-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DTObYvbvQBdIzPuTD6THFX5R6bK7WcyZmbE4WQSR5aRR0Xahd8E45Ulr2Z60Buq5 8hkiWbcWL+A0t/r6dxuCFw== 0000906318-99-000011.txt : 19990222 0000906318-99-000011.hdr.sgml : 19990222 ACCESSION NUMBER: 0000906318-99-000011 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LCA VISION INC CENTRAL INDEX KEY: 0001003130 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 112882328 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-27610 FILM NUMBER: 99546165 BUSINESS ADDRESS: STREET 1: 7840 MONTGOMERY RD CITY: CINCINNATI STATE: OH ZIP: 45236 BUSINESS PHONE: 5137929292 MAIL ADDRESS: STREET 1: 7840 MONTGOMERY ROAD CITY: CINCINNATI STATE: OH ZIP: 45236 10KSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________ FORM 10-KSB ________________________ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal Commission file number 0-27610 Year ended December 31, 1998 LCA-VISION INC. A Delaware I.R.S. Employer Identification No. 11-2882328 Corporation 7840 Montgomery Road, Cincinnati, Ohio 45236 Telephone Number (513) 792-9292 _________________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of class Common Stock, $.001 par value 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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] ________________________ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] ________________________ As of February 5, 1999 the latest practicable date, 42,604,544 shares of Common Stock were outstanding. The aggregate market value of Common Stock held by non-affiliates was approximately $32,859,600 at that date. ________________________ DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the part of the Form 10-KSB into which the document is incorporated: Portions of the Registrant's Proxy Statement for its 1999 Annual Meeting of Stockholders to be filed on or prior to April 1, 1999 are incorporated by reference into Part III of this Form 10-KSB. Transitional Small Business Disclosure Format (Check one): Yes ____ No _____X _____ In 1998, the SEC issued guidelines to make shareholder communications more understandable. We have written our Form 10- KSB including the Management's Discussion and Analysis and financial statements in plain English to help you better understand our business and what we've done. PART I Item 1. Description of Business. Background and History of Company LCA-Vision Inc. (the "Company" or "LCA-Vision") was incorporated in Delaware in 1987 under the name Kessef Technologies Inc. In 1988, Kessef Technologies Inc. merged with Maxoil Incorporated, a California corporation, under the charter of Kessef Technologies Inc. The name was changed to Maxoil Incorporated. Maxoil Incorporated formerly operated a business developing, managing and syndicating oil and gas investments and in 1988 had completed an initial public offering issuing 1,500,000 shares of its common stock to the public. Since December 31, 1993, Maxoil Incorporated had been an inactive, non-operational corporation. In July, 1995, Stephen N. Joffe, M.D. purchased a majority of the outstanding shares of the common stock and preferred stock of Maxoil Incorporated, amended the Certificate of Incorporation to change the name to LCA-Vision Inc., and effected a one-for-ten reverse stock split. The corporate headquarters were moved to 7840 Montgomery Road, Cincinnati, Ohio. On August 31, 1995, LCA Canada Inc., a wholly-owned subsidiary of LCA-Vision, acquired all of the stock of the Toronto Laservision Centre, Inc. On September 29, 1995, Laser Centers of America, Inc., a Delaware corporation ("LCA") founded by Stephen Joffe, merged into LCA-Vision. The shares of LCA-Vision were quoted on Nasdaq's over-the-counter electronic bulletin board under the symbol LCAV. On January 25, 1996, LCA-Vision common stock began trading on the Nasdaq SmallCap Market. On August 18, 1997 the Company purchased all of the outstanding shares of Refractive Centers International, Inc. ("RCII"), a majority owned subsidiary of Summit Technology, Inc. ("Summit"). The Company purchased from Summit 5,000,000 shares of RCII's common stock, par value $.01 in exchange for 16,164,361 newly- issued shares of LCA-Vision common stock. Prior to the purchase, 19 individuals had held options for 312,500 shares of RCII common stock, 278,767 of which were exercisable. These individuals exercised their options and the Company also purchased all 278,767 shares of RCII common stock owned by them in exchange for 901,218 newly-issued shares of Common Stock. As a result of these transactions, the Company issued a total of 17,065,579 shares of its Common Stock for 100% ownership RCII's common stock. Business Overview We are a leading developer and operator of free-standing laser refractive surgery centers. Our laser refractive surgery centers provide the facilities, equipment and support services for performing various corrective eye surgeries that employ state-of-the-art laser technologies. The laser vision correction surgeries performed in our centers primarily include laser in situ keratomileusis ("LASIK") and photorefractive keratectomy ("PRK"). On November 3, 1998, the United States Food and Drug Administration ("FDA") approved the VISX Star S2 excimer laser to treat farsightedness (hyperopia). The VISX Star S2 laser, which we have in each of our U.S. centers, can now be used for correcting nearsightedness, myopic astigmatism, and hyperopia. Only excimer lasers approved by the FDA are used in our U.S. centers. We also manage laser and minimally invasive surgical procedures at several hospitals and ambulatory surgical centers on a contract basis. We are generally compensated based on procedures performed; increased surgical volume; reduced surgical costs; or a combination of these. We may also receive compensation for conducting the marketing programs and educating the surgical staffs of the facilities. Laser Refractive Surgery Centers Our laser refractive surgery centers provide the facilities, equipment and support services necessary for physicians to perform various corrective eye surgeries that employ state-of-the-art laser technologies. Each center is equipped with one or more excimer laser systems in addition to corneal topography instruments, ophthalmic examination equipment, computer systems and standard office equipment. Physicians who have completed extensive FDA-mandated training sessions and have met our qualification criteria, use our facilities to perform laser refractive surgery on an out-patient basis. The most common procedures performed at the centers are LASIK (laser in situ keratomileusis) and PRK (photorefractive keratectomy) to treat nearsightedness, astigmatism and farsightedness. PRK is an outpatient procedure performed with an excimer, whereby submicron layers of tissue are ablated (removed) from the surface of the cornea in a computer-assisted, predetermined pattern to reshape the cornea. LASIK is an advanced outpatient procedure, also using an excimer laser. As new laser- based surgical procedures are approved by the FDA, we plan to accommodate the service requirements for these procedures as well, to the extent feasible at that time. The results of an internally-prepared study of the initial 1,150 procedures performed at our U.S. centers indicated that, of those procedures with at least six months of follow-up, 85% of the eyes were corrected to between 20/20 and 20/25 and 97% were corrected to at least 20/40. Operation of Centers Our operations generally consist of providing to credentialed physicians fully-equipped and staffed laser surgery centers, which these physicians use to perform laser refractive surgery and other ophthalmic procedures. We also provide management services, including billing and marketing functions, and educational programs. We are compensated for a physician's use of the Company's centers and support services. We seek to differentiate our centers in the marketplace by providing locations and treatment environments that meet patient and doctor preferences. Physicians who use our facilities are able to concentrate on treating patients and are free from the financial and management requirements associated with establishing and operating a surgery center. Additionally, participating physicians benefit from our marketing skills and programs (such as our toll-free 800 numbers) for identifying and capturing potential new patients. Finally, many of the administrative and financial functions are performed more efficiently and cost-effectively in a centralized operation. Laser refractive surgery is not generally reimbursable by third- party payors. To accommodate patients, we offer several financing alternatives. Patients can pay for the procedure with cash, check, money order or credit card. We also offer information regarding installment plans, insurance coverage, home equity loans and payment through employer flexible benefit plans. We bear minimal or no credit risk for any of these options. Marketing Our marketing program adopts a two-pronged approach to promoting laser refractive surgery. It is designed to advertise laser refractive surgery directly to consumers through television, print, media and direct marketing. In addition, our personnel work directly with ophthalmologists to increase the number of credentialed physicians who are knowledgeable about and use our centers to perform laser refractive surgery. We utilize lasers manufactured by VISX Incorporated at our U.S. laser refractive surgery centers and one each of Nidek, Chiron and Summit at our non-U.S. laser refractive surgery centers. VISX lasers are subject to a royalty fee of $260 per procedure performed in the U.S. Competition Laser refractive surgery, whether performed at one of our centers or elsewhere, competes with several surgical and non-surgical treatments to correct refractive disorders including eyeglasses, contact lenses, other types of refractive surgery (such as radial keratotomy) and corneal implants. In addition, other technologies currently under development may ultimately prove to be more attractive to consumers than laser refractive surgery. We face competition from other providers of laser refractive surgery. Eye care services in the U.S., including laser refractive surgery, are delivered through a fragmented system of local providers, including individual or small groups of opticians, optometrists and ophthalmologists and chains of retail optical stores and multi-site eye care centers. Laser refractive surgery chains, such as us, are a specialized type of multi-site eye care center that primarily provide laser refractive surgery. Among the laser refractive surgery center chains, we believe we are one of the largest providers in terms of number of facilities in the U.S. In addition to competition from other chains of laser refractive surgery centers, we face competition from hospitals, clinics and ophthalmologists, either as sole practitioners or as a group, who practice in the same geographic area as one of the centers. Furthermore, retail optical chains could potentially provide laser refractive surgery. Certain chains have entered the laser refractive surgery market. Management believes they have had limited success and have cut back their involvement in the industry. Other retail optical chains are not currently focusing on providing laser refractive surgery. Employees As of December 31, 1998, we had 145 employees, 99 of whom were full-time. None of our employees are subject to a collective bargaining agreement nor have we experienced a work stoppage. Trademarks Our trademarked names have not yet been formally registered. Where the trademark symbol is used, it is our intention to claim a trademark on such names under common law by using the "TM" symbol. The duration of such trademarks under common law is the length of time we continue to use them. At some point in the future, we plan to formally register our trademarks with the U.S. Trademark