FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
Commission File Number: 1-11140
OPHTHALMIC IMAGING SYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3035367
(State of Incorporation) (IRS Employer Identification No.)
221 LATHROP WAY, SUITE I, SACRAMENTO, CA 95815
(Address of principal executive offices)
(916) 646-2020
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes XX No
As of April 1, 1997, 3,732,999 shares of common stock, at no par value,
were outstanding.
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPHTHALMIC IMAGING SYSTEMS
CONDENSED BALANCE SHEET
FEBRUARY 28, 1997
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents $ 335,169
Accounts receivable, net 1,708,796
Inventories, net 1,353,198
Prepaid expenses and other current assets 94,557
---------------
Total current assets 3,491,720
Furniture and equipment, net of accumulated
depreciation and amortization of $701,044 411,009
Other assets 69,237
--------------
$ 3,971,966
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit $ 281,000
Accounts payable 867,290
Accrued liabilities 768,341
Accrued warrant appreciation right 239,664
Deferred extended warranty revenue 70,298
Customer deposits 48,213
Current portion of notes payable 5,002
-------------
Total current liabilities 2,279,808
Notes payable, less current portion 195
Commitments
Stockholders' equity:
Preferred stock, no par value, 20,000,000 shares
authorized; none issued or outstanding --
Common stock, no par value, 20,000,000 shares authorized;
3,720,699 issued and outstanding 9,545,677
Accumulated deficit (7,853,714)
------------
Total stockholders' equity 1,691,963
============
$ 3,971,966
SEE ACCOMPANYING NOTES.
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 29, 1996
<S> <C> <C> <C> <C>
NET REVENUES $ 2,285,407 $ 2,169,753 $ 3,169,653 $ 4,079,679
COST OF SALES 1,333,567 1,487,018 1,983,740 2,723,212
------------- -------------- ------------ ------------
GROSS PROFIT 951,840 682,735 1,185,913 1,356,467
OPERATING EXPENSES:
SALES AND MARKETING 354,511 365,889 822,848 853,750
GENERAL AND ADMINISTRATIVE 249,908 208,648 532,676 362,861
RESEARCH AND DEVELOPMENT 232,645 170,832 497,426 367,848
------------- ------------- ------------ ------------
TOTAL OPERATING EXPENSES 837,064 745,369 1,852,950 1,584,459
------------- ------------- ------------ -------------
INCOME (LOSS) FROM OPERATIONS 114,776 (62,634) (667,037) (227,992)
OTHER EXPENSE, NET (13,557) (35,440) (27,279) (68,441)
------------- ------------- ------------ -------------
NET INCOME (LOSS) $ 101,219 $ (98,074) $ (694,316) $ (296,433)
============ ============= ============= =============
SHARES USED IN THE CALCULATION
OF NET INCOME (LOSS) PER SHARE 5,014,422 2,243,533 3,432,566 1,626,992
============ ============= ============ =============
NET INCOME (LOSS) PER SHARE $ 0.02 $ (0.04) $ (0.20) $ (0.18)
============ ============= ============ =============
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(UNAUDITED)
SIX MONTHS ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
OPERATING ACTIVITIES:
Net loss (694,316) (296,433)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 67,283 47,973
Net increase in current assets
other than cash and equivalents (439,064) (445,581)
Net increase (decrease) in current
liabilities other than short-term
borrowings 116,446 (72,965)
----------- -----------
Net cash used in operating activities (949,651) (767,006)
INVESTING ACTIVITIES:
Purchases of furniture and equipment (116,581) (60,746)
Net decrease (increase) in other assets 16,882 (1,221)
----------- -----------
Net cash used in investing activities (99,699) (61,967)
FINANCING ACTIVITIES:
Principal payments on notes payable (3,287) (3,434)
Net (repayments of) proceeds from
line-of-credit borrowings (269,000) 50,000
Net proceeds from sale of common stock 605,481 1,074,841
----------- -----------
Net cash provided by financing activities 333,194 1,121,407
----------- -----------
Net increase (decrease) in cash and
equivalents (716,156) 292,434
Cash and equivalents at beginning of
period 1,051,325 317,205
----------- -----------
Cash and equivalents at end of period $ 335,169 $ 609,639
=========== ===========
SEE ACCOMPANYING NOTES.
