UNITED STATES 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, 2005.
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
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LASERSIGHT INCORPORATED
-----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 65-0273162
-------------------------- ----------
(State of Incorporation) (IRS Employer Identification No.)
6848 Stapoint Court., Winter Park, Florida 32792
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(Address of principal executive offices) (Zip Code)
(407) 678-9900
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The number of shares of the
registrant's common stock outstanding as of November 8, 2005 is 9,997,193.
Transitional Small Business Disclosure Format (Check one):
Yes |_| No |X|
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-KSB
for the year ended December 31, 2004. 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. Financial Statements.
Condensed Consolidated Balance Sheet as of September 30, 2005 3
Condensed Consolidated Statements of Operations for the Three-
Month and Nine-Month Periods Ended September 30, 2005 and 4
2004
Condensed Consolidated Statements of Cash Flows for the Nine-
Month Periods Ended September 30, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation. 13
Item 3. Controls and Procedures. 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 21
Item 3. Defaults Upon Senior Securities. 21
Item 4. Submission of Matters to a Vote of Security Holders. 21
Item 5. Other Information. 21
Item 6. Exhibits. 21
Page 2 of 23
PART 1 - FINANCIAL INFORMATION
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
ASSETS September 30, 2005
------------------
Current assets:
Cash and cash equivalents ............................. $ 94,796
Accounts receivable - trade, net (including receivables
from related parties of $1,937,298) .......... 1,944,814
Notes receivable - current portion, net ............... 101,113
Inventories, net ...................................... 1,509,764
Prepaid expenses ...................................... 23,578
-------------------
Total Current Assets 3,674,065
Property and equipment, net ............................. 94,993
Patents, net ............................................ 424,775
Deposits with suppliers ................................. 358,191
Deferred financing costs, net ........................... 194,840
-------------------
Total Assets $ 4,746,864
===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note Payable ........................................ $ 736,491
Accounts payable .................................... 181,467
Accrued expenses .................................... 258,431
Accrued license fees ................................ 181,211
Accrued Warranty .................................... 454,000
Deferred revenue .................................... 816,742
-------------------
Total Current Liabilities 2,628,342
Note Payable Related party- convertible ................. 1,000,000
Note Payable long term portion .......................... 315,368
Deferred royalty revenue ................................ 4,065,491
Commitments and contingencies
Stockholders' deficit:
Convertible preferred stock, par value $.001 per share;
authorized 10,000,000 shares; non- issued ............... -
Common stock - par value $.001 per share; authorized
100,000,000 shares; 9,997,195 shares issued and
9,997,193 outstanding ................................... 9,997
Additional paid-in capital .............................. 104,625,869
Accumulated deficit ..................................... (107,898,203)
Less treasury stock, at cost; 2 common shares .......... -
-------------------
Total Stockholders' Deficit (3,262,337)
-------------------
Total Liabilities and Stockholders' Deficit $ 4,746,864
===================
See accompanying notes to the condensed consolidated financial statements.
Page 3 of 23
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
---------------------------- ----------------------------
2005 2004 2005 2004
---------------------------- ----------------------------
Revenues:
Products ............................ $ 1,069,988 $ 930,816 $ 4,222,546 $ 3,936,184
(including revenues from related parties
of $894 224, $778,807, $3,917,829 and
$3,509,714, respectively)
Royalties ........................... 266,091 234,810 797,303 704,430
---------------------------- ----------------------------
1,336,079 1,165,626 5,019,849 4,640,614
Cost of revenues:
Product cost ........................ 482,969 626,776 2,159,009 2,654,205
---------------------------- ----------------------------
Gross profit ............................ 853,110 538,850 2,860,840 1,986,409
Research and development and regulatory
expenses ................................ 46,705 42,747 146,523 135,351
Other general and administrative expenses 576,773 707,258 1,841,367 2,225,494
Selling-related expenses ................ 38,575 117,807 312,072 472,510
Amortization of intangibles ............. 8,379 8,379 25,137 25,137
---------------------------- ----------------------------
623,727 833,444 2,178,576 2,723,141
---------------------------- ----------------------------
Income (loss) from operations ........... 182,678 (337,341) 535,741 (872,083)
Other income and expenses:
Interest and other income ........... 654 275,476 3,066 331,117
Interest expense .................... (78,396) (189,509) (249,688) (419,330)
---------------------------- ----------------------------
Income (loss) before income tax benefit . 104,936 (251,374) 289,119 (960,296)
Income tax expense/benefit .............. - - - -
---------------------------- ----------------------------
Net income (loss) before extinguishment
of debt ................................. 104,936 (251,374) 289,119 (960,296)
Gain of extinguishment of debt .......... - - - 15,287,634
------------------------------------------------------------
Net Income(loss) ........................ $ 104,936 $ (251,374) $ 289,119 $ 14,327,338
============================================================
Income(loss) per common share
Basic: .................................. $ 0.01 $ (0.03) $ 0.03 $ 0.66
============================================================
Diluted: ................................ $ 0.01 $ (0.03) $ 0.03 $ 0.42
============================================================
Weighted average number of shares
outstanding
Basic: .................................. 9,997,000 9,997,000 9,997,000 21,828,000
============================================================
Diluted: ................................ 9,997,000 9,997,000 9,997,000 34,133,000
============================================================
See accompanying notes to the condensed consolidated financial statements.
