SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30, 2002.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the Transition period from
---------------------------------- to --------------------------------------
Commission File Number: 0-19671
LASERSIGHT INCORPORATED
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0273162
-------------------------- ----------
(State of Incorporation) (IRS Employer Identification No.)
3300 University Blvd., Suite 140, Winter Park, Florida 32792
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(Address of principal executive offices) (Zip Code)
(407) 678-9900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The Number of shares of the registrant's Common Stock outstanding as of
November 13, 2002 is 27,841,941.
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 Exchange Act) 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, 2001. 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
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2002 and December 31, 2001
Condensed Consolidated Statements of Operations for the
Three Month Periods and Nine Month Periods Ended
September 30, 2002 and 2001
Condensed Consolidated Statements of Cash Flows for the
Nine Month Periods Ended September 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
Independent Auditors' Review Report
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Management's Quantitative and Qualitative Disclosures
about Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2002 2001
------------ ------------
Current assets: (Unaudited)
Cash and cash equivalents $ 403,874 2,762,062
Accounts receivable - trade, net 5,185,210 8,100,993
Notes receivable - current portion, net 2,209,096 3,219,289
Inventories 9,807,685 12,005,108
Deferred tax assets 40,214 40,214
Other current assets 179,764 691,474
------------ ------------
Total Current Assets 17,825,843 26,819,140
Notes receivable, less current portion, net 1,362,189 2,129,652
Property and equipment, net 632,797 1,373,494
Patents, net 4,240,911 4,476,585
Other assets, net 1,128,781 1,511,046
------------ ------------
$ 25,190,521 36,309,917
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, net of unamortized discount of $27,567 at September 30, 2002 $ 2,352,433 --
Accounts payable 3,562,139 3,846,906
Accrued expenses 5,975,420 5,998,835
Accrued commissions 1,555,901 1,650,299
Deferred revenue 1,813,189 1,459,592
------------ ------------
Total Current Liabilities 15,259,082 12,955,632
Accrued expenses, less current portion 218,756 315,595
Deferred royalty revenue, less current portion 5,976,751 4,600,000
Deferred income taxes 40,214 40,214
Note payable, net of unamortized discount of $73,530 at December 31, 2001 -- 2,926,470
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, authorized 10,000,000 shares; par value $.001 per
share:
Series F - zero and 1,276,596 issued and outstanding at September 30, 2002
and December 31, 2001, respectively -- 1,277
Common stock - par value $.001 per share; authorized 100,000,000 shares;
27,987,141 and 26,596,062 shares issued at September 30, 2002 and December
31, 2001, respectively 27,987 26,596
Additional paid-in capital 101,981,093 102,918,836
Stock subscription receivable (47,952) (1,140,000)
Accumulated deficit (97,722,763) (85,792,056)
Less treasury stock, at cost; 145,200 common shares at September 30, 2002
and December 31, 2001 (542,647) (542,647)
------------ ------------
3,695,718 15,472,006
------------ ------------
$ 25,190,521 36,309,917
============ ============
See accompanying notes to the condensed consolidated financial statements.
3
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------ ------------ ------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Products $ 2,526,171 2,054,407 5,752,087 9,155,980
Royalties 224,096 72,000 867,009 320,000
------------ ------------ ------------ ------------
2,750,267 2,126,407 6,619,096 9,475,980
Cost of revenue:
Product cost 1,417,219 1,382,714 3,851,799 4,858,903
------------ ------------ ------------ ------------
Gross profit 1,333,048 743,693 2,767,297 4,617,077
Research, development and regulatory expenses 203,288 712,693 1,138,500 2,587,854
Other general and administrative expenses 2,489,047 5,268,858 10,622,854 18,873,692
Selling related expenses 764,668 1,045,456 2,226,855 3,705,173
Amortization of intangibles 115,059 115,059 345,177 388,035
------------ ------------ ------------ ------------
3,368,774 6,429,373 13,194,886 22,966,900
------------ ------------ ------------ ------------
Loss from operations (2,239,014) (6,398,373) (11,566,089) (20,937,677)
Other income and expenses
Interest and dividend income 69,077 124,416 215,018 500,798
Interest expense (141,653) (149,212) (439,636) (352,399)
Gain on sale of patent -- -- -- 3,950,836
Litigation settlement (140,000) -- (140,000) (591,289)
------------ ------------ ------------ ------------
Loss from continuing operations before
income tax expense (2,451,590) (6,423,169) (11,930,707) (17,429,731)
Income tax expense -- -- -- --
------------ ------------ ------------ ------------
Loss from continuing operations (2,451,590) (6,423,169) (11,930,707) (17,429,731)
Discontinued operations:
Loss from the operation of discontinued
health care services business -- (93,019) -- (239,083)
------------ ------------ ------------ ------------
Net loss $ (2,451,590) (6,516,188) (11,930,707) (17,668,814)
============ ============ ============ ============
Loss per common share
Basic and diluted: $ (0.09) (0.25) (0.44) (0.72)
============ ============ ============ ============
Weighted average number of shares outstanding
Basic and diluted: 27,842,000 26,392,000 27,116,000 24,691,000
============ ============ ============ ============
See accompanying notes to the condensed consolidated financial statements.
4
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
2002 2001
------------ ------------
Cash flow from operating activities
Net loss $(11,930,707) (17,668,814)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,281,147 1,704,643
Gain on sale of patent -- (3,950,836)
Common stock issued for services 42,500 60,469
Options issued in relation to consulting agreement 12,377 33,715
Changes in assets and liabilities:
Accounts and notes receivable 4,693,439 2,129,970
Inventories 2,197,423 (247,184)
Accounts payable (284,767) (559,766)
Accrued expenses (214,652) (1,220,466)
Deferred revenue 1,730,348 4,048,904
Other 639,599 (99,827)
------------ ------------
Net cash used in operating activities (1,833,293) (15,769,192)
Cash flows from investing activities
Purchases of property and equipment, net (4,437) (381,263)
Proceeds from sale of patent, net -- 6,365,000
------------ ------------
Net cash provided by (used in) investing activities (4,437) 5,983,737
Cash flows from financing activities
Payments on debt financing (620,000) --
Proceeds from stock subscription receivable 98,402 --
Proceeds from preferred stock financing, net -- 2,925,000
Proceeds from ESPP 1,140 59,891
Proceeds from debt financing, net -- 2,776,798
------------ ------------
Net cash provided by (used in) financing activities (520,458) 5,761,689
------------ ------------
Decrease in cash and cash equivalents (2,358,188) (4,023,766)
Cash and cash equivalents, beginning of period 2,762,062 8,593,858
------------ ------------
Cash and cash equivalents, end of period $ 403,874 4,570,092
============ ============
See accompanying notes to the condensed consolidated financial statements.
5
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Month Periods Ended September 30, 2002 and 2001
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements
of LaserSight Incorporated and subsidiaries (LaserSight, or the
Company) as of September 30, 2002, and for the three and nine month
periods ended September 30, 2002 and 2001 have been prepared in
accordance with accounting principles generally accepted in the United
States of America on a going concern basis, 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 Company has incurred significant losses and negative cash flows
from operations in each of the years in the three-year period ended
December 31, 2001 and in the three and nine month periods ended
September 30, 2002 and has an accumulated deficit of $97,722,763 at
September 30, 2002. 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. (a key approval for the treatment of nearsightedness with
or without astigmatism was received in late September 2001) and the
continued development efforts to expand clinical approvals of the
Company's excimer laser and other products.
The Company has 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. In July 2002, the Company announced it had entered a
letter of intent with a company based in the People's Republic of
China. Definitive agreements relating to the transaction were executed
in August 2002 and include their commitment to purchase $10 million of
lasers and other products over a 12-month period ending in August 2003
and an equity investment in LaserSight of $2.0 million. The Company
started shipping products under those agreements in August 2002 and
received the equity investment in October 2002. As a result, the
Company's short-term liquidity has improved and its operating results
are improving. Management of the Company continues undertaking steps as
part of a plan to attempt to continue to improve liquidity and
operating results with the goal of sustaining Company operations. These
steps include seeking (a) to increase sales; and (b) to control
overhead costs and operating expenses.
There can be no assurance the Company can successfully accomplish these
steps. Accordingly, 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 do not include any adjustments to the amounts and
classification of assets and liabilities that might be necessary should
the Company be unable to continue in business.
6
The condensed consolidated financial statements have been prepared in
accordance with the requirements for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and note
disclosures required by accounting principles generally accepted in the
United States of America for complete financial statements. These
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in LaserSight's annual report on Form 10-K for the
year ended December 31, 2001. In the opinion of management, the
condensed consolidated financial statements include all adjustments
necessary for a fair presentation of consolidated financial position
and the results of operations and cash flows for the periods presented.
There are no other components of comprehensive loss other than the
Company's consolidated net loss for the three and nine month periods
ended September 30, 2002 and 2001. The results of operations for the
three and nine month periods ended September 30, 2002 are not
necessarily indicative of the operating results for the full year. The
report of KPMG LLP, independent auditors, commenting upon their review
accompanies the condensed consolidated financial statements included in
Item 1 of Part I.
NOTE 2 PER SHARE INFORMATION
Basic loss per common share is computed using the weighted average
number of common shares and contingently issuable shares (to the extent
that all necessary contingencies have been satisfied). Diluted loss per
common share is computed using the weighted average number of common
shares, contingently issuable shares, and common share equivalents
outstanding during each period. Common share equivalents include
options, warrants to purchase Common Stock, and convertible Preferred
Stock and are included in the computation using the treasury stock
method if they would have a dilutive effect.
NOTE 3 INVENTORIES
Inventories, which consist primarily of excimer and erbium laser
systems and related parts and components, are stated at the lower of
cost or market. Cost is determined using the standard cost method,
which approximates cost determined on the first-in first-out basis. The
components of inventories at September 30, 2002 and December 31, 2001
are summarized as follows:
September 30, 2002 December 31, 2001
------------------ -----------------
Raw materials $ 6,530,414 7,699,939
Work-in-process 113,318 92,030
Finished goods 2,369,505 3,563,796
Test equipment - clinical trials 794,448 649,343
------------ ------------
$ 9,807,685 12,005,108
============ ============
NOTE 4 SEGMENT INFORMATION
The Company's continuing 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. Health care services provided health
and vision care consulting services to hospitals, managed care
companies, and physicians, and was reflected as a discontinued
operation as of December 31, 2001.
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,
7
discontinued operations, non-operating income and expense and income
tax expense. Identifiable assets by operating segment are those that
are used by or applicable to each operating segment. General corporate
assets consist primarily of cash and income tax accounts.
