U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 1-11140
OPHTHALMIC IMAGING SYSTEMS
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
CALIFORNIA 94-3035367
(I.R.S. Employer
(State or Other Jurisdiction of Incorporation Identification No.)
or Organization)
221 LATHROP WAY, SUITE I 95815
SACRAMENTO, CALIFORNIA (Zip Code)
(Address of Principal Executive Offices)
(916) 646-2020
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
Name of Each Exchange
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, No Par Value Boston Stock Exchange
NASDAQ
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
NONE
(TITLE OF CLASS)
Check whether the registrant (1) 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
CHECK IF NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B IS CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL 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-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year was $6,625,616.
The aggregate market value of the Common Stock of the issuer held by non-
affiliates as of October 31, 1997, was approximately $3,507,989 by reference to
the average bid and ask price of the Common Stock as quoted by NASDAQ Small Cap
Market on such date. As of October 31, 1997, there were 3,905,428 issued and
outstanding shares of issuer's Common Stock.
Traditional Small Business Disclosure Format (check one): Yes No XX
<PAGE>1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Ophthalmic Imaging Systems (the "Company" or "OIS") was incorporated under
the laws of the State of California on July 14, 1986. The Company 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.
Since its inception, the Company's products have addressed primarily the
needs of the ophthalmic fluorescein angiography market, and more recently the
indocyanine green market. The current flagship products in the Company's
angiography line are its digital imaging systems, the WinStation
1024<trademark> and WinStation 640<trademark>. These WinStation products are
targeted primarily at retinal specialists and general ophthalmologists.
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 of demand for medical imaging equipment and services. New opportunities
in telemedicine are emerging that allow managed care organizations to reduce
costs while maintaining their quality of patient care. OIS is currently a
market leader in the ophthalmic imaging field and plans to expand this role by
applying its technology to telemedicine/managed care applications.
The Company's objective is to become a leading provider of ophthalmic
diagnostic products and services in the ocular health care industry, while
maintaining its position as a market leader in digital imaging and
telemedicine.
In this regard, over the past two years, the Company has expended
significant resources in developing a Reading and Documentation Center through
which it originally intended to provide documentation services of
electronically transmitted digital images acquired at remote locations. The
Company has recently redefined the scope of the Reading and Documentation
Center, however, to support research and development efforts surrounding its
existing products. The Reading and Documentation Center is presently being
utilized in the validation of diabetic retinopathy screening through
electronically transmitted digital images acquired at remote locations. The
Company is currently conducting a pilot program with a major managed care
provider to evaluate remote image interpretation for diabetic retinopathy
screening and intends to utilize this validation study to help expand the use
of the Company's digital imaging products for such screening.
The Company also recently has refocused its resources on the marketing and
sales of its WinStation digital imaging systems. The Company's products are
currently being utilized in a variety of ophthalmic settings for the
telemedicine application of remote consultation. The Company is currently
focusing its product development efforts on features and enhancements to its
existing products targeting various other telemedicine applications.
Additionally, in the near-term, the Company intends to utilize its Reading and
Documentation Center to develop and assess viable opportunities for the
Company's digital imaging products in screening, remote consultation, distance
learning and other telemedicine applications.
<PAGE>2
The Company continues to assess market opportunities for its Glaucoma-
Scope<reg-trade-mark>, but currently does not actively market for the sale of
this product.
The Company has experienced operating losses for each fiscal year since its
initial public offering in 1992. The Company expects to continue to incur
operating losses for the foreseeable future and there can be no assurance that
the Company will be able to achieve or sustain significant revenues or
profitability in the future. In an effort to achieve profitability, the Company
intends to strengthen its existing product lines and expand into new product
lines. In this regard, the Company's plans to expand its technology to
telemedicine/managed care applications which may result in significant expenses
over the next several years.
The Company, headquartered in Sacramento, California, enjoys a fine
reputation within the ophthalmic community for producing high quality,
reliable, easy to use equipment. Its products are compatible with standard
diagnostic procedures used in all types of eye care practices.
THE INDUSTRY
There are approximately 18,000 ophthalmologists in the United States and
28,000 ophthalmologists practicing medicine in countries outside the United
States. This group has been traditionally divided into two major groups:
anterior segment (front of the eye) and posterior segment (back of the eye).
Within these groups there are several sub-specialties including medical retina,
retina and vitreous, glaucoma, neuro, plastics, pediatric, cataract, cornea and
refractive surgery. The Company's WinStation products are targeted primarily
at the retina specialist and general ophthalmologist.
PRODUCTS
The Company currently offers two products to the ophthalmic market:
WinStation 640 and the WinStation 1024.
WINSTATION SYSTEMS (640 & 1024)
The Company's WinStation systems (640 and 1024 resolution) are primarily
used by ophthalmologists to perform a diagnostic test procedure known as
fluorescein angiography. This procedure is used to diagnose and monitor
pathology and provide important information in making treatment decisions.
Fluorescein angiography is performed by injecting a fluorescent dye in the
bloodstream. As the dye circulates through the blood vessels of the eye, the
WinStation system connected to a fundus camera takes detailed images of the
patient's retina. Quite often these images provide a "road map" for laser
treatment.
Over the past 35 years fluorescein angiography has been performed using
photographic film which requires special processing and printing. The
Company's WinStation systems allow for immediate diagnosis and treatment of the
patient. Images are automatically data based and are permanently stored on
optical laser disk or CD-ROM. OIS offers a variety of networking and printer
options to best fit the practice needs.
The Company's WinStation systems are also used by ophthalmologists to
perform indocyanine green ("ICG") angiography. ICG angiography is a new
diagnostic test procedure which is yielding new clinically significant
<PAGE>3
information that is helpful in the treatment of patients with macular
degeneration (a leading cause of blindness afflicting over 13 million people in
the U.S.). ICG angiography, used for approximately 10-20% of patient
angiography, is a dye procedure that can only be performed using a digital
imaging system.
OTHER
The Company also developed the Glaucoma-Scope<reg-trade-mark>, designed for
use by ocular health providers that manage patients with glaucoma by providing
a means for comparing optic nerve head topography over a number of patient
visits. While the Company has sold Glaucoma-Scope<reg-trade-mark> units in the
past, it no longer actively markets this product for sale.
MARKETS
The WinStation market consists of current fundus camera owners and
anticipated fundus cameras purchasers of cameras suitable for interfacing with
the Company's digital imaging system products. Presently there are over 8,500
mydriatic fundus cameras in clinical use in the United States with an equal
number in the international market. New fundus camera sales fluctuate between
500 and 1,000 units per year. Of the total number of fundus cameras worldwide,
approximately 12,000 are suitable to be interfaced with OIS digital imaging
systems.
Currently there are six manufacturers of fundus cameras producing a total
of 17 models. OIS has successfully designed optical and electronic interfaces
to each of these cameras.
The primary target market for digital angiography systems is retinal
specialists who number approximately 3,000 in the U.S. For the past two years
OIS digital imaging system sales have been driven in this segment to a large
extent by indocyanine green ("ICG") angiography. ICG angiography is a new
diagnostic test procedure which is yielding new clinically significant
information that is helpful in the treatment of patients with macular
degeneration (a leading cause of blindness afflicting over 13 million people in
the U.S.). ICG angiography is a dye procedure that can only be performed using
a digital imaging system. While only used for 10-20% of patient angiography,
it has been the catalyst to digital imaging system purchases. Competition is
intense in the retinal community and those practices without ICG capability
are losing referral business from general ophthalmologists. The Company
expects the demand for digital angiography to continue as it is becoming a
standard of care.
Although the Company no longer actively manufactures or markets the
Glaucoma-Scope<reg-trade-mark> for sale, it continue to asses potential market
opportunities for this product.
SALES, MARKETING AND DISTRIBUTION
The Company utilizes a direct sales force in marketing its products
throughout the United States and Canada. The direct sales force consists of
territory representatives and product specialists strategically located
throughout the contiguous U.S. as well as a marketing manager located at the
Company's headquarters. These regional representatives and product specialists
provide marketing, sales, service, installation and training. Additionally,
the Company subcontracts service in several cities in the U.S. and Canada for
routine component replacement. Internationally, the Company has retained
specialized ophthalmic distributors which sell the Company's products in
various foreign countries. Each country has trained sales and technical
service staff for their respective territories.
<PAGE>4
For its marketing activities, the Company prepares brochures, data sheets,
application notes on its products, and participates in industry trade shows
and workshops. Advertising and promotion is achieved through advertisements in
trade journals, press releases, a Company newsletter, direct mail
solicitations, journal articles, and scientific papers and presentations.
MANUFACTURING AND PRODUCTION
The Company is primarily a systems integrator with proprietary software,
optical interfaces, and electronic fundus camera interfaces. Certain
components are subcontracted to outside vendors and assembled at OIS. The
Company inventories and assembles components in a 10,500 square foot facility
located in Sacramento, California. For production of certain components of its
products, the Company's manufacturing strategy is to use subcontractors to
minimize time and reduce capital requirements.
The Company's product line is manufactured by assembling components
purchased from established outside quality vendors as well as certain
components manufactured by OIS. Proprietary components manufactured by the
Company include interface circuit boards for 17 fundus camera models, video
optical interfaces including ICG and live viewing options. The Glaucoma-
Scope<reg-trade-mark> optical head is also manufactured by the Company.
The Company has been routinely audited by the Food and Drug Administration
and was deemed to conform to Good Manufacturing Practices ("GMP"). The Company
has 510(k)'s on file for both the Glaucoma-Scope<reg-trade-mark> and its
digital angiography products. See "Government Regulation".
COMPONENTS, RAW MATERIALS AND SUPPLIERS
As a systems integrator, a significant number of the major hardware
components in the Company's products are procured from sole source vendors.
Whenever possible, however, the Company seeks multiple vendor sources from
which to procure its components. As with any manufacturing concern dependent
on subcontractors and component suppliers, significant delays in receiving
products or unexpected vendor price increases could adversely affect the
Company.
The Company works closely with its principal component suppliers and the
rest of its vendors to maintain dependable working relationships and to
continually integrate the most current proven pertinent technologies into the
manufacturing of its products.
WARRANTIES
The Company generally provides a 12-month limited warranty for parts, labor
and shipping charges in connection with the initial sale of its products. The
Company also provides its standard limited warranty beyond the 12-month period
in consideration for increased deposits from customers. Peripheral products
such as monitors, printers and optical laser disk drives also carry the
original manufacturer's warranty.