Office. Suppliers of Laser Equipment We are not directly involved in the research, development or manufacture of ophthalmic laser systems. There are two companies, Summit and VISX, Incorporated, whose excimer laser systems have been approved by the FDA for commercial sale in the U.S. The FDA has given preliminary approval for the excimer lasers manufactured by Autonomous Technologies, Inc. and Nidek to be marketed in the U.S. Government Regulation Our operations are subject to extensive federal, state and local laws, rules and regulations affecting the health care industry and the delivery of health care. These include laws and regulations, which vary significantly from state to state, prohibiting unlawful rebates and division of fees, and limiting the manner in which prospective patients may be solicited. Furthermore, contractual arrangements with hospitals, surgery centers, ophthalmologists and optometrists, among others, are extensively regulated by state and federal law. Failure to comply with applicable FDA requirements could subject excimer laser manufacturers and us to enforcement action, including product seizures, recalls, withdrawal of approvals and civil and criminal penalties, any one or more of which could have a material adverse affect on our business, financial condition and results of operations. In addition, clearance or approvals could be withdrawn in appropriate circumstances. Failure by us or our principal suppliers to comply with regulatory requirements, or any adverse regulatory action, could result in a limitation on or prohibition of our use of excimer lasers which in turn would have a material adverse effect on our business, financial condition and results of operations. Discovery of problems, violations of current laws or future legislative or administrative action in the United States or elsewhere may adversely affect the manufacturers' ability to obtain regulatory approval of laser equipment. Furthermore, the failure of VISX, Summit or any other manufacturers that supply or may supply excimer lasers to us to comply with applicable federal, state, or foreign regulatory requirements, or any adverse regulatory action against such manufacturers, could limit the supply of lasers or limit our ability to use the lasers. Item 2. Properties Our corporate headquarters and one of our laser refractive surgery centers are located in a 32,547 sq. ft. office building that we own in Cincinnati, Ohio. Our other laser refractive surgery centers are generally in professional office buildings. The laser refractive surgery centers include laser surgery rooms, private examination rooms, and patient waiting areas. The leased space ranges in size from approximately 2,000 to 6,700 square feet; with expiration dates ranging from September 30, 1999 to December 31, 2004. We consider all of our centers to be well-suited to our present and currently anticipated future requirements. We do not believe that any of the leases is material. The following table describes the locations of our laser refractive surgery centers at December 31, 1998:
Leased/ Aggregate Annual Location Owned Lease Payment Concord, CA Leased 50,973 Newport Beach, CA Leased 66,594 San Bernardino, CA Leased 58,130 San Jose, CA Leased 54,687 Torrance, CA Leased 58,123 Helsinki, Finland Leased -------- Clearwater, FL Leased 51,546 Schaumburg, IL Leased 51,786 Annapolis, MD Leased 22,403 Baltimore, MD Leased 93,621 Bethesda, MD Leased 54,098 Edina, MN Leased 62,942 Charlotte, NC Leased 62,817 Albany, NY Leased 70,637 Amherst, NY Leased 67,248 Centerville, OH Leased 55,148 Cincinnati, OH Owned ------- Columbus, OH Leased 35,553 Holland, OH Leased 83,719 Worthington, OH Leased 38,625 Ft. Erie, Ontario, Canada Leased 6,891 Willowdale, Ontario, Canada Leased 84,921 Falls Church, VA Leased 63,985
(1) Annapolis, Baltimore and Helsinki are leased through joint ventures. The rent for the Helsinki center is included in the monthly administration fee charged by the manager which is one of the investors. The above table does not include the locations or annual rent for centers that have been closed and we are the sublessor. We are actively pursuing a subtenant for the Worthington location. Item 3. Litigation We are a defendant and counter-claimant in a case entitled Cabrini Development Council, et al. v. LCA-Vision Inc., et al., which was commenced in October, 1997 in the Supreme Court of the State of New York, County of New York and subsequently removed to the United States District Court for the Southern District of New York. Also named as co-defendants are various current and former employees, officers and directors. The case arises out of the operations of a New York limited liability company (the "LLC") which had been formed by us, the plaintiffs and a New York professional corporation (the "PC") owned by certain physicians for the purpose of opening and operating a Laser Refractive Surgery center or centers in New York City. Business activities commenced in 1995, but were unprofitable. After the LLC's resources were exhausted, we paid its operating costs for a period of time. In August, 1997, after further losses and after the parties were unable to come to a final understanding as to their respective rights and obligations, the operations of the LLC ceased. In the complaint, the plaintiffs allege breaches of our obligations as a member of the LLC, and have demanded both substantial damages and equitable relief. We have filed an answer denying the allegations of the complaint, and asserting counterclaims against the plaintiffs seeking substantial damages, alleging that the plaintiffs wrongfully failed to match the capital contributions made by us to the LLC. We believe that the plaintiffs' claims are without merit and intend to vigorously defend the action and pursue our counterclaims. After commencement of the above action, we filed an action against the PC seeking damages for its failure to pay the capital contributions required of it to the LLC. The PC has counterclaimed alleging a right to be indemnified for its losses relating to the LLC's operations. Both actions are in the discovery stage. In the opinion of management neither action will have a material adverse effect on our financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Our Common Stock is listed on the Nasdaq SmallCap Market under the symbol "LCAV." There were approximately 3,249 holders of record of our Common Stock on February 1, 1999. The following table sets forth, for the periods indicated, as reported on the Nasdaq SmallCap Market, the range of high and low closing prices. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
1998 1997 High Low High Low First Quarter $2.125 $ 0.844 $ 6.875 $ 2.375 Second Quarter 4.156 1.688 7.125 2.688 Third Quarter 3.500 1.250 3.875 2.750 Fourth Quarter 1.500 1.000 3.625 1.000
We did not pay any cash dividends during the year ended December 31, 1998 and do not anticipate doing so in the future. Our loan agreement with our principal lender prohibits us from declaring or paying any dividend or distributions, except stock dividends, on our capital stock without the lender's approval. Item 6. Management's Discussion and Analysis or Plan of Operation. This Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of important factors that could affect our results, refer to the Overview and financial statement line item discussions set forth in Management's Discussion and Analysis or Plan of Operation. "Management's Discussion and Analysis or Plan of Operation" is an analysis of our operating results over the past three years. It explains why our revenues and costs changed, our overall financial condition, and other matters including the Year 2000 Issue. The Notes to Consolidated Financial Statements provide more information on our consolidated financial statements. For example, the Notes give breakdowns of some amounts in the statements, explain how we calculated certain amounts, and describe some of our important accounting policies. Overview (dollars in thousands, except where noted) We are a leading developer and operator of free-standing laser refractive surgery centers. Our laser refractive surgery centers provide the facilities, equipment and support services for performing various corrective eye surgeries that employ state-of-the-art laser technologies. The laser vision correction surgeries performed in our centers primarily include laser in situ keratomileusis ("LASIK") and photorefractive keratectomy ("PRK"). On November 3, 1998, the FDA approved the VISX Star S2 excimer laser to treat farsightedness (hyperopia). The VISX Star S2 laser, which we have in each of our U.S. centers, can now be used for correcting nearsightedness, myopic astigmatism, and hyperopia. We also manage multi-specialty laser surgery programs at medical facilities on a contract basis. Revenue is derived from three sources: (i) fees for surgeries performed at our laser refractive surgery centers, (ii) contractual fees for managing multi-specialty laser surgery programs, and (iii) other including fees for marketing and education programs; management fees for operating laser vision correction centers of investees; and miscellaneous sources. Operating expenses are classified as follows: (a) direct operating expenses which include: (i) laser refractive surgery centers - labor, physician fees, royalty fees (paid to the manufacturers of the FDA-approved lasers of $260 per procedure), facility rent and utilities, and surgical supplies; (ii) multi-specialty laser surgery programs - labor; and (iii) other services and products - labor and cost of products sold; (b) general and administrative expenses which primarily include headquarters staff expenses and other overhead costs; (c) marketing program costs; (d) center pre-opening expenses which include direct costs incurred prior to opening a laser vision correction center; and (e) depreciation and amortization. Results of Operations On August 18, 1997, we purchased 100% of the issued and outstanding common stock of Refractive Centers International, Inc. ("RCII"), a majority-owned subsidiary of Summit Technology, Inc. (the "Acquisition") for 17,065,579 shares of our common stock. The Acquisition was accounted for under the "purchase" method of accounting, as described in Accounting Principles Board Opinion No. 16 and interpretations thereof. The results of operations for the year ended December 31, 1997 include the revenues and expenses of RCII subsequent to August 18, 1997. Sources of Revenues The table below summarizes our sources of revenue and their annual growth or decline:
1998 1997 1996 Laser refractive surgery $32,963 $12,917 $3,715 Growth rate 155% 248% N/A Surgery management contracts 1,496 3,064 4,665 Growth rate -51% -34% -30% Other 741 1,613 5,380 Growth rate -54% -70% -23% Total 35,200 17,594 13,760
Laser refractive surgery Laser refractive surgery revenue generally includes three components: facility fee, royalty fee, and medical professionals fee. Certain states prohibit us from practicing medicine, employing physicians to practice medicine on our behalf or employing optometrists to render optometry services on our behalf. Revenues and direct costs from centers in such states do not include the medical professionals fee component. The contribution from laser refractive surgery procedures for each of the three years ended December 31, 1998 were (dollars in thousands, except per procedure information):
1998 1997 1996 Revenue $ 32,963 $ 12,917 $ 3,715 Direct costs 23,625 10,790 3,818 Contribution 9,338 2,127 (103)
Our results of operations in any period are significantly affected by the number of laser vision correction procedures performed. The following table illustrates the growth of laser vision correction procedures performed at our centers. Combined procedures include those performed at investee centers. We record the results of our investee centers using the equity method.
