, collect them and reduce
our expenditures relative to our recent history. While we are working to achieve
these improved results, we cannot assure you that we will be able to generate
increased revenues and collections to offset required cash expenditures.
Our expectations regarding future working capital requirements and our
ability to continue operations are based on various factors and assumptions that
are subject to substantial uncertainty and risks beyond our control, and no
assurances can be given that these expectations will prove correct. The
occurrence of adverse developments related to these risks and uncertainties or
others could result in LaserSight incurring unforeseen expenses, being unable to
generate additional sales, to collect new and outstanding accounts receivable,
to control expected expenses and overhead, or to negotiate payment terms with
creditors, and we would likely be unable to continue operations.
On March 12, 2001, we established a $3.0 million term loan and $10.0
million revolving credit facility with GE. We borrowed $3.0 million under the
term loan at an annual rate equal to two and one-half percent (2.5%) above the
prime rate. Interest was payable monthly and the loan was required to be repaid
17 of 21
on March 12, 2003. As of September 30, 2004, the outstanding principal on our
term loan is approximately $1.9 million. Under our credit facility, we had the
option to borrow amounts at an annual rate equal to one and one-quarter percent
(1.25%) above the prime rate for short-term working capital needs or such other
purposes as approved by GE. Borrowings were limited to 85% of eligible accounts
receivable related to U.S. sales. Eligible accounts receivable were to be
primarily based on future U.S. sales, which did not increase as a result of our
decision to not actively market our laser in the U.S. until we receive
additional FDA approvals.
Borrowings under the loans are secured by substantially all of the
Company's assets. The term loan and credit facility required us to meet certain
covenants, including the maintenance of a minimum net worth. The terms of the
loans originally extended to March 12, 2003. In addition to the costs and fees
associated with the transaction, we issued to GE a warrant to purchase 243,750
shares of common stock at an exercise price of $3.15 per share. The warrant
expired on March 12, 2004. On August 15, 2002, GE provided a waiver of our prior
defaults under our loan agreement pending the funding of the equity portion of
the NIMD transaction. Upon receipt of the equity investment in October 2002,
revised covenants became effective that decreased the required minimum level of
net worth to $2.1 million, decreased minimum tangible net worth to negative $2.8
million and decreased required minimum quarterly revenues during the last two
quarters of 2002 and the first quarter of 2003. In exchange for the waiver and
revised covenants, the Company paid $150,000 in principal to GE upon the receipt
of the equity investment in October 2002 and agreed to increase other monthly
principal payments to $60,000 in October 2002 and to $40,000 during each of
November and December 2002 and January 2003, with the remaining principal due on
March 12, 2003.
On March 12, 2003, our loan agreement with GE was extended by 30 days
from March 12, 2003 to April 11, 2003. On March 31, 2003, our loan agreement
with GE was amended again. In addition to the amendment, GE waived our failure
to comply with the net revenue covenant for the fourth quarter of 2002. In
exchange for the amendment and waiver, we paid approximately $9,250 in fees to
GE and agreed to increase our monthly principal payments to $45,000 beginning in
April 2003. Revised covenants became effective on March 31, 2003 that decreased
the minimum level of net worth to $1.0 million, minimum tangible net worth to
negative $4.0 million and minimum quarterly net revenue during 2003 to $2.0
million. We agreed to work in good faith with GE to adjust these covenants by
May 31, 2003 based on our first quarter 2003 financial results and our ongoing
efforts to obtain additional cash infusion. As discussed above, On September 20,
2003 the Company announced that it had been advised by GE that its loans were in
default due to an adverse material change in the financial condition and
business operations of the Company. The Company continued to negotiate with GE
during September and July of 2003, until a new agreement was executed on August
28, 2003 providing for an extension of the loans through January 2005.
On August 30, 2004 the Company signed a three-year note expiring on
September 30, 2007. The note bears interest of 9%. Certain covenants were
modified as follows: net worth $750,000, tangible net worth $1,000,000 and
minimum quarterly revenues of $1,000,000. GE was issued a warrant to purchase
100,000 shares of common stock at $0.25 per share, or $0.40 per share if the
China Group converts their DIP loan to equity. The warrant expires on September
30, 2008.
There can be no assurance as to the correctness of the other
assumptions underlying our business plan or our expectations regarding our
working capital requirements or our ability to continue operations.
Our ability to continue operations is based on factors including the
success of our sales efforts in China and in other foreign countries where our
efforts will initially be primarily focused, increases in accounts receivable
and inventory purchases when sales increase, the uncertain impact of the market
introduction of our AstraMax diagnostic workstations, and the absence of
unanticipated product development and marketing costs.
18 of 21
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms and that such information is accumulated
and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to
apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
We carry out a variety of on-going procedures, under the supervision
and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, to evaluate the
effectiveness of the design and operation of our disclosure controls
and procedures. While our Chief Executive Officer and Chief Financial
Officer were unable to reach a conclusion regarding the effectiveness
of our disclosure controls and procedures as of September 30, 2004,
they have concluded that such controls and procedures are currently
effective at the reasonable assurance level.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Certain legal proceedings against LaserSight are described in
Item 3 (Legal Proceedings) of LaserSight's Form 10-K for the
year ended December 31, 2003.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 5, 2003 the company filed a Chapter 11 bankruptcy
petition. As a result of this petition, the company canceled
all common and preferred shares, including options and
warrants. On September 30, 2004 the Company issued 9,997,195
new common shares.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
On September 5, 2003 the Company filed a Chapter 11 bankruptcy
petition. As described on Part I, Item 2, the Company had been
in default under its loan agreements with GE. The company had
been in continuous negotiations with GE during the term of the
bankruptcy and on August 30, 2004 the Company signed a
three-year note expiring on June 30, 2007. The note bears
interest of 9%. Certain covenants were modified as follows:
net worth $750,000, tangible net worth $1,000,000 and minimum
quarterly revenues of $1,000,000. GE was issued a warrant to
purchase 100,000 shares of common stock at $0.25 per share, or
$0.40 per share if the China Group converts their DIP loan to
equity. The warrant expires on June 30, 2008. The Company is
currently not in compliance with certain covenants of the loan
agreements. Accordingly all amounts have been classified as
short term obligations
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS
Page 19 of 21
Exhibit
Number Description
------- -------------------------------------------------------------------
11 Statement of Computation of Loss Per Share (Included in Financial
Statements in Part I, Item 1 hereof)
31.1 Certifications of CEO pursuant to Rule 13a-14(a)
31.2 Certifications of CFO pursuant to 13a-14(a)
32 Certifications of CEO and CFO pursuant to Section 1350
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LaserSight Incorporated
Dated: March 22, 2005 By: /s/ Danghui ("David") Liu
-------------------------
Danghui ("David") Liu, President,
Chief Executive Officer and Director
Dated: March 22, 2005 By: /s/ Dorothy M. Cipolla
----------------------
Dorothy M. Cipolla,
Chief Financial Officer
Page 20 of 21
INDEX TO EXHIBITS
Exhibit
Number Description
------- ---------------------------------------------------------------------
11 Statement of Computation of Loss Per Share (Included in Financial
Statements in Part I, Item 1 hereto)
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
32 Certifications of CEO and CFO Pursuant to Section 1350
Page 20 of 21