SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30,
1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Transition period from to
----------------- -----------------.
Commission File Number: 0-19671
LASERSIGHT INCORPORATED
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0273162
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
12161 Lackland Road, St. Louis, Missouri 63146
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 469-3220
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
----- -----
The Number of shares of the registrant's Common Stock outstanding as of
November 13, 1996 is 8,264,066.
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations
for the Three Month Periods and Nine Month Periods
Ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows
for the Nine Month Periods Ended September 30, 1996
and 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
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
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
September 30, December 31,
1996 1995
---------------- --------------
CURRENT ASSETS ASSETS (Unaudited)
Cash and cash equivalents $2,444,939 $1,598,339
Trade accounts receivable, net 5,191,222 8,512,744
Notes receivable - current portion, net 3,589,560 1,632,221
Inventory 3,267,392 1,836,750
Deferred tax assets 662,508 221,000
Income taxes recoverable 590,335 --
Other current assets 229,744 378,905
---------------- --------------
TOTAL CURRENT ASSETS 15,975,700 14,179,959
NOTES RECEIVABLE, less current portion, net 3,075,954 3,026,148
FURNITURE AND EQUIPMENT, net 2,022,377 1,045,481
GOODWILL, net 9,809,576 8,640,645
OTHER ASSETS, net 2,025,226 2,210,260
---------------- --------------
$32,908,833 $29,102,493
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,986,519 $ 2,088,736
Notes payable - acquisition related 1,000,000 2,264,100
Current portion of obligations under capital lease 199,878 --
Accrued expenses 907,236 492,641
Accrued commissions 1,706,272 1,777,007
Dividends payable on preferred stock 65,148 --
Income taxes payable -- 314,205
Other current liabilities 373,307 171,743
---------------- --------------
TOTAL CURRENT LIABILITIES 6,238,360 7,108,432
REFUNDABLE DEPOSITS 293,000 425,000
ACCRUED COMMISSIONS 298,197 518,920
OBLIGATIONS UNDER CAPITAL LEASE, less current portion 695,567 --
DEFERRED INCOME TAXES 600,000 630,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.001 per share; authorized 10,000,000
shares; 18 shares issued and outstanding at September 30, 1996 -- --
Common stock - par value $.001 per share; authorized 20,000,000 shares;
8,250,886 and 7,186,032 shares issued at September 30,1996 and December
31, 1995, respectively 8,251 7,186
Additional paid-in capital 29,616,893 21,944,000
Obligation to issue common stock 780,125 780,125
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit (3,848,851) (538,461)
Less treasury stock, at cost; 170,200 shares (632,709) (632,709)
----------------- ---------------
24,783,709 20,420,141
----------------- ---------------
$32,908,833 $29,102,493
================= ===============
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -----------------------------------
1996 1995 1996 1995
----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES, Net $4,494,232 $6,767,880 $15,070,482 $17,331,108
COST OF SALES 794,982 1,442,267 2,259,527 3,340,278
PROVIDER PAYMENTS 1,069,184 -- 2,998,680 --
----------------- --------------- --------------- ---------------
GROSS PROFIT 2,630,066 5,325,613 9,812,275 13,990,830
RESEARCH, DEVELOPMENT AND REGULATORY
EXPENSES 325,925 461,979 1,373,547 920,127
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,504,162 3,931,298 12,598,430 9,679,944
----------------- --------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS (2,200,021) 932,336 (4,159,702) 3,390,759
OTHER INCOME AND EXPENSES
Interest and dividend income 42,195 62,449 132,109 157,613
Interest expense (54,480) (9,378) (102,068) (33,745)
Other (300,107) (1,069) (300,107) 1,329,056
------------------ --------------- ---------------- ----------------
NET INCOME (LOSS) BEFORE INCOME TAXES (2,512,413) 984,338 (4,429,768) 4,843,683
INCOME TAX EXPENSE (BENEFIT) (458,727) 225,000 (1,119,378) 1,225,000
------------------ --------------- ---------------- ----------------
NET INCOME (LOSS) $ (2,053,686) $759,338 $(3,310,390) $3,618,683
================== =============== ================ ================
EARNINGS (LOSS) PER COMMON SHARE
Primary: $(0.28) $0.11 $(0.51) $0.53
================== =============== ================ ================
Assuming full dilution: $(0.27) $0.11 $(0.47) $0.53
================== =============== ================ ================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Primary: 7,639,000 7,056,000 7,238,000 6,851,000
================== =============== =============== ================
Assuming full dilution: 8,017,000 7,072,000 7,848,000 6,876,000
================== =============== =============== ================
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<S> <C> <C>
1996 1995
------------------ ------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $(3,310,390) $ 3,618,683
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 711,528 269,153
Decrease (increase) in accounts and notes receivable 1,714,377 (8,169,626)
Increase in inventory (1,430,642) (308,027)
Increase (decrease) in accounts payable (300,472) 758,022
Increase (decrease) in accrued liabilities (36,682) 1,418,275
Decrease (increase) in income taxes (1,404,967) 517,000
Other 440,532 176,666
------------------ ------------------
NET CASH USED IN OPERATING ACTIVITIES (3,616,716) (1,719,854)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (250,862) (245,205)
Purchase of businesses, net of cash acquired (179,607) --
Proceeds from sale and leaseback transaction 957,180 --
------------------ ------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 526,711 (245,205)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net -- 1,288,332
Proceeds from exercise of stock options and warrants 260,289 1,036,605
Repayment of obligation under capital lease (61,735) --
Repayments of notes payable - acquisition related (1,139,100) --
Repayments of notes payable - officer (465,000) (500,000)
Proceeds from issuance of preferred stock, net 5,342,151 --
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,936,605 1,824,937
------------------ ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 846,600 (140,122)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,598,339 1,882,528
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,444,939 $1,742,406
================== ==================
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Month Periods Ended September 30, 1996 and 1995
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial
statements of LaserSight Incorporated and subsidiaries (the Company)
as of September 30, 1996, and for the three month periods and nine
month periods ended September 30, 1996 and 1995 have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and note disclosures required by generally accepted
accounting principles for complete financial statements. These
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1995. In the opinion of management, the
condensed consolidated financial statements include all adjustments
necessary for a fair presentation of consolidated financial position
and the results of operations and cash flows for the periods
presented. The results of operations for the three and nine month
periods ended September 30, 1996 are not necessarily indicative of the
operating results for the full year.
