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, 2004
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
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(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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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act
Yes No X
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Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
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The number of shares of the registrant's common stock outstanding as of August
14, 2003 is 27,841,941. As detailed herein, the Company filed Chapter 11
bankruptcy on September 5, 2003. As a result of the bankruptcy, the company
canceled these shares and issued 9,997,195 new shares on June 30, 2004. As of
November 30, 2004, there are 9,997,195 common shares outstanding.
LASERSIGHT INCORPORATED AND SUBSIDIARIES
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS (WITHIN THE MEANING OF SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934) THAT INVOLVE RISKS AND UNCERTAINTIES.
LASERSIGHT'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THE SECTIONS ENTITLED "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - RISK FACTORS AND
UNCERTAINTIES" IN THIS REPORT AND IN LASERSIGHT'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 2003. LASERSIGHT UNDERTAKES NO OBLIGATION TO UPDATE
ANY SUCH FACTORS OR TO PUBLICLY ANNOUNCE THE RESULTS OF ANY REVISIONS TO ANY OF
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY FUTURE EVENTS OR
DEVELOPMENTS.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheet as of March 31, 2004
(unaudited) 3
Condensed Consolidated Statements of Operations for the
Three Month Periods Ended March 31, 2004 and 2003
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Three Month Periods Ended March 31, 2004 and 2003
(unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Controls and Procedures 19
PART II.OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 20
Page 2 of 21
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,
ASSETS 2004
--------------
Current assets: (Unaudited)
Cash and cash equivalents ........................... $ 1,041,682
Accounts receivable - trade, net .................... 565,826
Notes receivable - current portion, net ............. 91,069
Inventories ......................................... 3,039,718
Other current assets ................................ 143,165
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Total Current Assets .... 4,881,460
Property and equipment, net ........................... 34,858
Patents and acquired intangibles, net ................. 475,049
Other assets, net ..................................... 276,019
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$ 5,667,386
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities not subject to compromise :
Note payable ........................................ $ 1,843,313
Accounts payable .................................... 257,658
Accrued expenses .................................... 205,109
Accrued Warranty .................................... 175,500
Deferred revenue .................................... 1,039,240
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Total Current Liabilities .... 3,520,820
Liabilities subject to compromise (a) ................. 15,616,134
Deferred royalty revenue .............................. 4,567,891
Note Payable DIP Financing (Related Party)............. 1,280,000
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock, par value $.001 per
share; authorized 10,000,000shares:
Series H - 9,280,647 issued and outstanding ........... 9,281
Common stock - par value $.001 per share;
authorized 100,000,000 shares; 27,987,141 shares issued 27,987
Additional paid-in capital ............................ 103,801,064
Accumulated deficit ................................... (122,613,144)
Less treasury stock,at cost; 145,200 common shares .... (542,647)
-------------
(19,317,459)
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$ 5,667,386
=============
(a) Liabilities subject to compromise consist
of the following:
Accounts Payable ................................. 2,905,814
Accrued expenses ................................. 5,864,191
Accrued Warranty ................................. 6,125,730
Other liabilities ................................ 720,339
-------------
15,616,134
=============
See accompanying notes to the condensed consolidated financial statements.
Page 3 of 20
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
----------------------------
2004 2003
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Revenues:
Products (1).................................. $ 2,066,512 $ 2,086,155
Royalties ................................... 234,810 234,810
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2,301,322 2,320,965
Cost of revenues:
Product cost ................................ 1,088,434 1,345,544
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Gross profit .................................... 1,212,888 975,421
Research and development and regulatory expenses 52,681 196,500
Other general and administrative expenses ....... 620,001 2,428,522
Selling-related expenses ........................ 220,788 617,780
Amortization of intangibles ..................... 8,379 115,059
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849,168 3,161,361
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Income (Loss) from operations ................... 311,039 (2,382,440)
Other income and expenses:
Interest and other income ....................... 4,054 26,615
Interest expense ................................ (50,901) (112,628)
------------ ------------
Income (Loss) before income tax benefit ........ 264,192 (2,468,453)
Income tax benefit .............................. - (57,708)
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Net Income (Loss) ............................... 264,192 (2,410,745)
Conversion discount on preferred stock .......... - (483,837)
------------ ------------
Income (Loss) attributable to common shareholders $ 264,192 $ (2,894,582)
============ ============
Income (Loss) per common share
Basic and diluted: .............................. 0.01 (0.10)
============ ============
Weighted average number of shares outstanding
Basic: .......................................... 27,842,000 27,842,000
============ ============
Diluted: ........................................ 46,403,000 27,842,000
============ ============
(1) including revenues from related parties of $1,823,895 and $1,694,036 in
the Three Months ended March 31,2004 and 2003, respectively.
See accompanying notes to the condensed consolidated financial statements.
