SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuan to Section 13 or 15(d) of the Securities Exchange
Exchange Act of 1934. For the quarterly period ended March 31, 1998.
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.)
112249 Science Drive, Suite 160, Orlando, Florida 32826
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(407) 382-2700
-------------------------------------------------------
(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
May 14, 1998 is 12,712,712.
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
Except for the historical information contained herein, the discussion in this
Report contains forward-looking statements (within the meaning of Section 21E of
the Exchange Act) that involve risks and uncertainties. The Company's actual
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Risk Factors and Uncertainties"
in this report and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31,
1998 and December 31, 1997
Condensed Consolidated Statements of Operations for
the Three Month Periods Ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for
the Three Month Periods Ended March 31, 1998 and 1997
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
2
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1998 1997
---------------- --------------
CURRENT ASSETS ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $3,129,036 $3,858,400
Marketable equity securities 5,941,294 7,475,000
Accounts receivable - trade, net 4,026,974 2,649,202
Notes receivable - current portion, net 4,701,227 3,762,341
Inventories 4,561,882 4,348,235
Deferred tax assets 512,813 571,009
Other current assets 259,328 219,723
---------------- --------------
TOTAL CURRENT ASSETS 23,132,554 22,883,910
Restricted cash 194,000 200,000
Notes receivable, less current portion, net 2,120,824 2,380,193
Property and equipment, net 1,401,539 1,354,168
Goodwill, net 6,946,334 7,077,491
Patents, net 4,871,082 11,275,289
Pre-market approval application, net 2,431,408 2,571,682
Other assets, net 2,406,919 2,718,340
---------------- --------------
$43,504,660 $50,461,073
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $1,608,170 $2,142,979
Note payable, less discount 1,890,152 1,758,333
Accrued expenses 2,411,573 2,782,521
Accrued commissions 1,401,413 1,230,474
Income taxes payable 465,644 1,255,491
Deferred royalty revenue 400,000 -
Other current liabilities 870,583 984,412
---------------- --------------
TOTAL CURRENT LIABILITIES 9,047,535 10,154,210
Refundable deposits 194,000 200,000
Accrued expenses, less current portion 516,582 518,730
Deferred royalty revenue, less current portion 733,333 -
Deferred income taxes 512,813 571,009
Long-term obligations 500,000 500,000
Commitments and contingencies
Redeemable convertible preferred stock - Series B - par value $.001 per
share; authorized 10,000,000 shares; 584 and 1,295 issued and outstanding
at March 31, 1998 and December 31, 1997, respectively 5,169,584 11,477,184
Stockholders' equity:
Common stock - par value $.001 per share; authorized 40,000,000 shares;
12,219,332 and 10,149,872 shares issued and outstanding at March 31,
1998 and December 31, 1997, respectively 12,220 10,150
Additional paid-in capital 41,921,869 40,045,564
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit (13,829,421) (11,865,914)
Accumulated other comprehensive income - unrealized gain 480,505 604,500
Less treasury stock, at cost; 165,200 shares (614,360) (614,360)
----------------- ---------------
26,830,813 27,039,940
----------------- ---------------
$43,504,660 $50,461,073
================ ===============
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<CAPTION>
1998 1997
----------------- ---------------
REVENUE:
<S> <C> <C>
PRODUCTS $4,044,683 $3,553,844
SERVICES 198,536 2,964,298
----------------- ---------------
4,243,219 6,518,142
COST OF REVENUE:
PRODUCT COST 1,176,320 1,043,798
COST OF SERVICES 87,356 2,174,387
----------------- ---------------
GROSS PROFIT 2,979,543 3,299,957
RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES
817,556 362,204
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
3,747,049 3,573,496
-----------------
---------------
LOSS FROM OPERATIONS (1,585,062) (635,743)
OTHER INCOME AND EXPENSES
Interest and dividend income 114,856 97,364
Interest expense (396,521) (59,643)
Realized gain on sale of investments 214,376 -
Other - (50,000)
----------------- ----------------
LOSS BEFORE INCOME TAXES (1,652,351) (648,022)
INCOME TAX PROVISION (311,156) -
------------------ ---------------
NET LOSS (1,963,507) (648,022)
CONVERSION DISCOUNT ON PREFERRED STOCK (25,372) -
PREFERRED STOCK ACCRETION AND DIVIDEND
REQUIREMENTS (1,098,121) (9,863)
------------------ ---------------
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
$ (3,087,000) $ (657,885)
================== ================
LOSS PER COMMON SHARE
Basic: $(0.30) $(0.07)
================== ================
Diluted: $(0.30) $(0.07)
================== ================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic: 10,318,000 8,821,000
================= ===============
Diluted: 10,318,000 8,821,000
================= ===============
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<CAPTION>
1998 1997
------------------ ------------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(1,963,507) $(648,022)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 975,289 338,243
Realized gain on sale of investments (214,376) -
Decrease (increase) in accounts and notes receivable (2,057,289) 572,068
Decrease (increase) in inventories (213,647) 139,509
Increase (decrease) in accounts payable (534,809) 79,945
Decrease in accrued liabilities (419,383) (248,163)
Increase in deferred royalties 1,133,334 -
Income taxes (789,847) 165,499
Other (54,539) (425,184)
------------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (4,138,774) (26,105)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment, net (138,674) (191,780)
Proceeds from sale of investments 1,548,084 -
Net proceeds from exclusive license of patents 6,200,000 -
Transfer to restricted cash account (4,200,000) -
Proceeds from restricted cash account 4,212,000 -
------------------ ------------------
NET CASH PROVIDED BY PROVIDED BY (USED IN) INVESTING ACTIVITIES
7,621,410 (191,780)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants - 25,988
Repayments of capital lease obligation - (49,174)
Repurchase of preferred stock (4,212,000) -
------------------- ------------------
NET CASH USED IN FINANCING ACTIVITIES (4,212,000) (23,186)
------------------- ------------------
DECREASE IN CASH AND CASH EQUIVALENTS (729,364) (241,071)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,858,400 2,003,501
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,129,036 $1,762,430
================== ==================
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
5
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Month Periods Ended March 31, 1998 and 1997
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements
of LaserSight Incorporated and subsidiaries (the Company) as of March
31, 1998, and for the three month periods March 31, 1998 and 1997 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, 1997. 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 month period ended March 31,
1998 are not necessarily indicative of the operating results for the
full year.
NOTE 2 PER SHARE INFORMATION
Basic loss per common share is computed using the weighted average
number of common shares and contingently issuable shares (to the extent
that all necessary contingencies have been satisfied), if dilutive.
Diluted loss per common share is computed using the weighted average
number of common shares, contingently issuable shares, and common share
equivalents outstanding during each period. Common share equivalents
include options, warrants to purchase Common Stock, and convertible
Preferred Stock and are included in the computation using the treasury
stock method if they would have a dilutive effect.
6
<PAGE>
NOTE 3 ADOPTION OF NEW ACCOUNTING STANDARD
The Company adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" on
January 1, 1998. SFAS No. 130 requires companies to classify items
defined as "other comprehensive income" by their nature in a financial
statement and to display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of the balance sheet. The Company has restated
information for all prior periods reported below to conform to this
standard.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1998 1997
----------------- ---------------
<S> <C> <C>
Net loss $(1,963,507) $(648,022)
Other comprehensive loss:
Reclassification adjustment
for gains included in net
loss (net of tax of $75,997) (123,995) --
----------------- ---------------
Comprehensive loss $(2,087,502) $(648,022)
================= ===============
</TABLE>
NOTE 4 INVENTORIES
Inventories, which consist primarily of laser systems, parts and
components, are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. The components of
inventories at March 31, 1998 and December 31, 1997 are summarized as
follows:
March 31, 1998 December 31, 1997
-------------- -----------------
Raw materials $3,350,827 $2,958,782
Work-in-process 435,318 263,353
Finished goods 603,944 862,775
Test equipment-clinical trials 171,793 263,325
-------------- -----------------
$4,561,882 $4,348,235
============== =================
NOTE 5 MARKETABLE EQUITY SECURITIES
In March 1998, the Company received net proceeds of $1,548,084 in
exchange for 168,270 shares of Vision Twenty-One, Inc. (Vision 21)
common stock. This represented approximately 20% of the total shares
received in connection with the December 1997 sale of MEC Health Care,
Inc. (MEC) and LSI Acquisition, Inc. (LSIA) to Vision 21.
The Company realized a gain on the transaction of $214,376. At March
31, 1998, the market value of the remaining Vision 21 shares was
approximately $5,941,000.
