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 June 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
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(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
August 9, 1996 is 7,629,228.
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
for the Three Month Periods and Six Month
Periods Ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the Six Month Periods Ended June 30, 1996
and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
June 30, December 31,
1996 1995
--------------- --------------
CURRENT ASSETS ASSETS (Unaudited)
Cash and cash equivalents $2,735,961 $1,598,339
Trade accounts receivable, net 6,222,882 8,512,744
Notes receivable - current portion, net 2,858,301 1,632,221
Inventory 2,774,756 1,836,750
Deferred tax assets 472,000 221,000
Income taxes recoverable 335,706 -
Other current assets 190,695 378,905
--------------- --------------
TOTAL CURRENT ASSETS 15,590,301 14,179,959
NOTES RECEIVABLE, less current portion, net 4,090,630 3,026,148
FURNITURE AND EQUIPMENT, net 1,162,929 1,045,481
GOODWILL, net 8,417,186 8,640,645
OTHER ASSETS, net 2,196,784 2,210,260
--------------- --------------
$31,457,830 $29,102,493
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $2,248,892 $2,088,736
Notes payable - related parties 1,000,000 2,264,100
Accrued expenses 306,087 492,641
Accrued commissions 1,649,339 1,777,007
Dividends payable on preferred stock 245,780 -
Income taxes payable - 314,205
Other current liabilities 366,176 171,743
--------------- --------------
TOTAL CURRENT LIABILITIES 5,816,274 7,108,432
REFUNDABLE DEPOSITS 293,000 425,000
ACCRUED COMMISSIONS 441,830 518,920
DEFERRED INCOME TAXES 600,000 630,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.001 per share; authorized 10,000,000
shares; 104 issued and outstanding at June 30, 1996 - -
Common stock - par value $.001 per share; authorized 20,000,000 shares;
7,261,175 and 7,186,032 shares issued at June 30,1996 and December 31,
1995, respectively 7,261 7,186
Additional paid-in capital 27,087,214 21,944,000
Obligation to issue common stock 780,125 780,125
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit (1,795,165) (538,461)
Less treasury stock, at cost; 170,200 shares (632,709) (632,709)
--------------- --------------
24,306,726 20,420,141
--------------- --------------
$31,457,830 $29,102,493
=============== ==============
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- ------------------------------------
1996 1995 1996 1995
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES, Net $5,992,612 $6,074,664 $10,576,250 $10,563,228
COST OF SALES 830,498 1,160,283 1,464,545 1,898,011
PROVIDER PAYMENTS 994,538 1,929,496
--------------- ---------------- ---------------- ----------------
GROSS PROFIT 4,167,576 4,914,381 7,182,209 8,665,217
RESEARCH, DEVELOPMENT AND REGULATORY
EXPENSES 311,490 238,470 1,047,622 458,148
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,907,671 3,707,704 8,094,268 5,748,646
--------------- ---------------- ---------------- ----------------
INCOME (LOSS) FROM OPERATIONS (51,585) 968,207 (1,959,681) 2,458,423
OTHER INCOME AND EXPENSES
Interest and dividend income 35,168 28,564 89,914 95,164
Interest expense (21,224) (9,276) (47,588) (24,367)
Other -- 350,000 -- 1,330,125
--------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) BEFORE INCOME TAXES
(37,641) 1,337,495 (1,917,355) 3,859,345
INCOME TAX EXPENSE (BENEFIT) (12,701) 400,000 (660,651) 1,000,000
--------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) ($24,940) $937,495 ($1,256,704) $2,859,345
=============== ================ ================ ================
EARNINGS (LOSS) PER COMMON SHARE
Primary: ($0.02) $0.14 ($0.22) $0.43
=============== ================ ================ ================
Assuming full dilution: ($0.02) $0.14 ($0.22) $0.43
=============== ================ ================ ================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Primary: 7,051,000 6,731,000 7,035,000 6,682,000
=============== ================ ================ ================
Assuming full dilution: 7,089,000 6,789,000 7,084,000 6,725,000
=============== ================ ================ ================
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<S> <C> <C>
1996 1995
------------------ ------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (1,256,704) $ 2,859,345
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 425,877 150,338
Increase in accounts and notes receivable (700) (5,512,616)
Increase in inventory (938,006) (282,924)
Increase in accounts payable 160,156 393,137
(Decrease) increase in accrued liabilities (196,879) 1,229,511
(Decrease) increase in income taxes (930,911) 942,000
Other (3,339) 76,202
------------------ ------------------
NET CASH USED IN OPERATING ACTIVITIES (2,740,506) (145,007)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (246,863) (184,581)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net -- 1,288,332
Proceeds from exercise of stock options 46,940 243,834
Repayments of notes payable - related party (799,100) --
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 4,124,991 1,032,166
------------------ ------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,137,622 702,578
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,598,339 1,882,528
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,735,961 $ 2,585,106
================== ==================