To insure quality control and the proper functioning of a product in the
doctor's office, the Company installs the system and trains the doctor and his
staff. The Company makes every effort to provide the customer with a properly
functioning system and a well-trained staff.
<PAGE>5
The Company also offers service plans for sale to its customers as a
supplement to the original manufacturer's warranties carried on certain of the
Company's component parts used in its products.
COMPETITION
The healthcare industry is characterized by extensive research and
development efforts and rapid technological change. Competition for products
that can diagnose and evaluate eye disease is intense and is expected to
increase. The Company is aware of two primary competitors in the U.S. which
produce and are delivering digital fundus imaging systems, Topcon and Tomey.
Four other companies are known to have systems in the international market each
with small market penetration.
Topcon is the Company's main competitor in the angiography market. Topcon
angiography products predominantly interface with Topcon fundus cameras while
the Company's systems interface with 17 different models or fundus cameras from
a wide variety of manufacturers.
Although the Company will continue to work to develop new and improved
products, many companies are engaged in research and development of new
devices and alternative methods to diagnose and evaluate eye disease.
Introduction of such devices and alternative methods could hinder the Company's
ability to compete effectively and could have a material adverse effect on its
business, financial condition and results of operations. Many of the Company's
competitors and potential competitors have substantially greater financial,
manufacturing, marketing, distribution and technical resources than the
Company.
RESEARCH AND DEVELOPMENT
The Company intends to devote significant resources to the development of
telemedicine/managed care applications, the improvement of optics, new fundus
camera interfaces for ICG, software development (including the continued
enhancement of WinStation), hardware optimization, and the patient/doctor
interface. The Company's research and development expenditures in the periods
ended August 31, 1997 and 1996, were $1,070,192 and $846,034, respectively.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
On June 15, 1993 the Company was issued United States Letters Patent
5,220,360 for "Apparatus and Method for Topographical Analysis of the Retina."
This patent relates to the Glaucoma-Scope<reg-trade-mark> apparatus, and
methods used by the apparatus for topographically mapping the retina and
comparing the mapping to previous mappings. In addition, the Company relies
upon trade secrets, know-how, and continuing technological innovation to
develop and maintain its competitive position. The Company anticipates
aggressively defending its patents and proprietary technology, although there
can be no assurance that any patent will not be circumvented or invalidated.
Further, although the Company believes that the Glaucoma-
Scope<reg-trade-mark> and the Company's other products do not and will not
infringe patents or violate proprietary rights of others, it is possible that
its existing rights may not be valid or that infringement of existing or future
patents, trademarks or proprietary rights may occur. In the event that any of
the Company's products, including the Glaucoma-Scope<reg-trade-mark>, infringe
<PAGE>6
patents, trademarks or proprietary rights of others, the Company may be
required to modify the design of such products, change the names under which
the products or services are provided, or obtain licenses. There can be no
assurance that the Company will be able to do so in a timely manner, upon
acceptable terms and conditions, or at all. The failure to do any of the
foregoing could have a material adverse effect on the Company. There can be no
assurance that the Company's patents or trademarks, if granted, would be upheld
if challenged, or that competitors might not develop similar or superior
processes or products outside the protection of any patents issued to the
Company. In addition, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent or
trademark infringement or proprietary rights violation action. Moreover, if
the Company's products infringe patents, trademarks or proprietary rights of
others, the Company could, under certain circumstances, become liable for
damages, which also could have a material adverse effect on the Company.
The Company also relies on unpatented proprietary technology. Certain of
the image processing and optical interfaces of the Company's digital imaging
systems are largely proprietary and constitute trade secrets, but the basic
computer hardware, software, and video components are purchased from third
parties. No patent applications have been filed with respect thereto. There
is no assurance that others will not independently develop substantially
equivalent proprietary information or techniques, or otherwise gain access to
the Company's trade secrets or disclose such technology, or that the Company
can meaningfully protect its rights to its unpatented trade secrets.
The Company seeks to protect its unpatented proprietary technology, in
part, through proprietary confidentiality and nondisclosure agreements with
employees, consultants and other parties. The Company's confidentiality
agreements with its employees and consultants generally contain industry
standard provisions requiring such individuals to assign to the Company without
additional consideration any inventions conceived or reduced to practice by
them while employed or retained by the Company, subject to customary
exceptions. There can be no assurance that proprietary information agreements
with employees, consultants and others will not be breached, that the Company
would have adequate remedies for any breach or that the Company's trade secrets
will not otherwise become known to or independently developed by competitors.
GOVERNMENT REGULATION
The marketing and sale of the Company's products are subject to certain
domestic and foreign governmental regulations and approvals. Pursuant to the
Federal Food, Drug, and Cosmetic Act ("FDCA"), the Company is required under
Section 510(k) to file, and has submitted, a Pre-Marketing Notification with
the Federal Drug Administration (the "FDA") which provides certain safety and
effectiveness information concerning the Company's diagnostic imaging systems
and the Glaucoma-Scope<reg-trade-mark>. The FDA has approved the Company's
pre-marketing notification submittals thereby granting the Company permission
to market its product, subject to the general controls and provisions of the
FDCA. The Company's products are classified as Class II devices (special
controls) which require, among other things, annual registration, listing of
devices, good manufacturing practices and labeling, and prohibition against
misbranding and adulteration.
The Company has registered its manufacturing facility with both the FDA and
the California authorities as a medical device manufacturer and operates such
facility under FDA and California requirements concerning Quality System
Requirements ("QSR"), and formerly GMP. As a medical device manufacturer, the
Company is required to continuously maintain its QSR compliance status and to
demonstrate such compliance during periodic FDA or California inspections. If
the facilities do not meet applicable QSR regulatory requirements, the Company
may be required to implement changes necessary to comply with such regulations.
<PAGE>7
Although the FDA has made findings which permit the Company to proceed with
its products to the marketplace, such findings do not constitute FDA approval
of these devices. Further, since the Company is engaged in international
sales, the Company's products must satisfy certain manufacturing requirements
and may subject the Company to various filing and other regulatory requirements
imposed by foreign governments as a condition to the sale of such products.
The Company cannot predict the effect that future legislation or regulatory
developments may have on its operations. Additional regulations,
reconsideration of approvals granted under current regulations, or a change in
the manner in which existing statutes and regulations are interpreted or
applied may have a material adverse impact on the Company's business, financial
condition and results of operations. Moreover, new products and services
developed by the Company, if any, also may be subject to the same or other
various federal and state regulation, including that of the FDCA.
INSURANCE
The Company maintains general commercial casualty and property insurance
coverage for its business operations, as well as product liability insurance.
As of August 31, 1997, the Company has not received any product liability
claims and is unaware of any threatened or pending claims. To the extent that
product liability claims are made against the Company in the future, such
claims may have a material adverse impact on the Company.
EMPLOYEES
As of August 31, 1997, the Company had 33 employees, of which 28 were full
time. The Company also engages the services of consultants from time to time
to assist the Company on specific projects in the area of research and
development, software development, regulatory affairs, and product services.
These consultants periodically engage contract engineers as independent
consultants for specific projects. The Company has no collective bargaining
agreements covering any of its employees, has never experienced any material
labor disruption, and is unaware of any current efforts or plans to organize
its employees. The Company considers its relationship with its employees to be
good.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
The Company leases, under a triple net lease, approximately 13,875 square
feet of office, manufacturing, and warehouse space in Sacramento, California
under a lease which terminates June 30, 1998. The Company also leases an
approximately 200 square foot sales office in Simsbury, Connecticut on a month-
to-month basis. Management believes that its existing facilities are suitable
and adequate to meet its current needs. The Company pays monthly lease
payments, with respect to these properties, in the aggregate of approximately
$10,200.
<PAGE>8
The Company does not have, and does not foresee acquiring, any real estate
or investments in real estate, and is not engaged in any real estate
activities.
ITEM 3. LEGAL PROCEEDINGS
On September 6, 1996, an action was filed in Superior Court in the County
of Sacramento, California against the Company by a former employee alleging
that such employee was wrongfully terminated by the Company in retaliation for
filing a grievance against a co-employee for harassment and creation of a
hostile work environment. The suit, which is still pending, seeks, among other
things, lost wages, $150,000 in compensatory damages, and punitive damages.
The Company believes that this action is without merit and intends to defend
this action vigorously.
There is no other material litigation or other legal proceedings presently
pending or threatened (to the knowledge of management of the Company) to which
the Company (or any of its directors or officers in their capacity as such) is,
or may be a party, or to which property of the Company is, or may be, subject.
On or about August 17, 1997, the Company was advised that JB Oxford &
Company ("JBO"), one of several market makers in the Company's common shares
which trade over the counter on the NASDAQ Small-Cap Market, was being
investigated by the Securities and Exchange Commission ("SEC"). In connection
with this investigation, the Company, and Mr. Verdooner, in his capacity as
Chief Executive Officer of the Company, were served by the SEC with a subpoena
on or about August 18, 1997. These subpoenas require the submission to the SEC
of various documents, predominantly relating to JBO.
The Company has cooperated with the SEC investigation and is making every
effort to produce the documents requested. The Company does not believe, nor
has it any reason to believe, it is a subject of the SEC inquiries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's securities
holders during the fourth quarter of its fiscal year ended August 31, 1997
covered by this Annual Report on Form 10-KSB.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company, no par value, is traded over-the-counter
on the NASDAQ Small-Cap Market under the symbol "OISI" and on the Boston Stock
Exchange under the symbol "OIS."
The table below sets forth the high ask and low bid prices for the Company's
Common Stock for each quarter of fiscal year 1996 and 1997, respectively. The
source of the following information was NASDAQ. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-downs or
commissions and may not necessarily represent actual transactions.
<PAGE>9
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1997
<S> <C> <C> <C> C> <C> <C>
HIGH LOW HIGH LOW
ASK BID DIVIDEND ASK BID DIVIDEND
QUARTER 1 3-3/4 1-1/2 -- 5-3/4 3-1/4 --
QUARTER 2 4 1-9/16 -- 5-3/16 3 --
QUARTER 3 7-3/8 3 -- 3-7/8 1-7/8 --
QUARTER 4 5-3/4 3-1/8 -- 2-1/4 1/2 --
</TABLE>
On October 31, 1997 the closing price for the Company's Common Stock as
reported by Nasdaq was $1.00 per share and there were approximately 168
shareholders of record.
