10-Q 1 c68165e10-q.txt FORM 10-Q FOR QUARTER ENDING JANUARY 31, 2002 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2002 Commission file number 1-10629 ------- LASER VISION CENTERS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 43-1530063 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification number) 540 Maryville Centre Dr., Suite 200, St. Louis, Missouri 63141 -------------------------------------------------------------- (Address of principal executive offices) (314)434-6900 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock outstanding as of March 2, 2002 - 27,891,234 shares LASER VISION CENTERS, INC. FORM 10-Q FOR QUARTERLY PERIOD ENDED JANUARY 31, 2002 INDEX

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LASER VISION CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET

See notes to interim consolidated financial statements. 3 LASER VISION CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET

See notes to interim consolidated financial statements 4 LASER VISION CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

See notes to interim consolidated financial statements. 5 LASER VISION CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)

See notes to interim consolidated financial statements. 6 LASER VISION CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)

On August 31, 2001, LaserVision acquired certain assets and liabilities of ClearVision Laser Centers, Inc. ("ClearVision") for an aggregate of $4,882,000 in cash and issued 2,129,085 shares of restricted stock of which 750,000 shares are being held by an escrow agent pending resolution of contractual purchase price adjustments with respect to the acquired net liabilities and the retention of ClearVision doctors through November 30, 2001. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 18,872,000 Cash and stock paid (11,525,000) ------------ Liabilities assumed $ 7,347,000 ============

See notes to interim consolidated financial statements. 7 LASER VISION CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

See notes to interim consolidated financial statements. 8 LASER VISION CENTERS, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 (Unaudited) 1. The information contained in the interim consolidated financial statements and footnotes is condensed from that which would appear in the annual consolidated financial statements. Accordingly, the interim consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and related notes thereto contained in the Annual Report on Form 10-K for the fiscal year ended April 30, 2001 filed by Laser Vision Centers, Inc. ("LaserVision") with the Securities and Exchange Commission. The unaudited interim consolidated financial statements as of January 31, 2002, and for the three and nine month periods ended January 31, 2002 and 2001, are unaudited, but include all normal recurring adjustments which management considers necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire fiscal year ending April 30, 2002. The interim consolidated financial statements include the accounts and transactions of LaserVision and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. 2. On August 27, 2001, LaserVision announced that it had entered into an Agreement and Plan of Merger with TLC Laser Eye Centers, Inc. ("TLC") which, subject to stockholder approval, will result in each share of LaserVision's common stock being converted into the right to receive 0.95 shares of TLC common stock. In addition, the number of shares receivable upon exercise of each outstanding stock option and warrant to purchase shares of LaserVision common stock will be proportionately adjusted on the basis of the 0.95-to-1 ratio and become exercisable for shares of TLC common stock on the same material terms and conditions of the LaserVision option or warrant, subject to the adjusting of the respective exercise price described below. Additionally, immediately prior to the effective time of the merger, LaserVision will change the exercise price of approximately 2,109,825 outstanding stock options and warrants of LaserVision which would have an exercise price greater than $8.688 per share of TLC common stock after the merger to a price equivalent to $8.688 per share of TLC common stock. As the acquiring company, TLC expects to use the purchase method of accounting and to complete the transaction by April 30, 2002. TLC is a Toronto-based operator of refractive laser centers in the U.S. and Canada and owns other smaller medical businesses. On the accompanying Statement of Operations, the $561,000 of legal, accounting and investment banking costs related to the TLC transaction and incurred through January 31, 2002 are reported as "Pending merger costs." 3. The net income (loss) per share was computed as described below using the "Weighted average number of common shares outstanding - basic" during each period. The 750,000 outstanding shares of common stock which were issued during the quarter ended October 31, 2001 and are being held by an escrow agent in connection with the ClearVision acquisition have been excluded. "Weighted average number of common shares outstanding - diluted" for the three- and nine-month periods ended January 31, 2002 excludes the effects of outstanding warrants and options 9 because they are anti-dilutive. As of February 1, 2002, warrants and options to purchase 7.7 million shares were outstanding with an average exercise price of approximately $7.65 each, including warrants and options to purchase 1.3 million shares with exercise prices below $3.00 per share and an average exercise price of approximately $1.94 each. Diluted per share calculations follow:

4. The table below presents information about net income (loss) and segment assets used by the chief operating decision maker of LaserVision for the periods ended January 31, 2002 and 2001:

5. During the quarter ended July 31, 2001, LaserVision adopted the provisions of Statement on Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141) and Statement on Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 provides standards on accounting for business combinations, eliminates the pooling of interests method of accounting for business combinations and provides separate recognition criteria for intangible assets. Based upon its review of the provisions of the standard, LaserVision believes that it will not have a significant impact on its financial position, results of operations or on its financial reporting. Under the provisions of SFAS 142, if an intangible asset is determined to have an indefinite useful life, it will not be amortized until its useful life is determined to be no longer indefinite. An intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is not amortized but is tested for impairment on an annual basis and between annual tests in certain circumstances at a level of reporting referred to as a reporting unit. For purposes of this impairment testing LaserVision will consider the reporting units to be North American refractive, other refractive and cataract. We have completed the first step of the transitional goodwill impairment test and have preliminarily determined that the fair value of the net assets of each reporting unit exceed the carrying value of the net assets of each reporting unit. 11 LaserVision did not amortize goodwill during the nine months ended January 31, 2002. A reconciliation of reported net income (loss) to adjusted net income (loss) and earnings (loss) per share reflecting retroactive adoption of SFAS 142 in the three and nine month periods ended January 31, 2001 is provided below.

6. On August 31, 2001, LaserVision acquired certain assets and liabilities of ClearVision, a privately held company in the refractive laser access business based in Lakewood, Colorado. LaserVision paid an aggregate of $4,882,000 in cash and issued 2,129,085 shares of restricted common stock (of which 750,000 shares are being held by an escrow agent pending resolution of contractual adjustment provisions with respect to the acquired net liabilities and the retention of ClearVision doctors through November 30, 2001) for the net liabilities of ClearVision. The acquisition resulted in $13.1 million of goodwill, which includes $2.3 million of goodwill related to shares of LaserVision common stock held in escrow pending the resolution of contractual purchase price adjustments. ClearVision's results of operations are included with the LaserVision's results of operations for periods subsequent to August 31, 2001. During the quarter ended October 31, 2001, LaserVision paid approximately $3.2 million to ClearVision vendors to pay the accounts payable liabilities assumed in the transaction. The purchase price has been allocated as follows: ~~Current assets $ 641,000 Equipment 4,898,000 Goodwill 13,126,000~~

12 Other 104,000 Accounts payable (3,247,000) Accrued liabilities (2,640,000) Notes and lease liabilities (1,357,000) ----------- Total $11,525,000 ===========

The unaudited pro forma LaserVision results from operations assuming the ClearVision acquisition were consummated as of May 1, 2001 are as follows:

Pro forma revenue and net loss for the nine month period ended January 31, 2002 includes the activity of ClearVision for the four month period ended August 31, 2001. Pro forma adjustments were made to depreciation, interest and tax expense totaling $1,362,000 for the nine month period ended January 31, 2002 were made. 7. In accordance with LaserVision's stated policy on impairments of long-lived assets, during the quarter ended October 31, 2001, we recorded a $1,168,000 non-cash charge to cost of revenues related to an impairment in the net carrying value of certain unused and underutilized lasers. The lasers are essentially being held for sale, trade-in or other disposal at January 31, 2002, and are recorded at an estimated fair market value of $143,000. 8. In July 2001, two excimer laser manufacturers reported settling class action anti-trust cases for a total of $62.8 million. We expect that a portion of this settlement will be paid to LaserVision. As part of the ClearVision acquisition, we acquired ClearVision's rights to payments made under this settlement. LaserVision's and ClearVision's settlement claims have now been filed with the court. The amount to be received has not yet been determined, but is estimated to be less than $5 million for LaserVision and less than $2.5 million for ClearVision. Amounts received from the settlement by LaserVision will be recorded in the Statement of Operations when the amount and date of receipt are both determinable. Amounts received from the settlement with respect to ClearVision will be recorded by LaserVision as a reduction in goodwill when the amount and date of receipt are both determinable. We expect to record these payments during the first half of calendar 2002. 9. LaserVision provides access to excimer lasers and related services to eye doctors and provides a variety of other services to eye doctors in connection with eye surgery procedures. Under LaserVision's laser access contracts with individual eye doctors, LaserVision may provide eye surgeons with the services of a laser operator/technician, laser maintenance and other value- 13 added services. The laws of various states in which LaserVision operates typically exempt from sales and use taxation activities which constitute a service. LaserVision has historically taken the position that, among other things, services which we provide to the eye doctor are integral to the surgical procedures provided by the eye doctor and, therefore, constitute a service exempt from sales and use taxation. Of the 48 states in which LaserVision conducts operations, LaserVision is aware of a total of six states which have asserted that its laser access arrangements with eye doctors do not constitute a service exempt from sales and use taxation. Tax authorities in these states have indicated that they consider the substance of the transaction between the eye doctor and LaserVision to be the eye doctor's access to the laser, not the other services provided by LaserVision. As such, they have indicated that they consider the arrangement to be a taxable lease or rental of equipment rather than an exempt service. One of these states performed an initial review and determined that no further action or assertion of tax was necessary. Three other states have assessed sales and use taxes on LaserVision's customers, but have not assessed any taxes on LaserVision. Tax authorities in the remaining two states have contacted LaserVision and issued proposed adjustments for the period from 1995 through 2000 in the aggregate amount of approximately $1.3 million. LaserVision has objected to the proposed assessments and is engaged in discussions with the respective state tax authorities. In addition to the six states listed above, tax authorities in one other state have contacted LaserVision and have scheduled a sales and use tax audit during the quarter ended April 30, 2002. LaserVision cannot yet predict the outcome of these assessments or similar actions, if any, which may be undertaken by other state tax authorities. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information, statements relating to LaserVision's plan, objectives and future performance are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations. Because of the various risks and uncertainties disclosed herein and in LaserVision's Annual Report on Form 10-K for the year ended April 30, 2001 and in its definitive proxy statement with respect LaserVision's proposed merger with TLC Laser Eye Centers, Inc., actual strategies and results in future periods may differ materially from those currently expected. The discussion set forth below analyzes certain factors and trends related to the financial results for the three- and nine-month periods ended January 31, 2002 and 2001. This discussion should be read in conjunction with the related consolidated financial statements and notes to the consolidated financial statements. (A) LIQUIDITY AND CAPITAL RESOURCES During the nine months ended January 31, 2002, cash and cash equivalents decreased 3%, or $0.4 million, to $15.3 million at January 31, 2002 from $15.7 million at April 30, 2001. Short-term investments maturing in less than one year decreased $6.9 million to $2.1 million at January 31, 2002 from $9.0 million at April 30, 2001. The ratio of current assets to current liabilities at January 31, 2001 was 1.42 to one, compared to 2.44 to one at April 30, 2001. Cash Flows from Operating Activities Net cash provided by operating activities decreased by $2.8 million to $7.1 million for the nine months ended January 31, 2002 from $9.9 million for the nine months ended January 31, 2001. The $2.8 million decrease in cash provided by operating activities is primarily related to reduced North American refractive profitability. The cash flows provided by operating activities during the nine months ended January 31, 2002 primarily represented the net loss in this period, offset by depreciation and