Page 4 of 20
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
2004 2003
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Cash flows from operating activities
Net Income (Loss)................................................... $ 264,192 $(2,410,745)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ...................................... 39,050 301,158
Stock options issued for services .................................. - 4,252
Changes in assets and liabilities:
Accounts and notes receivable, net ................................. (576,504) 1,977,304
Inventories ........................................................ 322,267 614,528
Accounts payable ................................................ 223,663 198,157
Accrued expenses ................................................ (90,539) (316,476)
Deferred revenue ................................................ (234,810) (6,855)
Other ........................................................... (610) 97,057
----------- -----------
Net cash (used in)/provided by operating activities ................ (53,291) 458,380
Cash flows from financing activities
Payments on debt financing ......................................... - (40,000)
Proceeds from debt financing ...................................... 530,000 -
Proceeds from stock subscription receivable ........................ - 16,000
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Net cash provided by/(used in) financing activities ................ 530,000 (24,000)
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Increase in cash and cash equivalents .............................. 476,709 434,380
Cash and cash equivalents, beginning of period ..................... 564,973 1,065,778
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Cash and cash equivalents, end of period ........................... $ 1,041,682 $ 1,500,158
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
Page 5 of 20
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three Month Periods Ended March 31, 2004 and 2003
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements
of LaserSight Incorporated and subsidiaries ("LaserSight" or the
"Company") as of March 31, 2004, and for the three-month periods ended
March 31, 2004 and 2003, have been prepared in accordance with
accounting principles generally accepted in the United States and the
rules and regulations of the United States Securities and Exchange
Commission for interim financial information. Accordingly, they do not
include all of the information and footnotes necessary for a
comprehensive presentation of financial position and the results of
operation.
The Company's business is subject to various risks and uncertainties ,
but contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future.
The Company has suffered recurring losses from operations and has a
significant accumulated deficit that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to
these matters are also described below. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
The consolidated financial statements have been prepared in accordance
with the requirements for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and note disclosures required by accounting principles
generally accepted in the United States of America for complete
financial statements. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in LaserSight's annual report on Form 10-K for the year
ended December 31, 2003. In the opinion of management, the consolidated
financial statements include all adjustments necessary for a fair
presentation of consolidated financial position and the results of
operations and cash flows for the periods presented. There are no other
components of comprehensive loss other than the Company's consolidated
net income (loss) for the three-month periods ended March 31, 2004 and
2003. The results of operations for the three-month period ended March
31, 2004 are not necessarily indicative of the operating results for the
full year.
On September 5, 2003 the Company and two of its subsidiaries ("the
Debtors") filed a voluntary petition for relief in the United States
Bankruptcy Court, Middle District of Florida, Orlando Division, (the
Bankruptcy Court") under Chapter 11 of Title 11 of the U.S. Bankruptcy
Code ("the Bankruptcy Code or Chapter 11"). The Debtors continued to
operate their businesses as debtors-in-possession ("DIP") through the
close of business June 9, 2004. The Company filed a plan of
reorganization (the Plan) with the Bankruptcy Court on April 28, 2004.
The Bankruptcy Court confirmed the Plan on June 10, 2004. Under Chapter
11, certain claims against the Company in existence prior to the filing
of the petitions for relief under the federal bankruptcy laws were
stayed while the Company continued business operations as
Debtor-in-possession. Claims secured against the Company's assets
"secured claims" also are stayed, although the holders of such claims
have the right to move the court for relief from the stay. The majority
of secured claims are held by Heller Healthcare Finance, Inc ("Heller")
and GE Healthcare Financial Services, Inc., as successor-in-interest to
Heller (collectively "GE"). $37,000 of professional fees for bankruptcy
related legal services were paid in the three months ended March 31,
2004. See note 8.
Page 6 of 20
Outlined below are some of the additional factors that led up to the
Chapter 11 filing:
As previously announced, in August 2002, the Company and New Industries
Investment Consultants (HK), Ltd. ("NIIC") and New Industries Investment
Group ("NII") (collectively the "China Group") had entered into a
strategic relationship, including the purchase of at least $10 million
worth of products during a twelve-month period ending in August of 2003,
distribution of the Company's products in mainland China, Hong Kong,
Macao and Taiwan, and a $2.0 million equity investment in the Company by
the China Group. The investment in the Company was in the form of the
purchase of Convertible Preferred Stock, the Series H Stock that,
subject to certain restrictions, was convertible into approximately 40%
of the Company's Common Stock.
As previously announced, the Company had been in continuous negotiations
with the China Group to secure immediate cash payments for purchase of
Company products, to further define the terms of a long-term strategy
for the Company in China, and to outline a framework for additional
product purchases. The Company reached an agreement with the China Group
on June 20, 2003. That agreement called for the China Group to proceed
with further purchases in order to meet the $10,000,000 purchase
requirement from the August 2002 agreement and purchase additional
product above and beyond the original purchase requirement if the
Company was making substantial progress with regard to its restructured
business plan. While the Company sold products to the China Group during
the second and third quarter of 2003, and they made advance payments on
those purchases, sales levels were well below those contemplated in the
original agreements.
At the beginning of 2003, the Company did not have cash available to
construct machines under the strategic relationship and requested a
modification of the arrangement that would include prepayment by the
China Group. The China Group purchased through prepayment some
additional product, but resisted further purchases by prepayment without
certain cost reductions and changes in operations. Prior to the
execution of the June 2003 agreement, the China Group had purchased
approximately $4.5 million worth of the Company's products. Thereafter
the China Group prepaid for $2.2 million worth of product, for a total
of $6.7 million of the original $10 million envisioned in the strategic
relationship.
On June 20, 2003 the Company announced that it had been advised by GE
that its loans were in default due to an adverse material change in the
financial condition and business operations. The Company was negotiating
with GE for a modification and restructuring of its defaulted loans, and
these negotiations had progressed to the "term sheet" stage by early
August of 2003.
The Company also announced that Francis E. O'Donnell, Jr., M.D. and
David Peroni had resigned from their positions as members of the Board
of Directors and that Dr. O'Donnell had resigned as Chairman of the
Board of Directors. Xianding Weng was elected Chairman of the Board. Mr.
Weng had been a director of the Company since October 2002 and founded
the China Group in Shenzhen, China in 1993, serving as its President and
Chief Executive Officer.