Under the NASDAQ rules, one prerequisite to continued listing on NASDAQ, is
maintenance by a company of a minimum closing bid price of $1.00 per share. If
a company's closing bid price per share is below $1.00 per share for ten (10)
consecutive trading days, the company may be subject to having its shares
delisted from NASDAQ.
In September 1997, the Company's closing bid price per share fell below
$1.00 per share for ten (10) consecutive trading days. Accordingly, the
Company received a letter from NASDAQ which indicated that although the
Company's closing bid price per share did not meet the minimum $1.00
requirement, NASDAQ was not going to commence any delisting action at that
time. Instead, NASDAQ stated that the Company would be in compliance with its
minimum listing price rules, if at any time during the next 90 calendar days
from September 23, 1997, the closing bid price per share of the Company's
common stock is at least $1.00 for ten consecutive trading days ("Minimum
Closing Price Requirement").
Although the bid price of the Company's shares has closed at or above $1.00
per share since September 23, 1997, as of the date hereof the Company has not
met the Minimum Closing Price Requirement and there can be no assurance that
the Company will meet said requirement or that the Company may not become
subject to delisting from the NASDAQ Small-Cap Market in the future.
DIVIDEND POLICY
The Company has not paid any cash dividends since its inception and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company expects to retain its earnings, if any, to provide funds
for the expansion of its business. Pursuant to a Credit Agreement (defined
below), the Company is restricted from paying dividends prior to retirement of
the debt thereunder. Future dividend policy will be determined periodically by
the Board of Directors based upon conditions then existing, including the
Company's earnings and financial condition, capital requirements, and other
relevant factors.
<PAGE>10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
technology and sales of digital ophthalmic imaging systems.
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.
OIS 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 fluorescein angiography market, and more recently the
indocyanine green ("ICG") market. While the Company believes that the overall
angiography market has modest growth potential, sustaining growth in its
traditional angiography equipment business may become increasingly difficult
due to increased competition. In recognition of this, the Company is expanding
its product capabilities to address the emerging telemedicine market. The
Company will continue to support and expand its entire line of digital
angiography products, and will focus its future efforts on developing product
enhancements and pursuing viable opportunities in this market, particularly as
they relate to telemedicine applications.
The Company's objective is to become a leading provider of ophthalmic
diagnostic products and services in the ocular health care industry, while
maintaining its position as a market leader in its existing digital imaging
products and telemedicine.
In this regard, over the past two years, the Company has expended
significant resources in developing a Reading and Documentation Center through
which it originally intended to provide documentation services of
electronically transmitted digital images acquired at remote locations. The
Company has recently redefined the scope of the Reading and Documentation
Center, however, to support research and development efforts surrounding its
existing products. The Reading and Documentation Center is presently being
utilized in the validation of diabetic retinopathy screening through
electronically transmitted digital images acquired at remote locations. The
Company is currently conducting a pilot program with a major managed care
provider to evaluate remote image interpretation for diabetic retinopathy
screening and intends to utilize this validation study to help expand the use
of the Company's digital imaging products for such screening.
<PAGE>11
The Company also recently has refocused its resources on the marketing and
sales of its WinStation digital imaging systems. The Company's products are
currently being utilized in a variety of ophthalmic settings for the
telemedicine application of remote consultation. The Company is currently
focusing its product development efforts on features and enhancements to its
existing products targeting various other telemedicine applications.
Additionally, in the near-term, the Company intends to utilize its Reading and
Documentation Center to develop and assess viable opportunities for the
Company's digital imaging products in screening, remote consultation, distance
learning and other telemedicine applications.
Although the Company no longer actively markets for the sale of its
Glaucoma-Scope<reg-trade-mark>, it continues to assess market opportunities for
this product.
The Company's results of operations have historically fluctuated from
quarter to quarter and from year to year and management anticipates that such
fluctuations will continue in the future. There can be no assurance that
revenue growth or profitability can be achieved or sustained in the future.
RESULTS OF OPERATIONS
The Company's revenues decreased to $6,625,616 in 1997 from $6,873,651 in
1996. The primary factor contributing to the reduced 1997 revenue level was a
reallocation of the Company's resources to address emerging opportunities in
the telemedicine/managed care market; and pursuit of sales for its Reading and
Documentation Center Services, which it has since ceased. During the 1996 fall
meeting of the American Academy of Ophthalmology ("AAO"), the Company
introduced lower-priced digital imaging systems incorporating telemedicine
features providing for remote consultation and distance learning, as well as
other applications. The Company has targeted these products to the general
ophthalmology and retinal specialty practice markets and made initial
deliveries of these systems during the latter half of 1997. During the
recently completed 1997 AAO meeting, the Company introduced new models of its
digital angiography products incorporating enhanced telemedicine features, with
the Company receiving significantly more purchase commitments for its products
as compared to previous AAO meetings. As such, the Company will continue to
allocate resources to address these markets, and direct the majority of its
resources to both support the demand for its digital imaging products in these
and related markets and, more recently, to pursue opportunities in the
telemedicine/managed care market.
Contribution to revenues from sales of Glaucoma-Scope<reg-trade-mark> units
have been negligible and management does not anticipate near-term sales
improvement from the Glaucoma-Scope<reg-trade-mark>.
Gross margins were approximately 26% in 1997 as compared to approximately
30% in 1996. This decrease in gross margin percentage was attributable
primarily to the adverse impact of a non-recurring adjustment to reduce the
carrying value of certain inventory, including field spares, due to, among
other things, potential obsolescence and reduced cost recovery estimates. The
Company continues to evaluate its expenses in this area consistent with current
and anticipated business conditions and management believes that near-term
gross margin improvement, if any, would result principally from reduced
material costs associated with currently deliverable system configurations,
outsourcing additional manufacturing and assembly operations and related fixed
cost reduction measures implemented during the latter half of 1997, including
personnel cutbacks, economics of scale from increased unit production and other
manufacturing efficiencies.
<PAGE>12
Sales and marketing and general and administrative expenses accounted for
approximately 41% of revenues for the fiscal year ended August 31, 1997 as
compared to approximately 35% for the previous fiscal year. Expenses were
$2,714,140 in 1997 as compared to $2,375,427 in 1996, representing an increase
of approximately 14%. The primary factors contributing to this increase were
costs associated with hiring additional support personnel, the impact of
increased reserves for potential credit losses and the costs associated with
developing the telemedicine/managed care applications and the start-up
marketing efforts. The Company anticipates expenses in this area will continue
to run above historical levels for the foreseeable future, in particular in
conjunction with the hiring of additional senior management level personnel
during the fourth quarter of fiscal 1997.
Research and development expenses increased by approximately 26% to
$1,070,192, or approximately 16% of revenues in 1997 from $846,034, or
approximately 12% of revenues in 1996. The Company intends to focus its
research and development efforts on current product enhancements and reducing
cost configurations for its current products. The Company anticipates that
research and development expense will be maintained at current levels in the
near term.
Interest income was $13,912 during 1997 versus $20,618 during 1996.
Interest expense accounted for $80,746 and $288,667 in 1997 and 1996,
respectively. Interest expense decreased in 1997 from 1996 due to significant
charges incurred in 1996 in connection with a stock appreciation right
previously granted to the Company's bank. In May 1996, the bank exercised an
alternative stock appreciation right available under the warrant. During 1996,
the Company recognized as interest expense approximately $218,000 in connection
with the alternative stock appreciation right. Principal and interest amounts
due under the alternative stock appreciation right, which were payable on
November 30, 1997, have recently been extended to April 1, 1998.
EXPORT SALES
Revenues from sales to customers located outside of the United States
(primarily Europe) accounted for approximately 30% and 29% of the net sales for
the years ended August 31, 1997 and 1996, respectively.
SEASONALITY
The Company's most effective marketing tool is the demonstration and display
of its products at the annual meeting of the American Academy of Ophthalmology
held during the fall of each year, with a significant amount of the Company's
sales orders generated during or shortly after this meeting. Accordingly, the
Company expends a considerable amount of time and resources during the first
quarter of its fiscal year preparing for this event. As a consequence, the
Company's revenues and profitability typically decrease during the periods
prior to and following the annual meeting.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $1,411,425 in 1997 as
compared to $1,460,460 in 1996. The cash used in operations in 1997 was
partially offset by the significant reduction to inventories. Cash used in
operating activities in 1996 was comprised principally of the net loss for the
year and, to a lesser extent, increased inventory levels.
<PAGE>13
Net cash used in investing activities decreased to $161,735 during 1997 from
$215,884 during 1996. The Company's primary investing activities consist of
equipment and other capital asset acquisitions. The higher levels during 1996
included capital expenditures associated with establishing the Company's
Reading and Documentation Center as well as the purchase and installation of
software to upgrade its management information systems, which expenditures were
not required during 1997. The Company does not currently have commitments for
capital expenditures, however, the Company plans to upgrade its existing
management information and corporate communication systems, which may result in
increased near term 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.
Net cash provided by financing activities in 1997 was $664,135 as compared
to $2,410,464 during 1996. The sources of cash from financing activities
during the 1997 period were principally the net proceeds of approximately
$757,000 from the exercise of certain Series A and B Warrants issued pursuant
to a private placement of the Company's Common Stock discussed in the
succeeding sentence, and, to a lesser extent, proceeds from the exercise of
stock options. The sources of cash from financing activities during the 1996
period were principally the net proceeds of approximately $1,075,000 from a
private placement of 1,368,421 shares of the Company's Common Stock and
warrants in November 1995, the net proceeds of approximately $1,180,000 from
the exercise in May 1996 of certain Series A Warrants issued pursuant to said
private placement and, to a lesser extent, borrowings under the Credit
Agreement which is more fully described immediately below. See Footnote 7 of
the Company's financial statements for a more detailed description of the
private placement. Cash generated from financing activities during 1997 was
partially offset by the net repayment of borrowings under the Credit Agreement,
and during both 1997 and 1996 was offset slightly by principal repayments on
notes payable.
