<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-13966
---------
Premier Laser Systems, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
California 33-0476284
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3 Morgan, Irvine, California, 92618
-----------------------------------
(Address of principal executive offices)
(714) 859-0656
--------------
(Registrant's telephone number, including area code)
---------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [_] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [_] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (July 30, 1998):
Class A Common Stock: 14,866,182 Shares
----------
Class E-1 Common Stock: 1,257,499 Shares
----------
Class E-2 Common Stock: 1,257,499 Shares
----------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
PREMIER LASER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
--------------- ----------------
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,971,336 $ 9,722,514
Short-term investments 6,748,916 9,666,918
Restricted cash 2,150,000 2,150,000
Accounts receivable, net of allowance for sales returns and doubtful accounts
of $1,305,423 at June 30, 1998 and $1,169,164 at March 31, 1998 3,046,205 4,952,892
Inventories 7,361,300 4,482,698
Prepaid expenses and other current assets 3,109,956 2,528,996
------------ ------------
Total current assets 25,387,713 33,504,018
Property and equipment, net 1,975,222 1,778,423
Intangibles, net 11,732,602 11,991,679
Other assets 378,397 434,300
------------ ------------
Total assets $ 39,473,934 $ 47,708,420
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 3,418,692 $ 5,510,692
Line of credit 2,087,760 2,068,163
Accrued compensation and related costs 956,398 964,691
Other current liabilities 4,592,595 5,943,685
------------ ------------
Total current liabilities 11,055,445 14,487,231
Commitments and contingencies
Minority interest 1,560,170 1,764,736
Shareholders' equity:
Preferred stock, no par value:
Authorized shares--8,850,000
Issued and outstanding shares--none - -
Common stock, Class A, no par value:
Authorized shares--35,600,000
Issued and outstanding shares--14,866,182 at June 30, 1998
and March 31, 1998 83,693,799 83,546,913
Common stock, Class E-1, no par value:
Authorized shares--2,200,000
Issued and outstanding shares--1,257,461 at June 30, 1998
and March 31, 1998 4,769,878 4,769,878
Common stock, Class E-2, no par value:
Authorized shares--2,200,000
Issued and outstanding shares--1,257,460 at June 30, 1998
and March 31, 1998 4,769,878 4,769,878
Warrants and options 1,723,842 1,723,842
Accumulated deficit (68,099,078) (63,354,058)
------------ ------------
Total shareholders' equity 26,858,319 31,456,453
------------ ------------
$ 39,473,934 $ 47,708,420
============ ============
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
PREMIER LASER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Net sales $ 3,481,336 $2,105,447
Cost of sales 3,457,424 1,295,980
----------- ----------
Gross profit (loss) 23,912 809,467
Selling and marketing expenses 2,199,575 815,023
Research and development expenses 1,189,041 513,499
General and administrative expenses 1,631,451 363,986
----------- ----------
Loss from operations (4,996,155) (883,041)
Minority interest in loss of consolidated
subsidiary 204,566 -
Interest income (expense), net 46,569 169,786
----------- ----------
Net profit (loss) ($4,745,020) ($713,255)
=========== ==========
Income (loss) per share ($0.32) ($0.08)
=========== ==========
Shares used in the computation of net
income (loss) per share 14,845,557 8,749,508
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
PREMIER LASER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating Activities
Net loss $(4,745,020) $ (713,255)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 469,388 255,562
Stock options issued to advisors and others 115,000 -
Minority interest in loss of consolidated subsidiary (204,566)
Changes in operating assets and liabilities
Accounts receivable 1,906,687 (937,486)
Inventories (2,878,602) (261,489)
Prepaid expenses and other current assets (580,960) (301,615)
Accounts payable (2,092,000) (260,102)
Accrued liabilities (1,359,383) 39,849
----------- -----------
Net cash used in operating activities (9,369,456) (2,178,536)
Investing activities
(Purchase) sale of short-term investments 2,918,002 (5,806,947)
Purchase of property and equipment (474,310) (68,681)
Other 123,103 (22,008)
----------- -----------
Net cash provided (used) by investing activities 2,566,795 (5,897,636)
Financing activities
Net borrowings (repayments) under line of credit 19,597 (800,000)
Proceeds from exercise of stock options and warrants 31,886 23,953,869
Other (26,376)
----------- -----------
Net cash provided by financing activities 51,483 23,127,493
Net increase (decrease) in cash and cash equivalents (6,751,178) 15,051,321
Cash and cash equivalents at beginning of year 9,722,514 173,610
----------- -----------
Cash and cash equivalents at the end of the three months $ 2,971,336 $15,224,931
=========== ===========
</TABLE>
See condensed notes to unaudited financial statements
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<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1: General
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation of
the financial position of the Company at June 30, 1998 and the results of
operations and cash flows for the three months ended June 30, 1998 and 1997.
