ITEM 1. BUSINESS
Overview
TLC Laser Eye Centers Inc. ("TLC" or the "Company") is one of the largest providers of laser vision correction services in North America. TLC owns and manages eye care centers which, together with TLC's network of over 12,500 eye care doctors, provide laser vision correction of common refractive vision disorders such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. Laser vision correction is an out-patient procedure that is designed to change the curvature of the cornea to reduce or eliminate a patient's reliance on eyeglasses or contact lenses. TLC, which commenced operations in September 1993, currently has 59 eye care centers in 26 states and provinces throughout the United States and Canada. More than 350,000 paid refractive procedures have been performed at TLC centers, including over 122,800 performed at the Company's centers during fiscal 2001.
In the past year, TLC affirmed its strategy to position itself as a premium provider of laser vision correction services in the face of an industry price war. The Company believes that superior quality of care and outstanding clinical results will be the long-term determinants of success in the laser vision correction industry.
To this end, the Company's focus has remained on maximizing revenues, controlling costs, providing superior quality of care and clinical results and pursuing additional growth opportunities for the premium business.
On August 27, 2001, the Company announced that it had entered into an Agreement and Plan of Merger with Laser Vision Centers, Inc. ("Laser Vision"). Laser Vision provides access to excimer lasers, microkeratomes, other equipment and value added support services to eye surgeons for laser vision correction and the treatment of cataracts. The merger will be effected as an all-stock combination at a fixed exchange rate of 0.95 common shares of the Company for
each of the approximately 25.9 million outstanding shares of common stock of Laser Vision. In addition, each of the approximately 7.8 million outstanding options or warrants to acquire stock of Laser Vision shall be assumed by the Company and become options or warrants to acquire common shares of the Company based on the 0.95 exchange rate. The merger is expected to be effected on a tax-free basis to shareholders and accounted for under the purchase method. The Company's Chairman and Chief Executive Officer, Elias Vamvakas, will be the Chairman and Chief Executive Officer of the merged company . John J. (Jack) Klobnak, Laser Vision's current Chairman and CEO, will assume a non-executive Vice Chairmanship and continue as a corporate director for approximately one year, after which time he intends to retire. James Wachtman, President and Chief Operating Officer of Laser Vision will serve as the merged company's President & Chief Operating Officer. The merged company's Chief Financial Officer will be Charles Bono, who is currently Chief Financial Officer of Laser Vision. The board of directors of the merged company is expected to be composed of members from both companies' current boards of directors. Completion of the transaction, expected to occur in December, 2001, is subject to shareholder and regulatory approval and other conditions usual and customary in such transactions.
Industry Background
Refractive Disorders
The primary function of the human eye is to focus light. The eye works much like a camera: light rays enter the eye through the cornea, which provides most of the focusing power. Light then travels through the lens where it is fine-tuned to focus properly on the retina. The retina, located at the back of the eye, acts like the film in the camera, changing light into electric impulses that are carried by the optic nerve to the brain. To see clearly, light must be focused precisely on the retina. Refractive disorders, such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism, result from an inability of the cornea and the lens to focus images on the retina properly. The amount of refraction required to properly focus images depends on the curvature of the cornea and the size of the eye. If the curvature is not correct, the cornea cannot properly focus the light passing through it onto the retina, and the viewer will see a blurred image.
Surgical Procedures
Refractive disorders have historically been treated primarily by eyeglasses or contact lenses. Increasingly, they are being treated by surgical techniques, the most common of which in the United States, prior to the excimer laser being approved for sale for laser vision correction, was Radial Keratotomy ("RK"). RK is a surgical procedure, first performed in the 1970s, that corrects myopia by altering the shape of the cornea. This is accomplished by making incisions in a "radial" pattern along the outer portion of the cornea using a hand-held diamond-tipped blade. These very fine incisions are designed to help flatten the curvature of the cornea, thereby allowing light rays entering the eye to properly focus on the retina. The incisions penetrate 90% of the depth of the cornea. Because RK involves incisions into the corneal tissue, it may weaken the structure of the cornea, which can have adverse consequences following traumatic injury. RK also produces incisional scarring, and may cause fluctuation of vision and progressive
farsightedness. Industry sources estimate that in 1994 over 200,000 RK procedures were performed in the United States. A variation of RK, Astigmatic Keratotomy, is used to correct astigmatism.
Laser Vision Correction
Excimer laser technology was developed by International Business Machines Corporation in 1976 and has been used in the computer industry for many years to etch sophisticated computer chips. Excimer lasers have the desirable qualities of producing very precise ablation (removal of tissue) without affecting the area outside of the target zone. In 1981, it was shown that the excimer laser could ablate corneal tissue. Each pulse of the excimer laser can remove 0.25 microns of tissue in 12 billionths of a second. The first laser experiment on human eyes was performed in 1985 and the first human eye was treated with the excimer laser in the United States in 1988.
Excimer laser procedures are designed to reshape the outer layers of the cornea to correct vision disorders by changing the curvature of the cornea. There are currently two procedures that use the excimer laser to correct vision disorders: Photorefractive Keratectomy ("PRK") and Laser In-Situ Keratomileusis ("LASIK"). In the case of both PRK and LASIK, prior to the procedure, the doctor makes an assessment of the exact correction required and programs the excimer laser. The software of the excimer laser then calculates the optimal number of pulses needed to achieve the intended corneal correction using a specially developed algorithm. Both PRK and LASIK are performed on an outpatient basis without general anesthesia, using only topical anesthetic eye drops. An eyelid holder is inserted to prevent blinking while the eye drops eliminate the reflex to blink. The patient reclines in a chair, his or her eye focused on a fixation target, and the surgeon positions the patient for the procedure. The surgeon uses a foot pedal to apply the excimer laser beam, which emits a rapid succession of excimer laser pulses. The typical procedure takes 10 to 15 minutes, from set-up to completion, with the length of time of the actual excimer laser treatment lasting 15 to 90 seconds.
In order to market an excimer laser for commercial sale in the United States, the manufacturer must obtain pre-market approval ("PMA") from the United States Food and Drug Administration (the "FDA"). An FDA PMA is specific for each laser manufacturer and model and sets out a range of approved indications. However, the FDA is not authorized to regulate the practice of medicine. Therefore, in the same way that doctors often prescribe drugs for "off-label" uses (i.e., uses for which the FDA did not originally approve the drug), a doctor may use a device such as the excimer laser for a procedure or an indication not specifically approved by the FDA, if that doctor determines that it is in the best interest of the patient. The initial FDA PMA approval for the sale of an excimer laser for refractive procedures was the approval of the Summit Autonomous, Inc. (now Alcon Laboratories Inc. division of Nestle, S.A.) ("Alcon") laser for the treatment of myopia granted in 1995. Figures l and 2 set out a list of lasers approved for LASIK and PRK and other procedures as of March 29, 2001. In Canada, neither the sale nor the use of excimer lasers to perform refractive surgery is currently subject to regulatory approval, and excimer lasers have been used to treat myopia since 1990 and to treat hyperopia since 1996. The Company expects that future sales of any new excimer laser models in Canada may require the approval of the Health Protection Branch of Health Canada ("HPB").
Figure 1 FDA-Approved lasers for LASIK
Figure 2 FDA-Approved Lasers for PRK and Other Refractive Surgeries
Source: U.S. Food and Drug Administration fda.gov website
Photorefractive Keratectomy
With PRK, no scalpels are used and no incisions are made. The surgeon prepares the eye by gently removing the surface layer of the cornea called the epithelium. The surgeon then applies the excimer laser beam, reshaping the curvature of the cornea. Deeper cell layers remain virtually untouched. Since a layer typically about as slender as a human hair is removed, the cornea maintains its original strength. A clear contact lens bandage is then placed on the eye to protect it. Following PRK, a patient typically experiences blurred vision and discomfort until the epithelium heals. A patient usually experiences a substantial improvement in clarity of vision within a few days following PRK, normally seeing well enough to drive a car within one to two weeks. However, it generally takes one month, but may take up to six months, for the full benefit of PRK to be realized.
PRK has been used commercially since 1988 and industry sources estimate that to date over one million PRK procedures have been performed worldwide. Clinical trials conducted by Alcon prior to receiving FDA approval for the sale of its excimer laser showed that one year after the PRK procedure, approximately 81% of the patients could see 20/20 or better and approximately 99% could see 20/40 or better (the minimum level required to drive without corrective lenses in most states). Clinical data submitted to the FDA by Alcon has shown that patient satisfaction is very high with over 95% indicating they would enthusiastically recommend PRK to a friend. In addition, a study published in the February, 1998 issue of Ophthalmology reported the results of 83 patients in the United Kingdom who underwent PRK for myopia of up to 7 diopters in 1989. The study found that the patients experienced stable vision and the majority of patients experienced no side effects. No complications were observed such as cataracts, retinal detachment or long term elevated intraocular pressure and no patients developed an infection.
Laser In-Situ Keratomileusis
LASIK came into commercial use in Canada in 1994 and in the United States in 1996. In LASIK, an automated microsurgical instrument called a microkeratome is used to create a thin corneal flap which remains hinged to the eye. The corneal flap is 160 to 180 microns thick, about 30% of the corneal thickness. Patients do not feel or see the cutting of the corneal flap, which takes only a few seconds. The corneal flap is then flipped back and excimer laser pulses are applied to the inner stromal layers of the cornea to treat the eye with the patient's prescription. The corneal flap is then closed and the flap and interface rinsed. Once the procedure is completed, most surgeons wait two to three minutes to ensure the corneal flap has fully re-adhered. At this point, patients can blink normally and the corneal flap remains secured in position by the natural suction within the cornea. Since the surface layer of the cornea remains intact with LASIK, no bandage contact lens is required and the patient experiences virtually no discomfort. LASIK has the advantage of more rapid recovery than PRK, with most typical patients seeing well enough to drive a car the next day and healing completely within one to three months. Currently, the majority of laser vision correction procedures in the United States and Canada are LASIK. More than 90% of the excimer laser procedures currently performed at the Company's eye care centers are LASIK. The Company's medical directors believe LASIK generally allows for more precise correction than PRK for higher levels of myopia and hyperopia (with or without astigmatism), greater predictability of results and decreased probability of regression.
The Refractive Market
While estimates of market size should not be taken as projections of revenues or of the Company's ability to penetrate that market, an industry source estimates that approximately 50% of the United States population or 145 million people suffer from some form of refractive disorder requiring vision correction including myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. To date, only an estimated two to three percent of this target population has actually had laser vision correction.
Industry sources estimate that 105,000 laser vision correction procedures were performed in the United States in 1996, 215,000 were performed in 1997, 480,000 were performed in 1998, 700,000 were performed in 1999, 1.4 million were performed in 2000 and 1.7 million will be performed in 2001. Laser eye surgery has become the most widely performed surgical procedure in North America. The Company believes that its profitability and growth will depend upon continued increasing acceptance of laser vision correction in the United States and, to a lesser extent, Canada and competition.
There can be no assurance that laser vision correction will be more widely accepted by eye care doctors or the general population as an alternative to existing methods of treating refractive disorders. The acceptance of laser vision correction may be affected adversely by its cost (particularly since laser vision correction is typically not covered fully or at all by government insurers or other third party payors and, therefore, must be paid for primarily by the individual receiving treatment), concerns relating to its safety and effectiveness, general
resistance to surgery, the effectiveness of alternative methods of correcting refractive vision disorders, the lack of long term follow-up data and the possibility of unknown side effects. There can be no assurance that long term follow-up data will not reveal complications that may have a material adverse effect on the acceptance of laser vision correction. Many consumers may choose not to have laser vision correction due to the availability and promotion of effective and less expensive nonsurgical methods for vision correction. Any future reported adverse events or other unfavourable publicity involving patient outcomes from laser vision correction could also adversely affect its acceptance whether or not the procedures are performed at TLC eye care centers. Market acceptance could also be affected by regulatory developments. The failure of laser vision correction to achieve continued increased market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations.