The Company is party to a revolving line of credit agreement (the "Credit
Agreement") with a bank which matured on November 7, 1997. The maximum amount
available under the Credit Agreement is $750,000, based upon eligible
outstanding accounts receivable balances. Borrowings under the Credit
Agreement bear interest at the rate of the bank's prime plus 3% per annum and
are secured by substantially all of the Company's assets. The Credit Agreement
contains certain restrictive covenants which provide for, among other things,
certain working capital and net worth balances and ratios. The Company was not
in compliance with the restrictive covenants at August 31, 1997 and borrowings
in the amount of approximately $311,000 were outstanding related to the Credit
Agreement at that date. On November 18, 1997, the Credit Agreement was
converted to a full recourse accounts receivable credit agreement (the
"Agreement"), and all amounts outstanding under the Credit Agreement were
considered to be the initial advance under the Agreement. The Agreement allows
for up to an 80% advance rate on eligible accounts receivable balances, and the
maximum borrowing base under the Agreement is $1.2 million. The Bank has full
recourse against the Company under the Agreement and the Agreement expires
in November 1998. Borrowings under the Agreement bear interest at the
Bank's prime lending rate plus 4%. In addition, the Bank will charge
monthly an administrative fee equal to the greater of 1/2% of the average
daily balance for the month or $1,200. Under the terms of the Agreement,
borrowings are secured by substantially all of the Company's assets.
<PAGE>14
At August 31, 1997, the Company's cash and cash equivalents were $142,300.
As indicated above, the Company typically expends considerable time and
resources during the first quarter of its fiscal year preparing for the annual
meeting of the American Academy of Ophthalmology and as a consequence, the
Company's revenues and profitability typically decrease during the period
surrounding the meeting which could adversely impact the Company's cash
position in the immediate term. The Company believes, however, that its
existing cash balances together with ongoing collections of its accounts
receivable and recently increased available borrowing capacity under the
Agreement will be adequate to meet its liquidity and capital requirements over
the next twelve months. The Company does not expect to experience collection
difficulties with respect to its accounts receivable that would have a material
adverse effect on its liquidity. In addition, principal and interest amounts
due under the alternative stock appreciation right with the Bank, which amounts
were approximately $251,000 as of August 31, 1997, and were originally payable
on November 30, 1997, have recently been extended to April 1, 1998. The
Company will, however, continue to evaluate alternative sources of capital to
meet its cash requirements, including other debt financing, issuing equity
securities and entering into other financing arrangements and/or strategic
alliances. There can be no assurance, however, that additional financing will
be available and, if available, can be obtained on terms favorable to the
Company. Additional capital could also be made available to the Company
pursuant to the exercise of Series C Warrants issued to JBO in connection with
a November 1995 private placement of the Company's common stock, as well as
from other outstanding stock options; however, there can be no assurance any
such warrants or options will be exercised in the near-term, if at all. In
this regard, there can be no assurance that the SEC investigation of JBO may
not adversely affect JBO's ability to exercise the Series C Warrants.
In addition, the Company faces the possibility of its common stock being
delisted from NASDAQ unless it meets the Minimum Closing Price Requirement as
stipulated therein. See "Item 5 - Market for Common Equity and Related
Stockholder Matters". If the Company's common stock is delisted, it may be
difficult for the Company to raise capital through the sale of its common
stock.
INFLATION
The Company believes that inflation has not had a material or significant
impact on the Company's revenue or on its results from operations.
INCOME TAXES
Deferred income taxes are accounted for pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and result from
differences in the timing of recognition of certain revenues and expenses for
financial statement and income tax reporting purposes.
General business credits are accounted for as a reduction of federal income
taxes payable under the flow-through method.
ACCOUNTING- EARNINGS PER SHARE COMPUTATION AND CAPITAL STRUCTURE DISCLOSURE
In February 1997, the Financial Accounting Standards Board issued Statement
NO. 128, "Earnings per Share," which is required for both interim and annual
periods ending after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
<PAGE>15
to restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact of Statement No. 128 on the calculation of primary and
fully diluted earnings per share is not expected to be material.
In February 1997, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure". Statement 129 consolidates existing guidance in APB
Opinion No. 10, Omnibus Opinion, Opinion 15, Earnings per Share, and FASB
Statement No. 47, Disclosure of Long-Lived Obligations, relating to disclosure
about the Company's capital structure. The Financial Accounting Standards
Board believes that placing capital structure disclosures in a single standard
will simplify compliance with the requirements. Statement 129 effective for
financial statements for periods ending after December 15, 1997. The impact of
Statement No. 129 on the disclosures relating to the Company's capital
structure is not expected to be significant.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The age of each director or executive officer, his positions and offices
with the Company, his term of office as a director, his business experience
during the past five years or more, and additional biographical data are set
forth below. Information with respect to the officer or director is as of
November 1, 1997, except as otherwise stated.
DIRECTOR
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
<S> <C> <C> <C>
Steven R. Verdooner 36 Chairman of the Board, Chief Executive Officer, 1986
Chief Financial Officer, and Secretary
William L. Mince 46 President and Chief Operating Officer 1997
Mark S. Blumenkranz, MD 47 Director 1995
Robert W. Medearis 65 Director 1997
Robert I. Schnuer 64 Director 1996
Lawrence A. Yannuzzi, MD 60 Director 1996
</TABLE>
<PAGE>16
All directors of the Company hold office until the earlier of the next
annual meeting of shareholders and until their successors have been duly
elected and qualified, or their death, resignation or removal. Officers are
elected annually by the Board of Directors to hold office until the earlier of
their death, resignation, or removal.
Set forth below is a description of their business experience during the
past five years or more, and other biographical information, for the Company's
executive officers an directors:
STEVEN R. VERDOONER is Chief Executive Officer, Chief Financial Officer
and Secretary for the Company. Mr. Verdooner served as acting President from
May of 1993 until his election by the Board of Directors to the position of
Chief Executive Officer in July 1997. Mr. Verdooner first served as Secretary
of the Company from 1987 to 1988 and has been serving in this capacity since
May 1993. Since the Company's inception, Mr. Verdooner has served as a
director and is currently the Chairman of the Board of Directors. From 1986 to
May 1993, Mr. Verdooner served as Vice President of the Company. From 1986 to
1987, and since 1988, Mr. Verdooner has served as the Company's Chief Financial
Officer. From 1983 to 1986, Mr. Verdooner directed the activities of Ocular
Graphics, a privately owned company engaged in the business of fluorescein
angiography. In 1983 Mr. Verdooner was a member of a research team at the
University of California, Davis, School of Medicine, Department of Human
Anatomy.
WILLIAM L. MINCE joined the Company in July 1997 as President and Chief
Operating Officer. From 1994 to July 1997, Mr. Mince held the position of Vice
President of Operations for PICS Retail Networks, a company pioneering point-
of-sale interactive multimedia advertising. From 1988 to 1994, Mr. Mince
served in various operational management capacities for Nellcor/Puritan
Bennett, a manufacturer of medical devices and related disposable products.
From 1984 to 1988, Mr. Mince was Director of Operations for Topaz, Inc./Square
D, a manufacturer of power conditioners, noise suppressers and uninterruptible
power supplies. Prior to joining Topaz, Inc./Square D, Mr. Mince served in
various manufacturing and operations management positions during a 12-year
tenure with Armorlite, Inc., a subsidiary of 3M Company.
<PAGE>17
MARK S. BLUMENKRANZ, M.D. has been a director of the Company since 1995.
He also serves on the Company's Scientific Advisory Board. Since 1992 he has
been Clinical Professor of Ophthalmology and Co-Director of Retinal Service at
Stanford University, and a partner in California Vitreoretinal Associates, a
professional medical corporation specializing in diseases and surgery of the
retina and vitreous. From 1985 to 1992, he was a partner in Associated Retinal
Consultants, a professional medical corporation. Dr. Blumenkranz is currently
a director of Midlabs, Inc., a manufacturer of ophthalmic surgical instruments.
Dr. Blumenkranz is an associate examiner for the American Board of
Ophthalmology and a member of the Retina, Macula and Vitreous Societies.
ROBERT W. MEDEARIS has been a director of the Company since August 1997.
He has been the President, Chief Executive Officer and co-owner of Chalice
Investments Inc., a company engaged in joint ventures and related
entrepreneurial and international management consulting activities in the
former USSR, primarily the Republic of Georgia, since its formation in 1992.
Since 1980, Mr. Medearis has served as director for a number of companies, both
private and public, engaged principally in engineering, real estate and
banking.
ROBERT I. SCHNUER has been a director of the Company since March 1996. He
has been the President and Chief Executive Officer of RIS Consulting Services,
his own consulting firm which concentrates in the health care and employee
benefits industry, since its formation in 1995. From 1954 to 1995, Mr. Schnuer
was employed by CIGNA Corporation in the sales and account management aspects
of its health care and employee benefits operations, ultimately serving as a
Vice President.
LAWRENCE A. YANNUZZI, M.D. has been a director of the Company since March
1996. He also serves on the Company's Scientific Advisory Board. Dr. Yannuzzi
is the founder and President of Vitreous-Retina-Macula Consultants of New York,
P.C., a professional medical corporation specializing in diseases and surgery
of the retina and vitreous, for which he has been an officer, director, and
practicing ophthalmologist for over 15 years. Dr. Yannuzzi also is Director of
Retinal Services and Vice Chairman of the Department of Ophthalmology at the
Manhattan Eye, Ear, and Throat Hospital and he is a professor of Clinical
Ophthalmology at the College of Physicians and Surgeons of Columbia University
Medical School.
There is no family relationship between any of the Company's directors or
officers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act of 1934, as amended ("Exchange
Act"), all executive officers, directors, and persons who are the beneficial
owner of more than 10% of the common stock of a company which files reports
pursuant to Section 12 of the Exchange Act are required to report the ownership
of such common stock, options, and stock appreciation rights (other than
certain cash-only rights) and any changes in that ownership with the Securities
and Exchange Commission (the "SEC"). Specific due dates for these reports have
been established, and the Company is required to report in this Form 10-KSB any
failure to comply therewith during the fiscal year ended August 31, 1997. The
Company believes that all of these filing requirements were satisfied by its
executive officers, directors, and by the beneficial owners of more than 10% of
the Common Stock, except for Messrs. Mince and Medearis' inadvertent failure to
file a Form 3 upon becoming a Company officer and director, respectively, and a
<PAGE>18
Form 4 upon the Company's grant of stock options, Mr. Verdooner and Dr.
