<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K/A
Amendment No. 2
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the fiscal year ended March 31, 1997.
--------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the transition period from ____________ to _____________.
Commission file number 0-25242
-------------------------------------
PREMIER LASER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
California 33-0472684
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Morgan, Irvine, California 92618
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (714) 859-0656
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Class A Warrants, Class B Warrants, Units
(each comprised of one share of Class A Common Stock, one Class A
Warrant and one Class B Warrant)
-----------------------------------------------------------------
(Title of class)
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 or
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[_]
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. [_]
The aggregate market value of the registrant's voting stock held by
nonaffiliates was approximately $103,504,753 on May 19, 1997, based upon the
closing sale price of such stock.
Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date:
As of May 19, 1997:
Class A Common Stock: 9,260,671 Shares
Class E-1 Common Stock: 1,257,178 Shares
Class E-2 Common Stock: 1,257,178 Shares
Documents incorporated by reference. List hereunder the following documents
if incorporated by reference, and the part of the Form 10-K (e.g., Part I, Part
II, etc.) into which the document is incorporated: (1) any annual report to
security holders; (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933: None.
<PAGE>
The sole purpose of this Amendment No. 2 on Form 10-K/A is to file revised
financial information for the Registrant's fiscal year ended March 31, 1997 in
Items 6, 7, 8, and 14 hereof.
<PAGE>
PART II
3
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
(HISTORICAL)
The following table contains certain selected consolidated financial data of
the Company and is qualified by the more detailed financial statements and notes
thereto of the Company included herein. The balance sheet and statement of
operations data for the periods ended March 31, 1994, 1995 and 1996, as
well as statement of operations data for the nine months ended March 31, 1993,
have been derived from the Company's financial statements, audited by Price
Waterhouse LLP, independent accountants. The report of Price Waterhouse LLP with
respect to such financial statements contains an explanatory paragraph that
describes uncertainty as to the ability of the Company to continue as a going
concern. The selected financial data for the year ended March 31, 1997 was
derived from the Company's financial statements audited by Haskell & White LLP.
The following information should be read in conjunction with the Company's
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31, FISCAL YEAR ENDED MARCH 31,
--------------- ---------------------------------------------------------
1993(1) 1994 1995 1996 1997
(Restated)
--------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 1,527,457 $ 2,079,335 $ 1,249,403 $ 1,704,390 $ 5,090,861
Cost of sales.................................. 1,053,180 1,753,352 1,298,420 3,324,757 3,648,539
----------- ----------- ----------- ----------- -----------
Gross profit (loss)............................ 474,277 325,983 (49,017) (1,620,367) 1,442,322
Selling and marketing expenses................. 1,261,571 1,087,461 1,035,863 1,308,767 2,415,010
Research and development expenses.............. 647,810 678,279 1,035,705 1,213,471 1,563,228
General and administrative expenses............ 574,676 1,322,888 1,747,090 1,709,327 2,050,184
Write-off of investment in Mattan.............. -- -- -- -- 881,010
Termination of strategic alliance with IBC..... -- -- -- -- 331,740
In-process research and development acquired
in the Data.Site acquisition.................. -- -- -- -- 250,000
----------- ----------- ----------- ----------- -----------
Loss from operations........................... (2,009,780) (2,762,645) (3,867,675) (5,851,932) (6,048,850)
Minority interest in loss of
consolidated subsidiary....................... -- -- -- -- 60,000
Interest (expense) income...................... (201,697) (434,851) (322,540) 99,037 15,493
----------- ----------- ----------- ----------- -----------
Loss before extraordinary items................ (2,211,477) (3,197,496) (4,190,215) (5,752,895) (5,973,357)
Extraordinary gain from extinguishment of
indebtedness.................................. -- -- 381,730 -- --
----------- ----------- ----------- ----------- -----------
Net loss....................................... $(2,211,477) $(3,197,496) $(3,808,485) $(5,752,895) $(5,973,357)
=========== =========== =========== =========== ===========
</TABLE>
4
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<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, FISCAL YEAR ENDED MARCH 31,
-------------- ----------------------------------------------------
1997
1993(1) 1994 1995 1996 (Restated)
-------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Loss per share before extraordinary
item(2).................................. -- $ (2.45) $ (1.59) $ (1.26) $ (1.02)
Extraordinary gain from extinguishment of
indebtedness............................. -- .15
----------- ---------- ---------- ---------- ----------
Net loss per share........................ -- $ (2.45) $ (1.44) $ (1.26) $ (1.02)
=========== ========== ========== ========== ==========
Weighted average shares outstanding(3).... -- 1,288,751 2,584,722 4,556,959 5,833,326
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------
1993(1) 1994 1995 1996 1997
------------- ----------- ----------- ----------- ----------
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents(4)............. $ 308,764 $ 5,888,237 $ 35,463 $ 173,610
Working capital(4)....................... 1,287,587 6,756,149 5,818,492 7,575,616
Total assets(5).......................... 7,459,161 12,325,029 16,883,975 15,674,568 21,079,336
Long-term debt(5)........................ 1,564,507 4,303,890 -- -- 49,356
Shareholders' equity(4).................. 6,022,174 15,002,260 13,797,046 16,248,710
</TABLE>
- ------------------------------
(1) The Company changed its fiscal year end from June 30 to March 31, commencing
with the fiscal year ended March 31, 1993. Accordingly, the fiscal year
ended March 31, 1993 was a nine-month period.
(2) The effect on net loss per common share of the conversion of the Company's
debentures was to reduce historical net loss by $37,500 and $67,995 and to
increase weighted average shares outstanding by 76,875 shares and 321,099
shares for the fiscal years ended March 31, 1994 and 1995, respectively. Net
loss per common share was computed based on the weighted average number of
the Company's common shares outstanding during the fiscal years ended March
31, 1995 and 1994 after giving retroactive adjustment for recapitalization
and conversion of debentures into Units upon completion of the Company's
initial public offering.
(3) Does not include shares of Class E-1 or Class E-2 Common Stock, which are
subject to cancellation in certain circumstances.
(4) These amounts are unavailable at March 31, 1993.
(5) Total assets and long-term debt amounts at March 31, 1993 are unaudited.
Amounts for long-term debt at March 31, 1994 include $285,000 in mandatorily
redeemable warrants.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and related notes thereto appearing elsewhere in
this Report. This Report contains forward-looking statements including, without
limitation, statements concerning future cost of sales, which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements.
GENERAL
The Company develops, manufactures and markets several lines of proprietary
medical lasers, fiberoptic delivery systems and associated products for a
variety of dental, ophthalmic and surgical applications. The Company commenced
operations in August 1991, after acquiring substantially all of the assets of
Pfizer Laser Systems ("Pfizer Laser"), a division of Pfizer HPG which is a
wholly-owned subsidiary of Pfizer, Inc. The assets acquired by the Company
included the proprietary rights to a broad base of laser and fiberoptic
technologies developed by Pfizer Laser. This acquisition was led by the
Company's current Chief Executive Officer.
Since its formation and until its initial public offering in December 1994,
the Company principally focused on, and its research and development activities
related to, growing markets in dentistry, ophthalmology, cosmetic procedures and
certain surgical specialties to be used in surgical centers and medical offices.
To implement this strategy, the Company developed the Pegasus Nd:YAG dental
laser system from existing technology and introduced this laser to the dental
market in February 1992. In June 1993, the Company introduced the Centauri
Er:YAG laser for ophthalmology and initiated clinical trials for hard
5
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tissue procedures in dentistry. In December 1993, the Company acquired from
Proclosure certain technology, assets and proprietary rights relating to a 1.32
Nd:YAG laser system for tissue melding. From its formation in 1991 through its
initial public offering, the Company developed and received regulatory approvals
for 15 models of lasers and sold certain of those products for soft tissue
applications in dentistry and as part of clinical trials conducted by third
parties.
After the Company's initial public offering in December 1994 (the "IPO"),
the Company increased its inventory, acquired the distribution rights to two new
dental lasers and, in December 1995, expanded its dental sales force. In
September and November 1995, the Company acquired rights to market and
distribute the Arago and MOD argon lasers, respectively, for dental
applications, and in February 1996, the Company introduced and began shipping
its Aurora diode laser for soft tissue dental applications. The Company
completed a secondary offering in October 1996. In 1997, it formed a joint
venture named "Data.Site," with Kansas City-based Refractive Surgical Services
for the purposes of providing ophthalmic data collection and outcomes analysis.
In April 1997, the Company entered into an agreement to acquire EyeSys
Technologies, Inc., which is a leading developer and supplier of corneal
topography (diagnostic imaging) systems with an installed base of more than
3,500 systems worldwide. As of the date of this report, this transaction has not
yet been completed. No assurance can be given that the transactions contemplated
by such agreement will be consummated.
While the Company has received FDA clearance to market laser products
covering a variety of medical applications, to date the Company has focused its
research, development and marketing efforts on a limited number of products or
applications (principally specific dental and more recently, ophthalmic
applications). As future resources permit, the Company may introduce certain
products for applications for which it already has all necessary approvals or
may seek strategic alliances to develop, market and distribute such products.
The Company has recorded operating losses in each of the fiscal years since
its formation, resulting principally from substantial costs incurred in research
and development activities and obtaining regulatory approvals, together with the
absence of significant revenues to date and limited commercial sales of its
products.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1996
The Company's independent auditors unexpectedly resigned during May 1998 and
withdrew their opinion on the Company's fiscal year 1997 financial statements.
Accordingly, it became necessary to retain new auditors to re-examine the 1997
financial statements. Because of the extended period of time that had passed
since the issuance of the prior report, a number of matters were identified of
which the Company was not aware when it initially issued the 1997 financial
statements. Although the Company believes that the initially issued 1997
financial statements were not materially misstated in terms of net loss, total
assets and shareholders' equity, the statements have nonetheless been restated
in the interest of full disclosure. The following discussion is based upon the
restated amounts.
Net sales increased 199% to $5,091,000 for the year ended March 31, 1997
("fiscal 1997") from $1,704,000 for the year ended March 31, 1996 ("fiscal
1996"). This increase was primarily attributable to an increase in sales to the
dental market of the Aurora diode laser and argon lasers which were introduced
in the latter half of fiscal 1996. Ophthalmic sales also increased significantly
as the Er:YAG laser was purchased by key ophthalmic industry leaders in several
countries. Sales during the last two quarters of fiscal 1997 were adversely
affected by a disruption in the supply of the Company's Arago argon laser and
vendor supply problems with the MOD argon laser.
