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 June 30, 1997.
[ ] 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 Road, Cincinnati, Ohio 45236
(Address of principal executive offices)
(513) 792-9292
(Issuer's telephone number)
(Former name, former address and formal fiscal year, if changes
since last report.)
Check whether then 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 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 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 X 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:
19,599,231 shares as of July 25, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
LCA-VISION INC.
INDEX
Page No.
Facing Sheet 1
Index 2
Part I. Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated
Balance Sheet, June 30, 1997 3
Unaudited Condensed Consolidated
Statements of Operations for the
Three and Six Months ended June 30, 1997 and 1996 4
Unaudited Condensed Consolidated Statements
of Cash Flows for the
Six Months ended June 30, 1997 and 1996 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10
Part II. Other Information 15
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 16
<PAGE>
<TABLE>
LCA-VISION INC.
Condensed Consolidated Balance Sheet
June 30, 1997
(unaudited)
<CAPTION>
ASSETS
Pro Forma
(Note 2)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,208,600 $11,208,600
Accounts receivable, net of allowance for
doubtful accounts of $100,200 1,356,600 1,356,600
Surgical supplies, prepaid expenses and other 1,207,100 1,207,100
------------ ----------
Total current assets 3,772,300 13,772,300
Property and equipment, net 9,068,600 24,068,600
Investment in unconsolidated affiliates 237,800 237,800
Other assets 789,200 14,191,000
---------- -----------
Total assets $13,867,900 $52,269,700
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 431,800 $ 431,800
Bank line of credit 6,907,000 6,907,000
Accrued liabilities and other 1,130,000 1,130,000
Current portion of long-term debt 837,300 837,300
Deferred revenue 209,900 209,900
---------- -----------
Total current liabilities 9,516,000 9,516,000
Long-term debt, net of current portion 4,493,700 4,493,700
Notes payable to shareholders 1,500,000 1,500,000
---------- ------------
Total liabilities 15,509,700 15,509,700
Shareholders' equity
Preferred stock (Note 6) 2,521,700 2,521,700
Common stock - authorized 110,000,000 shares,
$.001 par value;
19,599,231 shares issued and outstanding 78,900 96,000
Paid-in capital 3,233,500 41,618,200
Retained deficit (7,452,400) (7,452,400)
Treasury stock - 10,909 shares (30,000) (30,000)
Translation adjustment 6,500 6,500
------------ -----------
Total shareholders' equity (1,641,800) 36,760,000
------------ -----------
Total liabilities and shareholders' equity $13,867,900 $52,269,700
============ ===========
</TABLE>
The Notes to Condensed Consolidated Financial Statements
are an integral part of this statement.
<TABLE>
LCA-VISION INC.
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1997 and 1996
(unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues:
Laser vision correction
centers $ 2,442,500 $ 1,038,200 $ 4,028,700 $ 1,679,000
Multi-specialty laser surgery
programs 785,500 1,225,900 1,485,000 2,544,700
Other 611,600 1,261,700 1,088,300 2,987,800
---------- ---------- ----------- -----------
Total net revenue 3,839,600 3,525,800 6,602,000 7,211,500
Direct operating expenses 2,541,100 1,645,500 4,412,400 3,352,800
General and administrative
expenses 1,529,100 2,093,300 3,408,200 4,201,400
Pre-opening expenses 162,600 87,400
Depreciation and amortization 418,600 420,400 832,000 782,400
---------- --------- ----------- ----------
Operating (loss) (649,200) (633,400) (2,213,200) (1,212,500)
Equity in (loss) of unconsolidated
affiliates (21,500) (178,400) (31,300) (504,300)
Interest expenses 271,900 178,900 507,700 342,500
Interest income 15,700 21,100 34,900 48,000
Other 6,700 64,100 12,800 66,300
Gain on sale of investment of
unconsolidated affiliate 545,900
--------- --------- --------- ----------
(Loss) before income taxes (920,200) (905,500) (2,704,500) (1,399,100)
Income taxes 61,600 47,100 61,600 77,600
--------- ----------- ------------ -----------
Net (loss) (981,800) (952,600) (2,766,100) (1,476,700)
Accrued dividend - Class B
preferred stock 44,000 94,000
---------- ----------- ------------ ------------
Amount applicable to
(loss) per common share $(1,025,800) $ (952,600) $(2,860,100) $(1,476,700)
============ ============= ============ ============
Net (loss) per common share $ (0.05) $ (0.06) $ (0.15) $ (0.07)
Average common shares
outstanding 19,599,231 19,617,821 19,597,814 19,617,821
</TABLE>
The Notes to Condensed Consolidated Financial
Statements are an integral part of this statement.