<PAGE>
Ophthalmic Imaging Systems
Notes to Condensed Financial Statements
Three and Six Month Periods ended February 28, 1997 and February 29, 1996
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed balance sheet as of February 28,
1997, condensed statements of operations for the three and six month
periods ended February 28, 1997 and February 29, 1996 and the condensed
statements of cash flows for the six month periods ended February 28,
1997 and February 29, 1996 have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information
and footnote disclosures required by generally accepted accounting
principles for complete financial statements. It is suggested that these
condensed financial statements be read in conjunction with the audited
financial statements and notes thereto included in the registrant's (the
Company's) Annual Report for the Fiscal Year Ended August 31, 1996 on
Form 10-KSB. In the opinion of management, the accompanying condensed
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position and results of operations for the periods presented.
The results of operations for the period ended February 28, 1997 are not
necessarily indicative of the operating results for the full year.
Certain amounts in the fiscal 1996 financial statements have been
reclassified to conform with the presentation in the fiscal 1997
financial statements.
Note 2. Net Income (Loss) Per Share
Net income per share is computed using the weighted average number of
common and common equivalent shares of common stock outstanding, which
common equivalent shares include the dilutive effect from stock options
and warrants. Net loss per share is computed using the weighted average
number of shares of common stock outstanding. Common equivalent shares
from stock options and warrants are excluded from the computation of net
loss per share because their effect is antidilutive.
<PAGE>
Note 3. Line of Credit
In April 1995, the Company entered into a revolving line of credit
agreement (the "Credit Agreement") with a bank (the "Bank"). The maximum
amount available under the terms of the Credit Agreement is $750,000 and
is based upon eligible outstanding accounts receivable balances.
Borrowings under the Credit Agreement bear interest at the Bank's prime
lending rate plus two and one-half percent and are secured by virtually
all assets of the Company (10.75% as of February 28, 1997).
The Credit Agreement contains certain restrictive covenants which provide
for, among other things, certain working capital and net worth balances
and ratios, and limitations on the amount of net loss the Company may
incur in a quarter.
In connection with the Credit Agreement, the Company also modified a
warrant previously issued to the Bank. The modifications included
increasing the number of common shares for which the warrant is
exercisable to 25,000, changing the per share exercise price to $2.39 and
extending the expiration date to April 2000.
In November 1995, the Company and the Bank amended the Credit Agreement.
The amendments included extending the maturity date to April 1996, and
increasing the amount of the loss the Company may incur in a quarter. As
a condition to amending the Credit Agreement, the Company modified the
warrant issued to the Bank. The modifications included increasing the
number of common shares under the warrant for which the warrant is
exercisable to 67,500, reducing the per share exercise price to $1.73 and
extending the expiration date to November 2000. The number of shares for
which the warrant is exercisable was reduced to 50,000 due to the
occurrence of certain events set forth in the Credit Agreement.
In April 1996, the Company and the Bank again amended the Credit
Agreement. The amendments included extending the maturity date to July
1996 and limiting the amount of the net loss the Company may incur in a
quarter.
<PAGE>
Note 3. Line of Credit (continued)
In May 1996, the Bank exercised an alternative stock appreciation right
available under the warrant. In conjunction with said exercise, the
Company has accrued a liability of approximately $220,000 as of May 31,
1996, said amount being the entire amount of the obligation under the
warrant. The Company recognized additional interest expense of
approximately $151,000 during the quarter ended May 31, 1996 in
connection with said exercise. The Company had previously accrued as
interest expense approximately $69,000 in connection with a put right
under the warrant, which right is foregone in lieu of the Bank exercising
its alternative stock appreciation right. The parties have agreed in
principal to revise the form of consideration and timing of payment under
the alternative stock appreciation right, but have not as yet agreed to
the definitive terms thereof.
In November 1996, the Company and the Bank again amended the Credit
Agreement. Then amendments included, among other things, extending the
maturity date to March 1997, subject to the occurrence of certain equity
transactions, and limiting the amount of the net loss the Company may
incur in the first and second quarter of fiscal 1997.
As of February 28, 1997, borrowings in the amount of $281,000 were
outstanding against the Credit Agreement. The Company was not in
compliance with certain of the restrictive covenants for the quarter
ending November 30, 1996 and the Company has requested from the Bank a
waiver with respect to such non-compliance. The potential impact of not
receiving a waiver from the Bank is that the Bank could demand payment of
the balance owing against the Credit Agreement, which amount was $500,000
as of the date of this report.