TLC Laser Eye Centers Inc.
TLC was incorporated by articles of incorporation under the Business Corporations Act (Ontario) on May 28, 1993. By articles of amendment dated October 1, 1993, the name of the Company was changed to TLC The Laser Center Inc., and by articles of amendment dated March 22, 1995, certain changes were effected in the issued and authorized capital of the Company with the effect that the authorized capital of the Company became an unlimited number of Common Shares. On September 1, 1998, TLC amalgamated under the laws of Ontario with certain wholly-owned subsidiaries. By Articles of Amendment filed November 5, 1999, the Company changed its name to TLC Laser Eye Centers Inc.
The Company owns and manages eye care centers throughout North America and, together with its network of over 12,500 eye care doctors, specializes in laser vision correction services to correct common refractive vision disorders such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. The Company is one of the largest providers of laser vision correction services in North America.
TLC began operations in September 1993 when it opened an eye care center in Windsor, Ontario, Canada. TLC currently owns or operates 59 eye care centers in 26 states and provinces throughout the United States and Canada. See Item 2
ITEM 2. PROPERTIES
The Company's centers are located in leased premises. The leases are negotiated on market terms and typically have a term of five to ten years. See Note 14 to "Item 8 - Financial Statements and Supplementary Data". The following chart contains the location and acquisition or opening date of each TLC eye care center:
Eye care centers
The Company has leased premises for consultation offices in Halifax, Nova Scotia, Chicago, Illinois and Sheboygan, Michigan which have been set up to provide all aspects of patient care except provision of the actual surgery itself.
During fiscal 2001, the Company closed centers in Green Bay, Wisconsin, Seattle, Washington and Irvine, California. The Company sold its controlling interest in a center in Vancouver, British Columbia and abandoned plans to develop a center in Pasadena, California.
The Company also maintains investment interests in three secondary care practices located in Michigan, Oklahoma and Washington. The secondary care practice in Michigan has five satellite locations, the secondary care practice in Oklahoma has two satellite locations and the secondary care practice in Washington has seven satellite locations.
The Company also has two corporate offices. The International Headquarters is located in premises currently owned and operated by the Company in Mississauga, Ontario, Canada. The Company's U.S. Corporate Office is located in leased premises in Bethesda, Maryland. The Company has entered into negotiations concerning the possible sale and lease back of its International Headquarters building. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations".
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Common Shares are listed on The Toronto Stock Exchange under the symbol "TLC" and on the Nasdaq National Market under the symbol "TLCV." The following table sets forth, for the periods indicated, the high and low closing prices per Common Share of the Common Shares on The Toronto Stock Exchange and the Nasdaq National Market:
The Toronto Nasdaq Stock National Exchange Market ----------------------- ----------------------- High Low High Low ------- ------ ------ ----- Fiscal 2001
First Quarter C$12.20 C$7.70 $8.313 $5.00 Second Quarter 8.20 3.55 5.50 2.25 Third Quarter 12.00 1.67 7.875 1.125 Fourth Quarter 14.20 7.11 9.25 4.64
Fiscal 2000 First Quarter C$78.80 C$37.65 $53.50 $25.50 Second Quarter 47.50 23.75 31.82 16.16 Third Quarter 27.65 16.60 18.75 11.00 Fourth Quarter 22.50 9.50 15.44 6.50
Record Holders
As of July 31, 2001, there were approximately 499 record holders of the Common Shares.
Dividends
The Company has never declared or paid cash dividends on the Common Shares. It is the policy of the Board of Directors of the Company to retain earnings to finance growth and development of its business and, therefore, the Company does not anticipate paying cash dividends on its Common Shares in the near future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Set forth in the following pages are selected historical consolidated financial data as of and for each of the fiscal years in the five-year period ended May 31, 2001, which have been derived from and should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this Form 10-K. See Note 1 to "Item 8 - Financial Statement and Supplementary Data".
(1) In the financial information provided, the Company has reported in U.S. GAAP. In years prior to fiscal 2000, Form 10-K submissions and quarterly Form 10-Q submissions were reported in Canadian GAAP.
(2) Certain comparative figures have been reclassified to conform to the presentation for fiscal 2000.
(3) Includes primarily those revenues pertaining to the operation of eye care centers, the management of refractive and secondary care centers and the Company's other non-refractive businesses.
(4) Includes procedures performed at centers previously owned by 20/20 Laser Eye Centers Inc. ("20/20") starting March 1997. 20/20 was acquired by TLC on February 10, 1997.
(5) Includes procedures performed at centers previously owned by BeaconEye Inc. ("Beacon"). Beacon was acquired by TLC on April 16, 1998.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related notes thereto, which are included in Item 8 of this Form 10-K. The following discussion is based upon the Company's results under United States GAAP. Unless otherwise specified, all dollar amounts are U.S. dollars. See Note 1 to the Consolidated Financial Statements of the Company.
Overview
TLC is one of the largest providers of laser vision correction services in North America. TLC owns and manages eye care centers which, together with TLC's network of over 12,500 eye care doctors, provide laser vision correction of common refractive disorders such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. Laser vision correction is an outpatient procedure which is designed to change the curvature of the cornea to reduce or eliminate a patient's reliance on eyeglasses or contact lenses. TLC, which commenced operations in September 1993, currently has 59 eye care centers in 26 states and provinces throughout the United States and Canada. Surgeons performed over 122,800 procedures at the Company's centers during the fiscal 2001.
The Company recognizes revenues at the time services are rendered. Net revenues include only those revenues pertaining to owned laser centers and management fees from managing refractive and secondary care practices. Under the terms of the practice management agreements, the Company provides management, marketing and administrative services to refractive and secondary care practices in return for management fees. Management services revenue is equal to the net revenue of the physician practice, less amounts retained by the physician groups. Management services revenue under the terms of the practice management agreements for laser vision correction procedures are recognized when the services are performed.
Net revenue of the physician's practice represents amounts charged to patients for laser vision correction services net of the impact of applicable patient discounts and related contractual adjustments. Amounts retained by physician groups may include costs for uncollectible amounts from patients, professional contractual costs and miscellaneous administrative charges.
Uncollectible amounts from patients are reviewed and provided for on a regular monthly basis for those amounts due from physicians or patients for which there is a permanent reduced likelihood of collection in whole or in part.
Procedure volumes represent the number of laser vision correction procedures completed for which the amount that the patient has been invoiced for the procedure exceeds a pre-defined company wide per procedure revenue threshold. Procedures may be invoiced under the threshold amounts primarily for promotional or marketing purposes and are not included in the procedure volume numbers reported. By not counting these promotional procedures the net revenue after
doctor's compensation per procedure ratio is higher than if these procedures had been included in the procedure volumes.
Operating expenses include all fixed and variable expenses relating to the operation of the Company's businesses. The principal components of operating expenses are marketing costs, wages, surgeon's fees, laser royalty fees and facility leasing costs.
The Company continues to pursue a growth strategy in its core refractive laser vision correction business, which accounts for more than 92% of net revenues. The Company has experienced its first decrease in annual procedure volumes since inception. This decrease is indicative of the uncertainty in the laser vision correction industry which has seen extensive pressure on prices from deep discount providers, the recent bankruptcies of a number of laser vision correction companies and negative publicity in the media concerning competing centers. In addition, being an elective procedure, laser vision correction volumes may have been further depressed by economic conditions in early 2001.
The Company has developed and launched a pilot test of a new revenue model, the TLC Affiliate Center program. Under the program, the Company provides varying levels of resources, support and expertise to established eye care professionals ("ECP") in secondary markets in an effort to grow and develop their current laser vision correction practices. The services provided by TLC can vary from the Company providing support only in building the ECP's network of affiliated optometrists to the Company providing facilities, medical equipment, professional staffing, marketing and administrative support. Revenues from TLC affiliate centers vary based on the level of services provided by the Company. The TLC Affiliate Centers program is expected to enable the Company to expand its presence in secondary markets while significantly reducing the operational and capital funding normally required to support a typical corporate laser center model.
Results of Operations
Year ended May 31, 2001 compared to Year ended May 31, 2000
Net revenues for fiscal 2001 were $174.0 million, which is a 13.5% decrease over last year's $201.2 million. Approximately 92% of total net revenues were derived from refractive services as compared to 94% in fiscal 2000.
Net revenues from eye care centers for fiscal 2001 year were $161.2 million, which is 15.2% lower than last year's $190.2 million. Approximately 122,800 procedures were performed in fiscal 2001 compared to 134,200 procedures in fiscal 2000. The decrease in procedure volume and the associated reduction of revenue is indicative of the condition of the laser vision correction industry which has experienced uncertainty resulting from a wide range in consumer
prices for laser vision correction procedures, the recent bankruptcies of a number of deep discount laser vision correction companies as well as the ongoing safety and effectiveness concerns arising from the lack of long-term follow-up data and negative news stories focusing on patients with unfavourable outcomes from procedures performed at competing centers. The Company maintains its vision to be a premium provider of laser vision correction services in an industry that has faced significant pricing pressures. Due to the pricing pressures in the industry and the lower procedure prices offered pursuant to discounts associated with the Company's Corporate Advantage Program, the Company's net revenue after doctor compensation, per procedure, for fiscal 2001 declined by 8% in comparison to fiscal 2000.
In the final quarter of fiscal 2000 and during fiscal 2001, the Company completed practice management agreements with a number of surgeons resulting in an increase in intangible assets to reflect the value assigned to these agreements. These intangible assets will be amortized over the term of the applicable agreements. These agreements have resulted either directly or indirectly in lower per procedure fees being paid to the applicable surgeons and a corresponding reduction in doctors' compensation to offset the increased amortization costs. The result is an increase to the net revenue after doctors' compensation per procedure ratio.
Operating expenses and doctor compensation from refractive activities decreased to $149.9 million in fiscal 2001 from $171.0 million in fiscal 2000. This decrease is a result of: (i) reduced variable expenses associated with the decrease in the number of laser vision correction procedures performed at existing eye care centers, (ii) significant efforts made by the Company to reduce costs, (iii) significantly reduced costs associated with the Corporate Advantage Program and the third party payor programs, and (iv) reduced corporate costs which are subject to ongoing scrutiny to maintain an effective corporate structure able to support the current levels of business activity. Operating expenses and doctor compensation as a percentage of net revenues were 93% of net revenues in fiscal 2001 as compared to 90% of net revenues in fiscal 2000. This increase reflects the impact of marketing programs aimed at raising consumer awareness of TLC's brand as well as the impact on per procedure fees as a result of discounts offered pursuant to the Corporate Advantage Program, which were not offset by a higher number of procedures being performed at TLC centers. In addition, increased infrastructure costs (i.e. people, information systems and marketing) were incurred to support the continued growth of the Company. The Company recognized the effects the reduced procedure volumes were going to have on the operations, and in fiscal 2001 management commenced a number of cost reduction initiatives.
Net revenues from non-refractive activities were $12.8 million in fiscal 2001, an increase of over 16% in comparison to $11.0 million in fiscal 2001. The increase in revenues reflects revenue growth of greater then 25% in the network marketing and management, professional healthcare facility management and hair removal subsidiaries, while revenues in the secondary care management and asset management subsidiaries reflected moderate growth.
Net loss from non-refractive activities was $18.6 million in fiscal 2001, an increase of over 280% in comparison to a net loss of $4.9 million in fiscal 2000. The loss in fiscal 2001 includes a restructuring charge of $11.7 million (2000 - $0) resulting from the decision made by the Company to no longer support the activities of its e-commerce subsidiary eyeVantage.com,
Inc. Excluding the impact of the restructuring charge, eyeVantage.com, Inc., generated losses of $5.6 million (2000 - $3.8 million). The loss from the remaining non-refractive activities were $1.3 million, an increase from the loss in fiscal 2000 of $1.1 million. The increased loss in fiscal 2001 is due primarily to increased amortization of intangibles of $0.4 million at the Company's network marketing and management subsidiary resulting from increased goodwill arising from the finalization of the earn-out calculations arising from the Company's 1997 acquisition of this entity (see "Note 11 - Capital Stock - a) Common Stock" and "Note 17 - Acquisition - 2001 Transactions - ii and 2000 Transactions iv").