Cost of sales increased 10% to $3,649,000 in fiscal 1997 from $3,325,000 in
fiscal 1996, due to an increase in sales, offset by a write-down of $848,000
that was included in the fiscal 1996 amount (see Fiscal Year ended March 31,
1996 Compared to Fiscal Year ended March 31, 1995 below). Cost of sales as a
percentage of net sales decreased due to the fiscal 1996 write-down and reduced
material costs, manufacturing efficiencies, the ability to spread fixed indirect
costs over a larger revenue based, and favorable warranty experience.
Selling and marketing expenses increased 85% to $2,415,000 in fiscal 1997
from $1,309,000 in fiscal 1996. This increase was primarily attributable to
increased commissions and associated selling expenses, expenses associated with
attendance at two ophthalmic shows and from the consolidation of the Company's
expenses with those of Data.Site.
Research and development expenses increased 29% to $1,563,000 in fiscal 1997
from $1,213,000 in fiscal 1996. This increase resulted primarily from increases
in research and development personnel at the Company, partially offset by a
$450,000 payment received by the Company under a Small Business
6
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Innovative Research ("SBIR") grant. The Company also recognized $190,000 as a
research and development expense from the issuance of stock options to clinical
evaluators and medical directors.
General and administrative expenses increased 20% to $2,050,000 in fiscal
1997 from $1,709,000 in fiscal 1996. This increase was the combined result of
higher bad debts expense and additional expenses from the consolidation of
Data.Site.
Net interest income decreased to $15,000 in fiscal 1997 from $99,000 in
fiscal 1996. This reduction reflected the Company's limited cash balances prior
to the completion of its secondary offering in October 1996.
In fiscal 1997, the Company wrote off its investment in Mattan of $881,000
when the Mattan shares ceased being traded on the public market. In addition,
the Company expensed $250,000 of in-process research and development incurred in
connection with the formation of Data.Site. During fiscal year 1997 the Company
also wrote off $332,000 as a settlement of its joint marketing relationship with
International Biolaser Corporation ("IBC") since it is unlikely that IBC will
repay its debt to the Company.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1995
Net sales increased 36% to $1,704,000 in fiscal 1996 from $1,249,000 for the
year ended March 31, 1995 ("fiscal 1995"). This increase was primarily
attributable to an increase of $723,000 in sales to the dental market, related
principally to the introduction of three new products in the latter half of
fiscal 1996, the Aurora diode laser, the Arago argon laser and the MOD argon
laser. This increase was partially offset by a decrease in sales to the surgical
market of approximately $200,000, largely due to a decline in the demand for the
Company's 10 and 20 watt CO(2) lasers, which are nearing the end of their
product life cycle. The Company has recently experienced supply difficulties
with its Arago and MOD argon lasers.
Cost of sales increased 156% to $3,325,000 in fiscal 1996 from $1,298,000 in
fiscal 1995. This increase in the cost of sales was due primarily to (i) a
write-down of approximately $848,000 principally attributed to the Company's
CO(2) lasers and accessories obtained in the acquisition of Pfizer Laser, and
Nd:YAG lasers and accessories, which lasers were developed prior to March 31,
1992 and are nearing the end of their product life cycle, (ii) the
underabsorption of manufacturing costs due to low production volumes due in part
to the unavailability of certain key components which require long lead-times
for delivery, coupled with an increase in the number of manufacturing employees
during fiscal 1996 from 12 to 17 employees resulting in an increase in payroll
expense of approximately $280,000, and (iii) increased costs associated with
higher sales volumes in fiscal 1996. Cost of sales for fiscal 1996 also included
a fee of $122,000 to a third party pursuant to the Company's manufacturing
arrangement relating to the MOD argon laser.
Selling and marketing expenses increased 26% to $1,309,000 in fiscal 1996
from $1,036,000 in fiscal 1995. This increase was primarily attributable to
marketing efforts related to the Company's dental products, which included a
$219,000 expense related to the appointment of more than 25 new manufacturer's
representatives during the third quarter, and associated expenses including
training, promotional costs and commissions.
Research and development expenses increased 17% to $1,213,000 in fiscal 1996
from $1,036,000 in fiscal 1995. This increase resulted primarily from increases
in outside industrial and software design services of approximately $305,000,
and expenses of approximately $196,000 associated with the development of new
laser products. This increase was partially offset by a $175,000 reduction in
clinical studies expense, due to the completion of the Company's dental hard
tissue clinical trials and a $250,000 payment received by the Company under a
SBIR grant.
General and administrative expenses decreased 2% to $1,709,000 in fiscal
1996 from $1,747,000 in fiscal 1995. This decrease was the result of a reduction
of legal expenses associated with a supply agreement for optical fibers,
partially offset by increases associated with becoming a public company. In
1995, the Company incurred legal expenses of approximately $400,000 in
connection with the optical fiber supply agreement. Future legal
7
<PAGE>
expenses related to this litigation (not including out-of-pocket expenses) are
expected to be limited in accordance with the Company's agreement with its legal
counsel, although if the litigation is successful, counsel will be entitled to
certain contingency fees.
Net interest income increased to $99,000 in fiscal 1996 from net interest
expense of $323,000 on fiscal 1995, reflecting the investment of the Company's
remaining net proceeds from its IPO and the repayment in December 1994 of a
significant portion of the Company's outstanding debt. Net loss increased 51% to
$5,753,000 in fiscal 1996 from $3,808,000 in fiscal 1995. This increase was
principally attributable to increases in cost of sales, selling and marketing
expenses and research and development expenses.
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 and a secondary public offering in October 1996, revenues from
operations and the proceeds from an 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 surgical
sales force, the development of marketing programs and the acquisition and/or
licensing of patents.
At March 31, 1997, the Company had unrestricted cash and short-term
investments of $4,142,000 and its working capital was $8,018,000. This
represents an increase from March 31, 1996, when the Company had a minimal cash
balance. The increase in cash and short-term investments was the result of the
secondary offering of securities completed in October 1996.
At March 31, 1997, the Company's indebtedness consisted of a $800,000
balance on its Silicon Valley Bank line of credit, $57,000 in capital lease
obligations and $24,000 in a note payable.
The Company's credit facility with Silicon Valley Bank permits borrowings of
up to $1,000,000. Borrowings under the Credit Facility are secured by a
Certificate of Deposit pledged to Silicon Valley Bank by the Company pursuant to
a Pledge Agreement and bear an interest rate equal to the prime rate of
interest, as announced by Silicon Valley Bank, and are due and payable in
February 1998. As of March 31, 1997, total borrowings under this agreement were
$800,000. In connection with the Credit Facility, the Company issued to such
lender warrants to purchase up to 9,756 shares of the Company's Class A Common
Stock at an exercise price equal to $10.25 per share.
At March 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes totaling approximately $18,400,000 which will begin
to expire in fiscal 2006. The Tax Reform Act of 1986 includes provisions which
may limit the net operating loss carryforwards available for use in any given
year if certain events occur, including significant changes in stock ownership.
Utilization of the Company's net operating loss carryforwards to offset future
income may be limited.
From the end of fiscal 1997 through May 22, 1997, the Company has received
approximately $19,108,000 from the exercise of approximately 1,401,000 Class A
Warrants and approximately 1,251,000 Class B Warrants. As a result of such
exercises, the Company has issued an additional 1,401,000 Class B Warrants and
2,652,000 shares of Class A Common Stock.
The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development activities, the
scope and results of preclinical studies and clinical trials, the costs and
timing of regulatory approvals, the rate of technology advances by the Company,
competitive conditions within the medical laser industry, the establishment of
manufacturing capacity and the establishment of collaborative marketing and
other relationships which may either involve cash infusions to the Company, or
require additional cash from the Company. The Company's ability to meet its
working capital needs will be dependent on its ability to achieve a positive
cash flow from operations and profitable operations, in addition to its ability
to secure additional debt or equity financing. No assurance
8
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can be given that the Company will be able to achieve a positive cash flow from
operations, profitable operations or secure financing on acceptable terms.
GOVERNMENT GRANTS
The Company has been awarded a SBIR grant for approximately $750,000 for the
study of laser cataract emulsification. Substantially all of this grant has been
drawn for such purposes. The remainder of the grant can be drawn over the next
six months upon the achievement of specified criteria.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's financial statements, including notes thereto, at March 31,
1997 and 1996 and for the years ended March 31, 1997, 1996 and 1995 follow.
9
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Premier Laser Systems, Inc.
We have audited the accompanying consolidated balance sheet of Premier
Laser Systems, Inc. as of March 31, 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Note 2, the Company has restated it previously issued 1997
consolidated financial statements.