NOTE 2 PER SHARE INFORMATION
Net earnings (loss) per common share is computed using the weighted
average number of common shares and common share equivalents
outstanding during each period. Common share equivalents include
options and warrants to purchase Common Stock and are included in the
computation using the treasury stock method if they would have a
dilutive effect. Fully diluted earnings (loss) per share for the three
and nine month periods ended September 30, 1996 was anti-dilutive and
therefore, except for the impact of Preferred Stock converted to
Common Stock during the period (see Note 4), are the same as primary
earnings (loss) per share.
NOTE 3 INVENTORIES
Inventories, which consist primarily of laser system parts and
components, are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials $ 1,586,080 $ 839,984
Work-in-process 368,740 431,766
Finished goods 940,831 280,000
Test equipment-clinical 371,741 285,000
trials ------------------ -----------------
$ 3,267,392 $1,836,750
================== =================
<PAGE>
NOTE 4 STOCKHOLDERS' EQUITY
Private Placement Offerings
---------------------------
On January 10, 1996, the Company completed a private placement of
Series A Convertible Preferred Stock (Preferred Stock), yielding net
proceeds after related costs of $5.34 million. The Company also issued
warrants to purchase 17,509 shares of Common Stock at $13.25 per share
to the placement agent. The Preferred Stock is convertible into the
Company's Common Stock at the option of the holders at any time from
April 9, 1996 to January 10, 1998, on which date all Preferred Stock
remaining outstanding will automatically be converted into Common
Stock. The number of shares of Common Stock issuable upon the
conversion of each of the 116 shares of Preferred Stock equals the
purchase price of such share ($50,000) divided by a conversion price
equal to the lesser of $14.18 per common share or 85% of the average
closing price of the Common Stock during the five trading days
preceding the conversion date, subject to a minimum conversion price.
At September 30, 1996, 18 shares of Preferred Stock were outstanding.
The conversion of 98 shares of Preferred Stock through September 30,
1996 resulted in the issuance of 778,856 shares of Common Stock. A
registration statement relating to the potential resale of shares of
Common Stock, including shares issued or issuable upon the conversion
or exchange of the Preferred Stock, was declared effective by the
Securities and Exchange Commission on July 12, 1996.
The Company, subject to certain conditions, has the right to redeem
the Preferred Stock for cash or cause it to be converted to Common
Stock. Dividends on the Preferred Stock are cumulative and accrue at
an annual rate of 10% on the issue price and are payable in Common
Stock or cash, at the Company's option, at the time of conversion or
redemption of the Preferred Stock.
NOTE 5 ACQUISITION
Northern New Jersey Eye Institute
---------------------------------
On July 3, 1996, the Company acquired the assets of the Northern New
Jersey Eye Institute (NNJEI). NNJEI is an ophthalmic practice
comprised of three ophthalmologists, two of which are trained to
perform photorefractive keratectomy, and an ambulatory surgery center.
The Company acquired NNJEI's assets in exchange for 205,598 shares of
unregistered common stock and a $340,000 promissory note with interest
at 5.05 percent. The note was paid in September, 1996. Up to a maximum
of 102,798 additional shares may be issuable on July 3, 1998 if the
Company's stock price is lower than $15.00 at that time. In addition,
the Company entered into a 25-year service agreement with the
physicians to provide management, administrative, and related
services. The Company will receive a minimum management fee, after
practice expenses as defined in the agreement, aggregating $1,257,000
during the first three years. Such amount is guaranteed by the selling
physicians.
Subsequent to the acquisition of NNJEI's assets, the Company entered
into an agreement for the sale and leaseback of certain assets
acquired. The lease, with a four year term, is classified as a capital
lease in accordance with Financial Accounting Standards No. 13,
"Accounting for Leases". The fair market value of the assets acquired
was approximately $1 million and payments under the lease approximate
$300,000 annually and commenced in July 1996.
<PAGE>
The unaudited pro forma revenues, net income (loss) and earnings
(loss) per share for the nine months ended September 30, 1996 and
1995, assuming that the acquisition had occurred as of the beginning
of the respective periods, is presented below. The pro forma amounts
are not necessarily indicative of results that would have occurred had
the acquisition been consummated as of the beginning of the periods
presented or that might be attained in the future.
1996 1995
------------------ ------------------
Revenues $ 16,662,882 $ 19,503,514
Net income (loss) ( 3,284,079) 3,798,973
================== ==================
Earnings (loss) per
common share:
Primary $ (0.49) $ 0.54
Fully diluted (0.45) 0.53
================== ==================
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net Sales. The following tables present the Company's net sales by major
operating segments: technology related products and services and health care
services for the three and nine month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Net Sales % of Total % Change Net Sales % of Total
--------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Technology related $1,783,577 40% (69%) $5,674,915 84%
Health care services 2,810,613 62% 157% 1,092,965 16%
Intercompany revenues (99,958) (2)% N/A -- --
-------- ---- ------------ ----
Total net sales $4,494,232 100% (34%) $6,767,880 100%
========== ==== ============ ====
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Net Sales % of Total % Change Net Sales % of Total
--------- ---------- -------- --------- ----------
Technology related $7,246,984 48% (47%) $13,699,439 79%
Health care services 8,158,263 54% 125% 3,631,669 21%
Intercompany revenues (334,765) (2)% N/A -- --
----------- ---- ------------- ----
Total net sales $15,070,482 100% (13%) $17,331,108 100%
=========== ==== ============= ====
</TABLE>
Net sales in the third quarter of 1996 were $4,494,232 compared to $6,767,880
(for a decrease of $2,273,648) over the same period in 1995. Net sales for the
nine month period ended September 30, 1996, decreased by $2,260,626 to
$15,070,482 from the same period in 1995. The increase in health care services
revenue was attributable to revenues generated by the Company's latest
acquisitions, MEC Health Care, Inc. (MEC), acquired on October 5, 1995 and
Northern New Jersey Eye Institute (NNJEI), acquired on July 3, 1996, partially
offset by a reduction in revenues generated by The Farris Group. The higher
revenues generated from health care services were offset primarily by a decrease
in revenues of technology related products and services during the three and
nine month periods ended September 30, 1996, of $3,891,338 and $6,452,455,
respectively. Included in technology revenues is a higher allowance for sales
returns, reflecting differences between actual experience and previously
estimated amounts. In the second quarter of 1996, the Company ceased sales of
systems with return rights. Thirteen laser systems were sold in the third
quarter of 1996 compared to eighteen systems sold over the same period in 1995.