Yannuzzi's inadvertent failure to timely file a Form 4 in connection with stock
options granted in April 1997, and Dr. Blumenkranz's inadvertent failure to
timely file a Form 4 upon exercise of warrants in February 1997. In making
this statement, the Company has relied on copies of the reporting forms
received by it or on the written representations from certain reporting persons
that no Form 5 (Annual Statement of Changes in Beneficial Ownership) were
required to be filed under applicable rules of the SEC.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the cash and non-cash
compensation paid to or accrued for the Company's Chief Executive Officer and
President during the last three fiscal years. The table also includes
information for other Company employees earning total compensation in excess of
$100,000 for fiscal year 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
NAME AND SECURITIES UNDERLYING
PRINCIPAL OCCUPATION YEAR SALARY BONUS OPTIONS ALL OTHER COMPENSATION
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Steven R. Verdooner,
Chief Executive 1997 $ 123,750 0 0 $ 768(1)
Officer, Chief 1996 $ 120,000 0 0 $ 3,768(1)
Financial Officer 1995 $ 96,308 0 0 $ 4,018(1)
and Secretary
William L. Mince,
President and Chief 1997 $ 17,500(2) 5,250(3) 0 0
Operating Officer 1996 $ 0 0 0 0
1995 $ 0 0 0 0
Glenn W. Erickson
Regional Sales
Manager and 1997 $ 75,000 0 0 $49,827(4)
Product Specialist 1996 $ 75,000 0 0 $64,048(4)
1995 $ 75,000 0 0 $59,652(4)
</TABLE>
(1) Includes disability insurance premiums in the amount of $518 paid by the
Company on behalf of Mr. Verdooner for each of the fiscal years ended in
1997, 1996, and 1995, and royalty payments to Mr. Verdooner in the amount
of $250, $3,250, and $3,500 for each of the fiscal years ended 1997,
1996, and 1995, respectively.
(2) Mr. Mince was appointed as President for the Company in July 1997. This
figure reflects the portion of Mr. Mince's $140,000 annual salary that
accrued during fiscal year 1997.
(3) This amount represents the portion of Mr. Mince's annual bonus that
accrued for fiscal year 1997.
(4) This figure reflects sales commission paid to Mr. Erickson during the
year.
<PAGE>19
STOCK OPTIONS GRANTED
As of August 31, 1997, the Company did not have any long term incentive
plans nor had it awarded any restricted stock. The table set forth below
contains information with respect to the award of stock options during the
fiscal year ended August 31, 1997 to the executive officers covered by the
Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE OR MARKET PRICE EXPIRATION
NAME OPTIONS GRANTED(#) EMPLOYEES IN 1997 BASE PRICE ON DATE OF GRANT DATE
<S> <C> <C> <C> <C> <C>
Steven R. Verdooner 50,000 (1) 27% (2) $2.75 $2.75 04/11/2002
William L. Mince 100,000 (3) 54% (2) $1.19 $1.19 08/11/2002
Glenn W. Erickson -- -- -- -- --
</TABLE>
(1) These options were granted to Mr. Verdooner on April 11, 1997, pursuant
to the Company's 1992 Nonstatutory Stock Option Plan and 50,000 options
under this same plan previously granted to Mr. Verdooner on March 27,
1992 expired in March 1997.
(2) Employees of the Company were granted options from the Company's 1992
Stock Option Plan, with an aggregate of 36,500 shares of common stock
underlying such options.
(3) These options were granted to Mr. Mince on August 11, 1997 as required by
Mr. Mince's employment contract with the Company, executed in July 1997.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
No stock options or SARs were exercised in 1997 by the executive officers
covered by the Summary Compensation Table. The following table sets forth, for
each of the executive officer named in the Summary Compensation Table above,
the number of the stock options held at August 31, 1997, and the realizable
gain of the stock options that are "in-the-money". The in-the-money stock
options and SARs are those with exercise prices that are below the year-end
stock price because the stock value grew since the date of the grant.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTIONS VALUES
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired on Value AT FISCAL YEAR END AT FISCAL YEAR END
NAME EXERCISED(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Steven R. Verdooner -- -- 108,333 75,000 $ 2,000 --
William L. Mince -- -- -- 100,000 -- --
Glenn W. Erickson -- -- 32,167 30,833 $ 130 $50
</TABLE>
___________
(1) Based upon the closing price of the Common Stock as quoted by Nasdaq
Small Cap Market on August 29, 1997 of $1.00 per share.
<PAGE>20
EMPLOYMENT AGREEMENTS
Mr. Verdooner's employment agreement, as amended in 1995, provides for an
annual salary of $120,000, incentive stock options covering 33,333 shares of
the Company's Common Stock pursuant to the Company's 1992 Stock Option Plan and
a termination date of November 1998. In July 1997, the Company restructured
its executive management and Mr. Verdooner was appointed, from his former
position of President, to serve as Chief Executive Officer. As a result of his
new office, the Company has increased Mr. Verdooner's annual salary from
$120,000 to $150,000, and extended the term of his employment agreement to July
1999, effective July 1997. A formal amendment to Mr. Verdooner's employment
agreement with the Company reflecting these changes is expected to be executed
in the near future.
In July 1997, the Company hired Mr. Mince to serve as the Company's
President and Chief Operating Officer. Pursuant to the terms of the employment
agreement, which has a two (2) year term, the Company has granted a stock
option to Mr. Mince to purchase 100,000 shares of the Company's common stock.
Further, the employment agreement provides, among other things, for an annual
base salary of $140,000 and the opportunity for Mr. Mince to receive an annual
performance bonus, not to exceed $42,000. In addition, if Mr. Mince's
employment is terminated before the expiration of its two -year term, other
than as provided in the employment agreement, Mr. Mince may be eligible to
receive severance payments ranging from $70,000 to $140,000.
DIRECTORS FEES
During 1997, the Company implemented a directors fees policy. Under the
Company's policy, directors receive $1,000 for each meeting attended in person
and reimbursement of costs associated with such attendance. Each director who
attends a directors' meeting by telephone receives $500, which covers all
telephonic meetings for that particular quarter. In addition, under the new
policy, each director receives, on the subsequent anniversary date for each
year of service to the Company as a director, an option to purchase 5,000
shares of the Company's common stock.
SCIENTIFIC ADVISORY BOARD
The Company has assembled fourteen ophthalmologists from around the country
with expertise complimentary to the Company's proprietary technology who have
agreed to serve on a Scientific Advisory Board (the "SAB"). The principal
purpose of the SAB is to assist in advancing the Company's technology by
reviewing its status and recommending alternative approaches. The SAB plans to
hold meetings in conjunction with national conferences such as the annual
meeting of the American Academy of Ophthalmology held during the fall of each
year. The members of the SAB are not expected to devote substantial amounts of
their time as a result of serving on the SAB. The composition of the SAB may
vary from time to time depending on the Company's evolving technological needs.
SAB members do not receive compensation for their services as advisors. They
are, however, reimbursed for reasonable out-of-pocket expenses incurred in
connection with their services and the Company has granted options under its
1995 Nonstatutory Stock Option Plan to each member of the SAB to purchase
shares of Common Stock.
In addition to Drs. Mark S. Blumenkranz and Lawrence A. Yannuzzi, both
directors of the Company, the SAB includes:
<PAGE>21
DAVID BOYER, M.D.
Senior Partner, Retina Vitreous Associates
North Hollywood, California
STANLEY CHANG, M.D.
Chairman Department of Ophthalmology
Columbia University
DONALD D'AMICO, M.D.
Associate Chief of Ophthalmology for Clinical Affairs
Professor of Ophthalmology
Massachusetts Eye and Ear Infirmary
JAY FEDERMAN, M.D.
Professor of Ophthalmology Medical College of Pennsylvania
Co-Director of Retina Services of Wills Eye Hospital
Co-Director of Associated Retinal Consultants
HARRY FLYNN, JR., M.D.
Professor of Ophthalmology Bascom Palmer Eye Institute
KURT A. GITTER, M.D.
Clinical Professor of Ophthalmology
Louisiana State University
Director, Foundation for Retinal Research
LEE JAMPOL, M.D.
Professor and Chairman of Department of Ophthalmology,
Northwestern University of Medical School
JONATHAN JAVITT, M.D., M.P.H.
Chairman and Chief Medical Officer
Certitude
HENRY J. KAPLAN, M.D.
Professor and Chairman Department of Ophthalmology & Visual Sciences
Washington University School of Medicine
HILEL LEWIS, M.D.
Chairman, Division of Ophthalmology, Cleveland Clinic
Director, Eye Clinic, Cleveland Clinic
LAWRENCE SINGERMAN, M.D.
Clinical Professor of Ophthalmology
Case Western Reserve University
Director, The Retina Institute and Retina Service
Mt. Sinai Medical Center
President, Retina Associates of Cleveland, Inc.
Founder, The Macula Society
<PAGE>22
GEORGE WILLIAMS, M.D.
Chief of Vitreo-Retina Surgery
William Beaumon Hospital, Royal Oak, MI
Associate Clinical Professor Oakland University, Rochester Hills, MI
President Michigan Ophthalmology Society
Vice President Vitreous Society
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of October 31, 1997, by:
(i) each executive officer of the Company named in the Summary Compensation
Table, (ii) all directors and executive officers of the Company as a group, and
(iii) each person known to the Company to own beneficially more than 5% of its
outstanding Common Stock. Except as otherwise indicated, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock owned by them.