7
<PAGE>
NOTE 6 SALE OF INTERNATIONAL PATENT RIGHTS
On February 10, 1998, the Company closed a transaction for the sale of
certain rights in certain patents to Nidek Co., Ltd. (Nidek) in
exchange for $6.3 million in cash (of which $200,000 was withheld for
the payment of Japanese taxes). The Company transferred all rights in
those patents which have been issued in countries outside of the U.S.
In addition, the Company has granted a non-exclusive license to use
those patents issued in the U.S., which resulted in $1.2 million of
deferred royalties that will be amortized to income over three years.
The transaction did not result in any current gain or loss, but will
reduce the Company's amortization expense over the remaining useful
life (approximately 8 years) of the remaining patents.
NOTE 7 COMMITMENTS AND CONTINGENCIES
In conjunction with acquisitions from Photomed, Inc., several
contingent payments included in the transaction are subject to U.S.
Food and Drug Administration (FDA) approval. If the FDA approves the
acquired Pre-Market Approval (PMA) application by July 29, 1998, the
Company will be obligated to pay $1.75 million to the sellers. If the
FDA approves the use of any Company laser for the treatment of
hyperopia, the Company will be obligated to issue to the sellers
unregistered Common Stock valued at $1 million. If the Company's
scanning laser had been approved by the FDA for commercial sale in the
U.S. on or before April 1, 1998, the Company would have been obligated
to pay $1 million to the sellers. Approval after such date will result
in a correspondingly smaller obligation until January 1, 1999, when no
payment will be required. No such approvals have been received as of
May 14, 1998.
NOTE 8 STOCKHOLDERS' EQUITY
Series B Preferred Stock Redemption
-----------------------------------
On February 4, 1998, in exchange for the consent of the holders of its
Series B Preferred Stock to the sale of international patent rights
(see Note 6), the Company agreed to deposit $4.2 million of the sale
transaction proceeds into a restricted cash account for the exclusive
benefit of the preferred holders.
The preferred holders received an option to sell to the Company up to
351 shares of Series B Preferred Stock (representing an aggregate face
amount of $3,510,000) at any time during the 150-day period ending July
10, 1998. As of March 31, 1998 all 351 shares had been repurchased with
funds from the restricted cash account at a 20% premium.
The amount of the repurchase price in excess of the carrying value of
the Series B Preferred Stock repurchased and a pro rata portion of
Series B Preferred Stock-related financing costs increased the loss
attributable to common shareholders for the three months ended March
31, 1998.
Other
-----
As of March 31, 1998, the Series B Preferred Stockholders had converted
360 shares of Series B Preferred Stock into 2,069,460 shares of Common
Stock.
8
<PAGE>
NOTE 9 SUBSEQUENT EVENT
On April 15, 1998, the Company and Schwartz Electro-Optics, Inc. (SEO)
completed an agreement whereby the Company purchased substantially all
of the assets, and assumed certain liabilities, of SEO's medical
products division (the Division) in exchange for 305,820 shares of the
Company's Common Stock. The Company is contingently obligated to issue
up to 223,280 additional shares on April 15, 1999 if its five day
average Common Stock price is not then valued at $5.00 or greater. The
value of the acquisition was $1,250,000. The Division develops, tests,
manufacturers, assembles, and sells lasers and their related equipment,
accessories, parts, and software for medical and medical research
applications. The Division's primary focus is erbium lasers, which are
primarily used to perform dermatology procedures.
The acquisition will be accounted for using the purchase method.
Accordingly, SEO's results of operations will be included in the
Company's consolidated financial statements subsequent to the
acquisition date. The fair value of the purchase consideration was
determined at the date of acquisition and was recorded at that time. If
and when the additional shares are issued in April 1999, the entry will
be to record the par value of shares issued in Common Stock with the
offset to additional paid-in capital.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Revenue. The following tables present the Company's revenue by major operating
segments: technology related products and services and health care services for
the three month periods ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three-Month For the Three-Month
Period Ended Period Ended
March 31, 1998 March 31, 1997
-------------- --------------
Revenue % of Total Revenue % of Total
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Technology related $ 4,044,683 95 % $ 3,553,844 55 %
Health care services 198,536 5 % 2,964,298 45 %
----------- ----------- ------------- --------
Total revenue $4,243,219 100 % $ 6,518,142 100 %
=========== =========== ============= ========
</TABLE>
Revenue in the first quarter of 1998 were $4,243,219 compared to $6,518,142 (for
a decrease of $2,274,923) over the same period in 1997. The decrease in health
care services revenue was substantially attributable to the sale of the
Company's MEC and LSIA subsidiaries to Vision 21 in a transaction effective as
of December 1, 1997. These two subsidiaries contributed $2,732,419 in revenues
during the first quarter ended March 1997. All of the Company's health care
services revenue for the first quarter of 1998 was provided by The Farris Group
(TFG). Net revenue for TFG in the first quarter of 1998 were $198,536 compared
to $231,878 (for a decrease of $33,342) over the same period in 1997. This
decrease was accompanied by a $146,079 reduction in expenses.
The increase in technology related revenue was attributable to (i) a slight
increase in the average selling price of laser systems resulting from the
increased sales of the Company's higher-priced LSX model and reduced sales of
the lower-priced LS-300 model; (ii) an increase in revenues generated from the
sale of service contracts; and (iii) revenues generated from royalty payments
received on intellectual property agreements. Fourteen laser systems were sold
in the first quarter of 1998 compared to fifteen systems sold over the same
period in 1997. No system returns were recognized during the first quarter of
1998 or 1997.
10
<PAGE>
Cost of Revenue; Gross Profits. The following tables present a comparative
analysis of cost of revenue, gross profit and gross profit margins for the three
month periods ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three-Month For the Three-Month
Period Ended Period Ended
March 31, 1998 % Change March 31, 1997
-------------- --------- --------------
<S> <C> <C> <C>
Product cost $ 1,176,320 13 % $ 1,043,798
Cost of services 87,356 (96 %) 2,174,387
Gross profit 2,979,543 3,299,957
Gross profit percentage 70 % 51 %
Products only 2,868,363 2,510,046
71 % 71 %
</TABLE>
Gross profit margins were 70% of net sales in the first quarter of 1998 compared
to 51% for the same period in 1997. The gross profit margin increase was
primarily attributable to the sale of the Company's MEC and LSIA subsidiaries to
Vision 21 in a transaction effective as of December 1, 1997. Those two
subsidiaries operated at a gross margin of 24% during the first quarter ended
1997.
Research, Development and Regulatory Expense. The following tables present a
comparative analysis of research, development and regulatory expenses for the
three month periods ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three-Month For the Three-Month
Period Ended Period Ended
March 31, 1998 % Change March 31, 1997
-------------- --------- --------------
<S> <C> <C> <C>
Research, development
and regulatory $ 817,556 126 % $ 362,204
As a percent of technology
net sales 20 % 10 %
</TABLE>
Research, development and regulatory expenses for the three month period ended
March 31, 1998 were $817,556, an increase of $455,352, or 126% from such
expenditures during the same period in 1997. This increase can primarily be
attributed to ongoing research and development of new scanning refractive laser
systems, including continued development of the LSX and add-on features for the
LaserScan 2000, and continued software development for the laser systems.
Additionally, the Company has incurred increased costs related to the FDA
regulatory process, both for its own scanning laser system and the LASIK laser
system (for which the Company purchased the rights to manufacture and
commercialize if FDA approval is received). Additional costs have been incurred
in the clinical and manufacturing validation of the Automated Disposable
Keratome (Ao Do K). Since the initial announcement of the development of the
LSX, the Company has solicited and received input from clinical users and
prospective customers. This has resulted in modifications to the system,
necessitating additional development and testing for clinical validation. As a
result of a continuation of the efforts described, the Company expects research,
development and regulatory expenses during the remainder of 1998 to remain at
levels consistent with those incurred during the first quarter of 1998.
Regulatory expenses may increase as a result of the Company's continuation of
current FDA clinical trials, protocols added during 1997 related to the
11
<PAGE>
potential use of the Company's laser systems for treatment of glaucoma, the
possible development of additional future protocols for submission to the FDA
and the LASIK PMA acquired in July 1997.
