U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT.
For the transition period from to
Commission file number 0-27610
LCA-Vision Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2882328
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7840 Montgomery Rd., Cincinnati, OH 45236
(Address of principal executive offices)
(513) 792-9292
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by Section 3
or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the
registrant was required to file such reports), and (2) has been subject to such
filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed
by sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities
under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 78,471,284 at April 30, 1996
Transitional Small Business Disclosure Format (check one):
Yes No X
LCA-VISION INC.
INDEX
Page No.
Facing Sheet 1
Index 2
Part I. Financial Information
Item 1. Financial Statements.
Unaudited Condensed Consolidated Balance Sheet, March 31, 1996 3
Unaudited Condensed Consolidated Statements of Operations for the Three
Months ended March 31, 1996 and 1995 4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1996 and 1995 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information 11
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 12
LCA-VISION INC.
Condensed Consolidated Balance Sheet
March 31, 1996
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $1,044,812
Accounts receivable, net of allowance for
doubtful accounts of $205,235 2,239,498
Miscellaneous receivable 970,000
Supplies inventory, prepaid expenses and other assets 1,343,630
Total current assets 5,597,940
Property and equipment, net 8,860,660
Investment in unconsolidated affiliates 500,509
Other assets 820,165
Total assets $15,779,274
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $567,221
Bank line of credit 602,000
Accrued liabilities 1,260,399
Current portion of long-term debt 643,217
Deferred revenue 674,293
Total current liabilities 3,747,130
Long-term debt, net of current portion 5,738,901
Note payable to shareholder 4,188,064
Total liabilities 13,674,095
Shareholders' Equity
Preferred stock - authorized 10,000,000 shares, $.001 par value;
6,751 shares issued and outstanding 7
Common stock - authorized 110,000,000 shares,
$.001 par value;
78,471,284 shares issued and outstanding 78,471
Paid-in capital 3,077,642
Retained (deficit) (1,059,421)
Translation adjustment 8,480
Total shareholders' equity 2,105,179
Total liabilities and shareholders' equity $15,779,274
The Notes to Condensed Consolidated Financial Statements are an integral
part of this statement.
LCA-VISION INC.
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1996 and 1995
(unaudited)
1996 1995
Net revenue $3,685,704 $3,354,873
Direct operating expenses 1,742,822 1,663,054
Selling, general and administrative 2,159,979 1,256,255
Depreciation and amortization 361,996 258,563
Operating profit(loss) (579,093) 177,001
Equity in income(loss) of unconsolidated affiliates (325,922) 7,241
Interest expense (163,577) (34,337)
Interest income 26,904 33,300
Other 2,201 41,216
Gain on sale of investment in unconsolidated
affiliate 545,903
Income (loss) before income taxes (493,584) 224,421
Income taxes (benefit) 30,528
Net income (loss) $(524,112) $224,421
Net income (loss) per share $(0.01) $0.06
If the Company had been subject to income taxes, net income would be:
Historical net income $224,421
Provision for income taxes 82,528
Net income $141,893
Average shares outstanding 78,471,284 4,000,000
The Notes to Condensed Consolidated Financial Statements are an integral part
of this statement.
LCA-VISION, INC.
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1995
(unaudited)
1996 1995
Cash flows provided by operating activities:
Net income (loss) $(524,112) $224,421
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 361,996 258,563
Equity in earnings of affiliates 325,922 (7,241)
Gain on sale of investment in unconsolidated
affiliate (545,903)
Write down of intangible assets 106,772
Gain on property disposal (38,162)
Changes in operating assets and liabilities
(Increase) Decrease in:
Accounts receivable (370,521) (429,400)
Other current assets 22,089 181,999
(Increase) Decrease in:
Accounts payable (166,515) 517,788
Accrued liabilities 433,903 128,319
Deferred revenue 170,625 268,965
Net cash provided (used) by operating activities (185,744) (1,105,252)
Cash flows from investing activities:
Purchase of property and equipment (943,750) (582,938)
Proceeds from sales of equipment 84,443
Acquisition of intangibles (50,964)
Investment in unconsolidated affiliates (806,939)
Net cash used in investing activities (1,750,689) (549,459)
Cash flows from financing activities:
Repayment of long-term debt and capital lease
obligations (30,578) (12,726)
Repayment of notes payable shareholders (187,705)
Borrowings from bank line of credit 602,000
Distribution to shareholders (186,125)
Other 10,377
Net cash from financing activities 394,094 (198,851)
Increase (Decrease) in Cash (1,542,339) 356,942
Cash and cash equivalents, beginning of period 2,587,151 1,861,311
Cash and cash equivalents, end of period $1,044,812 $2,218,253
The Notes to Condensed Consolidated Financial Statements are an integral part
of this statement.