Wholly-owned Combined 1998 1997 1996 1998 1997 1996 Q4 5,686 2,888 745 6,791 3,400 1,089 Q3 5,327 2,375 596 6,102 2,794 864 Q2 4,891 1,506 790 5,737 2,078 1,054 Q1 3,887 979 532 4,450 1,443 613
In 1998 approximately 77% of the combined procedures performed were LASIK. Our growth and profitability are predicated on increases in procedure volume. Industry sources estimate that 450-500 thousand procedures were performed in the U.S. in 1998. As more people have the procedure performed the critical mass for word-of-mouth referrals is attained and, together with marketing and advertising, we expect an increase in procedure volume. Surgery management contracts We reduced the extent to which we provide this service due to the difficult business environment. The renewal of our contracts with the hospital providers became increasingly difficult due to price pressures and the lengthening of sales cycle. Hospital providers and other entities were being driven to reduce costs and scaleback their operations, sometimes including the programs that we managed. In addition, budget reductions at the facilities reduced the marketing and education programs, key elements to a successful surgery program. Expenses The increase of direct operating expenses is primarily a result of our expansion into the laser refractive surgery business. Direct operating expenses comprise the significant fixed costs of performing the procedure as well as the costs of maintaining a facility. Certain of these costs will become a lesser percentage of revenue as procedure volume increases. Direct operating expenses related to the other sources of revenue are more variable and fluctuate generally with the level of revenue. We now have VISX Star S2 lasers in all of our U.S. centers. The VISX lasers are leased and the monthly payments are recorded as direct operating expense. Depreciation and amortization increased in 1998 compared to 1997 due to the increase in goodwill and property and equipment, primarily equipment, for the laser vision correction centers acquired from Summit. During the second quarter of 1998, we implemented a plan to restructure its operations by closing seven of our centers, primarily centers acquired. Costs associated with the restructuring include $7,287,000 related to the write-off of goodwill and leasehold improvements and $677 thousand for the accrual of leases termination and employee severance costs. As a result of the closings, the Company has certain lasers in storage. The restructuring provision also includes $2,536,000 related to the write-down of these lasers to their net realizable value. The balance of the accrual at December 31, 1998 was $748 thousand and relates to facility rent and severance. Equity in income from unconsolidated businesses increased because of their increased profitability. Interest expense decreased due to the significant reduction in debt. Interest income increased because we had cash to invest in overnight cash equivalents. Liquidity and Capital Resources On May 11, 1998 the Company issued 10,000 shares of 6% Series B-1 Convertible Preferred Stock for $10 million. Each share has a par value of $0.001 per share and a stated value of $1,000 per share. The net proceeds from this issuance, approximating $9,463,000 were used for general corporate purposes including the reduction of debt. As of December 31, 1998, 4,298 shares of Convertible Preferred stock and accrued dividends of $117 thousand were converted into 4,088,856 shares of common stock. On June 29, 1998 the Company entered into an $8 million credit facility with The Provident Bank ("Provident"). In addition, the company repaid the borrowings from, and terminated its credit relationship with The Fifth Third Bank. The new credit facility, as amended, matures on June 30, 2000 and bears interest at 1/2% above Provident's prime rate. Interest on borrowings under the line of credit is payable monthly. The facility is collateralized by a blanket lien on all of our assets including a mortgage on the headquarters building. The facility can be used to support letters of credit totaling not more than $2 million. Availability under the facility will be reduced in an amount equal to the capital costs financed under a lease facility provided by Information Leasing Corporation, an affiliate of Provident. The lease facility maximum is $2.5 million. In addition, we have the option to convert up to $3.5 million of borrowings under the facility to a term loan. On August 21, 1998 we borrowed $2.1 million from Provident under the credit facility on a term loan basis. The loan bears interest at 7.45% and requires monthly installments of $12 thousand plus interest until June 30, 2000 at which time the remaining principal balance of $1.705 million becomes payable. The proceeds were used to purchase a certificate of deposit from Provident that matures on June 30, 2000. The certificate of deposit is recorded in other assets and interest is paid monthly at 5.7% The credit facility also supports letters of credit and leased assets totaling $1.1 million at December 31, 1998. The credit facility, for which there is no formal compensating balance, requires us to pay a commitment fee of .25% based on the unused portion. At December 31, 1998 we had $4.9 million available to us under the credit facility. We are required to maintain certain financial ratios and amounts for the credit facility to be available for our use. We are to maintain tangible net worth of at least $14 million and the ratio of total liabilities less subordinated debt to tangible net worth must be greater than .75 to 1. The credit facility defines tangible net worth as Shareholders' Investment plus Subordinated Debt less unamortized Goodwill as shown on our Consolidated Balance Sheets. Beginning with the quarter ended December 31, 1998 the ratio of our earnings before interest expense, taxes and depreciation and amortization ("EBITDA") on a trailing 12 month basis must be greater than 1.5 times the sum of our current maturities of capital lease obligations, trailing 12 months interest expense and $140 thousand. On August 18, 1997, we issued 17,065,579 shares of our Common Stock for 100% of the issued and outstanding common stock of RCII, a majority-owned subsidiary of Summit. At the time of the acquisition, RCII owned and operated 19 laser refractive eye surgery centers and had management service agreements with six "centers of excellence" located at prestigious hospitals and university medical centers. The acquisition agreement required RCII to have a minimum cash balance of $10 million at closing. Shortly after the acquisition, we closed four of the RCII laser refractive eye surgery centers. In June 1998, we closed an additional six RCII centers. In addition, we closed the RCII corporate office in Waltham, MA and terminated certain administrative personnel. We continue to focus on making our centers profitable rather than expansion. On November 3, 1998 we received notice that the FDA had approved the VISX Star S2 excimer laser to treat farsightedness (hyperopia). The VISX Star S2 laser, which we have in each of our U.S. centers, can now treat nearsightedness, myopic astigmatism, and hyperopia. Management believes that our ability to treat these disorders will result in increased procedures and profitability. The ability to fund our marketing and advertising program and planned capital expenditures will depend on our future performance, which to a certain extent, is subject to general economic, competitive, legislative, regulatory and other factors that are beyond our control. Based upon the current level of operations and anticipated revenue growth, we believe that cash flow from operations and available cash, together with available borrowings under the credit facility from Provident will be adequate to meet these needs. Year 2000 Issue Generally, application programs have used two-digit fields to define the applicable year, rather than four-digit fields. Programs that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This misinterpretation of the year could result in an incorrect computation or computer shutdown. We have completed an assessment of our computer software and hardware for compliance with Year 2000 and have determined that all business critical systems are compliant. Business critical systems include financial reporting systems and all lasers utilized in our centers. Costs associated with the assessment were internal costs, were expensed as incurred and were immaterial. We have not verified or tested compliance with our telemarketing information system; because we are in the process of purchasing a new telemarketing system that will be Year 2000 compliant and installed and operational by September 30, 1999. The cost of this new system will be included in our capital expenditures or leased. We expect the cost to exceed $200 thousand. We have also completed an assessment of external risks associated with Year 2000. Although management does not believe that such external risks are significant, the loss of power or other telecommunication link difficulties could disrupt our operations. Impact of Recently Issued Accounting Standards In 1998 we adopted SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 130 established standards for the reporting and display of comprehensive income, requiring its components to be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of SFAS No. 130 had no impact on our financial statements because our net loss approximates comprehensive income. SFAS No. 131 establishes standards for reporting financial information about operating segments in annual financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by chief operating decision makers in deciding how to allocate resources and in assessing performance. We now operate in one segment - laser refractive surgery. The adoption of SFAS No. 131, which affected disclosures only, had no impact on our consolidated results of operations, financial condition, or cash flows. The FASB issued in 1998 Statements No. 132, "Employees Disclosures about Pensions Benefits", No. 133, "Accounting for Derivative Instruments and Hedging Activities", and No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise (an amendment of FASB Statement No. 65). These Statements do not currently have an impact on us because we have no activities covered by them. Item 7. Financial Statements. Our consolidated financial statements for the year ended December 31, 1998, are included in this Annual Report on Form 10-KSB in their entirety immediately following the signature pages hereto. Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. The information required by this item is incorporated by reference to our 1999 Proxy Statement to be filed on or prior to April 12, 1999. Item 10. Executive Compensation. The information required by this item is incorporated by reference to our 1999 Proxy Statement to be filed on or prior to April 12, 1999. Item 11. Security Ownership of Certain Beneficial Owners and Management. The information required by this item is incorporated by reference to our 1999 Proxy Statement to be filed on or prior to April 12, 1999. Item 12. Certain Relationships and Related Transactions. The information required by this item is incorporated by reference to our 1999 Proxy Statement to be filed on or prior to April 12, 1999. PART IV Item 13. Exhibits and Reports on Form 8-K.