Page 4 of 23
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004
(unaudited)
September 30, 2005 September 30, 2004
------------------- ------------------
Cash flows from operating activities
Net income .......................................... $ 289,119 $ 14,327,338
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................... 45,051 80,466
Amortization of discount on note payable and deferred
financing cost ...................................... 80,474 -
Issuance of stock options ........................... 7,800 -
Additions to notes payable for fees and penalities .. - 305,211
Gain on extinguishment of debt ...................... - (15,287,634)
Changes in assets and liabilities:
Accounts and notes receivable, net ............... (252,988) (333,121)
Inventories ....................................... 206,160 633,625
Accounts payable ................................. 17,624 447,758
Accrued expenses ................................. 13,876 231,449
Deferred revenue ................................. 79,532 (704,430)
Other ............................................ 43,822 (502,077)
-------------------- ------------------
Net cash provided by (used in) operating activities ... 530,470 (801,415)
Cash flows from investing activities
Purchases of property and equipment ................ (5,558) (109,689)
-------------------- ------------------
Net cash used in investing activities ................. (5,558) (109,689)
Cash flows from financing activities
Payments on debt financing ............................ (807,628) (243,823)
Proceeds from DIP Financing ........................... - 1,250,000
------------------------------------------
Net cash provided by (used in) financing activities ... (807,628) 1,006,177
------------------------------------------
Change in cash and cash equivalents ................... (282,716) 95,073
Cash and cash equivalents, beginning of period ........ 377,512 564,973
-------------------- ------------------
Cash and cash equivalents, end of period .............. $ 94,796 $ 660,046
==================== ==================
See accompanying notes to the condensed consolidated financial statements.
Page 5 of 23
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three-Month and Nine-Month Periods Ended September 30, 2005 and 2004
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, 2005, and for the three-month and
nine-month periods ended September 30, 2005 and 2004, 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 operations.
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.
Accounts receivable due from Shenzhen New Industries Medical
Development Co., Ltd. ("NIMD") as of September 30, 2005 totaled
$1,937,298, which was virtually all of the accounts receivable balance
at September 30, 2005. $1,043,074 of NIMD's balance is over ninety days
past due. As of November 8, 2005, $1,296,941 of the Company's accounts
receivable balance remains unpaid. While we have verbal promises from
the NIMD to pay the accounts receivable balance, we have no guarantee
that payment will be made on time. Management continues to believe that
it will fully realize the balance due, but the ultimate realization
thereof cannot be assured. The loss of NIMD as a customer or the
non-payment or slow payment of monies owed to the Company would have a
significant adverse effect on the Company's ability to continue as a
going concern.
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-KSB for the year ended December 31, 2004. In the
opinion of management, the condensed consolidated financial statements
include all adjustments necessary, consisting only of normal, recurring
adjustments, 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 income other than the
Company's consolidated net income for the three-month and nine-month
periods ended September 30, 2005 and 2004. The results of operations
for the three-month and nine-month periods ended September 30, 2005 are
not necessarily indicative of the operating results for the full year.
Page 6 of 23
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 that affect the amounts and
disclosures in the financial statements. Actual results could differ
from these 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 2004 Annual
Report on Form 10-KSB, filed in March 2005, in the Critical Accounting
Policies and Estimates section of "Item 7. - Management's Discussion
and Analysis or Plan of Operation."
NOTE 3 PER SHARE INFORMATION
Basic income 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 income
per common share is computed using the weighted average number of
common shares, contingently issuable shares (to the extent that all
necessary contingencies have been satisfied), and common share
equivalents outstanding during each period. Common share equivalents,
including options and warrants to purchase Common Stock, are included
in the computation using the treasury stock method. The dilutive effect
of convertible securities is computed using the if-converted method .
