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 June 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 June 30, 2004 3
Condensed Consolidated Statements of Operations for the Three Month
Periods and Six Month Periods Ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 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 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
Page 2 of 20
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30,
ASSETS 2004
-------------
Current assets: (Unaudited)
Cash and cash equivalents ..................................... $ 798,268
Accounts receivable - trade, net .............................. 738,747
Notes receivable - current portion, net ....................... 85,719
Inventories ................................................... 2,706,660
Other current assets .......................................... 40,178
-------------
Total Current Assets ............... 4,369,572
Property and equipment, net ..................................... 124,246
Patents and acquired intangibles, net ........................... 466,670
Other assets, net ............................................... 612,807
-------------
$ 5,573,295
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, current portion ................................ $ 2,105,740
Accounts payable .............................................. 120,295
Accrued expenses .............................................. 309,621
Accrued Warranty .............................................. 235,500
Deferred revenue .............................................. 1,039,240
-------------
Total Current Liabilities ........... 3,810,396
Deferred royalty revenue ........................................ 4,333,081
Note payable, long term portion ................................. 100,374
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: Series H - 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 ............................................. (108,298,623)
-------------
(3,670,556)
-------------
$ 5,573,295
=============
See accompanying notes to the condensed consolidated financial statements.
Page 3 of 20
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2004 2003 2004 2003
----------------------------- -----------------------------
Revenues:
Products (1)......................................... $ 938,856 $ 1,595,642 $ 3,005,368 $ 3,681,797
Royalties ........................................... 234,810 234,810 469,620 469,620
------------ ------------ ------------ ------------
1,173,666 1,830,452 3,474,988 4,151,417
Cost of revenues:
Product cost ........................................ 938,994 4,539,718 2,027,428 5,885,262
------------ ------------ ------------ ------------
Gross profit (loss)...................................... 234,672 (2,709,266) 1,447,560 (1,733,845)
Research and development and regulatory expenses ........ 39,922 96,800 92,604 293,299
Other general and administrative expenses ............... 898,235 3,453,091 1,518,236 5,881,613
Selling-related expenses ................................ 133,915 586,287 354,703 1,204,067
Amortization of intangibles ............................. 8,379 115,059 16,758 230,118
Impairment of patents ................................... - 4,098,607 - 4,098,607
------------ ------------ ------------ ------------
1,040,529 8,253,044 1,889,697 11,414,405
------------ ------------ ------------ ------------
Income (loss) from operations ........................... (845,779) (11,059,110) (534,741) (13,441,549)
Other income and expenses:
Interest and other income ............................... 51,588 11,357 55,642 37,972
Interest expense ........................................ (178,921) (43,000) (229,822) (155,628)
------------ ------------ ------------ ------------
Income (loss) before income tax benefit ................. (973,112) (11,090,753) (708,921) (13,559,205)
Income tax benefit ...................................... - - - (57,708)
------------ ------------ ------------ ------------
Net income(loss) before extinguishment of debt .......... (973,112) (11,090,753) (708,921) (13,501,497)
Gain on extingushment of debt ........................... 15,287,634 - 15,287,634 -
------------ ------------ ------------ ------------
Net income (loss) before conversion discount on preferred 14,314,522 (11,090,753) 14,578,713 (13,501,497)
Conversion discount on preferred stock .................. - (483,837) - (959,698)
------------ ------------ ------------ ------------
Income (loss) attributable to common shareholders ....... $ 14,314,522 $(11,574,590) $ 14,578,713 $(14,461,195)
============ ============ ============ ============
Income (loss) per common share
Basic: .................................................. 0.52 (0.42) 0.53 (0.52)
============ ============ ============ ============
Diluted: ................................................ 0.31 (0.42) 0.32 (0.52)
============ ============ ============ ============
Weighted average number of shares outstanding
Basic: .................................................. 27,644,000 27,842,000 27,743,000 27,842,000
============ ============ ============ ============
Diluted: ................................................ 45,999,000 27,842,000 46,201,000 27,842,000
============ ============ ============ ============
(1) - (including revenues from related parties of $ 853,291,$ 1,188,733,$ 2,730,910 and $ 2,882,769, respectively)
See accompanying notes to the condensed consolidated financial statements.