On August 22, 2003 the Company announced that Mr. Michael R. Farris
would no longer serve as Chief Executive Officer and President nor as a
Director. Danghui ("David") Liu, Ph. D., Vice President of Product
Development and Technical Marketing, was named Interim CEO.
In September 2003, the Company announced that it had failed to timely
file its second quarter SEC Form 10-Q due on August 14, 2003. The
Company did file a Form 12b-25 on August 14, 2003 advising that the
Company was still working to put together the necessary data to file the
quarterly report.
Page 7 of 20
As a late filer, the Company had a fifth character "E" added to its
security trading symbol to denote securities delinquent in their
required filings. Securities so denoted are removed from the OTCBB after
the applicable 30-day grace period expires. After the Company was
removed from OTCBB, it has been traded in the over-the-counter (OTC)
market via the "Pink Sheets".
The Company had entered into new discussions related to the payment
terms of its License and Royalty Agreement covering its keratome
products. The licensors issued a third notice of default to the Company
on May 6, 2003 and served legal action against the Company on August 12,
2003 invoking an acceleration clause for the entire balance of
approximately $3.3 million under the License Agreement. The Company
continued its discussions, but the lack of resolution of these issues
made things difficult for the Company to continue to operate without the
protection a bankruptcy petition would provide.
The Company had 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. As a result of the aforementioned, on September 5, 2004 the
Company filed a voluntary petition for relief in the United States
Bankruptcy Court, Middle District of Florida - Orlando Division under
Chapter 11 of the U.S. Bankruptcy Code.
Even with the Chapter 11 protection, the Company's ability to continue
as a going concern is uncertain and dependent upon continuing to achieve
improved operating results and cash flows or obtaining additional equity
capital and/or debt financing. These condensed consolidated financial
statements include substantial re-structuring charges recorded during
the second quarter of 2003 necessary to reflect the diminution of asset
carrying values due to Chapter 11 related charges and the Company's
re-focus of its products to core product lines.
NOTE 2 CRITICAL ACCOUNTING POLICIES
The Company's condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America. Preparation of these statements requires
management to make judgments and estimates. Some accounting policies
have a significant impact on amounts reported in these financial
statements. A summary of significant accounting policies and a
description of accounting policies that are considered critical may be
found in our 2003 Annual Report on Form 10-K, filed in March 2005,
in the Critical Accounting Policies and Estimates section of "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results
of Operations."
NOTE 3 PER SHARE INFORMATION
Basic income (loss) per common share is computed using the
weighted average number of common shares and contingently issuable
shares (to the extent that all necessary contingencies have been
satisfied). Diluted income (loss) per common share is computed using the
weighted average number of common shares, contingently issuable shares,
and common share equivalents outstanding during each period. Common
share equivalents include options, warrants to purchase Common Stock,
and convertible Preferred Stock and are included in the computation
using the treasury stock method if they would have a dilutive effect. In
the first quarter of 2004, the convertible preferred stock was included
in the fully diluted computation. 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 canceled
and as required by the approved bankruptcy plan, effective June 30,
2004, the Company issued 9,997,195 new common shares (see Note 1). The
following table presents earnings per share figures as if the
reorganization of the capital structure had taken place as of the
beginning of the first period presented.
Three Months Ended
March 31
---------------------
2004 2003
---- ----
Net income (loss) per common
share basic and diluted ......... $0.03 ($0.29)
Weighted average number of
common shares outstanding - basic
and diluted ..................... 9,997,195 9,997,195
Page 8 of 20
NOTE 4 INVENTORIES
Inventories, which consist primarily of excimer and erbium laser systems
and related parts and components, are stated at the lower of cost or
market. Cost is determined using the standard cost method, which
approximates cost determined on the first-in first-out basis. The
components of inventories, net of reserves, at March 31, 2004 are
summarized as follows:
March 31, 2004
-----------
Raw materials $ 2,477,555
Work-in-process 562,163
-----------
$ 3,039,718
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NOTE 5 AMENDED LOAN AGREEMENT
On March 12, 2003, our loan agreement with GE was extended 30 days from
March 12, 2003 to April 11, 2003. On March 31, 2003, our loan agreement
with GE was amended again. In addition to the amendment, GE waived our
failure to comply with the net revenue covenant for the fourth quarter
of 2002. In exchange for the amendment and waiver, we paid approximately
$9,250 in fees to GE and agreed to increase our monthly principal
payments to $45,000 beginning in April 2003. Revised covenants became
effective on March 31, 2003 that decreased the minimum level of net
worth to $1.0 million, minimum tangible net worth to negative $4.0
million and minimum quarterly net revenue during 2003 to $2.0 million.
We had agreed to work in good faith with GE to adjust these covenants by
May 31, 2003 based on our first quarter 2003 financial results and our
ongoing efforts to obtain additional cash infusion. As discussed above,
on June 20, 2003 the Company announced that it had been advised by GE,
that its loans were in default due to an adverse material change in the
financial condition and business operations. The Company continued to
negotiate with GE during the June and July 2003 period until a new
agreement was executed on August 28, 2003 providing for an extension of
its loans through January 2005. Since the September 5, 2003 bankruptcy
filing, the Company had been in active discussions with GE for further
modifications of the debt.
On August 30, 2004, the Company signed an amended agreement with GE. The
new note was effective June 30, 2004 and matures June 30, 2007. The note
bears 9% interest per year. The loan covenants were modified to: net
worth $750,000, tangible net worth $1,000,000 and minimum quarterly
revenue of $1,000,000. The note also requires all SEC filings to be up
to date by November 30, 2004. 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
June 30, 2008. After adding legal fees, commitment fees and termination
fees, the new principal balance was $2,149,249 as of June 30, 2004. The
Company is currently not in compliance with certain of its loan
covenants and is attempting to negotiate revised terms with the lender;
accordingly these amounts have been classified as short term
obligations.
