<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997
REGISTRATION NO. 333-04219
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 2 ON FORM S-3 TO
REGISTRATION STATEMENT ON FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
----------------
PREMIER LASER SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA 33-0472684
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
</TABLE>
3 MORGAN, IRVINE, CALIFORNIA 92618
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
COLETTE COZEAN, PH.D.
PREMIER LASER SYSTEMS, INC.
3 MORGAN, IRVINE, CALIFORNIA 92618
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Approximate date of commencement of proposed sale to public: FROM TIME TO
TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
Pursuant to Rule 416, there are also being registered such additional shares
as may become issuable pursuant to the antidilution provisions of the Class A
Warrants, Class B Warrants, IPO Unit Purchase Options and Secondary Unit
Purchase Options, as defined herein.
Pursuant to Rule 429 under the Securities Act, this Registration Statement
also relates to and may be used in connection with the securities previously
registered under the Securities Act pursuant to Registration Statement No. 33-
83984.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
PREMIER LASER SYSTEMS, INC.
----------------
CROSS REFERENCE SHEET
BETWEEN ITEMS IN PART I OF REGISTRATION STATEMENT
(FORM S-3) AND PROSPECTUS PURSUANT TO RULE 404(C)
<TABLE>
<CAPTION>
ITEM
NO. FORM S-3 CAPTION HEADING IN PROSPECTUS
---- ---------------- ---------------------
<C> <S> <C>
1 Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus........................... Cover Page
2 Inside Front and Outside Back Cover
Pages of Prospectus.................. Available Information;
Incorporation of Certain
Documents by Reference; Back
Cover Page
3 Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges... The Company; Risk Factors
4 Use of Proceeds....................... Use of Proceeds
5 Determination of Offering Price....... Not Applicable
6 Dilution.............................. Dilution
7 Selling Security Holders.............. Not Applicable
8 Plan of Distribution.................. Plan of Distribution
9 Description of Securities to be
Registered........................... Cover Page; Risk Factors;
Description of Securities
10 Interest of Named Experts and Counsel. Not Applicable
11 Material Changes...................... The Company; Risk Factors; Recent
Developments; Unaudited Pro
Forma Condensed Consolidated
Statement of Operations;
Unaudited Pro Forma Condensed
Consolidated Balance Sheet
12 Incorporation of Certain Information
by Reference......................... Incorporation of Certain
Documents by Reference
13 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Indemnification of Directors and
</TABLE> Officers
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 30, 1997
PROSPECTUS
PREMIER LASER SYSTEMS, INC.
2,035,423 SHARES OF CLASS A COMMON STOCK AND 2,035,423 CLASS B WARRANTS,
UPON EXERCISE OF OUTSTANDING CLASS A WARRANTS
7,150,370 SHARES OF CLASS A COMMON STOCK UPON EXERCISE OF CLASS B WARRANTS
(INCLUDING CLASS B WARRANTS ISSUABLE UPON EXERCISE OF OUTSTANDING CLASS A
WARRANTS)
The securities offered hereby include shares of Class A Common Stock, Class A
Warrants and Class B Warrants issuable upon exercise of certain outstanding
warrants and options of Premier Laser Systems, Inc. (the "Company"), all of
which warrants and options were issued in the Company's initial public offering
in November 1994 (the "IPO") and its secondary public offering in October 1996
(the "Secondary Offering"). Such outstanding warrants and options include, as
of July 16, 1997: (i) 2,035,423 Class A Warrants, and (ii) 5,114,947 Class B
Warrants.
Each Class A Warrant entitles the registered holder thereof to purchase one
share of Class A Common Stock and one Class B Warrant at $6.50 on or prior to
November 30, 1999. Each Class B Warrant entitles the registered holder thereof
to purchase one share of Class A Common Stock at $8.00 on or prior to November
30, 1999. The exercise prices of the Warrants are subject to adjustment. The
Class A Warrants and Class B Warrants are subject to redemption by the Company
at $.05 per warrant on 30 days' written notice commencing November 30, 1997,
provided that the average closing bid as reported by the Nasdaq Stock Market,
Inc. ("Nasdaq") of the Class A Common Stock exceeds $9.10 or $11.20 per share,
respectively, for 30 consecutive trading days ending within 15 days of the
notice of redemption. The Class A Warrants and Class B Warrants are
collectively referred to herein as the "Warrants."
The Company has agreed to pay to D.H. Blair Investment Banking Corp.
("Blair"), which acted as the underwriter in the IPO and Secondary Offering, a
solicitation fee (the "Solicitation Fee") equal to 5% of the exercise prices in
connection with the exercise of Warrants under certain conditions. See "Plan of
Distribution." The exercise prices of the Warrants were determined by
negotiation between the Company and Blair, and are not necessarily related to
the Company's asset value, net worth or other criteria of value.
Upon exercise of the Warrants, the Company will receive the proceeds thereof,
which will be $66,901,372 if all Warrants are exercised in full.
The Company's Common Stock, Class A Warrants and Class B Warrants are traded
on the Nasdaq National Market System. On July 18, 1997, the closing sale price
of the Common Stock, as reported by Nasdaq was $10 3/4 per share, and the
closing sale price of the Class A Warrants and Class B Warrants, as reported by
Nasdaq, were $7 1/2 and $3 7/16 per warrant, respectively.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF ITS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARRANT WARRANT PROCEEDS TO
EXERCISE PRICE SOLICITATION FEE(1) COMPANY(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Warrant.... $6.50 $.33 $6.17
- -------------------------------------------------------------------------------
Total (3).............. $13,230,250 $671,690 $12,558,560
- -------------------------------------------------------------------------------
Per Class B Warrant.... $8.00 $.40 $7.60
- -------------------------------------------------------------------------------
Total (3).............. $57,202,960 $2,860,148 $54,342,812
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Represents Solicitation Fees payable to Blair pursuant to the Warrant
Agreements between the Company and Blair. See "Plan of Distribution."
(2) Before deducting expenses of the offering payable by the Company, estimated
to be $20,000.
(3) Assumes the exercise of all outstanding Class A Warrants, all outstanding
Class B Warrants and all Class B Warrants issuable upon exercise of
outstanding Class A Warrants.
The date of this Prospectus is , 1997
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Commission relating to its business, financial statements and other
matters. Reports and proxy and information statements filed pursuant to
Section 14(a) and 14(c) of the Exchange Act and other information filed with
the Commission as well as copies of the Registration Statement can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Midwest
Regional Office, 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661;
and Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition,
the Commission maintains a Web site that contains reports, proxy and
information statements and other information that the Company files
electronically with the Commission. The Commission's Web site address is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated by this reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997, filed May 28, 1997 pursuant to Section 13(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
2. The Company's amendment on Form 10-K/A, filed June 18, 1997, to its
Annual Report on Form 10-K for the fiscal year ended March 31, 1997, filed
May 28, 1997.
3. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
December 7, 1994, as amended by Form 8-A/A filed with the Commission on
January 31, 1995.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering which is the subject
of this Prospectus shall be deemed to be incorporated herein by this reference
and to be made a part hereof from the date of filing of such documents.
Upon the written or oral request of any person to whom this Prospectus is
delivered, the Company will provide, without charge, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits
to such documents). Requests for such informational documents should be
directed to Premier Laser Systems, Inc., 3 Morgan, Irvine, California 92618,
telephone number (714) 859-0656, Attention: Corporate Secretary.
Pursuant to Rule 429 under the Securities Act, this Prospectus also relates
to and may be used in connection with the securities previously registered
under said Act pursuant to Registration Statement No. 33-83984 and consisting
of (i) shares of Class A Common Stock and Class B Warrants issuable upon
exercise of outstanding Class A Warrants; (ii) shares of Class A Common Stock
issuable upon exercise of Class B Warrants that are either presently
outstanding or are issuable upon exercise of outstanding Class A Warrants; and
(iii) 240,000 shares of Class A Common Stock, Class A Warrants and Class B
Warrants issuable upon exercise of unit purchase options (the "IPO Unit
Purchase Options") received by the Underwriter and its designees in connection
with the Company's initial public offering (the "IPO"), 240,000 shares of
Class A Common Stock and Class B Warrants issuable upon exercise of said Class
A Warrants and 480,000 shares of Class A Common Stock issuable upon exercise
of all of said Class B Warrants.
3
<PAGE>
THE COMPANY
GENERAL
The Company develops, manufactures and markets several lines of surgical
lasers, laser waveguides and laser fiber optic devices, disposables and
associated accessory products for the medical market. The Company commenced
operations in August 1991 after acquiring substantially all of the assets of
Pfizer Laser Systems ("Pfizer Laser"), a division of Pfizer Hospital Products
Group, Inc. ("Pfizer HPG") which had entered the laser business in December
1984. The assets acquired from Pfizer Laser by the Company included
proprietary rights to a broad base of laser and fiber optic technologies.
The Company's product line of patented proprietary lasers includes CO2,
diode, argon, neodymium: yttrium aluminum garnet ("Nd:YAG"), erbium:yttrium
aluminum garnet ("Er:YAG") and holmium:yttrium aluminum garnet ("Ho:YAG")
lasers, which the Company believes are capable of a wide range of procedures
in multiple medical and surgical specialties ranging from cutting bone and
teeth to removing precise layers of cellular tissue in the eye. Representative
procedures for which the Company has market clearance from the United States
Food and Drug Administration ("FDA") include treatment of gum disease,
laparoscopic procedures, hard tissue and cavity preparation procedures,
treatment of endometriosis, dermatological treatment of port wine stains and
discectomy. The Company is currently conducting various clinical trials
relating to additional applications for its laser products. The primary focus
of the Company's research, marketing and sales efforts is in specific niche
medical specialties, such as dentistry and ophthalmology, where the Company
believes opportunities exist for clinical advances and market growth.
The principal offices of the Company are located at 3 Morgan, Irvine,
California 92618, and its telephone number is (714) 859-0656.
A description of the Company's business is set forth in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997, as amended (the
"Annual Report"), which description is incorporated herein by this reference.
4
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative in nature and involve a
high degree of risk. Prospective investors should carefully consider, along
with the other information contained in this Prospectus, the following
considerations and risks in evaluating an investment in the Company.
LIMITED OPERATING HISTORY; CONTINUING OPERATING LOSSES
The Company was formed in July 1991 and has not generated significant
revenues to date. As of March 31, 1997, the Company had an accumulated deficit
of approximately $24.2 million and tangible net worth of approximately $8.8
million. For the fiscal years ended March 31, 1995, 1996 and 1997, the Company
had operating losses of approximately $3.9 million, $5.9 million and $5.6
million, respectively, resulting principally from costs incurred in research
and development and other costs of operations. The Company expects that
operating losses will continue until such time as product sales generate
sufficient revenues to fund its continuing operations, as to which there can
be no assurance. The Company may incur losses for the foreseeable future due
to the significant costs associated with manufacturing, marketing and
distributing its laser products and due to continual research and development
activities which will be necessary to develop additional applications for the
Company's laser technology.
UNCERTAINTIES CONCERNING FUTURE PROFITABILITY
The Company's ability to achieve profitability will depend, in part, on its
ability to continue to successfully develop clinical applications, obtain
regulatory approvals for its products and develop the capacity to manufacture
and market such products on a wide scale. There is no assurance that the
Company will be able to successfully make the transition from research and
development to manufacturing and selling commercial medical laser products on
a broad basis. While attempting to make this transition, the Company will be
subject to all risks inherent in a growing venture, including the need to
produce reliable products, develop marketing expertise and enlarge its sales
force.
UNCERTAIN MARKET ACCEPTANCE
The Company's future sales are dependent, in part, on the Company's ability
to demonstrate to dentists, ophthalmologists and other physicians the
potential cost and performance advantages of its laser systems over
traditional methods of treatment and, to a lesser extent, over competitive
laser systems. To date, commercial sales of the Company's lasers have been
limited, and no assurance can be given that these laser products can be
successfully commercialized on a broad basis. Lasers have not been widely used
in dentistry and their use requires training and expertise. The acceptance of
dental lasers may be adversely affected by their high cost, concerns by
patients and dentists relating to their safety and efficacy, and the
substantial market acceptance and penetration of alternative dental tools such
as the dental drill. Current economic pressure may make doctors and dentists
reluctant to purchase substantial capital equipment or invest in new
technology. The failure of medical lasers to achieve broad market acceptance
would have a material adverse effect on the Company's business, financial
condition and results of operations. No assurance can be given that any of the
Company's products will be accepted by the medical or dental community or by
patients, or that a significant market for the Company's laser systems will be
developed and sustained. The Company currently has a limited sales force and
will need to hire additional sales and marketing personnel to increase the
general acceptance of its products.
INTEGRATION OF ACQUIRED BUSINESSES
The Company has entered into an agreement providing for the acquisition of
EyeSys Technologies, Inc. ("EyeSys") through the merger of a newly formed
subsidiary of the Company with and into EyeSys (the "Merger"). If the Merger
is completed, EysSys will survive the Merger and become a wholly-owned
subsidiary of the Company. Following the Merger, the Company will be required
to integrate and coordinate the business presently operated by EyeSys with the
Company's existing businesses. Although the Company believes that there
5
<PAGE>
are certain synergies in the two lines of business, it may incur expenses in
connection with its efforts to integrate the two businesses. For example,
although it is contemplated that certain of the existing EyeSys management
personnel will continue with EyeSys after the Merger, members of the Company's
management will also have to expend time and effort on new activities relating
to the EyeSys operations, which will detract from their time available to
attend to the Company's pre-Merger activities. No assurance can be given that
the Company will receive the advantages from the Merger, or that the expenses
or dislocations it may suffer or incur as a result of the post-Merger
coordination of these businesses will not be material. Moreover, the
consummation of the Merger is subject to numerous contingencies and no
assurance can be given that such contingencies will be satisfied or that the
Merger will be consummated.
Since 1992, EyeSys has incurred substantial losses which have depleted its
working capital and reduced shareholders' equity. The negative cash flows of
EyeSys have been funded during 1995 and 1996 by the sale of additional equity
and loans from its principal stockholders. As of March 31, 1997, EyeSys had
fully exhausted its working capital even assuming the conversion to equity of
all EyeSys stockholder loans.
EyeSys currently markets a single product (a corneal topography measuring
system) in a highly competitive market. Historically, EyeSys has incurred
substantial losses. The management of EyeSys believes that with the
appointment of a new national distributor for its products in the U.S. along
with the introduction of a new portable product later in 1997, EyeSys may
reach a break-even level of operating performance by the fourth quarter 1997.
The ability of EyeSys to achieve this level of performance is dependent on the
demand for the Company's product as well as maintaining sufficient research,
development and sales and marketing expenditures to meet the requirements of
the market. There can be no assurance that the revenues from the EyeSys
product line will be sufficient to cover all of the expenses related to such
operations. If EyeSys is unable to achieve a break-even cash flow performance,
additional levels of capital will be required.
GOING CONCERN REPORT WITH RESPECT TO EYESYS
EyeSys' independent auditors have included an explanatory paragraph in their
report covering EyeSys' financial statements for the year ended December 31,
1996, which paragraph emphasizes substantial doubt as to EyeSys' ability to
continue as a going concern. EyeSys' independent auditors cited the following
reasons for such explanatory paragraph: (i) EyeSys has reported net losses of
$4,164,998, $3,424,996 and $3,708,657 for the years ended December 31, 1996,
1995 and 1994, respectively, (ii) EyeSys was in default of several loan
covenants relating to its revolving lines of credit, and (iii) Eyesys has not
repaid such loan obligations within their respective terms.