Page 4 of 20
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
2004 2003
------------ ------------
Cash flows from operating activities
Net income (loss) ....................................... $ 14,578,713 $(13,501,497)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................... 67,730 486,563
Provision for uncollectable accounts .................... - 3,790,201
Write off of inventory .................................. - 3,588,040
Impairment of patents ................................... - 4,098,607
Stock options issued for services ....................... - 4,251
Additions to notes payable for fees & penalities ........ 305,211 -
Gain on extinguishment of debt .......................... (15,287,634) -
Changes in assets and liabilities:
Accounts and notes receivable ........................ (744,075) 1,263,149
Inventories .......................................... 655,325 925,161
Accounts payable ..................................... 141,124 499,261
Accrued expenses ..................................... 140,322 (3,116,048)
Deferred revenue ..................................... (469,620) 1,279,296
Other ................................................ (234,411) 52,430
------------ ------------
Net cash used in operating activities ................... (847,315) (630,946)
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 ............................. (59,701) (130,000)
Prcoeeds on DIP financing .............................. 1,250,000 -
Proceeds from stock subscription receivable ............ - 32,336
------------ ------------
Net cash provided by/(used in) financing activities ..... 1,190,299 (97,664)
------------ ------------
Increase (Decrease) in cash and cash equivalents ........ 233,295 (742,507)
Cash and cash equivalents, beginning of period .......... 564,973 1,065,778
------------ ------------
Cash and cash equivalents, end of period ................ $ 798,268 $ 323,271
============ ============
See accompanying notes to the condensed consolidated financial statements.
Page 5 of 20
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Month Periods Ended June 30, 2004 and 2003
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements of
LaserSight Incorporated and subsidiaries ("LaserSight" or the
"Company") as of June 30, 2004, and for the three-month and six-month
periods ended June 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 consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
The 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 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
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 and six month periods
ended June 30, 2004 and 2003. The results of operations for the three
and six month periods ended June 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."
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, warrants to purchase Common Stock, and convertible
Page 6 of 20
Preferred Stock and are included in the computation using the treasury
stock 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
o (1) These shares will be issued upon the resolution of a
creditor objection to claim.
o (2) The old common stock was converted at a ratio of 51.828 to 1.
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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss) per common
share - basic and diluted ....... $1.43 ($1.16) $1.46 ($1.45)
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 June 30, 2004 and
December 31, 2003 are summarized as follows:
June 30, 2004 December 31, 2003
------------- -----------------
Raw materials $ 2,075,785 2,749,988
Work-in-process 630,875 611,997
------------- ---------
$ 2,706,660 3,361,985
============= =========
NOTE 5 AMENDED LOAN AGREEMENT
On June 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 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 New Industries Investment Group (the "China Group"), see Note 6,
converts its DIP loan to equity. The warrant expires June 30, 2008. The
Company is currently not in compliance with certain of its loan
covenants and is attempting to negotiate and revise the terms with the
vendor, accordingly, the outstanding loan balance is classified as a
current liability.