Page 9 of 20
NOTE 6 CHINA TRANSACTION
The Company had been in continuous negotiations with the China Group to
secure immediate cash payments for the purchase of Company products,
further define the terms of a long term strategy for the Company in
China, and to outline a framework for additional product purchases.
Further background on the China Group:
Shenzhen New Industries Medical Development Co., Ltd. ("NIMD") was
founded and incorporated by the Medical Investment Department of the
People's Republic of China in 1995 by its parent company, New Industries
Investment Group ("NII"). It specializes in marketing and distribution
of LASIK surgery devices and equipment, as well as in investment and
operation of LASIK clinical centers in Chinese market.
NIMD purchased more than $7.5 million value of LaserSight's products and
services after it was engaged in the exclusive distributorship with
LaserSight and before LaserSight went into Chapter 11. In the past
decade, NIMD invested and operated more than 20 PRK/LASIK excimer laser
refractive surgery centers in joint venture with the most prestigious
hospitals and medical institutes in China. NIMD is the largest business
in Mainland China, as measured by the amount of investment in refractive
surgery centers.
New Industries Investment Consultants (H.K.) Ltd ("NIIC") specializes in
hi-tech business investment and consulting services. It is registered in
Hong Kong. It was incorporated in 1994 by its principal investor Mr.
Xianding Weng (a major shareholder of NII, and NII's CEO). NIIC with
NIMD, pioneers in the laser refractive surgery industry in China,
introduced Schwind's excimer lasers into Mainland China in early 1990's.
The China Group provided $2 million of debtor-in-possession ("DIP")
financing to the Company. On June 30, 2004, $1 million of the DIP
financing was converted into 6,850,000 shares of common stock and the
China Group owns 72% of the Company. Revenues to the China Group were
$1.8 million in the three months ended March 31, 2004. Accounts
receivable due from the China Group as of March 31, 2004 was $ 639,421.
The loss of the China Group as a customer would have Significant
adverse impact on the Company's ability to continue as a going concern.
NOTE 7 STOCK BASED COMPENSATION
The Company accounts for stock-based employee compensation plans using
the intrinsic value method under Accounting Principles Board Opinion No.
25 and related interpretations. Accordingly, stock-based employee
compensation cost is not reflected in net earnings, as all stock options
granted under the plans had an exercise price equal to or in excess of
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. 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
Page 10 of 20
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 31,2004 March 31,2003
Net income (loss), as reported $ 264,192 $(2,410,745)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects 9,069 190,527
--------- -----------
Pro forma net income (loss) 255,123 (2,601,272)
Conversion discount on preferred stock - (483,837)
--------- -----------
Pro forma income (loss) attributable
to common shareholders 255,123 (3,085,109)
========= ===========
Basic and diluted income (loss) per share:
As reported $ 0.01 (0.10)
========= ===========
Pro forma 0.01 (0.11)
========= ===========
NOTE 8 CONTINGENCIES
On September 5, 2003 LaserSight and two of its subsidiaries filed for
Chapter 11 bankruptcy protection and reorganization in the United States
Bankruptcy Court, Middle District of Florida, Orlando Division. The
cases filed were LaserSight Incorporated, ("LSI") Case No.
6-03-bk-10371-ABB; LaserSight Technologies, Inc., ("LST") Case No.
6-03-bk-10370-ABB; and LaserSight Patents, Inc., Case No.
6-03-bk-10369-ABB. Under Chapter 11, certain claims against the Company
in existence prior to the filing of the petitions for relief under the
federal bankruptcy laws are stayed while the Company continues business
operations as Debtor-in-possession. These claims are reflected in the
March 31, 2004 balance sheet as "liabilities subject to compromise."
Additional claims (liabilities subject to compromise) may arise
subsequent to the filing date resulting from rejection of executory
contracts, including leases, and from the determination by the court (or
agreed to by parties in interest) of allowed claims for contingencies
and other disputed amounts. Claims secured against the Company's assets
("secured claims") also are stayed, although the holders of such claims
have the right to move the court for relief from the stay. The majority
of secured claims are held by Heller Healthcare Finance, Inc., and GE
Healthcare Financial Services, Inc., as successor-in-interest to Heller
(collectively "GE"). $37,000 of bankruptcy related professional fees for
printing, postage and bankruptcy trustee fees were paid in the three
months ended March 31, 2004.
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 $123 million at March 31,
2004. The substantial portion of these losses is attributable to an
inability to sell certain products in the U.S. due to delays in Food and
Drug Administration (FDA) approvals for the treatment of various
procedures on the Company's excimer laser system in the U.S. and
continued development efforts to expand clinical approvals of the
Company's excimer laser and other products. Additionally, the Company's
Page 11 of 20
continued lack of adequate funding and working capital, and additional
administrative and professional expenses attributed to the Chapter 11
filing, have also contributed to these losses.
Even with the Chapter 11 protection, the Company's ability to continue
as a going concern is uncertain and dependent upon continuing to achieve
improved operating results and cash flows or obtaining additional equity
capital and/or debt financing. These consolidated financial statements
include substantial re-structuring charges recorded during the second
quarter of 2003 necessary to reflect the diminution of asset carrying
values and the Company's re-focus of its products to core product lines.
