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 March 31, 2005.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Transition period from to
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Commission File Number: 0-19671
LASERSIGHT INCORPORATED
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0273162
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(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 ______
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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 ______
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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 April 25, 2005 is 9,997,195.
Transitional Small Business Disclosure Format
Yes No X
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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 March 31, 2005 3
Condensed Consolidated Statements of Operations for the Three- Month
Periods Ended March 31, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows for the Three- Month
Periods Ended March 31, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operations
11
Item 3. Controls and Procedures. 16
PART II.OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 17
Item 3. Defaults Upon Senior Securities. 17
Item 4. Submission of Matters to a Vote of Security Holders. 18
Item 5. Other Information. 18
Item 6. Exhibits. 18
Page 2 of 19
PART 1 - FINANCIAL INFORMATION
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
ASSETS March 31, 2005
Current assets:
Cash and cash equivalents ...................................... $ 144,500
Accounts receivable - trade, net ............................... 1,990,848
Notes receivable - current portion, net ........................ 571,922
Inventories, net ............................................... 1,757,128
Prepaid expenses ............................................... 59,485
-------------
Total Current Assets ........ 4,523,883
Property and equipment, net ...................................... 105,376
Patents, net ..................................................... 441,533
Deposits with suppliers .......................................... 283,494
Deferred financing costs, net .................................... 228,908
-------------
Total Assets ........ $ 5,583,194
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note Payable.................................................... $ 1,444,399
Accounts payable ............................................... 198,289
Accrued expenses ............................................... 170,900
Accrued license fees ........................................... 219,696
Accrued Warranty ............................................... 530,676
Deferred revenue ............................................... 948,364
-------------
Total Current Liabilities ........ 3,512,324
Note Payable Related party ....................................... 1,000,000
Note Payable long term portion ................................... 85,318
Deferred royalty revenue ......................................... 4,453,673
Commitments and contingencies
Stockholders' deficit:
Convertible preferred stock, par value $.001 per share; authorized
10,000,000 shares- none issued ................................... --
Common stock - par value $.001 per share; authorized
100,000,000 shares; 9,997,195 shares issued and outstanding ...... 9,997
Additional paid-in capital ....................................... 104,618,069
Accumulated deficit .............................................. (108,096,187)
-------------
Total Stockholders' Deficit ........ (3,468,121)
-------------
Total Liabilities and Stockholders' Deficit ........ $ 5,583,194
=============
See accompanying notes to the condensed consolidated financial statements.
Page 3 of 19
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Three Months Three Months Ended
March 31, March 31,
------------ ------------
2005 2004
------------ ------------
Revenues:
Products ............................ $ 1,907,390 $ 2,066,512
(including revenues from related parties
of $1,879,712 and $1,823,895 in the
three months ended March 31, 2005 and
2004, respectively)
Royalties ........................... 260,505 234,810
------------ ------------
2,167,895 2,301,322
Cost of revenues:
Product cost ........................ 995,280 1,088,434
------------ ------------
Gross profit ............................ 1,172,615 1,212,888
Research and development and
regulatory expenses ..................... 52,752 52,681
Other general and administrative expenses 673,117 620,001
Selling-related expenses ................ 259,392 220,788
Amortization of intangibles ............. 8,379 8,379
------------ ------------
940,888 849,168
------------ ------------
Income from operations .................. 178,975 311,039
Other income and expenses:
Interest and other income ........... 1,039 4,054
Interest expense .................... (88,879) (50,901)
------------ ------------
Income before income tax benefit ........ 91,135 264,192
Income tax benefit ...................... -- --
------------ ------------
Net Income .............................. $ 91,135 $ 264,192
============ ============
Income per common share
Basic and diluted: ...................... 0.01 0.01
============ ============
Weighted average number of shares
outstanding
Basic: .................................. 9,997,000 27,842,000
============ ============
Diluted: ................................ 9,997,000 46,403,000
============ ============
See accompanying notes to the condensed consolidated financial statements.
Page 4 of 19
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2005 and 2004
(unaudited)
March 31, 2005 March 31, 2004
----------------- ----------------
Cash flows from operating activities
Net income ............................................ $ 91,135 $ 264,192
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ......................... 12,352 39,050
Amortization of discount on note payable and deferred
financing cost ........................................ 25,759 --
Changes in assets and liabilities:
Accounts and notes receivable, net .................... (769,831) (576,504)
Inventories ........................................... (41,204) 322,267
Accounts payable ................................... 34,446 223,663
Accrued expenses and commissions ................... 41,506 (90,539)
Deferred revenue ................................... 599,336 (234,810)
Other .............................................. 82,612 (610)
----------- -----------
Net cash provided by (used in) operating activities ... 76,111 (53,291)
Cash flows from financing activities
Payments on debt financing ............................ (309,123) --
Proceeds from DIP Financing ........................... -- 530,000
----------- -----------
Net cash provided by (used in) financing activities ... (309,123) 530,000
----------- -----------
Change in cash and cash equivalents ................... (233,012) 476,709
Cash and cash equivalents, beginning of period ........ 377,512 564,973
----------- -----------
Cash and cash equivalents, end of period .............. $ 144,500 $ 1,041,682
=========== ============
See accompanying notes to the condensed consolidated financial statements.