In our opinion, the 1997 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Premier Laser Systems, Inc. at March 31, 1997, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
HASKELL & WHITE LLP
Newport Beach, California
August 19, 1998
Except for Note 12
as to which the date is
August 26, 1998
10
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and the Shareholders of
Premier Laser Systems, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of Premier Laser Systems, Inc. at March 31,
1996, and the results of its operations and its cash flows for each of the two
years in the period ended March 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRICE WATERHOUSE LLP
Costa Mesa, California
May 17, 1996
11
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PREMIER LASER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
----------------------------
1997 1996
(Restated)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 173,610 $ 35,463
Short-term investments........................................................... 3,968,288 4,547,377
Restricted cash.................................................................. 1,050,000 --
Accounts receivable, net of an allowance for doubtful accounts of $613,623 and
$154,677 in 1997 and 1996, respectively......................................... 1,052,312 508,315
Inventories...................................................................... 3,284,632 2,185,355
Prepaid expenses and other current assets........................................ 774,319 419,504
------------ ------------
Total current assets.............................................................. 10,303,161 7,696,014
Property and equipment, net....................................................... 780,945 493,942
Intangible assets, net............................................................ 9,988,753 7,353,462
Other assets...................................................................... 6,477 131,150
------------ ------------
Total assets...................................................................... $ 21,079,336 $ 15,674,568
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 1,305,256 $ 1,208,219
Line of credit.................................................................... 800,000 --
Notes payable to Pfizer........................................................... -- 481,195
Accrued compensation and related costs............................................ 318,000 96,132
Other accrued liabilities......................................................... 272,369 91,976
Note payable and current portion of capital lease obligations..................... 31,920 --
------------ ------------
Total current liabilities......................................................... 2,727,545 1,877,522
Capital lease obligations, net of current portion................................. 49,356 --
Commitments and contingencies
Minority interest................................................................. 2,053,725 --
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--7,313,841 at March 31, 1997 and 4,702,203 at
March 31, 1996................................................................. 27,320,449 16,317,376
Common stock, Class E-1, no par value:
Authorized shares--2,200,000
Issued and outstanding shares--1,257,178 at March 31, 1997 and 1,256,818 at
March 31, 1996................................................................. 4,769,878 4,769,878
Common stock, Class E-2, no par value:
Authorized shares--2,200,000
Issued and outstanding shares--1,257,178 at March 31, 1997 and 1,256,818 at
March 31, 1996................................................................. 4,769,878 4,769,878
Warrants and options............................................................. 3,978,276 2,889,961
Unrealized holding gain on short-term investments................................ -- 3,666,367
Accumulated deficit.............................................................. (24,589,771) (18,616,414)
------------ ------------
Total shareholders' equity........................................................ 16,248,710 13,797,046
------------ ------------
Total liabilities and shareholders' equity........................................ $ 21,079,336 $ 15,674,568
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
12
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PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------------------
1997 1996 1995
(Restated)
------------- ------------- -------------
<S> <C> <C> <C>
Net sales....................................................... $ 5,090,861 $ 1,704,390 $ 1,249,403
Cost of sales................................................... 3,648,539 3,324,757 1,298,420
----------- ----------- -----------
Gross profit (loss)............................................. 1,442,322 (1,620,367) (49,017)
Selling and marketing expenses.................................. 2,415,010 1,308,767 1,035,863
Research and development expenses............................... 1,563,228 1,213,471 1,035,705
General and administrative expenses............................. 2,050,184 1,709,327 1,747,090
Write off of investment in Mattan Corporation................... 881,010 -- --
Termination of strategic alliance with IBC...................... 331,740 -- --
In-process research and development acquired in the Data.Site
acquisition.................................................... 250,000 -- --
----------- ----------- -----------
Loss from operations............................................ (6,048,850) (5,851,932) (3,867,675)
Minority interest in loss of consolidated
subsidiary..................................................... 60,000
Interest income (expense), net.................................. 15,493 99,037 (322,540)
----------- ----------- -----------
Loss before extraordinary item.................................. (5,973,357) (5,752,895) (4,190,215)
Extraordinary gain from extinguishment of indebtedness.......... -- -- 381,730
----------- ----------- -----------
Net loss........................................................ $(5,973,357) $(5,752,895) $(3,808,485)
=========== =========== -----------
Net loss per share.............................................. $ (1.02) $(1.26)
=========== ===========
Shares used in the computation of net loss per share............ 5,833,326 4,556,959
=========== ===========
Pro forma net loss per share (unaudited):
Loss before extraordinary items............................... $ (1.59)
Extraordinary gain from extinguishment of indebtedness........ 0.15
-----------
Net loss...................................................... $ (1.44)
===========
Shares used in computation of pro forma net loss per share...... 2,584,722
===========
</TABLE>
SEE ACCOMPANYING NOTES.
13
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK COMMON STOCK
CLASS A CLASS E-1 CLASS E-2
------------------------- ----------------------- ----------------------- CLASS A
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS
---------- ------------ ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994............. 1,432,636 $ 5,372,022 1,268,488 $4,756,528 1,268,488 $4,756,528 $ --
Exercise of common stock options..... 4,936 2,848 3,011 1,081 3,011 1,081 --
Common stock issued in lieu of
cash payments....................... 1,635 13,046 1,447 11,552 1,447 11,552 --
Common stock forfeited due to
cessation of employment............. (7,798) (20,124) (6,905) (17,818) (6,905) (17,818) --
Warrants issued in connection
with private placement units........ -- -- -- -- -- -- --
Repurchase of common stock........... (17,681) (6,910) (15,752) (6,119) (15,752) (6,119) --
Initial public offering of
units, net proceeds................. 2,400,000 7,633,504 -- -- -- -- 1,622,222
Conversion of warrants............... -- -- -- -- -- -- 186,000
Conversions of certain related
party notes and associated
accrued interest.................... 7,072 28,448 6,260 24,596 6,260 24,596 --
Conversion of debentures and
associated accrued interest......... 321,099 1,284,397 -- -- -- -- 272,934
Exercise of over-allotment option.... 360,000 1,128,947 -- -- -- -- 239,901
Net loss............................. -- -- -- -- -- -- --
--------- ----------- --------- ---------- --------- ---------- ----------
Balance at March 31, 1995............. 4,501,899 15,436,178 1,256,549 4,769,820 1,256,549 4,769,820 2,321,057
Common stock issued for investment
in Mattan........................... 200,000 881,010 -- -- -- -- --
Exercise of stock options............ 304 188 269 58 269 58 --
Increase in unrealized holding
gain on short-term investments...... -- -- -- -- -- -- --
Net loss............................. -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ---------- ----------
Balance at March 31, 1996............. 4,702,203 16,317,376 1,256,818 4,769,878 1,256,818 4,769,878 2,321,057
Common stock and B warrants
issued in connection with
secondary public offering........... 2,403,500 9,363,298 -- -- -- -- --
Common stock issued in connection
with the formation of the Data.Site
joint venture....................... 159,787 1,200,000 -- -- -- -- --
Exercise of stock options and
warrants............................ 48,351 249,774 360 -- 360 -- (25,729)
Stock options issued to Advisory
Board members, clinical evaluators
and medical directors............... -- 190,001 -- -- -- -- --
Decrease in unrealized holding
gain on short-term investments...... -- -- -- -- -- -- --
Net loss............................. -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ---------- ----------
Balance at March 31, 1997 (restated).. 7,313,841 $27,320,449 1,257,178 $ 4,769,878 1,257,178 $4,769,878 $2,295,328
========= =========== ========= =========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
COMMON UNREALIZED
CLASS B STOCK HOLDING ACCUMULATED
WARRANTS WARRANTS GAIN DEFICIT TOTAL
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994............. $ -- $ 192,130 $ -- $ (9,055,034) $ 6,022,174
Exercise of common stock options..... -- -- -- -- 5,010
Common stock issued in lieu of
cash payments....................... -- -- -- -- 36,150
Common stock forfeited due to
cessation of employment............. -- -- -- -- (55,760)
Warrants issued in connection with
private placement units............. -- 186,000 -- -- 186,000
Repurchase of common stock........... -- -- -- -- (19,148)
Initial public offering of units,
net proceeds........................ 286,274 -- -- -- 9,542,000
Conversion of warrants............... -- (186,000) -- -- --
Conversions of certain related
party notes and associated accrued
interest............................ -- -- -- -- 77,640
Conversion of debentures and
associated accrued interest......... 48,165 -- -- -- 1,605,496
Exercise of over-allotment option.... 42,335 -- -- -- 1,411,183
Net loss............................. -- -- -- (3,808,485) (3,808,485)
---------- ----------- ----------- ------------ -----------
Balance at March 31, 1995............. 376,774 192,130 -- (12,863,519) 15,002,260
Common stock issued for investment
in Mattan........................... -- -- -- -- 881,010
Exercise of stock options............ -- -- -- -- 304
Increase in unrealized holding
gain on short-term investments...... -- -- 3,666,367 -- 3,666,367
Net loss............................. -- -- -- (5,752,895) (5,752,895)
---------- ----------- ----------- ------------ -----------
Balance at March 31, 1996............. 376,774 192,130 3,666,367 (18,616,414) 13,797,046
Common stock and B warrants issued
in connection with secondary
public offering..................... 1,037,514 -- -- -- 10,400,812
Common stock issued in connection
with the formation of the
Data.Site joint venture............. -- -- -- -- 1,200,000
Exercise of stock options and
warrants............................ 76,530 -- -- -- 300,575
Stock options issued to Advisory
Board members, clinical evaluators
and medical directors............... -- -- -- -- 190,001
Decrease in unrealized holding gain
on short-term investments........... -- -- (3,666,367) -- (3,666,367)
Net loss (restated).................. -- -- -- (5,973,357) (5,973,357)
Balance at March 31, 1997 ---------- ----------- ----------- ------------ -----------
(restated)............................ $1,490,818 $ 192,130 $ -- $(24,589,771) $16,248,710
========== =========== =========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES.
14
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1997
(Restated) 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..................................................................... $(5,973,357) $ (5,752,895) $ (3,808,485)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................ 841,467 814,401 812,196
Write off of investment in Mattan Corporation............................ 881,010 -- --
Acquired in-process research and development............................. 250,000 -- --
Minority interest in loss of consolidated subsidiary..................... (60,000)
Stock options issued to Advisory Board members........................... 190,001 -- --
Termination of strategic alliance with IBC............................... 125,000 -- --
Issuance of stock and stock options in lieu of payment for services...... -- -- 36,150
Extraordinary gain from extinguishment of debt........................... -- -- (381,730)
Amortization of debt discount............................................ -- -- 119,230
Common stock forfeited upon cessation of employment...................... -- -- (55,760)
Changes in operating assets and liabilities:
Accounts receivable.................................................... (539,045) (244,467) 142,591
Inventories............................................................ (1,099,277) (14,665) (21,880)
Prepaid expenses and other current assets.............................. (342,438) (110,565) 137,224
Accounts payable....................................................... (184,769) 594,654 (411,197)
Accrued liabilities.................................................... 319,936 (598,847) 28,907
----------- ------------ ------------
Net cash used in operating activities........................................ (5,591,472) (5,312,384) (3,402,754)
----------- ------------ ------------
INVESTING ACTIVITIES
Purchase of short-term investments........................................... (3,968,288) -- --
Patent expenditures.......................................................... (178,139) (195,971) (204,838)
Acquisition of Data.Site..................................................... (96,028) -- --
Purchase of property and equipment........................................... (24,477) (219,723) (45,785)
Note receivable pursuant to strategic alliance with IBC...................... -- (125,000) --
----------- ------------ ------------
Net cash used in investing activities........................................ (4,266,932) (540,694) (250,623)
----------- ------------ ------------
FINANCING ACTIVITIES
Proceeds from equity offerings.............................................. 10,400,812 -- 10,958,193
Net borrowings under line of credit......................................... 800,000 -- --
Proceeds from exercise of stock options and warrants........................ 300,575 304 --
Principle payments on note payable and capital lease obligations............ (454,836) -- (3,126,195)
Increase in restricted cash................................................. (1,050,000) -- --
Proceeds from issuance of notes payable..................................... -- -- 1,519,000
Proceeds from issuance of common stock warrants............................. -- -- 186,000
Repurchase of common stock.................................................. -- -- (19,148)
Repurchase of mandatorily redeemable warrants............................... -- -- (285,000)
----------- ------------ ------------
Net cash provided by financing activities................................... 9,996,551 304 9,232,850
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents........................ 138,147 (5,852,774) 5,579,473
Cash and cash equivalents at beginning of year.............................. 35,463 5,888,237 308,764
----------- ------------ ------------
Cash and cash equivalents at end of year.................................... $ 173,610 $ 35,463 $ 5,888,237
=========== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest...................................................... $ 115,283 $ 52,129 $ 550,962
</TABLE>
SEE ACCOMPANYING NOTES.
