VisionSciences Inc. Reports Operating Results (10-Q)
Visionsciences Inc. has a market cap of $58.2 million; its shares were traded at around $1.64 with and P/S ratio of 5.4. Visionsciences Inc. had an annual average earning growth of 40.2% over the past 5 years.Hedge Fund Gurus that owns VSCI: Jim Simons of Renaissance Technologies LLC.
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. During the nine months ended December 31, 2010, we recognized $0.1 million in revenue for delivery of cystocopes and EndoSheath technology to Stryker. We will continue to apply the amounts due from Stryker for purchases of scopes and EndoSheath technology to the prior advance made by Stryker and recognize the associated revenue in accordance with our revenue recognition policy until the remaining $2.4 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. We will recognize revenue for products sold to Stryker in a two-step process. The first step is recognition of revenue for our cost to manufacture these products when title passes to Stryker, generally upon shipment of our products F.O.B. shipping point. The second step is recognition of revenue for our specified margin of Stryker s gross profit after Stryker sells the products to their end customers. 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 vested on the date of the $2.5 million Advance on March 29, 2010, the $2.0 million Advance on June 29, 2010, and the $0.5 million Advance on December 16, 2010.
Net sales increased $0.1 million, or 4%, in the third quarter of fiscal 2011 to $2.7 million compared to $2.6 million in the third quarter of fiscal 2010. During the third quarter of fiscal 2011, our medical segment s net sales of $2.1 million increased by $0.2 million, or 12%, primarily attributable to higher sales of our endoscopes and EndoSheath disposables in the urology market ($0.4 million). Our industrial segment s net sales of $0.6 million decreased by $0.1 million, or 15%, primarily attributable to lower borescope sales ($0.2 million).
Net sales of repairs, peripherals, and accessories decreased $0.1 million, or 21%, in the third quarter of fiscal 2011 to $0.4 million compared to $0.5 million in the third quarter of fiscal 2010. The decrease was primarily attributable to lower sales volume of peripherals and accessories for our ENT endoscopes due to the end of our distribution agreement with Medtronic ($0.1 million).
Net sales of industrial products of $0.6 million decreased $0.1 million, or 15%, in the third quarter of fiscal 2011 compared to $0.8 million in the third quarter of fiscal 2010. The decrease was primarily attributable to lower borescope sales ($0.2 million). This segment s products are mature, and therefore, we expect future sales to remain relatively flat.
Gross profit increased $0.5 million, or 131%, in the third quarter of fiscal 2011 to $0.8 million from $0.4 million in the third quarter of fiscal 2010, primarily attributable to favorable manufacturing overhead absorption and a lower inventory reserve ($0.3 million). Gross margin percentage increased 17% in the third quarter of fiscal 2011 to 30% of net sales from 13% of net sales in the third quarter of fiscal 2010. The higher gross margin percentage was primarily attributable to favorable manufacturing overhead absorption and a lower inventory reserve in the third quarter of fiscal 2011 compared to the same period last year ($0.3 million, or 13% gross margin percentage impact).
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