Page 5 of 19
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS Three-Month Periods
Ended March 31, 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 March 31, 2005, and for the three-month periods ended
March 31, 2005 and 2004 have been prepared in accordance with
accounting principles generally accepted in the United States, except
as disclosed herein, 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.
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 periods ended
March 31, 2005 and 2004. The results of operations for the three-month
period ended March 31, 2005 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 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 of Financial Condition and Results of Operations."
NOTE 3 PER SHARE INFORMATION
Page 6 of 19
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, and common share
equivalents outstanding during each period. Common share equivalents
includes options, and warrants to purchase Common Stock and are
included in the computation using the treasury stock method.
Convertible preferred stock is included in the computation using the
if-converted method, if they would have a dilutive effect. However, as
a result of the September 5, 2003 Chapter 11 filing, all common and
preferred shares outstanding at and prior to June 30, 2004, including
options and warrants, were cancelled and new shares were distributed,
effective June 30, 2004, as follows:
Creditors of 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:
March 31, 2005 March 31, 2004
-------------- --------------
Net income per common share - basic and diluted $0.01 $0.03
================ ================
Weighted average number of common shares outstanding -
basic and diluted 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 at March 31, 2005 are summarized as follows:
March 31,2005
-------------
Raw material $ 1,170,414
Work in Process 615,467
Finished Goods 121,247
Reserve (150,000)
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$ 1,757,128
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Page 7 of 19
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 as follows: net worth $750,000,
tangible net worth $1,000,000 and minimum quarterly revenues of
$1,000,000. GE was issued a warrant to purchase 100,000 shares of
common stock at $0.25 per share, or $0.40 per share if the New
Industries Investment Group (the "China Group"), see Note 6, converts
its DIP loan to equity. The warrant expires 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 lender;
accordingly, all amounts outstanding under this loan agreement are
classified as current liabilities.
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
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. 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, NII's CEO and
the Company's Chairman of the Board of Directors). NIIC, NII and NIMD
are collectively referred to 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 March 31, 2005, the China Group
controlled approximately 72% of the Company's common stock. Company
revenues from the China Group were approximately $1.9 million and $1.8
million in the three months ended March 31, 2005 and 2004,
respectively. Accounts receivable due from the China Group as of March
31, 2005 was $1,989,261, virtually all of the accounts receivable
balance at March 31, 2005. As of April 25, 2005 $1,329,261 remains
unpaid. We have verbal promises from the China Group to pay the
accounts receivable balance but no guarantee that payment will be made
on time or at all. The loss of the China Group 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.
Page 8 of 19
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 ended March 31, 2005. 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:
March 31, 2005 March 31, 2004
-------------- --------------
Net income, as reported $ 91,135 $ 264,192
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects - 9,069
--------- ---------
Pro forma net income $ 91,135 $ 255,123
========= =========
Basic and diluted income per share:
As reported $ 0.01 $ 0.01
========= =========
Pro forma $ 0.01 $ 0.01
========= =========
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.
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
============
Page 9 of 19
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 per share 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 $108.1 million at
March 31, 2005. Cash flows were negative during the three-month period
ended March 31, 2005. 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 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. 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.
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 GE require that one third of the payments
received from WaveLight for licensing our patents be additional
principal payments. During the first quarter of 2005 additional
principal payments were $125,000.
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.
Page 10 of 19
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 months ended March 31:
Operating Operating Profit Depreciation and Capital
Revenues (Loss) Assets Amortization Expenditures
-------- ------ ------ ------------ ------------
2005
----
Operating segments:
Refractive products $1,907,390 $ 187,939 $5,353,325 $ 12,352 -
---------- --------- ---------- --------
Patent services 260,505 260,505 - - -
General corporate - (269,469) 229,869 - -
------------------------------------------------------------------------------------
Consolidated total $2,167,895 $ 178,975 $5,583,194 $ 12,352 -
====================================================================================
2004
----
Operating segments:
Refractive products $2,066,512 $ 141,112 $5,384,584 $ 39,050 -
Patent services 234,810 234,810 - - -
General corporate - (64,883) 282,802 - -
------------------------------------------------------------------------------------
Consolidated total $2,301,322 $ 311,039 $5,667,386 $ 39,050 -
====================================================================================
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
Page 11 of 19
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 REPOR TON 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 the company filed for Chapter 11 bankruptcy
protection and reorganization. The Company operated in this manner from
September 5, 2003 through June 10, 2004, when a final bankruptcy release was
obtained. As a result of the bankruptcy re-structuring, the Company has recorded
credits for debt forgiveness of approximately $15.3 during the three months
ended June 30, 2004. Additionally, the Company recognized charges of
approximately $8.0 million during 2003 for patent impairment, accounts
receivable and inventory write offs. The Company cancelled all of its
outstanding common and preferred stock, including warrants and options, and
issued 9,997,195 new common shares on June 30, 2004. The Company emerged from
bankruptcy with approximately $0.7 million in unsecured liabilities,
approximately $2.1 million in secured debt to GE, approximately $5.3 million in
deferred revenue and approximately $1.0 million of DIP financing provided by
NIIC, as part of the approved bankruptcy plan. NIIC converted $1.0 million of
the DIP financing for additional 6,850,000 common shares.