LCA-VISION INC.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 1996 and 1995
(unaudited)
1. Description of Business and Basis of Presentation
LCA-Vision Inc. ("LCA-Vision" or the "Company") is a comprehensive healthcare
services company which establishes and provides ongoing management of laser
and other minimally invasive surgery programs for health systems and medical
centers. At March 31, 1996, the Company provided these services to 31
hospitals and medical centers throughout the United States.
In 1995, management positioned the Company to provide an ophthalmic excimer
laser surgery procedure (photorefractive keratectomy or PRK) to correct
nearsightedness in individuals by acquiring in August the minority interest,
33%, of Toronto Laservision Centre (1992), Inc. ("Centre") and establishing in
December two centers in the United States. At March 31, 1996, the Company has
seven eyecare centers in operation--six in the United States, three of which are
wholly-owned, and the Centre.
On September 29, 1995, LCA-Vision merged with Laser Centers of America, Inc.
("LCA"). At the time of the merger, two shareholders together owned 92% of the
outstanding voting stock of LCA-Vision and 100% of LCA. At the time of its
acquisition by the LCA shareholders in July 1995, LCA-Vision was inactive
and non-operational. These financial statements reflect the historical
financial position and results of operation of LCA, except for the shareholders'
equity, which has been restated to reflect the capital structure of LCA-Vision
at the time of the merger. All share information in the financial statements
has been restated to give effect to this change in the Company's capital
structure.
Immediately prior to the merger of LCA and LCA-Vision, LCA distributed
$6,390,772 to its shareholders representing a portion of the S Corporation
earnings previously included in the taxable income of the shareholders. The
shareholders, utilizing the proceeds of the distribution, immediately acquired
$2,000,000 of common stock of the Company for cash and lent a total of
$4,390,772, receiving in return two promissory notes with interest at 6.91%
which become due and payable in full on September 26, 2005. Any or all amounts
due under the promissory notes may be prepaid at any time, without penalty.
The total amount owed to the shareholders including accrued interest was
$4,340,333 at March 31, 1996. Interest expense on the notes payable
shareholders was approximately $74,800 for the three months ended
March 31, 1996.
Pro Forma Data
Prior to the merger, the Company elected to be treated as an S Corporation
for income tax purposes. As a result, federal and certain state income taxes
were paid by the shareholders.
Pro forma income taxes and net income are presented as if the Company has
terminated its S Corporation election as of January 1, 1995. The pro forma
income taxes are based on a 38% effective rate. Pro forma net income per
share is based on 4,000,000 shares of common stock outstanding, reflecting
the recapitalization for the merger.
2. Significant Accounting Policies
The March 31, 1996 and 1995 financial data are unaudited; however, in the
opinion of the Company, such data include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the interim
periods.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary since its date of acquisition, August 31, 1995. All
significant intercompany transactions are eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and accompanying
notes. Actual results could differ from these estimates.
Earnings per share
Net income (loss) per share is based upon the weighted average number
of common shares outstanding during the periods presented. Common stock
equivalents (stock options and stock appreciation rights) are anti-dilutive
and are not included in the calculation.
3. Acquisition
On August 31, 1995, the Company acquired the minority interest (33%) of the
Centre for approximately $140,000. The Company previously owned 67% of the
Centre; however, it did not have control of the activities or the business
affairs of the Centre because of the terms of a shareholders' agreement.
Accordingly, the Company recorded its investment in the Centre using the equity
method until August 31, 1995, at which time the acquisition was accounted for
as a purchase and consolidated in the financial statements of the Company.
The Company recorded approximately $7,200 of equity in income of the Centre
for the three months ended March 31, 1995.
