<PAGE>
FORM 10-QSB/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-25242
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PREMIER LASER SYSTEMS, INC.
---------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0472684
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Morgan, Irvine, California 92618
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(Address of principal executive offices)
(714) 859-0656
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(Issuer's telephone number)
-----------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required
to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
after the distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class A Common Stock: 4,748,758 Shares
Class E-1 Common Stock: 1,256,749 Shares
Class E-2 Common Stock: 1,256,749 Shares
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
The unaudited financial information for the three month period ended June
30, 1996 and comparative financial information for the prior year, together with
the balance sheets as of June 30, 1996 and March 31, 1996 of Premier Laser
Systems, Inc. (the "Company") are attached hereto and incorporated herein by
this reference.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
The Company's net sales for the quarter ended June 30, 1996 (the "1996
Quarter") increased 1014% to $1,254,082 from $112,564 for the quarter ended
June 30, 1995 (the "1995 Quarter"). The increase is primarily attributable
to continued growth in sales in the dental market, principally from the
Company's three new products, which accounted for $855,654 of the increase.
Sales of other dental, surgical and ophthalmic products increased by 325% to
$331,651 in the 1996 Quarter from $78,005 in the 1995 Quarter and included
initial sales to Mattan Corporation (Medical Laser Institute of America) for
its new laser centers.
Cost of sales increased 128% to $1,028,611 in the 1996 Quarter from
$450,353 in the 1995 Quarter. This increase is directly attributable to the
increase in sales and includes a fee of $87,545 to a third party pursuant to
the Company's manufacturing arrangement relating to the argon MOD laser.
Cost of sales related to sales to Mattan were 95% of the amount of the
corresponding sales due to the fact that the products sold were purchased
from original equipment manufacturers, instead of being manufactured by the
Company. It is intended that as additional centers are opened the Company
will commence manufacturing of the lasers and cost of sales will only include
manufacturing costs.
Selling and marketing expenses increased 136% to $461,772 in the 1996
Quarter from $195,831 for the 1995 Quarter. The increase was primarily
attributable to marketing and sales efforts related to the Company's dental
products. These expenses primarily included increased commissions and
related selling expenses, expenses of sales and marketing personnel, trade
show attendance and advertising expenses. Sales and marketing expenses also
included expenses relating to the initial showing of the Company's Er:YAG
laser at the annual meeting of the American Society of Cataract and
Refractive Surgeons.
Research and development expenses decreased 50% to $126,779 in the 1996
Quarter from $255,959 in the 1995 Quarter. This net decrease resulted from a
$397,634 cash reimbursement received by the Company from a Small Business
Innovative Research Grant (SBIR) which was partially offset by increased
clinical trial costs for certain ophthalmic applications and expenses
incurred in the development of the argon MOD laser.
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General and administrative expenses decreased 35% to $326,786 in the
1996 Quarter from $501,078 in the 1995 Quarter. The decrease was primarily
attributable to a $57,812 reduction in annual report production and printing
expenses which have been delayed, and a $50,423 reduction in "out-of-pocket"
legal expenses associated with the Company's litigation with Infrared Fiber
Systems, Inc.
Net interest income decreased 108%, to a net interest expense of $7,194
in the 1996 Quarter from net interest income of $94,449 in the 1995 Quarter,
reflecting the decreased cash available for the Company to invest and an
increase in borrowings under the Company's Credit Facility. See "-Liquidity."
Net loss decreased 42% to $697,060 in the 1996 Quarter from $1,196,208
in the 1995 Quarter. This decrease was primarily attributable to the
increase in sales and decreases in research and development and general and
administrative expenses, offset in part by increases in sales and marketing
expenses.
LIQUIDITY
The Company's operations have been financed through the proceeds from
the sale of the Company's equity securities, including the IPO, revenues from
operations, proceeds from an SBIR grant and funding from a credit facility
(the "Credit Facility") with Silicon Valley Bank. The Company's principal
capital requirements include the financing of inventory, accounts receivable,
research and development activities, the development of an ophthalmic and a
surgical sales force, the development of marketing programs and the
acquisition and/or licensing of patents.
At June 30, 1996 the Company had a cash balance of $135,881 and working
capital of $4,449,812. This represents an increase from March 31, 1996 of
$100,418 in cash and cash equivalents. This increase in cash and cash
equivalents was largely due to borrowings under the Credit Facility and cash
received from the exercise of Class A Warrants, partially offset by cash used
in operations.