15
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. ORGANIZATION AND NATURE OF OPERATIONS
Premier Laser Systems, Inc. (the Company) was incorporated in July 1991 and
commenced operations in August 1991 after acquiring substantially all of the
assets and certain liabilities of Pfizer Laser Systems (Pfizer), a division of
Pfizer Hospital Products Group, Inc. The Company designs, develops, manufactures
and markets several lines of lasers for surgical and other medical purposes,
laser waveguides and fiber optic devices, disposables and associated accessory
products for the medical and dental market. The accompanying consolidated
financial statements include the accounts of the Company and its 51% owned
subsidiary Data.Site, LLC which is a joint venture established on January 31,
1997. All intercompany transactions and balances have been eliminated.
The Company has suffered recurring losses from operations and may continue
to incur losses for the foreseeable future due to the significant costs
anticipated to be incurred in connection with manufacturing, marketing and
distributing its laser products. In addition, the Company intends to conduct
continuing research and development activities, including regulatory submittals
and clinical trials to develop additional applications for its laser technology.
The Company operates in a highly competitive environment and is subject to all
of the risks inherent in a new business enterprise. In October 1996, the Company
completed a public offering of its securities which generated net proceeds
aggregating $10.4 million. The Company believes that the proceeds of this
offering and anticipated proceeds from the exercise of outstanding warrants and
options to acquire the Company's Class A common stock will be sufficient to meet
its working capital requirements through at least fiscal 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESTATEMENT OF AMOUNTS PREVIOUSLY REPORTED
The Company's independent auditors unexpectedly resigned during May 1998
and withdrew their opinion on the Company's fiscal year 1997 financial
statements. Accordingly, it became necessary to retain new auditors to
re-examine the 1997 financial statements. Because of the extended period of time
that had passed since the initial report was issued, a number of matters were
identified of which the Company was not aware when it initially issued the 1997
financial statements. Although the Company believes that the initially issued
1997 financial statements were not materially misstated in terms of net loss,
total assets and shareholders' equity, the statements have nonetheless been
restated in the interest of full disclosure.
The following is a summary of the impact of the restatement on the 1997
consolidated statement of operations:
<TABLE>
<S> <C>
1. Reduction of previously reported sales, net of
related cost of sales $(280,000)
2. Revision to inventory valuation allowances 160,000
3. Additional bad debts expense (314,000)
4. Minority interest in loss of consolidated subsidiary 60,000
5. Other, net (9,000)
---------
Net increase in 1997 loss $(383,000)
=========
</TABLE>
The effects on the Company's previously issued 1997 financial statements
are summarized as follows:
<TABLE>
<CAPTION>
Previously Increase
Reported (Decrease) Restated
----------- ---------- -----------
<S> <C> <C> <C>
Consolidated balance sheet as of March 31, 1997:
Current assets $10,658,161 $ (355,000) $10,303,161
Other assets 8,662,450 2,113,725 10,776,175
----------- ---------- -----------
Total assets $19,320,611 $1,758,725 $21,079,336
=========== ========== ===========
Current liabilities $ 2,639,545 $ 88,000 $ 2,727,545
Capital lease obligations,
net of current portion 49,536 -- 49,536
Minority interest -- 2,053,725 2,053,725
Net shareholders' equity 16,631,710 (383,000) 16,248,710
----------- ---------- -----------
Total liabilities and shareholders' equity $19,320,611 $1,758,725 $21,079,336
=========== ========== ===========
Consolidated Statement of Operations
Net sales $ 5,530,861 $ (440,000) $ 5,090,861
Cost of sales 3,968,539 (320,000) 3,648,539
----------- ---------- -----------
Gross profit 1,562,322 (120,000) 1,442,322
Selling and marketing expenses 2,406,010 9,000 2,415,010
General and administrative expenses 1,736,184 314,000 2,050,184
All other expenses 3,025,978 -- 3,025,978
----------- ---------- -----------
Loss from operations (5,605,850) (443,000) (6,048,850)
Interest income, net 15,493 -- 15,493
Minority interest in loss of consolidated
subsidiary -- 60,000 60,000
----------- ---------- -----------
Net loss $(5,590,357) $ (383,000) $(5,973,357)
=========== ========== ===========
Net loss per share $ (0.96) $ (0.07) $ (1.02)
=========== ========== ===========
</TABLE>
REVENUE RECOGNITION
Revenues are recognized when products are shipped to customers. Allowances
for returns are provided based upon actual experience and identified risks.
SHORT-TERM INVESTMENTS AND RESTRICTED CASH
The Company invests excess cash in United States Treasury securities and
commercial paper generally with maturities of less than one year. Short-term
investments with a maturity of less than three months when purchased are
classified as cash equivalents. Investments with maturities in excess of three
months are presented as short-term investments in the accompanying financial
statements. Pursuant to Statement of Financial Accounting Standards No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, the Company's
short-term investments are classified as available-for-sale and are reported at
fair market value with unrealized gains and losses reflected as an adjustment to
shareholders' equity. There were no material unrealized gains or losses at March
31, 1997.
Restricted cash consists of certificates of deposits held to secure
borrowings under the Company's line of credit, and is classified as a current
asset since it is collateral for a current liability.
CONCENTRATION OF CREDIT RISK AND FOREIGN SALES
The Company generates revenues principally from sales in the medical field.
As a result, the Company's accounts receivable are concentrated primarily in
this industry. In addition, sales to one customer represented 10% of the
Company's sales in fiscal 1996 and 11% to a different customer in fiscal 1995.
Sales in foreign countries accounted for approximately 25%, 40% and 63% of the
Company's total sales in fiscal 1997, 1996 and 1995, respectively. These foreign
sales related almost entirely to sales in Asia and Europe.
16
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Generally, letters of credit are obtained
on international sales. The Company maintains reserves for potential credit
losses.
LONG LIVED ASSETS
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS No. 121). The adoption of SFAS No. 121
had no impact on the Company's financial position or results of operations.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market, and are comprised of the following at March 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---------- ----------
Raw materials................................. $1,583,460 $ 938,560
Work-in-progress.............................. 101,802 276,998
Finished goods................................ 1,599,370 969,797
---------- ----------
$3,284,632 $2,185,355
========== ==========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for replacements
and improvements are capitalized and expenditures for repairs and maintenance
are charged to operating expense as incurred.
Property and equipment consist of the following at March 31:
1997 1996
---------- ----------
Machinery, equipment, molds and tooling....... $1,041,574 $1,032,188
Furniture, fixtures and office equipment...... 596,347 433,286
Software...................................... 250,000 --
---------- ----------
1,887,921 1,465,474
Less accumulated depreciation................. (1,106,976) (971,532)
---------- ----------
$ 780,945 $ 493,942
========== ==========
Depreciation of furniture, machinery and equipment is calculated on a
straight-line basis over the following estimated useful lives:
Machinery and equipment....................... 5-10 years
Furniture and fixtures........................ 10 years
Software...................................... 3 years
Leasehold improvements........................ Shorter of estimated useful
life or term of lease
INTANGIBLE ASSETS
Intangible assets consist primarily of patents and technology rights,
goodwill and license agreements. The costs assigned to acquired intangible
assets, partially based upon independent appraisals, are being amortized on a
straight-line basis over the estimated useful lives of the assets ranging from 2
to 15 years.
17
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangibles consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Patents and technology rights............. $ 9,581,230 $9,413,088
Goodwill.................................. 3,156,004 --
License agreements........................ 265,000 255,000
Other..................................... -- 201,000
----------- ----------
13,002,234 9,869,088
Less accumulated amortization............. (3,013,481) (2,515,626)
----------- ----------
$ 9,988,753 $7,353,462
=========== ==========
</TABLE>
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. A substantial
portion of the Company's research and development expense is related to
developing new products, improving existing products or processes, and clinical
research programs.
The Company enters into agreements with certain doctors to exchange a
portion of a product's sales price for services related to the completion of
certain portions of clinical studies necessary for obtaining product approval
from the U.S. Food and Drug Administration. Typically, the amounts consist of a
portion of the product sales price which is equal to the cost of the services to
be rendered by the doctor. Pursuant to the agreements, in the event the doctor
is unable to complete the agreed upon clinical study, the doctor is required to
remit a cash payment for the entire amount. The amounts are capitalized as
prepaid research and development expense and are amortized upon completion of
certain milestones of the clinical study. These studies are generally completed
within one year. Clinical testing expenses included in prepaid expenses totaled
$405,000 and $204,000 at March 31, 1997 and 1996, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with statement of
Statement of Financial Accounting Standards No. 109 (SFAS No. 109), ACCOUNTING
FOR INCOME TAXES. SFAS 109 requires the liability method of accounting for
income taxes. This method mandates the recognition of deferred tax liabilities
and assets for expected future tax consequences of temporary differences between
the carrying amounts and tax bases of assets and liabilities.
STATEMENTS OF CASH FLOWS
The Company invests its excess cash in money market funds. The Company
considers all highly liquid investments with an original maturity of three
months or less and money market funds to be cash equivalents.