Exhibit Number Description of Exhibit 3(a)(i) Amended Certificate of Incorporation of Registrant Note A 3(a)(ii) Amended Certificate of Designation as to Interim Preferred Stock Note H 3(a)(iii) Amended Certificate of Designation as to Series B-1 Convertible Preferred Stock Note G 3(b) Amended Bylaws of Registrant Note A 10(a) LCA-Vision Inc. 1995 Long-Term Stock Incentive Plan Note B 10(b) LCA-Vision Inc. Directors' Non-Discretionary Stock Option Plan Note B 10(c) LCA-Vision Inc. 401(k) Plan Note A 10(d) Loan Agreement dated June 29, 1998 between Registrant and The Provident Bank Note C 10(e) LCA-Vision Inc. 1998 Long-Term Stock Incentive Plan Note E 10(f) Promissory Note between the Registrant and its major stockholders Note F 10(g) Convertible Preferred Stock Purchase Agreement between Registrant and Certain Purchasers date as of May 8, 1998 Note G 10(h) Agreement between Registrant and Donaldson, Lufkin & Jenrette Securities Corporation dated May 4, 1998 Note G 21 Subsidiaries of Registrant 23 Consent of PricewaterhouseCoopers LLP 24 Powers of Attorney Note D 27 Financial Data Schedule /TABLE NOTE REFERENCES: A. Incorporated by reference to the Company's Registration Statement on Form 10-SB No. 0-27610, which became effective on January 25, 1996. B. Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. C. Incorporated by reference to Form 8-K filed July 2, 1998 D. Contained on the first page of the signature pages contained in this report. E. Incorporated by reference to the Company's Proxy Statement relating to its October 16, 1998 Special Stockholders Meeting F. Incorporated by reference to Form 10-QSB filed November 12, 1998 G. Incorporated by reference to Form 10-QSB filed May 15, 1998 H. Incorporated by reference to Form 8-K filed December 4, 1996 (b) Reports on Form 8-K (1) Form 8-K dated January 7, 1999 announcing fourth quarter and year 1998 procedure volume and growth rates. (2) Form 8-K dated February 11, 1999 announcing results for the quarter and year ended December 31, 1998. SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, LCA-Vision Inc., the Registrant, has duly caused this report on Form 10-KSB dated February 16,1999 to be signed on its behalf by the undersigned, thereunto duly authorized. LCA-Vision Inc. Date: February 16, 1999 By: /s/ Stephen N. Joffe Stephen N. Joffe, Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Larry P. Rapp, his or her true and lawful attorney-in-fact and agent, with full power of substitution, and with power to act alone, to sign and execute on behalf of the undersigned any amendment or amendments to this report on Form 10-KSB, and to perform any acts necessary to be done in order to file such amendment or amendments, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission and each of the undersigned does hereby ratify and confirm all that said attorney-in-fact and agent, or his substitutes, shall do or cause to be done by virtue hereof. In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Principal Executive Officer: Date: Chairman and February 16, 1999 /s/ Stephen N. Joffe Chief Executive Officer Stephen N. Joffe Principal Financial and Accounting Officer: Chief Financial Officer February 16, 1999 /s/ Larry P. Rapp and Treasurer Larry P. Rapp Directors: Date: /s/ Stephen N. Joffe Director February 16, 1999 Stephen N. Joffe /s/ William O. Coleman Director February 16, 1999 William O. Coleman /s/ John H. Gutfreund Director February 16, 1999 John H. Gutfreund /s/ John C. Hassan Director February 16, 1999 John C. Hassan INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Number Description in this Report Report of Management 15 Report of Independent Accountants 15 Consolidated Balance Sheets as of December 31, 1998 and 1997 16 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 17 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 18 Consolidated Statements of Shareholders' Investment for the years ended December 31, 1998, 1997 and 1996 19 Notes to Consolidated Financial Statements 21 REPORT OF MANAGEMENT We, the management of LCA-Vision Inc., are responsible for the consolidated financial statements and the information and representations contained in this report. The Company prepared the financial statements in accordance with generally accepted accounting principles based upon available facts and circumstances and management best estimates and judgements of known conditions. We maintain an accounting system and related system of internal controls designed to provide reasonable assurance that the financial records are accurate and that the Company's assets are protected. PricewaterhouseCoopers LLP, independent accountants, audit the financial statements and express their opinion on them. They perform their audit in accordance with generally accepted auditing standards. The Audit Committee of the Board of Directors, which consists of our outside Directors, meets periodically with management and PricewaterhouseCoopers LLP to review the activities of each in discharging their responsibilities. The staff of PricewaterhouseCoopers LLP has free access to the Audit Committee. /s/Stephen N. Joffe /s/Larry P. Rapp Stephen N. Joffe Larry P. Rapp Chairman of the Board and Chief Financial Officer Chief Executive Officer and Treasurer REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of LCA-Vision Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' investment, and cash flows present fairly, in all material respects, the financial position of LCA-Vision Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Cincinnati, Ohio February 5, 1999 CONSOLIDATED BALANCE SHEETS
Dollars in Thousands, Except Per Share Amounts At December 31, 1998 1997 Assets Current assets: Cash and cash equivalents $ 6,496 $ 2,780 Cash held in escrow 5,900 Accounts receivable, net 1,119 2,047 Prepaid expenses, inventory and other 1,416 1,892 -------- ------- Total current assets 9,031 12,619 -------- ------- Property and equipment, net 9,433 18,462 Goodwill, net 8,304 11,987 Obligations due from shareholders, net 471 Investment in unconsolidated businesses 520 250 Other assets 3,618 1,209 -------- ------- Total assets $ 31,377 $ 44,527 ========= ======= Liabilities and Shareholders' Investment Current liabilities Accounts payable $ 2,030 $ 1,831 Accrued liabilities and other 2,637 2,304 Debt maturing in one year 787 10,182 ------- ------ Total current liabilities 5,454 14,317 ======= ====== Obligations due to shareholders, net 2,146 Long-term debt 2,724 1,350 Commitments and contingencies Shareholders' investment Preferred stock 7,687 2,522 Common stock ($0.001 par value; 40,973,741 shares and 36,664,816 shares issued) 103 96 Contributed capital 41,701 36,776 Accumulated (deficit) (25,664) (12,446) Foreign currency translation adjustment (14) ( 21) ------ ------ 23,813 26,927 Less common stock in treasury at cost 30 30 Less accrued preferred stock dividend 584 183 ------ ------ 23,199 26,714 Total liabilities and shareholders' investment $ 31,377 $ 44,527 ======= =======
See Notes to Consolidated Financial Statements CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in Thousands, Except Per Share Amounts Years Ended December 31, 1998 1997 1996 Revenues Laser refractive surgery $32,963 $12,917 $3,715 Surgery management contracts 1,496 3,064 4,665 Other 741 1,613 5,380 ------ ------ ------ 35,200 17,594 13,760 Direct costs of Laser refractive surgery 23,625 10,790 3,818 Surgery management contracts 466 977 1,738 Other 372 959 2,176 ------ ------ ------ 24,463 12,726 7,732 General and administrative expenses 7,961 6,747 5,663 Marketing and advertising 2,183 1,259 1,664 Depreciation and amortization 3,521 2,511 1,597 Restructuring provision 10,500 1,100 Other 162 225 ------ ------ ------ Operating (loss) (13,428) ( 6,911) (3,121) Equity in earnings (losses) from unconsolidated businesses 354 (27) ( 906) Interest expense 786 1,140 770 Interest income 441 216 89 Other income 358 77 651 ------ ----- ----- (Loss) before taxes on income (13,061) (7,785) (4,057) Taxes on income 157 68 ------ ----- ----- Net (loss) (13,218) (7,853) (4,057) Preferred stock dividends 518 183 ------ ----- ----- (Loss) applicable to common stock $(13,736) $(8,036) $(4,057) ======== ======= ======= (Loss) per common share Basic $ (0.36) $ (0.30) $ (0.21) Diluted $ (0.36) $ (0.30) $ (0.21) Weighted average shares outstanding - Basic 37,669,471 26,709,184 19,609,505 Diluted 37,669,471 26,709,184 19,609,505 See Notes to Consolidated Financial Statements /TABLE CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) Years Ended December 31, 1998 1997 1996 Cash flows from operating activities Net (loss) $ (13,736) $ ( 8,036) $ ( 4,057) Adjustments to reconcile net (loss) to net cash provided (used) by operating activities: Depreciation and amortization 3,521 2,511 1,597 Restructuring provision 10,500 1,100 Equity in (income) loss of unconsolidated businesses (354) 27 906 Other items, net ( 378) Changes in certain assets and liabilities, net of effects from acquisition of businesses Accounts receivable 424 (989) 1,044 Prepaid expenses, inventory and other 476 334 (14) Accounts payable 199 824 49 Accrued liabilities and other 69 219 ( 41) ----- ----- ----- Net cash provided (used) by operating activities 1,099 (4,010) (894) ----- ----- ----- Cash flows from investing activities Cash acquired in acquisition of business 10,007 Purchase of property and equipment (1,946) (603) ( 2,747) Proceeds from sale of property and equipment 1,211 133 Investment in unconsolidated businesses, net ( 1,099) Loans and advances to affiliated companies 570 (713) Loans to shareholders (2,100) Purchase of certificate of deposit (2,100) Other, net (382) (64) 809 ------ Cash provided (used) in investing activities (4,747) 9,340 ( 3,617) ------ ----- ------ Cash flows from financing activities Proceeds from bank borrowings 2,100 6,280 3,438 Repayment of bank borrowings (9,651) Principal payments of long-term debt and capital lease obligations (482) (3,743) (545) Proceeds from sale of convertible preferred stock, net 9,463 Proceeds from issuance of common stock 51 56 100 Other, net (17) 33 (345) ----- Net cash provided by financing activities 1,464 2,626 2,648 ----- ----- ----- Increase (decrease) in cash and equivalents (2,184) 7,956 ( 1,863) Cash and cash equivalents at beginning of year 8,680 724 2,587 ------ ----- ----- Cash and cash equivalents at end of year $ 6,496 $ 8,680 $ 724 ========= ========= =======