As disclosed in the Company's Form 10-K filed for the year ended
December 31, 2003, the Company was involved in various litigations, some
of which were resolved as part of the September 2003 Chapter 11 filing.
Italian Distributor. In February 2003, an Italian court issued an order
restraining LaserSight Technologies from marketing our AstraPro software
at a trade show in Italy. This restraining order was issued in favor of
LIGI Tecnologie Medicali S.p.a. (LIGI), a distributor of our products,
and alleged that our AstraPro software product infringes certain
European patents owned by LIGI. We had retained Italian legal counsel to
defend us in this litigation, and we were informed that the Italian
court had revoked the restraining order and ruled that LIGI must pay our
attorney's fees in connection with our defense of the restraining order.
In addition, our Italian legal counsel informed us that LIGI had filed a
motion for a permanent injunction. We believe that our AstraPro software
does not infringe the European patents owned by LIGI, but due to limited
cash flow the Company has not defended its position. Management believes
that the outcome of this litigation will not have a material adverse
impact on LaserSight's business, financial condition or results from
operations. Since the Chapter 11 petition does not apply to foreign
courts, this action is still pending.
Routine Matters. In addition, we are involved from time to time in
routine litigation and other legal proceedings incidental to our
business. Although no assurance can be given as to the outcome or
expense associated with any of these proceedings, we believe that none
of such proceedings, either individually or in the aggregate, will have
a material adverse effect on the financial condition of LaserSight.
NOTE 9 SEGMENT INFORMATION
The Company's operations principally include refractive products.
Refractive product operations primarily involve the development,
manufacture and sale of ophthalmic lasers and related devices for use in
vision correction procedures. Patent services involve the revenues and
expenses generated from the ownership of certain refractive laser
patents.
Operating profit is total revenue less operating expenses. In
determining operating profit for operating segments, the following items
have not been considered: general corporate expenses, non-operating
income and expense and income tax expense. Identifiable assets by
operating segment are those that are used by or applicable to each
operating segment. General corporate assets consist primarily of cash
and income tax accounts.
The table below summarizes information about reported segments as of and
for the three months ended March 31:
Page 12 of 20
Operating Operating Profit Depreciation and Capital
Revenues (Loss) Assets Amortization Expenditures
-------- ------ ------ ------------ ------------
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 -
=====================================================================================
2003
Operating segments:
Refractive products 2,086,155 (2,118,066) 18,994,926 250,139 -
Patent services 234,810 234,810 - - -
General corporate - (499,184) 1,569,274 141 -
-------------------------------------------------------------------------------------
Consolidated total 2,320,965 (2,382,440) 20,564,200 250,280 -
=====================================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements and Associated Risks
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT
HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT'S
CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS, BELIEFS AND ASSUMPTIONS. WORDS
SUCH AS "ANTICIPATES", "EXPECTS", "INTENDS", "PLANS", "BELIEVES", "SEEKS",
"ESTIMATES", VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE DISCUSSED IN "PART I -
ITEM 1 - DESCRIPTION OF BUSINESS - RISK FACTORS" AND PART II - ITEM 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS" CONTAINED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2003, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. UNLESS REQUIRED BY
LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
INVESTORS SHOULD REVIEW THIS QUARTERLY REPORT IN COMBINATION WITH THE COMPANY'S
ANNUAL REPORTON FORM 10-K IN ORDER TO HAVE A MORE COMPLETE UNDERSTANDING OF THE
PRINCIPAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY'S STOCK.
Page 13 of 20
Overview
LaserSight is principally engaged in the manufacture and supply of
narrow beam scanning excimer laser systems, topography-based diagnostic
workstations, and other related products used to perform procedures that correct
common refractive vision disorders such as nearsightedness, farsightedness and
astigmatism. Since 1994, we have marketed our laser systems commercially in over
30 countries worldwide and currently have an installed base of approximately 410
laser systems, including over 230of our LaserScan LSX(TM) laser systems. We are
currently focused on selling in selected international markets, primarily China.
We have significant liquidity and capital resource issues relative to
the timing of our accounts receivable collection and the successful completion
of new sales compared to our ongoing payment obligations and our recurring
losses from operations and net capital deficiency raises substantial doubt about
our ability to continue as a going concern. We have experienced significant
losses and operating cash flow deficits, and we expect that operating cash flow
deficits will continue without improvement in our operating results. In August
2002, we executed definitive agreements relating to our China Transaction (see
"China Transaction").
Bankruptcy
On September 5, 2003 the company filed for Chapter 11 bankruptcy protection and
reorganization. Under Chapter 11, certain claims against the Company in
existence prior to the filing of the petitions for relief are stayed while the
Company continues business operations as debtor-in-possession. The Company
operated in this manner from September 5, 2003 through June 10, 2004, when a
final bankruptcy release was obtained. As a result of the bankruptcy
re-structuring, the Company will record credits for debt forgiveness of
approximately $ 15.6 million during the three months ended June 30, 2004.
Additionally, the Company recognized charges of approximately $8.0 million
during 2003 for write offs of patents, inventory and accounts receivable. The
Company cancelled all of its outstanding common and preferred stock, including
warrants and options, and issued 10,000,000 new common shares on June 30, 2004.
The Company emerged from bankruptcy with approximately $2.1 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 6,850,000 common shares.