The table below summarizes information about reported segments as of
and for the three months ended September 30:
Depreciation
Operating Operating and Capital
Revenues Profit (Loss) Assets Amortization Expenditures
--------- ------------- ------ ------------ ------------
2002
Operating segments:
Refractive products $ 2,526,171 (2,077,003) 24,374,832 321,577 --
Patent services 224,096 224,096 -- -- --
General corporate -- (386,107) 815,689 436 --
------------ ------------ ------------ ------------ ----------
Consolidated total $ 2,750,267 (2,239,014) 25,190,521 322,013 --
============ ============ ============ ============ ==========
2001
Operating segments:
Refractive products $ 2,054,407 (6,186,116) 34,970,792 425,181 12,038
Patent services 72,000 72,000 -- -- --
Discontinued operations -- -- 3,290,609 70,529 4,927
General corporate -- (284,257) 4,935,744 2,424 --
------------ ------------ ------------ ------------ ----------
Consolidated total $ 2,126,407 (6,398,373) 43,197,145 498,134 16,965
============ ============ ============ ============ ==========
Amortization of deferred financing costs and discount on note payable of
$63,612 for each of the three months ended September 30, 2002
and 2001 is included as interest expense.
The table below summarizes information about reported segments
as of and for the nine months ended September 30:
Depreciation
Operating Operating and Capital
Revenues Profit (Loss) Assets Amortization Expenditures
--------- ------------- ------ ------------ ------------
2002
Operating segments:
Refractive products $ 5,752,087 (11,163,814) 24,374,832 1,087,646 4,437
Patent services 867,009 867,009 -- -- --
General corporate -- (1,269,284) 815,689 2,665 --
------------ ------------ ------------ ------------ ----------
Consolidated total $ 6,619,096 (11,566,089) 25,190,521 1,090,311 4,437
============ ============ ============ ============ ==========
2001
Operating segments:
Refractive products $ 9,155,980 (20,055,632) 34,970,792 1,347,078 320,720
Patent services 320,000 320,000 -- -- --
Discontinued operations -- -- 3,290,609 209,777 60,543
General corporate -- (1,202,045) 4,935,744 7,842 --
------------ ------------ ------------ ------------ ----------
Consolidated total $ 9,475,980 (20,937,677) 43,197,145 1,564,697 381,263
============ ============ ============ ============ ==========
Amortization of deferred financing costs and discount on note payable of
$190,836 and $139,946 for the nine months ended September 30,
2002 and 2001, respectively, is included as interest expense.
8
NOTE 5 AMENDED LOAN AGREEMENT
On August 15, 2002, Heller Healthcare Finance, Inc. (Heller) provided a
waiver of the Company's prior defaults under our loan agreement pending
the funding of the equity portion of the China transaction (see note
8). 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 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 Heller 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 $40,000 during each
of November and December 2002 and January 2003. The remaining principal
balance is due on March 12, 2003. The Company is currently unable to
borrow under its revolving credit facility.
NOTE 6 PATENT LICENSES
Letter of Intent and License of Patents and Technology
------------------------------------------------------
On April 16, 2002, the Company announced that it had entered into a
letter of intent and a non-exclusive license with a third party
contemplating the sale of patents and technology related to its
AstraMax diagnostic workstation product. On May 14, 2002, the Company
announced the transaction had been terminated. The third party has
alleged that the Company violated the terms of the non-exclusive
license. The Company denies any intent to do so. Prior to the
termination of the process, the Company received cash payments totaling
$875,000. Of this amount, $275,000 is included in royalty revenue
during the three months ended June 30, 2002. In May 2002, the Company
settled the dispute with the third party by granting that third party a
license to the Company's U.S. Patent No. RE 37,504 (`504 Scanning
Patent). Therefore, the remaining $600,000 was recorded as deferred
revenue in the accompanying condensed consolidated balance sheet and is
being amortized over approximately 10 years.
Patent License
--------------
On May 24, 2002, the Company entered into a non-exclusive license with
a third party related to its scanning patent in exchange for cash
consideration of $2.0 million. This amount was recorded as deferred
revenue in the accompanying condensed consolidated balance sheet and is
being amortized over approximately 10 years. Of this amount, $500,000
was paid to Heller to reduce principal outstanding on the Company's
term loan.
NOTE 7 STOCKHOLDERS' EQUITY
In April 2002, the Company settled litigation related to its stock
subscription receivable and received approximately $82,000 with a
commitment for an additional total of approximately $64,000 to be paid
in four quarterly installments beginning in July 2002. The first two
installments were received in July and October 2002, respectively. Upon
receipt of the two remaining installments in a timely manner, the
Company will release all claims in this matter.
NOTE 8 STRATEGIC TRANSACTION
On August 15, 2002, the Company executed definitive agreements with a
company based in the People's Republic of China that specializes in
advanced medical treatment services, medical device distribution and
medical project investment. The transaction established a strategic
relationship that include the commitment to purchase at least $10.0
9
million worth of Company products during the 12-month period following
the signing of the definitive agreements, distribution of Company
products in mainland China, Hong Kong, Macao and Taiwan, and a $2.0
million investment in the Company (see note 9). Under the terms of the
agreements, the products purchased are being paid by irrevocable
letters of credit, confirmed by a U.S. bank and payable upon
presentation of shipping documents. Through September 30, 2002,
approximately $1.0 million worth of products were sold under these
agreements.
NOTE 9 SUBSEQUENT EVENT
In October 2002, the investment called for under the agreements with
the China-based group (see note 8) was completed. In exchange for its
$2.0 million investment, the Company issued the China-based group
9,280,647 shares of Series H Convertible Preferred Stock that, subject
to certain restrictions, could be converted into 18,561,294 shares of
the Company's Common Stock and result in the purchaser holding
approximately 40% of the Company's Common Stock.
10
Independent Auditors' Review Report
The Board of Directors
LaserSight Incorporated:
We have reviewed the condensed consolidated balance sheet of LaserSight
Incorporated and subsidiaries as of September 30, 2002, and the related
condensed consolidated statements of operations for the three and nine-month
periods ended September 30, 2002 and 2001 and the condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 2002 and
2001. These condensed consolidated financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
LaserSight Incorporated and subsidiaries as of December 31, 2001, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
March 22, 2002, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2001, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Our report dated March 22, 2002, on the consolidated financial statements of
LaserSight Incorporated and subsidiaries as of and for the year ended December
31, 2001, contains an explanatory paragraph that states that the Company's
recurring losses from operations and significant accumulated deficit raise
substantial doubt about the entity's ability to continue as a going concern. The
consolidated balance sheet as of December 31, 2001, does not include any
adjustments that might result from the outcome of that uncertainty.
/s/ KPMG LLP
St. Louis, Missouri
November 9, 2002
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LaserSight is principally engaged in the manufacture and supply of narrow
beam scanning excimer laser systems, topography-based diagnostic workstations,
keratomes, keratome blades 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 400 laser systems, including over 220 of our LaserScan LSX(TM)
laser systems. We are currently focused on selling in selected international
markets while we await further regulatory approvals of our laser product in the
U.S.
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"). As a result, the Company's short-term liquidity has
improved and its operations are improving. Further improvements in revenues will
be needed to achieve profitability and positive cash flow.
CHINA TRANSACTION
In July 2002, we signed a non-binding letter of intent with 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 Transaction were executed on August 15, 2002,
establishing a strategic relationship that includes 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 be converted into shares of
the our common stock and result in the purchaser holding approximately 40% of
our common stock. The products purchased will be 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. Through September 30, 2002, approximately $1.0 million worth of products
were sold under these agreements.
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.
12
Percent Increase (Decrease)
As a Percentage of Net Revenues Over Prior Periods
------------------------------- ------------------
Three Months Nine Months Three Months Nine months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001 2002 vs. 2001 2002 vs. 2001
---- ---- ---- ---- ------------- -------------
Statement of Operations Data:
Net Revenues:
Refractive products............... 91.9% 96.6% 86.9% 96.6% 23.0% (37.2)%
Patent service.................... 8.1 3.4 13.1 3.4 211.2 170.9
----- ----- ----- -----
Net Revenues................... 100.0 100.0 100.0 100.0 29.3 (30.1)
Cost of Revenue.................... 51.5 65.0 58.2 51.3 2.5 (20.7)
----- ----- ----- -----
Gross Profit (1)................... 48.5 35.0 41.8 48.7 79.2 (40.1)
Research, development and
regulatory expenses (2)........ 7.4 33.5 17.2 27.3 (71.5) (56.0)
Other general and administrative
expenses....................... 90.5 247.8 160.5 199.2 (52.8) (43.7)
Selling-related expenses (3)....... 27.8 49.2 33.6 39.1 (26.9) (39.9)
Amortization of intangibles........ 4.2 5.4 5.2 4.1 0.0 (11.0)
----- ----- ----- -----
Loss from continuing operations.... (81.4) (300.9) (174.7) (221.0) (65.0) (44.8)
---------------
(1) As a percentage of net revenues, the gross profit for refractive products
only for the three months ended September 30, 2002 and 2001, and the nine
months ended September 30, 2002 and 2001, was 44%, 33%, 33% and 47%,
respectively.
(2) As a percentage of refractive product net sales, research, development and
regulatory expenses for each of the three months ended September 30, 2002
and 2001, and the nine months ended September 30, 2002 and 2001, were 8%,
35%, 20% and 28%, respectively.
(3) As a percentage of refractive product net sales, selling-related expenses
for the three months ended September 30, 2002 and 2001, and the nine months
ended September 30, 2002 and 2001, were 30%, 51%, 39% and 40%, respectively.
THREE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
REVENUES. Net revenues for the three months ended September 30, 2002
increased by $0.6 million, or 29%, to $2.7 million from $2.1 million for the
comparable period in 2001.
During the three months ended September 30, 2002, refractive products
revenues increased $0.4 million, or 23%, to $2.5 million from $2.1 million for
the comparable period in 2001. This revenue increase was primarily the result of
increased sales of our excimer laser systems and the recent introduction of our
AstraMax diagnostic workstation. During the three months ended September 30,
2002, excimer laser system sales accounted for approximately $1.8 million in
revenues compared to $1.6 million in revenues over the same period in 2001.
During the three months ended September 30, 2002, eight laser systems were sold
compared to six laser systems sold during the comparable period in 2001.
Net revenues from patent services for the three months ended September 30,
2002 increased approximately $0.1 million, or 211%, to $0.2 million from $0.1
million for the comparable period in 2001, due to non-exclusive license
agreements we entered into in late 2001 and early 2002.