See Notes to Consolidated Financial Statement CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
Dollars in Thousands, Except Per Share Amounts Years Ended December 31, 1998 1997 1996 Shares Amount Shares Amount Shares Amount Preferred Stock: Class A Balance at beginning of year 1,668 1,668 1,668 Balance at end of year 1,668 1,668 1,668 ----- ----- ----- Class B Interim Series Balance at beginning of year 12.6 $2,522 12.6 $2,522 Shares issued - shareholder debt conversion 12.6 $2,522 ----- ----- ----- ----- ----- ----- Balance at end of year 12.6 2,522 12.6 2,522 12.6 $2,522 ----- ------ ----- ----- ----- ----- Class B1 Convertible Balance at beginning of year Shares issued 10,000 10,000 Transaction fees (537) Shares converted to common stock (4,298) (4,298) ------ ------ Balance at end of year 5,702 5,165 ------ ------ Total preferred stock - 7,687 ------ Common Stock Balance at beginning of year 36,664,816 96 19,590,012 79 19,538,977 78 Shares issued: Acquisition agreement 200,000 17,065,579 17 Conversion of B1 Convertible Preferred Stock and dividends 4,088,856 4 Sale of stock 20,128 44,444 Employee plans 20,000 Other 69 3 (10,903) 6,591 1 ---------- -------- ---------- ------- ---------- ------ Balance at end of year 40,973,741 103 36,664,816 96 19,590,012 79 ---------- -------- ---------- ------- ---------- ------ Contributed Capital 36,776 3,177 3,069 Balance at beginning of year Shares issued: Acquisition agreement 580 33,543 Conversion of B1 Convertible Preferred Stock 4,411 Sale of stock 56 100 Employee plans 51 Other Dividends on Conversion of Class B1 Convertible Preferred Stock (117) 8 ------ ------ ----- Balance at end of year 41,701 36,776 3,177 ------ ------ ----- Accumulated (deficit) Balance at beginning of year (12,446) (4,592) (535) Net (loss) (13,218) (7,853) (4,057) ------ ----- ----- Balance at end of year (25,664) (12,446) (4,592)
See Notes to Consolidated Financial Statements CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT (continued)
Dollars in Thousands, Except Per Share Amounts Years Ended December 31, 1998 1997 1996 Shares Amount Shares Amount Shares Amount Foreign Currency Translation Adjustment Balance at beginning of year (21) 12 7 Translation adjustments 5 (33) 5 ----- ---- ----- Balance at end of year (14) (21) 12 ----- ---- ----- Treasury Stock Balance at beginning of year 10,909 (30) Shares received for payment of advance 10,909 (30) ------ ------ ------ ---- Balance at end of year 10,909 (30) 10,909 (30) ------- ------ ------ ---- Preferred Stock Dividend Balance at beginning of year (183) Dividends accrued Class B Interim (177) (183) Class B1 Convertible (341) Conversion of Class B1 Convertible Preferred Stock 117 ----- ----- Balance at end of year (584) (183) ----- ----- Total Shareholders' Investment $ 23,199 $ 26,714 $ 1,198 ======== ======== ======
See Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business and Summary of Significant Accounting Policies Business We are a leading developer and operator of free-standing laser refractive surgery centers. Our laser refractive surgery centers provide the facilities, equipment and support services for performing various corrective eye surgeries that employ state-of-the-art laser technologies. The laser vision correction surgeries performed in our centers are primarily laser in situ keratomileusis ("LASIK") and photorefractive keratectomy ("PRK"). On November 3, 1998, we received notice that the FDA had approved the VISX Star S2 excimer laser to treat farsightedness (hyperopia). The VISX Star S2 laser, which we have in each of our U.S. centers, can now treat nearsightedness, myopic astigmatism, and hyperopia. We also manage multi-specialty laser surgery programs at medical facilities on a contract basis. Revenue is derived from three sources: (i) fees for surgeries performed at our laser refractive surgery centers, (ii) contractual fees for managing multi-specialty laser surgery programs, and (iii) other including fees for marketing and education programs; management fees for operating laser vision correction centers of investees; and miscellaneous sources. Operating expenses are classified as follows: (a) direct operating expenses which include: (i) laser refractive surgery centers -- labor, physician fees, royalty fees paid to the manufacturers of the FDA-approved lasers of $260 per procedure, facility rent and utilities, and surgical supplies; (ii) multi-specialty laser surgery programs - - labor; and (iii) other services and products -- labor and cost of products sold; (b) general and administrative expenses which primarily include headquarters staff expenses and other overhead costs; (c) marketing program costs; (d) center pre-opening expenses which include direct costs incurred prior to opening a laser vision correction center; and (e) depreciation and amortization. Consolidation Policy We use two different methods to report our investments in our subsidiaries and other companies - consolidation and the equity method. Consolidation We use consolidation when we own a majority of the voting stock of the subsidiary. This means the accounts of our subsidiaries are combined with our accounts. We eliminate intercompany balances and transactions when we consolidate these accounts. Our consolidated financial statements include the accounts of: LCA-Vision Inc., LCA-Vision (Ohio), Inc., Refractive Centers International, Inc. and Subsidiaries, and LCA-Vision (Canada) Inc. and Subsidiaries The Equity Method We use the equity method to report investments in businesses where we hold a 20% to 50% voting interest, giving us the ability to exercise significant influence, but not control, over operating and financial policies. Under the equity method we report: - our interest in the entity as an investment in our Consolidated Balance Sheets, and - our percentage share of the earnings (losses) in our Consolidated Statements of Operations. We report our investments in The Baltimore Laser Sight Center, Ltd. and Silmalaseri Oy under the equity method. Use of Estimates Management makes estimates and assumptions when preparing financial statements under generally accepted accounting principles. These estimates and assumptions affect various matters including: - our reported amounts of assets and liabilities in our Consolidated Balance Sheets at the dates of the financial statements, - our disclosure of contingent assets and liabilities at the dates of the financial statements, and - our reported amounts of revenues and expenses in our Consolidated Statements of Income during the reporting periods. Actual amounts could differ from those estimates. Reclassifications We have reclassified certain prior-year amounts for comparative purposes. These reclassifications did not affect consolidated financial position, net losses or cash flows for the years presented. Cash and Cash Equivalents For the purpose of reporting our cash flows, we consider highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. Property and Equipment, Goodwill, and Depreciation and Amortization Property and Equipment We report our property and equipment at its original cost. At the time property or equipment is retired, sold, or otherwise disposed of, the related cost and accumulated depreciation or amortization are deducted from the amounts reported in the Consolidated Balance Sheet and any gains or losses on disposition are recognized in the Consolidated Income Statement. Goodwill Goodwill is the excess of the acquisition cost of the businesses over the fair value of the identifiable net assets acquired. We amortize goodwill using the straight-line method over 40 years. Depreciation and Amortization We compute depreciation using the straight-line method which recognizes the cost of the asset over its estimated useful life. We use the following estimated useful lives for computing the annual depreciation expense: building, 5 to 31 years; furniture and fixtures, 5 to 7 years; medical equipment, 3 to 5 years; other equipment, 3 to 5 years. Amortization of leasehold improvements is recorded in the Consolidated Income Statements using the straight- line method based on the lesser of the useful life of the improvement or the lease term. We assess the impairment of property and equipment and goodwill related to our consolidated subsidiaries under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of," whenever events or circumstances indicate that the carrying value might not be recoverable. Estimates of future cash flows are used to determine if there is impairment. Financial Instruments Concentration of Credit Risk Financial instruments that subject us to concentrations of credit risk consist primarily of temporary cash investments