Interest (revenue)/expense and other expenses reflect interest revenue from the Company's cash position resulting from positive cash flow from operations and the result of a public offering in the fourth quarter of fiscal 1999. The lack of any material additions to long term debt and capital leases on equipment has resulted in reducing interest costs on debt as the various debt instruments approach maturity. Reduced cash and cash equivalent balances during the year combined with lower interest yields have resulted in lower interest revenues.
The increase in depreciation expense is largely a result of new centers and the additional depreciation and amortization associated with the Company's acquisitions during fiscal 2000 and 2001. The significant increase in the amortization of intangibles is the result of successfully establishing long term contractual relationships with a number of surgeons during the final quarter of fiscal 2000 and during fiscal 2001. Goodwill and intangibles are amortized on a straight-line basis over the term of the applicable agreement to a maximum of fifteen years. Current amortization periods range from five to fifteen years. In establishing the long term contractual relationships with these key surgeons, the surgeon in many cases has agreed to receive reduced fees for laser vision correction procedures performed. The reduction in doctors' compensation offsets in part the increased amortization of the intangible practice management agreements.
Restructuring and other charges (see "Note 18 - Restructuring and Other Charges") in fiscal 2001, reflect decisions that were made to:
a) exit from the Company's e-commerce enterprise eyeVantage.com, Inc. ("eyeVantage"). The decision to close activities at eyeVantage was the result of a number of factors including:
(i) increased difficulty by .com enterprises to obtain funding due to concerns within the investment community regarding perceived value; (ii) eyeVantage was not able to obtain required financing to continue operations; (iii) eyeVantage was not able to meet expectations on the development of its products and services; (iv) eyeVantage had not established a revenue base sufficient to meet operating requirements or to attract outside investment; and (v) the operating costs on a monthly basis were in excess of $1.0 million and the Company did not feel there was sufficient future value to continue to fund operations.
The decision to close activities resulted in a restructuring charge of $11.7 million which reflects the estimated impact of the write-down of goodwill of $8.7 million, loss write down of fixed assets of $2.1 million, employee termination costs of $1.7 million representing the termination costs of 29 employees, accounts receivable losses of $0.4 million and $1.1 million of costs incurred in the closing process which includes legal, administrative and lease commitment costs. These losses were offset by a gain of $2.3 million resulting from the reduction in the purchase obligation associated with the Optical Options, Inc. acquisition (see "Note 17 - Acquisitions - 2001 Transactions - iii").
b) reflect potential losses from a equity investment in secondary care activities of $1.0 million. Due to a deteriorating relationship with the operations management team and the Company's strategic decision to withdraw from the management of secondary care practices where possible, the Company transferred its investment to an equity investment in return for a future earnings percentage. The equity investment has not reflected a liability to the Company for this investment, and the Company has not received any funds from the equity investment's earnings from the transferred investment. As a result the Company deemed it prudent to provide against the potential loss resulting from the inability to recover value of the investment transferred to the equity investment.
c) close three eye care centers for which it recorded costs of $1.4 million, sell its ownership in another eye care center creating a loss of $0.3 million and incurred a cost of $0.1 million to terminate plans to open another eye care center. During fiscal 2001, the Company had undertaken to restructure its operations to eliminate those centers which were identified as not capable of being profitable. These centers had been impacted by a number of challenges such as:
(i) proximity to existing centers managed by the Company; (ii) local marketplace heavily impacted by discount laser vision correction providers which impaired the ability to compete as a premium laser vision correction provider; (iii) expectations of optometric network to generate sufficient interest in laser vision correction were not met; and (iv) the occupancy costs of a center (acquired as part of a multi-center acquisition) impacting the ability to lower costs in line with revenues.
d) undertake an extensive review of its internal structures, its marketplace, its resources and its strategies for the future. The review resulted in the restructuring of the Company's goals and structures to meet its future needs. The Company utilized the services of a national consulting firm to facilitate this internal restructuring process, whose participation was completed in the third quarter of fiscal 2001 with an associated cost of $1.6 million.
e) The Company has fully provided for its $0.9 million portfolio investment in Vision America. This investment was deemed to be permanently impaired during fiscal
2001. Subsequent to this decision Vision America filed for bankruptcy and is currently in the process of liquidating its assets. The Company will reflect any amounts recovered from this investment if and when the amount and timing of any amounts to be recovered becomes determinable.
f) In the fourth quarter, an award from an arbitration hearing involving TLC Network Services Inc. was issued against TLC. The cumulative liability arising from the award was $2.1 million which has been fully provided for in the fourth quarter of fiscal 2001. Payment of this liability has been deferred until exploration of all legal alternatives has been completed.
The following analysis identifies the allocation of costs for all the component transactions reported as Restructuring and Other Charges and identifies the operating impact in fiscal 2001 of those entities which have been restructured:
(1) Interest expense at eyeVantage was from funding from affiliated companies which is eliminated in consolidated reporting. (2) Reflects weighted average re revenue of three centers being closed
The $19.1 million for losses from restructuring and other charges consisted of $4.7 million of cash payments for severance, lease costs, consulting services and closure costs and $14.4 million of non-cash charges.
Income tax expense decreased to $2.2 million in fiscal 2001 from $3.5 million in fiscal 2000. This decrease reflects the Company's losses incurred in fiscal 2001 while including the impact of the tax liabilities associated with the Company's partners in profitable subsidiaries and the requirement to reflect minimum tax liabilities relevant in Canada, United States and certain other jurisdictions.
The loss for fiscal 2001 was $37.8 million or $1.00 per share, compared to a loss of $5.9 million or $0.16 cents per share for fiscal 2000. This increased loss reflects the impact of extensive losses from the activities in the eye care e-commerce subsidiary, restructuring and other charges, reduced revenues, increased amortization in intangibles and the continuing investment in staff, information systems and marketing. The Company has undertaken initiatives intended to address patient, optometric and ophthalmic industry trends and expectations to improve laser vision correction procedure and revenue volumes. Cost initiatives are targeting effective use of funds and a growth initiative is focusing on the future development opportunities for the Company in the laser vision correction industry.
Year ended May 31, 2000 compared to Year ended May 31, 1999
Net revenues for fiscal 2000 were $201.2 million, which was a 37% increase over the prior year's $146.9 million. More than 94% of total net revenues were derived from refractive surgery as compared to 90% in fiscal 1999.
Net revenues from eye care centers for fiscal 2000 were $190.24 million, which was 44% higher than the prior year's $132.4 million. More than 134,200 procedures were performed in fiscal 2000 compared to 90,600 procedures in fiscal 1999. The increased revenues reflected growth in the number of procedures at existing sites due to the increased acceptance of the procedure in the marketplace, as well as the development of new centers and the acquisition of centers. Despite the pricing pressures in the industry and the development of the Company's Corporate Advantage Program, the Company's net revenue after doctor compensation, per procedure, for fiscal 2000 declined less than 3% in comparison to fiscal 1999.
Operating expenses and doctor compensation from refractive activities increased to $171.0 million in the fiscal year 2000 from $102.7 million in fiscal 1999. This increase is a result of: (i) increased variable expenses associated with the increase in the number of laser vision correction procedures performed at existing eye care centers, (ii) increased fixed and variable costs from the addition of new eye care centers, (iii) higher marketing costs, (iv) costs associated with the Corporate Advantage Program and third party payor programs, and (v) increased corporate costs to support the higher level of business activity.
Operating expenses and doctor compensation as a percentage of net revenues were 90% of net revenues in fiscal 2000 as compared to 78% of net revenues in fiscal 1999. This increase reflects the impact of marketing programs aimed at raising consumer awareness of brand reputation and brand recognition of the Company through the implementation of marketing programs aimed at enhancing brand recognition as well as through the development of the Corporate Advantage Program, which have not been fully offset by a higher average number of procedures being performed at TLC centers. In addition, increased infrastructure costs (i.e. people, information systems and marketing) were incurred to support the continued growth of the Company.
Net revenues from non-refractive activities were $11.0 million in fiscal 2000, a decrease in comparison to $14.5 million in fiscal 1999. The decrease in revenues reflect the divestitures of two of the Company's secondary care businesses and its managed care business.
Net loss from non-refractive activities excluding restructuring and other charges was $4.9 million in fiscal 2000 and increase of over 22% in comparison to a net loss of $4.0 million in fiscal 1999. In fiscal 2000, the Company incurred losses of $3.8 million from its e-commerce subsidiary eyeVantage.com, Inc. In fiscal 1999, excluding restructuring and other charges, the Company incurred losses of $3.6 million from its managed care subsidiary.
Interest (revenue)/expense and other expenses reflected interest revenue from a strong cash position resulting from positive cashflow from operations and the result of a public offering in the fourth quarter of fiscal 1999. Improved financial terms resulted in decreased interest expense on long-term debt and capital leases on equipment decreased from fiscal 2000 compared to fiscal 1999.
The increase in depreciation and amortization expense was largely a result of new centers and the additional depreciation and amortization associated with the Company's acquisitions during fiscal 1999 and 2000. Goodwill and intangibles are amortized on a straight-line basis over the term of the agreement to a maximum of fifteen years.
Start up and development costs in the nine months of fiscal 1999 were incurred by Partner Provider Health ("PPH") for the development of a managed care business specializing in eye care. The Company sold PPH in May of 1999. The Company did not incur these expenses in fiscal 2000 and does not expect to incur these costs in the future.
Income tax expense increased to $3.5 million in fiscal 2000 from $2.0 million in fiscal 1999. This increase was a result of the Company having utilized most of its tax losses from prior periods and the impact of the tax liabilities associated with the Company's partners in profitable subsidiaries.
The loss for fiscal 2000 was $5.9 million or $0.16 per share, compared to a loss of $4.6 million or $0.13 cents per share for fiscal 1999. This loss reflected the Company's continued investment in staff, information systems and marketing, which was not fully offset by increased procedure volumes. The improved performance in secondary care operations and the disposal of the managed health care business were offset by losses in the eye care e-commerce subsidiary.
Liquidity and Capital Resources
During fiscal 2001 the Company continued to execute its expansion plan by acquiring the business assets located at the practices of several doctors in order to solidify its presence in several key markets. These acquisitions and the development of new centers were the largest uses of cash during the year. Cash, cash equivalents and short-term investments were $55.7 million at May 31, 2001 as compared to $80.3 million at May 31, 2000. Net current assets at May 31, 2001 reflected a decrease to $36.8 million from $59.5 million at May 31, 2000. This decrease reflects primarily the reduction in cash and cash equivalents during fiscal 2001.
The Company's principal cash requirements included normal operating expenses, debt repayment, capital expenditures and funding requirements of additional expansion. Normal operating expenses include doctor compensation, procedure royalty fees, procedure medical supply expenses, travel and entertainment, professional fees, insurance, rent, equipment maintenance, wages, utilities and marketing.
During the year the Company invested $10.7 in capital assets. Included in the investment was the completion of a new corporate headquarters which the Company intends to sell as part of a sale/leaseback transaction which is expected to generate $5.0 million for the Company. The Company has forecasted its capital expenditure requirements for fiscal 2001 will not exceed $5.0 million.
In August 2000, the Company purchased 100% of the membership interests in Eye Care Management Associates, LLC, a laser vision correction business, in exchange for cash of $4,000,000, shares of the Company valued at $1,860,000 and amounts contingent upon future events.
During fiscal 2001, the Company paid $3,620,000 in cash to satisfy outstanding purchase commitments of its e-commerce subsidiary eyeVantage.com arising from the acquisition by eyeVantage.com of Optical Options, Inc. The Company has ceased the operations of eyeVantage.com but continues to pursue opportunities to sell the assets of the Optical Options, Inc. investment.
In March 2001, the Company acquired certain assets and liabilities of a Maryland Professional Corporation for $10.0 million payable in four equal instalments of $2.5 million on the first four anniversary dates of the transaction. The acquisition of these assets strengthens the Company's relationship with successful laser vision surgeons in an important market.