Significant noncash investing and financing activities excluded from the
accompanying statements of cash flows are as follows:
In fiscal 1996, the Company issued 200,000 shares of Class A common stock
in connection with the acquisition of 1,150,000 shares of Mattan
Corporation's common stock. The value of the Mattan Corporation common
stock shares was $881,010 on the date of the transaction.
Concurrent with the completion of the Company's initial public offering,
certain notes payable to shareholders totaling $66,500 and convertible
debentures totaling $1,500,000, plus related accrued
18
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interest, were converted into 7,072 shares of Class A common stock and
6,260 shares of each Class E-1 and E-2 common stock, and 321,099 Units,
respectively.
In fiscal 1997, the Company issued 159,787 shares of Class A common stock
valued at $1,200,000 in connection with its acquisition of Data.Site.
NET LOSS PER SHARE
Net loss per share was computed based on the weighted average number of the
Company's common shares outstanding during fiscal 1997 and 1996 and excludes all
shares of Class E-1 and Class E-2 common stock, outstanding or subject to
option, because all such shares of stock are subject to escrow and the
conditions for the release of shares from escrow have not been satisfied. Common
stock equivalents were not considered in the net loss per share calculation
because the effect would be antidilutive.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per common share was computed based on the weighted
average number of the Company's common shares outstanding during the fiscal year
ended March 31, 1995 after giving retroactive adjustment for the
recapitalization and the conversion of the Company's debentures into units which
occurred upon completion of the Company's initial public offering. The effect on
pro forma net loss per common share of the conversion of the Company's
debentures was to reduce historical net loss by $67,995 and to increase weighted
average shares outstanding by 321,099 shares for fiscal year ended March 31,
1995. Class E-1 and E-2 common stock shares were excluded from the pro forma net
loss per share calculation because the conditions for release of shares from
escrow have not been satisfied. Other common stock equivalents were not
considered in the pro forma net loss per share calculation because the effect on
the pro forma net loss per share would be antidilutive. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, all stock options and
warrants granted and common shares issued within one year of the Company's
initial public offering and not in escrow have been included as outstanding for
the six months ended September 30, 1994 (the date of the most recent financial
statements included in the Company's initial public offering prospectus) using
the treasury stock method.
EARNINGS PER SHARE
In February 1997, Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE was issued and is effective for interim and annual periods
ending after December 15, 1997. The statement requires presentation of both
basic and diluted earnings per share. As a result of the Company's net loss,
basic and diluted loss per share will not differ materially from the per share
amounts in the accompanying financial statements.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
Interpretations in accounting for its employee stock option grants. Options
granted to consultants and other non-employees are accounted for under the fair
value method in accordance with Statement of Financial Accounting Standards No
123, ACCOUNTING FOR STOCK BASED COMPENSATION.
19
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Significant estimates and assumptions include inventory valuation and the
realizability of certain intangible assets. The Company's inventory and
intangibles largely relate to technologies which have yet to gain wide spread
market acceptance. Management believes no loss will be incurred on the
disposition of its inventory and that the remaining economic life of the
Company's tangible assets is reasonable. If wide spread market acceptance of the
Company's products is not achieved, the carrying amount of inventory and
intangible assets could be materially affected.
BASIS OF PRESENTATION
Certain prior year amounts have been reclassified in order to conform with
the current year presentation.
3. STRATEGIC ALLIANCES
In December 1995, the Company entered into a strategic marketing alliance
with Mattan Corporation (Mattan), a Canadian Corporation, whose stock was
publicly traded on the Alberta Stock Exchange. The strategic marketing alliance
agreement (the Agreement) stipulates that the Company would supply all laser
equipment and associated disposables for any laser surgery centers to be
designed and opened by Mattan in Canada and the United States. These surgery
centers would be operated under the name of Medical Laser Institute of America
(MLIA). In connection with entering into the Agreement, the Company issued
200,000 shares of the Company's Class A common stock with a fair market value of
$881,000 for 1,150,000 shares of Mattan's common stock. The Company accounted
for this investment as an available-for-sale security pursuant to SFAS No. 115.
At March 31, 1996, the fair value of this investment totaled approximately
$4,547,377 and the related unrealized holding gain totaled approximately
$3,666,367. As a result of the halting of trading of Mattan stock and ongoing
reorganization activities, the fair market value of the investment was zero at
March 31, 1997 and accordingly, the Company wrote off its investment.
In October 1995, the Company entered into a strategic business alliance
(Strategic Alliance) with International Biolaser Corporation (IBC). This
Strategic Alliance specified that the Company would manufacture IBC's CO2 and
argon lasers and that such products would be jointly marketed by the two
companies. Pursuant to the agreement, the Company advanced $125,000 to IBC in
exchange for a convertible note payable due in October 1997, bearing interest at
10% per annum and secured by substantially all of IBC's intangible assets. This
note payable is convertible, at the Company's sole option, into an 80% ownership
interest in IBC only after IBC has repaid certain pre-existing indebtedness. IBC
and the Company terminated the Strategic Alliance in August 1996. In settlement
of the Strategic Alliance, the Company obtained IBC's argon MOD laser
proprietary rights, intellectual property and technology in exchange for a
guaranty of $201,000 of IBC's outstanding indebtedness. As of March 31, 1997,
the Company wrote-off the $331,740 carrying value of its advances and payments
made under the guarantee on behalf of IBC due to the uncertainty regarding its
realizability.
20
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS ACQUISITION
Effective January 31, 1997, the Company entered into a joint venture with
Refractive Surgical Services, LLC (RSS), a Kansas City based company engaged in
the development of certain medical outcomes software. Under this joint venture,
the Company and RSS formed Data.Site. LLC, ("Data.Site"). Data.Site acquired and
assumed substantially all of the assets and liabilities of RSS. The Company
acquired a 51 percent interest in Data.Site, which was accounted for under the
purchase method of accounting, and issued 159,787 shares of its Class A common
stock to RSS. In connection with the acquisition the Company recorded goodwill
in the amount of $2,893,179 and a minority interest of $2,113,725. The Company
was obligated to pay an additional $300,000 to the shareholders of RSS in the
form of common stock or cash, at the option of the Company, if Data.Site's gross
revenues equal or exceed $1,500,000 for the year ending December 31, 1997. Such
obligation has been cancelled, since revenues did not exceed $1,500,000. The
Company is obligated during the two-year period ending January 31, 1999 to fund
Data.Site's operations with up to an additional $1,000,000 in cash or equivalent
services.
The following unaudited pro forma consolidated results of operations give
effect to the Data.Site formation as if it had occurred at the beginning of
fiscal 1997:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Net sales....................... $ 5,482,000
Net loss........................ (6,482,000)
Net loss per share.............. $ (1.09)
</TABLE>
The unaudited pro forma information is not necessarily indicative of the
combined results of operations that would have occurred during the periods
presented nor for future results of operations.
5. GRANTS
In September 1995, the Company obtained a Small Business Innovative
Research Grant totaling approximately $750,000 for the study of laser
emulsification. Pursuant to the terms of the grant, the Company is eligible to
receive reimbursement for research and development costs incurred in connection
with the laser emulsification study up to $750,000 upon the achievement of
certain milestones, as defined. During fiscal 1997 and 1996, the Company
received approximately $450,000 and $250,000 under the grants, respectively. The
amounts received under the grant were offset against research and development
costs incurred in the study.
6. LINE OF CREDIT
The Company has a line of credit agreement with a bank which provides for
borrowings of up to $1,000,000. As of March 31, 1997, total borrowings under
this agreement were $800,000, bearing interest at the bank's prime rate (8.50%
at March 31, 1997). Borrowings under the agreement are secured by a certificate
of deposit. The agreement matures on February 12, 1998.
7. NOTES PAYABLE AND EXTRAORDINARY GAIN
Pursuant to an agreement between the Company and Pfizer, the Company paid
$1,386,195 of the notes payable to Pfizer immediately subsequent to the closing
of the Company's fiscal 1995 initial public offering and Pfizer forgave $650,000
of the total indebtedness. The remaining balance of $481,195, bearing interest
at 10% per annum at March 31, 1996, and related accrued interest were payable in
quarterly installments. This remaining balance was paid in full upon the closing
of the Company's fiscal 1997 public offering.
In June 1994, notes payable to third parties of $1,500,000 were converted
into convertible debentures. The debentures and related accrued interest were
converted into 321,099 Units (see footnote 10) concurrent with the closing of
the initial public offering. Also concurrent with the close of the offering,
notes payable to shareholders totaling $66,500 plus related accrued interest
were converted into 7,072 shares of Class A Common Stock and 6,260 shares each
of Class E-1 and E-2 common stock.
In August 1994, the Company completed a private placement of debt units,
whereby $1,550,000 of notes payable bearing interest at 10% per annum (the
Bridge Notes) and warrants to purchase 1,085,000 shares of Class A common stock
were issued. In connection with this private placement, the Company incurred
placement costs of $201,500 and issued the notes at a discount totaling
$186,000. These notes payable were paid in full in December 1994.
21
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the debt forgiven by Pfizer and the extinguishment of
the bridge notes, the Company recognized a net extraordinary gain on
extinguishment of debt totaling $381,730 in fiscal 1995.
8. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases its facilities and certain equipment under
noncancellable operating leases. Total rental expense for operating leases was
$296,000, $348,000 and $387,000 for the fiscal years ended March 31, 1997, 1996
and 1995, respectively. At March 31, 1997, future minimum lease payments under
noncancellable operating leases are as follows:
1998.............................................................. $ 257,000
1999.............................................................. 258,000
2000.............................................................. 249,000
2001.............................................................. 188,000
---------
$ 952,000
=========
Pursuant to the Company's facility lease, effective January 1997, the
Company becomes guarantor of a lease agreement between the Company's lessor and
a third party lessee. The guaranteed future minimum lease payments relating to
the third party are $112,000, and $86,000 for the years ended March 31, 1998 and
1999, respectively.
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 fiberoptics 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 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.
22
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is involved in various disputes and other lawsuits from time to
time arising from its normal operations. The litigation process is inherently
uncertain and it is possible that the resolution of the IFS litigation, disputes
and other lawsuits may adversely affect the Company, however, it is the opinion
of management, that the outcome of such matters will not have a material adverse
impact on the Company's financial position, results of operations, or cash
flows.