COST OF REVENUES; GROSS PROFIT. For the three months ended September 30,
2002 and 2001, gross profit margins were 48% and 35%, respectively. The gross
margin increase during the three months ended September 30, 2002 was primarily
attributable to increased sales and decreased overhead. There was a decrease in
general overhead expenses of $0.3 million from the comparable period in 2001.
RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES. Research, development and
regulatory expenses for the three months ended September 30, 2002 decreased
13
approximately $0.5 million, or 71%, to $0.2 million from $0.7 million for the
comparable period in 2001. While decreasing our expenses, we continued to
develop our AstraMax diagnostic workstation and excimer laser systems and
continued to pursue protocols in our effort to attain and expand our FDA
approvals for our refractive products. If we have sufficient funds, we expect
research and development expenses during the remainder of 2002 to be at similar
levels and we expect regulatory expenses will remain constant as a result of our
continued pursuit of various FDA approvals, including pre-market approval
supplements, and the possible development of additional pre-market approval
supplements and future protocols for submission to the FDA. The FDA has recently
instituted a fee structure that will increase the cost of pursuing new or
supplemental approvals.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and administrative
expenses for the three months ended September 30, 2002 decreased $2.8 million,
or 53%, to $2.5 million from $5.3 million for the comparable period in 2001.
This decrease was primarily due to a decrease in expenses incurred at our
refractive products subsidiary of approximately $2.9 million that resulted from
cost reductions associated with the sales and marketing, customer support and
professional services departments of $1.2 million, a reduction of approximately
$0.5 million in our provision for bad debts, reduced administrative costs of
approximately $0.4 million, $0.5 million in cost reductions in other departments
and $0.3 million of reductions in our European operation.
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 September 30, 2002 decreased
$0.3 million, or 27%, to $0.7 million from $1.0 million during the comparable
period in 2001. This decrease was primarily attributable to a $0.1 million
decrease in sales commissions resulting from a higher percentage of sales to
distributors net of commissions and a decrease of $0.2 million of warranty
expense primarily related to the terms of laser system sales.
AMORTIZATION OF INTANGIBLES. During the three months ended September 30,
2002, costs relating to the amortization of intangible assets were unchanged
from the comparable period in 2001. Items directly related to the amortization
of intangible assets are acquired technologies, patents and license agreements.
LOSS FROM OPERATIONS. The operating loss for the three months ended
September 30, 2002 was $2.2 million compared to the operating loss of $6.4
million for the same period in 2001. This decrease in the loss from operations
was primarily due to our improved revenues and gross profit and reductions in
operating expenses.
OTHER INCOME AND EXPENSES. Interest and dividend income for the three
months ended September 30, 2002 was approximately $69,000, a decrease of
approximately $55,000 from the comparable period in 2001. 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. Interest
expense for the three months ended September 30, 2002 was approximately
$142,000, similar to the comparable period in 2001. Other expenses for the three
months ended September 30, 2002 include $140,000 related to the settlement of
litigation with a former shareholder of The Farris Group (TFG).
INCOME TAXES. For the three months ended September 30, 2002 and 2001,
LaserSight had no income tax expense.
DISCONTINUED OPERATIONS. Costs related to the discontinued operation of the
health care services segment were approximately $93,000 during the three months
ended September 30, 2001.
NET LOSS. Net loss for the three months ended September 30, 2002, was $2.5
million compared to a net loss of $6.5 million for the comparable period in
2001. The decrease in net loss for the three months ended September 30, 2002 can
be attributed to our improved revenues and gross profit and the significant
reductions in our operating expenses.
LOSS PER SHARE. The loss per basic and diluted share was $0.09 for the
three months ended September 30, 2002 and $0.25 for the comparable period in
14
2001. Since September 30, 2001, the weighted average shares of common stock
outstanding increased primarily due to the conversion of preferred stock during
May 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2001
REVENUES. Net revenues for the nine months ended September 30, 2002
decreased by $2.9 million, or 30%, to $6.6 million from $9.5 million for the
comparable period in 2001.
During the nine months ended September 30, 2002, refractive products
revenues decreased $3.4 million, or 37%, to $5.8 million from $9.2 million for
the comparable period in 2001. This revenue decrease was primarily the result of
decreased sales of our excimer laser systems. During the nine months ended
September 30, 2002, excimer laser system sales accounted for approximately $3.9
million in revenues compared to $8.0 million in revenues over the same period in
2001. During the nine months ended September 30, 2002, 18 laser systems were
sold compared to 29 laser systems sold during the comparable period in 2001.
Net revenues from patent services for the nine months ended September 30,
2002 increased approximately $0.5 million, or 171%, to $0.8 million from $0.3
million for the comparable period in 2001, due to non-exclusive license
agreements we entered into in late 2001 and early 2002.
COST OF REVENUES; GROSS PROFIT. For the nine months ended September 30,
2002 and 2001, gross profit margins were 42% and 49%, respectively. The gross
margin decrease during the nine months ended September 30, 2002 was primarily
attributable to decreased sales and lower average selling prices of the
LaserScan LSX excimer laser system, causing overhead to be a higher percentage
of sales. The decreased number of laser sales resulted in a decrease in general
overhead expenses of $0.7 million from the comparable period in 2001.
RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES. Research, development and
regulatory expenses for the nine months ended September 30, 2002 decreased
approximately $1.5 million, or 56%, to $1.1 million from $2.6 million for the
comparable period in 2001. While decreasing our expenses, we continued to
develop our AstraMax diagnostic workstation and excimer laser systems and
continued to pursue protocols in our effort to attain and expand our FDA
approvals for our refractive products. If we have sufficient funds, we expect
research and development expenses during the remainder of 2002 to be at levels
similar to the third quarter of 2002 and we expect regulatory expenses will also
be similar to the third quarter of 2002 as a result of our continued pursuit of
various FDA approvals, including pre-market approval supplements, and the
possible development of additional pre-market approval supplements and future
protocols for submission to the FDA. The FDA has recently instituted a fee
structure that will increase the cost of pursuing new or supplemental approvals.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and administrative
expenses for the nine months ended September 30, 2002 decreased $8.3 million, or
44%, to $10.6 million from $18.9 million for the comparable period in 2001. This
decrease was primarily due to a decrease in expenses incurred at our refractive
products subsidiary of approximately $8.3 million that resulted from cost
reductions associated with the sales and marketing, customer support and
professional services departments of $3.7 million, $1.7 million in cost
reductions in other departments, $0.8 million of reductions in our European
operation and a reduction of $2.8 million in legal fees related to patent issues
and litigation. The patent litigation, which accounted for a significant portion
of those legal fees, was settled in May 2001, and we have experienced a
significant decrease in our legal expenses since that time. Conversely, we
incurred approximately $0.7 million in severance costs during the first three
quarters of 2002 related to staffing reductions.
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 nine months ended September 30, 2002 decreased
$1.5 million, or 40%, to $2.2 million from $3.7 million during the comparable
period in 2001. This decrease was primarily attributable to a $0.6 million
15
decrease in sales commissions resulting from lower sales and a higher percentage
of sales to distributors net of commissions and a decrease of $0.8 million of
warranty expense primarily related to decreased laser system sales and the terms
on those sales.
AMORTIZATION OF INTANGIBLES. During the nine months ended September 30,
2002, costs relating to the amortization of intangible assets decreased $43,000,
or 11%, to $345,000 from $388,000 for the comparable period in 2001. This
decrease was due to the sale of a patent in March 2001 that had an unamortized
book value of approximately $2.4 million. Items directly related to the
amortization of intangible assets are acquired technologies, patents and license
agreements.
LOSS FROM OPERATIONS. The operating loss for the nine months ended
September 30, 2002 was $11.6 million compared to the operating loss of $20.9
million for the same period in 2001. This decrease in the loss from operations
was primarily due to reductions in operating expenses that more than offset the
decrease in sales and related margins of our excimer laser systems.
OTHER INCOME AND EXPENSES. Interest and dividend income for the nine months
ended September 30, 2002 was $0.2 million, a decrease of $0.3 million over the
comparable period in 2001. 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. Interest expense for the nine months
ended September 30, 2002 was $0.4 million, an increase of $0.1 million over the
comparable period in 2001 as a result of our loan transaction with Heller in
March 2001. Other income included a net gain, after expenses associated with the
sale, of $4.0 million from the sale of U.S. Patent No. 4,784,135 (Blum Patent)
in March 2001. The patent was sold for $6.5 million and, prior to the sale, had
a book value of approximately $2.4 million. Other expenses for the nine months
ended September 30, 2002 include $140,000 related to the settlement of
litigation with a former shareholder of TFG while the nine months ended
September 30, 2001 include approximately $0.6 million in payments related to the
settlement of patent litigation.
INCOME TAXES. For the nine months ended September 30, 2002 and 2001,
LaserSight had no income tax expense.
DISCONTINUED OPERATIONS. Costs related to the discontinued operation of the
health care services segment were approximately $239,000 during the nine months
ended September 30, 2001.
NET LOSS. Net loss for the nine months ended September 30, 2002, was $11.9
million compared to a net loss of $17.7 million for the comparable period in
2001. The decrease in net loss for the nine months ended September 30, 2002 can
be attributed to the significant reductions in our operating expenses partially
offset by the decrease in sales of our excimer laser systems and the gain
generated by the sale of the Blum Patent in March 2001.
LOSS PER SHARE. The loss per basic and diluted share was $0.44 for the nine
months ended September 30, 2002 and $0.72 for the comparable period in 2001.
Since September 30, 2001, the weighted average shares of common stock
outstanding increased primarily due to the conversion of preferred stock during
May 2002 and the issuance of common stock related to our July 2001 financing.
LIQUIDITY AND CAPITAL RESOURCES
LaserSight had approximately $1.4 million of cash and cash equivalents
available, as of November 13, 2002, to fund continuing operations. Definitive
agreements relating to the China Transaction were executed in August 2002 and
include a commitment by the China-based group to purchase $10.0 million of
lasers and other products over the 12-month period ending August 15, 2003 and an
equity investment in LaserSight of $2.0 million. We started shipping products
under this agreement in August 2002 and received the equity investment in
October 2002. As a result, our short-term liquidity has improved and our
operating results are improving. Management continues undertaking steps as part
of a plan to attempt to continue to improve liquidity and operations. These
steps include seeking (a) to increase sales; and (b) to control overhead costs
and operating expenses.
16
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.
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.
The risks and uncertainties regarding management's expectations are also
described under the heading "Risk Factors and Uncertainties--Financial and
Liquidity Risks."