Note 4. Private Placement
On November 21, 1995, the Company completed a private placement of
1,368,421 shares of its common stock with detachable warrants. The net
proceeds from this offering were approximately $1,075,000. Along with
each share of common stock issued, the purchasers were given an "A
Warrant" and a "B Warrant" to purchase shares of the Company's common
stock. The A and B Warrants per share exercise prices are $1.25 and
$1.75, respectively. The number of shares exercisable as well as the per
share exercise prices of the A and B Warrants are subject to adjustment
upon the occurrence of certain events. The A Warrants expired on March
5, 1997, as amended, and the B Warrants will expire on November 21, 1997.
<PAGE>
Note 4. Private Placement (continued)
In addition, the A and B Warrants are subject to redemption by the
Company at $.10 per warrant commencing May 21, 1996 and May 21, 1997 (the
"Redemption Dates"), respectively. The A and B Warrant redemption
provisions are only available if the Company's common stock price exceeds
$2.25 and $2.50, respectively, for the twenty trading days immediately
preceding the corresponding Redemption Dates.
The placement agent was issued a warrant to purchase 250,000 shares of
the Company's common stock at $.95 per share. The number of shares
exercisable as well as the per share exercise price are subject to
adjustment upon the occurrence of certain events. This warrant expires
in November 1999. In addition, the placement agent will receive as a
commission, 10% of the proceeds received by the Company upon the exercise
of the A and B Warrants described above.
In May 1996, 1,052,631 of the A Warrants were exercised. The net
proceeds from this exercise were approximately $1,184,000.
During the quarter ended February 28,1997, the Company received net
proceeds of approximately $495,000 for the exercise of certain of the A
and B Warrants, the certificates for which shares have not been issued
but which shares have been shown as outstanding as of February 28, 1997 in
the accompanying Balance Sheet.
Note 5. Subsequent Events
The Credit Agreement discussed in Note 3 above expired in March 1997 and
the Company is currently negotiating with the Bank to extend said Credit
Agreement. The potential impact of not negotiating an extension with the
Bank is that the Bank could demand payment of the balance owing against
the Credit Agreement, which amount was $500,000 as of the date of this
report ($281,000 as of February 28, 1997).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE STATEMENTS BELOW INCLUDE STATEMENTS THAT ARE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 21A OF THE SECURITIES ACT OF
1933, AS AMENDED, IN SECTION 21E OF THE SECURITIES ACT OF 1934, AS
AMENDED, AND IS SUBJECT TO THE SAFE HARBOR CREATED THEREBY. FUTURE
OPERATING RESULTS MAY BE ADVERSELY EFFECTED AS A RESULT OF A NUMBER OF
FACTORS ENUMERATED IN THE COMPANY'S PUBLIC REPORTS.
OVERVIEW
To date, the Company has designed, developed, manufactured and marketed
ophthalmic digital imaging systems and has derived substantially all of
its revenues from the sale of such products. The Company has a reputation
within the ophthalmic community for producing high quality, reliable,
easy to use equipment and believes itself to be an acknowledged industry
leader in the sales of digital ophthalmic imaging systems for instant
fluorescein angiography.
The Company believes, however, that as the U.S. healthcare system moves
toward managed care the needs of the managed care providers are changing
the nature and demand for medical imaging equipment and services. New
opportunities in telemedicine are emerging that may allow managed care
organizations to reduce costs while maintaining their quality of patient
care. The Company plans to leverage its digital imaging technology and
established customer base to develop product features and services
targeting telemedicine/managed care applications for the ocular health
care industry.
Since its inception, the Company's products have addressed primarily the
needs of the ophthalmic flourescein angiography market, and more recently
the indocyanine green ("ICG") market. The Company believes that the
overall angiography market remains limited, however, and that sustaining
growth in its traditional angiography equipment business will become
increasingly difficult. In recognition of this, the Company is expanding
its product capabilities to address the emerging telemedicine market,
including remote consultation. While the Company will continue to
support its entire line of digital angiography products, it will focus
its future efforts on developing product enhancements and pursuing viable
opportunities in this market, particularly as they relate to
telemedicine/managed care applications.