China Transaction
In July 2002, we signed a non-binding letter of intent with the China
Group; a company based in the People's Republic of China that specializes in
advanced medical treatment services, medical device distribution and medical
project investment. Definitive agreements relating to the China Group were
executed on August 15, 2002, establishing a strategic relationship that included
the commitment to purchase at least $10.0 million worth of our products during
the 12-month period ending August 15, 2003, distribution of our products in
mainland China, Hong Kong, Macao and Taiwan, and a $2.0 million investment in
LaserSight. The investment was completed in October 2002 in the form of Series H
convertible preferred stock that, subject to certain restrictions, could have
been converted into shares of our common stock and result in the purchaser
holding approximately 40% of our common stock. The products purchased were paid
by irrevocable letters of credit, confirmed by a U.S. bank and payable upon
presentation of shipping documents. The Company started shipping products under
this agreement in August 2002. The Company reached an amended agreement with the
China Group on June 20, 2003. That agreement called for the China Group to
proceed with further purchases in order to meet the $10,000,000 purchase
requirement from the August 2002 agreement and purchase additional product above
and beyond the original purchase requirement if the Company was making
substantial progress with regard to its restructured business plan. The China
14
Group provided $2.0 million of debtor-in-possession financing to the Company
during the period December 2003 thru June 2004. On June 30, 2004 as part of the
approved bankruptcy plan, $1.0 million of the DIP financing was converted into
6,850,000 shares of common stock and the China Group owns 72% of the Company.
In February 2004, we received a revised 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.
Product issues during the fourth quarter of 2004 kept us from meeting this
schedule. Issues arose concerning shipping, customs storage of lasers and lack
of qualified staff in field service in China. Revised shipping procedures and
training programs offered to Chinese field service engineers were put into
place.
Results of Operations
The following table sets forth for the periods indicated information
derived from our statements of operations for those periods expressed as a
percentage of net sales, and the percentage change in such items from the
comparable prior year period. Any trends illustrated in the following table are
not necessarily indicative of future results.
Percent Increase (Decrease)
As a Percentage of Net Sales Over Prior Periods
---------------------------- ------------------
Net Sales
Three Months Three Months
Ended Ended
March 31, March 31,
2004 2003 2004 vs. 2003
---- ---- -------------
Statement of Operations Data:
Net Revenues:
Refractive products 89.8% 89.9% -0.9%
Patent services 10.2% 10.1% 0.0%
----- ----- -----
Net Revenues 100.0% 100.0% -0.8%
Cost of Revenue 47.3% 58.0% -19.1%
----- ----- -----
Gross Profit (1) 52.7% 42.0% 24.3%
Research, development and
regulatory expenses (2) 2.3% 8.5% -73.2%
Other general and administrative
expenses 26.9% 104.6% -74.5%
Selling-related expenses (3) 9.6% 26.6% -64.3%
Amortization of intangibles 0.4% 5.0% -92.7%
----- ----- -----
Income (Loss) from continuing operations. 13.5% -102.6% -113.1%
(1) As a percentage of net revenues, the gross profit for refractive products
only for the three months ended March 31, 2004 and 2003, were 47% and 36%,
respectively.
(2) As a percentage of refractive product net sales, research, development and
regulatory expenses for the three months ended March 31, 2004 and 2003,
were 3% and 9%, respectively.
(3) As a percentage of refractive product net sales, selling-related expenses
for the three months ended March 31, 2004 and 2003, were 11% and 30%,
respectively.
15 of 20
THREE MONTHS ENDED MARCH 31, 2004, COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
REVENUES. Net revenues for the three months ended March 31, 2004 decreased
by $19,000, or 1%, to $2.3 million from $2.3 million for the comparable period
in 2003.
During the three months ended March 31, 2004, refractive products revenues
decreased $20,000, or 1% to $2.1 million from $2.1 million for the comparable
period in 2003. During the three months ended March 31, 2004, excimer laser
system sales accounted for approximately $1.8 million in revenues compared to
$1.6 million in revenues over the same period in 2003. During the three months
ended March 31, 2004, 8 laser systems were sold as compared to seven laser
systems sold during the comparable period in 2003. During the three months ended
March 31, 2004, parts revenues accounted for approximately $0.2 million in
revenues compared to $0.4 million in revenues over the same period in 2002.
Net revenues from patent services for the three months ended March 31,
2004 remain unchanged at approximately $235,000.
Geographically, China has become our most significant market with $1.8
million in revenue during the three months ended March 31, 2004, as compared to
$1.7 million in 2003.
COST OF REVENUES; GROSS PROFIT. For the three months ended March 31, 2004
and 2003, gross profit margins were 53% and 42%, respectively. The gross margin
increase during the three months ended March 31, 2004 was primarily attributable
to lower costs for scrap and rework and $150,000 lower inventory obsolescence
reserves.
RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES. Research, development and
regulatory expenses for the three months ended March 31, 2004 decreased
approximately $144,000, or 73%, to $53,000 from $196,000 for the comparable
period in 2003. While decreasing our salary and consulting expenses, we
continued to develop our AstraMax diagnostic workstation and excimer laser
systems.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and
administrative expenses for the three months ended March 31, 2004 decreased $1.8
million, or 74%, to $620,000 from $2.4 million for the comparable period in
2003. This decrease was primarily due to a decrease in expenses of approximately
$791,000 related to salary and benefits cost reductions to the sales and
marketing, customer support, and professional services departments, a reduction
of $150,000 in bad debt expense and a reduction of $104,000 in depreciation, $
132,000 travel expenses, $ 193,000 legal expenses, $ 178,000 accounting fees, $
87,000 leases, $ 51,000 telephone, $ 36,000 board of directors related expenses
and $ 78,000 various other office expenses.
SELLING-RELATED EXPENSES. Selling-related expenses consist of those items
directly related to sales activities, including commissions on sales, royalty or
license fees, warranty expenses, and costs of shipping and installation.