Selling, General and Administrative Expenses. The following tables present a
comparative analysis of selling, general and administrative expenses for the
three month periods ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three-Month For the Three-Month
Period Ended Period Ended
March 31, 1998 % Change March 31, 1997
-------------- --------- --------------
<S> <C> <C> <C>
Selling, general and
administrative $ 3,747,049 5 % $ 3,573,496
As a percent of net sales 88 % 55 %
</TABLE>
Selling, general and administrative expenses increased by $173,553 for the first
quarter of 1998 compared to the same period in 1997. The primary reasons for
this increase include increased amortization costs resulting from acquired
patents, license agreements and other intangibles ($524,000), royalty fees
($167,000) and a higher level of commissions and warranties incurred on the sale
of its laser systems ($233,000). The increases were necessary to fund the
strategic initiatives of the Company and the development of its products and
services. Such strategic efforts include enhancements to customer service and
the engineering and software development departments. These increases in
operating costs were partially offset by the sale of the Company's MEC and LSIA
subsidiaries ($386,000) and a reduction in the selling, general, and
administrative expenses of TFG ($126,000) and corporate offices ($274,000). The
Company expects to incur one time costs in the second quarter of 1998 relating
to the relocation of its Orlando offices.
Loss From Operations. There was an operating loss of $1,585,062 in the first
quarter of 1998 compared to an operating loss of $635,743 for the same period in
1997, including TFG's losses of $206,303 and $319,040, respectively. The
decrease in operating results can be attributed to the sale of the Company's MEC
and LSIA subsidiaries which generated income from operations of $277,634 during
the first quarter ended 1997, and increases in research, development, regulatory
and selling, general and administrative expenses. These reductions were
partially offset by an increase in technology revenues generated.
Other Income and Expense. Interest and dividend income was $114,856 in the first
quarter of 1998 compared to $97,364 for the same period in 1997. Interest and
dividend income was earned from the investment of cash and cash equivalents and
the collection of long-term receivables related to laser system sales. Interest
expense incurred was $396,521 in the first quarter of 1998 compared to $59,643
for the same period in 1997. Interest expense incurred by the Company in the
first quarter of 1998 related primarily to the credit facility established with
Foothill Capital Corporation (Foothill) on April 1, 1997. In addition to
interest paid on the outstanding note payable balance, interest expense includes
the amortization of deferred financing costs, the accretion of the discount on
the note payable, and fees associated with amendments to the original loan
agreement. Interest expenses incurred by the Company in the first quarter of
1997 related primarily to the notes payable to the former owner of TFG and to
the former owners of MEC. The Company incurred a gain on investment of $214,376
resulting from the sale of marketable equity securities. Additionally, during
the first quarter of 1997, the Company incurred a one-time charge to earnings
amounting to $50,000 related to the settlement of litigation.
12
<PAGE>
Income Taxes. For the three months ended March 31, 1998, the Company recorded
income tax expense of $311,156 compared to no income tax benefit or expense for
the same period in 1997. The tax is primarily the result of $1,200,000 in
royalties received for the non-exclusive license of certain patents, the income
from which is deferred for accounting purposes.
Net Loss. Net loss for the first quarter of 1998 was $1,963,507 compared to a
net loss of $648,022 for the same period in 1997. The increase in net loss can
be attributed to the sale of the Company's MEC and LSIA subsidiaries which
generated income of $278,904 during the first quarter of 1997, increases in
research, development, regulatory and general and administrative expenses, and
income tax expense. These reductions were partially offset by a slight increase
in revenues generated at the technologies division.
Loss Attributable to Common Shareholders. For the three months ended March 31,
1998, the Company's loss attributable to common shareholders was impacted by the
premium paid on the redemption of 351 shares of Series B Preferred Stock
($702,000) and the accretion of the financing costs related to such 351 shares
($396,121) resulting from the agreement providing the holders of Series B
Preferred Stock the right to redeem such shares. The Company is negotiating
terms of a potential financing that, if completed, would be used in part to
redeem the remaining Series B Preferred Stock at a 20% premium and would result
in an impact of $1,050,000 on the loss applicable to common shareholders in the
second quarter of 1998.
Loss Per Share. Loss per basic and diluted share increased to ($0.30) for the
first three months of 1998 compared to ($0.07) in 1997. The increase is
attributable to the increase in the net loss for the quarter ended March 31,
1998, accretion and dividend requirements on the redemption of the Company's
Series B Preferred Stock, and the value of conversion discount on the Series B
Preferred Stock offset by the increases in weighted average shares outstanding.
The weighted average shares outstanding increased primarily due to the
conversion of Series B Preferred Stock.
Liquidity and Capital Resources
- -------------------------------
Working capital increased $1,355,319 from $12,729,700 at December 31, 1997 to
$14,085,019 as of March 31, 1998. This increase in working capital resulted
primarily from an increase in trade accounts and notes receivable offset by
accrued commissions, accretion of notes payable discount and capital
expenditures.
Operating activities used net cash of $4,138,774 during the first three months
of 1998, compared to $26,105 of net cash used during the same period in 1997.
This increase is primarily attributable to a first quarter 1998 net loss of
$1,963,507 compared to a net loss of $648,022 for the same period in 1997, an
increase in accounts and notes receivable (primarily the result of slower
collections of outstanding receivables and increased payments due at
installation versus upon shipment on first quarter sales) and inventories,
significant decreases in accounts payable, accrued liabilities, and income taxes
payable, partially offset by an increase in deferred royalty revenue. Net cash
provided by investing activities was $7,621,410 during the first quarter of 1998
compared to $191,780 in net cash used in investing activities over the same
period in 1997. Net cash provided by investing activities during the first
quarter of 1998 can be primarily attributed to proceeds generated from the
exclusive licensing of patents and from the sale of investments, partially
offset by the purchase of furniture and equipment. Net cash used in financing
activities during the first quarter of 1998 was $4,212,000, consisting of the
repurchase of Series B Preferred Stock. That compares to cash used in financing
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activities in the first three months of 1997 of $23,186, consisting of net
proceeds from the exercise of stock options offset by repayment of a capital
lease obligation.
The Company believes that its balances of cash and cash equivalents along with
operating cash flows, the anticipated liquidation of Vision 21 shares and the
availability of the Foothill revolver until June 15, 1998, 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 or liquidate
Vision 21 shares could have a material adverse effect on the Company's
liquidity. 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 engaged in discussions regarding potential equity private
financings. The Company anticipates that the net proceeds of such financings
would be used to exercise the Company's option to redeem the Series B Preferred
Stock at a 20% premium through June 12, 1998 and to repay the Company's
obligations to Foothill on or before June 15, 1998 if sufficient proceeds from
the liquidation of Vision 21 shares are not available for this purpose. Any
remaining funds would be used for general corporate purposes, including funding
possible future deficits in operating cash flow, and to facilitate
technology-related joint ventures and/or acquisitions. Such financings may
involve sales of Common Stock at a price below market prices prevailing at the
time of sale. There can be no assurance as to whether, when or on what terms the
Company will be able to complete such potential financings.
The Company expects to increase the level of manufacturing and distribution of
its laser systems and to continue a variety of research and development
activities on its excimer and solid-state laser systems over the next twelve
months and it is anticipated that such research and development as well as
regulatory efforts in the U.S. will be the most significant technology related
expenses in the foreseeable future.
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. 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.
Risk Factors and Uncertainties
The business, results or operations and financial condition of the Company and
the market price of the Common Stock may be adversely affected by a variety of
factors, including the ones listed under the caption "Risk Factors and
Uncertainties" in the Company's 1997 Annual Report on Form 10-K and the
additional or updated factors listed below:
Potentially Unlimited Number of Series B Conversion Shares Issuable. There is no
limit on the number of shares of Common Stock potentially issuable in connection
with conversions of Series B Preferred Stock. As illustrated in the table below,
the number of shares of Common Stock issuable upon such conversions (the "Series
B Conversion Shares") depends on the market price of the Common Stock at the
time of conversions:
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Assumed Number of As % of Common Shares
Conversion Series B Conversion Assumed Outstanding
Price (1) Shares Issuable (2)(3) After Conversion (4)
------- ---------------------- --------------------
$0.50 10,500,000 45.2%
$1.00 5,250,000 29.2%
$2.00 2,625,000 17.1%
$2.270833 (5) 2,311,926 15.4%
$3.00 1,750,000 12.1%
$4.00 1,312,500 9.4%
$5.00 1,050,000 7.6%
$6.00 875,000 6.4%
$6.68 (6) 785,928 5.8%
Shares Eligible For Future Sale. Except as provided below, substantially all of
the Company's outstanding Common Stock (12,712,712 shares as of May 14, 1998) is
freely tradable without restriction or further registration under the Securities
Act. The shares of Common Stock listed below are "restricted securities."