The computation of dilutive earnings per shares excludes the effect of
the assumed conversion of exercise or contingent issuance of securities
that would have an antidilutuve effect on earnings per share. For the
period ended September 30, 2005, 596,000 shares attributable to
outstanding stock options and warrants were excluded from the
calculation of diluted earnings per share because the exercise prices
of the stock options and warrants were greater than or equal to the
average price of common shares during the period, and therefore
inclusion would have been antidilutive. 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 LaserSight Incorporated 1,116,000
Creditors of LaserSight Technologies 1,134,000
Old preferred stockholders 360,000
Old common stockholders 539,997 (1)
Cancel treasury stock (2,802)
Conversion of $1 million DIP
Financing 6,850,000
---------
9,997,195
=========
(1) The old common stock was converted at a 51.828 to 1 ratio.
The following table presents earnings per share figures as if this
reorganization of the capital structure had taken place as of the
beginning of the first period presented:
Page 7 of 23
Three Months Ended
September 30, 2004
------------------
Net income per common share - basic and diluted ($0.03)
===================
Weighted average number of common shares outstanding -
basic and diluted 9,997,000
===================
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 at September 30, 2005 are summarized as
follows:
September 30, 2005
------------------
Raw material $ 1,143,971
Work in Process 408,277
Finished Goods 57,516
Reserve (100,000)
------------------
$ 1,509,764
==================
NOTE 5 AMENDED LOAN AGREEMENT
The Company signed a three-year note with Heller Healthcare Finance,
Inc ("Heller") and GE Healthcare Financial Services, Inc., as
successor-in-interest to Heller (collectively "GE") on August 30, 2004.
The note expires on June 30, 2007. The note bears interest of 9%.
Certain covenants were modified such that the Company is required to
maintain a net worth of $750,000, a tangible net worth of $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 June
30, 2008. The Company was not in compliance with certain covenants of
the amended loan agreements and a waiver was obtained on May 23, 2005.
The revised agreement removed the net worth and tangible net worth
covenants and added an annual net income provision. For the year ended
December 31, 2005 and any subsequent trailing twelve month periods, as
measured on the last day of each calendar quarter, the Company's
earnings before interest, taxes, depreciation and amortization cannot
fall below $550,000. As of November 8, 2005, we are in compliance with
all covenants of our loan agreement.
NOTE 6 CHINA BACKGROUND
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
Page 8 of 23
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.
In the past decade, NIMD invested and operated PRK/LASIK excimer laser
refractive surgery centers in joint venture with hospitals and medical
institutes in China. 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,
NII's CEO and the Company's Chairman of the Board of Directors). NIIC,
NII and NIMD are collectively referred to herein as the "China Group".
In 2003 and 2004, 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. As of September 30, 2005, the China Group
controlled approximately 72% of the Company's common stock. Company
revenues from the China Group were approximately $3.9 million and $3.5
million in the nine months ended September 30, 2005 and 2004,
respectively. Accounts receivable due from the China Group as of
September 30, 2005 was $1,937,298, virtually all of the accounts
receivable balance at September 30, 2005. $1,043,074 of the China
Group's balance is over ninety days past due. As of November 8, 2005,
$1,296,941 of the accounts receivable balance remains unpaid. See
Note 1.
NOTE 7 STOCK BASED COMPENSATION
The Company accounted 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 was 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. No
stock options were awarded in 2004, and the Company had no pro forma
stock-based compensation.
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. Effective January 1, 2005 the
Company adopted the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, using the retroactive restatement method
described in SFAS 148, Accounting for Stock-Based Compensation -
Transition and Disclosure. There was no effect to the financial
statements from the implementation of the retroactive restatement
method. In May 2005 the Board of Directors approved the issuance of
options to purchase 496,000 shares of the Company's Common Stock with
an estimated fair value of approximately $119,000. The options were
issued to employees and Directors and have various vesting schedules,
but all are exercisable for ten years. Amortization of unearned
stock-based compensation for the nine months ended September 30, 2005
and 2004 was $7,800 and $0, respectively.
NOTE 8 BANKRUPTCY
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.
Page 9 of 23
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.
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.
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 is the same amount as the $1,000,000 of DIP financing
converted to equity.
NOTE 9 CONTINGENCIES
Liquidity
---------
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
September 30, 2005. Net cash flows were negative during the nine-month
period ended September 30, 2005. The substantial portion of these
losses is attributable to the Company's continued lack of adequate
funding and working capital, and additional administrative and
professional expenses, attributable to the Chapter 11 filing, have also
contributed to these losses. In past years the substantial portion of
these losses were attributable to an inability to sell certain products
in the U.S. due to delays in Food and Drug Administration (FDA)
approvals, various procedures using 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. The
Company's new focus is on China, and it is no longer pursuing
additional FDA approvals.