At June 30, 1996 the Company's indebtedness consisted of a $481,195
short term note payable to Pfizer HPG (the "Pfizer Note"), and $400,000 due
to Silicon Valley Bank on the Credit Facility, described below. The Pfizer
Note, which is secured by certain of the Company's tangible and intangible
assets, is due in three installments. The first installment, of $240,598 in
principal, plus accrued interest, was due in July 1996, and additional
$120,299 quarterly principal payments, plus accrued interest, are due in
October 1996 and January 1997. The Pfizer Note also requires mandatory
prepayment upon the closing of certain equity financings by the Company.
Although the first installment payment was not made in July 1996, the Company
is attempting to negotiate with Pfizer HPG for an extension of this payment
date. There can be no assurance that such extension will be granted or that
Pfizer will not seek to enforce its rights under the Pfizer Note.
The Company has a Credit Facility with Silicon Valley Bank which permits
borrowings of up to $1 million based on the value of the 1,150,000 shares of
common stock of Mattan Corporation (the "Mattan Shares") held by the Company.
Borrowings under the Credit Facility are secured by the Mattan Shares, bear
interest at the rate of 1.0% per annum over the prime rate of interest, and
are due and payable in November 1996. In connection with this Credit
Facility, the Company issued to such lender warrants to purchase up to 9,756
shares of the Company's Common Stock at an exercise price equal to $10.25 per
share. As of June 30, 1996, the Company had drawn $400,000 on this Credit
Facility.
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At March 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes totaling approximately $16,319,249 which will
begin to expire in fiscal 2007. Net operating loss carryforwards for state
income tax purposes totaling approximately $7,895,167 at March 31, 1996 begin
to expire in fiscal 1998. The Tax Reform Act of 1986 includes provisions
which may limit the net operating loss carryforwards available for use in any
given year if certain events occur, including significant changes in stock
ownership. Utilization of the Company's net operating loss carryforwards to
offset future may be limited.
The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development activities,
the scope and results of preclinical studies and clinical trials, the costs
and timing of regulatory approvals, the rate of technology advances by the
Company, competitive conditions within the medical laser industry, the
establishment of manufacturing capacity and the establishment of
collaborative marketing and other relationships which may either involve cash
infusions to the Company, or require additional cash from the Company. The
Company's ability to meet its working capital needs will be dependent on its
ability to achieve a positive cash flow from operations and profitable
operations, in addition to its ability to secure additional debt or equity
financing. No assurance can be given that the Company will be able to
achieve a positive cash flow from operations, profitable operations or secure
financing on acceptable terms.
SEASONALITY OF BUSINESS
To date, the Company's revenues have typically been significantly higher in
the second and fourth calendar quarters. This seasonality reflects the timing
of major medical and dental industry trade shows in these quarters,
significantly reduced sales during the summer and the effect of year end tax
planning influencing the purchasing of capital equipment for depreciation during
the fourth calendar quarter. The Company expects that this seasonality will
continue indefinitely.
GOVERNMENT GRANTS
The Company has been awarded a SBIR grant for approximately $750,000 for
the study of laser cataract emulsification. Approximately $647,634 of this
amount was drawn at June 30, 1996. The remainder of the grant can be drawn over
the next six months upon the achievement of specified criteria. The Company has
also applied for new Phase I research grants related to dentistry, orthopedics,
tissue mending, and ophthalmology. No assurance can be given that the Company
will be awarded any of these potential government grants.
POTENTIAL FUTURE CHARGE TO INCOME
The Securities and Exchange Commission has adopted a position with respect
to arrangements such as the one entered into among the Company and the holders
of its outstanding Class E-1 and Class E-2 Common Stock (the "Escrow Shares")
which provides that in the event any shares are released from escrow to certain
persons who are officers, directors, employees or consultants of the Company,
compensation expense will be recorded for financial reporting
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purposes. Accordingly, the Company expects, in the event of the release of the
Escrow Shares from escrow, to recognize substantial noncash charges to earnings
during the periods in which the criteria for release of the Escrow Shares are
met, which would have the effect of significantly increasing the Company's loss
or reducing or eliminating earnings, if any, at such time. The recognition of
such compensation expense by the Company may have a depressive effect on the
market price of the Company's securities.