DEPENDENCE ON SUPPLIERS
The Company purchases certain raw materials, components and subassemblies
included in the Company's products from a limited group of qualified suppliers
and does not maintain long-term supply contracts with any of its key
suppliers. The disruption or termination of these sources could have a
material adverse effect on the Company's business and results of operations.
For example, during fiscal 1994, the Company's sole supplier of the
specialized optic fiber required for use in the Company's Er:YAG lasers ceased
to provide this fiber to the Company. While the Company has since qualified
the new suppliers of this fiber, the Company's inability to obtain sufficient
quantities of this specialized optical fiber had a material adverse effect on
the volume of Er:YAG lasers the Company was able to sell during fiscal 1994
and 1995. While the Company believes that alternative suppliers could be
found, there can be no assurance that any supplier could be replaced in a
timely manner. Any interruption in the supply of other key components could
have a material adverse effect on the Company's ability to manufacture its
products and on its business, financial condition and results of operations.
Certain computer memory chips used by EyeSys in its proprietary hardware are
manufactured by a single company. These computer memory chips are subject to
rapid innovation and obsolescence. The discontinuance of the manufacturing of
this chip may require EyeSys to redesign certain hardware and software to
accommodate a replacement chip. While in the past EyeSys has been successful
in these redesign efforts, there can be no assurance that such an event would
not prove costly or cause a disruption in sales of corneal topography systems.
6
<PAGE>
RISKS APPLICABLE TO FOREIGN SALES
Sales of the Company's products to foreign markets account for a substantial
portion of the Company's sales. Foreign sales expose the Company to certain
risks, including the difficulty and expense of maintaining foreign sales
distribution channels, barriers to trade, potential fluctuations in foreign
currency exchange rates, political and economic instability, availability of
suitable export financing, accounts receivable collections, tariff
regulations, quotas, shipping delays, foreign taxes, export licensing
requirements and other United States and foreign regulations that may apply to
the export of medical lasers. The regulation of medical devices worldwide also
continues to develop, and there can be no assurance that new laws or
regulations will not have an adverse effect on the Company. In addition, the
Company may experience additional difficulties in providing prompt and cost
effective service of its medical lasers in foreign countries. The Company does
not carry insurance against such risks. The occurrence of any one or more of
these events may individually or in the aggregate have a material adverse
effect upon the Company's business, financial condition and results of
operations.
RISK OF TECHNOLOGICAL OBSOLESCENCE
The markets in which the Company's laser products compete are subject to
rapid technological change as well as the potential development of alternative
surgical techniques or new pharmaceutical products. Such changes could render
the Company's products uncompetitive or obsolete. The Company will be required
to invest in research and development to attempt to maintain and enhance its
existing products and develop new products. No assurances can be given that
such research and development efforts will result in the introduction of new
products or product improvements.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in part on its ability to obtain patent
protection for products and processes, to preserve its trade secrets and to
operate without infringing the proprietary rights of third parties. While the
Company holds 20 U.S. patents and 13 foreign patents (including 2 utility
model patents) and has other patent applications pending in the United States
and foreign countries, no assurance can be given that any additional patents
will be issued, that the scope of any patent protection will exclude
competitors or that any of the Company's patents will be held valid if
subsequently challenged. Further, there can be no assurance that others will
not independently develop similar products, duplicate the Company's products
or design products that circumvent any patents used by the Company. The
Company is aware of certain patents which, along with other patents that may
exist or be granted in the future, could restrict the Company's right to
market certain of its technologies without a license, including, without
limitation, patents relating to the Company's lens emulsification product and
ophthalmic probes for the Er:YAG laser. In the past, the Company has received
allegations that certain of the Company's laser products infringe other
patents. American Dental Technologies ("ADT") recently has asserted that an
aspect of the delivery system of the Company's Er:YAG laser infringes a patent
held by ADT. There has been significant patent litigation in the medical
industry in general, and in the medical laser industry in particular. Adverse
determinations in litigation or other patent proceedings to which the Company
may become a party could subject the Company to significant legal judgments or
other liabilities to third parties and could require the Company to seek
licenses from third parties that may or may not be economically viable. Patent
and other intellectual property rights disputes often are settled through
licensing arrangements. No assurance can be given that any licenses required
under these or any other patents or proprietary rights would be available on
terms acceptable to the Company, if at all. If the Company does not obtain
such licenses, it could encounter delays in product introductions while it
attempts to design around such patents, or it could find that the development,
manufacture or sale of products requiring such licenses could be enjoined. If
the Company is found, in a legal proceeding, to have infringed the patents or
other proprietary rights of others, it could be liable for significant
damages. The Company also relies upon unpatented trade secrets, and no
assurance can be given that others will not independently develop or otherwise
acquire substantially equivalent trade secrets. In addition, at each balance
sheet date, the Company is required to review the value of its intangible
assets based on various factors, such as changes in technology. Any adjustment
downward in such value may result in a write-off of the intangible asset and a
substantial charge to earnings, thereby adversely affecting the operating
results of the Company in the future.
7
<PAGE>
NEED FOR FDA AND FOREIGN GOVERNMENTAL APPROVALS; GOVERNMENT REGULATION
The Company's products are regulated as medical devices by the FDA under the
Federal Food, Drug and Cosmetic Act (the "FDC Act"). As such, these devices
require either Section 510(k) premarket clearance ("510(k)") or approval of a
premarket approval application ("PMA") by the FDA prior to commercialization.
Satisfaction of applicable regulatory requirements may take several years and
varies substantially based upon the type, complexity and novelty of such
devices, as well as the clinical procedure. Filings and governmental approvals
may be required in foreign countries before the devices can be marketed in
these countries. There is no assurance that further clinical trials of the
Company's medical lasers or of any future products will be successfully
completed or, if they are completed, that any requisite FDA or foreign
governmental approvals will be obtained. FDA or other governmental approvals
of products developed by the Company in the future may require substantial
filing fees which could limit the number of applications sought by the Company
and may entail limitations on the indicated uses for which such products may
be marketed. In addition, approved or cleared products may be subject to
additional testing and surveillance programs required by the FDA and other
regulatory agencies, and product approvals and clearances could be withdrawn
for failure to comply with regulatory standards or by the occurrence of
unforeseen problems following initial marketing. Also, the Company has made
modifications to certain of its existing products which it does not believe
require the submission of a new 510(k) notification to the FDA. However, there
can be no assurance that the FDA would agree with the Company's determination
and not require the Company to discontinue marketing one or more of the
modified devices until they have been cleared by the FDA. The Company is also
required to adhere to applicable requirements for current Good Manufacturing
Practices ("CGMP") and radiological health requirements, to engage in
extensive record keeping and reporting and to comply with the FDA's product
labeling, promotional and advertising requirements. Noncompliance with state,
local, federal or foreign requirements can result in fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, delay, denial or withdrawal of premarket clearance or approval of
devices, recommendations by the FDA that the Company not be allowed to enter
into government contracts, and criminal prosecution, all of which would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's manufacturing facilities are subject to
periodic inspections by state and federal agencies, including the FDA, the
California Department of Health Services, and comparable agencies in other
countries.
DEPENDENCE ON KEY PERSONNEL
The Company depends to a considerable degree on a limited number of key
personnel, including Colette Cozean, Ph.D., its Chairman of the Board,
President, Chief Executive Officer and Director of Research. Dr. Cozean is
also an inventor of a number of the Company's patented technologies. During
the Company's limited operating history, many key responsibilities within the
Company have been assigned to a relatively small number of individuals. The
loss of Dr. Cozean's services or those of certain other members of management
could adversely affect the Company. The Company carries key person life
insurance in the amount of $3 million on Dr. Cozean. The Company has no
employment agreements with its key personnel. The success of the Company will
also depend, among other factors, on the successful recruitment and retention
of qualified technical and other personnel.
HIGHLY COMPETITIVE INDUSTRY
The medical laser industry is subject to intense competition and is
characterized by rapid technological change. The Company is and will continue
to be subject to competition in its targeted markets, principally from
businesses providing other traditional surgical and nonsurgical treatments,
including existing and developing technologies, and to a lesser extent
competitors' CO\\2\\, Argon, Er:YAG and Nd:YAG lasers. Many of the Company's
competitors have substantially greater financial, marketing and manufacturing
resources and experience than the Company. Furthermore, the Company expects
other companies will enter the market, particularly as medical lasers gain
increasing market acceptance. Significant competitive factors which will
affect future sales in the marketplace include regulatory approvals,
performance, pricing and general market acceptance.
8
<PAGE>
The corneal topography market is highly competitive. There are many
companies, both public and private, some with significantly greater resources
than EyeSys engaged in the corneal topography market. These companies include
Alcon Laboratories (a subsidiary of Nestle), Humphrey Instruments (a
subsidiary of Carl Zeiss), and Tomey Technology. These companies, together
with EyeSys and others, market corneal topography instruments which utilize a
technology for measuring corneal curvature based on reflected images. Other
companies, including PAR Technology and Orbtek, utilize other technologies to
measure the corneal surface. There can be no assurances that EyeSys'
competitors will not succeed in developing technologies, procedures of
products that are more effective or economical than those marketed or being
developed by EyeSys or that would render EyeSys' products obsolete or
noncompetitive.
To continue to remain competitive, EyeSys must develop new software and
hardware meeting the needs of ophthalmologists and optometrists. EyeSys'
future revenues will depend, in part, on its ability to develop and
commercialize these new products as well as on the success of development and
commercialization efforts of its competitors.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Due to the relatively high sales price of the Company's laser systems and
the low sales unit volume, minor timing differences in receipt of customer
orders have produced and could continue to produce significant fluctuations in
quarterly results. In addition, if anticipated sales and shipments in any
quarter do not occur when expected, expenditures and inventory levels could be
disproportionately high, and the Company's operating results for that quarter,
and potentially for future quarters, would be adversely affected. Quarterly
results may also fluctuate based on a variety of other factors, such as
seasonality, production delays, product mix, cancellation or rescheduling of
orders, new product announcements by competitors, receipt of FDA clearances or
approvals by the Company or its competitors, notices of product suspension or
recall, the Company's ability to manage product transitions, sales prices and
market conditions. In addition, if the Company expands or augments its
manufacturing capabilities in connection with the introduction of new
products, quarterly revenues and operating results are expected to fluctuate
to an even greater degree.
UNCERTAIN ABILITY TO MEET CAPITAL NEEDS
The Company will require substantial additional funds for its research and
development programs, preclinical and clinical testing, development of its
sales and distribution force, operating expenses, regulatory processes and
manufacturing and marketing programs. The Company's capital requirements will
depend on numerous factors, including the progress of its research and
development programs, results of preclinical and clinical testing, the time
and cost involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, developments
and changes in the Company's existing research, licensing and other
relationships and the terms of any new collaborative, licensing and other
arrangements that the Company may establish. The Company believes its
available short-term assets and investment income will be sufficient to meet
its operating expenses and capital expenditures through the next 12 months.
However, the Company's cash requirements may vary materially from those now
planned due to potential future acquisitions, the progress of research and
development programs, results of clinical testing, relationships with
strategic partners, if any, competitive and technological advances, the FDA
and foreign regulatory processes and other factors. There can be no assurance,
however, that additional financing will be available when needed, or if
available, will be available on acceptable terms. Insufficient funds may
prevent the Company from implementing its business strategy or may require the
Company to delay, scale back or eliminate certain of its research and product
development programs or to license to third parties rights to commercialize
products or technologies that the Company would otherwise seek to develop
itself.
9
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. In addition, the market price of the Common
Stock has been and is likely to continue to be highly volatile. For example,
over the past twenty-four (24) months, the last sale price of the Company's
Common Stock has fluctuated from a low of $3.875 per share to a high of $14.00
per share. Over the past ninety (90) days, the last sale price of the
Company's Common Stock has fluctuated from a low of $5.25 per share to a high
of $14.00 per share. This volatility may adversely affect the value that may
be realized upon the purchase and/or exercise of a Warrant. Factors such as
fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
FDA and international regulatory actions, developments with respect to patents
or proprietary rights, public concern as to the safety of products developed
by the Company or its competitors, changes in health care policy in the United
States and internationally, changes in analysts' recommendations regarding the
Company, other medical companies or the medical laser industry generally and
general market conditions may have a significant effect on the market price of
the Company's Common Stock. The market price of the Common Stock recently
increased significantly due to Premier's receipt of the first FDA clearance to
market a laser for the treatment of tooth decay. No assurance can be given
that this increased market price of the Common Stock will be sustained over
time.
PRODUCT LIABILITY EXPOSURE
The sale of the Company's laser systems involves the inherent risk of
product liability claims against the Company. The Company currently maintains
product liability insurance coverage in the amount of $5 million per
occurrence and $5 million in the aggregate, but such insurance is expensive,
subject to various coverage exclusions and may not be obtainable by the
Company in the future on terms acceptable to the Company. There can be no
assurance that claims against the Company arising with respect to its products
will be successfully defended or that the insurance carried by the Company
will be sufficient to cover liabilities arising from such claims. A successful
claim against the Company in excess of the Company's insurance coverage could
have a material adverse effect on the Company.
LIMITATIONS ON THIRD PARTY REIMBURSEMENT
The Company's laser systems are generally purchased by physicians, dentists
and surgical centers which then bill various third party payors, such as
government programs and private insurance plans, for the procedures conducted
with the Company's lasers. Third-party payors carefully review and are
increasingly challenging the prices charged for medical products and services.
Reimbursement rates from private companies vary depending on the procedure
performed, the third-party payor, the insurance plan and other factors.
Medicare reimburses hospitals a prospectively-determined fixed amount for the
costs associated with an in-patient hospitalization based on the patient's
discharge diagnosis, and reimburses physicians a prospectively-determined
fixed amount based on the procedure performed, regardless of the actual costs
incurred by the hospital or physician in furnishing the care and unrelated to
the specific devices used in that procedure. Third-party payors are
increasingly scrutinizing whether to cover new products and the level of
reimbursement for covered products. While the Company believes that the laser
procedures using its products have generally been reimbursed, payors may deny
coverage and reimbursement for the Company's products if they determine that
the device was not reasonable and necessary for the purpose for which used,
was investigational or not cost-effective. As a result, there can be no
assurance that reimbursement from third party payors for these procedures will
be available or if available, that reimbursement will not be limited, thereby
adversely affecting the Company's ability to sell its products on a profitable
basis. Moreover, the Company is unable to predict what legislation or
regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future, or what effect such
legislature or regulation may have on the Company.
UNCERTAINTIES REGARDING HEALTH CARE REFORM
Several states and the United States government are investigating a variety
of alternatives to reform the health care delivery system and further reduce
and control health care spending. These reform efforts include proposals to
limit spending on health care items and services, limit coverage for new
technology and limit or control the price health care providers and drug and
device manufacturers may charge for their services and
10
<PAGE>
products. If adopted and implemented, such reforms could have a material
adverse effect on the Company's business, financial condition and results of
operations.