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 a long term strategy for the Company in
Page 7 of 20
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
$2.7 million and $2.9 million in the six months ended June 30, 2004 and
2003, respectively. Accounts receivable due from the China Group as of
June 30, 2004 was $956,189. The loss of the China Group as a customer
would have an significant adverse effect 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 June 30, 2004. Accordingly, there was no stock based
compensation for the three months and six months ended June 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:
Three months ended:
------------------
June 30, 2004 June 30, 2003
Net income (loss), as reported $ 14,314,521 (11,090,753)
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) 14,314,521 (11,281,280)
Conversion discount on preferred stock -- (483,837)
------------ -----------
Pro forma income (loss) attributable to common shareholders 14,314,521 (11,765,117)
============ ===========
Basic income (loss) per share:
As reported $ 0.52 (0.42)
====== =====
Pro forma 0.52 (0.42)
====== =====
Diluted income (loss) per share:
As reported $ 0.31 (0.42)
====== =====
Pro forma 0.31 (0.42)
====== =====
Page 8 of 20
Six months ended:
----------------
June 30, 2004 June 30, 2003
Net income (loss), as reported $ 14,578,713 (13,501,498)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects -- (381,054)
------------ -----------
Pro forma net income (loss) 14,578,713 (13,882,552)
Conversion discount on preferred stock -- (959,698)
------------ -----------
Pro forma income (loss) attributable to common shareholders 14,578,713 (14,842,250)
============ ===========
Basic income (loss) per share:
As reported $ 0.52 (0.52)
====== =====
Pro forma 0.52 (0.53)
====== =====
Diluted income (loss) loss per share:
As reported $ 0.32 (0.49)
====== =====
Pro forma 0.32 (0.51)
====== =====
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 sheet 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").
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 million at
June 30, 2004. Cash flows were positive during the six month period
ended June 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 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.
Page 9 of 20
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.
$270,000 and $307,000 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 six months ended June 30, 2004, respectively.
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
bankruptcy 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
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.
The table below summarizes information about reported segments as of
and for the three months ended June 30:
Operating Operating Profit Depreciation and Capital
Revenues (Loss) Assets Amortization Expenditures
-------- ------ ------ ------------ ------------
2004
Operating segments:
Refractive products 938,856 (981,436) 4,963,123 28,680 -
Patent services 234,810 234,810 - - -
General corporate - (99,153) 610,172 - -
----------------------------------------------------------------------------------------
Consolidated total 1,173,666 (845,779) 5,573,295 28,680 -
========================================================================================
2003
Operating segments:
Refractive products 1,595,642 (10,750,424) 7,367,687 2,233,896 13,897
Patent services 234,810 234,810 - - -
General corporate - (543,496) 320,949 141 -
----------------------------------------------------------------------------------------
Consolidated total 1,830,452 (11,059,110) 7,688,636 2,234,037 13,897
========================================================================================
The table below summarizes information about reported segments as of
and for the six months ended June 30:
Operating Operating Profit Depreciation and Capital
Revenues (Loss) Assets Amortization Expenditures
-------- ------ ------ ------------ ------------
2004
Operating segments:
Refractive products 3,005,368 (840,326) 4,963,123 67,730 109,689
Patent services 469,620 469,620 - - -
General corporate - (164,035) 610,172 - -
----------------------------------------------------------------------------------------
Consolidated total 3,474,988 (534,741) 5,573,295 67,730 109,689
========================================================================================
2003
Operating segments:
Refractive products 3,681,797 (12,734,832) 7,367,687 486,281 13,897
Patent services 469,620 469,620 - - -
General corporate - (1,176,337) 320,949 282 -
----------------------------------------------------------------------------------------
Consolidated total 4,151,417 (13,441,549) 7,688,636 486,563 13,897
========================================================================================
Page 10 of 20
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 420
laser systems, including over 230 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 $15.6 million during the three months ended June 30, 2004.
Additionally, the Company recognized charges of approximately $7.0 million
during 2003 for patent impairments, inventory and accounts receivable 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 an additional 6,850,000 common
shares. $270,000 and $307,000 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 six months
ended June 30, 2004, respectively.