<PAGE>
Net of returns, thirty-three laser systems were sold during the nine month
period ended September 30, 1996, compared to forty-four systems sold over the
same period in 1995. The decrease in laser systems sold from levels during 1995
is primarily the result of the Company's revised credit policy, which
established a more stringent criteria for acceptable sales terms. In addition,
due to competitive pressures in certain markets and the Company's sales, during
1996, of the lower priced LS 300 model, the average sales price per system
declined from 1995 average levels. Included in the first quarter of 1995 were
non-recurring revenues from the sale of revenue rights from procedure fees at
six surgical centers located in China in the amount of $600,000.
Cost of goods sold; gross profits. The following tables present a comparative
analysis of cost of goods sold, gross profit and gross profit margins for three
and nine month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended % Period Ended
September 30, 1996 Change September 30, 1995
------------------ ------ ------------------
<S> <C> <C> <C>
Overall:
Cost of goods sold $ 794,982 (45%) $ 1,442,267
Provider payments 1,069,184 N/A --
Gross profit 2,630,066 5,325,613
Gross profit percentage 59% 79%
Technology related only: 988,595 4,232,648
Gross profit percentage 55% 75%
For the Nine Month For the Nine Month
Period Ended % Period Ended
September 30, 1996 Change September 30, 1995
------------------ ------ ------------------
Overall:
Cost of goods sold $ 2,259,527 (32%) $ 3,340,278
Provider payments 2,998,680 N/A --
Gross profit 9,812,275 13,990,830
Gross profit percentage 65% 81%
Technology related only: 4,987,457 10,359,161
Gross profit percentage 69% 76%
</TABLE>
Gross profit margins were 59% of net sales in the third quarter of 1996 compared
to 79% for the same period in 1995. For the nine month periods ended September
30, 1996 and 1995, gross profit margins were 65% and 81%, respectively. The
gross profit margin decrease was attributable to the addition of MEC which for
the three and nine month periods ended September 30, 1996 operated at a gross
profit percentage of 37% and 33%, respectively, a lower average sales price for
lasers sold during the first three quarters of 1996, the additional allowance
for sales returns, and the sale of the Company's future revenue rights for six
laser systems in China for $600,000 in the first quarter of 1995. The Company
believes MEC's gross profit percentage is reflective of the managed care
industry. There are no cost of sales associated with revenues generated by The
Farris Group, NNJEI or with the 1995 sale of the Company's future revenue
rights.
<PAGE>
Research, Development and Regulatory Expenses. The following tables present a
comparative analysis of research, development and regulatory expenses.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1996 % Change September 30, 1995
------------------ -------- ------------------
<S> <C> <C> <C>
Research, development
and regulatory $325,925 (29)% $461,979
As a % of technology
related net sales 18% 8%
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1996 % Change September 30, 1995
------------------ -------- ------------------
Research, development
and regulatory $1,373,547 49% $920,127
As a % of technology
related net sales 19% 7%
</TABLE>
Research, development and regulatory expenses for the third quarter of 1996 were
$325,925, a decrease of $136,054, or 29% from such expenditures during the same
period in 1995. This decrease was a result of project prioritization which began
in the second quarter of 1996. Research, development and regulatory expenses for
the nine month period ended September 30, 1996, increased by $453,420 from
$920,127 for the same period in 1995 or 49%. This increase can primarily be
attributed to ongoing research and development of new refractive laser systems,
including refinements to the LaserScan 2000, continued software development for
the excimer lasers, and continued development of the LaserHarmonic solid state
laser. Much of the year-to-date expense in 1996 was incurred in the first
quarter. Regulatory expenses have increased as a result of the Company's
continuation of current FDA clinical trials and the development of additional
future protocols for submission to the FDA. Selling, General and Administrative
Expenses. The following tables present a comparative analysis of selling,
general and administrative expenses.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1996 % Change September 30, 1995
------------------ -------- ------------------
<S> <C> <C> <C>
Selling, general and
administrative $ 4,504,162 15% $3,931,298
As a % of net sales 100% 58%
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1996 % Change September 30, 1995
------------------ -------- ------------------
Selling, general and
administrative $12,598,430 30% $9,679,944
As a % of net sales 84% 56%
</TABLE>
Selling, general and administrative expenses increased by $572,864 and
$2,918,486 for the third quarter of 1996 and the first nine months of 1996,
<PAGE>
respectively, over comparable periods in 1995. The primary reasons for these
increases include increased employment and other operating costs as a result of
the acquisition of MEC in October 1995 and NNJEI in July 1996 and their
subsequent growth, and a general increase in personnel and costs necessary to
fund the strategic initiatives of the Company and the development of its
products and services. Third quarter results in 1996 included $170,000 in
accrued employee severance costs and expenses attributable to the work required
to achieve ISO 9002 certification and CE Mark designation. The Company received
ISO 9002 certification in October 1996. ISO 9002 is an internationally
recognized certification of the Company's management system which applies to all
products.