CHARGE TO EARNINGS IN THE EVENT OF RELEASE OF ESCROW SHARES
The Company has outstanding shares of Class E-1 and Class E-2 Common Stock
(the "Escrow Shares") which were issued in 1994. The Escrow Shares are being
held by the Company in escrow, and which will be released from escrow and
converted into shares of Common Stock if certain criteria are met. These
criteria relate to the achievement, over a period of 30 consecutive trading
days, of specified minimum market prices of the Company's Class A Common
Stock, or the achievement of specified levels of net income before taxes, as
defined. Different criteria apply to the Class E-1 Common Stock and Class E-2
Common stock. For a description of these criteria, see "Description of
Securities--Class E-1 Common Stock" and "Description of Securities--Class E-2
Common Stock." In the event any of these criteria are met and any shares are
released from escrow to stockholders who are officers, directors, employees or
consultants of the Company, a substantial noncash compensation expense will be
recorded for financial reporting purposes. The recognition of such
compensation expense may have an adverse effect on the market price of the
Company's securities.
SHARES ELIGIBLE FOR FUTURE SALE; EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
Sales of a substantial number of shares of Common Stock in the public market
could adversely affect the market price for the Common Stock. Substantially
all of the Company's shares of Common Stock outstanding as of the date hereof
are freely tradeable, subject to compliance with Rule 144 promulgated under
the Securities Act of 1933 ("Securities Act"). As of the date hereof, an
additional approximately 9,185,793 shares of Common Stock are issuable upon
the full exercise of the Company's outstanding publicly traded Units, Class A
Warrants and Class B Warrants, and in excess of two million shares of Common
Stock are issuable upon exercise of other outstanding warrants and options.
The issuance of shares upon the exercise of the Class A Warrants or Class B
Warrants has been registered under the Securities Act, and substantially all
of the shares of Common Stock issuable upon exercise of the remaining options
and warrants may be resold pursuant to currently effective registration
statements or Rule 144 under the Securities Act. The existence of the
Company's outstanding warrants and options could adversely affect the
Company's ability to obtain future financing. The price which the Company may
receive for the Common Stock issued upon exercise of such options and warrants
will likely be less than the market price of the Common Stock at the time such
options and warrants are exercised. Moreover, the holders of the options and
warrants might be expected to exercise them at a time when the Company would,
in all likelihood, be able to obtain needed capital by a new offering of its
securities on terms more favorable than those provided for by the options and
warrants.
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 8,850,000
shares of "blank check" preferred stock, which will have such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Common Stock. In the event of such
issuance, the preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of the
Company.
11
<PAGE>
USE OF PROCEEDS
Holders of Warrants are not obligated to exercise their Warrants and there
can be no assurance that the Warrantholders will choose to exercise all or any
of their Warrants. In the event that all of the 2,035,423 outstanding Class A
Warrants are exercised, the net proceeds to the Company would be $12,558,650,
after deducting the Solicitation Fee and excluding other expenses of the
offering. In the event that all of the 7,150,370 Class B Warrants outstanding
and issuable upon the exercise of the outstanding Class A Warrants are
exercised, the Company would receive additional net proceeds of $54,342,812,
after deducting the Solicitation Fee, exclusive of other expenses of the
offering.
The Company intends to use the net proceeds received upon the exercise of
the Warrants, if any, for general corporate purposes and working capital to
support anticipated growth, including research and development programs and
continuing development of a distributor network.
12
<PAGE>
DILUTION
The following discussion and tables treat the Company's Class A and Class E-
1 and Class E-2 Common Stock as a single class, and allocates no value to the
Warrants contained in the Units.
The net tangible book value of the Company at March 31, 1997 was
approximately $8,756,682 or $.89 per share of Common Stock. Net tangible book
value per share represents the amount of total tangible assets of the Company
less the amount of its total liabilities, divided by the number of shares of
Common Stock outstanding.
After giving effect to the exercise of the 2,035,423 outstanding Class A
Warrants, the pro forma net tangible book value of the shares of Class A
Common stock at March 31, 1997 would have been $1.79 per share, representing
an immediate dilution per share of $4.71 to individuals exercising Class A
Warrants. After giving effect to the exercise of the 7,150,370 Class B
Warrants which are either outstanding or issuable upon the exercise of the
outstanding Class A Warrants, the pro forma net tangible book value of the
shares of Class A Common Stock at March 31, 1997 would have been $3.98 per
share, representing an immediate dilution per share of $4.02 to individuals
exercising Class B Warrants.
The following table illustrates the per share dilution to be incurred by
individuals exercising the remaining Class A and Class B Warrants, assuming
all such Warrants are exercised:
<TABLE>
<CAPTION>
CLASS A CLASS B
WARRANTS WARRANTS(2)
--------- ------------
<S> <C> <C> <C> <C>
Exercise price........................................ $6.50 $ 8.00
Net tangible book value per share before the
exercise of Warrants............................... .89
Pro forma net tangible book value per share after
the
exercise of Class A Warrants and before the
exercise of
Class B Warrants................................... 1.79
Increase per share attributable to the exercise of
Warrants........................................... .90 2.19
Pro forma net tangible book value after exercise(1)... 1.79 3.98
----- ------
Dilution of net tangible book value................... $4.71 $ 4.02
===== ======
</TABLE>
- --------
(1) Assumes the entire exercise price, less the Solicitation Fee and excluding
other expenses of the offering, is allocated to the Class A Common Stock
obtained upon exercise.
(2) Assumes prior exercise of all of the Class A Warrants.
13
<PAGE>
RECENT DEVELOPMENTS
FDA CLEARANCE FOR HARD TISSUE PROCEDURES
In May 1997, the United States Food and Drug Administration ("FDA") issued a
clearance to market the Company's Centauri Er:YAG laser for certain hard
tissue dental procedures. The Company has commenced these marketing efforts.
WARRANT EXERCISES
Partially as a result of the issuance of the FDA clearance of the Company's
Er:YAG laser for hard tissue procedures, a significant number of holders of
the Company's outstanding Class A Warrants and Class B Warrants have exercised
such Warrants. The Company has received, in connection with such exercises,
gross proceeds in excess of $23 million during the period of May 12, 1997 to
July 2, 1997.
ACQUISITION OF EYESYS TECHNOLOGIES, INC.
The Company has entered into an Agreement and Plan of Merger ("Merger
Agreement") dated as of April 24, 1997 among the Company, EyeSys, and Premier
Acquisition of Delaware, Inc. ("PAI"). Pursuant to the Merger Agreement, PAI
will merge with and into EyeSys, and EyeSys will survive the merger as a
wholly owned subsidiary of Premier (the "Merger"). See "Risk Factors--
Integration of Acquired Business." Upon the consummation of the Merger,
holders of securities of EyeSys will receive shares of Premier Common Stock
and/or options to purchase Common Stock (together, "Premier Securities").
Premier Securities will also be issued to satisfy the claims of certain
creditors and claimants of EyeSys. The minimum number of shares of Common
Stock issuable in the Merger will be equal to $10,600,000 divided by the "Per
Share Value" (as defined in the Merger Agreement). The consummation of the
Merger, however, is subject to numerous contingencies and no assurance can be
given that such contingencies will be satisfied or that the Merger will be
consummated. A copy of the Merger Agreement has been filed as an exhibit to
the Company's Annual Report on Form 10-K for the year ended March 31, 1997,
which has been incorporated by reference herein. See "Incorporation of Certain
Documents By Reference." Additional information concerning the Merger is set
forth in the Pro Forma Financial Statements included herein. See "Unaudited
Pro Forma Combined Financial Statements." The Financial Statements of EyeSys
are included in this Prospectus.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Pro Forma Condensed Consolidated Statement of Operations for
the year ended March 31, 1997 presents unaudited pro forma operating results
for the Company as if the Merger Agreement between the Company and EyeSys had
occurred as of the beginning of the period presented. The following Pro Forma
Condensed Consolidated Balance Sheet presents the unaudited pro forma
financial condition of the Company as if the Merger occurred as of March 31,
1997. Of the total purchase price, $8.5 million represented the value of in-
process research and development. The excess of the purchase price of EyeSys
(exclusive of the amount allocated to in-process research and development)
over the net identifiable assets and liabilities of EyeSys is reported as
goodwill and developed product technology. The carrying values of EyeSys' net
assets are assumed to equal their fair values for purposes of these unaudited
pro forma financial statements, unless indicated otherwise in the Notes to
Unaudited Pro Forma Condensed Consolidated Balance Sheet. These values are
subject to revision. However, management believes that any resulting
adjustments will not have a material effect on the financial position or
results of operations.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet and Statement
of Operations were prepared assuming the consummation of: (i) the Merger,
which is accounted for under the purchase method of accounting; and (ii) the
exchange of convertible notes of EyeSys for the Company's Common Stock prior
to the Merger. The unaudited pro forma adjustments are described in the
accompanying notes. The unaudited pro forma adjustments represent the
Company's preliminary determination of the necessary adjustments and are based
upon
14
<PAGE>
certain assumptions the Company considers reasonable under the circumstances.
Final amounts may differ from those set forth below.
The unaudited pro forma financial information presented does not consider
any future events which may occur after the Merger including the possible
payment of additional purchase price (i.e. certain contingent consideration
payable in connection with the Merger) based upon established financial goals
for fiscal 1998. The unaudited pro forma financial information presented does
not attempt to quantify any operating expense synergies or cost reductions of
the combined operations of the Company and EyeSys that may be realized after
the Merger. Nor does the unaudited pro forma financial information consider
the incremental expense, capital or conversion costs which may be incurred as
a result of the Merger.
THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION IS
PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF
THE OPERATING RESULTS OR FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE
MERGER BEEN CONSUMMATED AT THE DATES INDICATED, NOR IS IT NECESSARILY
INDICATIVE OF FUTURE OPERATING RESULTS OR FINANCIAL POSITION OF THE COMPANY
FOLLOWING THE MERGER.
The unaudited pro forma condensed financial information should be read in
conjunction with the consolidated financial statements of the Company and the
financial statements of EyeSys and the related notes thereto contained in (i)
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1997, as amended, and (ii) EyeSys' audited financial statements for the fiscal
years ended December 31, 1996, 1995 and 1994 included herein.
15
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
PREMIER LASER SYSTEMS, INC.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997(1)
---------------------------------------------------------
PRO FORMA
PREMIER PRO FORMA CONDENSED
LASER EYESYS ADJUSTMENTS CONSOLIDATED
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales............... $ 5,530,861 $ 8,097,780 $ -- $ 13,628,641
Cost of sales........... 3,968,539 4,912,222 -- 8,880,761
----------- ------------ --------- ------------
Gross profit............ 1,562,322 3,185,558 -- 4,747,880
Selling and marketing
expenses............... 2,406,010 4,038,427 -- 6,444,437
Research and development
expenses............... 1,563,228 1,103,009 120,000(2(a)) 2,786,237
General and
administrative
expenses............... 1,736,184 1,692,624 236,405(2(a)) 3,665,213
Write-off of investment
in Mattan Corporation.. 881,010 -- -- 881,010
Termination of strategic
alliance with IBC...... 331,740 -- -- 331,740
In-process research and
development acquired in
the Data.Site
acquisition............ 250,000 -- -- 250,000
----------- ------------ --------- ------------
Loss from operations.... (5,605,850) (3,648,502) (356,405) (9,610,757)
Interest (income)
expense, net........... (15,493) 516,496 (273,474)(2(b)) 227,529
----------- ------------ --------- ------------
Net loss................ (5,590,357) (4,164,998) (82,931) (9,838,286)
Less preferred stock
dividends.............. -- (499,265) 499,265 (3) --
----------- ------------ --------- ------------
Net loss attributable to
common shareholders.... $(5,590,357) $ (4,664,263) $ 416,334 $ (9,838,286)
=========== ============ ========= ============
Net loss per common
share.................. $ (0.96) $ (1.39) $ (1.46)(2(c))
=========== ============ ============
Weighted average shares
outstanding............ 5,833,326 3,352,994 6,716,659(3)
=========== ============ ============
</TABLE>
See notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
PREMIER LASER SYSTEMS, INC.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997(1)
--------------------------------------------------------------
PRO FORMA
PREMIER PRO FORMA CONDENSED
ASSETS LASER EYESYS ADJUSTMENTS CONSOLIDATED
------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents.......... $ 173,610 -- -- $ 173,610
Short-term
investments.......... 3,968,288 -- -- 3,968,288
Restricted cash....... 1,050,000 -- -- 1,050,000
Accounts receivable,
net.................. 1,718,312 2,447,613 -- 4,165,925
Inventories........... 2,964,632 1,290,450 -- 4,255,082
Prepaid expenses and
other current assets. 783,319 96,885 -- 880,204
------------ ------------ ----------- ------------
Total current
assets............. 10,658,161 3,834,948 -- 14,493,109
Property and
equipment, net....... 780,945 926,196 -- 1,707,141
Intangible assets,
net.................. 6,832,749 -- 600,000(2(a)) 7,432,749
Goodwill.............. 1,042,279 -- 3,546,080(2(a)) 4,588,359
Other assets.......... 6,477 54,776 -- 61,253
------------ ------------ ----------- ------------
$ 19,320,611 $ 4,815,920 $ 4,146,080 $ 28,282,611
============ ============ =========== ============
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable...... $ 1,217,256 $ 1,782,981 -- $ 3,000,237
Accrued liabilities... 590,369 1,367,888 1,100,000(2(b)) 3,058,257
Notes payable and
current portion of
capital lease
obligations.......... 831,920 5,116,124 (2,999,993)(2(d)) 2,948,051
------------ ------------ ----------- ------------
Total current
liabilities........ 2,639,545 8,266,993 (1,899,993) 9,006,545
------------ ------------ ----------- ------------
Long-term liabilities:
Long-term debt........ -- 234,860 (234,860)(2(d)) --
Capital lease
obligations--non-
current.............. 49,356 -- -- 49,356
------------ ------------ ----------- ------------
Total long-term
liabilities........ 49,356 234,860 (234,860) 49,356
------------ ------------ ----------- ------------
Commitments and
contingencies
Shareholders' equity:
Preferred stock....... -- 6,702,660 (6,702,660)(2(a)) --
Common stock.......... 27,130,448 2,010,621 8,589,379(2(a)) 37,730,448
Common stock-Class E-
1.................... 4,769,878 -- -- 4,769,878
Common stock-Class E-
2.................... 4,769,878 -- -- 4,769,878
Class A warrants...... 2,295,328 -- -- 2,295,328
Class B warrants...... 1,490,818 -- -- 1,490,818
Options outstanding... 190,001 -- 495,000(2(a)) 685,001
Warrants to purchase
Class A common stock. 192,130 -- -- 192,130
Accumulated deficit... (24,206,771) (12,399,214) 3,899,214(2(a),(e)) (32,706,771)
------------ ------------ ----------- ------------
Total shareholders'
equity............. 16,631,710 (3,685,933) 6,280,933 19,226,710
------------ ------------ ----------- ------------
$ 19,320,611 $ 4,815,920 $ 4,146,080 $ 28,282,611
============ ============ =========== ============
</TABLE>
See notes to Unaudited Pro Forma Consolidated Balance Sheet
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
1. BASIS OF PRESENTATION
The Company's fiscal year ends on March 31. EyeSys' fiscal year ends on
December 31. For purposes of the Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended March 31, 1997, results of
operations for EyeSys are for the year ended December 31, 1996.