4. Investments in Affiliates
In 1996, the Company sold its investment in Continuum Biomedical, Inc., which
had been accounted for using the equity method, for $970,000; resulting in a
gain of $545,903. Proceeds from the sale were received in April, 1996.
In 1996, the Company entered into agreements to form limited liability companies
(Baltimore LLC and Savannah LLC) to operate PRK centers in the respective
cities. The Company paid $400,000 for a 40% interest in Baltimore LLC and
$333,333 for a 33% interest in Savannah LLC.
The Company accounts for its investment in these limited liability companies, as
well as its other joint venture, using the equity method. The Company's share
of losses incurred by its three unconsolidated affiliates was $325,922 for the
three months ended March 31, 1996.
5. Related Party Transactions
LCA-Vision provides certain administrative services and leases 9,700 square feet
of space to a surgery center. The Company's principal shareholder is the
majority owner of this surgery center. For the three months ended March 31,
1996, the Company recorded rent and service income of $79,200 and has an account
receivable from the surgery center of $51,700 at March 31, 1996. During the
quarter, the surgery center repaid $181,000 of advances for equipment that the
Company had recorded in other current assets at December 31, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
In July 1995, the stockholders of Laser Centers of America, Inc. ("LCA")
acquired control of an inactive corporation, Maxoil Incorporated, which then
changed its name to LCA-Vision Inc. ("LCA-Vision" or the "Company").
LCA-Vision was inactive and non-operational at the time of its acquisition
by the LCA stockholders in July 1995. On August 31, 1995, the Company
acquired the minority interest of Toronto Laservision Centre (the "Centre").
LCA previously owned 67% of the Centre; however, it did not have control of
the activities or the business affairs of the Centre and, accordingly,
recorded its investment using the equity method until August 31, 1995. The
operations of the Centre since August 31, 1995, are included in the consolidated
financial statements of the Company. The Centre provides corrective eye surgery
using laser technology.
On September 29, 1995, LCA merged with LCA-Vision. At the time of the merger,
two stockholders together owned 92% of the outstanding voting stock of
LCA-Vision and 100% of LCA.
Immediately prior to the merger of LCA and LCA-Vision, LCA issued a dividend
of $6.4 million to its stockholders representing a portion of the S Corporation
earnings previously included in the taxable income of the stockholders. Prior
to the merger, the LCA stockholders, utilizing the proceeds of their dividends,
purchased $2 million worth of LCA-Vision Common Stock at $.50 per share and
loaned approximately $4.4 million to LCA-Vision for which the stockholders
received long-term promissory notes for the principal amount of the loan plus
interest at 6.91%. The promissory notes become due and payable on September
26, 2005, but any and all amounts due under the promissory notes may be
prepaid without penalty at any time.
Liquidity and Capital Resources
LCA-Vision has historically financed its operations through bank borrowings
and internally-generated funds. At March 31, 1996, the Company has $1,045,000
in cash and temporary investments which it plans to use to maintain its existing
business and for expansion into the refractive eyecare center business. The
Company also has an $8 million bank line of credit for its working capital
requirements. At March 31, 1996, there were borrowings of $602,000
outstanding under this line of credit. This was repaid in April. Future
borrowings, if any, will be collateralized by all the assets of the Company.
The Company expects the refractive eyecare surgery centers to become its
primary business focus. Each center costs between $1 and $2 million to equip
and furnish -- the actual cost varies depending on the configuration of each
center, costs incurred for leasehold improvements, costs of furnishing, and
equipment costs. The Company has been able to finance the costs of the
lasers through a leasing company. The remaining costs have been funded through
working capital or by forming operating companies with another investor(s) --
principally hospitals and certain physicians.
Since December 1, 1995, the Company has opened seven (7) centers (two in
December) -- four wholly-owned and three with investors. Management is
currently evaluating its plans to have up to twenty (20) opened by December
31, 1996. In anticipation of this expansion, management is actively exploring
financing options, including: use of the line of credit; public offering
or private placement of equity or debt; or some combination of these. There
is no assurance that the Company can raise sufficient capital to fund this
expansion of centers and may be required to reduce the number of planned new
centers.
The Company had working capital of $1,850,810 at March 31, 1996. Included in
working capital is a miscellaneous receivable of $970,000 which represents the
net proceeds due from the sale of an investment in an unconsolidated affiliate.