Page 11 of 20
China Transaction
In February 2004, we received a commitment to purchase at least $12.0
million of our products during the 12-month period ending February 2005, and
distribute our products in Mainland China, Hong Kong, Macao and Taiwan.
presentation of shipping documents. The Company started shipping products under
From February 2004 through June 30, 2004, approximately $2.9 million 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 Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003 2004 vs. 2003 2004 vs. 2003
---- ---- ---- ---- ------------- -------------
Statement of Operations Data:
Net Revenues:
Refractive products ............... 80.0% 87.2% 86.5% 88.7% -41.2% -18.4%
Patent services ................... 20.0% 12.8% 13.5% 11.3% 0.0% 0.0%
----- ----- ----- ----- ------ ------
Net Revenues .................. 100.0% 100.0% 100.0% 100.0% -35.9% -16.3%
Cost of Revenue ...................... 80.0% 248.0% 58.3% 141.8% -79.3% -65.6%
----- ----- ----- ----- ------ ------
Gross Profit (1) ..................... 20.0% -148.0% 41.7% -41.8% -108.7% -183.5%
Research, development and ............ -58.8% -68.4%
regulatory expenses (2 ............ 3.4% 5.3% 2.7% 7.1%
Other general and administrative ..... -74.0% -74.2%
expenses .......................... 76.5% 188.6% 43.7% 141.7%
Impairment of patents ................ 0.0% 223.9% 0.0% 98.7% -100.0% -100.0%
Selling-related expenses (3) ......... 11.4% 32.0% 10.2% 29.0% -77.2% -70.5%
Amortization of intangibles .......... 0.7% 6.3% 0.5% 5.5% -92.7% -92.7%
----- ----- ----- ----- ------ ------
Loss from continuing operations ...... -72.1% -380.3% -15.4% -225.1% -92.4% -96.0%
(1) As a percentage of net revenues, the gross profit for refractive products
only for the three months ended June 30, 2004 and 2003, and the six
months ended June 30, 2004 and 2003, were 0%, (185)%, 33% and (60)%,
respectively.
(2) As a percentage of refractive product net sales, research, development
and regulatory expenses for the three months ended June 30, 2004 and
2003, and the six months ended June 30, 2004 and 2003, were 4%, 6%, 3%
and 8%, respectively.
(3) As a percentage of refractive product net sales, selling-related expenses
for the three months ended June 30, 2004 and 2003, and the six months
ended June 30, 2004 and 2003, were 14%, 37%, 12% and 33%, respectively.
Three Months Ended June 30, 2004, Compared to Three Months Ended June 30, 2003
Revenues. Net revenues for the three months ended June 30, 2004 decreased
by $657,000, or 36%, to $1.2 million from $1.8 million for the comparable period
in 2003.
During the three months ended June 30, 2004 refractive products revenues
decreased $657,000, or 41%, to $0.9 million from $1.6 million for the comparable
period in 2003. This revenue decrease was primarily the result of lower sales of
Page 12 of 20
parts for laser systems. During the three months ended June 30, 2004, excimer
laser system sales accounted for approximately $0.7 million in revenues compared
to $0.9 million in revenues over the same period in 2003. During the three
months ended June 30, 2004, 3 laser systems were sold compared to four laser
systems for the comparable period in 2003.
Net revenues from patent services for the three months ended June 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 June 30, 2004, as compared to
$1.2 million for the three months ended June 30, 2003.
Cost of Revenues; Gross Profit. For the three months ended June 30, 2004
and 2003, gross profit margins were 20% and (148%), respectively. The gross
margin increase during the three months ended June 30, 2004 was primarily 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.
Research, Development and Regulatory Expenses. Research, development and
regulatory expenses for the three months ended June 30, 2004 decreased
approximately $57,000, or 59%, to $40,000 from $97,000 for the comparable period
in 2003. While decreasing our salary and consulting expenses, we continued to
develop our AstraMax diagnostic workstation.
Other General and Administrative Expenses. Other general and
administrative expenses for the three months ended June 30, 2004 decreased $2.6
million, or 74%, to $0.9 million from $3.5 million for the comparable period in
2003. This decrease was primarily due to a decrease of approximately $1.5
million related to cost reductions to the sales and marketing, customer support,
and administration, a $0.1 reduction in depreciation expense and a reduction of
$1.0 million in bad debt expense.