Although the Company believes the disclosures in these financial statements are
adequate to make the information presented not misleading, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for interim periods are not necessarily
indicative of results of operations to be expected for the full year.
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly and majority owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
The financial information in this quarterly report should be read in
conjunction with the March 31, 1998 consolidated financial statements and notes
thereto included in the Company's Annual Report filed on Form 10-K (as amended)
for the fiscal year ending March 31, 1998.
The Company has suffered recurring losses from operations and may continue
to incur losses for the foreseeable future due to the significant costs
anticipated to be incurred in connection with manufacturing, marketing and
distributing its products. In addition, the Company intends to conduct
continuing research and development activities, including regulatory submittals
and clinical trials to develop additional applications for its technology. The
Company operates in a highly competitive environment and is subject to all of
the risks inherent in new business enterprises. The Company believes that its
present liquid assets will be sufficient to meet its working capital
requirements through at least March 31, 1999. Any significant uninsured judgment
or settlement associated with the class action litigation (see Note 2) would
seriously affect the Company's ability to satisfy its working capital
requirements.
NOTE 2: Litigation
The Company entered into an agreement with Infrared Fiber Systems, Inc.
(IFS), as a supplier of certain fiber optics, that expires in the fiscal year
ending March 31, 2002. The agreement requires the supplier to sell exclusively
to the Company fiber optics for medical and dental applications as long as the
Company purchases defined minimum amounts.
In March 1994, the Company initiated litigation against IFS. The Company's
complaint alleges that IFS and two of its officers misrepresented IFS' ability
to supply optical fibers, and that
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<PAGE>
IFS breached its supply agreement and certain warranties. In April 1994, IFS
filed a cross-complaint alleging breach of contract and intentional interference
with prospective economic advantage, seeking declaratory relief that the
contract has been terminated and that IFS is free to market its fiber optics to
others. In July 1994, Coherent, Inc. a major shareholder of IFS and a
manufacturer of medical lasers which employ IFS optical fibers, joined the
lawsuit for the express purpose of defending their rights to the IFS optical
fibers. In May 1995, the Company instituted litigation concerning this dispute
in Orange County, California Superior Court against Coherent, Westinghouse
Electric Corporation ("Westinghouse") and an individual employee of Westinghouse
who was an officer of IFS from 1986 to 1993, when the events involved in the
federal action against IFS took place and while Westinghouse owned a substantial
minority interest in IFS. The complaint charges that Coherent conspired with IFS
in the wrongful conduct which is the subject of the federal lawsuit and
interfered with the Company's contracts and relations with IFS and with
prospective contracts and advantageous economic relations with third parties.
The complaint asserts that Westinghouse is liable for its employee's wrongful
acts as an IFS executive while acting within the scope of his employment at
Westinghouse. The lawsuit seeks injunctive relief and compensatory damages. In
October 1995, the federal action was stayed by order of the court in favor of
the California state court action, in which the pleadings have been amended to
include all claims asserted by the Company in the federal action.