During the year, the Company incurred cash costs of $4.7 million for restructuring and other charges primarily for severance, lease costs, consulting services and closure costs.
The Company has access to vendor financing from a laser vendor at favourable rates. It has completed an agreement with a competing laser vendor which provides for payment on a per procedure fee for the laser, associated medical equipment and supplies, royalty fees and maintenance. The Company expects to continue to have access to these financing options for at least the next 18 months.
The Company reflected a liability of $2.1 million resulting from an arbitration award against the Company in the fourth quarter of fiscal 2001. The Company has deferred payment of this liability until exploration of all legal alternatives have been completed. Payment of this liability if necessary is not anticipated until the latter half of fiscal 2002.
Cash Provided by Operating Activities
Net cash provided by operating activities decreased by $8.0 million to $15.0 million in fiscal 2001 from $23.0 million in fiscal 2000. Net cash provided by operating activities in fiscal 2001 primarily represents cash earnings (defined as net loss adding back amortization and depreciation, gain or loss on the sale of fixed assets, non-cash restructuring costs, income tax provision and minority interest included as part of net income) of $8.8 million (2000 - $23.8 million), a reduction in accounts receivable of $5.2 million (2000 - - $0), reduction in accounts payable of $4.7 million (2000 - increase of $4.2 million ), net refund of prior period tax instalments of $3.8 million (2000 - payments of $6.7 million) and a reduction of prepaid expenses and other assets net of liabilities of $1.9 million (2000 - $1.7 million).
Cash Used in Financing Activities
Net cash used in financing activities increased by $1.0 million in fiscal 2001 to $15.0 million from $14.0 million in fiscal 2000. Net cash used in financing activities in fiscal 2001 primarily represents payments of debt financing and obligations under capital leases of $7.1 million (2000 - $7.7 million) net of proceeds of debt financing of $0.2 million (2000 - $0.8 million), payments of accrued purchase obligations of $3.6 million (2000 - $0), distributions to non-controlling interests of $4.9 million (2000 - $1.6 million), payments related to the purchase and cancellation of capital stock of $0.5 million (2000 - $10.4 million) offset by proceeds from the issuance of common stock of $0.7 million (2000 - $2.4 million) and contributions by non-controlling interests $0 (2000 - $2.4 million).
Cash Used in Investing Activities
Net cash used in investing activities decreased by $25.5 million in fiscal 2001 to $30.5 million from $56.0 million in fiscal 2000. Net cash used in investing activities in fiscal 2001 primarily represents the purchase of fixed assets and the cash component of assets under capital lease of $10.7 million (2000 - $26.2 million), cash costs of acquisitions and investments of $17.3 million (2000 - $56.5 million), the purchase of short term investments of $6.1 million (2000 - sale of $26.2 million) offset by proceeds from the sale of fixed assets, assets under capital lease and investments of $3.6 million (2000 - $0.4 million).
The Company estimates that existing cash balances, together with funds expected to be generated from operations and available credit facilities, will be sufficient to fund the Company's anticipated level of operations, acquisition and expansion plans for the foreseeable future.
Other Business Segments
TLC made the decision during fiscal 2001 to no longer support the activities of its e-commerce subsidiary eyeVantage.com and sustained significant write-offs and cash costs as a result. The Company's other investments in non-core activities are currently largely self-sustaining with minimal requirement for funding support. This segment includes activities in secondary care practice management, network management and marketing, asset management, healthcare facility management and hair removal facilities. The Company continues its efforts to maximize the value of its investments in non-core businesses.
New Accounting Pronouncements
Under SEC Staff Accounting Bulletin 74, the Company is required to disclose certain information related to new accounting standards, which have not yet been adopted due to delayed effective dates.
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 137, "Deferral of Effective Date for SFAS No. 133" which are effective for fiscal years beginning after June 15, 2000. The Company will adopt this standard in fiscal 2002 which begins on June 1, 2002 and management has determined that the impact of adopting SFAS No. 133 will not be material on the consolidated financial position or results of operations of the Company.
The FASB has approved SFAS 141 and 142 on business combinations and accounting for goodwill and intangibles prospectively and will eliminate the pooling of interests method of accounting and amortization of goodwill. Under the new standard, goodwill will be tested annually for impairment. The Company has $32,752,000 of goodwill included in its balance sheet at May 31, 2001. Goodwill amortization for the years ended May 31, 2001, 2000 and 1999 was $3,784,000, $3,053,000 and $3,060,000 respectively and is expected be approximately $2,832,000 for the year ended May 31, 2002 before the provisions of the new standard. The new standards are effective for business combinations completed after June 30, 2001 and for goodwill and intangibles existing at June 30, 2001 for fiscal years beginning after December 15, 2001.
ITEM 7A.
ITEM 7A. MARKET RISK
In the ordinary course of business, the Company is exposed to interest rate risks and foreign currency risks, which the Company does not currently consider to be material. These exposures primarily relate to having short-term investments earning short-term interest rates and to having fixed rate debt. The Company views its investment in foreign subsidiaries as a long-term commitment, and does not hedge any translation exposure.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements of TLC Laser Eye Centers Inc. have been prepared by management in conformity with accounting principles generally accepted in the United States consistently applied. The most significant of these accounting policies has been set out in Note 1 to the financial statements. These statements are presented on the accrual basis of accounting. Accordingly, a precise determination of many assets and liabilities is dependent upon future events. Therefore, estimates and approximations have been made using careful judgement. Recognizing that the Company is responsible for both the integrity and objectivity of the financial statements, management is satisfied that these financial statements have been prepared within reasonable limits of materiality.
The Board of Directors has appointed an Audit Committee consisting of four outside directors. The committee meets during the year to review with management and the auditors any significant accounting, internal control and auditing matters and to review and finalize the annual financial statements of the Company along with the independent auditors' report prior to the submission of the financial statements to the Board of Directors for final approval.
The financial information throughout the text of this annual report is consistent with the information presented in the financial statements.
The Company's accounting procedures and related systems of internal control are designed to provide reasonable assurance that its assets are safeguarded and its financial records are reliable.
External Auditors
The auditors' opinion is based upon an independent and objective examination of the Company's financial results for the year, conducted in accordance with generally accepted auditing standards. This examination encompasses an understanding and evaluation by the auditors of the Company's accounting systems as well as the obtaining of a sound understanding of the Company's business. The external auditors conduct appropriate tests of the Company's transactions and obtain sufficient audit evidence in order to provide them with reasonable assurance that the financial statements are presented fairly in conformity with accounting principles generally accepted in United States, thus enabling them to issue their report to the shareholders.
Ernst & Young LLP, Chartered Accountants, the Company's external auditors for fiscal 2001, have examined the consolidated balance sheets of the Company as of May 31, 2001 and 2000 and the related consolidated statements of loss, stockholders' equity and cash flows for each of the years in the three year period ended May 31, 2001 and have reported thereon in their July 6, 2001 report.
INDEPENDENT AUDITORS' REPORT
To the Directors of TLC Laser Eye Centers Inc.
We have audited the consolidated balance sheets of TLC Laser Eye Centers Inc. as at May 31, 2001 and 2000 and the consolidated statements of loss, stockholders' equity and cash flows for each of the years in the three-year period ended May 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at May 31, 2001 and 2000 and the results of its operations and its cash flows for each of the years in the three-year period ended May 31, 2001 in conformity with United States generally accepted accounting principles.
We have also audited Schedule II - Valuation and Qualifying Accounts and Reserves included in the Company's Form 10-K for the years ended May 31, 2001, 2000 and 1999 which is presented for purposes of additional analysis and is not a required part of the basic financial statements. In our opinion, this schedule presents fairly the information contained therein in all respects to the financial statements.
Toronto, Canada, ERNST & YOUNG LLP --------------------- Chartered Accountants
July 6, 2001, (except as to Note 20, which is as at August 27, 2001)
TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF LOSS
(U.S. dollars, in thousands except per share amounts)
TLC LASER EYE CENTERS INC. CONSOLIDATED BALANCE SHEETS (U.S. dollars, in thousands)
Approved on behalf of the Board: (Signed) ELIAS VAMVAKAS (Signed) WARREN S. RUSTAND Elias Vamvakas, Director Warren S. Rustand, Director
TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars, in thousands)
(Note 19 - discusses non-cash transactions, which are not included in the consolidated statements of cash flows)
TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(U.S. dollars, in thousands)
TLC LASER EYE CENTERS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars, except where noted and all tabular amounts in thousands)
Nature of Operations
TLC Laser Eye Centers Inc. and its subsidiaries (the "Company") develop and manage laser vision correction centers in the United States and Canada. Each center provides excimer laser and other clinical equipment and all related management and support services to physicians and physician practices performing excimer laser procedures in the Company's centers.
The Company currently owns and manages a secondary eye care business with multiple centers in the state of Michigan. These centers provide all necessary clinical equipment and infrastructure and provide all related management and support services to physician practices treating a wide range of vision disorders.
The Company faces a number of risks and uncertainties given the nature of the industry in which it operates.
The Company's profitability is dependent upon broad acceptance in the United States and Canada of laser vision correction as an alternative to existing methods of treating refractive disorders. Broad market acceptance is dependent on many factors including cost, the lack of long-term follow-up data and the resulting concerns relating to safety and effectiveness, future regulatory developments and uncertainty in the marketplace caused by the recent bankruptcies occurring in the industry.
The industry in which the Company operates is subject to extensive federal, state and local laws, rules and regulations. Many of these laws and regulations are ambiguous in nature and have not been definitively interpreted by courts and regulatory authorities. Moreover, they vary from jurisdiction to jurisdiction. Accordingly, the Company may not always be able to predict clearly how such laws and regulations will be interpreted or applied and some of the Company's activities could be challenged. In addition, there can be no assurance that the regulatory environment in which the Company operates will not change significantly in the future.
Most states in the United States prohibit the Company from practicing medicine or employing physicians to practice medicine on the Company's behalf. Because the Company does not practice medicine, its activities are limited to owning and managing eye care centers and secondary care centers and affiliating with health care providers to render medical services at the Company's centers. As a result, the Company is highly dependent on its affiliated doctors.
The provision of medical services entails an inherent risk of potential malpractice and other similar claims. Although the Company does not engage in the practice of medicine, there can be no assurance that claims relating to services provided at the Company's centers will not be asserted against the Company. The Company currently maintains malpractice insurance that it
believes to be adequate both as to risks and amounts. In addition, the doctors providing medical services at the Company's centers are required to maintain insurance.
The Company's revenues from managing secondary care centers are derived from fees paid by or on behalf of patients to the practices affiliated with the Company. The Company's profitability could be affected by government and private third-party payors seeking to contain healthcare costs by reducing reimbursement rates, lowering utilization rates and negotiating reduced payment schedules with providers of vision care.
1. Summary of Significant Accounting Policies
Basis of Presentation
These consolidated financial statements include the accounts of the Company and its majority owned subsidiaries, partnerships and other entities in which the Company has more than a 50% ownership interest and exercises control. The ownership interests of other parties in less than wholly-owned consolidated subsidiaries, partnerships and other entities are presented as non-controlling interests. All significant intercompany transactions and balances have been eliminated on consolidation.
The Company does not have an ownership interest in, nor does it exercise control over, the physician practices under its management. Accordingly, the Company does not consolidate physician practices under its management.
Fixed Assets and Assets Under Capital Lease
Fixed assets and assets under capital lease are recorded at cost less accumulated depreciation. Depreciation is provided at rates intended to write off the assets over their productive lives as follows:
Buildings - straight-line over forty years Computer equipment and software - straight-line over three years Furniture, fixtures and equipment - 20% diminishing balance Laser equipment - 20% diminishing balance Leasehold improvements - straight-line over the initial term of the lease Medical equipment - 20% diminishing balance Vehicles and other - 30% diminishing balance
Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired, and is being amortized on a straight-line basis over the term of the purchase agreement to a maximum of fifteen years.