In 2004, the Company had net income of $14.7 million, which included
$15.3 million of gain on forgiveness of debt. In 2004 the Company
incurred $398,000 of bankruptcy-related expenses for legal services,
financial advisor fees, printing and postage, priority claims and new
stock certificates.
Contractual obligations with one of our creditors require that
one-third of the payments received from WaveLight Laser Technologie AG
for licensing our patents be used for additional principal payments.
During the first three quarters of 2005, additional principal payments
were $275,000.
Page 10 of 23
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.
Litigation
----------
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 10 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 and nine months ended September 30, 2004 and 2005:
Page 11 of 23
SEGMENT INFORMATION
Three months ended Sept 30,
---------------------------
Operating Operating Depreciation and Capital
Revenues Profit(Loss) Assets Amortization Expenditures
-------- ------------ ------ ------------ ------------
2005
----
Operating segments:
Refractive products $1,069,988 $ 66,965 $4,552,024 $ 14,026 2,986
Patent services 266,091 266,091 - - -
General corporate - (150,378) 194,840 28,158 -
-------------------------------------------------------------------------
Consolidated total $1,336,079 $ 182,678 $4,746,864 $ 42,184 $ 2,986
=========================================================================
2004
----
Operating segments:
Refractive products $ 930,816 $ (437,139) $4,652,012 $ 12,736 -
Patent services 234,810 234,810 - - -
General corporate - (135,012) 648,738 - -
-------------------------------------------------------------------------
Consolidated total $1,165,626 $ (337,341) $5,300,750 $ 12,736 -
=========================================================================
Nine months ended Sept 30,
--------------------------
Operating Operating Depreciation and Capital
Revenues Profit(Loss) Assets Amortization Expenditures
-------- ------------ ------ ------------ ------------
2005
----
Operating segments:
Refractive products 4,222,546 378,718 4,552,024 45,051 5,558
Patent services 797,303 797,303 - - -
General corporate - (640,280) 194,840 80,474 -
------------------------------------------------------------------------
Consolidated total 5,019,849 535,741 4,746,864 125,525 5,558
========================================================================
2004
----
Operating segments:
Refractive products 3,936,184 (1,277,466) 4,652,012 80,466 109,689
Patent services 704,430 704,430 - - -
General corporate - (299,047) 648,738 - -
------------------------------------------------------------------------
Consolidated total 4,640,614 (872,083) 5,300,750 80,466 109,689
========================================================================
Page 12 of 23
Item 2. Management's Discussion and Analysis or Plan
of Operation.
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-KSB FOR THE YEAR ENDED DECEMBER
31, 2004, 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 REPORT ON FORM 10-KSB 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. 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.
Bankruptcy
On September 5, 2003 we filed for Chapter 11 bankruptcy protection and
reorganization. We operated in this manner from September 5, 2003 through June
10, 2004, when the re-organization was approved by the Bankruptcy Court. A final
decree of bankruptcy was obtained on December 22, 2004. As a result of the
bankruptcy re-structuring, we have recorded credits for debt forgiveness of
approximately $15.3 million during the three months ended June 30, 2004.
Additionally, we recognized charges of approximately $8.0 million during 2003
for patent impairment, accounts receivable and inventory write offs. We
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. We emerged
from bankruptcy with approximately $0.7 million in unsecured liabilities,
approximately $2.1 million in secured debt, approximately $5.3 million in
deferred revenue and approximately $1.0 million of DIP financing provided by a
related party, as part of the approved bankruptcy plan. The related party
converted $1.0 million of the DIP financing for an additional 6,850,000 common
shares.
Page 13 of 23
China Transaction
In February 2004, we received a commitment from a related party purchaser
to purchase at least $12.0 million worth of our products during the 12-month
period ending February 2005 and to distribute our products in Mainland China,
Hong Kong, Macao and Taiwan. The purchase agreement provides for two one-year
extensions. From February 2004 through September 2005, approximately $10.1
million worth of products were sold under this agreement. Product issues reduced
shipments during the third and fourth quarters of 2004 and the first and second
quarters of 2005. These issues have been resolved through revisions to product
crating for shipment, software modifications and revised shipper instructions.
An extension has not been signed, but the parties have continued to conduct
business under similar terms as set forth in the purchase agreement.
WaveLight Transaction
In March 2005 we executed a worldwide non-exclusive license agreement
with WaveLight Laser Technologie AG ("WaveLight") to use and reproduce the Lin
Scanning Patents for products to be used in ophthalmic surgery, which became
effective on March 3, 2005, and an option to acquire a license to the Company's
Apple Patents. Both the non-exclusive license and the option include certain
WaveLight co-enforcement rights. As consideration for the license, we had
received payments totaling $825,000 by September 30, 2005. The receivable
balance as of September 30, 2005 was $75,000 and we received the final payment
of $75,000 on October 17, 2005. $45,000 in broker fees were paid to an
unrelated party for their assistance in closing this transaction. The agreement
terminates when the patents expire, or earlier in the event of the occurrence of
certain events of default.