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Month Periods Ended June 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 June 30, 1996,
and for the three month periods and six month periods ended June 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 six month periods ended June 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 six month periods ended June
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,
is stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials $1,548,381 $839,984
Work-in-process 739,506 431,766
Finished goods 156,869 280,000
Test equipment-clinical trials 330,000 285,000
------- -------
$2,774,756 $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 June 30, 1996, 104 shares of Preferred Stock were outstanding. The con-
version of 12 shares of Preferred Stock through June 30, 1996 resulted in
the issuance of 65,643 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 SUBSEQUENT EVENT
Practice Acquisition
--------------------
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, payable on or before September 13, 1996. Up to a maximum of
102,798 additional shares may be issuable in two years 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, totalling $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 will approximate $300,000 annually
commencing July 1996.
<PAGE>
<TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net Sales. The following table presents the Company's net sales by major
operating segments: technology related products and services, and health care
services for the three and six month periods ended June 30, 1996 and 1995.
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales % of Total % Change Net Sales % of Total
--------- ---------- -------- --------- ----------
Technology related $3,479,057 58% (25%) $4,665,066 77%
Health care services 2,622,753 44% 86% 1,409,598 23%
Intercompany revenues (109,198) (2%) N/A -- --
--------- ---- ---------- ----
Total net sales $5,992,612 100% (1%) $6,074,664 100%
========== ==== ========== ====
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1996 June 30, 1995
------------- -------------
Net Sales % of Total % Change Net Sales % of Total
--------- ---------- -------- --------- ----------
Technology related $5,463,407 51% (32%) $8,024,524 76%
Health care services 5,347,650 51% 111% 2,538,704 24%
Intercompany revenues (234,807) (2%) N/A -- --
--------- ---- ---------- ----
Total net sales $10,576,250 100% (.1%) $10,563,228 100%
=========== ==== =========== ====
</TABLE>
Net sales in the second quarter of 1996 were $5,992,612 compared to $6,074,664
(for a decrease of $82,052) over the same period in 1995. Net sales for the six
month period ended June 30, 1996, increased by $13,022 to $10,576,250 from the
same period in 1995. The increase in health care services revenue was
attributable to revenues generated by the Company's subsidiary, MEC Health Care,
Inc. (MEC), acquired on October 5, 1995. The additional revenues generated from
MEC were offset primarily by a decrease in sales of technology related products
and services during the three and six month periods ended June 30, 1996, of
$1,186,009 and $2,561,117, respectively. Thirteen laser systems were sold in the
second quarter of 1996 compared to 15 systems sold during the same period in
1995. Net of returns, 20 laser systems were sold during the six month period
ended June 30, 1996, compared to 26 systems sold during the same period in 1995.
The decrease in the number of laser systems sold from levels during 1995 is
primarily the result of the Company's revised credit policy which established
<PAGE>
more stringent criteria for acceptable sales terms. The impact on sales over the
remainder of 1996 of more restrictive credit policies, if any, cannot currently
be determined. In addition, the average sales price per laser system sold during
the six months ended June 30, 1996 declined approximately four percent compared
to the average in the same period in the prior year. 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 six month periods ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1996 % Change June 30, 1995
------------- -------- -------------
Overall:
Cost of goods sold $ 830,498 (28%) $1,160,283
Provider payments 994,538 N/A --
Gross profit 4,167,576 4,914,381
Gross profit percentage 70% 81%
Technology related only:
Gross profit 2,648,559 3,504,783
Gross profit percentage 76% 75%
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1996 % Change June 30, 1995
------------- -------- -------------
Overall:
Cost of goods sold $1,464,545 (23%) $1,898,011
Provider payments 1,929,496 N/A --
Gross profit 7,182,209 8,665,217
Gross profit percentage 68% 82%
Technology related only:
Gross profit 3,998,862 6,126,513
Gross profit percentage 73% 76%
Gross profit margins were 70% of net sales in the second quarter of 1996
compared to 81% for the same period in 1995. For the six month periods ended
June 30, 1996 and 1995, gross profit margins were 68% and 82%, respectively. The
gross profit margin decrease was attributable primarily to the addition of MEC
which, for the three and six month periods ended June 30, 1996, operated at a
gross profit percentage of 27% and 30%, respectively and, to a lesser extent, a
lower average sales price for lasers sold during the first two quarters of 1996
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 sale of the Company's
future revenue rights.