<TABLE>
<CAPTION>
Current Beneficial Ownership
Number Percent
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES (1) OF CLASS(2)
DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
<S> <C> <C>
Steven R. Verdooner (3) 182,372 4.5%
221 Lathrop Way, Suite I
Sacramento, CA 95815
William L. Mince 30,450 *
221 Lathrop Way, Suite I
Sacramento, Ca 95815
Mark S. Blumenkranz, M.D. (4) 694,911 16.6%
1225 Crane Street
Menlo Park, CA 94025
Glenn W. Erickson (5) 39,583 1.0%
221 Lathrop Way, Suite I
Sacramento, CA 95815
Robert W. Medearis (6) 5,000 *
195 Bryant Street, Suite A
Palo Alto, CA 94301
Robert I. Schnuer (7) 39,450 1.0%
111 Roxen Road
Rockville Centre, NY 11570
Lawrence A. Yannuzzi, M.D. (8) 40,000 1.0%
519 East 72nd Street, Suite 203
New York, NY 10021
All directors and executive officers as a group (7 persons) 1,031,767 23.3%
OTHER BENEFICIAL HOLDERS
JB Oxford & Company (9) 250,000 6.0%
9665 Wilshire Boulevard
Beverly Hills, CA 90212
</TABLE>
<PAGE>23
______________
* Less than 1%
(1) In accordance with Rule 13d-3 promulgated pursuant to the Securities
Exchange Act of 1934, a person is deemed to be the beneficial owner of a
security for purposes of the rule if he or she has or shares voting power or
dispositive power with respect to such security or has the right to acquire
such ownership within sixty days. As used herein, "voting power" is the
power to vote or direct the voting of shares, and "dispositive power" is the
power to dispose or direct the disposition of shares, irrespective of any
economic interest therein.
(2) In calculating the percentage ownership for a given individual or group,
the number of shares of Common Stock outstanding includes unissued shares
subject to options, warrants, rights or conversion privileges exercisable
within sixty days held by such individual or group, but are not deemed
outstanding by any other person or group.
(3) Includes 121,666 shares subject to currently exercisable options and 16,666
shares subject to currently exercisable warrants.
(4) Includes 63,333 shares subject to currently exercisable stock options, and
210,526 shares subject to Series B Warrants (which expired November 21,
1997).
(5) Includes 37,583 shares subject to currently exercisable stock options.
(6) Includes 5,000 shares subject to currently exercisable stock options.
(7) Includes 31,250 shares subject to currently exercisable stock options.
(8) Includes 40,000 shares subject to currently exercisable stock options.
(9) Includes 250,000 shares subject to currently exercisable Series C Warrants,
which warrants were issued in connection with the Company's November 1995
private placement offering of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The U.S. patent application relating to the Glaucoma-Scope<trademark> was
originally filed on June 24, 1991 in the name of Dennis J. Makes, a former
officer and director of the Company, Mr. Verdooner and Ms. Patricia C. Meade.
Each of these individuals assigned all their U.S. and foreign rights in the
invention to the Company pursuant to an assignment dated October 23, 1990
recorded with the U.S. Patent and Trademark Office. Mr. Makes and
Mr. Verdooner each have been granted a royalty of $250 for each
Glaucoma-Scope<trademark> sold by the Company. During the 1997 fiscal year,
Mr. Verdooner received royalty payments of $250. Ms. Meade assigned her patent
rights to the Company pursuant to her condition of employment by the Company
and no additional compensation was paid to her as a result of such assignment.
In addition, the Company also entered into a consulting agreement with G.
Peter Halberg, M.D., a former Company director, on January 23, 1992, pursuant
to which Dr. Halberg is entitled to receive a partial payment for services
rendered under such agreement, deferred compensation in the form of a royalty
payment of $200 for each of the first 100 Glaucoma-Scope<trademark> units sold
at full price (for a maximum royalty payment of $20,000).
Other than as described above, the Company has no other agreements,
contracts, understandings or arrangements, directly or indirectly, to pay any
additional royalties on the sale of its products.
Mr. Verdooner and Mr. Mince each have an employment agreement with the
Company. See "Employment Agreements" above.
All current and future transactions between the Company and its officers
and directors and principal shareholders or any affiliates thereof will be on
terms no less favorable than could be obtained from unaffiliated third parties.
<PAGE>24
Except as described herein, none of the directors or officers of the
Company, and no shareholders holding over 5% of the Company's Common Stock and
no corporations or firms with which such persons or entities are associated,
currently maintains or has maintained since the beginning of the last fiscal
year, any significant business or personal relationship with the Company, other
than such as arises by virtue of such position or ownership interest in the
Company.
<PAGE>25
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<CAPTION>
Exhibit FOOTNOTE
NUMBER Description of Exhibit Reference
<S> <C> <C>
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.
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 (1)
the Registrant and Dennis J. Makes dated March 27, 1992.
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.
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,
Johnnie R. Williams, Kathleen M. O'Donnell, as Trustee of Irre-
vocable Trust No. 6, FBO F.E. O'Donnell, Jr., M.D., Steven R.
Verdooner and Dennis J. Makes.
<PAGE>26
10.12(a) Amendment No. 1 to Stock Purchase Agreement, dated March 25, 1992, *
among the Registrant, Johnnie R. Williams, individually, Johnnie
R. Williams, as Trustee of Irrevocable Trust No. 1, Rambert
Summons, 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.
10.15 Warrant dated February 12, 1993 issued by the Registrant to (1)
Steven R. Verdooner to purchase 50,000 shares of Common Stock.
10.16 Stock Option Plan. (1)
10.17 Promissory Note dated January 4, 1993 from the Registrant to (1)
Western Financial Savings Bank in the amount of $25,209.83 due in
full by January 4, 1998.
10.18 Rental Agreement dated May 1, 1994 by and between the Registrant (2)
and Robert J. Rossetti.
10.19 Security and Loan Agreement (with Credit Terms and Conditions) (3)
dated April 12, 1995 by and between the Registrant and Imperial
Bank.
10.19(a) General Security Agreement dated April 12, 1995 by and between the (3)
Registrant and Imperial Bank.
10.19(b) Warrant dated November 1, 1995 issued by the Registrant to (4)
Imperial Bank to purchase 67,500 shares of Common Stock.
10.19(c) Amended Loan and Security Agreement (with Credit Terms and (4)
Conditions) dated November 1, 1995.
10.19(d) Registration Rights Agreement dated November 1, 1995 between the (4)
Registrant and Imperial Bank.
10.19(e) Amended Loan and Security Agreement (with Credit Terms and (6)
Conditions) dated April 4, 1996.
10.19(f) Amended Loan and Security Agreement (with Credit Terms and (7)
Conditions) dated July 12, 1996.
10.19(g) Amended Loan and Security Agreement (with Credit Terms and (7)
Conditions) dated November 21, 1996.
10.19(h) Amended Loan and Security Agreement (with Credit Terms and (8)
Conditions) dated June 3, 1997.
10.19(i) Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated August 28, 1997.
10.19(j) Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated October 24, 1997.
10.19(k) Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated November 3, 1997.
10.19(l) Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated November 21, 1997.
10.19(m) Agreement for Purchase of Receivable (Full Recourse) dated (9)
November 18, 1997 between the Registrant and Imperial Bank.
10.20 Purchase Agreements dated November 21, 1995 between the (4)
Registrant, JB Oxford & Company and certain Investors.
10.20(a) Warrant Agreement dated November 21, 1995 between the Registrant, (4)
JB Oxford & Company and certain Investors.
<PAGE>27
10.20(b) First Amendment Warrant Agreement dated November 21, 1996 between (7)
the Registrant, JB Oxford & Company and certain Holders.
10.20(c) Registration Rights Agreement dated November 21, 1995 between the (4)
Registrant, JB Oxford & Company and certain Investors.
10.21 Employment Agreement dated November 20, 1995 between the (4)
Registrant and Steven R. Verdooner.
10.22 Employment Agreement dated November 20, 1995 between the (4)
Registrant and R. Michael Clark.
10.23 Employment Agreement dated July 14, 1997 between the Registrant (9)
and William L. Mince.
10.25 The Registrant's 1995 Nonstatutory Stock Option Plan and sample (5)
form of Nonstatutory Stock Option Agreement.
11.1 Computation of net loss per share. (9)
23.1 Consent of Ernst & Young LLP, Independent Auditors. (9)
27 Financial Data Schedule (for SEC use only). (9)
</TABLE>
* 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.
(8) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended May 31, 1997 filed on July 15,
1997.
(9) Exhibit filed herewith.
B. Reports on Form 8-K
None.
<PAGE>28
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
OPHTHALMIC IMAGING SYSTEMS Date: November 28, 1997
By STEVEN R. VERDOONER
Steven R. Verdooner, Chief Executive
Officer, Chief Financial Officer
and Secretary
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
STEVEN R. VERDOONER Chief Executive Officer, Chief November 28, 1997
Steven R. Verdooner Financial Officer, Secretary and
Director
(Principal Executive Officer and
Principal Financial Officer)
WILLIAM L. MINCE President and Chief Operating November 25, 1997
William L. Mince Officer
STEVEN C. LAGORIO Director of Finance November 28, 1997
Steven C. Lagorio (Principal Accounting Officer)
MARK S. BLUMENKRANZ, M.D. Director November 28, 1997
Mark S. Blumenkranz, M.D.
ROBERT W. MEDEARIS Director November 28, 1997
Robert W. Medearis
ROBERT I. SCHNUER Director November 25, 1997
Robert I. Schnuer
LAWRENCE A. YANNUZZI Director November 25, 1997
Lawrence A. Yannuzzi, M.D.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
NUMBER Description of Exhibit Page Number
<S> <C> <C>
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.
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 (1)
Registrant and Dennis J. Makes dated March 27, 1992.
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.
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,
Johnnie R. Williams, Kathleen M. O'Donnell, as Trustee of Irre-
vocable 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, Johnnie R. Williams, individually, Johnnie R.
Williams, as Trustee of Irrevocable Trust No. 1, Rambert Summons,
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.
10.15 Warrant dated February 12, 1993 issued by the Registrant to (1)
Steven R. Verdooner to purchase 50,000 shares of Common Stock.
10.16 Stock Option Plan. (1)
10.17 Promissory Note dated January 4, 1993 from the Registrant to Western (1)
Financial Savings Bank in the amount of $25,209.83 due in full by
January 4, 1998.
10.18 Rental Agreement dated May 1, 1994 by and between the Registrant and (2)
Robert J. Rossetti.
10.19 Security and Loan Agreement (with Credit Terms and Conditions) dated (3)
April 12, 1995 by and between the Registrant and Imperial Bank.
10.19(a) General Security Agreement dated April 12, 1995 by and between the (3)
Registrant and Imperial Bank.
10.19(b) Warrant dated November 1, 1995 issued by the Registrant to Imperial (4)
Bank to purchase 67,500 shares of Common Stock.
10.19(c) Amended Loan and Security Agreement (with Credit Terms and (4)
Conditions) dated November 1, 1995.