The Escrow Shares will be automatically converted into Class A Common
Stock (at a conversion rate of one share of Class A Common Stock for each
Escrow Share) in the event that the Company meets certain criteria relating
to the market price of the Class A Common Stock or the achievement by the
Company of certain levels of "income," as defined. Different criteria relate
to the Class E-1 Common Stock and Class E-2 Common Stock. For these
purposes, "income" means the Company's net income before provision for income
taxes, including earnings from joint ventures, distribution agreements and
licensing agreements, but exclusive of any other earnings that are classified
as an extraordinary item, and exclusive of charges to income that may result
from conversion of the Escrow Shares into Class A Common Stock, as stated in
the Company's financial statements audited by the Company's independent
accountants.
If none of the pretax net income or market price levels are attained,
the Escrow Shares, as well as any dividends or other distributions made with
respect thereto, will be cancelled. The pretax net income and market price
levels were determined by negotiation between the Company and the Company's
underwriter in the Company's initial public offering and should not be
construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities. There can be no assurance
that such earnings and market price levels will be attained or that any or
all of the Escrow Shares will be converted into Class A Common Stock.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
In March 1994, the Company instituted litigation in the U.S. District
Court, Central District of California, against Infrared Fiber Systems,
Inc., a Delaware corporation ("IFS") which contracted to supply optical
fiber to the Company for the Company's Er:YAG laser. Two of IFS's senior
officers are also named as defendants. The Company's complaint in this matter
alleges that IFS and two of its officers made misrepresentations to the
Company and that IFS breached its agreement to supply fibers and certain
warranties concerning the quality of the fiber to be provided. The Company is
seeking damages and an injunction requiring IFS to subcontract the production
of optical fiber to a third party, as provided in the supply agreement. In
April 1994, IFS filed a general denial and a cross-complaint against the
Company alleging breach of contract and intentional interference with
prospective economic advantage, seeking compensatory damages "in excess of
$500,000," punitive damages and a judicial declaration that the contract has
been terminated and that IFS is free to market its fibers to others.
IFS has agreed to license certain fiber technologies, to which the Company
claims exclusive license rights, to Coherent, Inc. ("Coherent"), a
competitor of the Company. Coherent joined the above litigation on behalf of
IFS, seeking a declaration that IFS had the legal right to enter into this
license and supply the fiber covered by that agreement.
In May 1995, the Company instituted litigation concerning this dispute
in the Orange County, California Superior Court against Coherent,
Westinghouse Electric Corporation ("Westinghouse") and an individual
employee of Westinghouse who was an officer of IFS from 1986 to 1993, when
the events involved in the federal action against IFS took place and while
Westinghouse owned a substantial minority interest in IFS. The complaint
charges that Coherent conspired with IFS in the wrongful conduct which is the
subject of the federal lawsuit described above and interfered with the
Company's contracts and relations with IFS and with prospective contracts and
advantageous economic relations with third parties. The complaint asserts
that Westinghouse is liable for its employee's wrongful acts as an IFS
executive while acting within the scope of his employment at Westinghouse.
The lawsuit seeks injunctive relief and compensatory damages. In October
1995, the federal action was stayed by order of the court in favor of the
California state court action, in which the pleadings have been amended to
include all claims asserted by the Company in the federal action.
In July 1996, the court in the California state court action granted
demurrers by Westinghouse and the employee of Westinghouse to all causes of
action against them, as well as to several, but not all, of the Company's
claims against Coherent. As a result, the claims that are the subject of the
granted demurrers have been dismissed, subject to the Company's right to
appeal. The Company has decided that it will file an appeal of these
decisions. No trial date has been set as to the remaining outstanding causes
of action.
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<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
caused this Amendment No. 1 to be signed on its behalf by the undersigned,
thereunto duly authorized.
PREMIER LASER SYSTEMS, INC.
Dated: August 23, 1996 By: /S/ COLETTE COZEAN
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Colette Cozean, Chief Executive Officer, as duly
authorized officer on behalf of the registrant
<PAGE>
Attachment to Quarterly Report for the quarter ended June 30, 1996
PREMIER LASER SYSTEMS INC.
FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE MONTH
PERIOD ENDED JUNE 30, 1996
<PAGE>
Premier Laser Systems, Inc.