The Company's objective is to become a leading provider of telemedicine
products and services in the ocular health care industry, while
maintaining its position as a market leader in its existing digital
imaging products.
In this regard, in fiscal 1996 the Company developed a Reading and
Documentation Center, through which it intends to provide documentation
services of electronically transmitted digital images acquired at remote
locations.
<PAGE>
During fiscal 1996, the Company also secured an agreement to conduct a
pilot program with a major managed care provider to evaluate remote image
interpretation for diabetic retinopathy screening. At the conclusion of
the pilot program, if successful, the Company anticipates entering into
negotiations with the provider, and others, for contracting the Reading
Center services. The Company currently has several initial commitments
to purchase its Reading and Documentation Center services. There can be
no assurance, however, that the pilot program will prove a success or
that these negotiations or commitments will result in contracts for these
services.
During the 1996 fall meeting of the American Academy of Ophthalmology,
the Company introduced a lower-priced digital imaging system
incorporating telemedicine features and targeting the general
ophthalmology market. The majority of orders received in conjunction
with this introduction are projected for delivery during the second and
third quarters of fiscal 1997.
The Company continues to assess potential market opportunities in
anticipation of results from clinical validation studies of its Glaucoma-
Scope<reg-trade-mark> product, an instrument specifically designed for
the early diagnosis of glaucoma, a commonly occurring eye disease
regularly screened for by eye care practitioners.
The Company's results of operations have historically fluctuated from
quarter to quarter due to a number of factors and are not necessarily
indicative of the results to be expected for any future period or
expected for the fiscal year ending August 31, 1997. There can be no
assurance that revenue growth or profitability can be achieved or
sustained in the future.
The following discussion should be read in conjunction with the unaudited
interim financial statements and the notes thereto which are set forth
elsewhere in this Report on Form 10-QSB. In the opinion of management,
the unaudited interim period financial statements include all
adjustments, all of which are of a normal recurring nature, that are
necessary for a fair presentation of the results of the periods.
<PAGE>
RESULTS OF OPERATIONS
The Company's revenues for the second quarter of fiscal 1997 were
$2,285,407, representing an increase of approximately 5% from revenues of
$2,169,753 for the second quarter of fiscal 1996. Revenues for the first
six months of fiscal 1997 were $3,169,653 versus $4,079,679 for the
comparable period of 1996. The 1997 second quarter revenues include
significant revenues from the Company's initial deliveries of lower-
priced higher-margin digital imaging systems incorporating telemedicine
features, which systems were introduced at the 1996 fall meeting of the
American Academy of Ophthalmology and significant orders for which were
included in the Company's deliverable backlog at the end of the first
quarter of fiscal 1997. A primary factor contributing to the reduced
1997 six-month revenue level was the reallocation of the Company's
resources to address emerging opportunities in the telemedicine/managed
care market. In addition, the 1996 six-month revenue levels were largely
attributable to strong sales of the Company's digital angiography systems
incorporating ICG and Windows<trademark> features introduced over the
previous two years. The Company will continue to allocate resources to
address the telemedicine/managed care market, as sustaining growth in its
traditional angiography equipment business becomes increasingly
difficult. Based on its backlog of current orders, the Company does not
anticipate maintaining revenue levels attained during the 1997 second
quarter and, in comparison to previous years, the Company may experience
reduced revenue levels from sales of its digital imaging equipment
products in the near-term.
Contributions to revenues from sales of Glaucoma-Scope<reg-trade-mark>
units have been negligible and management does not anticipate significant
near-term sales improvement for the Glaucoma-Scope<reg-trade-mark>,
recognizing that longer-term sales growth remains dependent upon market
acceptance of the system and resolution of healthcare reform and
reimbursement issues.
Gross margins were approximately 42% during the second quarter ended
February 28, 1997 versus approximately 31% for the comparable quarter of
1996. For the six-month period ended February 28, 1997, gross margins
were approximately 37% as compared to approximately 33% during the
comparable period of 1996. The increase in gross margin percentage for
the six-month period is attributable primarily to reduced direct material
costs associated with delivered systems, principally the sales of the
lower-priced higher-margin digital imaging systems delivered during the
1997 second quarter. The increased gross margin percentage during the
1997 second quarter also reflects the impact of reduced fixed
manufacturing and support costs during 1997 compared to the comparable
quarter of 1996. The Company continues to evaluate its expenses in this
area consistent with current and anticipated business conditions and
management anticipates that near-term margin improvement, if any, would
result principally from reduced material costs associated with current
deliverable system configurations, outsourcing certain manufacturing and
assembly operations and related fixed cost reduction measures implemented
during the third fiscal quarter of 1997, including personnel cutbacks,
economies of scale from increased unit production, and other
manufacturing efficiencies.