<TABLE>
LCA-VISION INC.
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997 and 1996
(unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows (used) by operating activities:
Net loss $(2,766,100) $(1,476,700)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 832,000 782,400
Equity in earnings of affiliates 31,300 504,300
Gain on sale of investment of unconsolidated
affiliate (545,900)
Write down of intangible assets 106,800
(Gain) loss on property disposal 40,900 (50,600)
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable (73,000) (62,900)
Other current assets (78,200) 261,700
Increase (decrease) in:
Accounts payable (351,200) (190,700)
Other current liabilities 244,900 325,000
Deferred revenue (20,000) 165,300
----------- ---------
Net cash (used) by operating activities (2,139,400) (181,300)
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment (383,900) (1,490,600)
Investment in unconsolidated affiliates (50,500) (933,300)
Proceeds from sale of investment in affiliate 1,000,000
Other 28,500
----------- ------------
Net cash used in investing activities (434,400) (1,395,400)
----------- -------------
Cash flows from financing activities:
Proceeds from sales of common stock 50,500
Repayment of long-term debt and
capital lease obligations (439,700) (116,400)
Repayment of notes payable shareholders (337,700)
Borrowings from bank line of credit 3,469,000 384,000
Other (21,400) 9,700
--------- ---------
Net cash from financing activities 3,058,400 (60,400)
---------- ----------
Increase (decrease) in cash 484,600 (1,637,100)
Cash and cash equivalents, beginning of period 724,000 2,587,100
---------- ----------
Cash and cash equivalents, end of period $ 1,208,600 $ 950,000
=========== ===========
</TABLE>
The Notes to Condensed Consolidated Financial
Statements are an integral part of this statement.
<PAGE>
LCA-VISION INC.
Notes to Condensed Consolidated Financial Statements
for the Three and Six Months Ended June 30, 1997 and 1996
(unaudited)
1. Description of Business
Organization
On September 29, 1995, LCA-Vision Inc. ("LCA-Vision" or the
"Company") 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's.
Shareholders' equity was restated to reflect the capital structure
of LCA-Vision at the time of the merger.
Immediately prior to the merger, LCA distributed $6,390,800 to its
shareholders which represented a portion of the
subchapter S corporation earnings previously included in the
taxable income of its shareholders. The proceeds of the
distribution were used by the shareholders to acquire shares of
LCA-Vision common stock for $2 million and to loan the remainder
to LCA-Vision, receiving two promissory notes (note 5).
Business
LCA-Vision is a leading developer and operator of free-standing
laser vision correction centers. The Company also manages laser
and minimally invasive surgery programs for hospitals and medical
centers.
The laser vision correction centers operated by the Company
provide the facilities, equipment and support services for
performing various corrective eye surgeries that employ
state-of-the-art laser technologies. The surgeries performed in
the Company's centers primarily include
photorefractive keratectomy ("PRK") and laser in situ
keratomileusis ("LASIK") for treatment of myopia
(nearsightedness). As of June 30, 1997,
the Company had fifteen laser vision correction facilities in the
United States, two in Ontario, Canada, and one in Helsinki,
Finland. The Company opened three centers in the first quarter of
1997 - Albany, New York; Mountain View, California; and Warren,
Ohio.
The Company manages 26 multi-specialty laser surgery programs at
various medical facilities on a contract basis. The Company
structures its contractual arrangements to match compensation with
the value of the specific services it provides. The Company is
generally paid on a fixed amount for the initial work performed to
render a center operational and then receives compensation to
service a center on an ongoing basis.
Compensation is generally fixed based on procedures performed;
based on increased surgical volume or reduced surgical costs; or a
combination of such. Contracts may also compensate the Company for
conducting the education programs of the surgical center and its
staff including doctors and for marketing programs of the surgical
center.