In July 1996, the court in the California state court action granted
demurrers by Westinghouse and the employee of Westinghouse to all causes of
action against them, as well as all but one of the Company's claims against
Coherent. As a result, the claims that were the subject of the granted demurrers
have been dismissed, subject to the Company's right to appeal. The Company has
filed an appeal of these decisions as they relate to Westinghouse and the
Westinghouse employee, and briefs have been submitted. No date has been set for
a hearing of this appeal. No trial date has been set as to the remaining
outstanding causes of action.
The Company and certain of the officers and directors have been named in a
number of securities class action lawsuits which allege violations of the
Securities Exchange Act or the California Corporations Code. The plaintiffs seek
damages on behalf of classes of investors who purchased the Company's stock
between May 7, 1997 and April 15, 1998. The complaints allege that the Company
misled investors by failing to disclose material information and making material
misrepresentations regarding the Company's business operations and projections.
The Company has also been named in a shareholder derivative action purportedly
filed on its behalf against certain officers and directors arising out of the
same alleged acts. Although the Company intends to vigorously defend itself in
the actions, the ultimate outcome is uncertain and no provision for any
settlement has been reflected in the accompanying financial statements. Any
significant adverse resolution of the actions would seriously impact the
Company's financial condition. The Company maintains insurance coverage for
these types of actions and has filed claims with the carrier. The policy has a
limit of $5 million and a $250,000 deductible amount.
The Company is involved in various other disputes and lawsuits arising from
its normal operations. The litigation process in inherently uncertain and it is
possible that the resolution of these disputes and other lawsuits may adversely
affect the Company, however, it is the opinion of management, that the outcome
of such other matters will not have a material adverse impact on the Company's
financial position, results of operations or cash flows.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
Results of Operations
The Company's net sales for the quarter ended June 30, 1998 (the "1998
Quarter") increased by 65% to $3,481,000 from $2,105,000 for the quarter ended
June 30, 1997 (the "1997 Quarter"). The increase is attributable to the sales
generated by Ophthalmic Imaging Systems, Inc. (OISI), and EyeSys Technologies,
Inc. (EyeSys), which were acquired between September 30, 1997 and February 28,
1998, offset by declining sales of dental products following the Company's
disagreement with a national distributor of dental products (on whom the Company
had previously relied to distribute certain of its products).
Cost of sales increased 167% to $3,457,000 in the 1998 Quarter from
$1,296,000 in the 1997 Quarter. This increase is directly attributable to the
increase in sales, a higher cost of sales percentage for products sold by OISI,
and under-absorption of manufacturing personnel and facilities costs.
Selling and marketing expenses increased to $2,200,000 in the 1998 Quarter
from $815,000 for the 1997 Quarter. The increase was primarily attributable to
marketing and sales efforts from the Company's prior year business acquisitions
amounting to $600,000 and increases in personnel and sales commissions.
Research and development expenses increased to $1,189,000 in the 1998
Quarter from $513,000 in the 1997 Quarter. The majority of the increased
expenses are a result of the Company's acquisitions and an increase in
personnel.
General and administrative expenses increased to $1,631,000 in the 1998
Quarter from $364,000 in the 1997 Quarter. The increase is primarily
attributable to expenses from the Company's new subsidiaries, OISI and EyeSys,
($600,000), an increase in accounting and other administrative personnel, and
higher legal, accounting and public relations fees.
Net interest income decreased to $47,000 in the 1998 Quarter from $170,000
in the 1997 Quarter, reflecting the decreased cash available for the Company to
invest, following the Company's prior year acquisitions and increases in
inventory that occurred in the 1998 quarter.
Liquidity and Capital Resources
The Company's operations have been financed through the proceeds from the
sale of the Company's equity securities, including an initial public offering in
December 1994, a secondary public offering in October 1996, the exercise of
publicly traded warrants and stock options, revenues from operations, and
proceeds from a SBIR grant. The Company's principal capital requirements
include the financing of inventory, accounts receivable, research and
development activities, the development of an ophthalmic and a dental sales
force, the development of marketing programs and the acquisition and/or
licensing of patents.