Commissions and royalties, in particular, can vary significantly from sale to
sale or period to period depending on the location and terms of each sale.
Selling-related expenses for the three months ended March 31, 2004 decreased
$397,000, or 64%, to $221,000 from $618,000 during the comparable period in
2003. This decrease was primarily attributable to a $390,000 decrease in costs
of licensing fees due under an old licensing agreement.The Company defaulted on
the license agreement in Q3 2003 and per the terms of the agreement all future
payments became due and were booked in Q3 2003.
AMORTIZATION OF INTANGIBLES. During the three months ended March 31, 2004,
costs relating to the amortization of intangible assets were $8,379 compared to
$115,059 in the comparable period in 2003. Items directly related to the
amortization of intangible assets are acquired technologies, patents and license
agreements. During 2003, as a result of the re-structuring the Company wrote off
approximately $4.1 of impaired intangibles, leaving approximately $500,000 of
un-impaired intangibles. Accordingly, the company expects future amortization
amounts to be minimal, although the company will continue to review the carrying
values for further impairments on a periodic basis.
16 of 20
INCOME (LOSS) FROM OPERATIONS. The operating income for the three months
ended March 31, 2004 was $311,000 compared to the operating loss of $2.4 million
for the same period in 2003. This decrease in the loss from operations was
primarily due to reductions in operating expenses.
OTHER INCOME AND EXPENSES. Interest and other income for the three months
ended March 31, 2004 was $4,100, a decrease of $22,600 over the comparable
period in 2003. Interest and dividend income was earned from the investment of
cash and cash equivalents and the collection of long-term receivables related to
laser system sales. During the three months ended March 31, 2004, interest
expense decreased by $62,000, or 55%, from $113,000 to $51,000 as a result of
repayments on our term loan and fully amortized financing costs.
INCOME TAXES. For the three months ended March 31, 2004, we had no income
tax expense. For the three months ended March 31, 2003, income tax benefit of
$58,000, was related to a refund the Company received from a settlement with the
IRS on its 1995 return.
NET INCOME/(LOSS). Net income for the three months ended March 31, 2004,
was $264,000 compared to a net loss of $2.4 million for the comparable period in
2003. The decrease in net loss for the three months ended March 31, 2004 can be
attributed to the significant reductions in our operating expenses.
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. For the three months ended March
31, 2003, the Company's loss attributable to common shareholders was impacted by
the accretion of the value of the conversion discount on the Series H Preferred
Stock.This discount was fully amortized as of December 31, 2003.
INCOME (LOSS) PER SHARE. The income per basic and diluted share was $0.01
for the three months ended March 31, 2004 and ($0.10) for the comparable period
in 2003. As a result of the September 5, 2003 chapter 11 petition, the company
cancelled of its outstanding common and preferred shares, including options and
warrants and on June 30, 2004 the company issued 10,000,000 new common shares.
Inflation and Currency Fluctuation
Inflation and currency fluctuations have not previously had a material
impact upon the results of operations and are not expected to have a material
impact in the near future.
Liquidity and Capital Resources
On September 5, 2003 the company filed for Chapter 11 bankruptcy
protection and reorganization. Under Chapter 11, certain claims against the
Company in existence prior to the filing of the petition for relief were stayed
while the Company continued business operations as debtor-in-possession. The
Company operated in this manner from September 5, 2003 through June 10, 2004
when a final bankruptcy order was obtained. As a result of the bankruptcy
re-structuring, the Company will record credits for debt forgiveness of
approximately $15.6 million during the three months ended June 30, 2004.The
credits are for accounts payable, accrued license fees, accrued salaries,
accrued warranty, accrued Ruiz license fees, deposits and other accrued
expenses. Additionally, the Company recognized re-structuring charges of
approximately $7.7 million during the three months ended June 30, 2003. The
company also cancelled all of its outstanding common and preferred stock
including warrants and options, and issued 10,000,000 new common shares on June
30, 2004. The company will emerge from bankruptcy with approximately $0.6
million in unsecured liabilities, approximately $2.1 million in secured debt to
GE, approximately $7.4 million in deferred revenue. Additionally the China Group
converted $1.0 million of its $2.0 million DIP loan for 68.5%, or 6,850,000
common shares in the re-organized Company. The China Group can convert, at their
option, the remaining DIP financing for an additional 2,500,000 common shares.
With the new revenues being generated from the China Transaction and
projected sales to other customers, management expects 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.
17 of 20
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 our accounts receivable
collection and 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. We are currently unable to
borrow under our revolving credit facility.
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. .
We have actively sought additional funds through the possible sale of
certain company assets or through additional investment or loans, which would
provide temporary relief from our current liquidity pressures. We have sought a
strategic partner or buyer. Given the extent of those efforts and the publicity
about the China Group, it is unlikely that there will be any other buyer,
strategic partner or investor in the near future.
On March 12, 2001, we established a $3.0 million term loan and $10.0
million revolving credit facility with GE. We borrowed $3.0 million under the
term loan at an annual rate equal to two and one-half percent (2.5%) above the
prime rate. Interest is payable monthly and the loan must be repaid on March 12,
2003. As of September 30, 2003, the outstanding principal on our term loan was
approximately $1.8 million. Under our credit facility, we had the option to
borrow amounts at an annual rate equal to one and one-quarter percent (1.25%)
above the prime rate for short-term working capital needs or such other purposes
as approved by GE. Borrowings were limited to 85% of eligible accounts
receivable related to U.S. sales. Eligible accounts receivable were to be
primarily based on future U.S. sales, which did not increase as a result of our
decision to not actively market our laser in the U.S. until we receive
additional FDA approvals.