2. Subsequent Event
On July 23, 1997, the Company announced that it had agreed to
acquire all of the outstanding stock of Refractive Centers
International, Inc. ("RCII"),
a wholly-owned subsidiary of Summit Technology, Inc. In exchange,
Summit will receive approximately 17 million shares of LCA-Vision
common stock, 9.7 million of which Summit intends to distribute to
its shareholders as soon as practicable after the closing. The
remaining 7.3 million shares will be held by Summit.
RCII owns and operates 19 free-standing laser vision correction
centers and has management service agreements with six "centers of
excellence" located at prestigious university medical
centers/hospitals. The agreement provides that RCII will have a
cash balance of $10 million at closing.
The Company's unaudited pro forma balance sheet as of June 30,
1997, gives effect to the estimated value of the issuance of the
LCA-Vision common stock for all of the shares of RCII. The
estimated excess of the price over the estimated fair of the
assets acquired is $13,401,800 for the pro forma disclosure.
Management will evaluate the allocation of the excess purchase
price over the fair value and amortization lives will be
determined based on such allocation. The transaction
is subject to regulatory approval under the terms of the Hart
Scott Rodino Act.
3. Significant Accounting Policies
The June 30, 1997 and 1996 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 Presentation
The consolidated financial statements include the accounts of
LCA-Vision Inc., a Delaware corporation, and its wholly-owned
subsidiaries after elimination of intercompany balances and
transactions. Certain reclassifications of prior year numbers have
been made to conform with the current presentation.
Stock Split
In June 1996, the shareholders approved a one-for-four reverse
stock split of the Company's common and preferred stock. The
number of shares and per share data in these consolidated
financial statements have been adjusted retroactively to give
effect to these splits as if they had occurred at the beginning of
the earliest period presented.
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 of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements
and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimated.
Pre-opening Costs
Costs associated with the opening of a new laser vision correction
center are expensed during the first month of the center's
operation.
Investments in Unconsolidated Affiliates
The equity method is used for investments in laser vision
correction centers in which the Company has 50% or less ownership.
These investments are recorded at the Company's initial
investment, increased or decreased by the Company's share of the
center's income or loss, less distributions received.
Impact of Recently Issued Accounting Standards
Since December 1996 the Financial Accounting Standards Board has
issued the following Statements: No. 128, "Earnings per Share";
No. 129, "Disclosure of Information about Capital Structure"; No.
130, "Reporting Comprehensive Income"; and No. 131 "Disclosures
about Segments of an Enterprise and Related Information".
Statement 128 simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, "Earnings per
Share", and makes them comparable to international earnings per
share calculations. Statement 128 requires restatement of all
prior-period earnings per share data presented.
Statement 129 establishes standards for disclosing information
about an entity's capital structure. It does not change disclosure
requirements for entities that were previously subject to the
requirements of APB Opinion No. 10, "Omnibus Opinion - 1996"; APB
Opinion No. 15, "Earnings per Share"; and Statement No. 47,
"Disclosure of Long-Term Obligations".
Statement 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains
and losses). The Statement requires that an entity (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position.
Statement No. 131 establishes standards for the way that public
business enterprises report information about operating segments
in annual financial statements and requires that those enterprises
report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. The statement supersedes
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise" and amends Statement No. 94, "Consolidation of All
Majority-Owned Subsidiaries".
These Statements are effective for financial statements issued for
periods ending after December 15, 1997. The Company anticipates
that the adoption of these Statements will not have a material
impact on its financial disclosures or any previously reported
information affected by these Statements.
4. Acquisitions
On October 28, 1996, the Company purchased the outstanding shares
of 938051 Ontario Inc. ("The Eye Laser Centre"). The terms of the
acquisition provided, among other things, for the Company to pay
$160,000 in cash and provide a letter of credit in the amount of
$64,000 to be held in escrow pending the earlier of the following:
(1) dismissal of a patent infringement lawsuit filed against one
of the sellers, or (2) settlement or final court determination of
the lawsuit. The lawsuit was settled in June 1997; however, the
Company has not yet received notification of dismissal from the
seller.
The Company may also be required to issue unregistered common
stock with a total market value of $280,000 or cash totaling
$224,000 based on whether The Eye Laser Centre achieves certain
performance objectives. The acquisition of The Eye Laser Centre
has been accounted for using the purchase method of accounting.