The results of operations for EyeSys included in the Unaudited Pro Forma
Condensed Consolidated Statements of Operations contain certain
reclassification entries in order to present cost of sales and operating
expense information on a basis consistent with the presentation used by the
Company.
2. PRO FORMA ADJUSTMENTS
(a) Reflects the effect on depreciation and amortization expense resulting
from the following:
<TABLE>
<S> <C>
Amortization of goodwill (utilizing a 15 year life) related to the
Merger and purchase price accounting adjustments.................. $236,405
Amortization expense resulting from the allocation of purchase
price to the fair value of developed product technology (utilizing
an amortization period of 5 years)................................ $120,000
</TABLE>
(b) Convertible notes payable to certain shareholders of EyeSys aggregating
$3,234,853 will be exchanged for the Company's Common Stock in connection with
the Merger. The pro forma condensed consolidated statement of operations
reflects the reduction of interest expense aggregating $273,474 resulting from
such conversion.
(c) The pro forma adjustments exclude the effect of $8.5 million of
purchased in-process research and development which is expected to be expensed
by the Company in the quarter in which the Merger is consummated. If the
write-off had been reflected, net loss per common share would increase from
$(1.46) to $(2.73) for the year ended March 31, 1997.
3. NET LOSS PER COMMON SHARE
The pro forma weighted average common share amounts reflected in the
unaudited pro forma condensed consolidated statement of operations represent
the aggregate of the historical weighted average common shares of the Company
and the 883,333 shares at an assumed value of $12 per share exchanged with the
shareholders of EyeSys in connection with the Merger. The consolidated net
loss per common share has been adjusted to exclude the accretion of dividends
on EyeSys preferred stock which was exchanged for the Company's Common Stock
in the Merger.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
1. BASIS OF PRESENTATION
For purposes of the Unaudited Pro Forma Condensed Consolidated Balance
Sheet, the financial position of EyeSys is as of December 31, 1996, the year-
end of EyeSys.
2. PRO FORMA ADJUSTMENTS
The following table reflects a detailed breakdown of the pro forma
adjustments in the Unaudited Pro Forma Condensed Consolidated Balance Sheet:
(a) Reflects the purchase of all outstanding EyeSys common stock for the
aggregate price of $10.6 million or 883,333 shares at an assumed value of
$12 per share on April 24, 1997, the date of the Merger Agreement and the
issuance of 165,000 options to EyeSys option and warrant holders at an
exercise price of $12 per share and with a deemed value of $3.00 per
option, or an aggregate of $495,000. The carrying values of EyeSys' net
assets are assumed to equal their fair values for purposes of these
unaudited pro forma financial statements, unless indicated below. The fair
market value of purchased in-process research and development of $8.5
million was determined by an independent appraisal. The entire amount is
expected to be expensed by the Company in the quarter in which the
acquisition is consummated. The remaining excess of the purchase price of
EyeSys over its net book value as of the pro forma balance sheet date
represents developed product technology and goodwill in the amount of
$600,000 and $3,546,080, respectively.
(b) Reflects the Company's estimate of costs associated with the Merger
and estimated expenses associated with closing EyeSys's primary facility
and related relocation costs aggregating approximately $1.1 million.
(c) The accompanying Unaudited Condensed Consolidated Pro Forma Balance
Sheet does not reflect any adjustments to the carrying values of EyeSys'
net assets to equal their estimated fair values as such amounts are not
anticipated to be significant. These values are subject to revision.
However, management believes that any resulting adjustments will not have a
material effect on the financial position or results of operations.
(d) Convertible notes payable to certain shareholders of EyeSys
aggregating $3,234,853 will be exchanged for the Company's Common Stock
immediately prior to the consummation of the Merger. The pro forma
condensed consolidated balance sheet reflects such conversion.
(e) Reflects the elimination of the equity of EyeSys upon the
consolidation with the Company.
19
<PAGE>
DESCRIPTION OF SECURITIES
The following description of the Company's capital stock and selected
provisions of its Articles of Incorporation and Bylaws is a summary and is
qualified in its entirety by the Company's Articles of Incorporation and
Bylaws, copies of which have been filed with the Securities and Exchange
Commission.
COMMON STOCK
The Company is authorized to issue 35,600,000 shares of Class A Common
Stock, no par value, 2,200,000 shares of Class E-1 Common Stock, no par value,
and 2,200,000 shares of Class E-2 Common Stock. The Class A Common Stock,
Class E-1 Common Stock and the Class E-2 Common Stock have equal voting rights
and are entitled to share equally in dividends from sources available therefor
when, as and if declared by the Board of Directors. Holders of Class A Common
Stock have no preemptive rights and no right to convert their Common Stock
into any other securities. The holders of each class of Common Stock are
entitled to one vote for each share held of record on all matters submitted to
a vote of the shareholders, except that holders of Common Stock are entitled
to cumulative voting with respect to the election of directors upon giving
notice as required by law. In cumulative voting, the holders of Common Stock
are entitled to cast for each share held the number of votes equal to the
number of directors to be elected. In the event of a liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding Preferred Stock. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares are, and all shares to be sold and issued as contemplated
hereby will be, fully paid and nonassessable and legally issued. The Board of
Directors is authorized to issue additional shares of Common Stock within the
limits authorized by the Company's charter and without shareholder action. As
of June 24, 1997, there were 10,706,673 shares of Class A Common Stock
outstanding.
Class E-1 Common Stock
The Company is authorized to issue 2,200,000 shares of Class E-1 Common
Stock, no par value. As of June 24, 1997, there were outstanding 1,257,178
shares of Class E-1 Common Stock and 1,257,178 shares of Class E-2 Common
Stock (the "Escrow Shares"). The Escrow Shares are not transferrable (but may
be voted), and each Escrow Share will automatically convert into one share of
Common Stock and be released to the owners thereof upon the achievement of the
objectives described below. On June 30, 2000, all Escrow Shares not previously
converted into Common Stock will be cancelled. This arrangement was required
by the representative of the underwriters for the Company's initial public
offering as a condition of such offering.
All of the Class E-1 Common Stock will be automatically converted into Class
A Common Stock in the event that the Company's net income before provision for
income taxes, as defined, exceeds certain amounts. These amounts were
originally $6,850,000, $8,425,000, and $9,900,000 for the fiscal years ending
March 31, 1998 through 2000, respectively, but these amounts will be increased
in future fiscal years in proportion to increases in the weighted average
number of shares of Class A Common Stock outstanding (as defined) in the
relevant year, as compared to the number of shares outstanding immediately
after the Company's initial public offering in 1994. In addition, the Class E-
1 Common Stock will be converted if the Closing Price of the Company's Class A
Common Stock for any 30 consecutive trading days shall average in excess of
$19.25 during the period commencing June 1996 and ending in November 1997
(subject to adjustment in the event of any reverse stock splits or similar
events). The Closing Price shall be the closing sale price as reported by the
Nasdaq National Market.
Class E-2 Common Stock
The Company is authorized to issue 2,200,000 shares of Class E-2 Common
Stock, no par value. All of the shares of Class E-2 Common Stock will be
automatically converted into Class A Common Stock in the event that the
Company's net income before provision for income taxes, as defined, amounts to
at least $14,750,000,
20
<PAGE>
$20,475,000 or $26,750,000 for years March 31, 1998 through 2000, respectively
(which amounts shall be adjusted in the same manner as those for the Class E-1
Common Stock). In addition, the Class E-2 Common Stock will be automatically
converted into Class A Common Stock if the closing price of the Company's
Class A Common Stock shall average in excess of $24.00 for any 30 consecutive
trading days during the period commencing May 1, 1996 and ending November 30,
1997.
Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution or total or partial
liquidation of the Company, shall be held by the Company in escrow until
conversion of the Escrow Shares. If none of the foregoing earnings 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 earnings
and market price levels set forth above were determined by negotiation between
the Company and the representative of the 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 Common
Stock. However, the conversion to Common Stock of all or any portion of the
Escrow Shares may result in a charge to earnings to the extent that such
shares are held by management or employees.
PREFERRED STOCK
The Company's authorized preferred stock consists of 20,000,000 shares, no
par value (the "Preferred Stock"), of which 11,150,000 shares have been
cancelled or already designated. The Board of Directors has the authority,
without further action by the shareholders, to issue from time to time up to
8,850,000 shares of Preferred Stock in one or more series and to fix the
dividend rights and terms, conversion rights, voting rights (whole, limited or
none), redemption rights and terms, liquidation preferences, sinking funds and
any other rights, preferences, privileges and restrictions applicable to each
such series of Preferred Stock. The purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a shareholder vote on specific issuances. The issuance of the
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, could make it more difficult for a third party to gain
control of the Company. Such issuance of Preferred Stock could also adversely
affect the distributions on and liquidation preference of the Common Stock by
creating more series of Preferred Stock with distribution or liquidation
preferences senior to the Common Stock. The Company has no present plan to
issue any shares of Preferred Stock.
REDEEMABLE WARRANTS
The Company has outstanding redeemable Class A Warrants and Class B Warrants
(collectively, the "Warrants") which are currently listed on the Nasdaq
National Market. These Warrants were issuable pursuant to Warrant Agreements
(the "Warrant Agreements") among the Company, Blair (as the underwriter in the
Company's two public offerings) and American Stock Transfer and Trust Company
as warrant agent, and are evidenced by warrant certificates in registered
form. The exercise prices of the Warrants were determined by negotiation
between the Company and Blair at the time of the IPO and should not be
construed to predict or imply that any price increase will occur in any of the
Company's securities.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the respective expiration dates (or earlier redemption dates),
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of shares with respect to
which the Warrants are being exercised. Holders of the Warrants do not have
any voting or other rights of a shareholder of the Company. Upon notice to the
holders of the Warrants, the Company has the right to unilaterally reduce the
exercise price or extend the expiration date of the Warrants. The Warrants
provide for the adjustment of the exercise price and for a change in the
number of shares issuable upon exercise to protect the holders of the
21
<PAGE>
Warrants against dilution of the event of a stock dividend, stock split,
combination or reclassification of the Class A Common Stock or upon issuance
of additional shares of Class A Common Stock at prices lower than the market
price then in effect other than issuances upon exercise of options granted to
employees, directors and consultants to the Company.
Class A Warrants
Each Class A Warrant entitles the registered holder to purchase one share of
Class A Common Stock and one redeemable Class B Warrant at an exercise price
of $6.50 at any time prior to November 30, 1999. As of July 16, 1997, the
Company has outstanding 2,035,423 Class A Warrants. The Company has the right
to redeem all of the Class A Warrants at a price of $0.05 per Class A Warrant
upon not less than 30 days' prior written notice at any time after November
30, 1997, provided that before any such redemption can take place, the last
sale price of the Company's Class A Common Stock in the over-the-counter
market shall have averaged in excess of $9.10 per share for 30 consecutive
business days ending within 15 days of the date of the notice of redemption.
During the 30-day notice period, a holder shall have the option to exercise
his Class A Warrants. This right of redemption shall not apply to the Class A
Warrants that are components of the IPO Unit Purchase Options, as defined
below.
Class B Warrants
Each Class B Warrant entitles the registered holder to purchase one share of
Common Stock at an exercise price of $8.00 per share at any time prior to
November 30, 1999. As of July 16, 1997, the Company had outstanding 5,114,947
Class B Warrants. The Company has a right to redeem all of the Class B
Warrants at a price of $.05 per Class B Warrant upon not less than 30 days'
prior written notice at any time after November 30, 1997, provided that before
any such redemption can take place, the last sale price of the Company's Class
A Common Stock in the over-the-counter market shall have averages in excess of
$11.20 per share for 30 consecutive business days ending within 15 days prior
to the date of the notice of redemption. During the 30-day notice period, a
holder shall have the option to exercise his Class B Warrants. This right of
redemption shall not apply to the Class B Warrants that are components of the
IPO Unit Purchase Options or the Secondary Unit Purchase Option, as defined
below.
IPO UNITS
The Company also has outstanding units issued in the IPO (the "IPO Units")
which are currently listed on the Nasdaq SmallCap Market. Each IPO Unit
consists of (i) one share of Class A Common Stock, (ii) one Class A Warrant
and (iii) one Class B Warrant. The Class A Common Stock, Class A Warrants and
Class B Warrants were separately transferable immediately upon issuance.
IPO UNIT PURCHASE OPTIONS
In connection with the Company's IPO, the Company granted to the Underwriter
and three finders IPO Unit Purchase Options to purchase up to an aggregate of
240,000 units. These units issuable upon exercise of the IPO Unit Purchase
Options will be identical to the publicly traded IPO Units except that the
Class A Warrants and the Class B Warrants included in the IPO Unit Purchase
Options will not be subject to redemption by the Company, except if at the
time the Warrants are called for redemption, the IPO Unit Purchase Options
have been exercised and the underlying warrants are outstanding. The IPO Unit
Purchase Options are exercisable at any time prior to November 30, 1999 at an
exercise price of $7.00 per IPO Unit subject to adjustment in certain events
to protect against dilution. The IPO Unit Purchase Options cannot be
transferred, sold, assigned or hypothecated until November 30, 1997, except in
the case of a transfer to any officer of the underwriter for the IPO or a
member of that selling group.
22
<PAGE>
SECONDARY UNIT PURCHASE OPTIONS
In connection with the Company's Secondary Offering in October 1996, the
Company granted to Blair, as the underwriter in such offering, options (the
"Secondary Units Purchase Options") to purchase up to 1,100 units. These units
issuable upon exercise of the Secondary Unit Purchase Option will be identical
to the units issued in the Secondary Offering, and therefore each will consist
of 190 shares of the Company's Class A Common Stock and 95 Class B Warrants.
The Class B Warrants included therein are subject to redemption by the Company
at any time after the Secondary Unit Purchase Option has been exercised and
the underlying warrants are outstanding. The Secondary Unit Purchase Option is
exercisable during the three year period commencing October 18, 1998, at an
exercise price of $1,200 per unit, subject to adjustment in certain events to
protect against dilution. After the expiration date of the Class B Warrants
included therein, the Secondary Unit Purchase Option will be exercisable only
with respect to the shares Class A Common Stock subject to such option. The
Secondary Unit Purchase Option is not transferable until October 18, 1998,
except to officers of the Underwriter or to members of the selling group.
Subject to certain procedural requirements and limitations relating to
underwriting offerings, the Company has agreed upon request to register under
the Securities Act the securities issuable upon exercise of the Secondary Unit
Purchase Option on two separate occasions during the four year period
commencing October 18, 1997. The initial such registration is to be at the
Company's expense and the second registration is to be at the expense of the
holders. The Secondary Unit Purchase Option includes a provision permitting
the holders to elect a cashless exercise. The Company has also granted certain
"piggyback" registration rights to holders of the Secondary Unit Purchase
Option.
TRANSFER AND WARRANT AGENT
The Transfer and Warrant Agent for the Company's securities is American
Stock Transfer & Trust Company, New York, New York.
23
<PAGE>
PLAN OF DISTRIBUTION
The securities offered hereby are being offered directly by the Company
pursuant to the terms of the Warrants. No underwriter is being utilized in
connection with this offering.