China Transaction
In February 2004, we received a commitment to purchase at least $12.0
million worth of our products during the 12-month period ending February 2005,
to distribute our products in Mainland China, Hong Kong, Macao and Taiwan. The
purchase agreement provides for two one-year extensions. From February 2004
through March 2005, approximately $8.1 million worth of products were sold under
this agreement. Product issues reduced shipments during the third and fourth
quarter of 2004. These issues have been resolved through revisions to product
crating for shipment, software modifications and shipper instructions.
Page 12 of 19
WaveLight Transaction
In March 2005 the Company 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, the
Company has received a $375,000 payment and will receive another $525,000 prior
to October 15, 2005. $45,000 in broker fees were paid to PCE Investments 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, including the failure of the WaveLight to make required payments. The
agreement is attached as an exhibit to this filing.
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
As a Percentage of (Decrease)
Net Sales Over Prior Periods
Three Months Three Months
Ended Ended
Mar 31, Mar 31,
----------------- -----------------
2005 2004 2005 vs. 2004
---- ---- ---- ----
Statement of Operations Data:
Net Revenues:
Refractive products...... 88.0% 89.8% -7.7%
Patent services......... 12.0% 10.2% 10.9%
----- ----- ---
Net Revenues....... 100.0% 100.0% -5.8%
Cost of Revenue....... 45.9% 47.3% -8.6%
----- ----- ---
Gross Profit (1)......... 54.1% 52.7% -3.3%
Research, development and 0.1%
regulatory expenses (2)..... 2.4% 2.3%
Other general and administrative
expenses......... 31.0% 26.9% 8.6%
Selling-related expenses (3)... 12.0% 9.6% 17.5%
Amortization of intangibles... 0.4% 0.4% 0.0%
----- ----- ---
Net Income from operations... 8.3% 13.5% -42.5%
(1) As a percentage of net revenues, the gross profit for refractive
products only for the three months ended March 31, 2005 and 2004 were
48% and 47%, respectively.
(2) As a percentage of refractive product net sales, research, development
and regulatory expenses for the three months ended March 31, 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 March 31, 2005 and 2004, were 14%,
and 11%, respectively.
Page 13 of 19
Three Months Ended March 31, 2005, Compared to Three Months Ended March 31, 2004
Our consolidated revenues totaled $2.2 million for the three months ended
March 31, 2005, a decrease of approximately $0.1 million or (6%) compared to
revenues for the three months ended March 31, 2004 of $2.3 million. The decrease
was primarily attributable to decreased sales of parts. Eight lasers systems
were sold in the first quarter of both 2005 and 2004. For the three months ended
March 31, 2005, parts revenues were $0.02 million compared to $0.2 million for
the three months ended March 31, 2004. This was offset by $0.06 million from
additional sales of our AstraMax(R) diagnostic workstation.
Net revenues from patent services increased by $26,000, or 11%, from
$235,000 for the three months ended March 31, 2004 to $261,000 for the three
months ended March 31, 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 $1.9
million in revenue during the three months ended March 31, 2005, as compared to
$1.8 million for the three months ended March 31, 2004.
For the three months ended March 31, 2005, consolidated cost of sales of
$1.0 million was approximately 46% of net revenues of $2.2 million, compared to
the same period in 2004 when our cost of sales was approximately 47% of net
revenues. This improvement was caused by the reduction of costs for the AstraMax
diagnostic workstations. Going forward into 2005, the emphasis will be continued
unit cost reductions driven by efficient purchasing and limited re-design of the
product.
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 March 31, 2005 increased $40,000, or 17%, to
$260,000 from $220,000 during 2004. This increase was primarily attributable to
an increase in license fees. Our 2005 operating plan projects our
selling-related expense ratio to be 11% of net revenues.