The purchase price in excess of the net assets acquired ($124,200)
has been recorded as goodwill which is being amortized over 5
years.
5. Notes Payable - Shareholders
The notes payable - shareholders mature on September 25, 2005, and
bear interest at 6.91%. The promissory notes can be repaid, in
whole or in part, prior to maturity without penalty. In 1996, the
Company repaid $354,100 of the notes. In two separate transactions
in December 1996, the note holders converted $2,521,700 of their
notes into Class B preferred stock (note 6). At June 30, 1997,
principal and interest totaling $1,910,000 is owed.
6. Preferred Stock
Preferred stock consists of: Class A, $.001 par value 1,688 shares
authorized, 1,688 shares issued ($67,500 aggregate liquidation
preference); Class B, $.001 par value, 7% dividend - First Interim
Series, 6 shares issued ($1,200,000 aggregate liquidation
preference), and Second Interim Series, 6.6 shares issued
($1,321,700 aggregate liquidation preference).
The holders of the Class B interim series preferred stock have the
right to convert their shares into common stock beginning July 1,
1997. The conversion price is the average of the closing bid
prices of the Company's common stock for the 30-day period ending
three (3) days prior to the date of conversion.
At June 30, 1997, dividends totaling $94,000 have been accrued for
the Class B interim series preferred shares.
7. Investments in Unconsolidated Affiliates
The Company sold its investment in Continuum Biomedical, Inc.
which had been accounted for using the equity method for
$1,000,000 in the first quarter of 1996. A gain of 545,900 was
recorded.
8. Related Party Transactions
The Company's principal shareholder is the majority owner of the
LCA Center for Surgery, Ltd. ("Surgery, Ltd."). Surgery, Ltd.
occupies a portion of the Company's office building. The Company
recorded rent and administrative and marketing services income of
$35,000 and $134,500 for the six months ended June 30, 1997 and
1996, respectively. Included in accounts receivable at June 30,
1997 is $35,400 due from Surgery, Ltd.
In May, 1995, LCA and its principal shareholder acquired 45% and
35% ownership interests, respectively, in the Surgery Center of
Georgia, LLC ("SCG") in return for guarantees of certain debt of
SCG. As part of the merger and restructuring (see Note 1), LCA
distributed its interest in SCG in return for removal from the
guarantees of SCG's debt. LCA-Vision recorded income of $18,000
for the six months ended March 31, 1997, for administrative and
marketing services provided to SCG. Included in accounts
receivable at June 30, 1997, is $42,400 due from SCG.
The Company provided a $60,000 advance to a former officer in
1995. The advance is supported by a promissory note due November
29, 1996, with interest payable at 8.75%. The note was extended
for one year and in January, 1997, the officer repaid $30,000 of
the balance due by exchanging 10,909 shares of the Company's
common stock at the then market value. At June 30, 1997, principal
and interest approximating $35,000 is included in accounts
receivable.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
LCA-Vision Inc. ("LCA-Vision" or the "Company") is a leading
developer and operator of free-standing laser vision correction
centers and manages laser and minimally invasive surgery programs
for hospitals and medical centers. The laser vision correction
centers operated by the Company provide the facilities, equipment
and support services for performing various corrective eye
surgeries that employ state-of-the-art laser technologies. The
laser vision correction surgeries performed in the Company's
centers primarily include photorefractive keratectomy ("PRK") and
laser in situ keratomileusis ("LASIK") for treatment of myopia
(nearsightedness).
The Company also manages 26 multi-specialty laser surgery programs
at various medical facilities on a contract basis. The Company
structures its contractual arrangements to match compensation with
the value of the specific services it provides. The Company is
generally paid a fixed amount for the initial work performed to
render a center operational and then receives compensation to
service a center on an ongoing basis. Compensation is generally
fixed based on procedures performed; based on increased surgical
volume or reduced surgical costs; or a combination of such.
Contracts may also compensate the Company for conducting the
education and marketing programs of the surgical center and its
staff including doctors.