amortization, the non-cash fixed asset impairment, and a decrease in accounts receivable, less increases in deferred taxes and decreases in current liabilities. The cash flows provided by operating activities during the nine months ended January 31, 2001 primarily represent the net income in that period plus depreciation and amortization, the decrease in deferred income taxes, the minority interest in the income of subsidiaries and the increase in accounts payable, less the decrease in accrued liabilities, the increase in prepaid expenses and other current assets, the increase in accounts receivable and the increase in inventory. Cash Flows from Investing Activities Net cash used for investing activities decreased by $3.2 million to $3.4 million for the nine months ended January 31, 2002 from $6.6 million for the nine months ended January 31, 2001. Cash used for investing during the nine months ended January 31, 2002 was used to acquire ClearVision, acquire 15 deferred contract rights and acquire equipment partially offset by the net sale of short-term investments. Cash used for investing during the nine months ended January 31, 2001 was used to acquire Southeast Medical, OR Providers, Valley Laser Eye Center, enter a long-term agreement with Minnesota Eye Consultants, enter into partnership agreements and to acquire equipment partially offset by the net proceeds from the sale of short-term and common equity investments. Cash Flows from Financing Activities Net cash used for financing activities decreased by $3.4 million to $4.1 million for the nine months ended January 31, 2002 from $7.5 million for the nine months ended January 31, 2001. Cash used in financing activities during the nine months ended January 31, 2002 was primarily used to make principal payments under capitalized lease obligations and notes payable offset by proceeds from the line of credit. Cash used in financing activities during the nine months ended January 31, 2001 was primarily used to purchase 1,157,443 shares of treasury stock, make principal payments under capitalized lease obligations and notes payable and to pay proceeds to minority shareholders, partially offset by proceeds from the line of credit. Income Taxes During the fourth quarter of fiscal 1999 LaserVision began recognizing deferred tax assets related to net operating loss carryforwards. Based on expected future operating plans, at January 31, 2002, management has determined that the net deferred tax assets generated by operations will more likely than not be utilized to offset future taxes. For tax purposes, the tax benefit related to certain equity transactions that did not impact operating results, such as those arising from the exercise of non-qualified stock options and warrants, will be credited to shareholders' equity and serve to reduce the future taxes paid by LaserVision. Merger and Acquisition On August 27, 2001, LaserVision announced that it had entered into an Agreement and Plan of Merger with TLC which, subject to stockholder approval, will result in each share of LaserVision's common stock being converted into the right to receive 0.95 shares of TLC common stock. In addition, the number of shares receivable upon exercise of each outstanding stock option and warrant to purchase shares of LaserVision common stock will be proportionately adjusted on the basis of the 0.95-to-1 ratio and become exercisable for shares of TLC common stock on the same material terms and conditions of the LaserVision option or warrant subject to exercise price adjustments described below. Additionally, immediately prior to the effective time of the merger, LaserVision will change the exercise price of outstanding stock options and warrants to purchase 2,109,825 shares of LaserVision common stock which would have an exercise price greater than $8.688 per share of TLC common stock after the merger to a price equivalent to $8.688 per share of TLC common stock. As the acquiring company, TLC expects to use the purchase method of accounting and to complete the transaction during April 2002. TLC is a Toronto-based operator of refractive laser centers in the U.S. and Canada and owns other smaller medical businesses. 16 On August 31, 2001, LaserVision acquired certain assets and liabilities of ClearVision Laser Centers, Inc., a privately held company in the refractive laser access business based in Lakewood, Colorado ("ClearVision"). LaserVision paid an aggregate of $4,882,000 in cash and issued 2,129,085 shares of restricted common stock (of which 750,000 shares are being held by an escrow agent pending resolution of the contractual purchase price adjustment provisions relating to acquired net liabilities and the retention of ClearVision doctors through November 30, 2001) for the net liabilities of ClearVision. The acquisition resulted in $13.1 million of goodwill, which includes $2.3 million of goodwill related to shares held in escrow pending the resolution of contingencies. ClearVision's results of operations are included with the LaserVision's results of operations for periods subsequent to August 31, 2001. During the quarter ended October 31, 2001, LaserVision paid approximately $3.2 million to ClearVision vendors to pay the accounts payable liabilities assumed in the transaction. Overview LaserVision expects to continue to fund future operations from cash generated by operations, vendor financing, its line of credit with LaSalle Bank, the proceeds from the exercise of options and warrants, and the remaining proceeds from the public stock offering completed in May 1999. We believe this will be sufficient to fund our expected cash needs as described below for the next twelve months, exclusive of any acquisitions. LaserVision is in compliance with all debt covenants related to its line of credit with LaSalle Bank. (B) RESULTS OF OPERATIONS The following table breaks out revenue by source and includes certain operating results as a percentage of revenue.