and trade receivables. Our policy is to place our temporary cash investment in overnight repurchase agreements with The Provident Bank, the financial institution that now provides our line of credit. Concentrations of credit risk with respect to trade receivables is limited due to the number of accounts and overall stability of the health insurance and hospital industries. Fair Values of Financial Instruments The fair value of our cash and cash equivalents, trade receivables and accounts payable approximate their fair values due to their short term maturities. We were unable to determine the fair values of our borrowings under our line of credit because there is no liquid market for this debt. Stock-Based Compensation We account for stock-based employee compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Effective January 1, 1996, we adopted the disclosure-only provision of SFAS No. 123, "Accounting for Stock-Based Compensation," and related interpretations. Per Share Data Basic loss per share data is loss applicable to common shareholders divided by weighted average common shares outstanding. Diluted per share data is loss applicable to common shareholders divided by weighted average common shares outstanding plus potential common shares from dilutive securities such as options and convertible securities. The weighted average shares for the diluted calculation does not assume exercise of any stock options or conversion of other securities since they would result in a reduced loss per share. Recent Accounting Pronouncements In 1998 we adopted SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 130 established standards for the reporting and display of comprehensive income, requiring its components to be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of SFAS No. 130 had no impact on our financial statements because our net loss approximates comprehensive income. SFAS No. 131 establishes standards for reporting financial information about operating segments in annual financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by chief operating decision makers in deciding how to allocate resources and in assessing performance. We now operate in one segment - laser refractive surgery. The adoption of SFAS No. 131, which affected discolsures only, had no impact on our consolidated results of operations, financial condition, or cash flows. The FASB issued in 1998 Statements No. 132, "Employees Disclosures about Pensions Benefits", No. 133, "Accounting for Derivative Instruments and Hedging Activities", and No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise (an amendment of FASB Statement No. 65). These Statements do not currently have an impact on us because we have no activities covered by them. 2. Shareholders' Investment Common Stock We are authorized to issue up to 110 million shares of common stock. Preferred Stock Class A We are authorized to issue up to 1,688 shares of Class A Preferred Stock which has an aggregate liquidation preference of $68 thousand at December 31, 1998. Class B We are authorized to issue up to 5 million shares of Class B Preferred Stock with terms and conditions at the direction of our Board of Directors. However, the holders of the Class B Preferred Stock cannot be granted voting rights superior to those of any other existing class of our stock authorized for issuance. First and Second Interim Series The Interim shares of Series Class B preferred Stock have a par value of $0.001 and a 7% dividend. 6 shares of the First Series are issued and have an aggregate liquidation preference of $1.2 million; 6.6 shares of the second Series are issued and have an aggregate liquidation preference of $1.32 million. When we acquired RCII the conversion price of the First and Second Interim Series of the Class B Preferred Stock was amended. Each share of the Interim Series is convertible into the number of our common shares that results from dividing the sum of $2 thousand plus accrued, but unpaid, dividends on that share by $3.50. 6% Series B-1 Convertible On May 11, 1998 we issued 10,000 shares of 6% Series B-1 Convertible Preferred Stock for $10 million. Each share has a par value of $0.001 and a stated value of $1 thousand per share. These shares were recorded at their stated value less issuance costs of $537 thousand. These shares are convertible into our common shares at a price that floats with the closing bid price of our common stock. The conversion price of the lesser of $3.90625 per share or the average of the 4 lowest closing bid prices per share of our common stock during the 22 trading days prior to the date of conversion. We can require conversion if our common stock trades at a price greater than $5.46875 per share for 15 consecutive trading days. Dividends on these shares are cumulative from the date of issuance and are payable on a quarterly basis on June 30, 1998. We have the option to pay the dividends in cash or in shares of our common stock. Accrued, unpaid dividends on shares being converted are to be paid in shares of our common stock at the same conversion price of the shares being converted. Holders of these shares have converted 4,298 shares and dividends totaling $117 thousand into 4,088,856 shares of our common stock through December 31, 1998. An additional 3,037 shares and dividends totaling $129.5 thousand were converted into 2,330,857 shares of common stock through February 5, 1999. The holders of these shares have the right to purchase an additional $5 million of these shares under the same terms and conditions until May 11, 1999. 3. Acquisitions Refractive Centers International, Inc. On August 18, 1997, we issued 17,065,579 shares of our common stock to Summit Technology, Inc. ("Summit") and certain individuals for 100% of the issued and outstanding common stock of Refractive Centers International, Inc. ("RCII"). On May 4, 1998, we issued 200,000 shares of our common stock to an investment banking firm as compensation for services related to the acquisition of RCII. The shares were recorded at their fair value on the date of issuance. We accounted for the acquisition of RCII using the purchase method of accounting as described in Accounting Principles Board Opinion No. 16, "Business Combinations," and related interpretations. The purchase method required us to record in our Consolidated Balance Sheet the fair values of the assets and liabilities at the date of the acquisition. We recorded the difference between the acquisition cost and the fair value of the identifiable net assets acquired as goodwill. The fair value of the assets acquired and liabilities assumed consisted of cash - $10,007,000; other net working capital - $664,000; equipment - $9,511,000; and goodwill - $12,802,000. The revenues and expenses of RCII are included in our Consolidated Statements of Operations beginning August 18, 1997. Our Consolidated Statement of Operations prior to August 18, 1997 were not restated to include the historical results of RCII. Unaudited pro forma data assuming we had acquired RCII at the beginning of 1996 follows (dollars in thousands except per share amounts): 1997 1996 Revenues $22,276 $16,778 Net (loss) (14,353) (22,814) (Loss) per share (0.39) (0.62) The pro forma data does not purport to be indicative of operating results which would have occurred had we acquired RCII at the beginning of 1996 or of the operating results which may occur in the future. 4. Restructuring Provision During the second quarter of 1998 we implemented a plan to close seven centers that were not contributing to our profitability. The centers closed were primarily centers which had been operated by RCII. Costs associated with the closings include $7,287,000 related the write-off of goodwill and leasehold improvements, $677,000 for the accrual of costs for terminating leases and employees, and $2,536,000 for the write-down of idled lasers to their net realizable values. At the time of completing the acquisition of RCII, we implemented a program to close certain centers, both acquired and existing, and reduce overhead costs. We recorded a 1.1 million restructuring provision for these closings and $620 thousand was recorded for facility rent and employee severance associated with closing the RCII centers as part of the purchase price. Our 1997 Consolidated Statement of Operations includes revenues of $414 thousand and operating losses of $343 thousand for these centers. We also wrote-off our investment in two of our unconsolidated businesses that had closed their laser refractive surgery centers and wrote-down certain product inventory to its net realizable value. We recorded a restructuring provision of $1.1 million in the third quarter of 1997 for the anticipated costs of these decisions. Costs totaling $848 thousand and $899 thousand were charged against these accruals in 1998 and 1997, respectively. The balance of these accruals was $748 thousand at December 31, 1998 and relates to facility rent and severance. 