Restricted securities may be sold in the public market only if they have been
registered under the Securities Act or if their sales qualify for Rule 144 or
another available exemption from the registration requirements of the Securities
Act.
o All Series B Conversion Shares are freely saleable, subject only to the
satisfaction of a prospectus delivery requirement. If all outstanding
Series B Preferred Stock had been converted as of May 14, 1998, the
number of such freely-tradable shares would have been approximately
2,311,926. (Subject to certain exceptions specified in an agreement
between the Company and its preferred shareholders, no more than 10,414
additional Series B Conversion Shares may be issued before June 12,
1998, or subject to certain shareholder approval requirements,
September 14, 1998. See "Recent Developments--Agreement With Preferred
Shareholders--Proposed Revision of Terms").
- ------------------
1 Equals the lesser of (A) $6.68 or (B) the average of the three lowest closing
bid prices of the Common Stock during the 30 trading days immediately
preceding the applicable conversion date.
2 Excludes an aggregate of 2,392,220 Series B Conversion Shares that have been
issued in connection with conversions through May 14, 1998.
3 Based on an agreement between the Company and the holders of the Series B
Preferred Stock, no more than 10,414 additional Series B Conversion Shares may
be issued before June 12, 1998 or, subject to certain shareholder approval
requirements, September 14, 1998. This agreement can be terminated by the
preferred shareholders under certain circumstances.
4 Equals the 12,712,712 shares of Common Stock outstanding on May 14, 1998 plus
the number of Series B Conversion Shares issuable upon the conversion (at a
conversion price indicated in the table) of all 525 shares of Series B
Preferred Stock outstanding as of such date.
5 Equals the conversion price in effect as of May 14, 1998.
6 Currently, under the terms of the Series B Preferred Stock, the conversion
price cannot exceed $6.68, regardless of the market price of the Common Stock.
If the Company's stockholders approve certain proposals at the Company's
annual meeting scheduled for June 12, 1998 (the "Annual Meeting"), this
maximum conversion price will be adjusted to equal the lesser of $6.68 or 110%
of the average closing bid prices of the Common Stock during the 20-trading
day period ending on September 14, 1998. Failure to receive such approval on
or before June 12, 1998 will require the Company to issue to the Series B
Holders warrants to purchase up to 750,000 shares of Common Stock at a price
of $2.753 per share. See "Recent Developments--Agreement with Preferred
Stockholders - Proposed Revision of Terms."
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o The 790,000 shares of Common Stock issuable upon exercise of the Series
B Warrants (with an exercise price of $5.91 per share) will be freely
saleable following such exercise, subject only to the satisfaction of a
prospectus delivery requirement.
o The 535,515 shares in an unregistered acquisition transaction in July
1997 (the "Photomed Shares") have become freely tradable, subject only
to a prospectus delivery requirement.
o Other shares of Common Stock (the "Other Shares") which the Company may
be required to issue in the future may become eligible for resale
pursuant to Rule 144, the exercise of registration rights, or
otherwise. See "Possible Dilutive Issuance of Common Stock--NNJEI; --
LaserSight Centers and Florida Laser Partners; -- TFG; -- SEO."
Sales, or the possibility of sales, of the Series B Conversion Shares, Series B
Warrant Shares, Photomed Shares, Centers Shares, or Other Shares, whether
pursuant to a prospectus, Rule 144 or otherwise, could depress the market price
of the Common Stock.
Past and Expected Future Losses and Operating Cash Flow Deficits; No Assurance
of Future Profits or Positive Operating Cash Flows. The Company incurred losses
of $2.0 million for the three months ended March 31, 1998 and $7.3 million and
$4.1 million during 1997 and 1996, respectively. During such periods, the
Company had a deficit in cash flow from operations of $4.1 million, $4.4
million, and $4.2 million, respectively. Although the Company achieved
profitability during 1995 and 1994, it had a deficit in cash flow from
operations of $1.9 million during 1995. In addition, the Company incurred losses
in 1991 through 1993. As of March 31, 1998, the Company had an accumulated
deficit of $13.8 million. As a result of the Company's sale of its MEC and LSIA
subsidiaries in December 1997, the Company's losses and deficits in cash flow
from operations in future periods may be greater than if the Company had not
sold MEC and LSIA. The Company expects to incur a loss and deficit cash flow
from operations for the second quarter of 1998. There can be no assurance that
the Company can regain or sustain profitability or positive operating cash flow.
Uncollectible Receivables Could Exceed Reserves. At March 31, 1998, the
Company's trade accounts and notes receivable aggregated approximately
$10,849,025 net of allowances for collection losses and returns of approximately
$2,139,000. Accrued commissions, the payment of which generally depends on the
collection of such net trade accounts and notes receivable, aggregated
approximately $1,768,000 at March 31, 1998. Exposure to collection losses on
receivables is principally dependent on the Company's customer's ongoing
financial condition and their ability to generate revenues from the Company's
laser systems. In addition, approximately 92% and 90% of net receivables at
March 31, 1998 and December 31, 1997, respectively, related to international
accounts. The Company's ability to evaluate the financial condition and revenue
generating ability of its prospective customers located outside of the U.S. is
generally more limited than for customers located in the U.S. Although the
Company monitors the status of its receivables and maintains a reserve for
estimated losses, there can be no assurance that the Company's reserves for
estimated losses ($1,939,000 at March 31, 1998) will be sufficient to cover
actual write-offs over time. Actual write-offs that materially exceed amounts
reserved could have a material adverse effect on the Company's consolidated
financial condition and results of operations.
Restructuring of Receivables. At March 31, 1998, the Company had restructured
laser customer accounts in the aggregate amount of approximately $937,000 (7.2%
of the gross receivables as of such date), resulting in the extension of the
original payment terms by periods ranging from 12 to 60 months. The Company's
liquidity and operating cash flow will be adversely affected if additional
extensions become necessary in the future. In addition, it may be more difficult
to collect laser system receivables if the payment schedule extends beyond the
expected economic life of the laser system.
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Potential Liquidity Problems. During the three months ended March 31, 1998, the
Company experienced a $4.1 million deficit in cash flow from operations largely
resulting from the loss incurred during the period, an increase in accounts
receivable and a decrease in liabilities. Of this amount, the Company expects
that any improvements in cash flow from operations will depend on, among other
things, the Company's ability to market, produce and sell its new LSX laser
systems and its Ao Do K product on a commercial basis. As of May 14, 1998, the
LSX laser system had not made a significant contribution to the Company's
operating results. Based on the status of clinical validation and refinement of
the manufacturing processes, the Company does not expect significant commercial
shipments of the Ao Do K until mid-1998. Subject to these factors, the Company
believes that its balances of cash and cash equivalents, together with expected
operating cash flows, the anticipated liquidation of the Vision 21 Shares, and
the availability of up to $2.0 million under its revolving credit facility with
Foothill through June 15, 1998, will be sufficient to fund its anticipated
working capital requirements for a 12-month period based on anticipated
collection of receivables. However, if the Company does not collect timely a
material portion of current receivables, experiences significant further delays
in the shipment of its LSX or Ao Do K, experiences less market demand for such
products than it anticipates, or experiences additional delays in the
anticipated liquidation of the Vision 21 Shares the Company's liquidity could be
materially adversely affected.
Uncertainty Regarding Availability or Terms of Capital to Satisfy Possible
Additional Needs. The Company may need additional capital, including to fund the
following:
o Any future negative cash flow from operations or the repayment on or
before June 15, 1998 of any amounts borrowed under the Company's
revolving credit facility with Foothill to finance such negative cash
flow.
o Certain cash payment obligations under the Company's LASIK PMA
application acquisition agreement of July 1997 with Photomed, Inc. Such
cash payment obligations include (i) $1.75 million payable if the FDA
approves the LASIK PMA application for commercial sale before July 29,
1998 and (ii) if the FDA approves the Company's scanning laser for
commercial sale in the U.S. before January 1, 1999, $3,633 for each day
(or approximately $110,000 for each month) between the date of such
approval and January 1, 1999, subject to a maximum of $1.0 million.
Additional working capital necessary to develop a production line for
the LASIK laser system and to obtain the GMP (Good Manufacturing
Practice) clearance from the FDA that is required for the commercial
sale of the LASIK laser system.
o Additional working capital necessary to support the commercial
introduction of its laser systems into the U.S. market after receiving
FDA approval. (The Company believes the earliest these expenses might
occur is the second half of 1998.)
In addition, the Company is seeking alternative sources of capital to fund its
product development activities and to consummate future strategic acquisitions.