10.19(d) Registration Rights Agreement dated November 1, 1995 between the (4)
Registrant and Imperial Bank.
10.19(e) Amended Loan and Security Agreement (with Credit Terms and (6)
Conditions) dated April 4, 1996.
10.19(f) Amended Loan and Security Agreement (with Credit Terms and (7)
Conditions) dated July 12, 1996.
10.19(g) Amended Loan and Security Agreement (with Credit Terms and (7)
Conditions) dated November 21, 1996.
10.19(h) Amended Loan and Security Agreement (with Credit Terms and (8)
Conditions) dated June 3, 1997.
10.19(i) Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated August 28, 1997.
10.19(j) Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated October 24, 1997.
10.19(k) Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated November 3, 1997.
10.19(l) Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated November 21, 1997.
10.19(m) Agreement for Purchase of Receivable (Full Recourse) dated November (9)
18, 1997 between the Registrant and Imperial Bank.
10.20 Purchase Agreements dated November 21, 1995 between the Registrant, (4)
JB Oxford & Company and certain Investors.
10.20(a) Warrant Agreement dated November 21, 1995 between the Registrant, (4)
JB Oxford & Company and certain Investors.
10.20(b) First Amendment Warrant Agreement dated November 21, 1996 between (7)
the Registrant, JB Oxford & Company and certain Holders.
10.20(c) Registration Rights Agreement dated November 21, 1995 between the (4)
Registrant, JB Oxford & Company and certain Investors.
10.21 Employment Agreement dated November 20, 1995 between the Registrant (4)
and Steven R. Verdooner.
10.22 Employment Agreement dated November 20, 1995 between the Registrant (4)
and R. Michael Clark.
10.23 Employment Agreement dated July 14, 1997 between the Registrant and (9)
William L. Mince.
10.25 The Registrant's 1995 Nonstatutory Stock Option Plan and sample form (5)
of Nonstatutory Stock Option Agreement.
11.1 Computation of net loss per share. (9)
23.1 Consent of Ernst & Young LLP, Independent Auditors. (9)
27 Financial Data Schedule (for SEC use only). (9)
</TABLE>
*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.
(8) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended May 31, 1997 filed on July 15,
1997.
(9) Exhibit filed herewith.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Ophthalmic Imaging Systems
PAGE
Report of Ernst & Young LLP, Independent Auditors .......................F-1
Balance Sheet as of August 31, 1997 ....................................F-2
Statements of Operations for the Years Ended August 31, 1997 and 1996... F-3
Statements of Stockholders' Equity for the Years Ended August 31, 1997
and 1996..............................................................F-4
Statements of Cash Flows for the Years Ended August 31, 1997 and 1996....F-5
Notes to Financial Statements ...........................................F-6
<PAGE>F-1
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Ophthalmic Imaging Systems
We have audited the accompanying balance sheet of Ophthalmic Imaging
Systems as of August 31, 1997, and the related statements of operations,
stockholders' equity, and cash flows for the years ended August 31, 1997
and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ophthalmic
Imaging Systems at August 31, 1997, and the results of its operations and
its cash flows for the years ended August 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Sacramento, California
October 21, 1997,
except for Note 10
as to which the date is November 18, 1997
<PAGE>F-2
Ophthalmic Imaging Systems
Balance Sheet
August 31, 1997
ASSETS
Current assets:
Cash and equivalents $ 142,300
Accounts receivable, net of allowance for
doubtful accounts of approximately $100,000 1,644,541
Inventories 794,052
Prepaid expenses and other current assets 93,408
----------
Total current assets 2,674,301
Furniture and equipment, net 380,782
Other assets 7,385
----------
$3,062,468
==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 311,002
Accounts payable 816,509
Accrued liabilities 794,305
Accrued warrant appreciation right 251,497
Deferred extended warranty revenue 93,614
Customer deposits 125,538
Notes payable 2,234
----------
Total current liabilities 2,394,699
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;
3,905,428 shares issued and outstanding 10,244,615
Deferred compensation (306,894)
Accumulated deficit (9,269,952)
----------
Total stockholders' equity 667,769
----------
$ 3,062,468
===========
SEE ACCOMPANYING NOTES.
<PAGE>F-3
Ophthalmic Imaging Systems
Statements of Operations
YEARS ENDED AUGUST 31,
1997 1996
------------------------------
Revenues:
Net sales $6,480,055 $ 6,672,667
Other revenue 145,561 200,984
------------------------------
6,625,616 6,873,651
Cost of sales 4,885,004 4,797,324
------------------------------
Gross profit 1,740,612 2,076,327
OPERATING EXPENSES:
Sales and marketing 1,624,470 1,652,965
General and administrative 1,089,670 722,462
Research and development 1,070,192 846,034
------------------------------
Total operating expenses 3,784,332 3,221,461
------------------------------
Loss from operations (2,043,720) (1,145,134)
OTHER INCOME (EXPENSE):
Interest income 13,912 20,618
Interest expense (80,746) (288,667)
-------------------------------
Net loss $(2,110,554) $ (1,413,183)
===============================
Net loss per share $ (.59) $ (.64)
===============================
Shares used in the calculation of
net loss per share 3,597,879 2,204,506
==============================
SEE ACCOMPANYING NOTES.
<PAGE>F-4
Ophthalmic Imaging Systems
Statements of Stockholders' Equity
Years ended August 31, 1997 and 1996
<TABLE>
<CAPTION>
COMMON STOCK Total
-------------------- Deferred Accumulated Stockholders'
SHARES Amount Compensation Deficit Equity
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at August 31, 1995 875,112 $ 6,674,639 $ - $ (5,746,215) $ 928,424
Sale of common stock through
private placement 1,368,421 1,074,841 - - 1,074,841
Options exercised 11,000 10,230 - - 10,230
Issuance of common stock upon
exercise of warrants 1,052,631 1,180,486 - - 1,180,486
Net loss - - - (1,413,183) (1,413,183)
-----------------------------------------------------------------------
Balances at August 31, 1996 3,307,164 8,940,196 - (7,159,398) 1,780,798
Options exercised 52,400 152,286 - - 152,286
Issuance of common stock upon
exercise of warrants 545,864 757,097 - - 757,097
Deferred compensation related to
stock options granted to
non-employees - 395,036 (395,036) - -
Stock option compensation
expense - - 88,142 - 88,142
Net loss - - - (2,110,554) (2,110,554)
-------------------------------------------------------------------------
Balances at August 31, 1997 3,905,428 $ 10,244,615 $(306,894) $ (9,269,952) $ 667,769
=========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>F-5
Ophthalmic Imaging Systems
Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
YEARS ENDED AUGUST 31,
1997 1996
------------------------------
Operating activities:
Net loss $(2,110,554) $ (1,413,183)
Adjustments to reconcile net loss to
net cash used in operating activities:
Accrued warrant appreciation right 27,215 211,782
Depreciation and amortization 142,148 102,156
Provision for doubtful accounts (6,116) (5,338)
Stock option compensation expense 88,142 -
Net changes in operating assets and liabilities:
Accounts receivable (566,421) 239,943
Inventories 786,483 (405,040)
Prepaid expenses and other current assets (28,460) (475)
Other assets 79,250 (79,797)
Accounts payable (120,950) (164,714)
Accrued liabilities 196,664 75,716
Deferred extended warranty revenue 12,417 6,100
Customer deposits 88,757 (27,610)
---------------------------
Net cash used in operating activities (1,411,425) (1,460,460)
INVESTING ACTIVITY:
Capital expenditures for furniture and
equipment (161,735) (215,884)
FINANCING ACTIVITIES:
Proceeds from short-term borrowings 308,000 150,000
Repayment of short-term borrowings (546,998) -
Principal payments on notes payable (6,250) (5,093)
Issuance of common stock 909,383 2,265,557
-----------------------------
Net cash provided by financing activities 664,135 2,410,464
-----------------------------
Net (decrease) increase in cash and equivalents (909,025) 734,120
Cash and equivalents, beginning of year 1,051,325 317,205
-----------------------------
Cash and equivalents, end of year $142,300 $ 1,051,325
=============================
SEE ACCOMPANYING NOTES.
<PAGE>F-6
Ophthalmic Imaging Systems
Notes to Financial Statements
August 31, 1997
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Ophthalmic Imaging Systems (the Company), was incorporated in California
in July 1986. The Company is primarily engaged in the business of
designing, developing, manufacturing, and marketing digital imaging
systems, image enhancements and analysis software, and related products
and services for use by practitioners in the ocular healthcare field.
USE OF ESTIMATES
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which require the Company's
management to make estimates and assumptions that affect the amounts
reported therein. Actual results could vary from such estimates.
CONCENTRATIONS OF CREDIT RISK AND EXPORT SALES
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company places its temporary cash
investments with high credit quality financial institutions.
Concentrations of credit risk with respect to trade receivables are
limited due to the Company's policy of requiring deposits from customers,
the number of customers and their geographic dispersion. The Company
maintains reserves for potential credit losses and such losses have
historically been within management's expectations. No single customer
during fiscal 1997 or 1996 comprised 10% or more of net sales.
Revenues from sales to customers located outside of the United States
(primarily Europe) accounted for approximately 30% and 29% of net sales
during the years ended August 31, 1997 and 1996, respectively.
INVENTORIES
Inventories, which consist primarily of purchased system parts,
subassemblies and assembled systems are stated at the lower of cost
(determined using the first-in, first-out method) or market.
<PAGE>F-7
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and depreciated or amortized
on a straight-line basis over the estimated useful lives of the assets.
The estimated useful lives generally range from three to seven years.
REVENUE RECOGNITION AND WARRANTIES
The Company recognizes revenue from the sale of its products when the
goods are shipped to its customers. The Company generally provides a one-
year warranty covering materials and workmanship and accruals are
provided for anticipated warranty expenses.
Customers may purchase extended warranty coverage for additional one or
two year periods. Revenues from the sale of these extended warranties are
deferred and recognized as other revenue on a straight-line basis over
the term of the extended warranty contract.
INCOME TAXES
Deferred income taxes are accounted for pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," as
a result of differences in the timing of recognition of certain revenues
and expenses for financial statement and income tax reporting purposes.
General business credits are accounted for as a reduction of federal
income taxes payable under the flow-through method.
NET LOSS PER SHARE
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 because their
effect is antidilutive.
