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VisionSciences Inc. Reports Operating Results (10-Q)

November 10, 2010 | About:
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10qk

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VisionSciences Inc. (VSCI) filed Quarterly Report for the period ended 2010-09-30.

Visionsciences Inc. has a market cap of $52.2 million; its shares were traded at around $1.39 with and P/S ratio of 4.9. Visionsciences Inc. had an annual average earning growth of 40.2% over the past 5 years.

Highlight of Business Operations:

Subject to the terms of the Stryker Agreement, Stryker agreed to pay us a prepayment of $5 million, of which we received $2.5 million at signing and $2.5 million is due on or before March 31, 2011. The initial $2.5 million was recorded as an advance from customer in our condensed consolidated balance sheet at September 30, 2010. We will apply the payment to amounts due from Stryker for purchases of scopes and EndoSheath technology and recognize the associated revenue in accordance with our revenue recognition policy until the $5 million is exhausted. Stryker will thereafter continue to pay us for products supplied. The purchase price for the products will be based on our cost to manufacture plus a margin specified in the Stryker Agreement. There is no required minimum amount of scopes and EndoSheath products which Stryker is required to purchase from us. There can be no assurance that they will purchase an amount of products in order for us to retain all or any portion of the prepayment or that we will not be required to refund all or a portion of the prepayments to Stryker. If we are required to refund any amounts paid to us, it will have a material adverse effect on our financial condition.

In connection with the Loan, the Lender received a five-year warrant (the “Initial Warrant Shares”) to purchase up to 272,727 shares of our common stock at an exercise price of $1.375 per share (representing 7.5% warrant coverage, or approximately 0.7% of our outstanding common stock), which immediately vested upon issuance. The second five-year warrant (the “Additional Warrant Shares”) to purchase up to an additional 378,788 shares of our common stock at an exercise price of $1.65 per share (representing up to an additional 12.5% warrant coverage, or approximately 1.0% of our outstanding common stock) vests at the time that each Advance is made in an amount equal to (i) the product of the amount of the Additional Warrant Shares multiplied by (ii) a ratio, (A) the numerator of which is the amount of the new Advance and (B) the denominator of which is $5.0 million. A portion of the Additional Warrant Shares has vested on the date of the $2.5 million Advance on March 29, 2010 and the $2.0 million Advance on June 29, 2010.

Net sales decreased $0.6 million, or 20%, in the second quarter of fiscal 2011 to $2.3 million compared to $2.9 million in the second quarter of fiscal 2010. During the second quarter of fiscal 2011, our medical segment s net sales of $1.7 million decreased by $0.5 million, or 23%, primarily attributable to lower sales to Medtronic of our ENT fiberscopes ($0.5 million). Our industrial segment s net sales of $0.6 million decreased by $37 thousand, or 6%, primarily attributable to lower repair sales ($42 thousand).

Net sales to the ENT and TNE markets decreased $0.4 million, or 41%, in the second quarter of fiscal 2011 to $0.6 million compared to $1.0 million in the second quarter of fiscal 2010. The decrease in net sales was primarily attributable to lower sales to Medtronic of our fiberscopes ($0.5 million).

Net sales of repairs, peripherals, and accessories decreased $0.3 million, or 48%, in the second quarter of fiscal 2011 to $0.3 million compared to $0.6 million in the second quarter of fiscal 2010. The decrease was primarily attributable to lower sales volume of peripherals and accessories for our ENT endoscopes ($0.3 million).

Gross profit increased $0.2 million, or 38%, in the second quarter of fiscal 2011 to $0.6 million from $0.5 million in the second quarter of fiscal 2010, primarily attributable to favorable manufacturing overhead absorption ($0.3 million). Gross margin percentage increased 12% in the second quarter of fiscal 2011 to 28% of net sales from 1

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