Except for additional borrowing available (as of May 14, 1998, up to $2.0
million) under its revolving credit facility with Foothill through June 15, 1998
and an aggregate of approximately $6.5 million to $7.45 million (subject to
certain post-closing adjustments) scheduled to be received in increasing monthly
installments from February through May 1998 (approximately $1.6 million has been
received to date in 1998) from the sale or redemption of the Vision 21 Shares
(see "Recent Developments--Liquidation of Vision 21 Shares"), the Company has no
commitments from third parties to supply additional capital, and there can be no
assurance as to whether or on what terms the Company could obtain additional
capital.
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To the extent that the Company satisfies its future financing requirements
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. Such
dilution may be more significant if the Company sells Common Stock at a price
below current market prices or sells additional preferred stock with a
conversion price linked to the market price of the Common Stock at the time of
conversion (as is the case with the Series B Preferred Stock). The Foothill
financing or other debt financing could result in a substantial portion of the
Company's cash flow from operation 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. If the Company cannot obtain
additional capital on satisfactory terms, it may be required to sell additional
assets.
Adverse Consequences if Company Cannot Receive Agreed-Upon Value of Its Vision
21 Shares. As described in more detail below under "Recent
Developments--Liquidation of Vision 21 Shares," Vision 21 has agreed to
liquidate the Vision 21 Shares in monthly installments between February and May
1998 and pay to the Company on May 29, 1998, an amount equal to the amount (the
"Shortfall Amount"), if any, by which the gross proceeds to the Company from the
liquidation of Vision 21 Shares through such date fall short of the obligation
at that date (subject to certain post-closing adjustments). Vision 21 failed to
liquidate the March and April installments and such installments remain
outstanding as of May 14, 1998. In addition, both the value of the Vision 21
Shares and the ability of Vision 21 to make the Shortfall Payment (if any is
required) is subject to risks, including without limitation the risks disclosed
in Vision 21's filings with the SEC. Copies of such filings can be obtained,
upon payment of prescribed fees, at the Public Reference Room of the SEC at 450
Fifth Street, N.W., Washington D.C. 20549 or from the SEC's Web site containing
information filed electronically with the information included in or omitted
from any SEC filing by Vision 21. Such filings are not part of this document and
are not incorporated by reference herein. To the extent that the liquidation of
the Vision 21 required Shortfall Payment is not paid when due, the Company's
liquidity and financial condition may be materially adversely affected,
including a potential default on its obligation to repay $2.0 million to
Foothill on June 15, 1998.
Possible Dilutive Issuance of Common Stock--LaserSight Centers and Florida Laser
Partners. Based on previously-reported agreements entered into in 1993 in
connection with the Company's acquisition of LaserSight Centers (the Company's
development-stage subsidiary) and modified in July 1995 and March 1997, the
Company is obligated as follows:
o To issue to the former shareholders and option holders (including two
trusts related to the Chairman of the Board of the Company and certain
former officers and directors of the Company) of LaserSight Centers, up
to 600,000 unregistered shares of Common Stock (the "Centers Contingent
Shares") based on the Company's pre-tax operating income through March
2002 from performing PRK or other refractive laser surgical procedures.
The Centers Contingent Shares are issuable at the rate of one share per
$4.00 of such operating income.
o To pay to a partnership whose partners include the Chairman of the
Board of the Company and certain former officers and directors of the
Company a royalty of up to $43 (payable in cash or shares of Common
Stock (the "Royalty Shares")), for each eye on which a laser refractive
optical surgical procedure is conducted on an excimer laser system
owned or operated by LaserSight Centers or its affiliates. Royalties do
not begin to accrue until the earlier of March 2002 or the delivery of
all of the 600,000 Centers Contingent Shares.
As of March 31, 1998, the Company had not accrued any obligation to issue
Centers Contingent Shares or Royalty Shares. There can be no assurance that any
issuance of Centers Contingent Shares or Royalty Shares will be accompanied by
an increase in the Company's per share operating results. The Company is not
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<PAGE>
obligated to pursue strategies that may result in the issuance of Centers
Contingent Shares or Royalty Shares. It may be in the interest of the Chairman
of the Board for the Company to pursue business strategies that maximize the
issuance of Centers Contingent Shares and Royalty Shares.
Possible Dilutive Issuance of Common Stock--TFG. To the extent that the
Company's The Farris Group sibsidiary achieves certain pre-tax income levels
during 1998, the earnout provisions of the Company's agreement for the
acquisition of the Farris Group in 1994 would require the Company to issue to
the former owner of such company (Mr. Michael R. Farris, the President and Chief
Executive Officer of the Company) up to approximately 343,000 shares of Common
Stock (the "Farris Contingent Shares"). There can be no assurance that any
issuance of the Farris Contingent Shares will be accompanied by an increase in
the Company's per share operating results.
Possible Dilutive Issuance of Common Stock--Photomed. If the FDA approves a
LaserSight-manufactured laser system for general commercial use in the treatment
of hyperopia (farsightedness) after having approved for commercial sale the
LASIK PMA application to which the Company acquired rights in August 1997, the
Company would be required to issue additional shares of Common Stock with a
market value of $1.0 million (based on the average closing price of the Common
Stock during the preceding 10-day period). If such market value had been
computed as of May 14, 1998, the number of additional shares issuable would have
been approximately 248,000. Depending on whether and when such FDA approval is
received and on the market price of the Common Stock at the time of any such
approval, the actual number of additional shares issuable could be more (but not
more than permitted under the listing rules of the NASDAQ Stock Market) or less
than this number.
Possible Dilutive Issuance of Common Stock--NNJEI. In connection with the
acquisition of the assets of NNJEI by the Company's LSIA subsidiary in July
1996, the Company agreed to issue up to 102,798 additional shares of Common
Stock if the average closing price of the Common Stock during the 10-day period
immediately preceding July 15, 1998 is less than $15 per share. All 102,798
shares will be issuable unless such average closing price is more than $10 per
share. The Company's sale of LSIA in December 1997 does not affect this
contingent obligation.
Possible Dilutive Issuance of Common Stock-SEO. In connection with the
acquisition of certain assets of SEO in April 1998, the Company agreed to issue
up to 223,280 additional shares of Common Stock if the five day average price of
the Common Stock on April 15, 1999 is less than $5.00 per share. All 223,280
shares will be issuable unless such price is more than $2.36 per share.
Possible Dilutive Issuance of Common Stock--Foothill Warrant. In April 1996, the
Company issued to Foothill a warrant to purchase 500,000 shares of Common Stock
at a price of $6.067 per share. The Company is required to make anti-dilution
adjustments to both the number of warrant shares and the warrant exercise price
in the event the Company sells Common Stock or Common Stock-equivalents (such as
convertible securities or warrants) at a price per share that is (or could be)
less that the fair market value of the Common Stock at the time of such sale. In
connection with its sale of Series B Preferred Stock in August 1997, the Company
reached an informal understanding with Foothill (i) to increase the number of
Foothill warrant shares to approximately 550,000, (ii) to reduce the warrant
exercise price to approximately $5.52 per share, and (iii) to make further
anti-dilution adjustments in the event that shares of Series B Preferred Stock
are converted into Common Stock at a conversion price per share that is less
than the market price of the Common Stock at the time of conversion. The Company
estimates that the conversion of 419 of the original 1,600 shares of Series B
Preferred Stock through May 14, 1998 has resulted in an increase in the number
of warrant shares to 571,349 and a decrease in the warrant exercise price to
$5.31. As the Company and Foothill have not yet reflected their understanding in
writing, there can be no assurance that the anti-dilution adjustments will not
be greater than those estimated by the Company. Moreover, conversions of the
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remaining 525 shares of Series B Preferred Stock may result in significant
further increases in the number of Foothill warrant shares and reductions in the
Foothill warrant exercise price. Such significant adjustment to the Foothill
warrant could also result from any future below-market sales of Common Stock by
the Company.