<PAGE>
Sales and marketing and general and administrative expenses accounted for
approximately 26% of total revenues during the second quarter of both
fiscal 1997 and fiscal 1996. For the first six months of fiscal 1997 and
1996, such expenses accounted for approximately 43% and 30%,
respectively. Expense levels also increased to $604,417 during the
second quarter of 1997 versus $574,537 during the second quarter of 1996.
For the first six months of 1997, expense levels increased to $1,355,522
from $1,216,611 during the comparable period of 1996. The primary
factors contributing to these increases were costs associated with hiring
additional support personnel, and related costs associated with the
telemedicine/managed care start-up marketing efforts. While the Company
has implemented during the third fiscal quarter of 1997 certain fixed
cost reduction measures, including personnel cutbacks, management
anticipates that expenses in this area will continue to run above
historical levels for the foreseeable future.
Research and development expenses, as a percentage of revenues, were
approximately 10% in the second quarter of 1997 versus approximately 8%
in the second quarter of 1996. For the first six months of fiscal 1997,
such expenses accounted for approximately 16% of total revenues as
compared to approximately 9% during the comparable period of 1996.
Expense levels increased in actual dollar terms to $232,646 during the
second quarter of 1997 from $170,832 in 1996. During the first six
months of fiscal 1997, expense levels also increased in actual dollar
terms to $497,427 versus $367,848 in 1996. The Company anticipates that
it will incur increased expense levels in the near-term as it dedicates
more resources to the research and development of telemedicine/managed
care applications, while continuing to incur expenses with respect to its
current products. In this regard, the Company intends to continue
research and development efforts on product enhancements and reducing
cost configurations for its current products, particularly as they impact
telemedicine/managed care applications.
Other expense was $13,557 during the second quarter of fiscal 1997 versus
other income of $35,440 during the same period of 1996. Other expense
during the first six months of fiscal 1997 was $27,279 as compared to
$68,441 during the comparable period of 1996. The primary contributing
factor to these changes was a decrease in interest expense during 1997
versus 1996 associated with an existing credit line, including a
reduction in borrowings against said credit line and in particular
conjunction with interest expense recognized during the 1996 second
quarter and first six months in connection with a put right under a
warrant previously issued to the Company's Bank, which right was foregone
in lieu of the Bank exercising its alternative stock appreciation right
available under said warrant in May 1996. The parties have agreed in
principal to revise the form of consideration and timing of payment under
the alternative stock appreciation right, but have not as yet agreed to
the definitive terms thereof.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $949,651 and $767,006 in
the first six months of fiscal 1997 and 1996, respectively. The cash
used by operations in 1997 resulted primarily from the net loss during
the period and the decrease in accounts receivable associated with
significantly reduced revenue levels during the period, which amount was
partially offset by increases in customer deposits from orders generated
at the AAO meeting and other current liabilities, excluding borrowings
under the Credit Agreement. The cash used by operations in the first six
months of fiscal 1996 resulted primarily from the net loss during the
period and increases in accounts receivable and inventory, and, to a
lesser extent, decreases in accounts payable and accrued liabilities.
Cash used in investing activities was $99,699 during the first six months
of 1997 as compared to $61,967 during the same period for 1996. The
Company's primary investing activities consist of equipment and other
capital asset acquisitions. The Company does not currently have any
pending material commitments regarding capital expenditures. The
Company, however, will continue to upgrade its existing management
information systems, which may result in increased near-term capital
expenditures. In addition, the Company anticipates certain capital
expenditures to support efforts to expand its technology to
telemedicine/managed care applications. The Company anticipates that
related expenditures, if any, will be financed from one or more of the
following sources: (i) working capital; (ii) borrowings under an
existing credit agreement, if available; or (iii) debt, equity or other
financing arrangements, if any, available to the Company.