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.
Page 14 of 23
As a Percentage of Net Sales Percent Increase (Decrease)
----------------------------
Over Prior Periods
------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004 2005 vs. 2004 2005 vs. 2004
---- ---- ---- ---- ------------- -------------
Statement of Operations Data:
Net Revenues:
Refractive products....... 80.1% 79.9% 84.1% 84.8% 15.0% 7.3%
Patent services........... 19.9% 20.1% 15.9% 15.2% 13.3% 13.2%
Net Revenues.......... 100.0% 100.0% 100.0% 100.0% 14.6% 8.2%
Cost of Revenue.............. 36.1% 53.8% 43.0% 57.2% -22.9% -18.7%
Gross Profit (1).......... 63.9% 46.2% 57.0% 42.8% 58.3% 44.0%
Research, development and 9.3% 8.3%
regulatory expenses (2)... 3.5% 3.7% 2.9% 2.9%
Other general and administrative -17.3%
expenses.................. 43.2% 60.7% 36.7% 48.0% -18.4%
Selling-related expenses (3). 2.9% 10.1% 6.2% 10.2% -67.3% -34.0%
Amortization of intangibles.. 0.6% 0.7% 0.5% 0.5% 0.0% 0.0%
Net Income from operations... 13.7% -28.9% 10.7% -18.8% -154.2% -161.4%
(1) As a percentage of net revenues, the gross profit for refractive products
only for the three months ended September 30, 2005 and 2004 were 55% and
33%, respectively, and for the nine months ended September 30, 2005 and
2004 were 49% and 33%, respectively.
(2) As a percentage of refractive product net sales, research, development
and regulatory expenses for the three months ended September 30, 2005 and
2004, were 4% and 5%, respectively, and for the nine months ended
September 30, 2005 and 2004 were 3% and 3%, respectively.
(3) As a percentage of refractive product net sales, selling-related expenses
for the three months ended September 30, 2005 and 2004 were 4% and 13%,
respectively, and for the nine months ended September 30, 2005 and 2004
were 7% and 12%, respectively.
Three Months Ended September 30, 2005, Compared to Three Months Ended
September 30, 2004
Our consolidated revenues totaled $1.3 million for the three months ended
September 30, 2005, an increase of approximately $0.2 million or 15% compared to
revenues for the three months ended September 30, 2004 of $1.2 million. The
increase was primarily attributable to increased sales of laser systems. Four
lasers systems were sold in the third quarter of 2005 and three were sold in the
third quarter of 2004. For the three months ended September 30, 2005, parts
revenues were $0.2 million compared to $0.1 million for the three months ended
September 30, 2004. This was offset by a $0.1 million reduction in sales of our
AstraMax(R) diagnostic workstation; no AstraMax sales were recorded in the three
months ended September 30, 2005 compared to four for the comparable period in
2004. Our 2005 budget projected laser sales at 12 per quarter, or 48 for the
year. Delayed collections of accounts receivables have necessitated further
reducing the annual forecast for 2005 to 29 lasers.
Page 15 of 23
Net revenues from patent services increased by $31,000, or 13%, from
$235,000 for the three months ended September 30, 2004 to $266,000 for the three
months ended September 30, 2005. During the first quarter of 2005, the Company
licensed its Lin scanning patent for $855,000, net of expenses of $45,000. This
deferred revenue is being amortized over the remaining life of the patent,
approximately seven years.
Geographically, China has become our most significant market with $0.9
million in revenue during the three months ended September 30, 2005, as compared
to $0.8 million for the three months ended September 30, 2004.
Consolidated cost of sales includes direct material costs,
manufacturing wages, inbound freight, rework, scrap and standard cost variances.
For the three months ended September 30, 2005, consolidated cost of sales of
$0.5 million was approximately 36% of net revenues of $1.3 million, compared to
the same period in 2004 when our cost of sales was approximately 54% of net
revenues. For the three months ended September 30, 2005, consolidated cost of
sales of $0.5 million was approximately 45% of product revenues of $1.1 million,
compared to the same period in 2004 when our cost of sales was approximately 67%
of product revenues. The improvement of 2005 margins is primarily related to
significantly less inventory write offs in 2005 and improved margins on part
sales. For the remainder of 2005, our emphasis will be on continued unit cost
reductions driven by efficient purchasing and limited re-design of our product.
Our goal is to maintain a 47% consolidated cost of sales.