The Company has agreed to pay Blair a Solicitation Fee of 5% of the
aggregate exercise price of each Warrant which is exercised if (i) the market
price of the Class A Common Stock on the date the Warrant is exercised is
greater than the then exercise price of the Warrant; (ii) the exercise of the
Warrant was solicited by a member of the NASD; (iii) the Warrant is not held
in a discretionary account; (iv) disclosure of compensation arrangements was
made both at the time of the offering and at the time of exercise of the
Warrant; and (v) the solicitation of exercise of the Warrants was not in
violation of Rule 10b-6 as promulgated under the Exchange Act or respective
state blue sky laws. Any costs incurred by the Company in connection with the
exercising of the Warrants shall be borne by the Company.
Blair acted as the underwriter of the Company's IPO in November and December
1994, and as the underwriter of its Secondary Offering in October 1996. Other
than the securities underlying the IPO Unit Purchase Option granted to Blair
in connection with the IPO, and the Secondary Unit Purchase Option granted to
Blair in connection with the Secondary Offering, the Company is not aware of
any other securities of the Company owned by Blair. In connection with the IPO
and the Secondary Offering, the Company and Blair agreed to indemnify each
other against certain liabilities in connection with the IPO and the Secondary
Offering including liabilities under the Act.
In connection with the IPO, the Company sold to Blair and its designees, for
nominal consideration, IPO Unit Purchase Options to purchase up to 216,000 IPO
Units at an exercise price of $7.00 per IPO Unit. The IPO Unit Purchase Option
is exercisable during the period commencing November 30, 1995 and ending
November 30, 1999. In connection with the Secondary Offering, the Company sold
to Blair, for nominal consideration, the Secondary Unit Purchase Option to
purchase up to 1,100 units of the type sold in the Secondary Offering, at an
exercise price of $1,200 per unit, subject to adjustment in certain events to
protect against dilution. See "Description of Securities--IPO Unit Purchase
Options;--Secondary Unit Purchase Options."
Subject to certain limitations and exclusions, the Company has agreed, upon
request, to register the IPO Unit Purchase Option issued to Blair and the
Secondary Unit Purchase Option and the underlying securities under the Act on
two occasions (the first at the Company's expense, and the second at the
expense of the holders of such options). The Company has also granted certain
"piggyback" registration rights to holders of Blair's IPO Unit Purchase Option
and the Secondary Unit Purchase Option.
The Company entered into an agreement with Blair providing for the payment
of a fee to Blair, in the event that Blair is responsible for a merger or
other acquisition transaction to which the Company is a party. The fee is
based on a percentage of the consideration paid in the transaction ranging
from 7% of the first $1,000,000 to 2 1/2% of any consideration in excess of
$9,000,000.
The officers and certain directors of the Company have agreed not to sell,
transfer or assign any of their shares of Common Stock, options or warrants
without the prior written consent of Blair through October 18, 1997.
Unless granted an exemption by the Commission from Rule 10b-6, Blair will be
prohibited from engaging in any market making activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation of the
exercise of Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that Blair
may have to receive a fee for the exercise of Warrants following such
solicitation. As a result, Blair may be unable to continue to make a market in
the Company's securities during certain periods while the Warrants are
exercisable.
24
<PAGE>
The exercise prices and other terms of the Warrants have been determined by
negotiation between the Company and Blair and are not necessarily related to
the Company's asset value, net worth or other established criteria of value.
Blair acted as placement agent in connection with the Private Placement of
the Bridge Notes and warrants completed in August 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Blair has informed the Company that the Commission is conducting an
investigation concerning various business activities of Blair. The
investigation appears to be broad in scope, involving numerous aspects of
Blair's compliance with the federal securities laws. The Company has been
advised by Blair that the investigation has been ongoing since at least 1989
and that they are cooperating with the investigation. Blair cannot predict
whether this investigation will ever result in any type of formal enforcement
action against Blair, or, if so, whether any such action might have an adverse
effect on Blair or the securities offered hereby. Blair makes a market in the
Company's securities. An unfavorable resolution of the Commission's
investigation could have the effect of limiting Blair's ability to make a
market in the Company's securities, which could affect the liquidity and price
of such securities.
25
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by California law. The Company is
also empowered under its Bylaws to enter into indemnification contracts with
its directors and officers and certain others and to purchase insurance on
behalf of any person it is required or permitted to indemnify. Pursuant to
this provision, the Company has entered into indemnity agreements with each of
its directors and executive officers and certain key consultants.
In addition, the Company's Articles of Incorporation provides that, to the
fullest extent permitted by California law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company or its shareholders. This provision in the Articles of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
nonmonetary relief would remain available under California law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omission involving intentional misconduct
or knowing and culpable violations of law, for acts or omissions that the
absence of good faith on the part of the director, for any transaction from
which the director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the director's duty to the Company or its
shareholders when the director was aware or should have been aware of a risk
of serious injury to the Company or its shareholders, for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty of the Company or its shareholders, for
improper transaction between the director and the Company, for improper
distributions to shareholders and loans to directors and officers or for acts
or omissions by the director as an officer. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
The Company believes the foregoing provisions are necessary to attract and
retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
26
<PAGE>
INDEX TO EYESYS FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Balance Sheets as of December 31, 1996 and 1995........................... F-3
Statements of Operations for the years ended December 31, 1996, 1995, and
1994..................................................................... F-4
Statements of Changes in Stockholders' Equity for the years ended December
31, 1996, 1995, and 1994................................................. F-5
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994..................................................................... F-6
Notes to Financial Statements............................................. F-7
Balance Sheet as of March 31, 1997 (unaudited)............................ F-19
Statements of Operations for the three months ended March 31, 1997 and
1996 (unaudited)......................................................... F-20
Statements of Cash Flows for the three months ended March 31, 1997 and
1996 (unaudited)......................................................... F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
EyeSys Technologies, Inc.:
We have audited the accompanying balance sheets of EyeSys Technologies, Inc.
as of December 31, 1996 and 1995, and the related statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of EyeSys Technologies, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has reported net losses of $4,164,998,
$3,424,996 and $3,708,657 for the years ended December 31, 1996, 1995 and
1994, respectively, and was in default of several loan covenants relating to
its revolving lines of credit. In addition, the Company has not repaid these
obligations within the respective terms. The above conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 13. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Houston, Texas
May 13, 1997, except for Notes 5 and 15
as to which the date is June 3, 1997
F-2
<PAGE>
EYESYS TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 730,968
Trade and other receivables, net of allowance for
doubtful accounts of $161,194 and $219,262....... $ 2,447,813 2,601,015
Inventories....................................... 1,290,450 1,827,644
Prepaid expenses.................................. 96,685 177,122
------------ -----------
Total current assets............................ 3,834,948 5,336,749
Property and equipment, net......................... 926,196 1,312,286
Deposits and other assets........................... 54,776 164,768
------------ -----------
Total assets.................................... $ 4,815,920 $ 6,813,803
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to a bank............................ $ 650,000
Notes payable and current maturities of long-term
debt............................................. 1,376,131 $ 158,786
Notes payable to related parties, current
maturities....................................... 3,089,993
Accounts payable.................................. 1,782,981 2,856,611
Accrued liabilities............................... 890,504 548,584
Customer deposits................................. 75,410 69,653
Deferred revenue.................................. 131,398 80,992
Accrued interest payable to related parties....... 270,576 1,475
------------ -----------
Total current liabilities....................... 8,266,993 3,716,101
Long-term debt, less current maturities............. 234,860 1,347,058
Notes payable to related parties.................... 1,282,238
Commitments and contingencies
Stockholders' equity (deficit):
Series A: noncumulative convertible preferred
stock, 350,000 shares authorized; 101,784 shares
issued and outstanding at December 31, 1996 and
1995 ($7.00 per share or $712,488 aggregate
liquidation preference at December 31, 1996 and
1995)............................................ 630,791 630,791
Series B: cumulative, convertible preferred stock,
4,953,026 shares authorized, issued and
outstanding at December 31, 1996 and 1995 ($1.49
and $1.39 per share or $7,383,809 and $6,884,544
aggregate liquidation preference at December 31,
1996 and 1995, respectively)..................... 6,071,869 6,071,869
Common stock; no par or stated value, 20,000,000
shares authorized; 3,377,671 and 3,324,374 shares
issued and outstanding at December 31, 1996 and
1995, respectively............................... 2,010,621 1,999,962
Accumulated deficit............................... (12,399,214) (8,234,216)
------------ -----------
Total stockholders' equity (deficit)............ (3,685,933) 468,406
------------ -----------
Total liabilities and stockholders' equity...... $ 4,815,920 $ 6,813,803
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product revenue....................... $ 8,097,780 $ 8,921,968 $ 8,297,967
License fee revenue................... 600,000
----------- ----------- -----------
8,097,780 9,521,968 8,297,967
----------- ----------- -----------
Expenses:
Costs of sales........................ 4,912,222 5,089,694 4,498,840
Selling, general and administrative... 5,731,051 5,726,183 5,277,651
Research and development.............. 1,103,009 1,946,153 2,255,320
----------- ----------- -----------
Total operating costs and expenses.. 11,746,282 12,762,030 12,031,811
----------- ----------- -----------
Loss from operations.................... (3,648,502) (3,240,062) (3,733,844)
Interest expense........................ 492,269 198,191 14,226
Other expense (income) ................. 24,227 (28,953) (1,413)
----------- ----------- -----------
Loss before income tax (provision)
benefit................................ (4,164,998) (3,409,300) (3,746,657)
Income tax (provision) benefit.......... (15,696) 38,000
----------- ----------- -----------
Net loss................................ (4,164,998) (3,424,996) (3,708,657)
Less preferred stock dividends.......... (499,265) (448,635) (195,094)
----------- ----------- -----------
Net loss to common stockholders......... $(4,664,263) $(3,873,631) $(3,903,751)
=========== =========== ===========
Net loss per common share............... $ (1.39) $ (1.19) $ (1.24)
=========== =========== ===========
Weighted average shares outstanding..... 3,352,994 3,265,034 3,142,852
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------- -------------------- -------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------- -------- --------- ---------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 101,784 $630,791 3,142,061 $1,963,499 $ (1,100,563) $ 1,493,727
Issuance of common
shares for cash under
incentive Stock Option
Plan................... 96,250 19,250 19,250
Issuance of preferred
stock for cash......... 3,737,770 $4,709,591 4,709,591
Issuance of preferred
stock for consulting
services............... 24,782 31,225 31,225
Payment of offering
costs related to the
preferred stock
issuance............... (142,437) (142,437)
Net loss for the year
ended December 31,
1994................... (3,708,657) (3,708,657)
------- -------- --------- ---------- --------- ---------- ------------ -----------
Balance at December 31,
1994................... 101,784 630,791 3,762,552 4,598,379 3,238,311 1,982,749 (4,809,220) 2,402,699
------- -------- --------- ---------- --------- ---------- ------------ -----------
Issuance of common
shares for cash under
incentive Stock Option
Plan................... 86,063 17,213 17,213
Issuance of preferred
stock for cash......... 1,190,474 1,499,999 1,499,999
Payment of offering
costs related to the
preferred stock
issuance............... (26,509) (26,509)
Net loss for the year
ended December 31,
1995................... (3,424,996) (3,424,996)
------- -------- --------- ---------- --------- ---------- ------------ -----------
Balance at December 31,
1995................... 101,784 630,791 4,953,026 6,071,869 3,324,374 1,999,962 (8,234,216) 468,406
Issuance of common
shares for cash under
Stock Option Plan...... 53,297 10,659 10,659
Net loss for current
year................... (4,164,998) (4,164,998)
------- -------- --------- ---------- --------- ---------- ------------ -----------
Balance at December 31,
1996................... 101,784 $630,791 4,953,026 $6,071,869 3,377,671 $2,010,621 $(12,399,214) $(3,685,933)
======= ======== ========= ========== ========= ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(4,164,998) $(3,424,996) $(3,708,657)
----------- ----------- -----------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization expense. 498,170 348,898 208,723
Provision for doubtful accounts....... 195,200 165,000
Provision for write-down on
inventories.......................... 315,771
Loss on disposal of property and
equipment............................ 3,067 3,493
Deferred federal income tax expense... 22,000
Compensation for consulting services
paid through issuance of preferred
stock................................ 31,225
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable.......................... 153,202 (660,628) (573,881)
Decrease (increase) in inventories... 171,751 (482,088) 125,921
Decrease (increase) in prepaid
expenses............................ 80,437 (95,420) 14,904
Decrease (increase) in other assets.. 109,994 (151,973) (2,154)
Increase (decrease) in accounts
payable............................. (1,073,630) 1,354,118 (146,213)
Increase (decrease) in accrued
liabilities......................... 268,645 (33,832) 347,869
Increase (decrease) in customer
deposits............................ 5,757 (8,985) 23,970
Increase (decrease) in deferred
revenue............................. 50,406 42,667 (24,380)
Increase in accrued interest payable
to related parties.................. 269,101 1,475
----------- ----------- -----------
Total adjustments................... 852,671 512,925 192,984
----------- ----------- -----------
Net cash used in operating
activities......................... (3,312,327) (2,912,071) (3,515,673)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................... (69,958) (742,329) (458,833)
Proceeds from disposals of property and
equipment............................. 4,481 1,882
----------- ----------- -----------
Net cash used in investing
activities......................... (65,477) (740,447) (458,833)
Cash flows from financing activities:
Bank overdraft......................... 73,275
Proceeds from revolving lines of
credit................................ 1,489,807 1,594,000 75,000
Repayment of revolving lines of credit. (576,645) (519,552) (647,000)
Proceeds from notes payable............ 116,050 424,699 329,780
Repayment of notes payable............. (274,065) (37,687) (341,316)
Proceeds from notes payable to related
parties............................... 1,807,755 1,282,238
Proceeds from issuance of preferred
stock................................. 1,499,999 4,709,591
Offering costs in connection with
issuance of preferred stock........... (26,509) (142,437)
Proceeds from issuance of common stock. 10,659 17,213 19,250
----------- ----------- -----------
Net cash provided by financing
activities......................... 2,646,836 4,234,401 4,002,868
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (730,968) 581,883 28,362
Cash and cash equivalents at beginning
of period.............................. 730,968 149,085 120,723
----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ -- $ 730,968 $ 149,085
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
EyeSys Technologies, Inc. (the "Company"), formerly EyeSys Laboratories,
Inc., manufactures and distributes a specialized line of diagnostic ophthalmic
equipment which was internally developed by the Company for medical equipment
distributors and doctors geographically located in North and South America,
Europe and portions of Asia. Targeted markets include ophthalmologists and
optometrists affiliated with refractive networks or contact lens labs.
Domestic and foreign sales each comprise approximately 50% of the Company's
sales. The Company faces competition from primarily three other companies in
the corneal topography market. The following is a summary of the Company's
significant accounting policies.
Technology and Patents
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and changing customer needs. The
Company believes that its future success will depend, in part, upon its
ability to change and its ability to identify and develop technical
innovations and apply them to new products designed for specific ophthalmic
applications. The Company's success depends, in part, on its ability to
continue to have patent protection for its products, maintain trade secret
protection and operate without infringing the proprietary rights of others.
The Company intends to vigorously defend its patents against any
infringements. The Company has been issued several patents and several others
are pending, all of which were internally developed.