The Company generated cash of $333,194 from financing activities during
the first six months of fiscal 1997 as compared to $1,121,407 during the
same period of fiscal 1996. The cash generated from financing activities
during the 1997 period was principally the net proceeds from the exercise
of warrants issued pursuant to a private placement of the Company's
common stock in November 1995, and, to a lesser extent, net proceeds from
the exercise of stock options issued to employees, which amounts were
partially offset by repayments of borrowings under the Credit Agreement.
The sources of cash from financing activities during the 1996 period were
principally the net proceeds from the private placement of the Company's
common stock in November 1995, and, to a lesser extent, borrowings under
the Credit Agreement. Principal repayments on notes payable was
negligible in both 1997 and 1996.
<PAGE>
As indicated above, the Company intends to allocate significant resources
to the development and marketing of telemedicine/managed care products
and services. During this development period, the Company anticipates
that it could experience a decrease in revenues and an increase in
operating losses as a result of incurring additional expenses in
connection with activities relating to the development and marketing of
telemedicine/ managed care products and services. Accordingly, the
Company anticipates that it could continue to experience negative cash
flow from operations in the near-term. In addition, as indicated in Note
5 of the Notes to Condensed Financial Statements, the Company is
currently negotiating with the Bank to extend the Credit Agreement which
expired in March 1997. While the Company has negotiated previous such
extensions with the Bank, there can be no assurance that it will be able
to negotiate further extensions. The potential impact of not negotiating
an extension from the Bank is that the Bank could demand payment of the
balance owing against the Credit Agreement, which amount was $281,000 as
of February 28, 1997. As indicated in Note 3 of the Notes to Condensed
Financial Statements, the Company was not in compliance with certain of
the restrictive covenants for the quarter ending November 30, 1996 and
the Company has requested from the Bank a waiver with respect to such
non-compliance. While the Bank has favorably responded to all previous
such requests, and since the Bank has recently extended additional credit
under the Credit Agreement, and the Company believes the Bank will
respond favorably to its current request for a waiver, there can be no
assurance that said waiver will be granted. The potential impact of not
receiving a waiver from the Bank is that the Bank could demand payment of
the balance owing against the Credit Agreement, which amount was $281,000
as of February 28, 1997. As also indicated above, although the Company
and the Bank have agreed in principal to revise the form of consideration
and timing of payment under the alternative stock appreciation right and
the Company believes that it will be able to enter into a final agreement
with the Bank with regard to such matters, there can be no assurance that
it will be able to do so, in which case the entire amount of the
obligation, which amount at February 28, 1997, including accrued interest
thereon, was approximately $240,000, would be due.
Although the Company believes that it will be able to raise the funds
necessary to satisfy its liquidity and capital requirements during the
next twelve months from alternative sources including extending or
refinancing its Credit Agreement, other debt financing, issuing equity
securities or entering into other financing arrangements, there can be no
assurance that such financing will be available and, if available, that
it will be obtained in terms favorable to the Company. Additional
capital could also be made available to the Company pursuant to the
exercise of additional warrants issued in connection with the November
1995 private placement, as well as from other outstanding options and
warrants. In this regard, the Company has received a commitment to
exercise a significant number of these warrants from certain of the
warrant holders, and while the Company is currently in active discussions
with such warrant holders regarding said exercise, there can be no
assurance that any such warrants will be exercised in the near-term, if
at all.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In November 1996, the expiration date for the unexercised A Warrants
issued pursuant to the Private Placement of the Company's Common Stock
effective November 21, 1995, was extended from November 21, 1996 to
February 19, 1997.
In February 1997, said expiration date was extended from February 19,
1997 to March 5, 1997.
During the quarter, the Company issued 10,000 shares of its Common Stock
in consideration of $30,000 from the exercise of stock options granted
under the Company's 1992 Nonstatutory Stock Option Plan. The Common
Stock issued upon the exercise of the options were issued pursuant to an
exemption under rule 701 promulgated under the Securities Act of 1933
(the "Securities Act"). There were no underwriting discounts or
commissions paid in connection with such issuance.