During the first nine months of 1996, the Company continued to assess its
reserve for uncollectible accounts. However, there can be no assurance that the
reserve will be sufficient to cover actual write-offs over time. Actual
write-offs that materially exceed any amounts reserved could have a material
adverse effect on the Company's financial condition and results of operations.
At September 30, 1996, the Company's trade accounts and notes receivable
aggregated approximately $11.9 million, net of total allowances of approximately
$1.7 million. Accrued commissions, the payment of which generally depends on the
collection of such net trade accounts and notes receivable, aggregated
approximately $2.0 million at September 30, 1996.
Income (Loss) from Operations. There was an operating loss of $2,200,021 in the
third quarter of 1996 compared to income from operations of $932,336 for the
same period in 1995. For the nine month period ended September 30, 1996, there
was an operating loss of $4,159,702 compared to income from operations of
$3,390,759 for the same period in 1995. The decrease in operating results can be
attributed primarily to the decrease in sales of the Company's lasers, the 1995
first quarter sale of the Company's revenue rights to be generated from
procedures fees, and an overall increase in expenses, including research and
development, regulatory and selling, general and administrative expenses.
Other Income and Expenses. Interest and dividend income was $42,195 in the third
quarter of 1996 compared to interest and dividend income of $62,449 for the same
period in 1995. Interest and dividend income for the nine-month period ended
September 30, 1996 was $132,109 compared to interest and dividend income of
$157,613 for the same period in 1995. Interest and dividend income was earned
from the Company's cash deposits and short-term investments. Interest expense
incurred was $54,480 in the third quarter of 1996 compared to interest expense
of $9,378 for the same period in 1995. Interest expense for the nine month
period ended September 30, 1996 was $102,068 compared to interest expense of
$33,745 for the same period in 1995. Interest expense incurred by the Company
during the first three quarters of 1995 related primarily to the note payable to
the former owner of The Farris Group and, in 1996, the note payable to the
former owners of MEC.
During the second quarter of 1995, the Company received a payment of $350,000
from the Company's former president in settlement of securities trading losses
in 1993 and the first half of 1994 and recognized a non-recurring gain. In
addition, during the first quarter of 1995, the Company received aggregated
payments of $980,125 in settlement of its claims against Residue Recovery Corp.,
and recognized a non-recurring gain. For the three months ended September 30,
1996, other expenses include $290,000 of paid and accrued settlements related to
filed and threatened litigation.
Income Taxes. For the three months ended September 30, 1996, the Company
recorded an income tax benefit of $458,727 compared to a provision for income
<PAGE>
taxes of $225,000 for the same period in 1995. For the nine month period ended
September 30, 1996, the Company recorded an income tax benefit of $1,119,378
compared to a provision for income taxes of $1,225,000 for the same period in
1995. The income tax benefit for the first, second, and third quarters of 1996
has been computed based on an estimate of effective tax rates for calendar year
1996 and the availability of loss carrybacks. In 1995, the Company's provision
for taxes reflected an effective income tax rate that resulted from utilization
of net operating loss carryforwards and income tax credits.
Net Income (Loss). Net loss for the third quarter of 1996 was $2,053,686
compared to a net income of $759,338 for the same period in 1995. Net loss for
the nine month period ended September 30, 1996, was $3,310,390 compared to a net
income of $3,618,683 for the same period in 1995. The loss is attributed to the
decreased revenues from technology related products and services and higher
operating expenses as previously described for the first, second, and third
quarters of 1996.
Earnings per Share. Earnings (loss) per primary and fully diluted share
decreased to ($0.28) and ($0.27) respectively, for the third quarter of 1996
compared to $0.11 for the same period in 1995. Earnings (loss) per primary and
fully diluted share decreased to ($0.51) and ($0.47) respectively for the nine
month period ended September 30, 1996, compared to $0.53 for the same period in
1995. These decreases are attributable to the net loss incurred and dividends on
preferred stock during the first, second, and third quarters of 1996. One cent
of the loss per primary and fully diluted share for the three months ended
September 30, 1996, was a result of dividends on preferred stock. Of the loss
per primary and fully diluted share for the nine months ended September 30,
1996, $0.05 and $0.04, respectively, related to dividends on preferred stock.
See Note 2 of Notes to Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
- -------------------------------
Working capital increased $2,665,813 from $7,071,527 at December 31, 1995 to
$9,737,340 as of September 30, 1996. Cash and cash equivalents increased from
$1,598,339 at December 31, 1995 to $2,444,939 at September 30, 1996. These
increases in working capital and cash resulted primarily from the proceeds from
issuance of the Preferred Stock and an increase in inventories and income tax
related assets. The Preferred Stock proceeds were used primarily for repayment
of debt and funding general operations.
Operating activities used net cash of $3,616,716 during the first nine months of
1996, compared to $1,719,854 of net cash used in operations during the same
period in 1995. This increase is primarily attributable to a net loss of
$3,310,390 compared to a net income of $3,618,683 for the same period in 1995.
Other factors resulting in this increase include the growth in inventories and
an increase in income taxes recoverable, partially offset by a decrease in net
receivables. Investing activities provided $526,711 of cash in the first nine
months of 1996 compared to a use of $245,205 in the same period in 1995. Net
cash provided by investing activities during the first nine months of 1996 can
be primarily attributed to the sale and leaseback transaction with the assets
acquired as part of NNJEI, partially offset by the purchase of office and
computer equipment and costs related to the acquisition of NNJEI. Net cash
provided by financing activities during the first nine months of 1996 was
$3,936,605 primarily consisting of net proceeds from the sale of preferred stock
totaling $5,342,151 less a repayment of $1,604,100 in notes payable relating to
the Company's acquisitions of The Farris Group in February 1994, MEC in October
1995 and NNJEI in July 1996. That compares to cash provided by financing
activities in the first nine months of 1995 of $1,824,937, consisting of
<PAGE>
$2,324,937 in proceeds from the issuance of common stock and the exercise of
stock options and warrants less a debt repayment of $500,000 related to the
acquisition of The Farris Group.