Regulations
The Company's medical equipment is subject to review by the United States
Food and Drug Administration (the "FDA"). The EyeSys Corneal Analysis system
is categorized by the FDA as a Class One medical device and to date, has
required only Regulation 510(k) Notification in the United States. To date,
the Company has been inspected twice and has not received a notice of
noncompliance with regulations specified by the FDA. In addition, sales of
medical devices outside the United States are subject to foreign regulatory
requirements that vary widely from country to country. The Company requires
its distributors to obtain regulatory approval for the Company's products in
their territories.
Cash and Cash Equivalents
For purposes of reporting cash flows the Company considers any highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Inventories
Inventories, consisting of finished goods and parts and materials for
construction of ophthalmic equipment, are stated at the lower of cost or
market value with cost determined using the first-in, first-out (FIFO) method.
See Note 3.
Property and Equipment
Property and equipment are recorded at cost. Disposals are removed at cost
less accumulated depreciation and any gain or loss from disposition is
reflected in current year income. Depreciation is provided over the estimated
useful lives of the depreciable assets using the straight-line method for
financial reporting purposes and an accelerated method for tax reporting
purposes. All equipment is depreciated over an estimated useful life of five
years, except for tooling and fixtures, which is depreciated over three years.
Additions or improvements that increase the value or extend the life of an
asset are capitalized. Maintenance and repairs are expensed as incurred.
F-7
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Advertising Expenses
Advertising expenses consist primarily of costs incurred in promoting the
Company's products, printed brochures and other activities. The Company
expenses advertising as incurred. The Company's advertising expense was
approximately $262,000, $289,000 and $233,000 in 1996, 1995 and 1994,
respectively.
Provision for Warranty Claims
Estimated warranty costs are accrued at the time of sale of the warranted
products. Actual results could differ from those estimates.
Income Taxes
Income taxes have been provided in accordance with the liability method of
accounting for income taxes (See Note 8). Accordingly, deferred income taxes
are recorded to reflect the tax consequences on future years of temporary
differences between the tax basis of assets and liabilities and their
financial amounts at year end. A valuation allowance is provided, if
necessary, to reduce any resulting deferred tax assets to their estimated net
realizable value. Actual results could differ from those estimates.
Revenue Recognition
The Company generally recognizes revenue upon shipment of its product to the
customer. Revenue from the sale of extended warranties is deferred and
recognized ratably over the warranty period. Revenues from extended warranties
totaled approximately $198,000, $172,000 and $10,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Revenues from license fees are
recognized upon delivery of the software and completion of substantially all
obligations.
Research and Development
Research and development costs are expensed as incurred.
Concentrations of Credit and Market Risk
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable, cash and cash
equivalents.
The Company sells products and grants credit primarily to medical equipment
distributors and doctors geographically located in North and South America,
Europe and portions of Asia. The Company investigates customers but generally
does not require collateral for credit granted.
The Company maintains its cash in demand deposits with major financial
institutions selected by management based upon management's assessment of the
financial stability of such financial institutions. Balances periodically
exceed the $100,000 level covered by federal depository insurance; however,
the Company has experienced no losses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Loss Per Share
Loss per share is computed on the basis of the weighted average number of
shares of common stock and common stock equivalents outstanding during the
periods, if inclusion of such equivalents is not anti-dilutive.
Reclassifications
Certain prior year financial statement items of the Company have been
reclassified to conform to the current year presentation. Such
reclassifications had no effect on the Company's financial position, results
of operations or cash flows.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share", ("SFAS 128").
SFAS 128 specifies the computation, presentation and disclosure requirements
for earnings per share. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods.
Management of the Company believes that the adoption of SFAS 128 will not have
a material effect on its disclosure of earnings per share.
2. TRADE AND OTHER RECEIVABLES, NET:
Trade and other receivables, net consisted of the following at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Accounts receivable, trade........................... $2,401,481 $2,749,260
Employee advances and other.......................... 207,526 71,017
---------- ----------
Total............................................ 2,609,007 2,820,277
Less allowance for doubtful accounts................. (161,194) (219,262)
---------- ----------
Trade and other receivables, net................. $2,447,813 $2,601,015
========== ==========
</TABLE>
3. INVENTORIES:
Inventories consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Parts and materials.................................. $ 580,974 $1,020,277
Work in process...................................... 195,644 120,055
Finished goods inventory............................. 863,764 721,472
---------- ----------
1,640,382 1,861,804
Obsolescence reserve................................. (349,932) (34,160)
---------- ----------
$1,290,450 $1,827,644
========== ==========
</TABLE>
F-9
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Computer equipment.................................. $ 855,116 $ 780,123
Demonstration units................................. 320,812 329,845
Office furniture and fixtures....................... 391,159 381,705
Machinery and equipment............................. 117,998 119,324
Tooling and fixtures................................ 443,131 415,594
Leasehold improvements.............................. 48,423 60,617
----------- ----------
Total........................................... 2,176,639 2,087,208
Less accumulated depreciation....................... (1,250,443) (774,922)
----------- ----------
Property and equipment, net..................... $ 926,196 $1,312,286
=========== ==========
</TABLE>
Demonstration units represent the Company's internally produced diagnostic
ophthalmic devices that were removed from inventory at cost for placement at
medical or research facilities to promote sales. Depreciation expense totaled
$485,219, $335,947 and $195,772 in 1996, 1995 and 1994, respectively.
5. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consisted of the following at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Note payable to a bank:
Note payable to Silicon Valley Bank, bearing
interest at prime (8.25% at December 31, 1996) plus
2.25% per year, due monthly. This note is
guaranteed by certain investors and collateralized
by all assets, except inventory and fixed assets.
On June 3, 1997, the Company amended the agreement
to extend the maturity date through July 15, 1997.. $ 650,000
---------- ----------
$ 650,000 $ --
========== ==========
Notes payable to related parties:
Uncollateralized bridge loans payable to
stockholders, bearing interest at 10.5% per year.
Principal and interest payments are due in June
1997. At any time, at the option of the holders,
the loans are convertible into shares of common
stock based on the estimated fair value of the
common stock at the conversion date................ $2,999,993 $1,282,238
Uncollateralized notes payable to president and
chief executive officer, bearing interest at prime
plus 2% per year, due monthly. Principal is due on
demand, but no later than December 31, 1997........ 90,000
---------- ----------
Less current maturities............................ (3,089,933)
---------- ----------
$ -- $1,282,238
========== ==========
</TABLE>
F-10
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Long term debt:
Notes payable to a bank under $1,000,000 domestic
revolving line of credit agreement funded by Silicon
Valley Bank, bearing interest at prime (8.25%) plus
2% per year, due monthly. This note is collateralized
by all assets except inventory and fixed assets. On
June 3, 1997, the Company amended the agreement to
extend the maturity date through July 15, 1997. ..... $ 626,909 $ 398,992
Notes payable to a bank under $1,000,000 foreign
revolving line of credit agreement funded by Silicon
Valley Bank, bearing interest at prime (8.25%) plus
1.5% per year, due monthly. This note is
collateralized by certain inventory and receivables.
On June 3, 1997, the Company amended the agreement to
extend the maturity date through July 15, 1997. ..... 710,701 675,457
Notes payable to a partnership, bearing interest at
approximately 9.12% per year. Principal and interest
payments are due in monthly installments based on a
loan factor of 3.2137% through January 1999. This
note is collateralized by certain fixed assets and
equipment. .......................................... 121,485 212,986
Notes payable to a partnership, bearing interest at
approximately 10.17% per year. Principal and interest
payments are due in monthly installments based on a
loan factor of 3.2137% through July 1998. This note
is collateralized by certain fixed assets and
equipment............................................ 130,699 186,671
Other, principally capitalized leases................ 21,197 31,738
----------- ----------
1,610,991 1,505,844
Less current maturities.............................. (1,376,131) (158,786)
----------- ----------
$ 234,860 $1,347,058
=========== ==========
</TABLE>
Approximate maturities of long-term debt under existing terms at December
31, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING IN:
-----------------------
<S> <C>
1997............................................................ $1,376,131
1998............................................................ 216,193
1999............................................................ 18,667
----------
$1,610,991
==========
</TABLE>
The weighted average interest rates for fiscal years 1996 and 1995 were
10.2% and 10.29%, respectively.
The note payable to a bank and domestic and foreign revolving notes payable
agreements contain certain covenants, the most restrictive of which requires
that the Company's net loss on a monthly basis from April 1, 1996 to December
31, 1996 not exceed the amount specified in the agreement. At December 31,
1996, the Company was in violation of the net loss, the minimum net worth,
debt to net worth ratio and other reporting covenants, which could allow the
financial institution to accelerate the maturity of the note. The Company has
not obtained waivers for noncompliance with these debt covenants; however, the
bank has agreed to forebear from exercising its remedies under the agreements
until July 15, 1997.
The fair value of notes payable and long-term debt approximates carrying
value as the related obligations accrue interest at a rate which is consistent
with that currently offered for similar obligations.
F-11
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED):
Interest expense to related parties was $269,101 and $1,475 in 1996 and
1995, respectively.
6. CAPITAL LEASE OBLIGATION:
During 1994, the Company leased certain office equipment under an agreement
which is classified as a capital lease. Amortization of the lease is included
in depreciation.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Equipment held under capital lease.......................... $ 64,755 $ 64,755
Accumulated amortization.................................... (44,249) (31,298)
-------- --------
$ 20,506 $ 33,457
======== ========
</TABLE>
7. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Accrued professional fees.................................... $223,560 $ 33,952
Sales taxes payable.......................................... 21,471 16,884
Accrued commissions.......................................... 157,481 137,158
Accrued warranty costs....................................... 123,056 127,902
Accrued payroll.............................................. 18,690 56,219
Accrued vacation............................................. 107,568 70,929
Bank overdraft............................................... 73,275
Other........................................................ 165,403 105,540
-------- --------
$890,504 $548,584
======== ========
</TABLE>
8. INCOME TAXES:
The composition of deferred tax assets and liabilities and the related tax
effects as of December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable.................... $ 55,000 $ 90,000
Inventory reserves............. 143,000 46,000
Research and development credit
carryforward.................. 191,000 191,000
Other.......................... 121,000 119,000
Net operating loss
carryforward.................. $ 3,579,000 $ 2,269,000
--------- ----------- --------- -----------
Total deferred tax assets.... 510,000 3,579,000 446,000 2,269,000
Liability--property and equip-
ment basis.................... (57,000) (72,000)
Valuation allowance............ (510,000) (3,522,000) (446,000) (2,197,000)
--------- ----------- --------- -----------
$ -- $ -- $ -- $ --
========= =========== ========= ===========
</TABLE>
F-12
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES (CONTINUED):
The difference between the 1996, 1995 and 1994 income tax provision
(benefit) in the accompanying statement of operations and the amount that
would result if the U.S. federal statutory rate of 34% were applied to the
pre-tax financial loss was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Benefit of federal
income tax at statutory
rate................... $(1,416,099) (34.0)% $(1,159,162) (34.0)% $(1,273,863) (34.0)%
State income tax, net of
federal benefit........
Research and development
tax credits............ (35,499) (1.0) (64,999) (1.7)
Increase in valuation
reserve................ 1,374,000 33.0 1,192,000 35.0 1,323,000 35.3
Other................... 42,099 1.0 18,357 0.4 (22,138) (0.6)
----------- ----- ----------- ----- ----------- -----
$ -- -- $ 15,696 0.4% $ (38,000) (1.0)%
=========== ===== =========== ===== =========== =====
</TABLE>
The components of the income tax (provision) benefit for the years ended
December 31, 1996, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- -------- --------
<S> <C> <C> <C>
Current
Foreign.......................................... $ $(15,696)
Federal.......................................... $ 60,000
----- -------- --------
-- (15,696) 60,000
----- -------- --------
Deferred
Federal.......................................... (22,000)
State............................................
----- -------- --------
-- (22,000)
----- -------- --------
Total income tax (provision) benefit........... $ -- $(15,696) $ 38,000
===== ======== ========
</TABLE>
At December 31, 1996, the Company had net operating loss and tax credit
carryforwards of approximately $10,520,000 and $191,000, respectively, which
expire between 2009 and 2010. The utilization of the net operating loss
carryforward is limited by approximately $918,000 related to certain ownership
changes under Internal Revenue Code Section 382. The utilization of the tax
credit carryforward may be limited by certain ownership changes under Internal
Revenue Code Section 382.
9. STOCKHOLDERS' EQUITY:
On June 15, 1994, the Company's board of directors authorized the issuance
of 3,762,552 shares of Series B Cumulative Preferred Stock ("Series B
Preferred Stock"), and subsequently, issued 3,762,552 shares at $1.26 per
share which includes 24,782 shares issued in exchange for consulting services
valued at $31,225. Holders of the Series B Preferred Stock are entitled to
receive dividends at the rate of $.10 per share per year, payable in
preference to any payments of dividends on Common Stock. The Series B
Preferred Stock is convertible to common stock at the option of the holder
with the value of the Series B Preferred Stock initially fixed at $1.26 per
share and the value of the common shares determined by an independent
appraisal. (The value of the Series B Preferred Stock for purposes of
conversion is subject to periodic adjustment). The Series B Preferred Stock is
F-13
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED):
automatically convertible to common stock upon the closing of a public
offering of the Company's common stock meeting certain criteria as described
in the amendment to the Company's articles of incorporation authorizing the
issuance of Preferred Stock. At December 31, 1996 and 1995, the Company had
approximately $1,142,994 and $643,729, respectively, in undeclared cash Series
B Preferred dividends. The undeclared dividends are required to be paid upon
conversion of the Series B Preferred Stock to common stock. During 1995, an
additional 1,190,474 shares of Series B preferred stock were authorized and
issued at $1.26 per share.
On February 5, 1993, the Company's board of directors authorized the
issuance of 350,000 shares of Series A noncumulative preferred stock ("Series
A Preferred Stock") and, subsequently, issued 101,784 shares at $7.00 per
share. Holders of the Series A Preferred Stock are entitled to receive
dividends at the rate of $0.70 per share per year, payable in preference to
any payment of dividends on common stock. The Series A Preferred Stock is
convertible to common stock at the option of the holder, on a value basis,
with the value of the Preferred Stock initially fixed at $7.00 per share and
the value of common shares determined by independent appraisal. (The value of
the Series A Preferred Stock for purposes of conversion is subject to periodic
adjustment). The Series A Preferred Stock is automatically convertible to
common stock upon the closing of a public offering of the Company's common
stock meeting certain criteria as described in the amendment to the Company's
articles of incorporation authorizing the issuance of Preferred Stock. On
April 5, 1995, the Company authorized 3,000,000 shares of nondesignated
preferred stock. As of December 31, 1996 and 1995, there were no nondesignated
preferred stock issued or outstanding.