At June 30, 1998, the Company had unrestricted cash and short-term
investments of $9,720,000 and its working capital was $14,333,000. The decrease
in cash and short-term investments since March 31, 1998 was primarily the result
of the quarter's net loss, increased by working capital changes during the
period. Cash flow during the 1997 Quarter was positive as the net result of
capital stock transactions, reduced by operating requirements.
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<PAGE>
The Company's principal credit facility permits borrowings of up to
$2,100,000. Borrowings under the credit facility are secured by a certificate of
deposit pledged to the bank by the Company pursuant to a Pledge Agreement and
bear interest at prime. The line expires in September 1998. As of June 30, 1998,
there was $1,974,000 outstanding under this agreement.
At March 31, 1998, the Company had net operating loss carry forwards for
federal income tax purposes totaling approximately $17.8 million which will
begin to expire in fiscal 2006. The Tax Reform Act of 1986 includes provisions
which may limit the net operating loss carry forwards available for use in any
given year if certain events occur, including significant changes in stock
ownership. Utilization of the Company's net operating loss carry forwards to
offset future income may be limited.
The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development activities, the
scope and results of preclinical studies and clinical trials, the costs and
timing of regulatory approvals, the rate of technology advances by the Company,
competitive conditions within the medical laser industry, the establishment of
manufacturing capacity, the outcome of the class action lawsuits and the
establishment of collaborative marketing and other relationships which may
either involve cash infusions to the Company, or require additional cash from
the Company. The Company's ability to meet its working capital needs will be
dependent on its ability to achieve a positive cash flow from operations and
profitable operations. No assurance can be given that the Company will be able
to achieve profitable operations or a positive cash flow from operations.
Seasonality
To date, the Company's revenues have typically been significantly higher in
the second and fourth calendar quarters. This seasonality reflects the timing of
major medical and dental industry trade shows in these quarters, significantly
reduced sales during the summer and the effect of year end tax planning
influencing the purchasing of capital equipment for depreciation during the
fourth calendar quarter.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
No Disclosure Required.
-8-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Securities Class Action
On May 1, 1998, a class action suit (the "Valenti Litigation") was
commenced in the United States District of Court for the Central District of
California pursuant to federal securities laws on behalf of purchasers of the
Company's securities during the period from February 12, 1998 through April 15,
1998. The complaint alleges that the Company and certain of its officers and
directors violated the federal securities laws by issuing false and misleading
statements and omitting material facts regarding the Company's financial results
and operations during such period. Among other things, the complaint alleges
that the defendants materially misstated the Company's financial results for the
fiscal quarter ended December 31, 1998 and that as a result of such
misstatements, the plaintiff suffered damages as a result of a decrease in the
market price of the Company's publicly traded securities.
After the filing of such complaint, a number of similar complaints have
also been filed in the United States District Court for the Central District of
California, seeking certification as class actions, and covering class periods
commencing as early as May 7, 1997. Such complaints alleged facts similar to
those described above with respect to the Valenti Litigation, as well as
allegations that the Company artificially inflated the price of its outstanding
publicly traded securities as a result of misrepresentations relating to the
market and prospects for sale of its Centauri Er:YAG laser. All of the above
described complaints seek monetary damages in unspecified amounts, together with
attorneys' fees, interest, costs and related remedies.
The Company presently intends to seek to have all of such securities class
action lawsuits consolidated into a single action.