</TABLE>
<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
June 30, 1996 % Change June 30, 1995
------------- -------- -------------
<S> <C> <C> <C>
Research, development
and regulatory $ 311,490 31% $238,470
As a % of technology
related net sales 9% 5%
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1996 % Change June 30, 1995
------------- -------- -------------
Research, development
and regulatory $1,047,622 129% $458,148
As a % of technology
related net sales 19% 6%
</TABLE>
Research, development and regulatory expenses for the second quarter of 1996
were $311,490, an increase of $73,020, or 31% from such expenditures during the
same period in 1995. Research, development and regulatory expenses for the six
month period ended June 30, 1996, increased by $589,474 from $458,148 for the
same period in 1995 or 129%. The increase in research, development and
regulatory expenses can primarily be attributed to increased research and
development of new refractive laser systems, including refinements to the
LaserScan 2000, software development for the excimer lasers, and development of
the LaserHarmonic solid state laser. Regulatory expenses have continued to
increase 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.
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1996 % Change June 30, 1995
------------- -------- -------------
Selling, general and
administrative $3,907,671 5% $3,707,704
As a % of net sales 65% 61%
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1996 % Change June 30, 1995
------------- -------- -------------
Selling, general and
administrative $8,094,268 41% $5,748,646
As a % of net sales 77% 54%
<PAGE>
Selling, general and administrative expenses increased by $199,967 and
$2,345,622 for the second quarter of 1996 and the first six months of 1996,
respectively, over comparable periods in 1995. The primary reasons for these
increases include higher selling expenses from the continued marketing and
distribution of laser systems in international markets, increased employment and
other operating costs as a result of the acquisition of MEC in October 1995, a
general increase in technology related personnel and costs as a result of the
growth of the Company during 1995, the establishment of a manufacturing facility
in Costa Rica and resources devoted to the Company's strategy related to managed
vision care. As a result of increased selling activities for the Company's laser
in international markets, beginning in March 1995, the Company significantly
increased its in-house marketing staff. Such expenses include salaries and
benefits, commissions on laser sales, training, consulting and travel-related
costs. Legal and accounting expenditures increased as a result of ongoing
regulatory filings, general corporate issues, litigation and patent issues.
During the first six 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 June 30, 1996,
the Company's trade accounts and notes receivable aggregated approximately $13.2
million, net of an allowance of approximately $1.1 million. Accrued commissions,
the payment of which generally depends on the collection of such net trade
accounts and notes receivable, aggregated approximately $2.1 million at June 30,
1996.
Income (Loss) from Operations. There was an operating loss of $51,585 in the
second quarter of 1996 compared to income from operations of $968,207 for the
same period in 1995. For the six month period ended June 30, 1996, there was an
operating loss of $1,959,681 compared to income from operations of $2,458,423
for the same period in 1995. The decline 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. 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.
Interest and dividend income was $35,168 in the second quarter of 1996 compared
to interest and dividend income of $28,564 for the same period in 1995. Interest
and dividend income for the six-month period ended June 30, 1996 was $89,914
compared to interest and dividend income of $95,164 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 $21,224 in the second
quarter of 1996 compared to interest expense of $9,276 for the same period in
1995. Interest expense for the six month period ended June 30, 1996 was $47,588
compared to interest expense of $24,367 for the same period in 1995. Interest
expense incurred by the Company during the first two quarters of 1995 related
primarily to the note payable to the former owner of The Farris Group and, in
1996, to the former owners of MEC.
<PAGE>
Income Taxes. For the three months ended June 30, 1996, the Company recorded an
income tax benefit of $12,701 compared to a provision for income taxes of
$400,000 for the same period in 1995. For the six month period ended June 30,
1996, the Company recorded an income tax benefit of $660,651 compared to a
provision for income taxes of $1,000,000 for the same period in 1995. The income
tax benefit for the first and second 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 second quarter of 1996 was $24,940 compared
to a net income of $937,495 for the same period in 1995. Net loss for the six
month period ended June 30, 1996, was $1,256,704 compared to a net income of
$2,859,345 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 and second quarter of 1996.