The Company believes that its balances of cash and cash equivalents along with
operating cash flows will be sufficient to fund its anticipated working capital
requirements for the next twelve month period based on modest growth and
anticipated collection of receivables. A failure to collect timely a material
portion of current receivables could have a material adverse effect on the
Company's liquidity. The Company, which implemented more stringent sales
criteria during 1996, may from time to time reassess its credit policy and the
terms it will make available to individual customers. As a result of a growing
presence in a number of countries and continued acceptance of the Company's
laser systems, the Company does not intend to internally finance a significant
number of sales over periods exceeding one year. There can be no assurance as to
the terms or amount of third-party financing, if any, that the Company's
customers may obtain in the future. The Company is placing greater emphasis on
the terms and collection timing of future sales.
The Company expects to continue manufacturing of its medical lasers for
international sales and to continue a variety of research, development and
regulatory activities over the next twelve months and it is anticipated that
such research and development, manufacturing and selling-related expenditures
will be significant expenses in the foreseeable future. The existing
infrastructure of the Company's health care related services could absorb
significant growth without significant capital investment. The Company expects
to devote resources to its managed care strategies involving MEC and the
acquisition of selected ophthalmic practices.
The Company is receptive to joint venture discussions with compatible companies
for the development and operation in international markets of surgical centers
that will utilize the Company's products or provide synergies to the development
of optometric networks. In addition to cash contributions that may be available
from joint venture partners, the Company is also seeking complementary strengths
and other synergies that may provide strategic advantages. The Company has no
present commitments for joint venture relationships, and no assurance can be
given that any such relationships will be secured on terms satisfactory to the
Company.
The Company is exploring alternative sources of capital to fund its product
development activities, to consummate future strategic acquisitions, and to
accelerate its implementation of managed care strategies. The Company has no
present commitments to obtain such capital, and no assurance can be given that
the Company will be able to obtain additional capital on terms satisfactory to
the Company. To the extent that future financing requirements are satisfied
through the sale of equity securities, holders of Common Stock may experience
significant dilution in earnings per share and in net book value per share. Debt
financing could result in a substantial portion of the Company's cash flow from
operations being dedicated to the payment of principal and interest on such
indebtedness and may render the Company more vulnerable to competitive pressures
and economic downturns.
Certain Factors
- ---------------
The Company's business, results of operations and financial conditions may also
be affected by a variety of factors, including the ones noted below:
<PAGE>
Conversion of Outstanding Preferred Stock. As of November 11, 1996, 872,736
shares of Common Stock (including shares issued in payment of accrued dividends)
had been issued upon the conversion of 108 shares of the Company's Series A
Preferred Stock. The number of shares of Common Stock issuable upon the
conversion of the remaining eight shares of Preferred Stock may depend on the
market price of the Common Stock shortly before the conversion date. For
example, if such conversion were to occur on any date, and were to be based on a
Common Stock price history equal to its price history through November 8, 1996,
70,052 shares of Common Stock would be issuable upon conversion based upon the
minimum conversion price of $5.71. The shares issued upon conversion will not
exceed 70,052 shares (not including shares in payment of accrued dividends). See
Note 4 of Notes to Condensed Consolidated Financial Statements. The number of
shares of Common Stock issuable in payment of accrued dividends on such eight
shares of Preferred Stock will depend on both the timing of the conversion of
such Preferred shares and the market price of the Common Stock shortly before
the conversion. For example, if such conversion were to occur on November 11,
1996, and were to be based on a market price of the Common Stock equal to its
closing price on November 8, 1996, 6,295 shares of Common Stock would be
issuable as dividends on the remaining Preferred Stock. The Company will not
issue more than 343,827 additional shares as payment of preferred dividends; any
dividends in excess of this amount would be paid in cash. The conversion of the
Preferred Stock will increase shares outstanding and can be expected to reduce
per share operating results.
Potential Issuances of Common Stock--LaserSight Centers. In connection with its
acquisition of LaserSight Centers in 1993, the Company issued 500,000 shares of
Common Stock and expensed the value of such shares in 1993. The Company has also
agreed, based on the original acquisition agreement as modified in 1995 in
connection with a settlement of shareholder litigation, to issue to the former
shareholders of LaserSight Centers (including the chairman of the board of the
Company) up to 1,265,333 shares of Common Stock (together with additional shares
representing interest on such additional payment to the extent required by the
Internal Revenue Services (collectively, the "Centers Earnout Shares")) if
LaserSight Centers receives $5 million in cumulative gross revenues from
performing PRK, PTK or other refractive laser surgical procedures through April
5, 2003 or if the Company acquires another entity that exceeds certain specified
size thresholds. There can be no assurance that the Centers Earnout Shares will
not be issued or that an earnings charge will not occur. The Company believes
that whether such events occur will depend upon business decisions to be made by
the Company. The amount of such earnings charge, while having no effect on the
Company's cash position, could equal as much as 100% of the value of such
Centers Earnout Shares and could be material to the Company's net income during
the period of their issuance. In connection with its acquisition of LaserSight
Centers, the Company also agreed to pay to Florida Laser Partners, a partnership
in which the chairman of the board of the Company is a general partner, a
perpetual royalty. The amount of the royalty is not limited in aggregate amount
and equals $86 (payable in shares of Common Stock based on their then-current
market value (the "Royalty Shares") for each eye on which laser refractive
optical surgical procedure is conducted by, or pursuant to a contract with,
LaserSight Centers or its affiliates. The value of any Royalty Shares would be
expensed in the period in which they were accrued. Through September 30, 1996,
none of the Royalty Shares have been reflected in the Company's financial
statements because the specified events had not yet occurred. The Company is
renegotiating these various arrangements, subject to the approval of the other
parties involved, and a majority of the disinterested members of the Company's
Board of Directors. The issuance of Common Stock relating to the LaserSight
Centers acquisition, if any, will increase shares outstanding and can be
expected to reduce per share operating results.