The Company derives its revenue from three primary sources: (i)
fees for surgeries performed at its laser vision correction
centers, (ii) contractual fees for managing multi-specialty laser
surgery programs, and (iii) fees for marketing and education
programs; management fees for operating laser vision correction
centers of investees; and miscellaneous sources. Miscellaneous
sources include product sales - lasers and laser surgery
instruments - which the Company began phasing out effective
December 31, 1996.
The Company classifies operating expenses as follows: (a) direct
operating expenses which include: (i) laser vision correction
centers -- labor, physician fees, Pillar Point royalty fees (a
royalty fee paid to the manufacturers of the FDA-approved lasers
of $250 per procedure), facility rent and utilities, and surgical
supplies; (ii) multi-specialty laser surgery programs - - labor;
and (iii) other services and products -- labor and cost of
products sold; (b) general and administrative expenses
which primarily include marketing program costs, headquarters
staff expenses and other overhead costs; (c) center pre-opening
expenses which include direct costs incurred
prior to opening a laser vision correction center; and (d)
depreciation and amortization.
Results of Operations
The Company's results of operations in any period are
significantly affected by the number of laser vision correction
centers opened and operating, the number of hospitals
under management contract, and the level of services contracted by
hospitals and others during such period. Given the limited period
of time that the laser vision correction centers have been opened,
the Company's results of operations may not be indicative of
future results.
Laser Vision Correction Centers
The following table reflects the Company's expansion into laser
vision correction centers:
1997 1996
Q2 Q1 Q4 Q3 Q2 Q1
Operating at
beginning of period
Wholly-owned 13 10 6 5 4 2
Investees 5 5 3 3 3 1
Opened/acquired
during period
Wholly-owned 3 4 1 1 2
Investees 2 2
Operating at end
of period
Wholly-owned 13 13 10 6 5 4
Investees 5 5 5 3 3 3
The Company records the activity of its investee laser vision
correction centers using the equity method of accounting.
The following table illustrates the growth of PRK and LASIK
procedures performed at the Company's
laser vision correction centers:
Wholly-owned Combined
1997 Q2 1,506 2,078
Q1 979 1,443
1996 Q4 745 1,089
Q3 596 864
Q2 790 1,054
Q1 532 613
The rapid expansion of laser vision correction centers resulted in
a short-term drain on earnings and cash flow.
The Company has curtailed its expansion plans to concentrate on
making current centers profitable and cash flow positive.
A prime contributor to the Company's profitability and cash flow
is word-of-mouth referrals from individuals who have had laser
vision correction. As centers mature the critical mass necessary
for word-of-mouth referrals is attained and procedure volume
should increase. As of June 30, 1997, less than half of the
Company's wholly-owned centers have been open for one year or
longer. Approximately 40% of revenue falls to the bottom line once
breakeven volumes are attained.
Multi-Specialty Laser Surgery Programs
The number of multi-specialty surgery programs under management
contract at June 30 are:
1997 1996
Beginning of period 26 38
End of period 26 31
The facilities under contract are located in eighteen states,
primarily in the Midwest and Southeast.
The contracts generally range in duration from one to three years
with options to renew.
The renewal of the Company's contracts with the hospital providers
is becoming increasingly difficult due to price pressures and the
lengthening of sales cycle. Hospital providers and other entities
are being driven to reduce costs and scale back their operations,
sometimes including the programs that the Company manages. The
Company's existing contracts provide positive cash flow; however,
the Company has decided to reduce its providing of this service
due to difficult environment. In addition, budget reductions at
the facilities have reduced the marketing and education programs,
key elements to a successful surgery program.
Results of Operations
Increases (decreases) by source of revenue for the three and six
months ended June 30, 1997 compared to the same periods of 1996
are:
3 months ended 6 months ended
Laser vision
correction centers $1,404,300 $2,349,700
Multi-specialty
laser surgery programs (440,400) (1,059,700)
Other (650,100) (1,899,500)
--------- ----------
$ 313,800 $ (609,500)
========== ==========
Laser vision correction centers revenue increased due to more
centers being opened in 1997 and the growth in number of
procedures performed. Procedures performed at all centers for the
three months ended June 30, 1997 increased 44.0% as compared to
the three months ended March 31, 1997 (53.8% for wholly-owned
centers) and 97.2% as compared to the comparable period of 1996.