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31 June 30
1996 1996
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Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 35,463 $ 135,881
Short -term investments 4,547,377 3,372,260
Accounts receivable, net of allowance for
doubtful accounts of $126,327 508,315 1,114,200
Inventories 2,185,355 2,466,839
Prepaid expenses and other current assets 419,504 807,365
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Total current assets 7,696,014 7,896,545
Property and equipment, net 493,942 476,510
Intangibles, net 7,353,462 7,211,072
Other assets 131,150 86,150
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$ 15,674,568 $15,670,277
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,208,219 $ 2,313,391
Accrued liabilities 188,108 252,147
Notes payable to related party 481,195 481,195
Notes payable other 400,000
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Total current liabilities 1,877,522 3,446,733
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Shareholders' equity :
Common stock - Class A - no par value
35,600,000 shares authorized; 4,702,808
and 4,748,758 shares issued and outstanding
at March 31, 1996 and June 30, 1996,
respectively 16,317,376 16,565,250
Common stock - Class E-1 - no par value,
2,200,000 shares authorized; 1,256,818,
shares issued and outstanding at March 31,
1996 and June 30, 1996 4,769,878 4,769,878
Common stock - Class E-2 - no par value
2,200,000 authorized; 1,256,818 shares
issued and outstanding at March 31,
1996 and June 30, 1996 4,769,878 4,769,878
Class A warrants 2,321,057 2,295,328
Class B warrants 376,774 453,304
Warrants to purchase Class A common stock 192,130 192,130
Unrealized holding gain on short-term investments 3,666,367 2,491,250
Accumulated deficit (18,616,414) (19,313,474)
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Total shareholders' equity 13,797,046 12,223,544
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$ 15,674,568 $15,670,277
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----------- -----------
</TABLE>
See condensed notes to unaudited financial statements.
<PAGE>
Premier Laser Systems, Inc.
Statements of Operations
(Unaudited)
Three Months Ended
June 30,
1995 1996
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Net sales $ 112,564 $1,254,082
Cost of sales 450,353 1,028,611
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Gross profit (loss) (337,789) 225,471
Selling and marketing expenses 195,831 461,772
Research and development expenses 255,959 126,779
General and administrative expenses 501,078 326,786
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Loss from operations 1,290,657 689,866
Interest expense (income), net (94,449) 7,194
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Net loss $1,196,208 $ 697,060
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Net loss per share:
Net loss $ (.27) $ (0.15)
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Weighted average shares outstanding 4,501,899 4,719,923
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See condensed notes to unaudited financial statements.
<PAGE>
Premier Laser Systems, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,196,208) ($697,060)
Adjustment to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 201,362 208,892
Exchange of product for clinical studies -- (28,468)
Amortization of Clinical Program Expense 7,842 94,000
Provision for doubtful accounts receivable (9,625) (28,350)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 32,947 (577,535)
Increase in inventories (403,185) (281,484)
Decrease in prepaid expenses and other current assets 29,497 (453,393)
Decrease (increase) in other assets -- 45,000
Increase (decrease) in accounts payable (297,102) 1,104,649
(Increase) decrease in accrued liabilities (95,678) 64,039
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Net cash used in operating activities (1,730,150) (549,710)
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Cash flows from investing activities:
Purchases of property and equipment (3,232) (17,666)
Patent expenditures (54,348) (31,404)
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Net cash used in investing activities (57,580) (49,070)
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Cash flows from financing activities:
Proceeds from exercise of Class A Warrants 299,198
Proceeds from Credit Facility 400,000
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Net cash provided by financing activities 699,198
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Net increase (decrease) in cash (1,787,730) 100,418
Cash and cash equivalents, beginning of period 5,888,237 35,463
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Cash and cash equivalents, end of period $4,100,507 $135,881
---------- ----------
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</TABLE>
See condensed notes to unaudited financial statements.
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1: GENERAL
In the opinion of the Company's management, the accompanying unaudited
statements include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position of the
Company at June 30, 1996 and the results of operations and cash flows for the
three months ended June 30. 1996 and 1995. Although the Company believes that
the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
Results of operations for interim periods are not necessarily indicative of
results of operations to be expected for the full year.
The financial information in this quarterly report should be read in conjunction
with the audited March 31, 1996 financial statements and notes thereto included
in the Company's annual report filed on Form 10-KSB.