<PAGE>
Other Potential Issuance of Common Stock. The Company could be required to issue
up to 750,000 shares of Common stock to Michael R. Farris pursuant to the
earnout provisions of the agreement by which he sold The Farris Group to the
Company prior to becoming an officer and director of the Company. As of
September 30, 1996, the Company had a contingent obligation to issue 314,000 of
such 750,000 shares, based on the financial performance of The Farris Group
through such date.
Plan for Acquisitions. During the third quarter, the Company acquired the assets
of one vision care center (See Note 5). The Company's plans for growth and
expansion include further acquisitions of the assets of vision care centers. The
success of this aspect of the Company's growth strategy is dependent, in part,
on its ability to integrate and manage acquired operations and to acquire,
integrate and manage additional operations. There can be no assurance that the
Company will be able to identify suitable acquisition candidates or be able to
finance any such acquisitions or that any such acquisitions will be consummated
on terms favorable to the Company. If the Company is able to acquire additional
operations, there can be no assurance that the Company will be able to integrate
and manage such additional operations successfully.
MEC Shares Held in Escrow. All of the shares of stock of MEC owned by the
Company are being held in escrow pending the Company's payment in full of a
promissory note in the original principal amount of $1,799,100 with a current
principal amount of $1,000,000 (the "MEC Note") issued by the Company as part of
the consideration for its acquisition of MEC in October 1995. The MEC Note was
originally due on demand on or after April 1, 1996, and has been extended
several times, most recently to be due on demand on or after January 15, 1997.
If the Company were to default under the MEC Note, the former shareholders of
MEC would be entitled to regain ownership of all of such shares.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Public Company Publishing, Inc. On May 10, 1996, following
unsuccessful efforts of mediation, the Company received from counsel
to Public Company Publishing Inc. ("PCP") a copy of a complaint said
to have been filed in the Circuit Court for Orange County, Florida.
The complaint alleges that the Company breached a written agreement
between PCP and the Company dated July 10, 1992, as subsequently
modified and renewed, pursuant to which PCP was to receive certain
options to purchase Common Stock in exchange for rendering financial
consulting services to the Company. The complaint alleges that the
options entitled PCP to purchase an aggregate of 180,000 shares of
Common Stock as follows: 60,000 shares at $4.00 per share through July
1997, 60,000 shares at $9.25 per share through January 1998, and
60,000 shares at $4.62 per share through July 1998. The complaint
seeks monetary damages in an unspecified amount, as well as specific
performance. PCP has stated outside of the complaint that its damages
are $2,057,400. On May 23, 1996 the Company removed the case to the
United States District Court for the Middle District of Florida. The
Company filed an answer on June 28, 1996, denying the enforceability
of the agreement and the validity of the options. Limited discovery
has been conducted. The Company and PCP are negotiating terms for
potential settlement of the case. In the event case does not settle,
the case is set for trial on August 4, 1997. In the opinion of
management, this case will not have a material adverse effect on the
financial condition of the Company, although there can be no assurance
that it will not have a material adverse effect on the operating
results of the Company. As of September 30, 1996, the Company has
accrued $100,000 based upon pending settlement discussions.
Rural Health Partners, Inc. On May 9, 1996, Rural Health Partners,
Inc. ("RHP") brought an action in the District Court, City and County
of Denver, Colorado against MRF, Inc., d/b/a The Farris Group ("TFG")
alleging that TFG breached an agreement with RHP to provide joint
consulting services to certain health care providers. RHP's complaint
also alleges fraud, negligent misrepresentation, breach of fiduciary
duty and trade defamation by TFG and seeks monetary damages in an
unspecified amount. The Company filed an answer denying all liability
and a counterclaim against RHP on July 19 and July 26, 1996. On
September 24, 1996, TFG removed the case to the United States District
Court for the District of Colorado. To date, only limited discovery
has been conducted. In the opinion of management, this case will not
have a material adverse effect on the financial condition of the
Company.
Certain other legal proceedings against the Company are described in
Item 3 (Legal Proceedings) of the Company's Form 10-K for the year
ended December 31, 1995.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
<PAGE>
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
EXHIBIT INDEX PAGE
------------------
Exhibit 2 - Plans of Acquisition, Reorganization
2.1 See Exhibits 10.3, 10.8, 10.10 and 10.19.
Exhibit 4 - Instruments Defining the Rights of Security Holders
4.1 Instruments defining the rights of security holders are
set forth in the Articles of Incorporation, as amended,
and is incorporated herein by reference from Form 8-A/A
filed January 18, 1996.
Exhibit 10 - Material Contracts
10.1 Agreement dated April 1, 1992, between International
Business Machines Corporation and LaserSight
Incorporated (filed as Exhibit 10.1 on Form 10-K for
the year ended December 31, 1995*).
10.2 Covenant Not to Compete entered into between LaserSight
Incorporated and Dr. J. T. Lin (filed as Exhibit 10(c)
to the Company's Registration Statement on Form S-18.*)
10.3 Agreement for Purchase and Sale of Stock by and among
LaserSight Centers Incorporated, its stockholders and
LaserSight Incorporated dated January 15, 1993 (filed
as Exhibit 2 to the Company's Form 8-K/A filed on
January 25, 1993*).
- ------------
*Incorporated herein by reference. File No. 0-19671.
<PAGE>
10.4 Amendment to Agreement for Purchase and Sale of Stock
by and among LaserSight Centers Incorporated, its
stockholders, and LaserSight Incorporated dated April
5, 1993 (filed as Exhibit 2 to the Company's Form 8-K/A
filed on April 19, 1993*).
10.5 Royalty Agreement by and between LaserSight Centers
Incorporated and LaserSight Partners dated January 15,
1993 (filed as Exhibit 10.5 to the Company's Form 10-K
for the year ended December 31, 1995*).