Our working capital remains positive (approximately $3.8 million as of the
end of October 2002), though the timing of the conversion of our current assets
into cash is not totally in our control. For example, we cannot dictate the
timing of the collection of our accounts receivable with our customers and
converting our inventory into cash is dependent on our ability to generate new
sales of our products and collect the sales price in a timely manner. While to
date we have been able to negotiate payment terms with our suppliers and other
creditors, there is no assurance that we can continue to do so.
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. Even if we
succeed in our attempt to secure additional funds, we cannot assure you that we
will be able to generate increased revenues and collections to offset required
cash expenditures in a timely manner.
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 also
actively sought a strategic partner or buyer. We had engaged McColl Partners,
investment bankers, to assist us in those efforts. Given the extent of those
efforts and the publicity about the China Transaction, it is unlikely that there
will be any other buyer, strategic partner or investor in the near future.
Our principal sources of funds have historically been from sales of
preferred stock and common stock, sales of subsidiaries and patent rights and,
to a lesser extent, our operating cash flows. We issued equity securities
totaling approximately $8.9 million in 1999, $19.1 million in 2000, $3.0 million
in 2001 and $2.0 million through November 13, 2002, and received proceeds from
the exercise of stock options, warrants and our Employee Stock Purchase Plan of
approximately $10.4 million in 1999, $85,000 in 2000 and $67,000 in 2001. In
addition, we sold subsidiaries and sold or licensed various patent rights,
resulting in proceeds to us of approximately $11.5 million in 2001 and $2.9
million through November 13, 2002. We have principally used these capital
resources to fund operating losses, working capital requirements, capital
expenditures, acquisitions and retirement of debt. At September 30, 2002, we had
an accumulated deficit of $97.7 million.
On March 1, 2001, we completed the sale of the Blum Patent for a cash
payment of $6.4 million, net of related expenses. We retained a non-exclusive
17
royalty free license under the patent, which relates to the use of ultraviolet
light for the removal of organic tissue. Our net book value of the patent at the
date of the sale was approximately $2.4 million.
On March 12, 2001, we established a $3.0 million term loan and $10.0
million revolving credit facility with Heller. 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 November 13, 2002, the outstanding principal on our term loan is
approximately $2.2 million. Under the credit facility, we have 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 may be approved by Heller. Borrowings are limited to 85% of eligible accounts
receivable related to U.S. sales. Eligible accounts receivable will primarily be
based on future U.S. sales, which are not expected to increase as a result of
our decision to not actively market our laser in the U.S. until we receive
additional FDA approvals. See "Industry and Competitive Risks--We do not intend
to continue actively marketing our LaserScan LSX laser system in the U.S. until
we receive additional FDA approvals." At the present time, we do not have the
ability to borrow under the credit facility. Borrowings under the loans are
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 extend to March 12, 2003. In addition
to the costs and fees associated with the transaction, we issued to Heller a
warrant to purchase 243,750 shares of common stock at an exercise price of $3.15
per share. The warrant expires on March 12, 2004. On August 15, 2002, Heller
provided a waiver of our prior defaults under our loan agreement pending the
funding of the equity portion of the China 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 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 Heller 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 $40,000 during each of November and December 2002 and
January 2003, with the remaining principal due on March 12, 2003.
In July 2001, we completed a $3.0 million private placement of series F
convertible participating preferred stock.
On April 16, 2002, the Company announced that it had entered into a letter
of intent and a non-exclusive license with a third party contemplating the sale
of patents and technology related to its AstraMax diagnostic workstation
product. On May 14, 2002, the Company announced the transaction had been
terminated. The third party has alleged that the Company violated the terms of
the non-exclusive license. The Company denies any intent to do so. Prior to the
termination of the process, the Company received cash payments totaling
$875,000. In May 2002, the Company settled the dispute with the third party by
granting that third party a license to the Company's `504 Scanning Patent.
Our working capital decreased $11.3 million from $13.9 million at December
31, 2001 to $2.6 million as of September 30, 2002. This decrease in working
capital resulted primarily from the net loss of $11.9 million and the
classification of our term loan with Heller in current liabilities as of March
12, 2002.
Operating activities used net cash of $1.8 million during the nine months
ended September 30, 2002, compared to $15.8 million during the same period in
2001, and $17.7 million during the year ended December 31, 2001. We expect to
incur a loss and a deficit in cash flow from operations for the last quarter of
2002. There can be no assurance that we can achieve profitability or positive
operating cash flow in any subsequent fiscal period. Net cash used by investing
activities of $4,437 during the nine months ended September 30, 2002, can be
attributed to purchases of property and equipment. As of September 30, 2002, we
had no significant commitments for capital expenditures. There was $0.5 million
net cash used in financing activities during the nine months ended September 30,
2002, primarily representing principal payments on the term loan to Heller.
18
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 Europe where our efforts will
initially be primarily focused, the uncertain timing of additional supplemental
FDA approvals for our LaserScan LSX excimer laser system (which has resulted in
our decision to not actively market our laser system in the U.S. until
additional FDA approvals are received), potential growth in laser sales after
receipt of further FDA approvals, 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 UltraShaper durable keratomes and AstraMax diagnostic workstations, and the
absence of unanticipated product development and marketing costs. See "Risk
Factors and Uncertainties--Industry and Competitive Risks--We cannot assure you
that our keratome products will achieve market acceptance" and "--We do not
intend to continue actively marketing our LaserScan LSX laser system in the U.S.
until we receive additional FDA approvals."
RISK FACTORS AND UNCERTAINTIES
The business, results of operations and financial condition of LaserSight
and the market price of our common stock may be adversely affected by a variety
of factors, including the ones noted below:
FINANCIAL AND LIQUIDITY RISKS
WE HAVE EXPERIENCED SIGNIFICANT LOSSES AND OPERATING CASH FLOW DEFICITS AND
WE EXPECT THAT OPERATING CASH FLOW DEFICITS WILL CONTINUE.
We continue to be challenged by our 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. We started shipping products related to the China Transaction in
August 2002 and received the equity investment portion of the transaction in
October 2002. As a result, the Company's short-term liquidity has improved and
its operations are improving. We continue undertaking steps as part of a plan to
attempt to continue to improve liquidity and operations with the goal of
sustaining Company operations. These steps include seeking (a) to increase
sales; and (b) to control overhead costs and operating expenses.
We will still need to generate increased revenues and collect them. 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 fund required
cash expenditures in a timely manner.
Our working capital remains positive (approximately $3.8 million as of the
end of October 2002), though the timing of the conversion of our current assets
into cash is not totally in our control. For example, we cannot dictate the
timing of the collection of our accounts receivable with our customers and
converting our inventory into cash is dependent on our ability to generate new
sales with our products and collect the sales price in a timely manner.
We experienced significant net losses and deficits in cash flow from
operations for the years ended December 31, 2001 and 2000 and the nine months
ended September 30, 2002, as set forth in the following table. We cannot be
certain that we will be able to achieve or sustain profitability or positive
operating cash flow in the future.
Nine months Ended
Year Ended December 31, September 30,
2000 2001 2002
---- ---- ----
Net loss $21.4 million $26.2 million $11.9 million
Deficit in cash flow from
operations $15.7 million $17.7 million $ 1.8 million
19
In the longer term, our expectations are based on additional factors
including: the success of our sales efforts in China and in Europe where our
efforts will initially be primarily focused, the uncertain timing of additional
supplemental FDA approvals for our LaserScan LSX excimer laser system (which has
resulted in our decision to not actively market our laser system in the U.S.
until additional FDA approvals are received), potential growth in laser sales
after receipt of further FDA approvals, 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 UltraShaper durable keratomes and AstraMax diagnostic workstations, and
the absence of unanticipated product development and marketing costs. These
factors and assumptions are subject to substantial uncertainty and risks beyond
our control and no assurances can be given that these expectations will prove
correct. These risks and uncertainties include:
o the willingness of trade creditors to continue to extend credit to
LaserSight;
o reductions and cancellations in orders;
o our ability to fulfill orders in light of our current financial
condition;
o our ability to sell products and collect accounts receivables at or
above the level of management's expectations;
o the occurrence of unforeseen expenses and our ability to control
expected expenses and overhead;
o the occurrence of property and casualty losses which are uninsured or
that generate insurance proceeds that cannot be collected in a short
time frame;
o our ability to improve pricing and terms of international sales;
o the loss of, or failure to obtain additional, customers; and
o changes in pricing by our competitors.
With respect to management's expectations regarding LaserSight's ability to
continue operations for the expected period and the risks and uncertainties
relating to those expectations, readers are encouraged to review the discussions
under the captions "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "--Risk Factors
and Uncertainties--," including "--If our uncollectible receivables exceed our
reserves we will incur additional unanticipated expenses, and we may experience
difficulty collecting restructured receivables with extended payment terms,"
"--We do not intend to continue actively marketing our LaserScan LSX laser
system in the U.S. until we receive additional FDA approvals," "--Required per
procedure fees payable to Visx under our license agreement may exceed per
procedure fees collected by us," "--Our supply of certain critical components
and systems may be interrupted because of our reliance on a limited number of
suppliers," as well as Note 1 of our Notes to Condensed Consolidated Financial
Statements for the nine months ended September 30, 2002. These risks and
uncertainties can affect LaserSight's ability to continue operations for the
expected period in the absence of obtaining additional capital resources.
IF OUR UNCOLLECTIBLE RECEIVABLES EXCEED OUR RESERVES WE WILL INCUR
ADDITIONAL UNANTICIPATED EXPENSES, AND WE MAY EXPERIENCE DIFFICULTY COLLECTING
RESTRUCTURED RECEIVABLES WITH EXTENDED PAYMENT TERMS.
Although we monitor the status of our receivables and maintain a reserve
for estimated losses, we cannot be certain that our reserves for estimated
losses, which were approximately $5.8 million at September 30, 2002, will be
sufficient to cover the amount of our actual write-offs over time. At September
30, 2002, our net trade accounts and notes receivable totaled approximately $8.8
million, and accrued commissions, the payment of which generally depends on the
collection of such net trade accounts and notes receivable, totaled
approximately $1.8 million. Actual write-offs that exceed amounts reserved could
have a material adverse effect on our consolidated financial condition and
results of operations. The amount of any loss that we may have to recognize in
connection with our inability to collect receivables is principally dependent on
our customers' ongoing financial condition, their ability to generate revenues
from our laser systems, and our ability to obtain and enforce legal judgments
against delinquent customers.