Amortization of Significant Intangible Assets. Of the Company's total assets at
March 31, 1998, approximately $16.3 million (37%) were intangible assets, of
which approximately $6.9 million reflects goodwill (which is being amortized
using an estimated life ranging from 12 to 20 years), approximately $4.9 million
reflects the cost of patents (which is being amortized over a period ranging
from approximately 8 to 17 years), and approximately $4.5 million reflects the
cost of licenses and technology acquired (which is being amortized over a period
ranging from 31 months to 12 years). The 12-year life of acquired technology was
determined based on the Company's best judgment at the time of the most likely
life-span of a solid-state laser product and related patent. The major factors
involved in the Company's ongoing assessment are its judgment whether there will
be a market for solid-state as an improvement to existing excimer laser
technology and that there is an industry and marketplace interest in such
development that can be successfully pursued by the Company or others that will
result in revenue from the associated patent. The Company's intangible assets
were decreased by approximately $6.0 million as a result of the February 1998
closing of the Company's patent agreement with Nidek. Goodwill is an intangible
asset that represents the difference between the total purchase price of the
acquisitions and the amount of such purchase price allocated to the fair value
of the net assets acquired. Goodwill and other intangibles are amortized over a
period of time, with the amount amortized in a particular period constituting a
non-cash expense that reduces the Company's net income (or increases the
Company's net loss) in that period. A reduction in net income resulting from the
amortization of goodwill and other intangibles may have an adverse impact upon
the market price of the Common Stock. In addition, in the event of a sale or
liquidation of the Company or its assets, there can be no assurance that the
value of such intangible assets would be recovered.
In accordance with SFAS 121, the Company reviews intangible assets for
impairment whenever events or changes in circumstances, including a history of
operating or cash flow losses, indicate that the carrying amount of an asset may
not be recoverable. In such cases, the carrying amount of the asset is compared
to the estimated undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition. If the sum of the expected
undiscounted future cash flows is less than the carrying amount of the asset, an
impairment loss will be computed and recognized in accordance with SFAS 121.
Expected cash flows are based on factors including historical results, current
operating budgets and projections, industry trends and expectations, and
competition.
The Company continues to assess the current results and future prospects of its
TFG subsidiary in view of the substantial reduction in its operating results in
1996 and 1997. If TFG is unsuccessful in meeting its 1998 budget or otherwise
improving its financial performance, some or all of the carrying amount of
goodwill recorded ($3,914,000 at March 31, 1998) may be subject to an impairment
adjustment.
Uncertainty Concerning Patents--International. Should LaserSight Technologies'
lasers infringe upon any valid and enforceable patents in international markets,
then LaserSight Technologies may be required to obtain licenses for such
patents. Should such licenses not be obtained, LaserSight Technologies might be
prohibited from manufacturing or marketing its PRK-UV lasers in those countries
where patents are in effect. The Company's international sales accounted for 84%
and 47% of the Company's total revenues during the three month periods ended
March 31, 1998 and 1997, respectively. The Company expected such percentages to
increase in future periods as a result of its sale of MEC and LSIA in December
1997.
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Recent Developments
Liquidation of Vision 21 Shares. In connection with the sale of its MEC and LSIA
subsidiaries to Vision 21 on December 30, 1998, Vision 21 agreed to liquidate
the Vision 21 Shares by a public sale pursuant to a registration statement or a
private placement, or by its repurchase of the Vision 21 Shares. The Company is
entitled to receive at least $6,500,000, but not more than $7,475,000 from the
liquidation of the Vision 21 Shares. If the Company has not received the minimum
amount (subject to the post-closing adjustments described below) by May 29,
1998, then on such date Vision 21 is to pay the Company the shortfall in cash.
The Company's agreement with Vision 21 calls for a liquidation of the Vision 21
Shares in installments at the end of each month between February and May. Vision
21 repurchased substantially all of the February installment (approximately 20%
of total) on March 10, 1998. As of May 12, 1998, Vision 21 had not liquidated
any portion of the March and April installments despite the Company's repeated
requests. On April 30, 1998, Vision 21 filed a registration statement with the
SEC to permit the public sale of the remaining Vision 21 Shares. Vision 21 has
advised the Company that the registration statement became effective on May 12,
1998. Through May 14, 1998, 60,648 of the remaining Vision 21 shares had been
sold.
The Company cannot predict whether, when or at what price Vision 21 will
liquidate the remaining Vision 21 Shares.
The remaining Vision 21 Shares represent approximately 5.3% of Vision 21's
outstanding common stock as of March 13, 1998 (based on information provided by
Vision 21 to the Company). Vision 21 common stock has traded on the Nasdaq Stock
Market since August 18, 1997, the date of Vision 21's initial public offering at
a price of $10.00 per share. The market price of Vision 21 common stock has
since ranged from a low of $7.00 (on December 29, 1997) to $15.00 (on September
25, 1997). On May 14, 1998, the closing price of Vision 21 common stock was
$7.69.
Agreement With Preferred Shareholders--Proposed Revision of Terms. On March 13,
1998, the Company entered into an agreement with all of the holders of its
Series B Preferred Stock as follows:
o Until June 12, 1998, the preferred holders will limit their conversions
of Series B Preferred Stock so that no more than 1,000,000 common
shares are issued during such period. (Immediately prior to this
conversion restriction becoming effective, the preferred holders
submitted to the Company notices for the conversion of 244 shares of
Preferred Stock into 1,402,634 shares of Common Stock.) This conversion
restriction will be extended to September 14, 1998 if the Company's
stockholders approve certain proposals described below (the "Series B
Proposal") at the Company's Annual Meeting on June 12, 1998.
o The preferred holders granted the Company an option to purchase any or
all of the remaining Series B Preferred Stock at a 20% premium at any
time before June 12, 1998. (Because the Company's agreement with
Foothill prevents any redemptions of preferred stock so long as any of
the Foothill loans remain outstanding, such a repurchase would require
the Company to first obtain Foothill's approval. It would also require
the Company to raise the funds necessary to finance such repurchase.
There can be no assurance as to whether or on what terms the Company
could obtain such Foothill consent or additional financing.)
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o Subject to the approval of the Company's common stockholders and the
conversion restrictions being effective through September 14, 1998, the
fixed conversion price component of the Series B Preferred Stock will
equal the lower of (A) $6.68 (its current level) or (B) 110% of the
average closing bid prices of the Common Stock during the 20 trading
days ending on September 14, 1998.
o Subject to the approval of the Company's common stockholders, the
exercise price of the warrants issued to the preferred holders in
August 1997 (the "Existing Warrants") will be reduced from $5.91 per
share to $2.753 (115% of an average closing bid price of the Common
Stock during the five trading days following March 16, 1998). The
Existing Warrants would remain exercisable at any time through August
29, 2002 and their exercise would not be subject to the 1,000,000
common share limit on conversions of Preferred Stock.
o If for any reason the Company's common stockholders fail to approve the
change in the fixed conversion price component and the exercise price
of the Existing Warrants on or before June 12, 1998, the Company will
be required to issue to the preferred holders 750,000 additional
warrants (the "Additional Warrants") to purchase Common Stock at a
price equal to $2.753 per share (115% of an average closing bid price
of the Common Stock during the five trading days following March 16,
1998). The Additional Warrants would be exercisable at any time through
August 29, 2002 and would not be subject to the 1,000,000 common share
limit on conversions of Preferred Stock.
The restrictions on conversions and the Company's repurchase option may be
terminated by the preferred holders under any of the following circumstances:
o As of the end of any month, the Company's current ratio (current assets
divided by current liabilities) falls below 1.1 to 1.
o As of the end of the first or second quarter of 1998, the Company's
income or loss from operations for such quarter has not improved
relative to the Company's results for the prior quarter.
o At any time, the Company undergoes or announces a material adverse
change in its financial condition, operating results, assets,
liabilities, operations or business prospects which is material to the
Company and its subsidiaries taken as a whole. The agreement does not
specify any criteria for determining whether such a change qualifies
under this "material adverse" standard.
As of April 30, 1998, the Company was in compliance with the first two of these
tests (current ratio and operating results), but cannot predict whether or not
the preferred shareholders may claim that the Company has failed to meet the
third test (no material adverse change). In addition, the Company's proxy
material for its 1998 annual meeting of shareholders is being reviewed by the
staff of the SEC. Such review is likely to delay the mailing of the Company's
proxy material. Accordingly, it is questionable whether the Company will be able
to mail such proxy material to shareholders in time for the Series B Proposal to
be approved by the June 12, 1998 deadline.
If the restrictions on conversions described above are terminated prior to June
12, 1998 due to the occurrence of one or more of these circumstances, then the
Company will be required to issue the Additional Warrants.
22
<PAGE>
A*D*K Update. At the American Society of Cataract and Refractive Surgery
conference held in San Diego in April 1998, the Company offered ophthalmologists
the opportunity to practice with working prototypes of the Company's new
Automated Disposable Keratome (A*D*K) product for the use in connection with
LASIK procedures. As of May 14, 1998, the A*D*K continues to be in the process
of final manufacturing and clinical validation, due to continuing complexities
in the manufacturing validation process. The Company still expects such sales to
begin during the second quarter of 1998.