Refractive and cataract revenue represents the income received for access to LaserVision's refractive 17 lasers and cataract equipment and company-owned facilities. In most refractive locations where LaserVision provides laser access, the patient pays LaserVision's customer, usually an ophthalmologist or ophthalmic practice, directly and LaserVision's customer provides the facility and pays LaserVision a laser access fee. In five to seven refractive centers which are company-owned fixed site centers, LaserVision typically collects the entire fee, including the surgical fees, directly from the patient, provides the laser and the facility, and pays the surgeon who performs the surgery. For these locations, LaserVision's revenue and cost of revenues include the amounts LaserVision pays to surgeons for their professional medical services. In all locations where LaserVision provides cataract services, LaserVision's customer, usually a local hospital, pays LaserVision and collects from the patient or a third party insurer. Thus, for cataract services, there are no amounts for professional medical services in revenues or cost of revenues. QUARTER ENDED JANUARY 31, 2002 COMPARED TO QUARTER ENDED JANUARY 31, 2001 LaserVision provided excimer laser access to approximately 350 sites throughout the U.S. during the quarter ended January 31, 2002. We are focused on establishing long-term relationships with our customers and providing value-added services through our affiliated practices models. Revenues Total revenue decreased by less than 1%, or $0.1 million, to $25.2 million for the three months ended January 31, 2002 from $25.3 million for the three months ended January 31, 2001. Total refractive procedures decreased by 4% to 35,504 for the three months ended January 31, 2002 from 37,031 for the three months ended January 31, 2001. The decrease in revenue was attributable to a $1.1 million decrease in North American refractive revenue, partially offset by a $0.8 million increase in cataract revenue and a $0.2 increase in other refractive revenue. The decrease in North American revenue was attributable to a decrease in the number of procedures performed by our eye surgeon customers in the U.S. The increase in cataract revenue was due to the acquisitions which occurred during the prior year that were not completed for the entire quarter ended January 31, 2001 and an increase in procedure volume. Cost of Revenues/Gross Profit Cost of revenues increased by 3%, or $0.6 million, to $17.6 million for the three months ended January 31, 2002 from $17.0 million for the three months ended Janaury 31, 2001. This was primarily due to an increase of $0.6 million in field operations salaries and an increase of $0.7 million of costs related to the cataract business offset by a $0.4 million decrease in field operations travel expenses and a decrease of $0.3 in royalty fees. Total gross profit decreased by 9%, or $0.7 million, to $7.6 million for the three months ended January 31, 2002 from $8.3 million for the three months ended January 31, 2001. The variable gross profit, excluding depreciation, decreased by 7%, or $0.9 million, to $11.4 million for the three months ended January 31, 2002 from $12.3 million for the three months ended January 31, 2001. As a percentage of total revenue, total gross profit decreased to 30% from 33% for the three months ended January 31, 2002 18 and 2001, respectively, due to decreased refractive procedure volume. Operating Expenses Selling, general and administrative expenses decreased by 19%, or $1.7 million, to $7.8 million for the three months ended January 31, 2002 from $9.5 million for the three months ended January 31, 2001. This was attributable to $1.95 million of expenses related to a previously reported settlement with the FDA recorded during the quarter ended January 31, 2001, decreases in selling and marketing expenses of $0.4 million, decreases in salaries and related expenses of $0.1 million, and decreases in depreciation and amortization of $0.2 million, offset by increases in general and administrative expenses of $1.0 million. The decrease in depreciation and amortization expenses was due to the early adoption of SFAS 142 effective May 1, 2001 which eliminated the requirement to amortize goodwill but instead requires goodwill to be expensed when impaired. Income (Loss) from Operations The loss from operations decreased by $1.1 million to $0.1 million for the three months ended January 31, 2002 from $1.2 million for the three months ended January 31, 2001. Excluding the FDA settlement, the income (loss) from operations changed from income of $0.7 million for the three months ended January 31, 2001 to a loss from operations of $0.1 million. This was primarily due to decreased North American profitability on lower procedure volumes. Other Income (Expenses) Lower interest income, higher minority interests in net income (loss), net, and costs of the pending merger with TLC primarily caused a $716,000 decrease in other income (expense) to a net $599,000 of expense during the three months ended January 31, 2002 from a net $117,000 of income during the three months ended January 31, 2001. Taxes Income tax benefit increased from $33,000 for the three months ended January 31, 2001 to $190,000 for the three months ended January 31, 2002 as a result of the taxable loss for the three months ended January 31, 2002. NINE MONTHS ENDED JANUARY 31, 2002 COMPARED TO NINE MONTHS ENDED JANUARY 31, 2001 Revenues Total revenue increased by 