20
Our ability to evaluate the financial condition and revenue-generating
ability of our prospective customers located outside of the U.S., and our
ability to obtain and enforce legal judgments against customers located outside
of the U.S., is generally more limited than for our customers located in the
U.S. Our agreements with our international customers typically provide that the
contracts are governed by Florida law. We have not determined whether or to what
extent courts or administrative agencies located in foreign countries would
enforce our right to collect such receivables or to recover laser systems from
customers in the event of a customer's payment default. When a customer is not
paying according to established terms, we attempt to communicate and understand
the underlying causes and work with the customer to resolve any issues we can
control or influence. In most cases, we have been able to resolve the customer's
issues and continue to collect our receivable, either on the original schedule
or under restructured terms. If such issues are not resolved, we evaluate our
legal and other alternatives based on existing facts and circumstances. In most
such cases, we have concluded that the account should be written off as
uncollectible.
INDUSTRY AND COMPETITIVE RISKS
The following Industry and Competitive Risks relate primarily to the longer
term.
WE DO NOT INTEND TO CONTINUE ACTIVELY MARKETING OUR LASERSCAN LSX LASER
SYSTEM IN THE U.S. UNTIL WE RECEIVE ADDITIONAL FDA APPROVALS.
We received the FDA approval necessary for the commercial marketing and
sale of our LaserScan LSX excimer laser system in the U.S. in late 1999 and
commercial shipments to customers in the U.S. began in March 2000. To date, our
LaserScan LSX laser system and per procedure fee business model have not
achieved a level of market acceptance sufficient to provide our cash flows from
operations to fund our business. As a result of our current liquidity and
capital resource issues, we have decided to focus on international markets,
primarily China with our LaserScan LSX laser system and Europe with a custom
ablation product line, and not to continue actively marketing our laser system
in the U.S. until we receive additional FDA approvals.
The current level of per procedure fees payable to us by existing
refractive surgeon customers in the U.S. may not continue to be accepted by the
marketplace or may exceed those charged by our competitors. If our competitors
reduce or do not charge per procedure fees to users of their systems, we could
be forced to reduce or eliminate the fees charged under this business model,
which could significantly reduce our revenues. For example, Nidek Co., Ltd., one
of our competitors, has publicly stated that it will not charge per procedure
fees to users of its laser systems in the U.S. or internationally. See also
"--Company and Business Risks--Required per procedure fees payable to Visx under
our license agreement may exceed per procedure fees collected by us."
WE CANNOT ASSURE YOU THAT OUR KERATOME PRODUCTS WILL ACHIEVE MARKET
ACCEPTANCE.
Keratomes are surgical devices used to create a corneal flap immediately
prior to LASIK laser vision correction procedures. We began to roll out our
MicroShape family of keratome products with the commercial launch of our
UltraEdge keratome blades in July 1999 and of our UniShaper single-use keratomes
and control consoles in December 1999. In November 2001, we commercially
released our UltraShaper durable keratomes after a thorough process of
engineering refinement and validity testing. In order for our UniShaper
single-use keratome to be commercially viable it will need to be reengineered,
if possible, to include most or all of the features included in our UltraShaper
keratome. Our UltraShaper durable keratome incorporates the features found in
the ACS keratome previously marketed by Bausch & Lomb, Inc. with new
enhancements and features. However, Bausch & Lomb has not aggressively marketed
or serviced the ACS since 1997 when we licensed the rights to commercially
market keratomes based on the same technology, and has successfully transitioned
a large number of refractive surgeons from the ACS to its Hansatome durable
keratome product. We believe that many refractive surgeons learned to perform
the LASIK procedure using the ACS and prefer the surgical technique required by
21
the ACS, which is also used to operate our UltraShaper durable keratome, to the
surgical technique required to operate the Hansatome keratome product. However,
we cannot assure you that we will be successful in commercially introducing or
achieving broad market acceptance of our UltraShaper durable keratome or our
other keratome products.
If we cannot successfully market and sell our keratome products or if we
are unable to successfully find a marketing and distribution alliance with
another company, we may not be able to execute our business plan, which would
have a material adverse effect on our business, financial condition and results
of operations. See also "--Company and Business Risks--Required minimum payments
under our keratome license agreement may exceed our gross profits from sales of
our keratome products."
THE VISION CORRECTION INDUSTRY CURRENTLY CONSISTS OF A FEW ESTABLISHED
PROVIDERS WITH SIGNIFICANT MARKET SHARES AND WE ARE ENCOUNTERING DIFFICULTIES
COMPETING IN THIS HIGHLY COMPETITIVE ENVIRONMENT.
The vision correction industry is subject to intense, increasing
competition, and we do not know if we will be able to compete successfully
against our current and future competitors. Many of our competitors have
established products, distribution capabilities and customer service networks in
the U.S. marketplace, are substantially larger and have greater brand
recognition and greater financial and other resources than we do. Visx, the
historical industry leader for excimer laser system sales in the U.S., sold
laser systems that performed a significant majority of the laser vision
correction procedures performed in the U.S. in 1999, 2000 and 2001. Similarly,
Bausch & Lomb sold a significant majority of the keratomes used by refractive
surgeons in the U.S. in 1999, 2000 and 2001. In 2000, Alcon acquired Summit
Autonomous Inc. The merger resulted in a combined entity with enhanced market
presence, technology base and distribution capabilities and provided Alcon with
a narrow beam laser technology platform that will compete more directly with our
precision beam, scanning microspot LaserScan LSX excimer laser system. In
addition, as a result of the acquisition, the combined entity will be able to
sell narrow beam laser systems under a royalty-free license to certain Visx
patents without incurring the expense and uncertainty associated with
intellectual property litigation with Visx. We anticipate that Alcon will
leverage the sale of its laser systems with its other ophthalmic products.
Competitors are using our weak financial condition as a reason why a buyer
shouldn't buy our laser.
MANY OF OUR COMPETITORS RECEIVED EARLIER REGULATORY APPROVALS THAN US AND
MAY HAVE A COMPETITIVE ADVANTAGE OVER US DUE TO THE SUBSEQUENT EXPANSION OF
THEIR REGULATORY APPROVALS AND THEIR SUBSTANTIAL EXPERIENCE IN THE U.S. MARKET.
We received the FDA approval necessary for the commercial sale of our
LaserScan LSX excimer laser system in the U.S. in November 1999 and commercial
shipments to customers in the U.S. began in March 2000. Our direct competitors
include large corporations such as Visx and Alcon, each of whom received FDA
approval of excimer laser systems more than three years prior to our approval
and has substantial experience manufacturing, marketing and servicing laser
systems in the U.S. In addition to Visx and Alcon, Nidek and Bausch & Lomb have
also received FDA approval for their laser systems.
In the U.S., a manufacturer of excimer laser vision correction systems
gains a competitive advantage by having its systems approved by the FDA for a
wider range of treatments. Initial FDA approvals of excimer laser vision
correction systems historically have been limited to the treatment of low to
moderate nearsightedness, with additional approvals for other and broader
treatments granted only as a result of subsequent FDA applications and clinical
trials. Our LaserScan LSX is currently approved for the LASIK treatment of
nearsightedness with and without astigmatism for a range of treatment of
refractive errors up to -6.0 diopters MRSE with or without a refractive
astigmatism up to 4.5 diopters and the PRK treatment of low to moderate
nearsightedness (up to -6.0 diopters) without astigmatism. Additionally, we have
received FDA approval to operate our laser systems at a 200 Hz pulse repetition
rate, twice the originally approved rate. We have submitted PMA supplements to
the FDA to permit our laser systems sold to customers in the U.S. to utilize
LASIK to treat hyperopia, hyperopic astigmatism and mixed astigmatism. FDA
approval of these applications is anticipated in 2002, though we cannot ensure
22
if or when the approval will be received. Our ability to sell our laser systems
in the U.S. may be severely impaired if the FDA does not give timely approval to
these supplements.
Currently, excimer laser vision correction systems manufactured by Visx,
Alcon, Bausch & Lomb and Nidek have been approved for higher levels of
nearsightedness than the LaserScan LSX. Alcon's Apex Plus and Ladarvision
Excimer Laser Workstations, Visx's Star S2 Excimer Laser System and Nidek's
EC-5000 Excimer Laser System have received FDA approval for the LASIK treatment
of nearsightedness with or without astigmatism. The approvals for many of the
systems are for the correction of nearsightedness in the range of 0 diopters to
-14.0 diopters and nearsightedness with astigmatism generally in the range of
-0.5 diopters to -5.0 diopters. Bausch & Lomb's Technolas 217 excimer laser has
also received FDA approval for the treatment of nearsightedness from -1.0
diopter up to -7.0 diopters with up to -3.0 diopters of astigmatism. The Visx
and Alcon excimer laser systems are also approved for the treatment of moderate
farsightedness. In September 2000, the FDA approved Alcon's Ladarvision system
for the correction using LASIK of farsightedness of up to +6.0 diopters and an
astigmatism range of up to 6.0 diopters. In October 2000, the FDA approved
Visx's Star S2 and S3 systems for the correction using PRK of farsightedness of
up to +5.0 diopters and an astigmatism range of up to 3.0 diopters. In February
2001, the FDA approved of Visx's Custom-Contoured Ablation Pattern Method for
treatment of decentered ablations under a Humanitarian Device Exemption (HDE).
An HDE authorizes the use and marketing of a device that is intended to benefit
patients in the treatment of conditions that affect fewer than 4,000
individuals. In August 2002, Alcon announced the approval of its
wavefront-guided laser eye surgery application for the treatment of myopia
between zero and -7.0 diopters. Competitors' earlier receipt of LASIK and
hyperopia-specific FDA regulatory approvals could give them a significant
competitive advantage that could impede our ability to successfully sell our
LaserScan LSX system in the U.S. Our failure to successfully market our product
could have a material adverse effect on our business, financial condition and
results of operations.
All of our principal competitors in the keratome business, including
current market leader Bausch & Lomb, received FDA clearance prior to the
commercialization of our keratome products and have substantial experience
marketing their keratome products. The established market presence in the U.S.
of previously approved laser systems and keratome products, as well as the entry
of new competitors into the market upon receipt of new or expanded regulatory
approvals, could impede our ability to successfully introduce our LaserScan LSX
system in the U.S. and our keratome products worldwide and may have a material
adverse effect on our business, financial condition and results of operations.
WE DEPEND UPON OUR ABILITY TO ESTABLISH AND MAINTAIN STRATEGIC
RELATIONSHIPS.
We believe that our ability to establish and maintain strategic
relationships will have a significant impact on our ability to meet our business
objectives. These strategic relationships are critical to our future success
because we believe that these relationships will help us to:
o extend the reach of our products to a larger number of refractive
surgeons;
o develop and deploy new products;
o further enhance the LaserSight brand; and
o generate additional revenue.