The proceeds were received in April.
Results of Operations
Net revenue for the three months ended March 31, 1996 and 1995 were $3,685,704
and $3,354,873, respectively. The Company had a net loss of $524,112 for the
three months ended March 31, 1996, compared to net income of $224,421 for the
three months ended March 31, 1995.
Net revenue for the three months ended March 31, 1996, includes $1,233,461 from
the eyecare surgery centers of which $523,206 is from the Centre. Revenues
from the management contracts and ancillary services declined $902,630 compared
with 1995. The decline is due to the reduced number of hospitals and surgery
centers under contract: 31 at March 31, 1996; 48 at March 31, 1995. A new
contract was signed with two leading Indianapolis hospitals during the quarter.
The reduction in the number of centers under contract is due to a variety of
reasons, including the shift in focus of many healthcare managers to the
reorganization of hospitals and hospital systems, along with a change in
emphasis to cost reduction and a move away from new program development.
These factors have made it more difficult to sign new contracts and renew
expiring contracts subsequent to 1992. The Company views the hospital based
multi-specialty center business as a mature business and is looking to other
sources to produce growth in revenues and profitability.
The refractive eyecare center business will become the primary focus of the
Company in the future. The composition of future revenues is expected to
change. Revenues from hospital-based multi-specialty centers will be less
significant to the Company while revenues from refractive eyecare centers are
expected to increase. The extent and degree of the shift in the Company's
future revenues are subject to significant uncertainty and depend on the
Company's ability to market and sell new and renewal multi-specialty center
contracts as well as obtain consumer acceptance of the PRK procedure.
Selling, general and administrative expenses increased $903,274 for the three
months ended March 31, 1996, compared to the same period in 1995 due to the
extensive advertising campaign and professional fees associated with opening
eyecare surgery centers.
Depreciation and amortization increased to $361,996 in 1996 from $258,563 in
1995 due to the increased fixed assets as a result of opening eyecare surgery
centers.
Interest expense increased $129,200 to $163,577 compared to 1995 due to the
moneys loaned at the time of the merger and the capital lease financing of
lasers for the eyecare surgery centers.
The gain on the sale of investment in unconsolidated affiliate is the
difference between the net selling price and the carrying value using the equity
method of accounting for the Company's investment in Continuum Biomedical, Inc.
The decline in earnings for the three months ended March 31, 1996, compared
with the three months ended March 31, 1995, is due to the opening of the
eyecare surgery centers and the reduced number of hospital-based surgery
programs the Company manages.
Part II. Other Information.
Item 1. Legal Proceedings
None
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 11 Computation of Per Share Earnings(Loss)
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
LCA-VISION INC.
Date May 14, 1996 /s/ Stephen N. Joffe
Stephen N. Joffe
President and
Chief Executive Officer
Date May 14, 1996 /s/ Larry P. Rapp
Larry P. Rapp
Chief Financial Officer
Exhibit 11
LCA-VISION, INC.
Computation of Per Share Earnings (Loss)
For the three months ended
March 31, 1996 and 1995
1996 1995
Primary Earnings:
Net Income (loss) $(524,112) $224,421
Pro forma income tax expense 82,528
Pro forma net income (loss) (524,112) 141,893
Shares:
Weighted average number of common shares
outstanding 78,471,284 4,000,000
Additional shares assuming exercise of stock
options (a)
Average common shares and equivalents as
adjusted 78,471,284 4,000,000
Earnings (loss) per share $ (0.01) $ 0.06
(a) Net loss per share is based on outstanding common shares. Assuming
exercise of options would be anti-dilutive since an increase in the number of
shares assumed to be outstanding would reduce the amount of the loss per share.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE LCA-VISION INC.
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996, AND THE RELATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERTATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,044,812
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<RECEIVABLES> 2,444,733
<ALLOWANCES> 205,235
<INVENTORY> 664,223
<CURRENT-ASSETS> 5,597,940
<PP&E> 11,053,129
<DEPRECIATION> 2,192,469
<TOTAL-ASSETS> 15,779,274
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<SALES> 108,484
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<CGS> 56,687
<TOTAL-COSTS> 1,742,822
<OTHER-EXPENSES> 2,232,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163,577
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