Selling-Related Expenses. 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 June 30, 2004 decreased $0.5
million, or 77%, to $134,000 from $586,000 during the comparable period in 2002.
This decrease was primarily attributable to a $0.4 million decrease in costs of
license fees, and a decrease of $0.1 million of warranty expense primarily
related to the terms on our excimer laser systems and on shipping expenses
related to the cost of shipping our finished products.
Amortization of Intangibles. Costs relating to the amortization of
intangibles for the three months ended June 30, 2004 decreased $107,000, or 93%,
to $8,000 from $115,000 during the comparable period in 2002. Items directly
related to the amortization of intangible assets are acquired technologies,
patents and license agreements. 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.
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 loss for the three months ended June
30, 2004 was $846,000 compared to the operating loss of $11.1 million for the
same period in 2003. This decrease is a result of $4.1 million charge for
impairment of patents in 2003 and $3.6 million in inventory write off in 2003.
Page 13 of 20
Other Income and Expenses. Interest and other income for the three months
ended June 30, 2004 was $52,000, a decrease of $40,000 over the comparable
period in 2003. Interest and other income were earned from the investment of
cash and cash equivalents and the collection of long-term receivables related to
laser system sales. During the three months ended June 30, 2004, interest
expense increased by $136,000, or 316%, from $43,000 to $179,000 as a result of
increased borrowings and penalties and fees as part of our re-structuring.
Income Taxes. During the three months ended June 30, 2004 and 2003, there
was no income tax expense.
Gain on Forgiveness of Debt. During three months ended June 30, 2004, a
gain on forgiveness of debt was recognized of $15.3 million. Amounts written off
included: accounts payable, license fees, warranty obligations, contract fees
and other accrued expenses.
Net Income(Loss). Net income for the three months ended June 30, 2004,
was $14.3 million compared to a net loss of $11.1 million for the comparable
period in 2003. The decrease in net loss for the three months ended June 30,
2004 can be primarily attributed to the gain on forgiveness of debt related to
the Chapter 11 bankruptcy petition.
Income(Loss) Per Share. The income per basic and diluted share was $0.52
and $0.31 for the three months ended June 30, 2004 and ($0.42) 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 June 30, 2004. On June 30, 2004 the Company issued 9,997,195 new
common shares.
Six Months Ended June 30, 2004, Compared to Six Months Ended June 30, 2003
Revenues. Net revenues for the six months ended June 30, 2004 decreased
by $0.7 million, or 16%, to $3.5 million from $4.2 million for the comparable
period in 2003.
During the six months ended June 30, 2004, refractive products revenues
decreased $0.7 million, or 18%, to $3.0 million from $3.7 million for the
comparable period in 2003. This revenue decrease was primarily the result of
lower parts revenue. During the six months ended June 30, 2004, excimer laser
system sales accounted for approximately $2.4 million in revenues compared to
$2.3 million in revenues over the same period in 2003. During the six months
ended June 30, 2004 and 2003, 11 laser systems were sold.
Net revenues from patent services for the six months ended June 30, 2004
remained the same at $470,000 for the comparable period in 2003.
Geographically, China has become our most significant market with $2.7
million in revenue during the six months ended June 30, 2004, from $2.9 million
for the comparable period in 2003. We expect China to continue as our most
significant market.
Cost of Revenues; Gross Profit. For the six months ended June 30, 2004
and 2003, gross profit margins were 43% and (42%) respectively. The gross margin
increase during the six months ended June 30, 2004 was primarily a charge of
$3.6 million which was recorded for inventory obsolescence reserve during the
six 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.