Entering into strategic relationships is complicated because some of our
current and future strategic partners may decide to compete with us in some or
all of our markets. In addition, we may not be able to establish relationships
with key participants in our industry if they have relationships with our
competitors, or if we have relationships with their competitors. Moreover, some
potential strategic partners have resisted, and may continue to resist, working
with us until our products and services have achieved widespread market
acceptance. Once we have established strategic relationships, we will depend on
our partners' ability to generate increased acceptance and use of our products
and services. To date, we have established only a limited number of strategic
relationships, and many of these relationships are in the early stages of
development. There can be no assurance as to the terms, timing or consummation
of any future strategic relationships. If we lose any of these strategic
23
relationships or fail to establish additional relationships, or if our strategic
relationships fail to benefit us as expected, we may not be able to execute our
business plan, and our business will suffer.
BECAUSE THE SALE OF OUR PRODUCTS IS DEPENDENT ON THE CONTINUED MARKET
ACCEPTANCE OF LASER-BASED REFRACTIVE EYE SURGERY USING THE LASIK PROCEDURE, THE
LACK OF BROAD MARKET ACCEPTANCE WOULD HURT OUR BUSINESS.
We believe that whether we achieve profitability and growth will depend, in
part, upon the continued acceptance of laser vision correction using the LASIK
procedure in the U.S. and other countries. We cannot be certain that laser
vision correction will continue to be accepted by either the refractive surgeons
or the public at large as an alternative to existing methods of treating
refractive vision disorders. The acceptance of laser vision correction and,
specifically, the LASIK procedure may be adversely affected by:
o possible concerns relating to safety and efficacy, including the
predictability, stability and quality of results;
o the public's general resistance to surgery;
o the effectiveness and lower cost of alternative methods of correcting
refractive vision disorders;
o the lack of long-term follow-up data;
o the possibility of unknown side effects;
o the lack of third-party reimbursement for the procedures;
o the cost of the procedure; and
o unfavorable publicity involving patient outcomes from the use of laser
vision correction.
Unfavorable side effects and potential complications that may result from
the use of laser vision correction systems manufactured by any manufacturer may
broadly affect market acceptance of laser-based vision correction surgery.
Potential patients may not distinguish between our precision beam scanning spot
technology and the laser technology incorporated by our competitors in their
laser systems, and customers may not differentiate laser systems and procedures
that have not received FDA approval from FDA-approved systems and procedures.
Any adverse consequences resulting from procedures performed with a competitor's
systems or an unapproved laser system could adversely affect consumer acceptance
of laser vision correction in general. In addition, because laser vision
correction is an elective procedure that is not typically covered by insurance
and involves more significant immediate expense than eyeglasses or contact
lenses, adverse changes in the U.S. or international economy may cause consumers
to reassess their spending choices and to select lower-cost alternatives for
their vision correction needs. Any such shift in spending patterns could reduce
the volume of LASIK procedures performed that would, in turn, reduce the number
of laser systems sold and our revenues from per procedure fees and sales of
single-use products such as our UltraEdge keratome blades.
The failure of laser vision correction to achieve continued market
acceptance could have a material adverse effect on our business prospects. Even
if laser vision correction achieves and sustains market acceptance, sales of our
keratome products could be adversely impacted if a laser procedure that does not
require the creation of a corneal flap were to emerge as the procedure of
choice.
NEW PRODUCTS OR TECHNOLOGIES COULD ERODE DEMAND FOR OUR PRODUCTS OR MAKE
THEM OBSOLETE, AND OUR BUSINESS COULD BE HARMED IF WE CANNOT KEEP PACE WITH
ADVANCES IN TECHNOLOGY.
In addition to competing with eyeglasses and contact lenses, excimer laser
vision correction competes or may compete with newer technologies such as
intraocular lenses, intracorneal inlays, corneal rings and surgical techniques
using different or more advanced types of lasers. Two products that may become
competitive within the near term are implantable contact lenses, which are
pending FDA approval, and corneal rings, which have been approved by the FDA.
Both of these products require procedures with lens implants, and their ultimate
market acceptance is unknown at this time. To the extent that any of these or
other new technologies are perceived to be clinically superior or economically
24
more attractive than currently marketed excimer laser vision correction
procedures or techniques, they could erode demand for our excimer laser and
keratome products, cause a reduction in selling prices of such products or
render such products obsolete. In addition, if one or more competing
technologies achieves broader market acceptance or renders laser vision
correction procedures obsolete, it would have a material adverse effect on our
business, financial condition and results of operations.
As is typical in the case of new and rapidly evolving industries, the
demand and market for recently introduced products and technologies is
uncertain, and we cannot be certain that our LaserScan LSX laser system,
UltraShaper durable keratome, UltraEdge keratome blades, UniShaper single-use
keratome or future new products and enhancements will be accepted in the
marketplace. In addition, announcements or the anticipation of announcements of
new products, whether for sale in the near future or at some later date, may
cause customers to defer purchasing our existing products.
If we cannot adapt to changing technologies, our products may become
obsolete, and our business could suffer. Our success will depend, in part, on
our ability to continue to enhance our existing products, develop new technology
that addresses the increasingly sophisticated needs of our customers, license
leading technologies and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. The development of
our proprietary technology entails significant technical and business risks. We
may not be successful in using new technologies effectively or adapting our
proprietary technology to evolving customer requirements or emerging industry
standards.
ADDITIONAL COMPANY AND BUSINESS RISKS
The following Additional Company and Business Risks relate primarily to the
longer term.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.
Our ability to maintain our competitive position depends in part upon the
continued contributions of our executive officers and other key employees,
especially Michael R. Farris, our president and chief executive officer. A loss
of one or more such officers or key employees could have a material adverse
effect on our business. We do not carry "key person" life insurance on any
officer or key employee.
Our staff reductions during 2001 and to date in 2002 may have a negative
impact on our ability to attract and retain personnel. If we fail to attract and
retain qualified individuals for necessary positions, it could have a material
adverse effect on our business, financial condition and results of operations.
WE HAVE MOVED ALL INTERNATIONAL MANUFACTURING OPERATIONS FROM COSTA RICA TO
THE U.S. AND MUST CONTINUE TO COMPLY WITH STRINGENT REGULATION OF OUR
MANUFACTURING OPERATIONS.
We moved the manufacturing location our laser systems for sale in
international markets to our U.S. location from our manufacturing facility in
Costa Rica. We cannot assure you that we will not encounter difficulties in
increasing our production capacity for our laser systems at our Florida
facility, including problems involving production delays, quality control or
assurance, component supply and lack of qualified personnel. Any products
manufactured or distributed by us pursuant to FDA clearances or approvals are
subject to extensive regulation by the FDA, including record-keeping
requirements and reporting of adverse experience with the use of the product.
Our manufacturing facilities are subject to periodic inspection by the FDA,
certain state agencies and international regulatory agencies. We require that
our key suppliers comply with recognized standards as well as our own quality
standards, and we regularly test the components and sub-assemblies supplied to
us. Any failure by us or our suppliers to comply with applicable regulatory
requirements, including the FDA's quality systems/good manufacturing practice
(QSR/GMP) regulations, could cause production and distribution of our products
to be delayed or prohibited, either of which could have a material adverse
effect on our business, financial condition and results of operations.
25
REQUIRED PER PROCEDURE FEES PAYABLE TO VISX UNDER OUR LICENSE AGREEMENT MAY
EXCEED PER PROCEDURE FEES COLLECTED BY US.
In addition to the risk that our refractive lasers will not be accepted in
the marketplace, we are required to pay Visx a royalty for each procedure
performed in the U.S. using our refractive lasers. The required per procedure
fees we are required to pay to Visx may exceed the per procedure fees we are
able to charge and/or collect from refractive surgeons, which could result in a
material adverse effect on our financial condition and results of operations.
REQUIRED MINIMUM PAYMENTS UNDER OUR KERATOME LICENSE AGREEMENT MAY EXCEED
OUR GROSS PROFITS FROM SALES OF OUR KERATOME PRODUCTS.
We are required to make certain minimum payments to the licensor under our
keratome license agreement that was amended and restated on January 4, 2001.
This amendment replaced a January 18, 2000 amendment in its entirety. Under the
terms of the amendment we issued 730,552 shares of common stock to the
licensors, valued at approximately $1.1 million, in partial payment for
royalties during the term of the license. The term of the license was extended
three years until July 31, 2005. In addition, remaining minimum royalty payments
totaling approximately $4.1 million as of November 13, 2002 will be due in
monthly installments (averaging approximately $150,000 per month through 2003)
or quarterly installments (averaging approximately $238,000 per quarter from
January 2004 through October 2005) through the term of the amendment. As a
result of our obligations under this license arrangement, the minimum royalty
payments we are required to make to the licensors may exceed our gross profits
from sales of our UniShaper and UltraShaper keratome products. The amendment
eliminated a restriction on us manufacturing, marketing and selling other
keratomes, but the sale of other keratomes will be included in the gross profit
to be shared with the licensors. The licensor's share of the gross profit, as
defined in the amendment, decreased from 50% to 10%.
OUR FAILURE TO TIMELY OBTAIN OR EXPAND REGULATORY APPROVALS FOR OUR
PRODUCTS AND TO COMPLY WITH REGULATORY REQUIREMENTS COULD ADVERSELY AFFECT OUR
BUSINESS.
Our excimer laser systems, diagnostic and custom ablation products and
keratome products are subject to strict governmental regulations that materially
affect our ability to manufacture and market these products and directly impact
our overall business prospects. FDA regulations impose design and performance
standards, labeling and reporting requirements, and submission conditions in
advance of marketing for all medical laser products in the U.S. New product
introductions, expanded treatment types and levels for approved products, and
significant design or manufacturing modifications require a premarket clearance
or approval by the FDA prior to commercialization in the U.S. The FDA approval
process, which is lengthy and uncertain, requires supporting clinical studies
and substantial commitments of financial and management resources. Failure to
obtain or maintain regulatory approvals and clearances in the U.S. and other
countries, or significant delays in obtaining these approvals and clearances,
could prevent us from marketing our products for either approved or expanded
indications or treatments, which could substantially decrease our future
revenues.
In March 2002, we pursued a "real time" PMA supplement seeking approval for
the use of our advanced adaptive eye tracking system in an accelerated time
frame, as few as 30 days. In April 2002, we were advised by the FDA that they
would review the submission in a 180-day timeframe. We are currently in the
process of addressing the FDA's questions related to this submission.