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. Selling-related expenses for
the three months ended September 30, 2005 decreased $79,000, or 67%, to $39,000
from $118,000 during 2004. This decrease was primarily attributable to a review
of the warranty reserve, the reduction to the reserve of $60,000 and lower
shipping costs. The warranty reserve was adjusted to remove reserves for lasers
out of the warranty period. Our 2005 operating plan projected our
selling-related expense ratio to be 11% of net revenues. For the three months
ended September 30, 2005, selling-related expenses were 1% of revenues primarily
due to the reduction in the warranty reserve. Our current plan projects our
selling-related expense ratio to be 9% of net revenues for the remainder of
2005.
General and administrative expenses decreased by $130,000 to $577,000 in
the three months ended September 30, 2005, from $707,000 for the same period in
2004. The decrease was primarily due to lower legal fees, and accounting fees
and insurance premiums. Our operating plan for fiscal 2005 projected business
levels that would require general and administrative expenses to be lower due to
reduced legal, printing and postage fees relating to the bankruptcy filing. The
current plan projects our general and administrative expenses ratio to be 28% of
net revenues. This is a higher percentage than our original budget which is
caused by general and administrative expenses remaining similar to our original
projections while revenues were lower than originally forecasted.
Research, development and regulatory expenses increased by $4,000 to
$47,000 for the three months ended September 30, 2005 from $43,000 for the three
months ended September 30, 2004. Even though our resources are limited, we
continue to offer improvements to our product. Our operating plan for fiscal
2005 projected business levels that would require research, development and
regulatory expenses to be similar to 2004.
In the three months ended September 30, 2005, amortization of intangibles
remained unchanged at $8,400. In accordance with our operating plan,
amortization of intangibles will be at a rate of approximately $33,000 per year.
Other income and expense for the three months ended September 30, 2005
consisted of the following:
o We received $654 of interest income on notes receivable.
Page 16 of 23
o In the three months ended September 30, 2005, we accrued $78,000
in interest expense. All of the accrued interest was paid except
for $22,500 of accrued interest for the DIP financing. The
interest expense includes $28,000 of amortized financing costs.
The amortization of financing costs is $8,600 per month and will
continue until June of 2007.
For the three months ended September 30, 2005 and 2004, we had no income
tax expense due to our net operating loss carryforwards.
Net income for the three months ended September 30, 2005 was
approximately $105,000 compared to a $251,000 loss for the same period in 2004,
an increase of approximately $356,000. This $356,000 increase in the current
quarter was comprised approximately of:
o decreased transfer agent expenses of $18,000 due to the
bankruptcy reorganization.
o increased computer expenses of $11,000 for upgrading computer
systems.
o decreased interest expense of $110,000 due to lower loan
balances.
o increased bank charges of $20,000 due to lender audit fees.
o decreased professional expenses of $96,000 for accounting and
legal fees.
o increased gross profit of $314,000.
o decreased selling related expenses of $79,000 related to
reduced warranty estimates and unit shipping charges.
o decreased other income of $275,000 due to shareholder derivate
lawsuit proceeds received in 2004.
o decreased insurance expense of $45,000 for D&O coverage.
Nine Months Ended September 30, 2005, Compared to Nine Months Ended
September 30, 2004
Our consolidated revenues totaled $5.0 million for the nine months ended
September 30, 2005, an increase of approximately $0.4 million or 8% compared to
revenues for the nine months ended September 30, 2004 of $4.6 million. The
increase was primarily attributable to increased sales of laser systems. 17
lasers systems were sold in the three quarters ended September 30, 2005 and 14
were sold in the three quarters ended September 30, 2004. For the nine months
ended September 30, 2005, parts revenues were $0.3 million compared to $0.5
million for the nine months ended September 30, 2004. This was offset by $0.2
million in reduced sales of our AstraMax(R) diagnostic workstation; four
AstraMax sales were recorded in the nine months ended September 30, 2005
compared to 10 for the comparable period in 2004. Our 2005 budget projected
laser sales at 12 per quarter, or 48 for the year. Delayed collections of
accounts receivables have necessitated reducing the annual forecast for 2005 to
29 lasers.
Net revenues from patent services increased by $93,000, or 13%, from
$704,000 for the nine months ended September 30, 2004 to $797,000 for the nine
months ended September 30, 2005. During the first quarter of 2005, we licensed
our Lin scanning patent for $855,000, net of expenses of $45,000. This deferred
revenue is being amortized over the remaining life of the patent, approximately
seven years.
Page 17 of 23
Geographically, China has become our most significant market with $3.9
million in revenue during the nine months ended September 30, 2005, as compared
to $3.5 million for the nine months ended September 30, 2004.