Also during the quarter, 210,526 shares of the Company's Common Stock
were purchased by Dr. Blumenkranz, a director of the Company, upon the
exercise of certain Series A Warrants for a total consideration of
$263,158. The shares were purchased pursuant to an exemption under
Section 4(2) of the Securities Act as a sale of a security not involving
a public offering. In connection with the issuance of the shares, JB
Oxford & Company will receive underwriting and discount commissions in an
amount equal to $26,316. (See Note 4 of the Notes to Condensed Financial
Statements.)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As indicated in Note 3 of the Notes to Condensed Financial Statements,
and addressed further in the Liquidity and Capital Resources discussion
of Item 2 of Part I of this report, the Company was not in compliance
with certain of the restrictive covenants of a Credit Facility with its
Bank for the quarter ending November 30, 1996 and the Company has
requested from the Bank a waiver with respect to such non-compliance.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
The Company's Annual Meeting of Shareholders was held on January 29,
1997. Matters voted upon at the meeting, and the number of votes cast
for and against each such matter, are described below:
1. Election of directors:
Mark S. Blumenkranz, M.D. (2,632,213 shares in favor;
and 10,089 shares withheld);
Robert I. Schnuer (2,631,847 shares in favor;
and 10,455 shares withheld);
Steven R. Verdooner (2,632,013 shares in favor;
and 10,289 shares withheld); and
Lawrence A. Yannuzzi, M.D. (2,632,180 shares in favor; and
10,122 shares withheld).
2. A proposal to ratify the appointment of Ernst & Young LLP as
the Company's auditors for the 1997 fiscal year (2,628,771 shares in
favor; 4,998 shares against; and 8,533 shares abstaining).
At the initial meeting of the recently elected Board held in
February 1997, Mark S. Blumenkranz, M.D. was elected to serve as
Chairman.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the accompanying Index to Exhibits
below are filed as a part hereof and are incorporated by reference.
(b) No reports on Form 8-K were filed during the quarter for which
this report was filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPHTHALMIC IMAGING SYSTEMS
(Registrant)
By: STEVEN R. VERDOONER
Steven R. Verdooner,
President and Chief Financial Officer
(principal executive officer and
principal financial and accounting officer)
Dated: April 14, 1997
<PAGE>
INDEX TO EXHIBITS
Exhibit Footnote
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
3.1 Articles of Incorporation of the Registrant, as amended. *
3.2 Amended Bylaws of the Registrant. *
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation, as amended, and the amended Bylaws of the
Registrant defining the rights of holders of Common Stock
of the Registrant. *
4.2 Specimen of Stock Certificate. *
10.1 Lease Agreement, dated as of July 10, 1987, between the
Registrant (as tenant) and Transamerica/Emkay Income
Properties I, as amended on July 23, 1990 and June 11, 1991. *
10.1(a) Seventh Amendment to lease effective as of July 18, 1996. (7)
10.2 Employment Agreement, dated March 27, 1992, between the
Registrant and Dennis J. Makes. *
10.2(a) Amendment dated June 30, 1993 to the Employment Agreement
between the Registrant and Dennis J. Makes dated
March 27, 1992. (1)
10.3 Confidentiality Agreement, dated March 27, 1992 between the
Registrant and Dennis J. Makes. *
10.4 Confidentiality Agreement, dated March 27, 1992 between the
Registrant and Steven R. Verdooner. *
10.5 Confidentiality Agreement, dated March 27, 1992 between the
Registrant and Richard Wullaert. *
10.6 Consulting Agreement, dated January 23, 1992, between the
Registrant and G. Peter Halberg, M.D. *
<PAGE>
10.7 Assignment dated October 23, 1990 of U.S. Patent Application
for Apparatus and Method for Topographical Analysis of the
Retina to the Registrant by Steven R. Verdooner, Patricia C.