Additionally, product and procedure labeling and all forms of promotional
activities are subject to examination by the FDA, and current FDA enforcement
policy prohibits the marketing by manufacturers of approved medical devices for
unapproved uses. Noncompliance with these requirements may result in warning
letters, fines, injunctions, recall or seizure of products, suspension of
manufacturing, denial or withdrawal of PMAs, and criminal prosecution. Laser
products marketed in foreign countries are often subject to local laws governing
health product development processes, which may impose additional costs for
overseas product development. Future legislative or administrative requirements,
26
in the U.S. or elsewhere, may adversely affect our ability to obtain or retain
regulatory approval for our products. The failure to obtain approvals for new or
additional uses on a timely basis could have a material adverse effect on our
business, financial condition and results of operations.
OUR BUSINESS DEPENDS ON OUR INTELLECTUAL PROPERTY RIGHTS, AND IF WE ARE
UNABLE TO PROTECT THEM, OUR COMPETITIVE POSITION MAY BE ADVERSELY AFFECTED.
Our business plan is predicated on our proprietary systems and technology,
including our precision beam scanning microspot technology laser systems. We
protect our proprietary rights through a combination of patent, trademark, trade
secret and copyright law, confidentiality agreements and technical measures. We
generally enter into non-disclosure agreements with our employees and
consultants and limit access to our trade secrets and technology. We cannot
assure you that the steps we have taken will prevent misappropriation of our
intellectual property. Misappropriation of our intellectual property would have
a material adverse effect on our competitive position. In addition, we may have
to engage in litigation or other legal proceedings in the future to enforce or
protect our intellectual property rights or to defend against claims of
invalidity. These legal proceedings may consume considerable resources,
including management time and attention, which would be diverted from the
operation of our business, and the outcome of any such legal proceeding is
inherently uncertain.
We are aware that certain competitors are developing products that may
potentially infringe patents owned or licensed exclusively by us. In order to
protect our rights in these patents, we may find it necessary to assert and
pursue infringement claims against such third parties. We could incur
substantial costs and diversion of management resources litigating such
infringement claims and we cannot assure you that we will be successful in
resolving such claims or that the resolution of any such dispute will be on
terms that are favorable to us. See "--Patent infringement allegations may
impair our ability to manufacture and market our products."
PATENT INFRINGEMENT ALLEGATIONS MAY IMPAIR OUR ABILITY TO MANUFACTURE AND
MARKET OUR PRODUCTS.
There are a number of U.S. and foreign patents covering methods and
apparatus for performing corneal surgery that we do not own or have the right to
use. If we were found to infringe a patent in a particular market, we and our
customers may be enjoined from manufacturing, marketing, selling and using the
infringing product in the market and may be liable for damages for any past
infringement of such rights. In order to continue using such rights, we would be
required to obtain a license, which may require us to make royalty, per
procedure or other fee payments. We cannot be certain if we or our customers
will be successful in securing licenses, or that if we obtain licenses, such
licenses will be available on acceptable terms. Alternatively, we might be
required to redesign the infringing aspects of these products. Any redesign
efforts that we undertake could be expensive and might require regulatory
review. Furthermore, the redesign efforts could delay the reintroduction of
these products into certain markets, or may be so significant as to be
impractical. If redesign efforts were impractical, we could be prevented from
manufacturing and selling the infringing products, which would have a material
adverse effect on our business, financial condition and results of operations.
Litigation involving patents is common in our industry. While we do not
believe our laser systems or keratome products infringe any valid and
enforceable patents that we do not own or have a license to, we cannot assure
you that one or more of our other competitors or other persons will not assert
that our products infringe their intellectual property, or that we will not in
the future be deemed to infringe one or more patents owned by them or some other
party. We could incur substantial costs and diversion of management resources
defending any infringement claims. Furthermore, a party making a claim against
us could secure a judgment awarding substantial damages, as well as injunctive
or other equitable relief that could effectively block our ability to market one
or more of our products. In addition, we cannot assure you that licenses for any
intellectual property of third parties that might be required for our products
will be available on commercially reasonable terms, or at all.
27
WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES.
Our international sales accounted for 79% and 73% of our total revenues
during the nine months ended September 30, 2002 and the year ended December 31,
2001, respectively. In the future, we expect that sales to U.S. accounts will
represent a higher percentage of our total sales only when additional regulatory
approvals are received for our LaserScan LSX laser system in the U.S. We are
presently focusing our sales efforts on international sales in China and Europe.
International sales of our products may be limited or disrupted by:
o the imposition of government controls;
o export license requirements;
o economic or political instability;
o trade restrictions;
o difficulties in obtaining or maintaining export licenses;
o changes in tariffs; and
o difficulties in staffing and managing international operations.
Our sales have historically been and are expected to continue to be
denominated in U.S. dollars. The European Economic Union's conversion to a
common currency, the euro, is not expected to have a material impact on our
business. However, due to our significant export sales, we are subject to
exchange rate fluctuations in the U.S. dollar, which could increase the
effective price in local currencies of our products. This could result in
reduced sales, longer payment cycles and greater difficulty in collecting
receivables relating to our international sales.
OUR SUPPLY OF CERTAIN CRITICAL COMPONENTS AND SYSTEMS MAY BE INTERRUPTED
BECAUSE OF OUR RELIANCE ON A LIMITED NUMBER OF SUPPLIERS.
We currently purchase certain components used in the production, operation
and maintenance of our laser systems and keratome products from a limited number
of suppliers, and certain key components are provided by a single vendor. We are
currently seeking a replacement blade manufacturer, and the majority of our
UltraShaper components are manufactured exclusively by Owens Industries pursuant
to our agreement with them. We do not have long-term contracts with providers of
some key laser system components, including TUI Lasertechnik und
Laserintegration GmbH, which currently is a single source supplier for the laser
heads used in our LaserScan LSX excimer laser system. Currently, SensoMotoric
Instruments GmbH, Teltow, Germany, is a single source supplier for the eye
tracker boards used in our excimer laser systems. Any interruption in the supply
of critical laser or keratome components could have a material adverse effect on
our business, financial condition and results of operations. If any of our key
suppliers ceases providing us with products of acceptable quality and quantity
at a competitive price and in a timely fashion, we would have to locate and
contract with a substitute supplier and, in some cases, such substitute supplier
would need to be qualified by the FDA. If substitute suppliers cannot be located
and qualified in a timely manner or could not provide required products on
commercially reasonable terms, it would have a material adverse effect on our
business, financial condition and results of operations.
UNLAWFUL TAMPERING OF OUR SYSTEM CONFIGURATIONS COULD RESULT IN REDUCED
REVENUES AND ADDITIONAL EXPENSES.
We include a procedure counting mechanism on LaserScan LSX lasers
manufactured for sale and use in the U.S. Users of our LaserScan LSX excimer
laser system could tamper with the software or hardware configuration of the
system so as to alter or eliminate the procedure counting mechanism that
facilitates the collection of per procedure fees. Unauthorized tampering with
our procedure counting mechanism by users could result in us being required to
pay per procedure fees to Visx that we were not able to collect from users. If
we are unable to prevent such tampering, our license agreement with Visx could
be terminated after all applicable notice and cure periods have expired.
28
INADEQUACY OR UNAVAILABILITY OF INSURANCE MAY EXPOSE US TO SUBSTANTIAL
PRODUCT LIABILITY CLAIMS.
Our business exposes us to potential product liability risks and possible
adverse publicity that are inherent in the development, testing, manufacture,
marketing and sale of medical devices for human use. These risks increase with
respect to our products that receive regulatory approval for commercialization.
We have agreed in the past, and we will likely agree in the future, to indemnify
certain medical institutions and personnel who conduct and participate in our
clinical studies. While we maintain product liability insurance, we cannot be
certain that any such liability will be covered by our insurance or that damages
will not exceed the limits of our coverage. Even if a claim is covered by
insurance, the costs of defending a product liability, malpractice, negligence
or other action, and the assessment of damages in excess of insurance coverage
in the event of a successful product liability claim, could have a material
adverse effect on our business, financial condition and results of operations.
Further, product liability insurance may not continue to be available, either at
existing or increased levels of coverage, on commercially reasonable terms.
COMMON STOCK RISKS
VARIATIONS IN OUR SALES AND OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO
FLUCTUATE.
Our operating results have fluctuated in the past, and may continue to
fluctuate in the future, as a result of a variety of factors, many of which are
outside of our control. For example, historically a significant portion of our
laser system orders for a particular quarter have been received and shipped near
the end of the quarter. As a result, our operating results for any quarter often
depend on the timing of the receipt of orders and the subsequent shipment of our
laser systems. Other factors that may cause our operating results or stock price
to fluctuate include:
o our significant liquidity and capital resource issues;
o the addition or loss of significant customers;
o reductions, cancellations or fulfillment of major orders;
o changes in pricing by us or our competitors;
o timing of regulatory approvals and the introduction or delays in
shipment of new products;
o the relative mix of our business; and
o increased competition.
As a result of these fluctuations, we believe that period-to-period
comparisons of our operating results cannot be relied upon as indicators of
future performance. In some quarters our operating results may fall below the
expectations of securities analysts and investors due to any of the factors
described above or other uncertainties.
THE MARKET PRICE OF OUR COMMON STOCK MAY CONTINUE TO EXPERIENCE EXTREME
FLUCTUATIONS DUE TO MARKET CONDITIONS THAT ARE UNRELATED TO OUR OPERATING
PERFORMANCE.
The stock market, and in particular the securities of technology companies
like us, could experience extreme price and volume fluctuations unrelated to our
operating performance. Our stock price has historically been volatile. Because
of the lengthy period during which our common stock traded below $1 per share,
it no longer met the listing requirements for the Nasdaq National Market and was
transferred on August 9, 2002 to the Nasdaq SmallCap Market. On August 15, 2002,
Nasdaq approved our application to transfer our listing to that market.
Factors such as announcements of technological innovations or new products
by us or our competitors, changes in domestic or foreign governmental
regulations or regulatory approval processes, developments or disputes relating
to patent or proprietary rights, public concern as to the safety and efficacy of
refractive vision correction procedures, and changes in reports and
29
recommendations of securities analysts, have and may continue to have a
significant impact on the market price of our common stock.
THE SIGNIFICANT NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE AND DILUTIVE
STOCK ISSUANCES MAY ADVERSELY AFFECT OUR STOCK PRICE.
Sales, or the possibility of sales, of substantial amounts of our common
stock in the public market could adversely affect the market price of our common
stock. Substantially all of our 27,841,941 shares of common stock outstanding at
November 13, 2002 were freely tradable without restriction or further
registration under the Securities Act of 1933, except to the extent such shares
are held by "affiliates" as that term is defined in Rule 144 under the
Securities Act or subject only to the satisfaction of a prospectus delivery
requirement. An additional 9,280,647 shares of preferred stock, convertible into
18,561,294 shares of common stock, were issued in October 2002 upon the funding
of the equity investment portion of the China Transaction. We have agreed to
register the shares of common stock under the Securities Act of 1933. Once
registered, the shares will be available for sale.