5. Credit Arrangements On June 29, 1998 the Company entered into an $8 million credit facility with The Provident Bank ("Provident"). At the same time we repaid our borrowing from, and terminated our relationship with, another lender. The Provident facility, as amended, matures on June 30, 2000. The facility can be used to support up to $2 million of letters of credit issued by Provident and to support up to $2.5 million of capital costs financed by leases entered into with an affiliate of Provident. Borrowings under the working credit portion of the facility bear interest at 1/2% above Provident's prime rate. We have the option to convert up to $3.5 million of working capital borrowings to a term loan. Substantially all of our assets are pledged as collateral. The credit facility also supports letters of credit and leased assets totaling $1.1 million at December 31, 1998. The credit facility, for which there is no formal compensating balance, requires us to pay a commitment fee based of .25% on the unused portion. At December 31, 1998 we had $4.9 million available to us under the credit facility. The credit facility requires us to maintain certain financial ratios and amounts. We are to maintain tangible net worth of at least $14 million and the ratio of total liabilities less subordinated debt to tangible net worth must be less than .75 to 1. The credit facility defines tangible net worth as Shareholders' Investment plus Subordinated Debt less unamortized Goodwill as shown on our Consolidated Balance Sheets. Beginning with the quarter ended December 31, 1998 the ratio of our earnings before interest expense, taxes and depreciation and amortization ("EBITDA") on a trailing 12 month basis must be greater than 1.5 times the sum of our current maturities of capital lease obligations, trailing 12 months interest expense and $140 thousand. 6. Debt The following table displays the details of debt maturing within one year: (Dollars in Thousands) At December 31, 1998 1997 Bank line of credit $6,641 Bank term loan $167 2,998 Capital lease obligations 620 543 ------- ----- $ 787 $ 10,182 ======== ========= We borrowed $2.1 million under the Provident credit facility on a term loan basis. This loan bears interest at 7.45% and requires to pay monthly installments of $12 thousand plus interest until June 30, 2000 when the remaining principal balance of $1.705 million is due. We used the proceeds of the borrowing to purchase a certificate of deposit from Provident with a maturity date of June 30, 2002. The certificate of deposit pays interest monthly at a rate of 5.7% per annum. We recorded the certificate of deposit as other assets in our Consolidated Balance Sheet at December 31, 1998. 7. Obligations Due from/Due to Shareholders and Their Affiliates, net The following table displays the details of net obligations due to us in 1998 and net obligations due from us in 1997 as reported in our Consolidated Balance Sheets: (Dollars in Thousands) At December 31, 1998 1997 Due from us: Notes payable shareholders $1,500 $1,500 Accrued interest 568 463 Accrued Interim Series B preferred stock dividend 359 183 Due to us: Note receivable shareholders 2,100 Accrued interest 60 Receivable from shareholder's affiliated company 738 ------ ------ Net obligation $ 471 $ 2,146 ====== ======= The notes payable - shareholders mature on September 25, 2005, and bear interest at 6.91%. In connection with the acquisition of RCII the shareholders agreed to amend the notes to limit payment of principal and accrued interest to 25% of the amount our earnings for the prior fiscal year exceed $1 million. For this purpose earnings are defined as income before taxes, amortization and depreciation reduced by purchases of property and equipment for the year. In February 1999 Summit agreed to waive our compliance with the repayment restrictions. The notes are subordinate to any of borrowings under the Provident credit facility. We loaned $2.1 million to the holders of these notes payable. The loan is collateralized by the $1.5 million notes held by the shareholders and the accrued interest thereon and the preferred stock dividends due them. The loan bears interest at 8.5% and matures on September 26, 2005. Our principal shareholder is the majority stockholder of The LCA Center for Surgery, Ltd. ("Surgery Center") which is inactive. We have no investment in the Surgery Center. We previously leased a portion of our headquarters building to, and performed other services for, the Surgery Center. We recorded rent and administrative and marketing income of $74 thousand in 1997 and $162 thousand in 1996. In June 1998 we purchased the leasehold improvements that had been paid by the Surgery Center for $872 thousand, their book value at the time of purchase. During 1998 we also advanced $576 thousand to the Surgery Center. Generally accepted accounting principles required us to record a portion of the Surgery Center's losses using the equity method of accounting. We recorded losses of $265 thousand in 1998. 8. Investments in Unconsolidated Businesses Our investments in unconsolidated businesses are comprised of the following: (Dollars in Thousands) At December 31, 1998 1997 Ownership Investment Ownership Investment The Baltimore Laser Sight Center, Ltd. 45% $417 45% $150 Silmalaseri Oy 43% 103 43% 24 Combined summary financial information for these investments follows: (Dollars in Thousands) At December 31, 1998 1997 Financial Position: Current assets $ 1,830 $ 597 Total assets 2,604 1,364 Total liabilities 1,443 1,057 Members' equity 1,161 307 Operating Results: Revenue $ 3,787 $ 3,241 Net income (loss) 1,365 ( 114) In 1997, we wrote off our investments in Excimer Associates LLC and The Georgia Laser Sight Center, Ltd. resulting in a charge to income of $250 thousand which was included in the restructuring provision. In 1996, we sold the preferred stock of another investment accounted for using the equity method of accounting for $1 million. The gain of $546 thousand from this sale was included in other income. 9. Income Taxes We have not recorded a provision for U.S. income taxes for each of the three years ended December 31, 1998 because of our operating losses. The income tax expense in our Consolidated Statements of Operations consists primarily of Canadian income taxes. We are required to pay franchise taxes in most of the states in which we have operations due to our net operating losses. We include the franchise taxes paid in general and administrative expenses in our Consolidated Statements of Operations. At December 31, 1998, we have net operating loss carryforwards for Federal and state income tax purposes of $35.3 million which expire in varying amounts from 2012 through 2019. Approximately $15 million of net operating loss carryforwards were acquired when we bought RCII. Our ability to use these acquired net operating loss carryforwards is subject to utilization limitations contained in Section 382 of the Internal Revenue Code. Deferred taxes arise because of differences in the book and tax bases of certain assets and liabilities. Significant components of our deferred tax assets (liabilities) are shown in the following table: (Dollars in Thousands) At December 31, 1998 1997 Net operating loss carryforward $ 13,750 $ 12,320 Accounts receivable 140 140 Inventories 173 144 Marketable securities 138 138 Property and equipment 215 195 Notes payable to shareholders 185 185 Equity investments 351 262 Other 115 115 -------- ------- Deferred tax assets $ 15,067 $ 13,499 ============ ========== Valuation allowance $ (15,067) $(13,499) ============ ========== The valuation allowance primarily represents tax benefits of net operating loss carry forwards which may expire prior to being utilized. 10. Leasing Arrangements We lease office space for our centers and equipment for use in our operations under both capital and operating leases. Capital leases were primarily used for financing the lasers in our first five centers; we now finance the cost of lasers using operating leases. This table displays our aggregate minimal rental commitments under noncancellable leases for the periods shown: December 31, 1998 (Dollars in Thousands) Capital Leases Operating Leases Year 1999 $ 753 $ 5,029 2000 695 4,425 2001 62 2,135 2002 454 2003 288 Thereafter 101 ------ --------- Total minimum rental commitment 1,510 $ 12,432 =========== Less interest 75 ----------- Present values of minimum lease payments 1,435 Less current installments 620 Long-term obligation at December 31, 1998 $ 815 Total rent expense under operating leases amounted to $3.9 million in 1998, $1.7 million in 1997, and $267 thousand in 1996. As of December 31, 1998, the total minimum sublease rentals to be received in the future under noncancellable operating leases was approximately $970 thousand. 