Earnings per Share. Earnings (loss) per primary and fully diluted share
decreased to ($0.02) for the second quarter of 1996 compared to $0.14 for the
same period in 1995. Earnings (loss) per primary and fully diluted share
decreased to ($0.22) for the six month period ended June 30, 1996, compared to
$0.43 for the same period in 1995. These decreases are attributable to the net
loss incurred during both the first and second quarters of 1996. See Note 2 of
Notes to Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
- -------------------------------
Working capital increased $2,702,500 from $7,071,527 at December 31, 1995 to
$9,774,027 as of June 30, 1996. Cash and cash equivalents increased from
$1,598,339 at December 31, 1995 to $2,735,961 at June 30, 1996. These increases
in working capital and cash resulted primarily from the proceeds from issuance
of the Preferred Stock, after giving effect to a reclassification of receivables
from short-term to long-term. The Preferred Stock proceeds were used primarily
for repayment of debt and funding general operations.
Operating activities used net cash of $2,740,506 during the first six months of
1996, compared to $145,007 of net cash used in operations during the same period
in 1995. This decrease is primarily attributable to a net loss of $1,256,704
compared to a net income of $2,859,345 for the same period in 1995. Other
factors resulting in this decrease include the growth in inventories and an
increase in income taxes recoverable. The Company used $246,863 in cash for
investing activities in the first six months of 1996 compared to $184,581 in the
same period in 1995. Net cash used in investing activities during the first six
months of 1996 and 1995 can be primarily attributed to the purchase of office
and computer equipment. Net cash provided by financing activities during the
first six months of 1996 was $4,124,991, primarily consisting of net proceeds
from the sale of preferred stock totaling $5,342,151 less a repayment of
$1,264,100 in notes payable relating to the Company's acquisitions of The Farris
Group in February 1994 and MEC in October 1995. That compares to cash provided
by financing activities in the first half of 1995 of $1,032,166, consisting of
$1,532,166 in proceeds from the sale of common stock less a debt repayment of
$500,000 related to the acquisition of The Farris Group.
<PAGE>
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
antici- pated 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 the first six months of 1996, may from time to time reassess its
credit policy and the terms it will make available to individual customers. As a
re- sult 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 extended periods. Over 80 percent of
the revenues generated by laser sales during the quarter ended June 30, 1996
have either been collected or are due within approximately 90 days from such
date. 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:
Conversion of Outstanding Preferred Stock. As of August 9, 1996, 397,898 shares
of Common Stock (including shares issued in payment of accrued dividends) had
<PAGE>
been issued upon the conversion of 55 shares of the Company's Series A Preferred
Stock. The number of shares of Common Stock issuable upon the conversion of the
remaining 61 shares of Preferred Stock will 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 August 9, 1996, 481,642 shares of Common
Stock would be issuable upon conversion. The shares issued upon conversion will
not exceed 635,384 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 61 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
September 10, 1996, and were to be based on a market price of the Common Stock
equal to its closing price on August 8, 1996, 26,667 shares of Common Stock
would be issuable as dividends on the remaining Preferred Stock. The Company
will not issue more than 370,304 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 June 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 may renegotiate
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 re-
duce per share operating results.
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
<PAGE>
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 June 30,
1996, the Company had a contingent obligation to issue 501,000 of such 750,000
shares, based on the financial performance of The Farris Group through such
date.
Plan for Acquisitions. The Company has recently acquired the assets of one
vision care center. 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 three
times, most recently to be due on demand on or after November 15, 1996. 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 render-
ing 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 $2,157,400. The
Company intends to present a vigorous de- fense and filed an answer on June
28, 1996 denying the enforceability of the agreement and the validity of
the options. Non-binding arbitration and a trial date have been scheduled
for October 10, 1996 and August 4, 1997, respectively. In the opinion of
management, this case will not have a material adverse effect on the
financial condition of the Company, al- though there can be no assurance
that it will not have a material adverse effect on the operating results of
the Company.