The practice management agreements represent the cost of obtaining the exclusive right to manage eye care centers and secondary care centers in affiliation with the related physician group during the term of the agreements. Practice management agreements are amortized using
the straight-line method over the term of the related employment agreement, to a maximum of fifteen years. The current amortization periods range from five to fifteen years.
Impairment of Long-lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" establishes accounting standards for the impairment of long-lived assets. For fixed assets and certain intangibles, the Company assesses the recoverability by determining whether the carrying value of such assets can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted and without interest charges, is less than net book value, the excess of the net book value over the estimated fair value is charged to operations in the period in which such impairment is determined by management.
Start-up and Development Expenses
Start-up and development expenses represent costs incurred to research and develop potential businesses in North America, including salaries and benefits, professional fees, advertising, promotion and travel, and costs incurred by businesses during the period prior to commencement of commercial operations. Start-up and development expenses are expensed as incurred.
Revenues
Approximately 48% of the Company's net revenue represents management fee revenue arising from practice management agreements with Physician Owned Companies ("PCs"). Under the terms of the practice management agreements, the Company provides management, marketing and administrative services to refractive practices in return for management fees. Management fee revenue is equal to the net revenue of the PCs, less amounts retained by physician groups, and may include costs for uncollectible amounts from patients, professional contractual costs and miscellaneous administrative charges. Net revenues of the PCs represents amounts charged to patients for laser vision correction procedures (net of the impact of applicable patient discounts) less contractual adjustments.
Contractual adjustments arise due to the terms of certain reimbursement and managed care contracts. Such adjustments represent the difference between the charges at established rates and estimated recoverable amounts and are recognized in the period the services are rendered. Any differences between estimated contractual adjustments and actual final settlements under reimbursement contracts are recognized as contractual adjustments in the year final settlements are determined.
Provisions for doubtful accounts reflect amounts for which there is a permanent reduced likelihood of collection. These amounts are due from physicians and patients who have a contractual obligation to pay the PC directly and appear unable to do so in whole or in part. Management fee revenues from PCs on laser refractive surgeries are recognized as services are performed.
Approximately 45% of the Company's net revenue reflects operating revenues pertaining to Company owned laser centers. Net revenue represents amounts charged to patients at standard rates for laser vision correction services (net of the impact of applicable patient discounts) less contractual adjustments and amounts collected on behalf of co-managing physicians.
Approximately 7% of the Company's net revenue is from the Company's Other segment which includes management fee revenue from secondary care practices, network marketing and management, asset management fees, fees for professional healthcare facility management and revenue from hair removal procedures. Revenues from all sources are recognized as the service or treatment is provided.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded based on the difference between the income tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. See note 13 for discussion of income taxes.
Cash equivalents
Cash equivalents include highly liquid short-term investments with original maturities of 90 days or less. Cash equivalents, are classified as held-to-maturity securities and are carried at amortized cost.
Short-term investments
Short-term investments, which consist principally of corporate bonds, are classified as held-to-maturity securities and are carried at amortized cost.
Accounting for Stock-based Compensation
The Company accounts for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion No 25, "Accounting for Stock Issued to Employees" and makes the pro forma disclosures required by SFAS No. 123, "Accounting for Stock-Based Compensation".
Marketing Costs
The Company expenses marketing costs as incurred. Marketing expense for the year ended May 31, 2001 was approximately $25,598,000 (2000 - $24,202,000). Marketing expenses consist primarily of print, radio and television media costs plus the associated production costs required to create the marketing product.
Foreign Exchange
The unit of measure of the parent holding company and the Canadian operations is the U.S. dollar. The Company's Canadian operations are translated into U.S. dollars using the temporal method. Accordingly, the assets and liabilities of the Company's Canadian operations are translated into U.S. dollars at exchange rates prevailing at the consolidated balance sheet date for monetary items and at exchange rates prevailing at the transaction dates for non-monetary items. Income and expenses are translated into U.S. dollars at average exchange rates prevailing during the year with the exception of depreciation and amortization, which are translated at historical exchange rates. Exchange gains and losses are included in net loss for the year.
Contingent Consideration
Where the Company has entered into agreements with physicians which allow for contingent consideration based on the physician being able to achieve certain pre-defined targets, an analysis is made to determine whether the contingent consideration will be reflected as an additional purchase price obligation or deemed to be a compensation expense. The resulting accounting treatment if the consideration is deemed to be an additional purchase price payment will be to increase the value assigned to practice management agreements intangible assets and amortize this additional amount over the applicable period(s) as determined by the relevant agreement. Where the contingent consideration is deemed to be compensation the expense is reflected as an operating expense applied over the applicable periods as determined by the terms of the relevant agreement.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in income in the period in which they become known.
New Accounting Standards
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 137, "Deferral of Effective Date for SFAS No. 133" which are effective for fiscal years beginning after June 15, 2000. The Company will adopt this standard in fiscal 2002 which begins on June 1, 2002 and management has determined that the impact of adopting SFAS No. 133 will not be material on the consolidated financial position or results of operations of the Company.
The Financial Accounting Standards Board issued Statement No. 141, "Business Combinations", which requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method of accounting. The Financial Accounting Standards Board also issued
Statement No. 142, "Goodwill and Other Intangible Assets", which eliminates the amortization of goodwill and indefinite life intangible assets and requires these assets to be tested annually for impairment. For goodwill and other intangible assets existing at June 30, 2001, the new Statement must be applied for fiscal years beginning after December 15, 2001, with earlier adoption permitted. For goodwill and other intangible assets resulting from business combinations completed after June 30, 2001, the Statement must be adopted immediately. The Company is currently determining the impact of the new statements.
2. Cash and Cash Equivalents
2001 2000 ------- ------- Cash and cash equivalents $47,987 $78,531 ======= =======
The Company has a banking facility of approximately $650,000 (2000 - $845,000) available for posting letters of guarantee, under terms whereby the Company must maintain a similar minimum amount in its bank account. As of May 31, 2001, $480,000 (2000 - $773,000) of this facility has been utilized. Excluded from cash and cash equivalents are collateral deposits of $684,000 (2000 - $773,000) of which $204,000 (2000 - $0) is in the process of being released. In addition, the Company has posted cash collateral deposits in respect of certain lease commitments, which amount to $935,400 as of May 31, 2001 (2000 - $949,000).
3. Marketable Securities
The Company's marketable securities by type of security, contractual maturity and classification in the consolidated balance sheets are as follows:
2001 2000 - --------------------------------------------------------------------------------
Type of security U.S. dollar corporate debt $17,220 $60,653 U.S. dollar fixed deposit 29,421 14,460 Cdn. dollar fixed deposit 689 773 - -------------------------------------------------------------------------------- $47,330 $75,886 ================================================================================
- --------------------------------------------------------------------------------
Contractual maturity Maturing in one year or less $45,711 $74,164 Maturing after one year through three years 1,619 1,722 - -------------------------------------------------------------------------------- $47,330 $75,886 ================================================================================
Classification in the consolidated balance sheets Cash equivalents $39,648 $74,164 Short-term investments 6,063 -- Restricted cash 1,619 1,722 - -------------------------------------------------------------------------------- $47,330 $75,886 ================================================================================
4. Investments and Other Assets
2001 2000 ------ ------- Portfolio investments (1) 17,649 $23,444 Long-term receivables (2) 4,950 4,904 Other 572 1,130 ------ ------- 23,171 $29,478 ====== =======
(1) On June 8, 1998 the Company made a portfolio investment of $8,000,000 in cash through the purchase of 2,000,000 preference shares in LaserSight Incorporated. These preference shares were convertible to LaserSight Incorporated common shares at $4.00 per share in June 2001. On March 24, 1999, the Company made an additional $2,000,000 investment to purchase 500,000 common shares in LaserSight Incorporated. On January 28, 2000, the Company made an additional $10,000,000 investment to purchase 1,015,873 common shares of LaserSight Incorporated. LaserSight Incorporated is a publicly traded United States manufacturer of excimer lasers, microkeratomes and microkeratome blades with limited approval for its excimer laser. The Company's fully diluted ownership interest in LaserSight Incorporated is 15.0%.
In June 2001, the Company's investment of 2,000,000 preferred shares in Lasersight Incorporated which have a carrying value of $4,860,000 were converted to common shares.
No provision for loss on the Lasersight Incorporated common and preferred shares has been reflected, as management does believe a permanent impairment in value has ocurred.
During fiscal 2000, the Company made a number of portfolio investments in the amount of $7,188,000 in various companies related to the laser vision correction industry to support the development of laser vision correction technology.
(2) Long-term receivables include an amount from a related secondary care practice which in fiscal 2001, the Company provided funding of $500,000 to assist in the consolidation of debt. In fiscal 1999, a long-term receivable arose which was non-interest bearing, unsecured and is to be repaid based on an escalating percentage of the practice's revenue collected over the next five years. While the Company is continuing in its efforts to collect this outstanding receivable, it has taken a provision of $977,000 against this entire receivable in fiscal 2001.
During fiscal 2001, the Company invested approximately $800,000 in new investments in industry related activities, reflected equity losses of $450,000 and collected $83,000 against outstanding amounts.
During fiscal 2000, the Company advanced $1,435,000 to a related secondary care practice in exchange for a five year promissory note bearing a fixed interest rate of 8%.
During fiscal 2000, the Company advanced $1,000,000 to an unrelated refractive care service provider in exchange for a convertible subordinated term note bearing interest at current LIBOR rates to mature by July 1, 2002.
During fiscal 2000, the Company provided financing of $900,000 at 10% to an unrelated refractive care service provider for lasers, payable over a five year period.
5. Intangibles
2001 2000 ------- ------- Goodwill (net of amortization of $10,709,000 (2000 - $32,752 $45,311 $8,121,000)) Practice management agreements (net of amortization of $14,528,000 (2000 - $5,969,000)) 60,050 43,986 ------- -------
$92,802 $89,297 ======= =======
6. Fixed Assets
2001 2000 ---------------------- ---------------------- Accumulated Accumulated Cost Depreciation Cost Depreciation ------- ------------ ------- ------------ Land and buildings $10,647 $ 750 $ 4,042 $ 619 Computer equipment and 13,492 10,929 15,838 8,034 software Furniture, fixtures and 7,781 3,933 8,230 3,310 equipment Laser equipment 13,380 6,001 17,073 5,968 Leasehold improvements 25,637 12,942 26,078 9,510 Medical equipment 14,924 6,807 14,315 5,261 Vehicles and other 828 364 890 333 ------- ------- ------- ------- 86,689 $41,726 86,466 $33,035 Less accumulated 41,726 33,035 depreciation ------- ------- Net book value $44,963 $53,431 ======= =======
7. Assets under Capital Lease
2001 2000 ----------------------- ---------------------- Accumulated Accumulated Cost Depreciation Cost Depreciation ------- ------------ ------- ------------ Computer equipment and $ 162 $ 162 $ 164 $ 164 software Furniture, fixtures and 598 340 629 297 equipment Laser equipment 12,930 6,899 15,507 6,455 Medical equipment 2,639 1,546 2,616 1,278 ------- ------- ------- ------ 16,329 $ 8,947 18,916 $8,194 Less accumulated 8,947 8,194 depreciation ------- ------- Net book value $ 7,382 $10,722 ======= =======
8. Long-Term Debt
2001 2000 ------- ------ Term loans Interest at 8%, due September 2001, payable to affiliated physicians $ 32 $ 155 Interest ranging from 5.75% to 12% (1999 - 5.75% to 12%), due November 2001 to March 2007, collateralized by equipment 10,826 5,099 ------- ------ 10,858 5,254 Less current portion 3,826 2,332 ------- ------ 7,032 2,922 ======= ======
Aggregate minimum repayments of principal for each of the next five years and thereafter are as follows:
2002 $ 3,826 2003 2,811 2004 2,092 2005 1,861 2006 69 Thereafter 199
9. Obligations under Capital Leases
The leases expire between 2001 and 2004 and include imputed interest at rates ranging from 6% to 14%. The majority of capital leases are denominated in U.S. dollars and represent leases for lasers and medical equipment. The capitalized lease obligations represent the present value of future minimum annual lease payments as follows:
2001 2000 ------- ------- 2001 $ -- $ 5,472 2002 3,454 3,589 2003 1,203 1,316 2004 252 326 ------- ------- 4,909 10,703 Less interest portion 685 1,637 ------- ------- 4,224 9,066 Less current portion 2,943 5,260 ------- ------- $ 1,281 $ 3,806 ======= =======
10. Deferred Compensation and Rent
Deferred compensation represents a plan to compensate certain key managerial executives and was included as part of the acquisition of 20/20 Laser Centers, Inc. ("20/20"). The plan vested 100% on the earlier of February 15, 1999 or termination of employment, as defined. On May 31, 1998, $320,000 was accrued on potential deferred compensation of $320,000. During fiscal 1999, outstanding options were exercised resulting in the elimination of the outstanding liability.