11. Employee Benefits Savings Plan We sponsor a savings plan under Internal Revenue Code Section 401(k) to provide an opportunity for eligible employees to save for retirement on a tax-deferred basis. Under this plan, we make discretionary contributions to the participants' accounts. We made contributions of $26,000 in 1998 and none in 1997 and 1996. Stock Option Plans We have fixed stock option plans under which options to purchase shares of our common stock are granted at a price equal to the market price of the stock at the date of grant. The awards under the plans are determined by the Compensation Committee of the Board of Directors. Under the 1995 Long term Stock Incentive Plan ("1995 Plan"), employees and/or consultants may be granted incentive and/or nonqualified stock options. The 1995 Plan permits the issuance of stock appreciation rights and stock awards to employees. A maximum of 2.5 million shares of common stock are reserved for the 1995 Plan. This table is a summary of the status of our 1995 Plan: Stock Options Weighted - Average Exercise Price Outstanding, December 31, 1995 Granted 1,996,750 $4.92 Forfeited (178,125) 5.25 --------- Outstanding, December 31, 1996 1,818,625 4.06 Granted 647,500 3.26 Forfeited (634,563) 4.95 Outstanding, December 31, 1997 1,831,562 4.03 Granted 843,600 1.02 Exercised (20,000) 2.56 Forfeited (650,337) 2.84 --------- Outstanding, December 31, 1998 2,004,825 $1.82 ========= Options exercisable, December 31: 1996 334,113 $4.77 1997 405,913 4.34 1998 524,625 2.31 In October 1998 our stockholders approved the adoption of the 1998 Long Term Stock Incentive Plan ("1998 Plan"). Under the 1998 Plan employees may be granted incentive and/or nonqualified stock options in addition to stock awards. A total of 5 million shares of common stock are reserved for the 1998 Plan. No options have been granted under the 1998 Plan. The 1998 Plan will also be used to grant stock options to our non-employee directors. Under the 1998 Plan, non-employee directors will receive an option to purchase 75,000 shares of common stock upon initial election or appointment and an annual automatic grants of options to purchase 12,500 shares of common stock. Non-employee directors previously received stock options under the LCA-Vision Inc. director's Nondiscretionary Stock Option Plan which has been discontinued. The Compensation Committee of the Board of Directors administers the 1995 and 1998 Plans. Options are granted with an exercise price not less than fair market value on the date of grant. Options granted have generally been exercisable ratably over 5 years and expire in 10 years from the date of grant. The 1998 Plan allows for options to become exercisable or in part six months after the date the option is granted or may become exercisable in one or more installments. In 1998 the Compensation Committee decided to reprice the exercise prices of 973,750 stock options previously granted to $1.1875 per share, the market price at the date of repricing. These options had a weighted average exercise price of $4.02 per share. As of December 31, 1998, a total of 486,175 shares were available for the granting of options under the 1995 Plan. This table summarizes information about the 1995 Plan stock options outstanding as of December 31, 1998:
Stock Options Outstanding Stock Options Exercisable ----- ------- ----------- ----- ------- ----------- Weighted - Weighted - Weighted - average average average Range of Exercise Prices Remaining Shares Contractual Life Exercise Price Shares Exercise Price ------ ----------- ---- -------------- ------ -------- ----- 0.8750 352,400 9.0 years $0.8750 1.1250-1.1875 1,007,000 8.8 years 1.1844 314,325 $1.1875 1.2500-3.5000 391,650 8.9 years 2.0726 101,650 2.6431 5.2500 253,775 7.4 years 5.2500 108,650 5.2500 /TABLE This table is a summary of the status of our now discontinued Director's Nondiscretionary Stock Option Plan: Stock Options Weighted - Average Exercise Price Outstanding, December 31, 1995 Granted 150,000 $8.00 ------- Outstanding, December 31, 1996 150,000 8.00 Granted 151,250 3.25 Forfeited (75,000) 8.00 ------- Outstanding, December 31, 1997 226,250 4.83 Granted 78,750 3.25 ------- Outstanding December 31, 1998 305,000 $4.42 ======= As of December 31, 1998, a total of 60,250 options with a weighted-average exercise price of $5.67 are exercisable under this plan. We apply APB No. 25 and related interpretations in accounting for our stock option plans. We have adopted the disclosure-only provisions of SFAS No. 123. We recognize no compensation expense for our stock options granted to employees or directors. Compensation expense for options granted to non-employees in each of the three years ended December 31, 1998 was immaterial. If we had elected to recognize compensation expense based on the fair value at the grant dates consistent with the provisions of SFAS no. 123, net loss and loss per share would have been changed to the pro forma amounts indicated below: (Dollars in Thousands, Except Per Share Amounts) Years ended December 31, 1998 1997 1996 Net (loss) As reported $(13,736) $(8,036) $(4,057) Pro forma (15,453) (9,588) (4,863) Diluted (loss) As reported (0.36) (0.30) (0.21) Pro forma (0.41) (0.36) (0.25) These results may not be representative of the effects on pro forma amounts for future years. We determined the pro forma amounts using the Black-Scholes option-pricing model based on the following assumptions: 1998 1997 1996 Dividend yield 0% 0% 0% Expected volatility 92% 98% 98% Risk free interest rate 4.9% 5.34-6.82% 5.46-5.56% Expected lives (in years) 5 5 5 The weighted-average fair value of options granted was $.75 per option during 1998, $1.14 per option during 1997, and $4.15 per option during 1996. 12. Commitments and Contingencies We are a defendant and counter-claimant in a case entitled Cabrini Development Council, et al. v. LCA-Vision Inc., et al., which was commenced in October, 1997 in the Supreme Court of the State of New York, County of New York and subsequently removed to the United States District Court for the Southern District of New York. Also named as co-defendants are various current and former employees, officers and directors. The case arises out of the operations of a New York limited liability company (the "LLC") which had been formed by us, the plaintiffs and a New York professional corporation (the "PC") owned by certain physicians for the purpose of opening and operating a Laser Refractive Surgery center or centers in New York City. Business activities commenced in 1995, but were unprofitable. After the LLC's resources were exhausted, we paid its operating costs for a period of time. In August, 1997, after further losses and after the parties were unable to come to a final understanding as to their respective rights and obligations, the operations of the LLC ceased. In the complaint, the plaintiffs allege breaches of our obligations as a member of the LLC, and have demanded both substantial damages and equitable relief. We have filed an answer denying the allegations of the complaint, and asserting counterclaims against the plaintiffs seeking substantial damages, alleging that the plaintiffs wrongfully failed to match the capital contributions made by us to the LLC. We believe that the plaintiffs' claims are without merit and intend to vigorously defend the action and pursue our counterclaims. After commencement of the above action, we filed an action against the PC seeking damages for its failure to pay the capital contributions required of it to the LLC. The PC has counterclaimed alleging a right to be indemnified for its losses relating to the LLC's operations. Both actions are in the discovery stage. In the opinion of management neither action will have a material adverse effect on our financial position or results of operations. 13. Additional Financial Information The tables below provide additional financial information related to our consolidated financial statements: Balance Sheet Information (Dollars in Thousands) At December 31, 1998 1997 Receivables Trade receivables - vision $ 1,482 $ 1,250 Trade receivables - other 1,034 1,690 Allowances (1,397) (893) ------ ------ $ 1,119 $ 2,047 ======= ======== (Dollars in Thousands) At December 31, 1998 1997 Prepaid Expenses, Inventory and Other Prepaid expenses $ 1,235 $ 1,334 Notes receivables 304 Inventory 44 103 Other 137 151 ------ ------- $ 1,416 $ 1,892 ======= ======== Property and equipment Land $ 375 $ 375 Building and improvements 5,278 4,933 Leasehold improvements 1,930 1,729 Furniture and fixtures 1,556 1,684 Equipment 6,702 13,231 Equipment under capital leases 784 2,429 Other 186 141 ------ ------ 16,811 24,522 Accumulated depreciation and amortization (7,398) (6,101) Construction in progress 20 41 ------ ------ $ 9,433 $ 18,462 ======= ======== Other assets Certificate of deposit $ 2,100 Other 2,518 $ 1,209 ------ ------- $ 3,618 $ 1,209 ======= ======== Cash Flow Information (Dollars in Thousands) For the Year Ended December 31, 1998 1997 1996 Cash paid during the year for Interest $ 854 $ 985 $ 489 Income Taxes 157 68 Non cash investing and financing activities Common stock issued for acquisitions 580 32,786 Acquisition of equipment under capital leases 2,265 Preferred stock issued for conversion of notes payable- shareholders 2,522 Inventory sold for long-term note 248 Transfer of equipment under capital lease to unconsolidated business 486 Segment Information (Dollars in Thousands) For the Year Ended December 31, 1998 1997 1996 Canadian operations Revenues $2,016 $2,083 $2,096 Operating profit 471 298 79 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT LCA-Vision (Ohio), Inc. Ohio Refractive Centers International, Inc. Delaware LCA-Vision (Canada) Inc. Ontario, Canada The Toronto Laservision Centre (1992) Inc. Ontario, Canada 938051 Ontario, Inc. Ontario, Canada Exhibit 23 to Form 10-KSB for 1998 Consent Of Independent Accountants We consent to the incorporation by reference in the registration statements of LCA-Vision Inc. on Form S-8 (File No. 333-07621) and on Forms S-3 (File No's. 333-41101, 333-39179 and 333-55955) of our report dated February , 1999 on our audits of the consolidated financial statements of LCA-Vision Inc. as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-KSB. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Cincinnati, Ohio ________________, 1999 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE LCA-VISION INC. CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998, AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001003130 LCA-VISION INC. 1,000 U.S. DOLLARS 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 0.00001 6,496 0 2,516 (1,397) 44 9,031 16,831 7,398 31,377 5,454 2,724 0 7,687 103 15,409 31,377 17 35,200 0 24,463 24,165 0 786 (13,061) 157 (13,736) 0 0 0 0 (0.36) (0.36)
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