9. INCOME TAXES
The Company has incurred operating losses since its inception and as a
result, no provision for or benefit from income tax has been recorded.
Deferred tax assets consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Tax operating loss carryforwards.......................... $ 7,116,277 $ 6,033,150
Inventory and receivable reserves and related temporary
differences.............................................. 1,115,696 708,404
Depreciation and amortization............................. 705,293 141,077
Research and development credit carryforwards............. 349,494 597,683
Accruals not currently deductible......................... 70,687 105,767
----------- -----------
Total deferred tax assets................................. 9,357,447 7,586,081
Valuation allowance for deferred tax assets............... (9,357,447) (7,586,081)
----------- -----------
Net deferred taxes........................................ $ -- $ --
=========== ===========
</TABLE>
The Company has approximately $20.4 million of federal net operating loss
carryforwards at March 31, 1997, which will begin to expire in 2006. A valuation
allowance has been established for the entire deferred tax asset.
The Tax Reform Act of 1986 contains provisions which could substantially
limit the availability of the net operating loss carryforwards if there is a
greater than 50% change in ownership during a three year period. As a result of
the Company's public offerings the Company experienced an ownership change of
more than 50%, resulting in a limitation on the utilization of their net
operating loss carryforwards. The limitation is based on the value of the
Company on the date that the change in ownership occurred. The ultimate
realization of the loss carryforwards is dependent on the future profitability
of the Company.
10. SHAREHOLDERS' EQUITY
INITIAL AND SECONDARY PUBLIC OFFERINGS
On December 7, 1994, the Company completed an initial public offering of
2,400,000 Units of the Company's securities, each unit consisting of one share
of Class A common stock, one redeemable Class A warrant and one redeemable Class
B warrant (the Units). The Company realized net proceeds of $9,542,000 from this
offering. Each Class A warrant consists of the right to purchase one share of
Class A common stock and one Class B warrant through November 30, 1999 at an
exercise price of $6.50. Each Class B warrant consists of the right to purchase
one share of Class A common stock at an exercise price of $8.00. The Company has
the right to redeem the Class A and Class B warrants after November 30, 1997 at
a price of $.05 per warrant subject to certain conditions regarding the bid
price of the Class A common
23
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
stock. On January 12, 1995, the underwriter in the initial public offering
exercised its over allotment option to purchase 360,000 Units at the public
offering price, resulting in additional net proceeds of $1,411,000.
On October 18, 1996, the Company completed a public offering of 11,000
Units of the Company's securities, each Unit consisting of 190 shares of Class A
common stock and 95 redeemable Class B warrants (the "Units"). The Company
realized net proceeds of $10,402,000 from this offering and the related exercise
of the underwriters overallotment option. Each Class B warrant consists of the
right to purchase one share of Class A common stock through November 30, 1999 at
an exercise price of $8.00.
STOCK OPTIONS
The Company has adopted several stock option plans that authorize the
granting of options to employees, officers and/or consultants to purchase shares
of the Company's Class A common stock. The stock option plans are administered
by the Board of Directors or a committee appointed by the Board of Directors,
which determines the terms of the options, including the exercise price, the
number of shares subject to option and the exercisability of the option. The
options are generally granted at the fair market value of the shares underlying
the options at the date of the grant and expire within ten years of the grant
date.
In addition to options granted pursuant to the stock option plans, the
Company has issued options to purchase shares of the Company's Class A common
stock to certain members of the Board of Directors, consultants and former notes
payable holders.
Effective December 30, 1993, the Company issued warrants under the 1993
Limited Warrant Plan to purchase 50,872 shares of common stock, with an exercise
price of $8.85 per share for services rendered by consultants in connection with
the acquisition of technology rights. In January 1995, the warrant holders
exercised their right to receive a cash payment of $285,000, an amount equal to
the liability owed to the consultants on the date of issuance, in exchange for
cancellation of the warrants.
The Company has elected to follow APB Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related Interpretations in accounting for its employee
stock option grants. Accordingly, no compensation expense has been recognized
for its employee stock option awards and its employee stock purchase plan
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant. The Company recognized
expense related to grants of options to non-employees in accordance with the
fair value provision of SFAS No. 123. Such expense was $190,001 and none during
fiscal 1997 and 1996, respectively. FASB Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, requires pro forma information regarding net income
(loss) and net income (loss) per share using compensation that would have been
incurred if the Company had accounted for its employee stock options under the
fair value method of that Statement. The fair value of options granted have been
estimated at the date of grant using a Black-Scholes option pricing model using
the following assumptions:
Risk free interest rate.......................................... 6.0%
Stock volatility factor.......................................... 0.580
Weighted average expected option life............................ 4 years
Expected dividend yield.......................................... 0%
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
compensation expense used in determining the pro forma
24
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
information ($974,469 and $367,490 for fiscal years 1997 and 1996, respectively)
may not be indicative of such expense in future periods as the 1997 and 1996
amounts are based only on option grants after December 15, 1994. Pro forma
information is as follows:
1997 1996
-------------- --------------
Pro forma net loss...................... $ (6,947,826) $ (6,135,000)
Pro forma net loss per share........... $ (1.19) $ (1.35)
A summary of the Company's stock option activity, and related information
for the years ended March 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- --------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year........... 1,423,949 $ 5.58 788,157 $ 6.14 734,646 $ 9.14
Granted.................................. 1,042,756 6.16 704,700 4.89 621,815 5.01
Exercised................................ (1,899) 1.00 (1,722) 1.00 (3,067) 1.03
Forfeited................................ (156,757) 10.53 (67,186) 4.96 (565,237) 8.81
---------- ------- ---------- ------- --------- ---------
Outstanding--end of year................. 2,308,049 5.51 1,423,949 5.58 788,157 6.14
========== ======= ========== ======= ========= =========
Exercisable at end of year............... 775,629 $ 5.18 782,999 $ 6.15 758,157 $ 6.19
========== ======= ========== ======= ========= =========
Weighted-average fair value of options
granted during the year................. $ 2.98 $ 2.46 $ 2.53
======= ======= =========
</TABLE>
The weighted average remaining contractual life of options as of March 31,
1997 was as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------- ------------------------
NUMBER OF WEIGHTED-AVERAGE WEIGHTED AVERAGE
SHARES REMAINING CONTRACTUAL AVERAGE SHARES EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
- ------------------------ ----------------- --------------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00...................... 28,438 1.7 $ 1.00 28,438 $ 1.00
$4.50 - $8.85.............. 2,255,921 9.0 5.51 723,501 5.16
Greater than $10.00........ 23,690 6.8 10.73 23,690 10.73
</TABLE>
CLASS E-1 AND CLASS E-2 COMMON STOCK
The Company's Class E-1 and Class E-2 common stock is held in escrow, is
not transferable, can be voted and will be converted into Class A common stock
only upon the occurrence of specified events. 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,
$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 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
addition, the Class E-1 common stock will be converted if the closing price, as
defined, of the Company's Class A common stock shall average in excess of $19.25
for any 30 consecutive trading
25
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
days during the period May 1, 1996 to November 30, 1997. If none of the above
events occur, the Class E-1 common stock will be canceled on June 30, 2000. All
of the Class E-2 common stock will be automatically converted into Class A
common stock in the event that: (1) the Company's net income before provision
for income taxes, as defined, amounts to at least $14,750,000, $20,475,000 or
$26,750,000 for the years ending March 31, 1998 through 2000, respectively,
(which amounts shall be adjusted in the same manner as those for the Class E-1
common stock) or (2) the closing price, as defined, of the Company's Class A
common stock shall average in excess of $24.00 for any 30 consecutive trading
days during the period May 1, 1996 to November 30, 1997. If none of the above
events occur, the Class E-2 common stock will be canceled on June 30, 2000.
The Company will, in the event of the release of the Class E-1 and Class E-2
common stock, recognize during the period in which the earnings thresholds are
met or such minimum bid prices are achieved, a substantial noncash charge to
earnings equal to the fair value of such shares on the date of their release,
which would have the effect of significantly increasing the Company's loss or
reducing or eliminating earnings, if any, at such time.
11. EMPLOYEE BENEFIT PLAN
The Company adopted a Defined Contribution 401(k) Profit Sharing Plan,
effective January 1, 1997 covering substantially all of its employees. The Plan
permits eligible employees to contribute a portion of their compensation to the
Plan, on a tax deferred basis. The Company may make matching contributions, in
amounts determined by the Company's Board of Directors. The Company's
contributions will be in the form of shares of the Company's common stock.
During 1997, no amounts were contributed by the Company to the Plan.
12. SUBSEQUENT EVENTS
ACQUISITION OF EYESYS TECHNOLOGIES, INC.
On September 30, 1997, the Company acquired all of the equity interests of
EyeSys Technologies, Inc. (EyeSys), a manufacturer and distributor of a
specialized line of diagnostic opthalmic equipment, for approximately $12.5
million, in the form of 1,236,668 shares of the Company's common stock
(including 319,684 being held in an escrow account pending the outcome of
certain warranties to be determined at the end of 12 and 18 months), and
$470,000 in cash. 216,761 of the escrowed shares have been excluded from the
determination of the purchase price. If and when they are released, the
allocation of the adjusted purchase price will be re-assessed. Options to
purchase 210,000 shares of the Company's common stock were also issued in
connection with the acquisition. These options were valued in accordance with
SFAS 123 and included in the acquisition cost. The acquisition was accounted
for as a purchase and the total acquisition cost allocated among net liabilities
assumed ($2,183,429), intangibles ($2,600,000), and in process research and
development ($9,200,000). Merger related and integration expenses ($2,147,224)
were also recorded as of the acquisition date. EyeSys has been consolidated
commencing with the acquisition date. Goodwill arising from the acquisition
($2,298,784) was written-off due to uncertainty as to its recoverability.
ACQUISITION OF CONTROLLING INTEREST IN OPHTHALMIC IMAGING SYSTEMS, INC.
During the final four months of fiscal 1998 the Company acquired a
controlling interest in Ophthalmic Imaging Systems ("OIS") for $3.3
million in cash. OIS is engaged in the business of designing, developing,
manufacturing and marketing digital imaging systems and image enhancement and
analysis software for use by practitioners in the ocular health field. Equity
accounting was used during the period in which the Company owned at least 20%
but less than 50% of the OIS stock (December 1997 through February 1998).