Deferred rent represents the benefit of operating lease inducements which are being amortized on a straight-line basis over the related term of the lease.
11. Capital Stock
As of May 31, 2001, the Company's capital stock position included Common Stock and Warrants as reflected in the Consolidated Statements of Stockholders' Equity and also offered options for corporate employees and certain other individuals.
a) Common Stock
i) In connection with the 1997 acquisition of The Vision Source, Inc., during 2000, the Company released 210,902 shares from escrow which had a value of $1,397,000 based on market prices at the time of settlement. An additional tranche of 536,764 shares valued at $4,199,000 were issued in 2001 (see note 17).
ii) On November 4, 1999, the Company announced that it intended to purchase up to 1,870,000 of its common shares, representing approximately 5% of 37,453,188 common shares outstanding at that time. The Company commenced purchasing shares on November 8, 1999 and terminated purchasing by September 7, 2000, during which period 803,000 common shares were acquired at an average market price of U.S. $13.52 per share and were subsequently cancelled.
iii) During fiscal 1999, the Company introduced an employee share purchase plan to facilitate the ownership of the Company's common shares by its employees. Employee purchases are supplemented annually by an additional 25% contribution by the Company, which are charged to earnings.
iv) On September 24, 1998, the Company exercised a contractual option to purchase 116,771 common shares from the Goldstein Family Trust for $1,264,411 in cash. The common shares were then cancelled and capital stock was reduced using the average value of common shares as of November 30, 1998 of Cdn.$6.20 per share. The remaining allocation of the cash paid for the shares was reflected as a reduction in deficit. In addition, shares were retired in connection with a divestiture (Note 18).
v) On August 21, 2000, the Company purchased the membership interests in Eye Care Management Associates, LLC in exchange for $4,000,000 in cash, 295,165 common shares of the Company with a value of $1,860,000 and amounts contingent upon future events (Note 17).
b) Warrants
Effective January 1, 2000, the Company granted warrants to purchase 100,000 of the Company's common shares at an exercise price of $13.063 per share, representing the average market price for the common shares during the 20 trading days prior to the effective date of the grant of the warrants. These warrants were granted to an employee benefits company in consideration for establishing a business relationship. The warrants are non-transferable, have a five-year term and vest over a period of three years. This transaction was exempt from registration under the Securities Act pursuant to Section 4(2) as a transaction not involving a public offering. The fair value of the options granted of $532,000 which is charged to earnings over the vesting period, was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest of 6.35%; dividend yield of 0%; volatility factor of the expected market price of the Company's common shares of 0.35 and an expected life of five years.
c) Options
At May 31, 2001, the Company has reserved 5,116,000 common shares for issuance under its stock option plan for corporate employees and certain other individuals. Options granted have terms ranging from five to eight years. Vesting provisions on options granted to date include options that vest immediately, options that vest in equal amounts annually over the
first four years of the option term and options that vest entirely on the first anniversary from the grant date. Those exercise prices, which are denominated in Canadian dollars, for options outstanding as of May 31, 2001 range as follows:
During the year, options denominated in U.S. dollars were issued and outstanding with prices ranging as follows:
Weighted Weighted Average Average Options Exercise Price Exercise Price (000's) Per Share Per Share ------- -------------- -------------- May 31, 1998 2,416 Cdn$5.39 US$3.70 Granted 783 26.71 17.65 Exercised (507) 7.21 4.77 May 31, 1999 2,692 Cdn$11.12 US$7.54 Granted 453 30.14 20.62 Exercised (88) 10.71 7.26 ------ --------- -------- May 31, 2000 3,057 Cdn$13.95 US$9.49 ------ --------- -------- Granted 1,338 5.63 3.74 Exercised (40) 4.73 3.24 Revoked (1,502) 9.48 6.51 ------ --------- -------- May 31, 2001 2,853 Cdn$12.65 US$8.46 ------ --------- -------- Exercisable at May 31, 2001 1,285 Cdn$15.88 US$10.61 ====== ========= ========
During 1999, the Company issued 74,668 common shares with a weighted average exercise price of U.S. $4.87 pursuant to option agreements assumed in connection with the 20/20 acquisition. At May 31, 1999, no further options relating to these agreements are outstanding.
During 1999, the Company issued 191,337 common shares at U.S. $0.02665 per share in connection with options granted to third parties for services rendered to 20/20 that were assumed in connection with the 20/20 acquisition. At May 31, 1999, no further options relating to these agreements are outstanding.
SFAS No. 123, "Accounting for Stock-based Compensation", became effective for the Company's 1997 fiscal year. The Company continues to account for its outstanding fixed price stock options under Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to Employees", which results in the recording of no compensation expense in the Company's circumstances. Had compensation expense for stock options granted been determined based upon fair value at the grant date consistent with the methodology prescribed by SFAS No. 123, the pro forma effects of fiscal 2001, 2000 and 1999 grants on the net loss and loss per share amounts for the years ended May 31, 2001, 2000 and 1999 would have been as follows:
2001 2000 1999 -------------------------------- Net loss under U.S. GAAP $(37,773) $(5,918) $(4,556) Adjustments for SFAS 123 (1,847) (2,806) (3,784) -------------------------------- Pro forma net loss under U.S. GAAP $(39,620) $(8,724) $(8,340) ================================ Pro forma loss per share under U.S. GAAP $ (1.05) $ (0.23) $ (0.24) ================================
The fair value of the options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk free interest of 6.75% for fiscal 1999, 7.5% for fiscal 2000 and 6.5% for fiscal 2001; dividend yield of 0%; volatility factors of the expected market price of the Company's common shares of 0.66 for fiscal 1999, 0.71 for fiscal 2000 and 0.83 for fiscal 2001; and a weighted average expected option life of 3.3 years for fiscal 1999, 3.5 years for fiscal 2000 and 4.0 years for fiscal 2001. The fair market value of the options granted during the fiscal year ended May 31, 2001 is $3,108,000 (2000 - $5,800,000; 1999 - $6,420,000). The Black-Scholes option pricing model was developed for use in estimating fair value of traded options which have no vesting restrictions and are fully transferable. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the above pro forma adjustments for SFAS 123 are not necessarily a reliable single measure of the fair value of the Company's employee stock options.
12. Interest and Other and Depreciation and Amortization
2001 2000 1999 Interest and other Interest on long-term debt $ 266 $ 498 $ 810 Interest on obligations under capital lease 1,063 1,720 1,540 Interest and bank charges, net 583 453 1,992 Interest income (4,455) (7,163) (2,097) -------- -------- -------- $ (2,543) $ (4,492) $ 2,245 ======== ======== ========
Depreciation and amortization Fixed assets $ 13,043 $ 11,880 $ 8,643 Assets under capital lease 2,007 2,412 2,409 Goodwill 3,784 3,053 3,060 Practice management agreements 8,759 4,343 822 -------- -------- -------- $ 27,593 $ 21,688 $ 14,934 ======== ======== ========
13. Income Taxes
Deferred income taxes consist of the following temporary differences:
2001 2000 1999 -------- -------- -------- Assets:
Tax benefit of loss carryforwards Pre-acquisition $ 8,034 $ 9,538 $ 11,785 Post-acquisition 12,913 6,453 6,094 Start-up costs 191 954 1,816 Fixed assets 1,362 -- -- Intangibles 2,444 819 -- Comprehensive income 5,580 2,136 -- Other 1,607 2,296 1,556 Valuation allowance (30,429) (16,346) (17,345) -------- -------- -------- $ 1,702 $ 5,850 $ 3,906 -------- -------- -------- Liabilities: Practice management agreements $ 1,702 $ 1,848 $ 1,771 Fixed assets -- 4,002 2,135 -- -- 4,525 -------- -------- -------- Comprehensive income $ 1,702 $ 5,850 $ 8,431 -------- -------- -------- -- -- $ 4,525 ======== ======== ========
As of May 31, 2001, the Company has non-capital losses available for carryforward for income tax purposes of approximately $53,765,000, which are available to reduce taxable income of future years.
The Canadian losses can only be utilized by the source company whereas the United States losses are utilized on a United States consolidated basis. The Canadian losses of $9,972,000 expire as follows:
2002 $1,202
2003 2,273
2004 1,468
2005 543
2008 4,486
The United States losses of $43,793,000 expire between 2011 and 2021. The Canadian and United States losses include amounts of $4,413,000 and $16,129,000 respectively relating to the acquisitions of 20/20 and BeaconEye, the availability and timing of utilization of which may be restricted.
The differences between the provision for income taxes and the amount computed by applying the statutory Canadian income tax rate to loss before income taxes and non-controlling interest were as follows:
The provision for income taxes is as follows:
2001 1999 1998 ------ ------ ------
Current:
Canada $ 111 $ 322 $ 34
United States - federal 929 2,541 1,441
United States - state 645 502 545
Other 554 89 -- -------------------------- $2,239 $3,454 $2,020 ====== ====== ======
14. Commitments and Contingencies
As of May 31, 2001, the Company has entered into operating leases for rental of office space and equipment, which require future minimum lease payments aggregating $28,555,000. Future minimum lease payments in aggregate and over the next five years are as follows:
2002 $7,577 2003 6,787 2004 6,308 2005 4,689 2006 3,194
As of May 31, 2001, the Company has entered into a three year lease agreement with a major laser manufacturer for the use of that manufacturer's lasers which require future minimum lease payments aggregating $9,938,000. Future minimum lease payments in aggregate and over the next three years are as follows:
2002 $4,500 2003 4,388 2004 1,050
One of the Company's subsidiaries, together with other investors, has jointly and severally guaranteed the obligations of an equity investee. Total liabilities of the equity investee under guarantee amount to approximately $2,405,000 at May 31, 2001.
15. Segmented Information
The Company has two reportable segments: refractive and other. The refractive segment is the core focus of the Company which reflects the provision of laser vision correction. The other segment includes an accumulation of non-core business activities including the management of secondary care centers which provide advanced levels of eye care, activities involving the development of eyeVantage.com as an internet based company and managed care (applicable only in 1999 and prior). In 1999, activity in the secondary care reflected a larger portion of the business activity and was presented as a separate segment. The disposal of the management of
certain secondary care sites during 1999 has reduced the magnitude of activities from secondary care such that a separate segment for secondary care is no longer meaningful.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operational components including paid procedures, net revenue after doctors' fees, fixed costs and income (loss) before income taxes.
Intersegment sales and transfers are minimal and are measured as if the sales or transfers were to third parties.
The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the business units were acquired or developed as a unit and management at the time of acquisition was retained.