General and administrative expenses increased by $53,000 to $673,000 in
the three months ended March 31, 2005, from $620,000 for the same period in
2004. The increase was primarily due to accounting, legal and SEC filing fees
attributable to bringing the Company's SEC filings up to date. Our operating
plan for fiscal 2005 projects business levels that will require general and
administrative expenses to be lower due to reduced professional fees relating to
the bankruptcy filing.
Research, development and regulatory expenses remained unchanged at
$53,000 for the three months ended March 31, 2005 and 2004. Even though our
resources are limited, we continue to offer improvements to our product. Our
operating plan for fiscal 2005 projects business levels that will require
research, development and regulatory expenses to be similar to 2004.
In the three months ended March 31, 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 March 31, 2005
consisted of the following:
o We received $1,000 of interest income on notes receivable.
o In the three months ended March 31, 2005, we paid $63,000 in
interest to GE, the DIP financier and the tax assessor. The
interest expense also includes $26,000 of amortized financing
costs and the fair value of a warrant issued to GE. The
amortization is $8,600 per month and will continue until June
of 2007.
Page 14 of 19
For the three months ended March 31, 2005 and 2004, we had no income
tax expense.
Net income for the three months ended March 31, 2005 was approximately
$91,000 compared to $264,000 for the same period in 2004, a decline of
approximately $173,000. This $173,000 decline in the current quarter was
comprised approximately of:
o increased shipping expense of $12,000
o increased license fees of $21,000
o increased interest expense of $40,000
o increased professional expenses of $100,000 for accounting,
legal and SEC EDGAR filing fees
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. The Company 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. 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 $5.3 million in deferred revenue and approximately $1.0
million of DIP financing provided by NIIC. NIIC converted $1.0 million of the
DIP financing for additional equity.
With the new revenues being generated from the China Group and
projected sales to other customers, management expects that LaserSight's cash
and cash equivalent balances and funds from operations (which are principally
the result of sales and collection of accounts receivable) will be sufficient to
meet its anticipated operating cash requirements for the next several months.
This expectation is based upon assumptions regarding cash flows and results of
operations over the next several months and is subject to substantial
uncertainty and risks beyond our control. If these assumptions prove incorrect,
the duration of the time period during which LaserSight could continue
operations could be materially shorter. We continue to face liquidity and
capital resource issues relative to the timing of the successful completion of
new sales compared to our ongoing payment obligations. To continue our
operations, we will need to generate increased revenues, collect them and reduce
our expenditures relative to our recent history. While we are working to achieve
these improved results, we cannot assure you that we will be able to generate
increased revenues and collections to offset required cash expenditures. Company
revenues from the China Group were approximately $1.9 million in the three
months ended March 31, 2005. Accounts receivable due from the China Group as of
March 31, 2005 was $1,989,261, virtually all of the accounts receivable balance
at March 31, 2005. As of April 25, 2005 $1,329,261 remains unpaid. We have
verbal promises from the China Group to pay the accounts receivable balance but
no guarantee that payment will be made on time or at all. The loss of the China
Group as a customer or the non-payment or slow payment of monies owed to the
Company could have a significant adverse effect on the Company's ability to
continue as a going concern.
Page 15 of 19
On August 30, 2004 the Company signed a three-year note with GE,
which will expire 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
covenant of the loan agreements. Accordingly all amounts have been classified as
short-term obligations.
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.
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.
Item 3. Controls and Procedures.
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
We carry out a variety of on-going procedures, under the supervision and with
the participation of our management, including our Chief Executive Officer and
our Chief Financial Officer, to evaluate the effectiveness of the design and
operation of our disclosure controls and procedures. Our Chief Executive Officer
and Chief Financial Officer 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-KSB for the year ended December 31, 2004,
and in Note 9 to the Financial Statements in Part I, Item 1 of this report.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Page 16 of 19
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 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 covenant of the loan agreements [and may,
therefore, be deemed to be in default]. Accordingly all amounts have been
classified as short-term obligations.
Item 4 Submission of Matters to a Vote of Security Holders.
Not applicable. However, proxy materials were mailed to
security holders on March 28, 2005 with respect to the annual meeting
of stockholders to be held on April 26, 2005. Such materials were filed
with the Commission on March 24, 2005.
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
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 herewith).
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 Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 1350 (filed herewith).
Page 17 of 19
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: April 25, 2005 By: /s/ Danghui ("David") Liu
-------------------------
Danghui ("David") Liu, President,
Chief Executive Officer and Director
Dated: April 25, 2005 By: /s/ Dorothy M. Cipolla
-------------------------
Dorothy M. Cipolla,
Chief Financial Officer
Page 18 of 19
INDEX TO EXHIBITS
Exhibit
Number Description
------ -------------------------------------------------------------------
11 Statement of Computation of Loss Per Share (Included in Financial
Statements in Part I, Item 1 hereto)
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
32 Certifications of CEO and CFO Pursuant to Section 1350
Page 19 of 19