Borrowings under the GE loans were secured by substantially all of the
Company's assets. The term loan and credit facility require us to meet certain
covenants, including the maintenance of a minimum net worth. The terms of the
loans originally extended to March 12, 2003. In addition to the costs and fees
associated with the transaction, we issued to GE a warrant to purchase 243,750
shares of common stock at an exercise price of $3.15 per share. The warrant
expired on March 12, 2004. On August 15, 2002, GE provided a waiver of our prior
defaults under our loan agreement pending the funding of the equity portion of
the NIMD transaction. Upon receipt of the equity investment in October 2002,
revised covenants became effective that decreased the required minimum level of
net worth to $2.1 million, decreased minimum tangible net worth to negative $2.8
million and decreased required minimum quarterly revenues during the last two
quarters of 2002 and the first quarter of 2003. In exchange for the waiver and
revised covenants, the Company paid $150,000 in principal to GE upon the receipt
of the equity investment in October 2002 and agreed to increase other monthly
principal payments to $60,000 in October 2002 and to $40,000 during each of
November and December 2002 and January 2003, with the remaining principal due on
March 12, 2003.
On March 12, 2003, our loan agreement with GE was extended by 30 days from
March 12, 2003 to April 11, 2003. On March 31, 2003, our loan agreement with GE
was amended again. In addition to the amendment, GE waived our failure to comply
with the net revenue covenant for the fourth quarter of 2002. In exchange for
the amendment and waiver, we paid approximately $9,250 in fees to GE and agreed
to increase our monthly principal payments to $45,000 beginning in April 2003.
Revised covenants became effective on March 31, 2003 that decreased the minimum
level of net worth to $1.0 million, minimum tangible net worth to negative $4.0
18 of 20
million and minimum quarterly net revenue during 2003 to $2.0 million. We agreed
to work in good faith with GE to adjust these covenants by May 31, 2003 based on
our first quarter 2003 financial results and our ongoing efforts to obtain
additional cash infusion. As discussed above, on June 20, 2003 the Company
announced that it had been advised by GE that its loans were in default due to
an adverse material change in the financial condition and business operations.
The Company continued to negotiate with GE during June and July of 2003, until a
new agreement was executed on August 28, 2003 providing for an extension of the
loans through January 2005.
On August 30, 2004 the Company signed a three-year note expiring on June 30,
2007. The note bears interest of 9%. Certain covenants were modified as follows:
net worth of $750,000, 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 NIIC converts their DIP
loan to equity. The warrant expires June 30, 2008.
There can be no assurance as to the correctness of the other assumptions
underlying our business plan or our expectations regarding our working capital
requirements or our ability to continue operations.
Our ability to continue operations is based on factors including the
success of our sales efforts in China and in other foreign countries where our
efforts will initially be primarily focused, increases in accounts receivable
and inventory purchases when sales increase, our present inability to borrow
under our revolving credit facility, the uncertain impact of the market
introduction of our AstraMax diagnostic workstations, and the absence of
unanticipated product development and marketing costs.
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms and that such information is accumulated
and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to
apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
We carry out a variety of on-going procedures, under the supervision
and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, to evaluate the
effectiveness of the design and operation of our disclosure controls
and procedures. While our Chief Executive Officer and Chief Financial
Officer were unable to reach a conclusion regarding the effectiveness
of our disclosure controls and procedures as of March 31, 2004, they
have concluded that such controls and procedures are currently
effective at the reasonable assurance level.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Certain legal proceedings against LaserSight are described in
Item 3 (Legal Proceedings) of LaserSight's Form 10-K for the
year ended December 31, 2003.
19 of 20
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As discussed in Note 1 to the unaudited condensed consolidation
financial statements, the Company and two of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
on September 5, 2003. As a result of this petition, the company
canceled all common and preferred shares, including options and
warrants. On June 30, 2004 the Company issued 10,000,000 new common
shares pursuant to the plan approved by the Bankruptcy Court.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
On September 5, 2003 the Company filed a Chapter 11 bankruptcy petition.
As described on Part I, Item 2, the Company had been in default under
its loan agreements with GE. The company had been in continuous
negotiations with GE during the term of the bankruptcy and on August 30,
2004 the Company signed a three-year note expiring on June 30, 2007. The
note bears interest of 9%. Certain covenants were modified as follows:
net worth $750,000, tangible net worth $1,000,000 and minimum quarterly
revenues of $1,000,000. GE was issued a warrant to purchase 100,000
shares of common stock at $0.25 per share, or $0.40 per share if the
China Group converts their DIP loan to equity. The warrant expires on
June 30, 2008. The Company is currently not in compliance with certain
covenants of the loan agreements. Accordingly all amounts have been
classified as short term obligations
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS
Exhibit
Number Description
------ ------------------------------------------------------------------------
11 Statement of Computation of Loss Per Share (Included in Financial
Statements in Part I, Item 1 hereof)
31.1 Certifications of CEO pursuant to Rule 13a-14(a)
31.2 Certifications of CFO pursuant to Rule 13a-14(a)
32 Certifications of CEO and CFO pursuant to Section 1350
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LaserSight Incorporated
Dated: March 22, 2005 By: /s/ Danghui ("David") Liu
---------------------------
Danghui ("David") Liu, President,
Chief Executive Officer and President
Dated: March 22, 2005 By: /s/ Dorothy M. Cipolla
---------------------------
Dorothy M. Cipolla,
Chief Financial Officer
Page 20 of 20