5%, or $3.7 million, to $72.9 million for the nine months ended January 31, 2002 from $69.2 million for the nine months ended January 31, 2001. Total refractive procedures decreased by 2% to 97,708 for the nine months ended January 31, 2002 from 99,790 for the nine months ended January 31, 2001. The increase in revenue was attributable to a $4.6 million increase in cataract revenue and a $0.4 million 19 increase in other refractive revenue partially offset by a $1.3 million decrease in North American refractive revenue. The increase in cataract revenue is due to acquisitions in the prior year and an increase in procedure volume. The decrease in North American refractive revenue was due to a decrease in refractive procedure volume. Cost of Revenues/Gross Profit Cost of revenues increased by 9%, or $4.5 million, to $52.3 million for the nine months ended January 31, 2002 from $47.8 million for the nine months ended January 31, 2001. This was primarily due to an increase of $1.8 million in field operations salaries, an increase of $3.0 million of costs related to the cataract business, an increase of $0.6 million in miscellaneous costs of revenue, and the $1.2 million fixed asset impairment, offset by a $1.3 million decrease in field operations travel and a $1.4 million decrease in royalty fees paid to laser manufacturers. The increase in field operations salaries is due to the ClearVision acquisition, the increase in costs related to cataract business is due to the increased cataract procedures, and the decreased royalty expense is due to the decreased refractive procedures, and laser lease arrangements which do not include a separate royalty fee. Total gross profit decreased by 4%, or $0.8 million to $20.6 million for the nine months ended January 31, 2002 from $21.4 million for the nine months ended January 31, 2001. The variable gross profit, excluding depreciation, increased by 2%, or $0.5 million, to $32.8 million for the nine months ended January 31, 2002 from $32.3 million for the nine months ended January 31, 2001. As a percentage of total revenue, total gross profit decreased to 28% from 31% for the nine months ended January 31, 2002 and 2001, respectively, due to decreased refractive procedure volume. Operating Expenses Selling, general and administrative expenses increased by 11%, or $2.4 million, to $23.4 million for the nine months ended January 31, 2002 from $21.0 million for the nine months ended January 31, 2001. The increase was attributed to increased salaries and related expenses of $1.3 million, increased selling and marketing expenses of $0.2 million, increased general and administrative expenses of $3.5 million offset by the $2.1 million of expenses related to a previously reported settlement with the FDA recorded during the nine months ended January 31, 2001 and decreased depreciation and amortization of $0.7 million. The $3.5 million increase in general and administrative expenses was due to a $0.6 million increase in professional fees, a $0.8 million increase in taxes and insurance and a $1.2 million increase in office expenses. The increase in salaries and related expenses is due to increased employees as a result of the ClearVision acquisition. The decrease in depreciation and amortization expenses was due to the early adoption of SFAS 142 effective May 1, 2001 which eliminated the requirement to amortize goodwill but instead requires goodwill to be expensed when impaired. Income (loss) from Operations The income (loss) from operations decreased by $3.1 million to a $2.7 million loss from operations for the nine months ended January 31, 2002 from income from operations of $0.4 million for the nine months ended January 31, 2001. This was primarily related to decreased North American Refractive profitability. 20 Other Income (Expenses) A one-time gain of $595,000 relative to the sale of an investment in common equity securities increased other income during the nine months ended January 31, 2001. Excluding this one-time event, costs of the pending merger and lower interest income primarily caused a $1.7 million decrease in other income to a net $1.2 million of expense during the nine months ended January 31, 2002 from a net $0.5 million of income during the nine months ended January 31, 2001. Taxes Income tax (expense) benefit changed from a tax expense of $945,000 for the nine months ended January 31, 2001 to tax benefit of $1.2 million for the nine months ended January 31, 2002 as a result of the taxable loss for the nine months ended January 31, 2002. 21 PART II-OTHER INFORMATION Item 1. Legal Proceedings There has been no material change in the status of any litigation from that reported in the Form 10-Q for the period ended October 31, 2002, nor has any other material litigation been initiated. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K during the period covered by this report: On December 27, 2001, the Registrant filed a report on Form 8-K regarding the extension of the termination date for the merger with TLC Laser Eye Centers from December 31, 2001 to March 31, 2002. Signatures Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LASER VISION CENTERS, INC. /s/ John J. Klobnak March 18, 2002 ---------------------------- ------------------- John J. Klobnak Date Chairman of the Board and Chief Executive Officer /s/ B. Charles Bono, III March 18, 2002 ---------------------------- ------------------- B. Charles Bono Date Chief Financial Officer and Principal Accounting Officer 22

LASER VISION CENTERS INC 10-Q