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 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. 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
On June 7, 1996, at the Company's annual meeting of shareholders, the
following members were elected to the Board of Directors:
Votes For (1) Votes Withheld
------------- --------------
Emanuela Dobrin-Charlton 6,394,678 74,955
J. Richard Crowley 6,394,678 74,955
Michael R. Farris 6,394,678 74,955
Richard C. Lutzy 6,394,678 74,955
Francis E. O'Donnell, Jr., M.D. 5,934,428 535,205
Thomas Quinn 6,394,678 74,955
Richard L. Stensrud 6,394,678 74,955
A proposal to appoint KPMG Peat Marwick LLP as auditors was ratified as
follows:
Votes For 6,433,243
Votes Against 29,625
Votes Abstaining 6,765
The establishment of the 1996 Equity Incentive Plan was ratified as
follows:
Votes For 3,051,927
Votes Against 333,305
Votes Abstaining 61,394
The establishment of the Non-Employee Directors Stock Option Plan was
ratified as follows:
Votes For (1) 3,117,340
Votes Against 328,805
Votes Abstaining 63,516
(1) As set forth in the Proxy Statement, includes shares not voted by proxy
which were automatically voted for election of the nominees for director
and the appointment of auditors.
ITEM 5 OTHER INFORMATION
Not applicable.
<PAGE>
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 stock-
holders and LaserSight Incorporated dated
January 15, 1993 (filed as Exhibit 2 to the
Company's Form 8-K/A filed on January 25, 1993*).
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*).
----------------
*Incorporated herein by reference. File No. 0-19671.
<PAGE>
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*).
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*).
-------------------
*Incorporated herein by reference. File No. 0-19671.
<PAGE>
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*).
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. 23
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. 24
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*)
-----------------
*Incorporated herein by reference. File No. 0-19671.
<PAGE>
Exhibit 11 Statement of Computation of Per Share Earnings 25
Exhibit 27 Financial Data Schedule 26
b) Reports on Form 8-K
On April 15, 1996, the Company filed with the Commission a
Current Report on Form 8-K regarding Robert Qualls' resignation
from all positions with the Company and its subsidiaries.
On May 3, 1996, the Company filed with the Commission a Current
Report on Form 8-K regarding estimates of first quarter results.
<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: August 12, 1996 By: /s/ Michael R. Farris
-------------------------- ----------------------------
Michael R. Farris,
Chief Executive Officer
Dated: August 12, 1996 By: /s/ Gregory L. Wilson
-------------------------- ----------------------------
Gregory L. Wilson,
Chief Financial Officer
<PAGE>
EXHIBIT 10.22
April 4, 1996
Mark B. Gordon, O.D.
Howard H. Levin, O.D.
MEC Health Care, Inc.
100 Park Avenue
Baltimore, MD 21201
Dear Mark and Howard:
This is to confirm our agreement relative to the Agreement and Plan of Merger
dated as of August 28, 1995, as amended as of October 5, 1995:
1. The original promissory note, currently with a balance of one million
dollars ($1,000,000) plus accrued interest, will be extended 91 days to
July 1, 1996.
2. The term of the escrow agreement will be extended 91 days to July 15, 1996.
3. Expenses related to your pro-rata share of piggy-back registration rights
on an amendment to Form S-3 originally filed on March 8, 1996, will be paid
by the Company.
4. Once effective, the Company will use reasonable efforts to keep the
registration statement effective through December 31, 1996. If the
registration statement is not effective for some period during 1996, the
Company will extend the effectiveness from December 31, 1996, for the
corresponding number of days.
If the foregoing is acceptable to you, please execute this letter in the place
provided below, and we will formalize the relevant documents.
Sincerely yours,
LASERSIGHT INCORPORATED
By:/s/ Gregory L. Wilson
---------------------------
/s/Mark B. Gordon /s/Howard H. Levin
- ------------------------------ ---------------------------------
Mark B. Gordon, O.D. Howard H. Levin, O.D.
<PAGE>
EXHIBIT 10.23
June 27, 1996
Mark B. Gordon, O.D.
Howard H. Levin, O.D.
MEC Health Care, Inc.
100 Park Avenue
Baltimore, MD 21201
Dear Mark and Howard:
This is to confirm our agreement relative to the Agreement and Plan of Merger
dated as of August 28, 1995, as amended as of October 5, 1995, and the extension
of the promissory note dated April 4, 1996:
1. The original promissory note, currently with a balance of one million
dollars ($1,000,000) plus accrued interest from March 31, 1996, will be
extended 46 days to August 15, 1996.