Consolidated cost of sales includes direct material costs, manufacturing
wages, inbound freight, rework, scrap and standard cost variances. For the nine
months ended September 30, 2005, consolidated cost of sales of $2.2 million was
approximately 43% of net revenues of $5.0 million, compared to the same period
in 2004 when our cost of sales was approximately 57% of net revenues. This
improvement was caused by the reduction of costs for inventory adjustments,
rework and cost variances. The improvement of 2005 margins is primarily related
to significantly less inventory write offs in 2005 and improved margins on part
sales. For the remainder of 2005, our emphasis will be continued unit cost
reductions driven by efficient purchasing and limited re-design of our product.
Our goal is to maintain a 47% consolidated cost of sales.
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. Selling-related expenses for
the nine months ended September 30, 2005 decreased $160,000, or 34%, to $312,000
from $473,000 during 2004. This decrease was primarily attributable to a
decrease in warranty costs, due to a review of the warranty reserve and the
reduction of shipping costs. The warranty reserve was adjusted to remove
reserves for lasers out of the warranty period. Our 2005 operating plan
projected our selling-related expense ratio to be 11% of net revenues. For the
nine months ended September 30, 2005, selling-related expenses were 6% of
revenues primarily due to the reduction in the warranty reserve. Our current
plan projects our selling-related expense ratio to be 9% of net revenues for the
remainder of 2005.
General and administrative expenses decreased by $384,000 to $1.8 million in the
nine months ended September 30, 2005, from $2.2 million for the same period in
2004. The decrease was primarily due to reductions of legal fees, accounting
fees and insurance expense. Our operating plan for fiscal 2005 projected
business levels that would require general and administrative expenses to be
lower due to reduced legal, printing and postage fees relating to the bankruptcy
filing. The current plan projects our general and administrative expenses ratio
to be 28% of net revenues. This is a higher percentage than our original budget
which is caused by general and administrative expenses remaining similar to our
original projections while revenues were lower than originally forecast .
Research, development and regulatory expenses increased $11,000 to
$147,000 for the nine months ended September 30, 2005 from $135,000 for the nine
months ended September 30, 2004. Even though our resources are limited, we
continue to offer improvements to our product. Our operating plan for fiscal
2005 projected business levels that will require research, development and
regulatory expenses to be similar to 2004.
In the nine months ended September 30, 2005, amortization of intangibles
remained unchanged at $25,100. In accordance with our operating plan,
amortization of intangibles will be at a rate of approximately $33,000 per year.
Other income and expense for the nine months ended September 30, 2005
consisted of the following:
o We received $3,066 of interest income on notes receivable.
o In the nine months ended September 30, 2005, we accrued $250,000
in interest expense. Of the accrued interest only $52,500 was not
paid. This was the interest due on the DIP financing. The interest
expense includes $80,000 of amortized financing costs. The
amortization of financing costs is $8,600 per month and will
continue until June of 2007.
For the nine months ended September 30, 2005 and 2004, we had no income
tax expense due to our net operating loss carryforwards.
Page 18 of 23
Net income for the nine months ended September 30, 2005 was approximately
$289,000 compared to $14.3 million for the same period in 2004, a decline of
approximately $14 million. This $14 million decline for the first three quarters
of 2005 was comprised approximately of:
o decrease of $15.3 million due to forgiveness of debt income in 2004.
o increased gross profit of $874,000.
o decreased salaries of $64,000.
o decreased other income of $275,000 due to shareholder derivate
lawsuit proceeds in 2004.
o decreased interest expense of $170,000 due to lower loan balances.
o decreased selling related expenses of $160,000 related to reduced
warranty estimates.
o decreased professional expenses of $240,000 for legal and
accounting fees and printing fees due to the Company's bankruptcy
filing.
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 we filed for Chapter 11 bankruptcy protection and
reorganization. We operated in this manner from September 5, 2003 through June
10, 2004, when the re-organization was approved by the Bankruptcy Court,
effective June 30, 2004. A final decree of bankruptcy was obtained on December
22, 2004. We cancelled all of our outstanding common and preferred stock,
including warrants and options, and issued 9,997,195 new common shares on June
30, 2004. We emerged from bankruptcy with approximately $0.7 million in
unsecured liabilities, approximately $2.1 million in secured debt, 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 our 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 our
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 we 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 revenues from the China
Group were approximately $3.9 million in the nine-months ended September 30,
2005. Accounts receivable due from the China Group as of September 30, 2005
totaled $1,937,298, which was virtually all of our accounts receivable balance
at September 30, 2005. $1,043,074 of the China Group's balance is over ninety
Page 19 of 23
days past due. As of November 8, 2005, $1,296,941 of the accounts receivable
balance remains unpaid. While we have verbal promises from the China Group to
pay the accounts receivable balance and management continues to believe that we
will fully realize the balance due, the ultimate realization thereof can not be
assured. The loss of the China Group as a customer or the non-payment or slow
payment of monies owed to us could have a significant adverse effect on our
ability to continue as a going concern.