SEO Asset Acquisition. Based on the Company's desire to broaden its technology
product line and offer expanded laser applications in the medical field, on
April 15, 1998, the Company acquired substantially all of the assets, and
assumed certain liabilities, of SEO's medical products division (the
"Division"). The Division develops, tests, manufacturers, assembles, and sells
lasers and their related equipment, accessories, parts, and software for medical
and medical research applications. The Division's primary focus is erbium lasers
which are primarily used to perform dermatology procedures.
The purchase price of $1,250,000 was based on the value of the assets purchased,
reduced by liabilities assumed. The Company issued shares of Common Stock to SEO
in payment of the purchase price; $250,000 of the purchase price was paid by
issuing shares (the "Liquid Shares") based on a five day average of bid and ask
prices for Common Stock immediately prior to the closing date and the balance of
the purchase price was paid by issuing shares based on a $5.00 share price (the
"Remaining Shares"). The Company will be obligated to file a registration
statement covering the Liquid Shares and may be obligated to issue up to 223,280
additional shares of Common Stock if the price of the Remaining Shares is less
than $5.00 on April 15, 1999.
Redemptions and Conversions of Series B Preferred Stock. A portion of the
1,600 shares of Series B Preferred Stock issued in August 1997 have been
redeemed, repurchased or converted as follows:
<TABLE>
<CAPTION>
Month Transaction Number Balance
----- ----------- of Shares Outstanding
--------- -----------
<S> <C> <C> <C>
10/97 Redemption (at a 4% premium) 305 1,295
2/98 & 3/98 Repurchases (at a 20% premium) 351 944
3/98 & 4/98 Conversions (at $1.739583 per share) 376 568
4/98 Conversions (at $1.75 per share) 8 560
4/98 Conversions (at $1.802083 per share) 17 543
4/98 Conversions (at $1.979167 per share) 10 533
4/98 Conversions (at $1.989583 per share) 8 525
</TABLE>
All such redemptions and repurchases have been funded from a blocked account
established for the exclusive benefit of the Series B Holders, as required by
the agreements the Company entered into with such holders in August 1997.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Certain 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, 1997.
ITEM 2 CHANGES IN SECURITIES
a) Not applicable.
b) Not applicable.
c) Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 27, 1998, at the Company's special meeting of shareholders, the
following proposals were approved:
A proposal for the issuance of shares of the Company's Common Stock
resulting from conversions of the Company's Series B Preferred Stock
and the exercise of related stock purchase warrants.
Votes For 5,776,527
Votes Against 440,344
Votes Abstaining 22,648
A proposal to increase the number of authorized shares of Common Stock
from 20 million to 40 million.
Votes For 8,356,259
Votes Against 463,611
Votes Abstaining 20,355
A proposal that would have allowed the Company to adjourn the special
meeting to another date or place if there were not enough votes to
approve the first two proposals.
Votes For 8,257,201
Votes Against 537,634
Votes Abstaining 43,150
24
<PAGE>
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1 See Exhibits 10.1, 10.6, 10.25 and 10.32.
3.1 Certificate of Incorporation, as amended.
3.2 Bylaws, as amended (filed as Exhibit 3 to the Company's Form 10-K
for the year ended December 31, 1992*).
4.1 See Exhibits 3.1 and 3.2.
10.1 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*).
10.2 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*).
10.3 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*).
10.4 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*).
10.5 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*).
10.6 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*).
25
<PAGE>
10.7 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*).
10.8 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*).
10.9 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*).
10.10 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*).
10.11 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*).
10.12 LaserSight Incorporated 1996 Equity Incentive Plan (filed as
Exhibit A to the Company's definitive proxy statement dated April
30, 1996*).
10.13 LaserSight Incorporated Amended and Restated Non-Employee Directors
Stock Option Plan (filed as Exhibit B to the Company's definitive
proxy statement dated May 19, 1997*).
10.14 Agreement dated September 18, 1996 between David T. Pieroni and
LaserSight Incorporated (filed as Exhibit 10.35 to the Company's
Form 10-K for the year ended December 31, 1996*).
10.15 Agreement dated January 1, 1997, between International Business
Machines Corporation and LaserSight Incorporated (filed as Exhibit
10.37 to the Company's Form 10-K for the year ended December 31,
1996*).
10.16 Addendum dated March 7, 1997 to Agreement between International
Business Machines Corporation and LaserSight Incorporated (filed as
Exhibit 10.38 to the Company's Form 10-K for the year ended
December 31, 1996*).
10.17 Second Amendment to Agreement for Purchase and Sale of Stock by and
among LaserSight Centers Incorporated, its stockholders and
LaserSight Incorporated dated March 14, 1997 (filed as Exhibit 99.1
to the Company's Form 8-K filed on March 27, 1997*).
10.18 Amendment to Royalty Agreement by and between LaserSight Centers
Incorporated, Laser Partners and LaserSight Incorporated dated
March 14, 1997 (filed as Exhibit 99.2 to the Company's Form 8-K
filed on March 27, 1997*).
10.19 Employment Agreement dated September 16, 1996 by and between
LaserSight Incorporated and Richard L. Stensrud (filed as Exhibit
10.41 to the Company's Form 10-Q filed on May 9, 1997*).
26
<PAGE>
10.20 Loan and Security Agreement dated March 31, 1997 by and between
LaserSight Incorporated and certain of its subsidiaries and
Foothill Capital Corporation (filed as Exhibit 10.42 to the
Company's Form 10-Q filed on August 14, 1997*).
10.21 Consent and Amendment Number One to Loan and Security Agreement
dated July 28, 1997 by and between LaserSight Incorporated and
Foothill Capital Corporation (filed as Exhibit 10.43 to the
Company's Form 10-Q filed on August 14, 1997*).
10.22 Warrant to purchase 500,000 shares of Common Stock dated March 31,
1997 by and between LaserSight Incorporated and Foothill Capital
Corporation (filed as Exhibit 10.44 to the Company's Form 10-Q
filed on August 14, 1997*).
10.23 License Agreement dated May 20, 1997 by and between Visx
Incorporated and LaserSight Incorporated (filed as Exhibit 10.45 to
the Company's Form 10-Q filed on August 14, 1997*).
10.24 Patent Purchase Agreement dated July 15, 1997 by and between
LaserSight Incorporated and Frederic B. Kremer, M.D. (filed as
Exhibit 2.(i) to the Company's Form 8-K filed on August 13, 1997*).
10.25 Agreement and Plan of Merger dated July 15, 1997 by and among
LaserSight Incorporated, Photomed Acquisition, Inc., Photomed,
Inc., Frederic B. Kremer, M.D., Linda Kremer, Robert Sataloff,
Trustee for Alan Stewart Kremer and Robert Sataloff, Trustee for
Mark Adam Kremer (filed as Exhibit 2.(ii) to the Company's Form 8-K
filed on August 13, 1997*).
10.26 Securities Purchase Agreement dated August 29, 1997 by and between
LaserSight Incorporated and purchasers of Series B Convertible
Participating Preferred Stock of LaserSight Incorporated (filed as
Exhibit 10.37 to the Company's Form 10-Q filed on November 14,
1997*).
10.27 Registration Rights Agreement dated August 29, 1997 by and between
LaserSight Incorporated and purchasers of Series B Convertible
Participating Preferred Stock of LaserSight Incorporated (filed as
Exhibit 10.38 to the Company's Form 10-Q filed on November 14,
1997*).
10.28 Warrant to purchase 750,000 shares of Common Stock dated August 29,
1997 by and between LaserSight Incorporated and purchasers of
Series B Convertible Participating Preferred Stock of LaserSight
Incorporated (filed as Exhibit 10.39 to the Company's Form 10-Q
filed on November 14, 1997*).
10.29 Consent and Amendment Number Two to Loan and Security Agreement
dated August 29, 1997 by and between LaserSight Incorporated and
Foothill Capital Corporation (filed as Exhibit 10.40 to the
Company's Form 10-Q filed on November 14, 1997*).
10.30 Consent and Amendment Number Three to Loan and Security Agreement
dated September 10, 1997 by and between LaserSight Incorporated and
Foothill Capital Corporation (filed as Exhibit 10.41 to the
Company's Form 10-Q filed on November 14, 1997*).
27
<PAGE>
10.31 Independent Contractor Agreement by and between Byron Santos, M.D.
and LaserSight Technologies, Inc. (filed as Exhibit 10.42 to the
Company's Form 10-Q filed on November 14, 1997*).