2. The term of the escrow agreement with be extended 46 days to August 30,
1996.
If the foregoing is acceptable to you, please execute this letter in the place
provided below, and we will formalize the relevant documents.
Sincerely yours,
LASERSIGHT INCORPORATED
By: /s/Gregory L. Wilson
--------------------------------
Gregory L. Wilson
/s/Mark B. Gordon /s/Howard H. Levin
-------------------------------- --------------------------------
Mark B. Gordon, O.D. Howard H. Levin, O.D.
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
LASERSIGHT INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
3 Months Ended 6 Months Ended
June 30, June 30,
1996 1995 1996 1995
-------------------------------- -----------------------------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 7,051,000 6,099,000 7,035,000 6,099,000
Contingently issuable shares, acquisition
of The Farris Group -- 292,000 -- 292,000
Net effect of dilutive stock options -- 340,000 -- 291,000
-------------------------------- -----------------------------
7,051,000 6,731,000 7,035,000 6,682,000
================================ =============================
Net income(loss) ($24,940) $ 937,495 ($1,256,704) $2,859,345
Dividends on preferred stock (138,075) -- (268,020) --
================================ =============================
Adjusted income (loss) ($163,015) $ 937,495 ($1,524,724) $2,859,345
================================ =============================
Primary earnings (loss) per share ($0.02) $0.14 ($0.22) $0.43
================================ =============================
Additional Primary Calculation:
Net loss, as adjusted per computation above ($163,015) ($1,524,724)
============= ============
Additional adjustment to weighted
average # of shares:
Weighted average # of shares as adjusted per
above 7,051,000 7,035,000
Dilutive effect of contingently issuable shares
and stock options 742,000 748,000
------------- ------------
Weighted average # of shares, as adjusted 7,793,000 7,783,000
============= ============
Primary loss per share, as adjusted ($0.02) (A) ($0.20) (A)
============= ============
FULLY DILUTED
Weighted average shares outstanding 7,089,000 6,099,000 7,084,000 6,099,000
Contingently issuable shares, acquisition of
The Farris Group -- 292,000 -- 292,000
Net effect of dilutive options and warrants -- 398,000 -- 334,000
Convertible preferred stock and dividends payable -- -- -- --
-------------------------------- =============================
7,089,000 6,789,000 7,084,000 6,725,000
================================ =============================
Net income (loss) ($24,940) $ 937,495 ($1,256,704) $2,859,345
Dividends on preferred stock (138,075) -- (268,020) --
================================ =============================
Adjusted income (loss) ($163,015) 937,495 ($1,524,724) $2,859,345
================================ =============================
Fully diluted earnings (loss) per share ($0.02) $0.14 ($0.22) $0.43
================================ =============================
Additional Fully Diluted Calculation:
Net loss, as adjusted per computation above ($163,015) ($1,524,724)
============= ============
Additional adjustment to weighted average #
of shares:
Weighted average # of shares as adjusted per
above 7,089,000 7,084,000
Dilutive effect of contingently issuable
shares, stock options and convertible
preferred stock 1,316,000 1,322,000
------------- ------------
Weighted average # of shares, as adjusted 8,405,000 8,406,000
============= ============
Fully diluted loss per share, as adjusted ($0.02)(A) ($0.18) (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>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,735,961
<SECURITIES> 0
<RECEIVABLES> 10,576,183
<ALLOWANCES> 1,495,000
<INVENTORY> 2,774,756
<CURRENT-ASSETS> 15,590,301
<PP&E> 1,727,001
<DEPRECIATION> 564,072
<TOTAL-ASSETS> 31,457,830
<CURRENT-LIABILITIES> 5,816,274
<BONDS> 0
0
0
<COMMON> 7,261
<OTHER-SE> 24,299,465
<TOTAL-LIABILITY-AND-EQUITY> 31,457,830
<SALES> 10,576,250
<TOTAL-REVENUES> 10,576,250
<CGS> 3,394,041
<TOTAL-COSTS> 3,394,041
<OTHER-EXPENSES> 8,874,390
<LOSS-PROVISION> 267,500
<INTEREST-EXPENSE> 47,588
<INCOME-PRETAX> (1,917,355)
<INCOME-TAX> (660,651)
<INCOME-CONTINUING> (1,256,704)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,256,704)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