10.6 Exchange Agreement dated January 25, 1993 between
LaserSight Centers Incorporated and Laser Partners
(filed as Exhibit 10.6 to the Company's Form 10-K for
the year ended December 31, 1995*).
10.7 Stipulation and Agreement of Compromise, Settlement and
Release dated April 18, 1995 among James Gossin,
Francis E. O'Donnell, Jr., J.T. Lin, Wen S. Dai,
Emanuela Dobrin-Charlton, C.H. Huang, W. Douglas
Hajjar, and LaserSight Incorporated (filed as Exhibit
10.7 to the Company's Form 10-K for the year ended
December 31, 1995*).
10.8 Agreement for Purchase and Sale of Stock dated December
31, 1993, among LaserSight Incorporated, MRF, Inc., and
Michael R. Farris (filed as Exhibit 2 to the Company's
Form 8-K filed on December 31, 1993*).
10.9 First Amendment to Agreement for Purchase and Sale of
Stock by and among MRF, Inc., Michael R. Farris and
LaserSight Incorporated dated December 28, 1995 (filed
as Exhibit 10.9 to the Company's Form 10-K for the year
ended December 31, 1995*).
10.10 Contribution Agreement dated July 7, 1994, between
LaserSight Incorporated and LaserSight Technologies,
Inc. (filed as Exhibit 2.6 to the Company's Form 10-K
for the year ended December 31, 1994*).
10.11 Research and Development Consulting Agreement dated
March 31, 1995 between LaserSight Technologies, Inc.
and J. T. Lin, Ph.D. (filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended September 30,
1995*).
10.12 Technology Transfer Agreement dated July 25, 1995
between LaserSight Technologies, Inc., J.T. Lin, Ph.D.
and Photon Data, Inc. (filed as Exhibit 10.4 to the
Company's Form 10-Q for the quarter ended September 30,
1995*).
- -------------
*Incorporated herein by reference. File No. 0-19671.
<PAGE>
10.13 LaserSight Incorporated 1995 Stock Option Plan (filed
as Exhibit 10.5 to the Company's Form 10-Q for the
quarter ended September 30, 1995*).
10.14 Consulting Agreement dated June 21, 1994 by and between
LaserSight Incorporated and Emanuela Dobrin-Charlton
(filed as Exhibit 10.14 to the Company's Form 10-K for
the year ended December 31, 1995*).
10.15 Consulting Agreement dated June 7, 1995 by and between
LaserSight Incorporated and Richard C. Lutzy (filed as
Exhibit 10.15 to the Company's Form 10-K for the year
ended December 31, 1995*).
10.16 Modified Promissory Note between LaserSight
Incorporated, EuroPacific Securities Services, GmbH and
Co. KG and Wolf Wiese (filed as Exhibit 10.6 to the
Company's Form 10-Q for the quarter ended September 30,
1995*).
10.17 Employment Agreement by and between LaserSight
Incorporated and Michael R. Farris dated December 28,
1995 (filed as Exhibit 10.17 to the Company's Form 10-K
for the year ended December 31, 1995*).
10.18 Employment Agreement dated December 28, 1995 by and
between LaserSight Incorporated and David Pieroni
(filed as Exhibit 10.18 to the Company's Form 10-K for
the year ended December 31, 1995*).
10.19 Agreement and Plan of Merger by and among LaserSight
Incorporated, MEC Health Care, Inc., Dr. Mark B.
Gordon, O.D. and Dr. Howard M. Levin, O.D., dated
August 28, 1995 as amended as of October 5, 1995 (filed
as Exhibit 2 to the Company's Form 8-K filed on October
19, 1995*).
10.20 Manufacturer's Representative Agreement by and between
LaserSight Technologies, Inc. and Natural Vision of
Malta dated September 1, 1995 (filed as Exhibit 10.20
to the Company's Form 10-K for the year ended December
31, 1995*).
10.21 Patent License Agreement dated December 21, 1995 by and
between Francis E. O'Donnell, Jr. and LaserSight
Centers, Inc. (filed as Exhibit 10.21 to the Company's
Form 10-K for the year ended December 31, 1995*).
- -------------
*Incorporated herein by reference. File No. 0-19671.
<PAGE>
10.22 Agreement dated April 4, 1996 to amend Agreement and
Plan of Merger by and among LaserSight Incorporated,
Mark B. Gordon, O.D. and Howard M. Levin, O.D. (filed
as Exhibit 10.22 to the Company's Form 10-Q for the 2nd
quarter ended June 30, 1996*).
10.23 Agreement dated June 27, 1996 to amend Agreement and
Plan of Merger by and among LaserSight Incorporated,
Mark B. Gordon, O.D. and Howard M. Levin, O.D. (filed
as Exhibit 10.23 to the Company's Form 10-Q for the 2nd
quarter ended June 30, 1996*).
10.24 LaserSight Incorporated 1996 Equity Incentive Plan
(filed as Exhibit A to the Company's definitive proxy
statement dated April 30, 1996*).
10.25 LaserSight Incorporated Non-Employee Directors Stock
Option Plan (filed as Exhibit B to the Company's
definitive proxy statement dated April 30, 1996*).
10.26 Agreement and Plan of Merger dated April 18, 1996 among
LaserSight Incorporated, Eye Diagnostics & Surgery,
P.A., LSI Acquisition, Inc., John W. Norris, M.D. and
Bernard Spier, M.D. (filed as Exhibit 2 (i) to the
Company's Form 8-K dated July 18, 1996*).
10.27 Amendment to the Agreement and Plan of Merger dated
June 17, 1996 (filed as Exhibit 2 (ii) to the Company's
Form 8-K dated July 18, 1996*).
10.28 Second Amendment to the Agreement and Plan of Merger
dated July 3, 1996 (filed as Exhibit 2 (iii) to the
Company's Form 8-K dated July 18, 1996*).
10.29 Agreement and Plan of Merger dated June 17, 1996 among
LaserSight Incorporated, LaserSight Acquisition, Inc.,
Cataract Hotline, Inc. and Michael R. Norris (filed as
Exhibit 2 (iv) to the Company's Form 8-K dated July 18,
1996*).