Procedures for the six months ended June 30, 1997 increased 111.2%
compared to the six months ended June 30, 1996. Multi-specialty
laser surgery programs revenue declined as a result of the
declining number of facilities under contract. The lesser number
of facilities under contract together with cost reduction programs
instituted by healthcare providers negatively impacted the revenue
from marketing and education programs. In addition, revenue for
the three and six months ended June 30, 1996 includes one-time
income of $125,100 and $371,500, respectively, from the
implementation of programs in hospitals and laser vision
correction centers of investees and contract cancellation fees.
Management anticipates that the composition of future revenue will
change as more laser vision correction centers are developed and
as PRK and LASIK become more widely known and accepted by
ophthalmic physicians and their patients. Revenues from
hospital-based multi-specialty centers will be less significant to
the Company while revenues from laser vision correction
centers are expected to increase. The extent and degree of the
shift in the Company's future revenues are subject to significant
uncertainty.
The following table reflects the percent of direct cost associated
with each of the principal sources of the company's revenue:
June 30
3 months 6 months
1997 1996 1997 1996
Direct costs
Laser vision
correction centers 80.0% 78.7% 83.1% 77.5%
Multi-specialty laser
surgery programs 31.8 23.6 35.6 31.1
Other 55.2 25.9 49.2 42.2
Direct operating expenses increased $895,600 and $1,059,600 for
the three and six months ended June 30, 1997, respectively,
compared to the comparable period in 1996. The increases in direct
operating expenses is primarily a result of the Company's
expansion into the laser vision correction business. Direct
operating expenses comprise the significant fixed costs of
performing the procedure as well as the costs of maintaining a
facility. These costs will become a lesser percentage of revenue
as procedure volume increases. Direct operating expenses related
to the other sources of revenue are more variable and fluctuate
generally with the level of revenue.
General and administrative expenses decreased $564,200 and
$793,200 for the three and six months ended June 30, 1997 compared
to the same periods 1996. The decreases were due to cost controls
instituted at the end of 1996. In 1997, the Company has spent
approximately $470,000 for marketing and advertising programs to
educate and inform individuals about PRK and LASIK. Other expenses
such as telephone, legal, insurance, and repairs and maintenance
increases as the Company opens new laser vision correction
centers.
Depreciation and amortization increased in 1997 compared to 1996
due to the increase in property and equipment, primarily equipment
for the laser vision correction centers.
Interest expense increased primarily due to the increased
borrowings related to the capitalized leases for the lasers used
to perform laser vision correction, and borrowings under the line
of credit to fund current operating needs and capital equipment,
offset by the reduction in loans from the principal shareholders.
The $545,903 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
investment in Continuum Biomedical, Inc. This investment was sold
in the first quarter 1996 and the Company received proceeds of
$1,000,000 in April, 1996 from the sale.
Liquidity and Capital Resources
The Company's principal capital requirements include working
capital for the financing of accounts receivable from its
multi-specialty laser surgery program contracts, the equipping and
furnishing of its laser vision correction centers, the continuing
development of marketing programs, and the funding of operating
losses of its laser vision correction centers. To date, the
Company has funded its capital requirements largely from
internally-generated funds, lease financing, and bank borrowings.
The Company has an $8 million line of credit, that was renewed
through August 15, 1997, which it has used to maintain its
existing businesses and to expand its laser vision correction
center business. Borrowings under this line of credit were
$6,900,000 at June 30, 1997. The Company anticipates
re-negotiating the terms of its line of credit to coincide with
the closing of the RCII acquisition described below. This may
require an interim renewal of its current line of credit. There
is, however, no assurance that the renewal will be on the same
terms and conditions.
At June 30, 1997, the Company had cash equivalents totaling
$1,208,600 and negative working capital of $5,743,700. The
negative working capital is primarily due to the use of the bank
line of credit to fund the expansion of the laser vision
correction centers and to fund their losses. Net cash
used to purchase property and equipment was $383,900 and
$1,490,600 for the six months ended June 30, 1997 and 1996,
respectively. Cash used by operating activities for the six months
ended June 30, 1997 and 1996 was $2,139,400 and $181,300,
respectively. Cash used in operating activities was principally
the funding of the anticipated operating losses of the laser
vision correction centers.