The Company has also been named as a nominal defendant in a shareholder
derivative lawsuit filed in the Orange County, California Superior Court, in a
case captioned Eskeland vs. Cozean, et al. The complaint was filed by a
shareholder of the Company, on behalf of the Company, against certain of the
Company's officers and directors, including Colette Cozean, Michael Hiebert,
Richard Roemer, Ronald Higgins, Patrick Day, Grace Chin-Hsin Lin, G. Lynn
Powell, and E. Donald Shapiro. The complaint alleges, among other things, that
such persons violated their fiduciary duty to the Company by exposing the
Company to liability under the securities laws, failing to ensure that the
Company maintained adequate accounting controls, and related alleged actions and
omissions. Although the Company is a named defendant, the lawsuit seeks to
recover damages from the individual defendants on behalf of the Company.
Accordingly, it is not clear whether the Company will have any liability or
incur any material loss as a result of being named as a defendant in this
matter.
Investigations and Other Matters
The Company has been notified that the Securities and Exchange Commission
("SEC") and the Nasdaq Stock Market have instituted investigations concerning
matters pertaining to the Company's revenue reporting practices, and related
management issues. The Company is cooperating with both the SEC and the Nasdaq
Stock Market in connection with these investigations. These investigations, the
Company believes, generally relate to whether the Company, in SEC filings and
press releases issued prior to the end of the 1998 fiscal year, properly
recognized revenues for transactions occurring during fiscal 1997, and at
interim periods in fiscal 1998. To date, the SEC has not indicated that it is
seeking to impose any penalties on the Company or that it is made any specific
findings with respect to the Company's accounting practices. However, the Nasdaq
Stock Market has notified the Company that it proposes to delist the Company's
securities from the Nasdaq Stock Market. The Company has filed an appeal of this
proposed action, and a hearing on the matter is presently scheduled for
September 17, 1998. If this appeal is denied, the delisting of the Company's
securities would materially and adversely affect the liquidity, and consequently
the value, of such securities.
The Company is also involved in various disputes and other lawsuits from
time to time arising from its normal operations. The litigation process is
inherently uncertain and it is possible that the resolution of any of such
litigation, as well as the matters described above, may adversely
affect the Company.
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<PAGE>
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not Applicable.
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K: During the quarter ended June 30, 1998, the
Company filed with the Securities and Exchange Commission the following Current
Reports on Form 8-K:
Current Report on Form 8-K dated April 2, 1998 (reporting Item 5.,
"Other Events," in connection with adoption of Shareholder Rights Plan).
Current Report on Form 8-K dated June 1, 1998 (reporting Item 4.,
"Changes in Registrant's Certifying Accountant") as amended June 15, 1998.
Current Report on Form 8-K dated June 26, 1998 (reporting Item 4.,
"Changes in Registrant's Certifying Accountant").
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PREMIER LASER SYSTEMS, INC.
Dated: August 24, 1998 By: /s/ COLETTE COZEAN
-----------------------------------------
Colette Cozean, Chief Executive Officer
(duly authorized officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 11,870,252 21,539,432
<SECURITIES> 0 0
<RECEIVABLES> 4,351,628 6,122,056
<ALLOWANCES> (1,305,423) (1,169,164)
<INVENTORY> 7,361,300 4,482,698
<CURRENT-ASSETS> 25,387,713 33,504,018
<PP&E> 1,975,222 1,778,423
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 39,473,934 47,708,420
<CURRENT-LIABILITIES> 11,055,443 14,487,231
<BONDS> 0 0
0 0
0 0
<COMMON> 93,233,555 93,086,669
<OTHER-SE> (66,375,236) (61,630,216)
<TOTAL-LIABILITY-AND-EQUITY> 39,473,934 47,708,420
<SALES> 3,481,336 2,105,447
<TOTAL-REVENUES> 3,481,336 2,105,447
<CGS> 3,457,424 1,295,980
<TOTAL-COSTS> 8,477,491 2,988,488
<OTHER-EXPENSES> (251,135) (169,786)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (4,745,020) (713,255)
<INCOME-TAX> (4,745,020) (713,255)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 00
<NET-INCOME> (4,745,020) (713,255)
<EPS-PRIMARY> (0.32) (.08)
<EPS-DILUTED> (0.32) (.08)
</TABLE>