On August 30, 2004 we signed a three-year note with GE, which will expire
on June 30, 2007. The note bears interest of 9%. Certain covenants were modified
such that we are required to maintain a net worth of $750,000, a tangible net
worth of $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. We were not in compliance with certain
covenants of the amended loan agreements and a waiver was obtained on May 23,
2005. The revised agreement removed the net worth and tangible net worth
covenants and added an annual net income provision. For the year ended December
31, 2005 and any subsequent trailing twelve month periods, as measured on the
last day of each calendar quarter, earnings before interest, taxes, depreciation
and amortization cannot fall below $550,000.
There can be no assurance as to the correctness of the 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. 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
our 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.
Item 3. Controls and Procedures.
We maintain 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, our 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 our
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. Our Chief Executive Officer
and Chief Financial Officer have concluded that such controls and procedures are
currently effective at the reasonable assurance level.
Page 20 of 23
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-KSB for the year ended December 31,
2004, and in Note 9 to the Financial Statements in Part I, Item 1 of this
report, which are incorporated herein by this reference.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3 Defaults Upon Senior Securities.
On September 5, 2003 the Company filed a Chapter 11 bankruptcy petition.
The Company had been in default under its loan agreements with GE. 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 such that the Company is
required to maintain a net worth of $750,000, a tangible net worth of $1,000,000
and minimum quarterly revenues of $1,000,000. The Company issued GE 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 was not in compliance with certain covenants of the
amended loan agreements and a waiver was obtained on May 23, 2005. The revised
agreement removed the net worth and tangible net worth covenants and added an
annual net income provision. For the year ended December 31, 2005 and any
subsequent trailing twelve month periods, as measured on the last day of each
calendar quarter, the Company's earnings before interest, taxes, depreciation
and amortization cannot fall below $550,000.
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
------ ------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to
the Company's Form 10-Q filed on November 14, 2002, and
incorporated herein by this reference).
3.2 Bylaws, as amended (filed as Exhibit 3.2 to the Company's Form
10-Q/A filed on November 21, 2002, and incorporated herein by this
reference).
3.3 Certificate of Amendment to Certificate of Incorporation, as
amended on March 2, 2005 (filed as Exhibit 10.11 to the Company's
Form 10-KSB filed on March 23, 2005, and incorporated herein by
this reference).
4.1 Rights Agreement, dated as of July 2, 1998, between the Company
and American Stock Transfer & Trust Company, as Rights Agent,
which includes (i) as Exhibit A thereto the form of Certificate of
Page 21 of 23
Designation of the Series E Junior Participating Preferred Stock,
(ii) as Exhibit B thereto the form of Rights Certificate (separate
certificates for the Rights will not be issued until after the
Distribution Date), and (iii) as Exhibit C thereto the Summary of
Stockholder Rights Agreement (filed as Exhibit 99.1 to the
Company's Form 8-K filed on July 8, 1998, and incorporated herein
by this reference).
10.1 Non-Exclusive License Agreement between the Company and WaveLight
Laser Technologie AG, dated February 24, 2005, and effective March
3, 2005 (filed as Exhibit 10.1 to the Company's Form 10-QSB filed
on April 25, 2005, and incorporated herein by this reference).
10.2 Amendment Number One to the Third Amended and Restated Secured
Term Note between the Company and GE dated May 23, 2005 (filed as
Exhibit 10.2 to the Company's Form 10-QSB filed on August 5, 2005,
and incorporated herein by this reference).
11 Statement Re: Computation of Per Share Earnings (included in
Financial Statements in Part I, Item 1, of this report).
31.1 Certifications of Chief Executive Officer pursuant to Rule
13a-14(a) (filed herewith).
31.2 Certifications of Chief Financial Officer pursuant to Rule
13a-14(a) (filed herewith).
32.1 Certifications of Chief Executive Officer pursuant to Section 1350
(filed herewith).
32.2 Certifications of Chief Financial Officer pursuant to Section 1350
(filed herewith).
Page 22 of 23
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LaserSight Incorporated
Dated: November 8, 2005 By: /s/ Danghui ("David") Liu
------------------------------------
Danghui ("David") Liu, President,
Chief Executive Officer and Director
Dated: November 8, 2005 By: /s/ Dorothy M. Cipolla
------------------------------------
Dorothy M. Cipolla,
Chief Financial Officer
Page 23 of 23