The Company has suffered recurring losses from operations and may continue to
incur losses for the foreseeable future due to the significant costs anticipated
to be incurred in connection with manufacturing, marketing and distributing its
laser products. In addition, the Company intends to conduct continuing research
and development activities, including regulatory submittals and clinical trials
to develop additional applications for its laser technology. The Company is
subject to all of the risks inherent in new business enterprises. It is
anticipated that these difficulties will be compounded by the highly competitive
environment in which the Company operates.
NOTE 2: SHORT-TERM INVESTMENTS, STRATEGIC ALLIANCE
In December 1995, the Company entered into a strategic marketing alliance with
Mattan Corporation (Mattan), a Canadian corporation whose stock is publicly
traded on the Alberta Stock Exchange. The purchasing agreement (the Agreement)
stipulates that the Company will supply all laser equipment and associated
disposables for all laser surgery centers to be designed and opened by Mattan in
Canada and the United States. It is anticipated that these surgery centers will
be operated under the name of Medical Laser Institute of America. In connection
with this alliance, the Company also entered into a share exchange agreement
pursuant to which the Company issued 200,000 shares of the Company's Class A
Common Stock to certain parties
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
affiliated with Mattan, who purchased 1,150,000 shares of Mattan's common
stock, representing approximately 12% of Mattan's common stock, for
approximately $881,010 on the Company's behalf. Prior to March 31, 1996, the
Mattan affiliates sold the 200,000 shares of the Company's Class A Common
Stock and released the shares of the Mattan common stock to the Company. The
Company accounts for this investment as an available-for-sale security
pursuant to SFAS 115. At June 30, 1996, the fair value of this investment
totaled approximately $3,372,260 and the related unrealized holding gain
totaled $2,491,250.
NOTE 3: INVENTORIES
Inventories are summarized as follows:
3/31/96 6/30/96
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Raw Materials $ 938,560 $ 940,100
Work-in-progress 276,998 211,099
Finished goods 969,797 1,315,640
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$2,185,355 $2,466,839
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NOTE 4: LITIGATION
The Company entered an agreement with Infrared Fiber Systems, Inc. (IFS), a
supplier of certain fiber optics that expires in the fiscal year ending March
31, 2002 and requires the supplier to sell exclusively to the Company, fiber
optics for medical and dental applications as long as the Company purchases the
following minimum amounts.
In March 1994, the Company instituted litigation against IFS. The Company's
complaint alleges that IFS and two of its officers misrepresented IFS's ability
to supply optical fibers, and that IFS breached its supply agreement and certain
warranties. In April 1994, IFS filed a cross-complaint alleging breach of
contract and intentional interference with prospective economic advantage,
seeking declaratory relief that the contract has been terminated and that IFS is
free to market its fibers to others. In July 1994, Coherent, Inc., a major
shareholder of IFS and a manufacturer of medical lasers which employ IFS optical
fibers, joined the lawsuit for the express purpose of defending their rights to
the IFS optical fibers. In May 1995, the Company instituted litigation
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
concerning this dispute in the Orange County, California Superior Court
against Coherant, Westinghouse Electric Corporation ("Westinghouse") and an
individual employee of Westinghouse who was an officer of IFS from 1986-1993,
when the events involved in the federal action against IFS took place and
while Westinghouse owned a substantial minority interest in IFS. The
complaint charges that Coherent conspired with IFS in the wrongful conduct
which is the subject of the federal lawsuit and interfered with the Company's
contracts and relations with IFS and with prospective contracts and
advantageous economic relations with third parties. The complaint asserts
that Westinghouse is liable for its employee's wrongful acts as an IFS
executive while acting within the scope of his employment at Westinghouse.
The lawsuit seeks injunctive relief and compensatory damages. In October
1995 the federal action was stayed by order of the court in favor of the
California state court action, in which the pleadings have been amended to
include all claims asserted by the Company in the federal action. No trial
date had been set. The Company believes that the likely liability of the
Company, if any, arising from this litigation would not have a materially
adverse impact upon the Company.
The Company is involved in various disputes and other lawsuits from time to time
arising from its normal operations. The litigation process is inherently
uncertain and it is possible that the resolution of the IFS litigation, disputes
and other lawsuits may adversely affect the Company. It is the opinion of
management, that the outcome of such matters will not have a material adverse
impact on the Company's financial position, results of operations or cash flows.