Non Qualified Stock Options
In years prior to 1994, the Company granted nonqualified stock options to
employees, stockholders and other individuals who provided services to the
Company. There was no activity in 1996 and 1995. The following is an analysis
of stock option activity during the year ended December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------
UNEXERCISED UNEXERCISED
OPTIONS AT OPTIONS ORIGINAL
OPTION PRICE YEAR BEGINNING OPTIONS OPTIONS AT END DURATION OF
PER SHARE GRANTED OF PERIOD GRANTED CANCELED OF PERIOD OPTION
- ------------ ------- ----------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$1.55 1992 214,516 214,516 5 years
2.15 1992 15,000 15,000 5 years
2.55 1992 30,000 30,000 5 years
3.53 1993 157,000 157,000 5 years
------- --- ------- ---
416,516 -- 416,516 --
======= === ======= ===
</TABLE>
Incentive Stock Option Plan
Effective March 1, 1992, the stockholders adopted the Company's 1992
Incentive Stock Option Plan (the "ISOP"). The ISOP provides for the granting
of options to purchase the Company's common stock by officers or other key
employees of the Company upon the terms and conditions determined by a
committee of the Board of Directors which administers the ISOP (1,000,000
shares of the Company's no par common stock were reserved for issuance under
the ISOP). The ISOP expires in February 2002, and no further options or rights
may be granted thereafter. Options granted under the ISOP generally expire ten
years from the date of grant and the option price is market value, as
determined by an independent appraisal. Options for 770,500 of the 1,000,000
shares reserved for issuance under the Plan have been issued based upon fair
market values ranging from $1.55 to $3.53 per share. There was no activity in
1996 and 1995. The following is an analysis of stock option activity in the
ISOP during the year ended December 31, 1994:
F-14
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------
UNEXERCISED UNEXERCISED
OPTIONS AT OPTIONS ORIGINAL
OPTION PRICE YEAR BEGINNING OPTIONS OPTIONS AT END DURATION OF
PER SHARE GRANTED OF PERIOD GRANTED CANCELED OF PERIOD OPTION
- ------------ ------- ----------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$1.55 1992 358,250 358,250 10 years
2.15 1992 14,500 14,500 10 years
2.55 1992 66,000 66,000 10 years
2.80 1992 95,000 95,000 10 years
3.53 1993 236,750 236,750 10 years
------- --- ------- ---
770,500 -- 770,500 --
======= === ======= ===
</TABLE>
All stock options were granted at option prices in excess of the fair value
of the stock at the date of grant and, accordingly, no compensation was
recognized in connection with the granting of such options.
1994 Stock Option Plan
Effective July 19, 1994, the stockholders adopted the Company's 1994 Stock
Option Plan (the "Plan") as a replacement to the previous nonqualified stock
option plan and incentive stock option plan. Each incentive stock option or
nonqualified stock option was replaced on the same terms as the surrendered
option, except that the exercise price shall be the then current fair market
value of the common stock, $.20 per share, at date of grant. At December 31,
1996 and 1995, a total of 2,100,000 shares of common stock were reserved for
issuance under the Plan. The original duration of stock options granted range
from one to ten years. Initial stock options granted vest 25% each year for
the next four years. The following, which includes employees and non-
employees, is an analysis of stock option activity in the Plan during the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at beginning of year... 1,731,499 1,444,234 --
Granted.................................... 586,879 455,600 1,686,629
Exercised.................................. (53,297) -- --
Forfeited.................................. (638,811) (168,335) (242,395)
--------- --------- ---------
Options outstanding at end of year......... 1,626,270 1,731,499 1,444,234
Options exercisable at end of year......... 1,266,311 924,930 704,634
</TABLE>
All options have an exercise price of $.20.
The Company has applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations, in
accounting for stock options. Accordingly, no compensation expense has been
recognized because the option price was not less than the fair value of the
underlying stock. Had compensation cost been determined based upon the fair
value of the options at the grant date for awards under the plans consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the Company's net
loss would have increased by the pro forma amounts indicated below, for the
years ended December 31, 1996 and 1995:
F-15
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net loss to common stockholders..................... $(5,307,992) $(4,068,725)
=========== ===========
Net loss to common stockholders--pro forma.......... $(5,320,920) $(4,074,834)
=========== ===========
Net loss per common share........................... $ (1.58) $ (1.25)
=========== ===========
Net loss per common share--pro forma................ $ (1.59) $ (1.25)
=========== ===========
Weighted-average fair value of options granted...... $ .05 $ .05
=========== ===========
Weighted-average remaining contractual life......... 9.5 9.5
=========== ===========
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using an option-pricing method with the following weighted average
assumptions for 1996 and 1995: dividend yield of 0.0% for both years, expected
volatility of 0% for both years, risk-free interest rate of 6.34% and 6.41%
per year for 1996 and 1995, respectively, and expected life of 5 years for
both years.
Common Stock Purchase Warrants
On September 28, 1994, the board of directors granted 80,000 common stock
purchase warrants to certain of the Company's consultants. The exercise price
of the warrants is $.20 and the warrants are exercisable as of the date of
issuance. On December 14, 1994, the board of directors granted an additional
18,000 common stock purchase warrants.
On April 17, 1996, the board of directors granted 952,379 common stock
purchase warrants in connection with the bridge loan agreements. The exercise
price of the warrants is $.20 and the warrants are exercisable as of the date
of issuance.
As of December 31, 1996, 18,000 warrants were exercised.
Series B Preferred Stock Purchase Warrants
On March 28, 1995, the Company issued 15,873 Series B preferred stock
purchase warrants to Silicon Valley Bank. The exercise price of the warrants
is $1.26 and the warrants are exercisable as of the date of issuance. On
November 16, 1995, the Board of Directors issued 119,048 Series B preferred
stock purchase warrants in connection with a loan agreement. The exercise
price of the warrants is $1.26 and the warrants are exercisable as of the date
of issuance. As of December 31, 1996, no Series B preferred stock warrants
have been exercised.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is a party to litigation arising in the ordinary course of
business. Management regularly analyzes current information and, as necessary,
provides an accrual for probable liabilities for the eventual disposition of
the matter. In the opinion of management, the ultimate outcome of these
matters will not materially affect the Company's financial position, results
of operations or cash flows.
F-16
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Operating Lease
The Company leases its principal place of operations under a noncancelable
operating lease. At December 31, 1996 the minimum future rental payments,
including common area maintenance charges, due under this lease for the
remainder of the lease term were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997.............................................................. $136,500
1998.............................................................. 141,960
1999.............................................................. 158,340
2000.............................................................. 118,755
</TABLE>
Total rent expense incurred under operating leases for the years ended
December 31, 1996, 1995 and 1994 was approximately $144,000, $121,000 and
$117,000, respectively.
11. EMPLOYEE BENEFIT PLAN:
Effective October 1, 1993, the Company adopted a defined contribution profit
sharing 401(k) plan covering substantially all full time employees who have
attained the age of twenty-one. Under the terms of the plan, employees who
have completed at least one month of service may contribute from 1% to 20% of
their annual salary to the plan. At the discretion of the Company, such
contributions are available for matching contributions. The Company made no
contributions to the plan for the years ended December 31, 1996, 1995 and
1994.
12. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash paid for interest expense....................... $493,415 $187,724 $42,184
======== ======== =======
Cash paid for income taxes........................... $ -- $ 12,696 $ --
======== ======== =======
</TABLE>
13. CONTINUING OPERATIONS AND BASIS OF PRESENTATION:
The Company reported net losses for the years ended December 31, 1996, 1995
and 1994 of $4,164,998, $3,424,996 and $3,708,657, respectively. During the
year, the Company was in default of the minimum net loss, net worth, quick
ratio and debt to net worth ratio covenants and other reporting requirements
relating to its revolving lines of credit and note payable to a bank.
Effective April 26, 1996, the Company renewed its lines of credit and obtained
an additional $650,000 term note payable to Silicon Valley Bank which is
guaranteed by certain investors. Advances shall accrue interest at prime plus
2.25% and are payable monthly. The entire amount of such advances and all
accrued but unpaid interest were due and payable at March 11, 1997. On June 3,
1997, the Company renewed its lines of credit and note payable to July 15,
1997. Management has implemented or is in the process of implementing plans to
improve profitability and financial position by obtaining additional equity
investments and reducing expenses.
During fiscal year 1996, the Company executed an extension of the bridge
loans and the investors provided approximately $1,718,000 under the
uncollateralized bridge loans. In addition, on April 26, 1996, the Company
renewed the notes payable under the revolving lines of credit to Silicon
Valley Bank extending the maturity date and modifying the financial covenants
of the notes. In connection with the renewal, a warrant for 158,730 shares of
common stock was issued to Silicon Valley Bank at an exercise price of $.20
which represents current market value. The warrant is exercisable as of the
date of issuance. The Company has also engaged an investment banking firm to
advise it with respect to various potential transactions by one or more third
parties.
F-17
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. CONTINUING OPERATIONS AND BASIS OF PRESENTATION (CONTINUED):
As part of the effort to ensure the long-term viability of the Company,
management is enacting a plan to significantly reduce expenses while
maintaining important sales and marketing activities.
The Company's financial statements have been prepared using accounting
principles applicable to a going concern which contemplates the realization of
assets and liquidation of liabilities in the ordinary course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or liabilities that might
be necessary should the Company be unable to continue in existence.
14. SUBSEQUENT EVENTS:
In January and February 1997, the Company issued uncollateralized notes
payable to various employees, stockholders and other investors for proceeds
totaling approximately $200,000. The notes bear interest at the prime rate
plus 2%. All principal and accrued interest are due and payable on June 30,
1997. These notes are subordinate to the Company's indebtedness to Silicon
Valley Bank.
On March 5, 1997, the Company's board of directors approved the Stay Bonus
Program ("Program"), as amended, whereby certain key employees will receive a
bonus for continued employment in the event of a sale or merger of the
Company. As of April 16, 1997, the Company estimates bonuses of approximately
$650,000 will be paid to key employees in connection with the merger discussed
below. As of December 31, 1996, the Company has not recorded any liability
associated with this Program.
On April 24, 1997, the Company entered into an agreement and plan of merger
(the "Agreement") with Premier Laser Systems, Inc. ("Premier") and Premier
Acquisition of Delaware, Inc. ("PAI"), a wholly-owned subsidiary of Premier,
whereby PAI will merge with and into the Company, with the Company surviving
as a wholly-owned subsidiary of Premier. As consideration for the merger,
Premier would issue common stock up to an aggregate value of $10.6 million,
plus options to purchase 165,000 shares of Premier's common stock with an
aggregate value of $495,000. If the Company enters into certain license
agreements related to its technology within 90 days of the closing, Premier
may be required to issue additional common stock or options to purchase common
stock pursuant to the following formula: Premier would issue securities with a
value equal to 78% of the first $1,500,000 of license fees and 50% of
additional license fees received prior to April 24, 1998. Additionally,
Premier would pay certain liabilities and debt of the Company totaling
approximately $300,000. The transaction is expected to close on or about
August 1, 1997.
15. DISTRIBUTOR AGREEMENT:
On June 2, 1997, the Company entered into an agreement with Marco Ophthalmic
Inc. ("Marco") pursuant to which that company was appointed as the exclusive
distributor in the United States of the System 2000 through March 31, 1998,
and the hand-held corneal topography system currently under development for a
three-year period following commercialization of that system.
In return for these rights, Marco is expected to pay the Company a $200,000
licensing fee for the portable system and has committed to order 60 units of
the System 2000 over the first four months of the contract. Marco has made an
advance payment of $280,000 to the Company for 35 System 2000 units. The
$200,000 licensing fee is refundable to Marco if the portable system is not
commercially available by March 31, 1998. Marco is required to meet certain
minimum purchase requirements in order to retain its exclusive distribution
rights.
F-18
<PAGE>
EYESYS TECHNOLOGIES, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 28,944
Receivables, net of allowance for doubtful
accounts of $163,085 and $161,194, respectively. 1,201,406 $ 2,447,813
Inventories...................................... 1,384,177 1,290,450
Prepaid expenses................................. 47,684 96,685
------------ ------------
Total current assets........................... 2,662,211 3,834,948
Property and equipment, net........................ 817,110 926,196
Deposits and other assets.......................... 52,921 54,776
------------ ------------
Total assets................................... $ 3,532,242 $ 4,815,920
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to a bank........................... $ 650,000 $ 650,000
Notes payable and current maturities of long-term
debt............................................ 1,257,775 1,376,131
Notes payable to related parties, current
maturities...................................... 2,999,993 3,089,993
Accounts payable................................. 1,767,670 1,782,981
Accrued liabilities.............................. 799,456 890,504
Customer deposits................................ 15,093 75,410
Deferred revenue................................. 112,537 131,398
Accrued interest payable to related parties...... 335,954 270,576
------------ ------------
Total current liabilities...................... 7,938,478 8,266,993
Long-term debt, less current maturities............ 197,112 234,860
Commitments and contingencies
Stockholders' equity:
Series A: noncumulative convertible preferred
stock, 350,000 shares authorized; 101,784 shares
issued and outstanding at March 31, 1997 and
December 31, 1996 ($7.00 per share or $712,488
aggregate liquidation preference at March 31,
1997 and December 31, 1996)..................... 630,791 630,791
Series B: cumulative, convertible preferred
stock, 4,953,026 shares authorized, issued and
outstanding at March 31, 1997 and December 31,
1996, respectively ($1.52 and $1.49 per share or
$7,508,625 and $7,383,809 aggregate liquidation
preference at March 31, 1997 and December 31,
1996, respectively)............................. 6,071,869 6,071,869
Common stock; no par or stated value, 20,000,000
shares authorized; 3,379,337 and 3,377,671
shares issued and outstanding at March 31, 1997
and December 31, 1996, respectively............. 2,010,954 2,010,621
Accumulated deficit.............................. (13,316,962) (12,399,214)
------------ ------------
Total stockholders' equity..................... (4,603,348) (3,685,933)
------------ ------------
Total liabilities and stockholders' equity..... $ 3,532,242 $ 4,815,920
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Revenues:
Product revenue................................. $ 868,744 $ 1,744,741
Expenses:
Costs of sales.................................. 463,872 1,068,418
Selling, general and administrative............. 1,081,144 1,587,541
Research and development........................ 103,206 321,524
----------- -----------
Total operating costs and expenses............ 1,648,222 2,977,483
----------- -----------
Loss from operations.............................. (779,478) (1,232,742)
Interest expense.................................. 138,270 106,174
Other expense .................................... 112
----------- -----------
Loss before income tax (provision) benefit........ (917,748) (1,339,028)
Income tax (provision) benefit....................
----------- -----------
Net loss.......................................... (917,748) (1,339,028)
Less preferred stock dividends.................... (124,816) (124,816)
----------- -----------
Net loss to common stockholders................... $(1,042,564) $(1,463,844)
=========== ===========
Net loss per common share......................... $ (.31) $ (.44)
=========== ===========
Weighted average shares outstanding............... 3,378,708 3,342,502
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Net cash provided by (used in) operating
activities...................................... $ 352,863 $(968,964)
--------- ---------
Cash flows from investing activities:
Capital expenditures........................... (4,873) (74,001)
--------- ---------
Net cash used in investing activities........ (4,873) (74,001)
--------- ---------
Cash flows from financing activities:
Bank overdraft................................. (73,275)
Proceeds from revolving lines of credit........ 94,754
Repayment of revolving lines of credit......... (482,715) (67,019)
Proceeds from notes payable.................... 206,304
Repayment of notes payable..................... (64,447) (39,953)
Proceeds from bridge loans..................... 452,000
Proceeds from issuance of common stock......... 333 4,400
--------- ---------
Net cash provided by (used in) financing
activities.................................. (319,046) 349,428
--------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 28,944 (693,537)
Cash and cash equivalents at beginning of period. 730,968
--------- ---------
Cash and cash equivalents at end of period....... $ 28,944 $ 37,431
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION:
The financial statements as of and for the periods ended March 31, 1997 and
1996 are unaudited, but in the opinion of management include all adjustments
consisting of normal recurring adjustments, necessary for a fair presentation
of the Company's financial position and results of operations. Interim results
are not necessarily indicative of year-end results. The financial statements
should be read in conjunction with the audited financial statements for the
year ended December 31, 1996.