The Company's business segments are as follows:
The Company's geographic segments are as follows:
2001 Canada United Total States --------------------------------- Revenues and physician costs: Net revenues $18,114 $155,892 $174,006 Doctor compensation 1,698 13,840 15,538 --------------------------------- Net revenue after doctor compensation $16,416 $142,052 $158,468 =================================
Total fixed assets and intangibles $22,039 $123,108 $145,147 =================================
2000 Canada United Total States --------------------------------- Revenues and physician costs: Net revenues $17,275 $183,948 $201,223 Doctor compensation 2,876 14,459 17,335 --------------------------------- Net revenue after doctor compensation $14,399 $169,489 $183,888 =================================
Total fixed assets and intangibles $22,195 $131,255 $153,450 =================================
1999 Canada United Total States --------------------------------- Revenues and physician costs: Net revenues $16,247 $130,663 $146,910 Doctor compensation 2,583 10,241 12,824 --------------------------------- Net revenue after doctor compensation $13,664 $120,422 $134,086 =================================
Total fixed assets and intangibles $18,895 $ 76,891 $ 95,786 =================================
16. Financial Instruments
Fair Value
The carrying values of cash equivalents, accounts receivable, accounts payable and accrued liabilities and income taxes recoverable (payable) approximates their fair values because of the short-term maturities of these instruments.
Given the large number of individual long-term debt instruments and capital lease obligations held by the Company, it is not practicable within constraints of timeliness and cost to determine fair value. However, the Company expects that if it were able to renegotiate such instruments at the current market rates available to the Company, it would obtain similar or more favorable terms given the Company's growth and current financial position.
The fair values of the Company's short-term investments are based on quotes from brokers. In fiscal 2001, the Company's short-term investment portfolio consisted substantially of corporate bonds that had remaining terms to maturity not exceeding three months.
Portfolio investments consist of the Company's investment in the common and preferred shares of LaserSight Incorporated (LaserSight Class C preferred shares held by the Company were automatically convertible to an equal number of common shares in June 2001) and the common shares of two other publicly traded companies (2000 - three). The fair value of the Company's portfolio investments, excluding the LaserSight Incorporated preferred shares, are based on quotes from brokers in the fair value information presented below:
2001 2000 ------- ------- Short-term investments $ 6,063 $ -- Portfolio investments (cost: 2001 - $27,190 ; 2000 - $17,649 $23,444 $27,895)
The fair value of the Company's portfolio investment in Lasersight Incorporated 2.0 million preferred shares has been reflected at $4.00 per share based upon the fair value of the conversion feature to common shares.
Risk Management
The Company is exposed to credit risk on accounts receivable from its customers. In order to reduce its credit risk, the Company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of credit limits. As of May 31, 2001, the Company had recorded an allowance for doubtful accounts of $1,160,000 (2000 - $2,849,000). The Company does not have a significant exposure to any individual customer, except for amounts due from those refractive and secondary eye practices which it manages and which are collateralized by the practice's patient receivables.
Cash accounts at the Canadian banks are insured by the Canadian Depository Insurance Corporation for up to Cdn.$60,000. In the United States, the Federal Deposit Insurance Corporation insures cash balances up to $100,000. As of May 31, 2001, bank deposits exceeded insured limits by $ 36,329,475 (2000 - $6,030,492).
The Company operates in Canada and the United States and is therefore exposed to market risks related to foreign currency fluctuations between these currencies. As well, there is cash flow exposure to interest rate fluctuations on debt carrying floating rates of interest.
17. Acquisitions
2001 Transactions
The following acquisitions have been accounted for by the purchase method and the results of operations have been consolidated from the respective purchase dates:
i. On August 21, 2000, the Company purchased 100% of the membership interests in Eye Care Management Associates, LLC ("Eye Care Mgmt. Assoc., LLC") in exchange for $4,000,000 in cash, 295,165 common shares of the Company with a value of $1,860,000 and amounts contingent upon future events. Contingent amounts are determined based on fees received by the Company pursuant to the Membership Purchase Agreement. Contingent amounts have been deemed to be compensation of the physicians associated with Eye Care Mgmt. Assoc., LLC. In fiscal 2001 no expense for contingent amounts have been reflected as the applicable pre-determined targets had not been achieved.
ii. During the first quarter of fiscal 2001, an additional 536,764 common shares of the Company, valued at $4,199,000, were issued to the sellers of The Vision Source, Inc. to reflect the final payment of contingent consideration which was determined to be payable during fiscal 2000 and which had been accrued for at May 31, 2000. On December 31, 1999 , the earn-out period relating to the 1997 acquisition of 100% of The Vision Source, Inc. was completed. As a result, in fiscal 2000, 210,902 common shares of the Company with a value of $1,397,000, were released from escrow to the sellers of The Vision Source.
iii. During the first quarter of fiscal 2001, eyeVantage.com, Inc., an 83% subsidiary of the Company, paid $3,000,000 to fully satisfy an outstanding note payable which arose from the fiscal 2000 transaction in which eyeVantage.com, Inc. acquired the operating assets and liabilities of Optical Options, Inc., in exchange for shares of eyeVantage.com, Inc. with a value of $6,000,000, which were to be issued in connection with a proposed public offering of eyeVantage.com, Inc. shares. Since the public offering was not completed, the Company was required to issue two notes in favor of the sellers for $3,000,000 each, the first of which was satisfied in the second fiscal quarter of 2001 and the second note, which carries an interest rate of 8%, is payable in eight equal quarterly installments, the first of which was due on August 1, 2000. The August 1st payment was not made and the payment of this and future installments were under dispute at that time. In the third quarter of fiscal 2001, the Company accepted a proposal from the seller that would reduce the purchase obligation from $3,000,000 to $620,000. This reduced obligation was paid in the fourth quarter of fiscal 2001.
iv. During the first quarter of fiscal 2001, eyeVantage.com, Inc., an 83% subsidiary of the Company, did not make the initial installment on a $3,000,000 obligation which arose from the 2000 transaction in which eyeVantage.com, Inc. acquired the operating assets and liabilities of Eye Care Consultants, Inc. in exchange for shares of eyeVantage.com, Inc. with a value of $3,000,000 which were to be issued in connection with a proposed public offering of eye Vantage.com, Inc. shares. Since the public offering was not completed, the Company
was required to make eight equal quarterly installments equaling $3,000,000, the first of which was due on June 30, 2000. The June 30th payment was not made and future installments are currently under dispute.
v. On March 2, 2001, the Company acquired certain assets and liabilities of a Maryland Professional Corporation ("Maryland PC") for $10,000,000 in cash and notes payable of a further $10,000,000 to be paid in four equal installments of $2,500,000 on the first four anniversary dates of the transaction. These notes payable do not carry an interest rate and as such have been discounted at a rate of 9% with the resulting $8,099,000 being reported as long term debt for financial statement purposes.
The total consideration on acquisitions was allocated to net assets acquired on the basis of their fair values as follows:
2000 Transactions
The following acquisitions have been accounted for by the purchase method and the results of operations have been consolidated from the respective purchase dates:
i. On June 30, 1999, the Company made a capital contribution of $1,002,000 representing a 50.1% interest in TLC USA LLC, the operating company, for activities of a strategic alliance with a subsidiary of Kaiser Permanente with the intention to initially own and operate three eye care centers in California and to eventually develop additional centers in markets in the United States where Kaiser Permanente has a significant presence.
ii. On July 8, 1999, the Company acquired 50.1% of the operating assets and liabilities of Laser Eye Care of California, LLC with an investment of $11,200,000 in cash and certain operating assets and liabilities of the Company's two Californian eye care centers. Additional amounts were payable contingent upon achieving certain levels of profit. At December 31, 1999 at the completion of the earn-out period, the required levels of profit were met and an additional payment of $6,000,000 was made to complete the transaction.
iii. On August 18, 1999, the Company acquired the laser vision correction assets of Laser Vision Consultants of Albany, P.L.L.C. in exchange for $1,000,000 cash and 30,000 common shares with a value of $728,000 which will be released equally over three years.
iv. On December 17, 1999, eyeVantage.com, Inc., an 83% owned subsidiary of the Company, acquired the operating assets and liabilities of Eye Care Consultants, Inc. in exchange for $750,000 in cash, the assumption of $250,000 of liabilities and shares with a value of $3,000,000 in eyeVantage.com, Inc. in the course of a public offering of eyeVantage.com, Inc. shares. The value of $3,000,000 was non-interest bearing payable in cash as a result of the public offering not being completed within the guidelines set by the acquisition agreement. (See "17. Acquisitions - 2001 Acquisitions - iv")
v. On December 31, 1999, the earn-out period relating to the 1997 acquisition of 100% of The Vision Source, Inc. was completed. 210,902 shares of the Company with a value of $1,397,000 as determined by the acquisition agreement were released from escrow to the sellers of The Vision Source, Inc. An additional 536,764 shares valued at $4,199,000 were issued in August 2001 to the sellers of The Vision Source, Inc. to reflect the final calculation of contingent amounts as determined by the earn-out formula.
vi. On January 11, 2000, eyeVantage.com, Inc., an 83% subsidiary of the Company, acquired the operating assets and liabilities of Optical Options, Inc. in exchange for shares with a value of $6,000,000 in eyeVantage.com, Inc. in the course of a public offering of eyeVantage.com, Inc. shares. Since the public offering was not completed within the guidelines set by the acquisition agreement, the Company was required to issue two notes payable to the sellers for $3,000,000 each. During 2001, these amounts were renegotiated (See "17. Acquisitions - 2001 Acquisitions - iii.").
vii. On February 15, 2000, the Company acquired the membership interests of New Jersey Practice Management LLC for $2,828,000 in cash and amounts contingent upon future events. $600,000 was being held in escrow for a period of one year subject to an adjustment of the purchase price determined by completion of the earn-out period and calculation of a contingent amount. Preliminary calculations subsequent to the completion of the earn-out period have resulted in the release of the $600,000 from escrow back to the Company due to not meeting the necessary earn-out requirements and finalization of any amounts subject to further clawback provisions is in process.
viii. On March 31, 2000, the Company acquired certain assets of a physician's practice located in the state of New York ("New York Practice") in exchange for $11,860,000 in cash and common shares with a value of up to $3,000,000 contingent upon future events. Contingent amounts are determined based on fees received by the Company pursuant to an Administrative Services Agreement. In fiscal 2001, contingent amounts of $300,000 have been reported as operating expenses, based on pre-determined targets being achieved pursuant to the Administrative Services Agreement, and are payable at a future date.
ix. On May 8, 2000, the Company acquired an 80% membership interest in Laser Eye Care of Torrance, LLC in exchange for $3,222,000 in cash through Laser Eye Care of California, LLC, a 50.1% subsidiary of the Company.
The total consideration on acquisitions was allocated to net assets acquired on the basis of their fair values as follows:
1999 Transactions
The following acquisitions have been accounted for by the purchase method and the results of operations have been consolidated from the respective purchase dates:
i. On June 19, 1998, the Company made a 51% equity investment of $204,000 in cash in AllSight, Inc., a refractive laser center in the Pittsburgh, PA area.
ii. On July 1, 1998, TLC NorthWest Eye, Inc. a wholly-owned subsidiary of the Company, acquired in two separate transactions the operating assets and liabilities of the Figgs Eye Clinic in Yakima, Washington and the practice of Robert C. Bockoven with three locations in Washington, in exchange for cash and debt. Consideration was $750,000 for the Figgs Eye Clinic assets and liabilities and $725,000 for the practice of Robert C. Bockoven.
iii. On September 1, 1998, the Company acquired the 10% minority interest of Vision Institute of Canada in one of the Company's laser centers in Toronto in exchange for $332,000 in cash and common shares with a value of $332,000.
iv. On October 13, 1998, the Company acquired 90% of the operating assets and liabilities of WaterTower Acquisition, Inc. in exchange for cash of $625,000 and amounts contingent upon future events. No value will be assigned to these contingent amounts until completion of the earn out period and the outcome of the contingency is known. Contingent amounts are calculated based on a percentage of excess income over a target amount for the next three years and will be treated as additional purchase price once the amounts can be determined and the outcome appears probable. No amounts have been accrued regarding these contingent amounts because management does not believe that the required targets will be achieved.
v. On November 30, 1998, the Company acquired 85% of the operating assets and liabilities of Aspen HealthCare, Inc. for cash consideration of $3,800,000 and amounts contingent upon future events. The value is to be assigned to these contingent amounts once the amounts can be determined and the outcome appears probable. Contingent amounts are calculated based on meeting certain annual net income targets over five years. No amounts have been accrued regarding these contingent amounts because management does not believe that the required targets will be achieved.
vi. On January 5, 1999, the Company acquired 90% of the outstanding shares of Baltimore Practice Management, LLC in exchange for cash of $6,060,000 and an ownership interest in certain future refractive surgery centers. No value will be assigned to the ownership interest; however, the non-controlling interest percentage on future earnings attributable to these new refractive surgery centers will be reflected accordingly upon consolidation in the future.
vii. On March 1, 1999, the Company made a 51% capital contribution of $205,000 in cash in TLC The Laser Center (Green Bay/Milwaukee) LLC, which operates a laser center in the Green Bay, Wisconsin area.