Commencing with the date at which the controlling interest was obtained (late
February 1998), OIS has been consolidated with the Company in the accompanying
financial statements. The OISI acquisition has been accounted for as a purchase
and the total acquisition cost allocated among net liabilities of OIS
($996,835), intangibles ($1,687,407) and in process research and development
($2,600,000). Merger related and integration expenses of $1,687,407 were also
recorded as of the date at which the controlling interest was obtained. The
Company is in the process of negotiating an agreement for the purchase of the
minority interests of OIS.
Premier entered into a Stock Purchase Agreement, dated February 25, 1998,
pursuant to which it agreed, subject to certain conditions, to commence an
exchange offer to acquire all of the outstanding common stock of OIS not owned
by Premier. This Stock Purchase Agreement was terminated as of August 21, 1998.
In connection with this termination, Premier may be liable to pay OIS a $500,000
break-up fee, which could be satisfied by the reduction of indebtedness of OIS
to Premier which arose after March 31, 1998. In addition, in purchasing 51% of
OIS' outstanding stock, Premier entered into an agreement with one of OIS'
selling shareholders which contemplates that Premier's purchase of approximately
10% of OIS' outstanding shares will be rescinded if Premier does not complete
the exchange offer. If the rescission is implemented, Premier will own less
than a majority of the outstanding shares of OIS and would no longer include
the financial performance of OIS on a consolidated basis. In addition, as part
of the rescission, Premier would receive approximately $730,000 in cash. The
parties are currently negotiating various issues relating to the termination of
the Purchase Agreement and their future business relationship.
During fiscal 1998 three other business acquisitions occurred, which were
not individually or collectively significant to the financial condition or
operating results of the Company.
EXERCISE OF OPTIONS AND WARRANTS
During fiscal 1998, the Company received approximately $41,735,000 from the
exercise of options and warrants. As a result of such exercises, the Company
issued an additional 4,176,000 Class B Warrants and 6,270,000 shares of Class A
Common Stock.
LITIGATION INITIATED AFTER YEAR END
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 facts. 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.
26
<PAGE>
PREMIER LASER SYSTEMS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1997 (RESTATED), 1996 AND 1995
<TABLE>
<CAPTION>
Balance at Deductions/ Balance
beginning of Recoveries at end of
Description period Additions and Write-offs Other* period
- ----------- ------------ ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
1997 (Restated)
Allowance for doubtful accounts
receivable...................... $154,677 $403,515 $(119,054) $174,125 $ 613,263
Inventory reserves................ 950,325 292,999 -- -- 1,203,324
1996
Allowance for doubtful accounts
receivable...................... $306,428 $254,962 $(406,713) $ -- $ 154,677
Inventory reserves................ 699,269 838,968 (587,912) -- 950,325
1995
Allowance for doubtful accounts
receivable...................... $574,106 $220,453 $(488,131) $ -- $ 306,428
Inventory reserves................ 540,987 158,282 -- -- 699,269
</TABLE>
- ------------------------
* Allowance for Data.Site
27
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) Report of Haskell & White LLP, Independent Auditors................ 10
Report of Price Waterhouse LLP, Independent Accountants............ 11
Consolidated Balance Sheets at March 31, 1997 (Restated) and 1996.. 12
Consolidated Statements of Operations for the Years Ended
March 31, 1997 (Restated), 1996 and 1995.......................... 13
Consolidated Statements of Shareholders' Equity for the
years ended March 31, 1997 (Restated), 1996 and 1995.............. 14
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1997 (Restated), 1996 and 1995.......................... 15
Notes to Consolidated Financial Statements......................... 16
(2) Financial Statements Schedules
Schedule II--Valuation and Qualifying Accounts for the
Years Ended March 1997, 1996 and 1995............................. 27
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable or
is shown in the financial statements or notes thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K).. 28
- -------------
3.1 Amended and Restated Articles of Incorporation filed with the
California Secretary of State on November 23, 1994. (incorporated herein
by this reference to Exhibit 4.8 to the Registrant's Quarterly Report on
Form 10-QSB for the Quarter ended December 31, 1994).
3.2 Bylaws (incorporated herein by this reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.1 Letter Agreement and Patent License Agreement dated August 29, 1991
among the Company, Patlex Corporation and Gordon Gould (incorporated
herein by this reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-83984).
10.2 Assignment Agreement dated July 27, 1992 between the Company and
Michael Colvard, M.D. (incorporated herein by this reference to Exhibit
10.2 to the Registrant's Registration Statement on Form SB-2, Registration
No. 33-83984).
10.3 Gold Catalyst Licensing Agreement dated April 16, 1992 between the
Company and Optical Engineering, Inc. (incorporated herein by this
reference to Exhibit 10.3 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-83984).
28
<PAGE>
EXHIBITS
- -------------
+10.4 Lead Generation/Distribution Agreement dated March 17, 1994 between
the Company and Burkhart Dental Supply Company (incorporated herein by
this reference to Exhibit 10.10 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.5 Form of International Distribution Agreement (incorporated herein by
this reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.6 Letter of Intent between the Company and Richard Leaderman, D.D.S.,
together with related Patent Assignments as filed in the U.S. Patent and
Trademark Office on February 22, 1994 (incorporated herein by this
reference to Exhibit 10.13 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-83984).
+10.7 Exclusive Marketing Agreement dated July 26, 1994 between the Company,
Proclosure, Inc. and Nippon Shoji Kaisha, Ltd. (incorporated herein by
this reference to Exhibit 10.14 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.8 Form of Indemnification Agreement (incorporated herein by this reference
to Exhibit 10.23 to the Registrant's Registration Statement on Form SB-
2, Registration No. 33-83984).
10.9 Purchase/Supply Agreement dated January 13, 1987 between Infrared
Fiber Systems, Inc. and Pfizer Hospital Products Group, Inc., as amended
(incorporated herein by this reference to Exhibit 10.26 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.10 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,
Registration No. 33-83984).
10.11 Form of Underwriter's Unit Purchase Option (incorporated herein by
this reference to Exhibit 4.2 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-83984).
10.12 Form of Finder's Unit Purchase Option (incorporated herein by this
reference to Exhibit 4.3 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-83984).
10.13 1992 Stock Option Plan, together with form of Nonstatutory Stock
Option Agreement and form of Incentive Stock Option Agreement
(incorporated herein by this reference to Exhibit 4.5 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.14 Employee Bonus Stock Plan, together with form of Bonus Stock
Agreement (incorporated herein by this reference to Exhibit 4.6 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.15 Assignment and Modification Agreement dated July 26, 1991, among the
Registrant, Pfizer Hospital Products Group and Medical Laser
Technologies Limited (incorporated herein by this reference to Exhibit
10.4 of the Registrant's Registration Statement on Form SB-2,
Registration Number 33-83984).
29
<PAGE>
EXHIBITS
- -------------
10.16 Letter agreement dated October 13, 1987 between Pfizer Laser Systems,
Inc. and Duke University, together with patent assignment as filed in
the U.S. Patent and Trademark Office on October 23, 1993 (incorporated
herein by this reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form SB-2, Registration Number 33-83984).
10.17 Industrial Lease dated December 6, 1995 between the Registrant and
Irvine Company (incorporated herein by this reference to Exhibit 10.22
to the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1996).
10.18 Use and Cost Sharing Agreement dated December 1, 1995 between the
Registrant and Biopsys Medical, Inc. (incorporated herein by this
reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended March 31, 1996).
10.19 Letter of Intent dated October 19, 1995 between the Registrant and
International Biolaser Corporation, together with related Promissory
Note dated October 19, 1995 payable to Registrant in the original
principal amount of $125,000, and Security Agreement dated October 19,
1995 between the Registrant and International Biolaser Corporation
(incorporated herein by this reference to Exhibit 10.24 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1996).
10.20 Share Exchange Agreement dated December 20, 1995 among the Registrant,
658994 Alberta Ltd., 658997 Alberta Ltd. and Mattan Corporation
(incorporated herein by this reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1995).
10.21 Purchasing Agreement dated December 20, 1995 between Registrant and
Mattan Corporation (incorporated herein by this reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1995).
10.22 Exclusive Licensing Agreement dated June 1, 1992 between the Registrant
and Quentin M. Murphy, D.D.S. (incorporated herein by this reference to
Exhibit 10.27 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1996).
10.23 Broker Agreement dated March 13, 1996 among the Registrant, First
National Marketing Services, Inc. and William F. Sullivan (incorporated
herein by this reference to Exhibit 10.29 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1996).
10.24 Form of Consulting Agreement (incorporated herein by this reference
to Exhibit 10.30 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1996).
10.25 Radiation Services Agreement dated January 10, 1994 between the
Registrant and SteriGenics International (incorporated herein by this
reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended March 31, 1996).
30
<PAGE>
EXHIBITS
- -------------
10.26 Form of Nonstatutory Stock Option Agreement between the Registrant
and Colette Cozean (granting option to purchase 358,650 shares of
Registrant's Common Stock) (incorporated herein by this reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1996).
10.27 Form of Termination Agreement between the Registrant and certain of
the Registrant's Executive Officers (incorporated herein by this
reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended March 31, 1996).
10.28 1995 Employee Stock Option Plan, together with form of Nonqualified
Stock Option Agreement and form of Incentive Stock Option Agreement
(incorporated herein by this reference to Exhibit 10.34 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.29 February 1996 Stock Option Plan (incorporated herein by this reference
to Exhibit 10.35 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1996).
10.30 1996 Stock Option Plan (incorporated herein by this reference to Exhibit
10.36 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1996).
10.31 Loan Agreement dated June 3, 1996 between the Registrant and Silicon
Valley Bank, together with Schedule to Loan Agreement dated June 3, 1996
(incorporated herein by this reference to Exhibit 10.36 to the
Registrant's Registration Statement on Form SB-2 Registration No. 33-
83984).
10.32 Pledge Agreement dated June 3, 1996 between the Registrant and Silicon
Valley Bank (incorporated herein by this reference to Exhibit 10.37 to
the Registrant's Registration Statement on Form SB-2 Registration No.
33-83984).
10.33 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon Valley
Bank (incorporated herein by this reference to Exhibit 10.38 to the
Registrant's Registration Statement on Form SB-2 Registration No. 33-
83984).