10.30 Asset Purchase Agreement dated April 18, 1996 between
LaserSight Incorporated and John W. Norris, M.D. (filed
as Exhibit 2 (vi) to the Company's Form 8-K dated July
18, 1996*).
10.31 Amendment to Asset Purchase Agreement dated June 17,
1996 (filed as Exhibit 2 (vii) to the Company's Form
8-K dated July 18, 1996*).
- -------------
*Incorporated herein by reference. File No. 0-19671.
<PAGE>
Exhibit 11 Statement of Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
On July 8, 1996, the Company filed with the Commission
a Current Report on Form 8-K regarding the press
release issued by LaserSight Incorporated dated July 8,
1996, reporting the acquisition of the assets of a New
Jersey Ophthalmic practice and surgery center.
On July 9, 1996, the Company filed with the Commission
a Current Report on Form 8-K regarding the press
release dated July 9, 1996, announcing preliminary
second-quarter estimates.
On July 18, 1996, the Company filed with the Commission
a Current Report on Form 8-K regarding the acquisition
of the assets of the Northern New Jersey Eye Institute.
On September 6, 1996, the Company filed with the
Commission a Current Report on Form 8-K regarding the
press release dated September 6, 1996, announcing the
appointment of a Chief Operating Officer.
On September 16, 1996, the Company filed with the
Commission a Current Report on Form 8-K/A including the
financial information required related to the
acquisition of the assets of the Northern New Jersey
Eye Institute.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the undersigned have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LaserSight Incorporated
Dated: November 14, 1996 By: /s/ Michael R. Farris
-------------------- -------------------------
Michael R. Farris,
Chief Executive Officer
Dated: November 14, 1996 By: /s/ Gregory L. Wilson
-------------------- -------------------------
Gregory L. Wilson,
Chief Financial Officer
.
<TABLE>
<CAPTION>
EXHIBIT 11
LASERSIGHT INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------------------------------- -----------------------------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 7,639,000 6,185,000 7,238,000 6,099,000
Contingently issuable shares, acquisition
of The Farris Group -- 351,000 -- 351,000
Net effect of dilutive stock options and warrants -- 520,000 -- 401,000
-------------------------------- -----------------------------
7,639,000 7,056,000 7,238,000 6,851,000
================================ =============================
Net income(loss) $(2,053,686) $ 759,338 $(3,310,390) $3,618,683
Dividends on preferred stock (77,674) -- (345,694) --
-------------------------------- -----------------------------
Adjusted income (loss) $(2,131,360) $ 759,338 $(3,656,084) $3,618,683
================================ =============================
Primary earnings (loss) per share ($0.28) $0.11 ($0.51) $0.53
================================ =============================
Additional Primary Calculation:
Net loss, as adjusted per computation above $(2,131,360) $(3,656,084)
============= ============
Additional adjustment to weighted
average # of shares:
Weighted average # of shares as adjusted per
above 7,639,000 7,238,000
Dilutive effect of contingently issuable shares
and stock options and warrants 603,000 574,000
------------- ------------
Weighted average # of shares, as adjusted 8,242,000 7,812,000
============= ============
Primary loss per share, as adjusted ($0.26) (A) ($0.47) (A)
============= ============
<PAGE>
EXHIBIT 11 - Continued
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------------------------------- -----------------------------
FULLY DILUTED
Weighted average shares outstanding 7,639,000 6,185,000 7,238,000 6,099,000
Contingently issuable shares, acquisition of
The Farris Group -- 351,000 -- 351,000
Net effect of dilutive stock options and warrants -- 536,000 -- 426,000
Effect of converted preferred stock and dividends
from beginning of period 378,000 -- 610,000 --
-------------------------------- -----------------------------
8,017,000 7,072,000 7,848,000 6,876,000
================================ =============================
Net income (loss) $(2,053,686) $ 759,338 $(3,310,390) $3,618,683
Dividends on preferred stock (77,674) -- (345,694) --
-------------------------------- -----------------------------
Adjusted income (loss) $(2,131,360) 759,338 $(3,656,084) $3,618,683
================================ =============================
Fully diluted earnings (loss) per share ($0.27) $0.11 ($0.47) $0.53
================================ =============================
Additional Fully Diluted Calculation:
Net loss, as adjusted per computation above $(2,131,360) $(3,656,084)
============= ============
Additional adjustment to weighted average # of shares:
Weighted average # of shares as adjusted per
above 8,017,000 7,848,000
Dilutive effect of contingently issuable
shares, stock options and warrants and
convertible preferred stock 766,000 730,000
------------- ------------
Weighted average # of shares, as adjusted 8,783,000 8,578,000
============= ============
Fully diluted loss per share, as adjusted ($0.24)(A) ($0.43) (A)
============= ============
(A) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No.
15 because it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,444,939
<SECURITIES> 0
<RECEIVABLES> 10,494,109
<ALLOWANCES> 1,713,327
<INVENTORY> 3,267,392
<CURRENT-ASSETS> 15,975,700
<PP&E> 2,708,678
<DEPRECIATION> 686,301
<TOTAL-ASSETS> 32,908,833
<CURRENT-LIABILITIES> 6,238,360
<BONDS> 0
0
0
<COMMON> 8,251
<OTHER-SE> 24,775,458
<TOTAL-LIABILITY-AND-EQUITY> 32,908,833
<SALES> 15,070,482
<TOTAL-REVENUES> 15,070,482
<CGS> 5,258,207
<TOTAL-COSTS> 5,258,207
<OTHER-EXPENSES> 13,509,477
<LOSS-PROVISION> 462,500
<INTEREST-EXPENSE> 102,068
<INCOME-PRETAX> (4,429,768)
<INCOME-TAX> (1,119,378)
<INCOME-CONTINUING> (3,310,390)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,310,390)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.47)
</TABLE>