Research, Development and Regulatory Expenses. Research, development and
regulatory expenses for the six months ended June 30, 2004 decreased
approximately $200,000, or 68%, to $93,000 from $293,000 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 six months ended June 30, 2004 decreased $4.4
million, or 74%, to $1.5 million from $5.9 million for the comparable period in
Page 14 of 20
2003. This decrease was primarily due to a decrease in of approximately $ 3.1
million related to cost reductions to the sales and marketing, customer support,
and administration, a $0.2 reduction in depreciation expense and a reduction of
$1.1 million in bad debt expense.
Selling-Related Expenses. 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 six months ended June 30, 2004 decreased $0.9
million, or 71%, to $0.4 million from $1.2 million during the comparable period
in 2002. This decrease was primarily attributable to a decrease in license fees
due on our excimer laser system sales.
Amortization of Intangibles. Costs relating to the amortization of
intangibles for the six months ended June 30, 2004 decreased $213,000, or 93%,
to $17,000 from $230,000 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 loss for the six months ended June
30, 2004 was $0.5 million compared to the operating loss of $13.4 million for
the same period in 2003. In the six months ended June 30, 2003 a $4.1 million
charge was taken for the impairment of patents and $3.6 million of obsolete
inventory was written off.
Other Income and Expenses. Interest and other income for the six months
ended June 30, 2004 was $56,000, an increase of $18,000 over the comparable
period in 2003. Interest and other income were earned from the investment of
cash and cash equivalents and the collection of long-term receivables related to
laser system sales. During the six months ended June 30, 2004, interest expense
increased by $74,000, or 47%, from $156,000 to $230,000 as a result of increased
borrowings due to bankruptcy related restructuring.
Income Taxes. For the six months ended June 30, 2004, we had no income
tax expense. For the six months ended June 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.
Gain on Forgiveness of Debt. During three months ended June 30, 2004, a
gain on forgiveness of debt was recognized of $15.3 million. Amount written off
included: accounts payable, license fees, warranty obligations, contract fees
and other accrued expenses.
Net Income(Loss). Net income for the six months ended June 30, 2004, was
$14.6 million compared to a net loss of $13.5 million for the comparable period
in 2003. The decrease in net loss for the six months ended June 30, 2004 can be
primarily attributed to the gain on forgiveness of debt based on our confirmed
reorganization plan in our Chapter 11 petition.
Loss Attributable to Common Shareholders. For the six months ended June
30, 2003, the Company's loss attributable 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 per basic and diluted share was $0.53
and $0.32 for the six months ended June 30, 2004 and ($0.52) for the comparable
period in 2003. As a result of the September 5, 2003 chapter 11 petition, the
company
Page 15 of 20
cancelled all of its outstanding common and preferred shares, including options
and warrants. On June 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 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 $15.6 during the three months ended June 30, 2004. Additionally,
the Company recognized charges of approximately $7.0 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. Of these shares 1,134,000 are issuable pending resolution of a
creditor's objection to claim. 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. 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
on March 12, 2003. As of June 30, 2004, the outstanding principal on our term
loan is approximately $2.2 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.
Page 16 of 20
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 June 20, 2003
LSI announced that it had been advised by GE that its loans to LSI and LST were
in default due to an adverse material change in the financial condition and
business operations of LSI and LST. The Company continued to negotiate with GE
during June 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 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.
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.
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
Page 17 of 20
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 June 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 June 30, 2004
the Company issued 9,997,195 new common shares pursuant to the plan
approved by the Bankruptcy Court.
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
Exhibit
Number Description
------ ---------------------------------------------------------
11 Statement of Computation of Loss Per Share (Included in Financial
Statements in Part I, Item 1 hereof)
Page 18 of 20
31.1 Certifications of CEO pursuant to Rule 13a-14(a)
31.2 Certifications of CFO pursuant to Rule 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 19 of 20
INDEX TO EXHIBITS
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 Rule 13a-14(a)
32 Certifications of CEO and CFO pursuant to Section 1350
Page 20 of 20