Capital of $50,500 was raised in the first quarter of 1997
through the sale of common stock in private placement
transactions. With the first year cost of a laser vision
correction center of approximately $1 million, the Company has
concluded that additional capital is necessary to continue the
rollout of new centers and to accelerate the operational changes
underway. As a result of the proposed acquisition of RCII
described below, the Company has temporarily halted its previously
announced efforts to arrange a $12 million private placement of
equity securities.
On July 23, 1997, the Company announced that it had agreed to
acquire all of the outstanding stock of Refractive Centers
International, Inc. ("RCII"), a wholly-owned subsidiary of Summit
Technology, Inc. In exchange, Summit will receive approximately 17
million shares of LCA-Vision common stock, 9.7 million
of which Summit intends to distribute to its shareholders as soon
as practicable after the closing. The remaining 7.3 million shares
will be held by Summit.
RCII owns and operates 19 free-standing laser vision correction
centers and has management service agreements with six "centers of
excellence" located at prestigious university medical
centers/hospitals. The agreement provides that RCII will have a
cash balance of $10 million at closing.
The transaction is subject to regulatory approval under the terms
of the Hart Scott Rodino Act.
Cautionary Statement under "Safe Harbor" Provisions of the
Securities Litigation Reform Act of 1995
Statements made in this report, the Company's press releases, oral
presentation, and other filings with the SEC, may contain
information about the Company's future business prospects. Some of
these statements may be considered "forward looking". These
statements are subject to risks and uncertainties that could
cause actual results to differ materially from those set forth or
implied by such forward- looking statements.
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.
The Annual Meeting of Stockholders was held on June
9, 1997.
Stockholders were solicited and elected the
following four individuals to serve as directors
until the 1998 Annual Meeting: Stephen N. Joffe,
M.D., Sandra F.W. Joffe, Craig P.R. Joffe, and John
C. Hassan.
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.
(1) Form 8-K dated July 22, 1997, announcing the
re-negotiation of the $8 million line of
credit
(2) Form 8-K dated July 24, 1997, announcing the
agreement to acquire Refractive Centers
International, Inc., a wholly-owned
subsidiary of Summit Technology, Inc.
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 August 4, 1997 /s/ Stephen N. Joffe
Stephen N. Joffe
President and Chief Executive Officer
Date August 4, 1997 /s/ Larry P. Rapp
Larry P. Rapp
Chief Financial Officer
Exhibit 11
<TABLE>
LCA-VISION INC.
Computation of Per Share Loss
For the Three and Six Months Ended
June 30, 1997 and 1996
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary Per Share Loss
Net (loss) available for
common shareholders $(1,025,800) $ (952,600) $(2,860,100) $(1,476,700)
Shares:
Weighted average number 19,599,231 19,617,821 19,597,814 19,685,321
of common
shares outstanding
Additional shares assuming
exercise of
stock options (a) __________ __________ __________ __________
Average common shares and
equivalents as
adjusted 19,599,231 19,617,821 19,597,814 19,617,821
Net (loss) per common share $ (0.05) $ (0.06) $ (0.15) $ (0.07)
</TABLE>
<PAGE>
(a) Net loss per share is based on outstanding common shares.
Assuming exercise of options would be anti-dilutive
as an increase in the number of shares assumed to be outstanding
would further reduce the amount of the loss per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE LCA-VISION INC.
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 AND THE RELATED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,208,600
<SECURITIES> 0
<RECEIVABLES> 1,456,800
<ALLOWANCES> 100,200
<INVENTORY> 277,300
<CURRENT-ASSETS> 3,772,300
<PP&E> 13,655,600
<DEPRECIATION> 4,587,000
<TOTAL-ASSETS> 13,867,900
<CURRENT-LIABILITIES> 9,516,000
<BONDS> 4,493,700
0
2,521,700
<COMMON> 78,900
<OTHER-SE> (4,242,400)
<TOTAL-LIABILITY-AND-EQUITY> 13,867,900
<SALES> 16,500
<TOTAL-REVENUES> 6,602,000
<CGS> 10,000
<TOTAL-COSTS> 4,412,400
<OTHER-EXPENSES> 4,402,800
<LOSS-PROVISION> 507,700
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,704,500)
<INCOME-TAX> 61,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,766,100)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