2. CONTINGENCIES:
Technology and Patents
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and changing customer needs. The
Company believes that its future success will depend, in part, upon its
ability to change and its ability to identify and develop technical
innovations and apply them to new products designed for specific ophthalmic
applications. The Company's success depends, in part, on its ability to
continue to have patent protection for its products, maintain trade secret
protection and operate without infringing on the proprietary rights of others.
The Company intends to vigorously defend its patents against any
infringements. The Company has been issued several patents and several others
are pending, all of which were internally developed.
Regulations
The Company's medical equipment is subject to review by the United States
Food and Drug Administration (the "FDA"). The EyeSys Corneal Analysis system
is categorized by the FDA as a Class One medical device and to date, has
required only Regulation 510(k) Notification in the United States. To date,
the Company has been inspected twice and has not received a notice of
noncompliance with regulations specified by the FDA. In addition, sales of
medical devices outside the United States are subject to foreign regulatory
requirements that vary widely from country to country. The Company requires
its distributors to obtain regulatory approval for the Company's products in
their territories.
3. INVENTORIES:
Inventories are stated at the lower of cost or market value with cost
determined using the first-in, first-out (FIFO) method.
Inventories consisted of the following at March 31, 1997 and December 31,
1996:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Parts and Materials................................. $ 641,344 $ 580,974
Work in process..................................... 188,831 195,644
Finished goods inventory............................ 903,934 863,764
---------- ----------
1,734,109 1,640,382
Obsolescence reserve................................ (349,932) (349,932)
---------- ----------
$1,384,177 $1,290,450
========== ==========
</TABLE>
4. NOTES PAYABLE:
On June 3, 1997, the Company amended the note payable to a bank and the
domestic and foreign revolving notes payable agreements (the "Agreements") to
extend the maturity date to July 15, 1997. The Agreements contain certain
covenants, the most restrictive of which requires that the Company's net loss
on a monthly basis
F-22
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
4. NOTES PAYABLE (CONTINUED):
from January 1, 1997 to June 30, 1997 not exceed $200,000. At March 31, 1997,
the Company was in violation of the net loss, the minimum net worth, debt to
net worth ratio and other reporting covenants, which could allow the financial
institution to accelerate the maturity of the note. The Company has not
obtained waivers for noncompliance with these debt covenants; however, the
bank has agreed to forebear from exercising its remedies under the Agreements
until July 15, 1997.
In January and February 1997, the Company issued uncollateralized notes
payable to various employees, stockholders and other investors for proceeds
totaling approximately $200,000. The notes bear interest at the prime rate
(8.50% at March 31, 1997) plus 2%. All principal and accrued interest are due
and payable on June 30, 1997. These notes are subordinate to the Company's
indebtedness to Silicon Valley Bank.
5. RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share", ("SFAS 128"). SFAS 128 specifies the
computation, presentation and disclosure requirements for earnings per share.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has not yet
determined the impact that the adoption of SFAS 128 will have on its
disclosure of earnings per share.
6. STAY BONUS PROGRAM:
On March 5, 1997, the Company's board of directors approved the Stay Bonus
Program ("Program"), as amended, whereby certain key employees will receive a
bonus for continued employment in the event of a sale or merger of the
Company. As of April 16, 1997, the Company estimates bonuses of approximately
$650,000 will be paid to key employees in connection with the merger discussed
below. As of March 31, 1997, the Company has not recorded any liability
associated with this Program.
7. SUBSEQUENT EVENTS:
Merger
On April 24, 1997, the Company entered into an agreement and plan of merger
(the "Agreement") with Premier Laser Systems, Inc. ("Premier") and Premier
Acquisition of Delaware, Inc. ("PAI"), a wholly-owned subsidiary of Premier,
whereby PAI will merge with and into the Company, with the Company surviving
as a wholly-owned subsidiary of Premier. As consideration for the merger,
Premier would issue common stock up to an aggregate value of $10.6 million,
plus options to purchase 165,000 shares of Premier's common stock with an
aggregate value of $495,000. If the Company enters into certain license
agreements related to its technology within 90 days of the closing, Premier
may be required to issue additional common stock or options to purchase common
stock pursuant to the following formula: Premier would issue securities with a
value equal to 78% of the first $1,500,000 of license fees and 50% of
additional license fees received prior to April 24, 1998. Additionally,
Premier would pay certain liabilities and debt of the Company totaling
approximately $300,000. The transaction is expected to close on or about
August 1, 1997.
Distributor Agreement
On June 2, 1997, EyeSys entered into an agreement with Marco Ophthalmic Inc.
pursuant to which that company was appointed as the exclusive distributor in
the United States of the System 2000 through March 31, 1998, and the hand-held
corneal topography system currently under development for a three-year period
following commercialization of that system.
F-23
<PAGE>
EYESYS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED):
In return for these rights, Marco will pay EyeSys a $200,000 licensing fee
for the portable system and has committed to order 60 units of the System 2000
over the first four months of the contract. Marco has made an advance payment
of $280,000 to EyeSys for 35 System 2000 units. The $200,000 licensing fee is
refundable to Marco if the portable system is not commercially available by
March 31, 1998. Marco is required to meet certain minimum purchase
requirements in order to retain its exclusive distribution rights.
F-24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR
MADE SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Incorporation of Certain Documents by Reference............................ 3
The Company................................................................ 4
Risk Factors............................................................... 5
Use of Proceeds............................................................ 12
Dilution................................................................... 13
Recent Developments........................................................ 14
Description of Securities.................................................. 20
Plan of Distribution....................................................... 24
Indemnification of Directors and Officers.................................. 26
Financial Statements of EyeSys Technologies, Inc........................... F-1
</TABLE>
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PREMIER LASER SYSTEMS, INC.
1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses of the Registrant in
connection with the issuance and distribution of the securities described in
the Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................. $ 0
Legal Fees and Expenses............................................. $ 5,000
Accounting Fees and Expenses........................................ $10,000
Printing and Engraving Expenses..................................... $ 500
Miscellaneous....................................................... $ 4,500
-------
Total........................................................... $20,000
=======
</TABLE>
All of the above expenses will be paid by the Registrant.
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The California General Corporations Law provides that California
corporations may include provisions in their articles of incorporation
relieving directors of monetary liability for breach of their fiduciary duty
as directors, except for the liability of a director resulting from (i) any
transaction from which the director derives an improper personal benefit, (ii)
acts or omissions involving intentional misconduct or a knowing and culpable
violation of law, (iii) acts or omissions that a director believes to be
contrary to the best interests of the Registrant or its shareholders or that
involves the absence of good faith on the party of the director (iv) acts or
omissions constituting an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its shareholders, (v)
acts or omissions showing a reckless disregard for the director's duty to the
Registrant or its shareholders in circumstances in which the director was
aware or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the Registrant or its
shareholders, (vi) any improper transaction between a director and the
Registrant in which the director has a material financial interest, or (vii)
the making of an illegal distribution to shareholders or an illegal loan or
guaranty. The Registrant's Articles of Incorporation provide that the
Registrant's directors are not liable to the Registrant or its shareholders
for monetary damages for breach of their fiduciary duties to the fullest
extent permitted by California law.
The inclusion of the above provision in the Articles of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the Registrant and
its shareholders. At present, there is no litigation or proceeding pending
involving a director of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any director.
The Registrant's Articles of Incorporation provide that the Registrant shall
indemnify its directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law. Since the California statute is
nonexclusive, it is possible that certain claims beyond the scope of the
statute may be indemnifiable. Accordingly, the Registrant has also entered
into an indemnification agreement (the "Indemnification Agreement") with
certain of its directors and officers that requires the Registrant to
indemnify such directors and officers to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
II-1
<PAGE>
It is intended that the Indemnification Agreements provide a scheme of
indemnification which may be broader than that specifically provided by the
California statute. It has not yet been determined, however, the degree to
which the indemnification expressly permitted by the California statute may be
expanded.
Set forth below is a description of the principal provisions of the
Indemnification Agreement:
First, the Indemnification Agreement imposes upon the Company the burden
of proving that the Indemnified Party has not met the applicable standard
of conduct required for indemnification. The California statute requires a
finding by the Board of Directors, independent legal counsel, or the
stockholders that the applicable standard of conduct has been met.
Second, the Indemnification Agreement provides that litigation expenses
shall be advanced to an Indemnified Party at his or her request, against an
undertaking to repay the amount advanced if it is ultimately determined
that he is not entitled to indemnification for such expenses. The
California statute provides that such expenses may be advanced against such
an undertaking, upon authorization by the Board of Directors.
Third, in the event the Company does not pay a requested indemnification
amount, the Indemnification Agreement allows such Indemnified Party to
contest this determination by petitioning a court to make an independent
determination of whether such indemnified Party is entitled to
indemnification under the Indemnification Agreement. The California statute
does not set forth the procedure for contesting a corporation's
determination of a party's right to indemnification.
Finally, the Indemnification Agreement explicitly provides that actions
by an Indemnified Party at the request of the Company as a director,
officer or agent of an employee benefit plan, corporation, partnership,
joint venture or other enterprise owned or controlled by the Company shall
be covered by the indemnification. The California statute does not
specifically address this issue. It does, however, provide that to the
extent that an Indemnified Party has been successful on the merits, he
shall be entitled to such indemnification.
The Company is not aware of any threatened litigation or proceeding which
may result in a claim for indemnification under the Indemnification Agreement
by any director or officer.
16. EXHIBITS.
<TABLE>
<C> <S>
4.1 Form of Stock Certificate (incorporated herein by this reference to
Exhibit 4.4 to the Registrant's Registration Statement on Form SB-2,
file no. 33-83984).
4.2 Amended and Restated Articles of Incorporation as filed with the
California Secretary of State on November 23, 1994 (incorporated herein
by this reference to Exhibit 3.4 to the Registrant's Registration
Statement on Form SB-2, file no. 33-83984).
4.3 Form of Underwriter's Unit Purchase Option (IPO) (incorporated herein
by this reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form SB-2, file no. 33-83984).
4.4 Form of Underwriter's Unit Purchase Option (Secondary) (incorporated
herein by this reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form SB-2, file no. 333-04219).
4.5 Form of Warrant Agreement (including forms of Class A and Class B
Warrant Certificates) (incorporated herein by this reference to Exhibit
4.1 to the Registrant's Registration Statement on Form SB-2, file no.
33-83984).
4.6 Form of Amendment to Warrant Agreement dated as of November 30, 1994
(incorporated herein by this reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form SB-2, file no. 333-04219).
5 Opinion of Rutan & Tucker, LLP (previously filed)
23.1 Consent of Rutan & Tucker, LLP (included in Exhibit 5)
23.2 Consent of Price Waterhouse LLP*
23.3 Consent of Ernst & Young LLP*
23.4 Consent of Coopers & Lybrand L.L.P.*
</TABLE>
- --------
* Filed herewith.
II-2
<PAGE>
17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (1) (i) and (1) (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That for the purpose of determining liability under the Securities
Act of 1933, the Registrant will treat each post-effective amendment as a
new Registration Statement of the securities offered, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To file a post-effective amendment or remove from registration any of
the securities that remain unsold at the end of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities as the time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS POST EFFECTIVE
AMENDMENT NO. 2 ON FORM S-3 TO REGISTRATION STATEMENT ON FORM SB-2 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF IRVINE, STATE OF CALIFORNIA, ON THE 29TH DAY OF JULY, 1997.
PREMIER LASER SYSTEMS, INC.
By: /s/ COLETTE COZEAN
----------------------------------
Colette Cozean, Ph.D.
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Colette Cozean Chairman of the Board, July 29, 1997
____________________________________ President and Chief
Colette Cozean Executive Officer (Principal
Executive Officer)
/s/ Michael Hiebert Vice President of Finance July 29, 1997
____________________________________ and Chief Financial Officer
Michael Hiebert (Principal Financial Officer
and Principal Accounting
Officer)
/s/ * Director July 29, 1997
____________________________________
Patrick J. Day
/s/ * Director July 29, 1997
____________________________________
Grace Ching-Hsin Lin
Director July , 1997
____________________________________
G. Lynn Powell, D.D.S.
/s/ * Director July 29, 1997
____________________________________
E. Donald Shapiro
</TABLE>
*By: /s/Colette Cozean
- -------------------------------
Colette Cozean, Ph.d.,
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1 Form of Stock Certificate (incorporated herein by this reference to
Exhibit 4.4 to the Registrant's Registration Statement on Form SB-2,
file no. 33-83984).
4.2 Amended and Restated Articles of Incorporation as filed with the
California Secretary of State on November 23, 1994 (incorporated
herein by this reference to Exhibit 3.4 to the Registrant's
Registration Statement on Form SB-2, file no. 33-83984).
4.3 Form of Underwriter's Unit Purchase Option (IPO)
(incorporated herein by this reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form SB-2, file no. 33-83984).
4.4 Form of Underwriter's Unit Purchase Option (Secondary)
(incorporated herein by this reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form SB-2, file no. 333-04219).
4.5 Form of Warrant Agreement (including forms of Class A and Class B
Warrant Certificates) (incorporated herein by this reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form SB-2,
file no. 33-83984).
4.6 Form of Amendment to Warrant Agreement dated as of November 30, 1994
(incorporated herein by this reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form SB-2,
file no. 333-04219).
5 Opinion of Rutan & Tucker, LLP (previously filed)
23.1 Consent of Rutan & Tucker, LLP (included in Exhibit 5)
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Post Effective Amendment No. 2 on Form S-3 to
Registration Statement on Form SB-2 of Premier Laser Systems, Inc. of our report
dated May 17, 1996 appearing on page 26 of the Company's Amendment No. 1 to
Annual Report on Form 10-K for the year ended March 31, 1997. We also consent to
the application of such report to the Financial Statement Schedule for the two
years ended March 31, 1996 listed in the accompanying index when such schedule
is read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this schedule.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
July 29, 1997
<PAGE>
EXHIBIT 23.3
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in post effective amendment No. 2
on Form S-3 to Registration Statement on Form SB-2 and related Prospectus of
Premier Laser Systems, Inc. pertaining to the registration of 2,035,423 shares
of Class A Common Stock and 2,035,423 Class B Warrants upon exercise of
outstanding Class A Warrants, and 7,150,370 shares of Class A Common Stock upon
exercise of Class B Warrants, of our report dated May 1, 1997, with respect to
the consolidated financial statements and schedule of Premier Laser Systems,
Inc. included in its Annual Report (Form 10-K) for the year ended March 31,
1997, as amended, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Orange County, California
July 29, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of our
report, which includes an explanatory paragraph which relates to the Company's
ability to continue as a going concern, dated May 13, 1997, except for Notes 5
and 15 as to which the date is June 3, 1997, on our audits of the financial
statements of Eyesys Technologies, Inc. as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Houston, Texas
July 30, 1997