During 1999, the Company completed transactions with doctor groups to enhance the network of optometrists and ophthalmologists in exchange for common shares with a value of $505,000. Miscellaneous acquisitions were completed in exchange for cash of $1,407,000.
The total consideration on acquisitions was allocated to net assets acquired on the basis of their fair values as follows:
Current assets (including cash of $2,428) $ 2,261 Fixed assets 1,674 Goodwill 7,648 Practice management agreements 6,060 Current liabilities (621) Long-term debt (1,221) Non-controlling interest (476) -------- $ 15,325 ======== Funded by: Issuance of common shares $ 837 Issuance of debt 738 Contribution of cash 13,465 Acquisition costs 285 -------- $ 15,325 ========
Under APB 16, the Company is required to disclose the following information relating to its acquisitions:
If the operating assets and liabilities of the Maryland PC had been acquired on June 1, 1999, the unaudited pro forma effects on the consolidated statements of loss for the fiscal years ended May 31, 2000 and 2001 would have been additional revenues of $4,212,007 and $3,503,973 respectively, a reduction in losses of $911,955 and $825,888 respectively and a reduction in the earnings per share loss of $0.02 in both periods..
If the operating assets and liabilities of Laser Eye Care of California, LLC had been acquired on June 1, 1998, the unaudited pro forma effects on the consolidated statements of loss for the fiscal years ended May 31, 1999 and 2000 would have been additional revenues of $14,599,000 and $2,275,000 respectively and additional losses of $923,000 or $(0.03) per share in the fiscal year ended May 31, 1999 and a reduction of losses of $65,000 or $0.00 per share in the fiscal years ended May 31, 2000.
The above unaudited pro forma information is presented for information purposes only and may not be indicative of the results of operations as they would have been if the acquisitions had occurred on June 1, 1999 or June 1, 1998, nor is it necessarily indicative of the results of operations which may occur in the future. Anticipated efficiencies from the combination have been excluded from the amounts included in the pro forma information.
18. Restructuring and Other Charges
Fiscal 2001
In fiscal 2001, the decisions were made to: (i) exit from e-commerce enterprise eyeVantage.com, Inc., (ii) reflect the potential for losses in an equity investment in a secondary care operation, (iii) identify the estimated costs associated with the Company's current restructuring initiative as
well as the consulting costs closely associated with the restructuring initiative, (iv) segregate the amounts of an arbitration award against the Company and (v) provide for the impairment of a portfolio investment. The following charges were reported in connection with these divestitures and restructuring:
(a) The decision to close the activities at eyeVantage.com, Inc. resulted in a restructuring charge of $11.7 million which reflects the estimated impact of the write-down of goodwill of $8.7 million, loss/write down of fixed assets of $2.1 million, employee termination costs of $1.7 million representing the termination costs of 29 employees, accounts receivable losses of $0.4 million and $1.1 million of costs incurred in the closing process which includes legal costs and administrative costs. These losses are offset by a gain of $2.3 million resulting from the reduction in the purchase obligation associated with the Optical Options, Inc., acquisition (See "Note 17. Acquisitions - 2001 Transactions - iii."). (b) The Company has provided $1.0 million for potential losses in amounts outstanding from an equity investment in a secondary care activity. (c) The Company has closed three eye care centers, terminated plans for another and sold its ownership in another and has estimated losses of $1.8 million resulting from these decisions. (d) The Company has undertaken an extensive review of internal structures, its marketplace, its resources and its strategies for the future. The review is resulting in the restructuring of the Company's goals and structures to meet its future needs. The Company has utilized the services of a national consulting firm to facilitate this internal restructuring process, whose participation in this assignment was completed in the third quarter with an associated cost of $1.6 million. (e) The Company has provided $0.9 million for losses on portfolio investments in Vision America where it is felt that there has been a permanent impairment in the value of the Company's holdings. (f) In the fourth quarter, an award from an arbitration hearing involving TLC Network Services Inc. was issued against TLC. The cumulative liability arising from the award was $2.1 million which has been fully provided for in the fourth quarter. Payment of this liability has been deferred until exploration of all legal alternatives has been completed.
In the year ended May 31, 2001, the Company provided for a total of $19.1 million of losses from restructuring and other charges. These losses consisted of cash payments of $4.7 million primarily for severance, lease costs, consulting services and closure costs and $14.4 million in non-cash costs. Non-cash costs were primarily for write-off of goodwill, fixed assets and current assets resulting from the decision to exit from its e-commerce enterprise, eyeVantage.com, Inc., the accrual for an arbitration award and provision for portfolio investments.
Fiscal 1999
In the last quarter of fiscal 1999, management made a decision to restructure operations in connection with its managed care and secondary care businesses. The following divestitures were completed in connection with this restructuring:
(a) On May 31, 1999, the Company sold certain assets of NorthWest Eye Inc. in exchange for the assumption of certain liabilities by the purchaser. In connection with the sale, the Company recorded a restructuring charge of $10,300,000 relating to the write-off of intangibles and amounts due from affiliated physician groups and decided not to continue with secondary care at this location.
(b) On April 27, 1999, the Company sold the fixed assets and intangibles of TLC The Laser Center (Wisconsin Management) Inc. and TLC Wisconsin Eye Surgery Center Inc. in exchange for 139,266 common shares of the Company. These assets had a net book value of $4,047,000 and no gain or loss was recorded in connection with the transaction. The shares received by the Company upon disposition of these subsidiaries were cancelled, with capital stock being reduced using the average value of common shares as at April 27, 1999 of Cdn.$6.26.
(c) On May 19, 1999, the Company sold all of the assets of its managed care subsidiary to the former management of the subsidiary. The Company incurred a loss on the sale of $2.6 million.
19. Supplemental Cash Flow Information
Non-cash transactions:
20. Subsequent Events
On August 27, 2001, the Company announced that it had entered into an Agreement and Plan of Merger with Laser Vision Centers, Inc. ("Laser Vision"). Laser Vision provides access to excimer lasers, microkeratomes, other equipment and value added support services to eye surgeons for laser vision correction and the treatment of cataracts. The merger will be effected
as an all-stock combination at a fixed exchange rate of 0.95 common shares of the Company which is expected to result in the issuance of approximately 24.6 million of the Company's common stock. In addition, the Company will assume and convert existing outstanding options or warrants to acquire stock of Laser Vision based on the 0.95 exchange rate and expects to be issuing approximately 7.4 million options or warrants to acquire common shares of the Company. The merger is expected to be accounted for under the purchase method. Completion of the transaction, expected to occur in December, 2001, is subject to shareholder and regulatory approval and other conditions usual and customary in such transactions.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as set forth below in this Item 10, the information required by this Item 10 is incorporated by reference to the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year ended May 31, 2001.
Directors and Executive Officers
The following table indicates the names, ages and positions of the Company's directors, officers and key employees. There is no family relationship between any of the directors, officers or key employees.
(1) Member of the Company's Compensation Committee. (2) Member of the Company's Audit Committee. (3) Member of the Company's Corporate Governance Committee.
ITEM 11
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by reference to the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year ended May 31, 2001.
ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by reference to the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year ended May 31, 2001.
ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by reference to the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year ended May 31, 2001.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(1) The following consolidated financial statements of registrant and its subsidiaries and report of independent auditors are included in Item 8 hereof.
Report of Independent Auditors.
Consolidated Statements of Income - Years Ended May 31, 1999, 2000 and 2001.
Consolidated Balance Sheets as of May 31, 2000 and 2001.
Consolidated Statements of Deficit - Years Ended May 31, 1999, 2000 and 2001.
Consolidated Statements of Changes in Financial Position -- Years Ended May 31, 1999, 2000 and 2001.
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts and Reserves
(2) Except as provided below, all schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission either have been included in the Consolidated Financial Statements or are not required under the related instructions, or are inapplicable and therefore have been omitted.
None
(3) The following exhibits are provided with this Form 10-K:
Exhibit Number Description 3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's 10-K filed with the Commission on August 28, 1998).
3.2 Articles of Amendment (incorporated by reference to Exhibit 3.2 to the Company's 10-K filed with the Commission on August 29, 2000).
3.3 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's 10-K filed with the Commission on August 28, 1998).
4.1 The Company is a party to several agreements defining the rights of holders of long-term debt. No such instrument authorizes an amount of securities in excess of 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. On request, the Company agrees to furnish a copy of each such instrument to the Commission.
10.1 Material Contracts:
Certain Management Contracts, Compensatory Plans, Contracts or Arrangements:
(a) TLC Amended and Restated Share Option Plan (incorporated by reference to Exhibit 4(a) to the Company's Registration Statement on Form S-8 filed with the Commission on December 31, 1997 (file no. 333-8162)) (b) TLC Share Purchase Plan (incorporated by reference to Exhibit 4(b) to the Company's Registration Statement on Form S-8 filed with the Commission on December 31, 1997 (file no. 333-8162)). (c) Employment Agreement with Elias Vamvakas (incorporated by reference to Exhibit 10.1(e) to the Company's 10-K filed with the Commission on August 28, 1998). (d) Escrow Agreement with Elias Vamvakas and Jeffery J. Machat (incorporated by reference to Exhibit 10.1(f) to the Company's 10-K filed with the Commission on August 28, 1998). (e) Consulting Agreement with Excimer Management Corporation (incorporated by reference to Exhibit 10.1(g) to the Company's 10-K filed with the Commission on August 28, 1998). (f) Shareholder Agreement for Vision Corporation (incorporated by reference to Exhibit 10.1(l) to the Company's 10-K filed with the Commission on August 28, 1998). (g) Employment Agreement with David Eldridge (incorporated by reference to Exhibit 10.1(k) to the Company's 10-K filed with the Commission on August 29, 2000). (h) Employment Agreement with William Leonard (incorporated by reference to Exhibit 10.1(l) to the Company's 10-K filed with the Commission on August 29, 2000). (i) Employment Agreement with Thomas O'Hare (incorporated by reference to Exhibit 10.1(m) to the Company's 10-K filed with the Commission on August 29, 2000).
21.1 List of Registrant's Subsidiaries 23.1 Consent of Auditors
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TLC LASER EYE CENTERS INC.
By: /s/ Elias Vamvakas ------------------------------------ Elias Vamvakas Chief Executive Officer August 28, 2001
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ----
/s/ Elias Vamvakas Chief Executive Officer August 28, 2001 - ---------------------------------- and Chairman of the Board Elias Vamvakas of Directors
/s/ Brian Parks Controller August 28, 2001 - ---------------------------------- (Principal Financial and Brian Parks Accounting Officer)
/s/ Jeffery J. Machat Co-National Medical August 28, 2001 - ---------------------------------- Director and Director Dr. Jeffery J. Machat
/s/ John F. Riegert Director August 28, 2001 - ---------------------------------- John F. Riegert
/s/ Howard J. Gourwitz Director August 28, 2001 - ---------------------------------- Howard J. Gourwitz
/s/ Thomas N. Davidson Director August 28, 2001 - ---------------------------------- Thomas N. Davidson
/s/ Warren S. Rustand Director August 28, 2001 - ---------------------------------- Warren S. Rustand
/s/ Dr. William David Sullins, Jr. Director August 28, 2001 - ---------------------------------- Dr. William David Sullins, Jr.