10.32 Stock Purchase Agreement, dated December 30, 1997, by and among
LaserSight Incorporated, LSI Acquisition, Inc., MEC Health Care,
Inc. and Vision Twenty-One, Inc. (filed as Exhibit 2.(i) to the
Company's Form 8-K filed on January 14, 1998*).
10.33 Stock Distribution Agreement, dated December 30, 1997, by and among
LaserSight Incorporated, LSI Acquisition, Inc., MEC Health Care,
Inc. and Vision Twenty-One, Inc. (filed as Exhibit 2.(ii) to the
Company's Form 8-K filed on January 14, 1998*).
10.34 Consent and Amendment Number Four to Loan and Security Agreement
dated September 10, 1997 by and between LaserSight Incorporated and
Foothill Capital Corporation (filed as Exhibit 2.(iii) to the
Company's Form 8-K filed on January 14, 1998*).
10.35 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*).
10.36 Series B Preferred Stock Agreement, dated March 13, 1998, by and
between LaserSight Incorporated and CC Investments, LDC, Shepherd
Investments International, Ltd., Stark International, and Societe
Generale (filed as Exhibit 99 to the Company's Form 8-K filed on
March 16, 1998*).
Exhibit 11 Statement of Computation of Loss Per Share
Exhibit 27 Financial Data Schedule
- ----------------------
*Incorporated herein by reference. File No. 0-19671.
b) Reports on Form 8-K
On January 2, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated December 31, 1997 reporting the sale of
two subsidiaries to Vision 21.
On January 14, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the sale of MEC and LSIA
to Vision 21 in a transaction effective as of December 1,
1997.
On January 20, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated January 20, 1997 regarding the patent
agreement with Nidek.
28
<PAGE>
On January 22, 1998, the Company filed with the Commission a
Current Report on Form 8-K/A including the financial
information required related to the sale of MEC and LSIA.
On February 17, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated February 12, 1998 regarding completion of
a patent agreement with Nidek and an update of recent
developments and risk factors.
On February 27, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated February 17, 1998 reporting that
shareholders passed all proposals at a special shareholder
meeting.
On March 13, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated March 13, 1998 reporting 1997 financial
results.
On March 16, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the Series B Preferred
Stock Agreement dated March 13, 1998 by and among the Company
and the holders of Series B Preferred Stock.
On March 18, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated March 17, 1998 reporting an agreement to
limit conversion rights and provide the Company with
redemption rights on the Company's Series B Preferred Stock.
29
<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: May 14, 1998
By: /s/ Michael R. Farris
------------------------------
Michael R. Farris,
Chief Executive Officer
Dated: May 14, 1998 By: /s/ Gregory L. Wilson
-----------------------------
Gregory L. Wilson,
Chief Financial Officer
30
<TABLE>
EXHIBIT 11
LASERSIGHT INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<CAPTION>
1998 1997
--------------- --------------
BASIC
<S> <C> <C>
Weighted average shares outstanding 10,318,000 8,414,300
Issuable shares, acquisition of The Farris Group - 406,700
--------------- --------------
10,318,000 8,821,000
=============== ==============
Net loss $(1,963,507) $ (648,022)
Conversion discount on preferred stock (25,372) -
Preferred stock accretion and dividend requirements (1,098,121) (9,863)
--------------- --------------
Loss attributable to common shareholders $(3,087,000) $ (657,885)
=============== ==============
Basic loss per share $ (0.30) $ (0.07)
=============== ==============
DILUTED
Weighted average shares outstanding 10,318,000 8,414,300
Issuable shares, acquisition of The Farris Group - 406,700
--------------- --------------
10,318,000 8,821,000
=============== ==============
Net loss $(1,963,507) $ (648,022)
Conversion discount on preferred stock (25,372) -
Preferred stock accretion and dividend requirements (1,098,121) (9,863)
--------------- --------------
Loss attributable to common shareholders $(3,087,000) $ (657,885)
=============== ==============
Diluted loss per share $ (0.30) $ (0.07)
=============== ==============
Additional Fully Diluted Calculation:
Loss attributable to common shareholders, above $(3,087,000) $ (657,885)
=============== ==============
Additional adjustment to weighted average number of shares:
Weighted average number of shares as adjusted per above 10,318,000 8,821,000
Diluted effect of contingently issuable shares, stock options and
convertible preferred stock 3,474,000 160,000
--------------- --------------
Weighted average number of shares, as adjusted 13,792,000 8,981,000
=============== ==============
Diluted loss per share, as adjusted $ (0.22)(A) $ (0.07)(A)
=============== ==============
(A) - This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 13-14 of SFAS 128 because
it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,129,036
<SECURITIES> 5,941,294
<RECEIVABLES> 12,988,080
<ALLOWANCES> 2,139,055
<INVENTORY> 4,561,882
<CURRENT-ASSETS> 23,132,554
<PP&E> 2,510,675
<DEPRECIATION> 1,109,136
<TOTAL-ASSETS> 43,504,660
<CURRENT-LIABILITIES> 9,047,535
<BONDS> 0
5,169,584
0
<COMMON> 12,220
<OTHER-SE> 26,818,593
<TOTAL-LIABILITY-AND-EQUITY> 43,504,660
<SALES> 4,044,683
<TOTAL-REVENUES> 4,243,219
<CGS> 1,176,320
<TOTAL-COSTS> 1,263,676
<OTHER-EXPENSES> 4,450,550
<LOSS-PROVISION> 114,055
<INTEREST-EXPENSE> 396,521
<INCOME-PRETAX> (1,652,351)
<INCOME-TAX> 311,156
<INCOME-CONTINUING> (1,963,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,963,507)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,794,114
<SECURITIES> 0
<RECEIVABLES> 13,320,708
<ALLOWANCES> 1,140,000
<INVENTORY> 2,894,699
<CURRENT-ASSETS> 17,090,950
<PP&E> 1,682,897
<DEPRECIATION> 497,623
<TOTAL-ASSETS> 31,804,400
<CURRENT-LIABILITIES> 5,882,087
<BONDS> 0
0
0
<COMMON> 7,192
<OTHER-SE> 24,471,502
<TOTAL-LIABILITY-AND-EQUITY> 31,804,400
<SALES> 4,583,638
<TOTAL-REVENUES> 4,583,638
<CGS> 1,569,005
<TOTAL-COSTS> 1,569,005
<OTHER-EXPENSES> 4,922,729
<LOSS-PROVISION> 237,500
<INTEREST-EXPENSE> 26,364
<INCOME-PRETAX> (1,879,714)
<INCOME-TAX> (647,950)
<INCOME-CONTINUING> (1,231,764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,231,764)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
<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> (0.34)
<EPS-DILUTED> (0.34)
</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> 11,554,573
<ALLOWANCES> 1,713,327
<INVENTORY> 3,047,413
<CURRENT-ASSETS> 16,631,185
<PP&E> 2,708,678
<DEPRECIATION> 686,301
<TOTAL-ASSETS> 33,888,854
<CURRENT-LIABILITIES> 6,352,930
<BONDS> 0
0
0
<COMMON> 8,251
<OTHER-SE> 25,595,229
<TOTAL-LIABILITY-AND-EQUITY> 33,888,854
<SALES> 16,655,482
<TOTAL-REVENUES> 16,655,482
<CGS> 5,478,186
<TOTAL-COSTS> 5,478,186
<OTHER-EXPENSES> 14,169,834
<LOSS-PROVISION> 462,500
<INTEREST-EXPENSE> 102,068
<INCOME-PRETAX> (3,424,997)
<INCOME-TAX> (934,378)
<INCOME-CONTINUING> (2,490,619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,490,619)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,003,501
<SECURITIES> 0
<RECEIVABLES> 9,802,968
<ALLOWANCES> 1,185,240
<INVENTORY> 3,328,903
<CURRENT-ASSETS> 15,643,206
<PP&E> 2,754,336
<DEPRECIATION> 818,116
<TOTAL-ASSETS> 34,250,213
<CURRENT-LIABILITIES> 5,622,405
<BONDS> 0
0
0
<COMMON> 8,454
<OTHER-SE> 26,760,077
<TOTAL-LIABILITY-AND-EQUITY> 34,250,213
<SALES> 21,503,990
<TOTAL-REVENUES> 21,503,990
<CGS> 7,636,875
<TOTAL-COSTS> 7,636,875
<OTHER-EXPENSES> 18,325,464
<LOSS-PROVISION> 502,000
<INTEREST-EXPENSE> 151,634
<INCOME-PRETAX> (5,213,377)
<INCOME-TAX> (1,139,008)
<INCOME-CONTINUING> (4,074,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,074,369)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