Meade, and Dennis J. Makes (as recorded on Reel 5490, Frame
423 in the Assignment Branch of the U.S. Patent and Trademark
Office). *
10.8 Form of International Distribution Agreement used by the
Registrant and sample form of End User Software License
Agreement. *
10.9 Original Equipment Manufacturer Agreement, dated April 1,
1991, between the Registrant and SONY Medical Electronics, a
division of SONY Corporation of America. *
10.10 Original Equipment Manufacturer/Value Added Reseller
Agreement, dated May 7, 1991, between the Registrant and
Eastman Kodak Company. *
10.11 The Registrant's 1992 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. *
10.12 Common Stock and Warrant Purchase Agreement ("Stock Purchase
Agreement"), dated as of February 8, 1992, among the
Registrant, Jonnie R. Williams, Kathleen M. O'Donnell, as
Trustee of Irrevocable Trust No. 6, FBO F.E. O'Donnell, Jr.,
M.D., Steven R. Verdooner and Dennis J. Makes. *
10.12(a) Amendment No. 1 to Stock Purchase Agreement, dated March 25,
1992, among the Registrant, Jonnie R. Williams, individually,
Jonnie R. Williams, as Trustee of Irrevocable Trust No. 1,
Rambert Simmons, and Kathleen M. O'Donnell, as Trustee of
Irrevocable Trust No. 6, FBO F.E. O'Donnell, Jr., M.D. *
10.13 Cross-Indemnification Agreement, dated February 14, 1991,
among Dennis Makes, Steven Verdooner, and Richard Wullaert. *
10.14 Key Man Life Insurance Policies in the amount of $1,000,000
for each of Dennis J. Makes and Steven R. Verdooner, with the
Registrant as the named beneficiary. *
<PAGE>
10.15 Warrant dated February 12, 1993 issued by the Registrant to
Steven R. Verdooner to purchase 50,000 shares of Common
Stock. (1)
10.16 Stock Option Plan. (1)
10.17 Promissory Note dated January 4, 1993 from the Registrant to
Western Financial Savings Bank in the amount of $25,209.83
due in full by January 4, 1998. (1)
10.18 Rental Agreement dated May 1, 1994 by and between the
Registrant and Robert J. Rossetti. (2)
10.19 Security and Loan Agreement (with Credit Terms and
Conditions) dated April 12, 1995 by and between the
Registrant and Imperial Bank. (3)
10.19(a) General Security Agreement dated April 12, 1995 by and
between the Registrant and Imperial Bank. (3)
10.19(b) Warrant dated November 1, 1995 issued by the Registrant to
Imperial Bank to purchase 67,500 shares of Common Stock. (4)
10.19(c) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated November 1, 1995. (4)
10.19(d) Registration Rights Agreement dated November 1, 1995 between
the Registrant and Imperial Bank. (4)
10.19(e) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated April 4, 1996). (6)
10.19(f) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated July 12, 1996). (7)
10.19(g) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated November 21, 1996). (7)
10.20 Purchase Agreements dated November 21, 1995 between the
Registrant, JB Oxford & Company and certain Investors. (4)
10.20(a) Warrant Agreement dated November 21, 1995 between the
Registrant, JB Oxford & Company and certain Investors. (4)
10.20(b) First Amendment Warrant Agreement dated November 21, 1996
between the Registrant, JB Oxford & Company and certain
Holders. (7)
<PAGE>
10.20(c) Registration Rights Agreement dated November 21, 1995
between the Registrant, JB Oxford & Company and certain
Investors. (4)
10.21 Employment Agreement dated November 20, 1995 between the
Registrant and Steven R. Verdooner. (4)
10.22 Employment Agreement dated November 20, 1995 between the
Registrant and R. Michael Clark. (4)
10.25 The Registrant's 1995 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. (5)
* Incorporated by reference to the like-numbered exhibits previously
filed with Registrant's Registration Statement on Form S-18, number 33-
46864-LA.
(1) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1993 filed on November 26,
1993.
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1994 filed on November 29,
1994.
(3) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended May 31, 1995 filed on July 14,
1995.
(4) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1995 filed on November 29,
1995.
(5) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 filed on May 28, 1996, number 333-0461.
(6) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended May 31, 1996 filed on July 15,
1996.
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1996 filed on November 29,
1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10QSB FOR OPHTHALMICF IMAGING SYSTEMS FOR THE PERIOD ENDED FEBRUARY 28, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 335,169
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<RECEIVABLES> 1,708,796
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<INVENTORY> 1,353,198
<CURRENT-ASSETS> 3,491,720
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<DEPRECIATION> 701,044
<TOTAL-ASSETS> 3,971,966
<CURRENT-LIABILITIES> 2,279,808
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0
0
<COMMON> 9,545,677
<OTHER-SE> 7,853,714
<TOTAL-LIABILITY-AND-EQUITY> 3,971,966
<SALES> 3,169,653
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<CGS> 1,983,740
<TOTAL-COSTS> 1,983,740
<OTHER-EXPENSES> 1,852,950
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