10.34 Registration Rights Agreement dated June 3, 1996 between the Registrant
and Silicon Valley Bank (incorporated herein by this reference to
Exhibit 10.39 to the Registrant's Registration Statement on Form SB-2
Registration No. 33-83984).
10.35 Antidilution Agreement dated June 3, 1996 between the Registrant and
Silicon Valley Bank (incorporated herein by this reference to Exhibit
10.40 to the Registrant's Registration Statement on Form SB-2
Registration No. 33-83984).
10.36 Agreement dated August 12, 1996 between the Registrant and Circuit Tree
Medical, Inc. (incorporated herein by this reference to Exhibit 10.42 to
the Registrant's Registration Statement on Form SB-2 Registration No.
33-83984).
10.37 Amendment to Loan Agreement together with Schedule, dated February 13,
1997, between the Registrant and Silicon Valley Bank.*
10.38 Pledge Agreement dated February 13, 1997 between the Registrant and
Silicon Valley Bank.*
10.39 Joint Venture Agreement dated January 31, 1997 between the Registrant,
RSS, LLC and Data.Site.*
31
<PAGE>
EXHIBITS
- -------------
10.40 Operating Agreement of Data.Site dated January 31, 1997.*
10.41 Agreement and Plan of Merger dated April 24, 1997 between the
Registrant, Premier Acquisition of Delaware, Inc. and EyeSys
Technologies, Inc.*
27 Financial Data Schedule.
- -------------
* Previously filed.
+ Confidential treatment has been granted with respect to portions of this
Exhibit.
(b) Reports on Form 8-K. During the last quarter of the period covered
by this report, on March 1, 1997, the Company filed a Current Report on Form
8-K, reporting a change in its public accountant. On March 18, 1997, the
Company filed an amendment to its Current Report on Form 8-K/A for the
purpose of filing a letter by its former accountants confirming the
information contained in the Form 8-K.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
August 28, 1998 By: /s/ COLETTE COZEAN
-------------------------------------
Colette Cozean, Ph.D.,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
33
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
- -----------
3.1 Amended and Restated Articles of Incorporation filed with the
California Secretary of State on November 23, 1994. (incorporated herein
by this reference to Exhibit 4.8 to the Registrant's Quarterly Report on
Form 10-QSB for the Quarter ended December 31, 1994).
3.2 Bylaws (incorporated herein by this reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.1 Letter Agreement and Patent License Agreement dated August 29, 1991
among the Company, Patlex Corporation and Gordon Gould (incorporated
herein by this reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-83984).
10.2 Assignment Agreement dated July 27, 1992 between the Company and
Michael Colvard, M.D. (incorporated herein by this reference to Exhibit
10.2 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-83984).
10.3 Gold Catalyst Licensing Agreement dated April 16, 1992 between the
Company and Optical Engineering, Inc. (incorporated herein by this
reference to Exhibit 10.3 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-83984).
+10.4 Lead Generation/Distribution Agreement dated March 17, 1994 between
the Company and Burkhart Dental Supply Company (incorporated herein by
this reference to Exhibit 10.10 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.5 Form of International Distribution Agreement (incorporated herein by
this reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.6 Letter of Intent between the Company and Richard Leaderman, D.D.S.,
together with related Patent Assignments as filed in the U.S. Patent and
Trademark Office on February 22, 1994 (incorporated herein by this
reference to Exhibit 10.13 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-83984).
+10.7 Exclusive Marketing Agreement dated July 26, 1994 between the Company,
Proclosure, Inc. and Nippon Shoji Kaisha, Ltd. (incorporated herein by
this reference to Exhibit 10.14 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.8 Form of Indemnification Agreement (incorporated herein by this
reference to Exhibit 10.23 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-83984).
10.9 Purchase/Supply Agreement dated January 13, 1987 between Infrared
Fiber Systems, Inc. and Pfizer Hospital Products Group, Inc., as amended
(incorporated herein by this reference to Exhibit 10.26 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.10 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,
Registration No. 33-83984).
10.11 Form of Underwriter's Unit Purchase Option (incorporated herein by
this reference to Exhibit 4.2 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-83984).
10.12 Form of Finder's Unit Purchase Option (incorporated herein by this
reference to Exhibit 4.3 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-83984).
34
<PAGE>
EXHIBIT NO.
- -----------
10.13 1992 Stock Option Plan, together with form of Nonstatutory Stock
Option Agreement and form of Incentive Stock Option Agreement
(incorporated herein by this reference to Exhibit 4.5 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.14 Employee Bonus Stock Plan, together with form of Bonus Stock Agreement
(incorporated herein by this reference to Exhibit 4.6 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.15 Assignment and Modification Agreement dated July 26, 1991, among the
Registrant, Pfizer Hospital Products Group and Medical Laser
Technologies Limited (incorporated herein by this reference to Exhibit
10.4 of the Registrant's Registration Statement on Form SB-2,
Registration Number 33-83984).
10.16 Letter agreement dated October 13, 1987 between Pfizer Laser Systems,
Inc. and Duke University, together with patent assignment as filed in
the U.S. Patent and Trademark Office on October 23, 1993 (incorporated
herein by this reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form SB-2, Registration Number 33-83984).
10.17 Industrial Lease dated December 6, 1995 between the Registrant and
Irvine Company (incorporated herein by this reference to Exhibit 10.22
to the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1996).
10.18 Use and Cost Sharing Agreement dated December 1, 1995 between the
Registrant and Biopsys Medical, Inc. (incorporated herein by this
reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended March 31, 1996).
10.19 Letter of Intent dated October 19, 1995 between the Registrant and
International Biolaser Corporation, together with related Promissory
Note dated October 19, 1995 payable to Registrant in the original
principal amount of $125,000, and Security Agreement dated October 19,
1995 between the Registrant and International Biolaser Corporation
(incorporated herein by this reference to Exhibit 10.24 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1996).
10.20 Share Exchange Agreement dated December 20, 1995 among the Registrant,
658994 Alberta Ltd., 658997 Alberta Ltd. and Mattan Corporation
(incorporated herein by this reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1995).
10.21 Purchasing Agreement dated December 20, 1995 between Registrant and
Mattan Corporation (incorporated herein by this reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1995).
10.22 Exclusive Licensing Agreement dated June 1, 1992 between the Registrant
and Quentin M. Murphy, D.D.S. (incorporated herein by this reference to
Exhibit 10.27 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1996).
10.23 Broker Agreement dated March 13, 1996 among the Registrant, First
National Marketing Services, Inc. and William F. Sullivan (incorporated
herein by this reference to Exhibit 10.29 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1996).
10.24 Form of Consulting Agreement (incorporated herein by this reference to
Exhibit 10.30 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1996).
10.25 Radiation Services Agreement dated January 10, 1994 between the
Registrant and SteriGenics International (incorporated herein by this
reference to Exhibit 10.31 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1996).
35
<PAGE>
EXHIBIT NO.
- -----------
10.26 Form of Nonstatutory Stock Option Agreement between the Registrant and
Colette Cozean (granting option to purchase 358,650 shares of
Registrant's Common Stock) (incorporated herein by this reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1996).
10.27 Form of Termination Agreement between the Registrant and certain of
the Registrant's Executive Officers (incorporated herein by this
reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended March 31, 1996).
10.28 1995 Employee Stock Option Plan, together with form of Nonqualified
Stock Option Agreement and form of Incentive Stock Option Agreement
(incorporated herein by this reference to Exhibit 10.34 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.29 February 1996 Stock Option Plan (incorporated herein by this reference
to Exhibit 10.35 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1996).
10.30 1996 Stock Option Plan (incorporated herein by this reference to Exhibit
10.36 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1996).
10.31 Loan Agreement dated June 3, 1996 between the Registrant and Silicon
Valley Bank, together with Schedule to Loan Agreement dated June 3, 1996
(incorporated herein by this reference to Exhibit 10.36 to the
Registrant's Registration Statement on Form SB-2 Registration No. 33-
83984).
10.32 Pledge Agreement dated June 3, 1996 between the Registrant and Silicon
Valley Bank (incorporated herein by this reference to Exhibit 10.37 to
the Registrant's Registration Statement on Form SB-2 Registration No.
33-83984).
10.33 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon Valley
Bank (incorporated herein by this reference to Exhibit 10.38 to the
Registrant's Registration Statement on Form SB-2 Registration No. 33-
83984).
10.34 Registration Rights Agreement dated June 3, 1996 between the
Registrant and Silicon Valley Bank (incorporated herein by this
reference to Exhibit 10.39 to the Registrant's Registration Statement on
Form SB-2 Registration No. 33-83984).
10.35 Antidilution Agreement dated June 3, 1996 between the Registrant and
Silicon Valley Bank (incorporated herein by this reference to Exhibit
10.40 to the Registrant's Registration Statement on Form SB-2
Registration No. 33-83984).
10.36 Agreement dated August 12, 1996 between the Registrant and Circuit Tree
Medical, Inc. (incorporated herein by this reference to Exhibit 10.42 to
the Registrant's Registration Statement on Form SB-2 Registration No.
33-83984).
10.37 Amendment to Loan Agreement together with Schedule, dated February 13,
1997, between the Registrant and Silicon Valley Bank.*
10.38 Pledge Agreement dated February 13, 1997 between the Registrant and
Silicon Valley Bank.*
10.39 Joint Venture Agreement dated January 31, 1997 between the Registrant,
RSS, LLC and Data.Site.*
10.40 Operating Agreement of Data.Site dated January 31, 1997.*
10.41 Agreement and Plan of Merger dated April 24, 1997 between the
Registrant, Premier Acquisition of Delaware, Inc. and EyeSys
Technologies, Inc.*
27 Financial Data Schedule.
36
<PAGE>
EXHIBIT NO.
- -----------
- -------------------
+ Confidential treatment has been granted with respect to portions of this
Exhibit.
+ Incorporated by reference herein.
* Previously filed.
37
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<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-START> APR-01-1996 APR-01-1995
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 5,191,898 4,582,840
<SECURITIES> 0 0
<RECEIVABLES> 1,665,935 662,992
<ALLOWANCES> (613,623) (154,677)
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<DEPRECIATION> (1,106,976) (971,532)
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0 0
0 0
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<INCOME-PRETAX> (5,973,357) (5,752,895)
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