Other shares of common stock that we may issue in the future in connection
with financings or pursuant to outstanding warrants or agreements could also
adversely affect the market price of our common stock and cause significant
dilution in our earnings per share and net book value per share. We may be
required to issue more than 5,800,000 additional shares of common stock upon the
exercise of outstanding warrants and stock options. Including the China
Transaction, the number of shares we may be required to issue upon the
conversion of outstanding preferred stock and the exercise of outstanding
warrants and stock options will increase to approximately 24,400,000.
The anti-dilution provisions of certain of our existing securities and
obligations require us to issue additional shares if we issue shares of common
stock below specified price levels. If a future share issuance triggers these
adjustments, the beneficiaries of such provisions effectively receive some
protection from declines in the market price of our common stock, while our
other stockholders incur additional dilution of their ownership interest. We may
include similar anti-dilution provisions in securities issued in connection with
future financings.
THE CHINA TRANSACTION INCLUDES A PROVISION UNDER WHICH THE PURCHASER OF OUR
PREFERRED STOCK CAN ACQUIRE APPROXIMATELY 40% OF OUR COMMON STOCK. THAT
STOCKHOLDING POSITION ALONE DIMINISHES THE POSSIBILITY OF A COMPETING BID FOR A
MAJORITY OF THE COMMON STOCK, BUT THE ANTI-TAKEOVER PROVISION UNDER DELAWARE LAW
AND IN OUR CERTIFICATE OF INCORPORATION, OUR BY-LAWS AND OUR STOCKHOLDER RIGHTS
PLAN WILL NONETHELESS REQUIRE THE BOARD TO EXERCISE ITS FIDUCIARY DUTY ON ANY
BID (WHETHER BY THE PURCHASER IN THE CHINA TRANSACTION OR ANOTHER) TAKING INTO
CONSIDERATION ALL OF THE CIRCUMSTANCES AT THAT TIME.
Certain provisions of our certificate of incorporation, by-laws,
stockholder rights plan and Delaware law could delay or frustrate the removal of
incumbent directors, discourage potential acquisition proposals and delay, defer
or prevent a change in control of us, even if such events could be beneficial,
in the short term, to the economic interests of our stockholders. For example,
our certificate of incorporation allows us to issue preferred stock with rights
senior to those of the common stock without stockholder action, and our by-laws
require advance notice of director nominations or other proposals by
stockholders. We also are subject to provisions of Delaware corporation law that
prohibit a publicly-held Delaware corporation from engaging in a broad range of
business combinations with a person who, together with affiliates and
associates, owns 15% or more of the corporation's common stock (an interested
stockholder) for three years after the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. We also have
adopted a stockholder rights agreement, or "poison pill," and declared a
dividend distribution of one preferred share purchase right for each share of
common stock.
The board will act with respect to anti-takeover provisions with its
fiduciary duty in mind.
30
RISKS RELATING TO INTANGIBLES
AMORTIZATION AND CHARGES RELATING TO OUR SIGNIFICANT INTANGIBLE ASSETS
COULD ADVERSELY AFFECT OUR STOCK PRICE AND REPORTED NET INCOME OR LOSS.
Of our total assets at September 30, 2002, approximately $4.9 million, or
20%, were intangible assets. Any reduction in net income or increase in net loss
resulting from the amortization of intangible assets resulting from future
acquisitions by us may have an adverse impact upon the market price of our
common stock. In addition, in the event of a sale of LaserSight or our assets,
we cannot be certain that the value of such intangible assets would be
recovered.
In accordance with FASB Statement No. 144, we review intangible assets for
impairment whenever events or changes in circumstances, including a history of
operating or cash flow losses, indicate that the carrying amount of an asset may
not be recoverable. If we determine that an intangible asset is impaired, a
non-cash impairment charge would be recognized.
OTHER RISKS
The following relates to risks on both a short and longer-term basis:
The risks described above are not the only risks facing LaserSight. There
may be additional risks and uncertainties not presently known to us or that we
have deemed immaterial which could also negatively impact our business
operations. If any of the foregoing risks actually occur, it could have a
material adverse effect on our business, financial condition and results of
operations. In that event, the trading price of our common stock could decline,
and you may lose all or part of your investment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that our exposure to market risk for changes in interest and
currency rates is not significant. Our investments are limited to highly liquid
instruments generally with maturities of three months or less. At September 30,
2002, we had approximately $0.1 million of short-term investments classified as
cash and equivalents. All of our transactions with international customers and
suppliers are denominated in U.S. dollars.
ITEM 4. CONTROLS AND PROCEDURES
(a) Based on their evaluation within 90 days prior to the filing date of
this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures as
defined in Rule 13a-14(c) under the Securities and Exchange Act of 1934, as
amended, are effective for gathering, analyzing, and disclosing, the information
we are required to disclose in our reports filed under the Act.
(b) There were no significant changes in our internal controls or in other
factors that could significantly affect those controls since the date of
evaluation of those internal controls.
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, 2001. These matters are updated as follows:
Jarstad. In this matter, a settlement agreement has been signed by
all parties. The terms of the settlement agreement do not require us to
make any cash payments.
31
Distributors. We filed a motion for summary judgment that was
denied. We then filed our answer and counterclaim. The plaintiffs have
answered the counterclaim and have moved to strike some of our
affirmative defenses and we have moved to strike portions of the
plaintiff's answer. To date, limited discovery has occurred. Management
believes that LaserSight Technologies has satisfied its obligations
under the distribution agreements, and that the allegations against
LaserSight Technologies, Mr. Farris and Mr. Spivey are without merit
and intend to vigorously defend this lawsuit. 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. However, the outcome of litigation is inherently uncertain,
and an unfavorable outcome in this litigation could have a material
adverse effect on LaserSight's business, financial condition and
results from operations.
Former shareholder of TFG. We have agreed to the terms of a
settlement with the plaintiff. During the three months ended September
30, 2002, we recorded settlement expense of approximately $140,000
related to this settlement.
Lambda Physik, Inc. After no activity for over a year, the
plaintiff filed a motion in July 2002 to have the court set a trial
date, which they set for December 2002. Subsequently, the plaintiff
filed a motion for continuance of the trial to allow the parties an
opportunity to settle the dispute. In October 2002, the court entered
an order continuing the trial and will reschedule only upon the filing
of a new notice for trial by either party. We continue to believe that
the allegations made by the plaintiff are without merit, and we intend
to vigorously defend the action. Management believes that we have
satisfied our obligations under the agreement and that this action will
not have material adverse effect on our financial condition or results
from operations.
Kremer. We have agreed to postpone discovery while we attempt to
agree on the final form of a settlement with the plaintiffs. The terms
of the settlement agreement, as currently contemplated, will not
require us to make any cash payments.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On August 15, 2002, Heller provided a temporary waiver of our prior
defaults under our loan agreement. The waiver became permanent upon the
funding of the equity investment portion of the China Transaction in
October 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit
Number Description
------ -----------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended.
3.2 Bylaws, as amended.
3.3 Fourth Amendment to Rights Agreement, dated as of August 15, 2002,
between LaserSight Incorporated and American Stock Transfer & Trust
Company, as Rights Agent.
10.1 Amendment No. 2 to Loan and Security Agreement dated as of August 15,
2002 among LaserSight Incorporated and subsidiaries and Heller
Healthcare Finance, Inc.
11 Statement of Computation of Loss Per Share
15 Copy of letter from independent accountants' regarding unaudited
interim financial information
b) Reports on Form 8-K
On August 14, 2002, we filed a Current Report on Form 8-K with Chief
Executive Officer and Chief Financial Officer certifications pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed under Item 9 to the Company's Form
8-K filed on August 14, 2002).
On August 30, 2002, we filed a Current Report on Form 8-K describing
our press release dated August 29, 2002 related to our record and
annual meeting dates and containing material agreements related to our
previously announced China transaction. The following exhibits were
included:
Securities Purchase Agreement dated August 15, 2002 between
LaserSight Incorporated and New Industries Investment Consultants
(H.K.) Ltd. The Company undertakes to provide to the Commission
upon its request the schedules omitted from this exhibit (filed as
Exhibit 99.2 to the Company's Form 8-K filed on August 30, 2002).
Series H Registration Rights Agreement dated August 15, 2002
between LaserSight Incorporated and New Industries Investment
Consultants (H.K.) Ltd. (filed as Exhibit 99.3 to the Company's
Form 8-K filed on August 30, 2002).
Product Purchase Agreement dated August 15, 2002 between
LaserSight Technologies, Inc. and Shenzhen New Industries Medical
Development Co., Ltd. The Company undertakes to provide to the
Commission upon its request the schedules omitted from this
exhibit (filed as Exhibit 99.4 to the Company's Form 8-K filed on
August 30, 2002)*.
Distribution Agreement dated August 15, 2002 LaserSight
Technologies, Inc. and Shenzhen New Industries Medical Development
Co., Ltd. (filed as Exhibit 99.5 to the Company's Form 8-K filed
on August 30, 2002)*.
---------------------------
* Confidential treatment has been requested for portions of this document.
The redacted material has been filed separately with the commission.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the undersigned have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LaserSight Incorporated
Dated: November 14, 2002 By: /s/ Michael R. Farris
---------------------
Michael R. Farris
Chief Executive Officer
Dated: November 14, 2002 By: /s/ Gregory L. Wilson
---------------------
Gregory L. Wilson
Chief Financial Officer
CERTIFICATIONS PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED
I, Michael R. Farris, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
LaserSight Incorporated;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared.
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
34
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
/s/ Michael R. Farris
---------------------
Principal Executive Officer
November 14, 2002
I, Gregory L. Wilson, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
LaserSight Incorporated;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
35
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared.
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
/s/ Gregory L. Wilson
---------------------
Principal Financial Officer
November 14, 2002
36
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended.
3.2 Bylaws, as amended.
3.3 Fourth Amendment to Rights Agreement, dated as of August 15, 2002,
between LaserSight Incorporated and American Stock Transfer & Trust
Company, as Rights Agent.
10.1 Amendment No. 2 to Loan and Security Agreement dated as of August 15,
2002 among LaserSight Incorporated and subsidiaries and Heller
Healthcare Finance, Inc.
11 Statement of Computation of Loss Per Share
15 Copy of letter from independent accountants' regarding unaudited
interim financial information
37