<PAGE>F-8
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NET LOSS PER SHARE (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required for both
interim and annual periods ending after December 15, 1997. At that time,
the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive
effect of stock options will be excluded. The impact of Statement No. 128
on the calculation of primary and fully diluted earnings per share is not
expected to be material.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers highly
liquid investments with original maturities of three months or less as
cash equivalents.
Cash paid for interest amounted to approximately $64,000 and $67,000
during the years ended August 31, 1997 and 1996, respectively. Cash paid
for income taxes amounted to approximately $800 for each of the years
ended August 31, 1997 and 1996.
STOCK BASED COMPENSATION
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
which the Company adopted in 1996, 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 stock option plans. Under APB 25, if the exercise price of the
Company's employee stock options equals or exceeds the fair value of the
underlying stock on the date of grant as determined by the Company's
Board of Directors, no compensation expense is recognized. See Note 7 for
pro forma disclosures required by SFAS 123.
<PAGE>F-9
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
LONG-LIVED ASSETS
The Company has adopted the provisions of 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 121").
SFAS 121 requires impairment losses to be recognized for long-lived
assets used in operations when indicators of impairment are present and
the estimated undiscounted cash flows to be generated by those assets are
less than their carrying amounts. The impairment loss is measured by
comparing the fair value of the asset to its carrying amount. The
adoption of SFAS No. 121 had no effect on the Company's financial
position or results of operations for the year ended August 31, 1997.
2. INVENTORIES
Inventories consist of the following as of August 31, 1997:
Raw materials $ 526,090
Work-in-process 139,182
Finished goods 128,780
---------
$ 794,052
=========
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following as of August 31, 1997:
Research and manufacturing equipment $ 554,147
Office furniture and equipment 358,537
Demonstration equipment 183,938
Vehicles 58,991
---------
1,155,613
Less accumulated depreciation and amortization (774,831)
---------
$ 380,782
=========
<PAGE>F-10
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
4. SHORT-TERM BORROWINGS
The Company entered into a revolving line of credit agreement (the
"Credit Agreement") with a bank (the "Bank") which expired on November 7,
1997. 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 three percent (11% as of August 31,
1997) and are secured by substantially all assets of the Company. The
Credit Agreement contains certain restrictive covenants which provide
for, among other things, certain working capital and net worth balances
and ratios. The Company was not in compliance with the various
restrictive covenants as of August 31, 1997. In addition, the Credit
Agreement restricts the Company's ability to 1) enter into any merger or
acquisition, 2) pay dividends or repurchase stock, 3) mortgage existing
assets or 4) loan money or guarantee the loans of others without the
Bank's prior approval. As of August 31, 1997, borrowings in the amount of
$311,000 were outstanding related to the Credit Agreement. Subsequent to
year-end the Credit Agreement was converted to a full recourse accounts
receivable credit agreement (Note 10).
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of August 31, 1997:
Accrued compensation $ 402,389
Accrued warranty expenses 170,200
Other accrued liabilities 221,716
---------
$ 794,305
=========
6. COMMITMENTS
LEASES
The Company leases its facility under a noncancelable operating lease
which expires in June 1998. The lease agreement provides for minimum
lease payments of approximately $84,000 for the year ended August 31,
1998.
Rental expense charged to operations for all operating leases was
approximately $126,000 and $88,000 during the years ended August 31, 1997
and 1996, respectively.
<PAGE>F-11
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
6. COMMITMENTS (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has employment agreements with two of its executive officers.
The agreement with the chief executive officer calls for an annual salary
of $150,000 and a performance based bonus plan, which has yet to be
determined by the Company's compensation committee. The agreement with
the president/chief operating officer calls for an annual salary of
$140,000 and an annual bonus not to exceed $42,000. In addition, the
Company's board of directors granted the president/chief operating
officer incentive stock options covering 100,000 shares of common stock.
Both agreements have a 24 month term expiring in July 1999.
7. STOCKHOLDERS' EQUITY
COMMON STOCK
Of the 16,094,572 shares of common stock authorized but unissued as of
August 31, 1997, the following shares are reserved for issuance:
Common stock warrants 1,299,750
Stock option plans 1,338,267
-----------
2,638,017
===========
PRIVATE PLACEMENT
In November 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 was 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 and B Warrants expired on February 19, 1997 as
amended and November 21, 1997, respectively. In May 1996, 1,052,631 A
Warrants were exercised resulting in net proceeds to the Company of
approximately $1,180,000. During the year ended August 31, 1997, 210,526
and 335,338 A and B warrants, respectively, were exercised resulting in
aggregate net proceeds to the Company of approximately $757,000.
<PAGE>F-12
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
PRIVATE PLACEMENT (CONTINUED)
The private placement underwriter 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 on November 21, 1999. In addition, the underwriter will receive
as a commission, 10% of the proceeds received by the Company upon
exercise of the A and B Warrants described above.
OTHER WARRANTS
In February 1993, the Company issued a warrant to the Bank that provided
a line-of-credit (Note 4). The warrant was amended several times in
connection with amendments to the line-of-credit as well as the current
Credit Agreement. The warrant is currently exercisable for 50,000 shares
of common stock at an exercise price of $1.73 per share and it expires in
November 2000. This warrant includes a provision wherein the Bank can
require the Company to pay in cash the difference between the fair market
value (as defined) of the underlying common stock of the warrant and the
exercise price (the "Appreciation Right"). The Bank informed the Company
of its intent to exercise the Appreciation Right on May 23, 1996. The
Company has accrued the entire amount of the Appreciation Right and it is
reflected as a current liability on the accompanying balance sheet. For
purposes of the statement of operations, the amount has been recorded as
additional interest expense for the year ended August 31, 1996. The
Appreciation Right is due on April 1, 1998.
During February 1993, in consideration for providing bridge loans, each
of the two officers, then employed by the Company, was issued a warrant
to purchase 16,667 shares of the Company's common stock at an exercise
price of $18.00 per share. These warrants expire in February 1998. During
fiscal 1995, one of the warrants to purchase 16,667 shares was canceled.
STOCK OPTION PLANS
At August 31, 1997, the Company has three stock-based compensation plans,
which are described below. The Company applies APB 25 and related
Interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting
<PAGE>F-13
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
provided for under SFAS 123 requires use of option valuation models that
were not developed for use in valuing stock options. Under APB 25,
because the exercise price of the Company's stock options equals the
market price of the underlying stock on the date of grant, no
compensation expense is recognized.
During March 1992, the Company adopted a Stock Option Plan (the "Plan")
under which the board of directors is authorized to grant options to key
directors, executives, employees and others for the purchase of up to
116,667 shares of the Company's common stock at prices not less than the
fair market value of the common stock on the date of grant. The term over
which the options are exercisable, which may not exceed five years, is
determined by the board of directors at the time of the grant. Pursuant
to the Plan, options to purchase 100,000 shares of the Company's common
stock at an exercise price of $3.00 per share were granted (50,000
options each) to the Company's chief executive officer and chief
financial officer. The options granted were fully vested on the grant
date and expired in March 1997. During the year ended August 31, 1997,
prior to the expiration of these options, options to purchase 50,000
shares were exercised. Options to purchase the remaining 50,000 shares of
the Company's common stock subsequently expired in March 1997. In April
1997, the board of directors granted options to purchase 50,000 shares of
the Company's common stock at an exercise price of $2.75 to the Company's
chief executive officer/chief financial officer. The options granted vest
25,000 on the date of grant and 25,000 in April 1998. These options
expire in April 2002.
In December 1992 and January 1993, the Company's board of directors and
shareholders, respectively, approved a second Stock Option Plan (the
"Option Plan") under which all officers, employees, directors and
consultants may participate. The Plan expires December 2002. Options
granted under the Option Plan may be either incentive stock options or
non-qualified stock options and will generally have a term of ten years
from the date of grant, unless otherwise specified in the option
agreement. The exercise prices of incentive stock options granted under
the Option Plan will be at 100% of the fair market value of the Company's
common stock on the date of grant. The exercise prices of non-qualified
stock options granted under the Option Plan cannot be less than 85% of
the fair market value of the Company's common stock on the date of grant.
The maximum number of shares of the Company's common stock which may be
optioned and sold under the Option Plan is 150,000, of which 13,608
remained available for the granting of
<PAGE>F-14
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
options as of August 31, 1997. As of August 31, 1997, stock options to
purchase 122,992 shares at exercise prices ranging from $.94 to $4.25
were granted and outstanding under the Option Plan. During the year ended
August 31, 1997 and 1996, 2,400 and 11,000 options were exercised,
respectively.
In August 1995, the Company's board of directors approved a Nonstatutory
Stock Option Plan (the "Nonstatutory Plan") under which all officers,
employees, directors and consultants may participate. The Nonstatutory
Plan expires November 2005. Options granted under the Nonstatutory Plan
are non-qualified stock options and will generally have a term of five
years from the date of grant, unless otherwise specified in the option
agreement. The exercise prices under the Nonstatutory Plan will be at
100% of the fair market value of the Company's common stock on the date
of grant. The maximum number of shares of the Company's common stock
which may be optioned and sold under the Nonstatutory Plan is 1,035,000,
of which 50,000 options remained available for granting as of August 31,
1997. As of August 31, 1997, stock options to purchase 985,000 shares at
exercise prices ranging from $0.94 to $4.50 were granted and outstanding
under the Nonstatutory Plan and none of the granted options were
exercised.
A summary of the status of the Company's stock option plans and changes
during the periods is presented below:
Weighted Average
Options Exercise Price
------------------------------------
Balance at August 31, 1995 744,171 $ 1.54
Options granted 290,000 $ 2.53
Options canceled (250) $ .94
Options exercised (at $.94) (11,000) $ .94
----------
Balance at August 31, 1996 1,022,921 $ 1.83
Options granted 346,500 $ 2.70
Options canceled (59,029) $ 3.14
Options exercised
(at $.94 to $3.00) (52,400) $ 2.91
----------
Balance at August 31, 1997 1,257,992 $ 1.96
=========
The weighted average fair value of options granted during the
years ended August 31, 1997 and August 31, 1996 was $2.26 and
$.93, respectively.
<PAGE>F-15
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about the stock
options outstanding at August 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ---------------------------
Weighted-Average
Range of Exercise Remaining Weighted-Average Weighted-Average
Prices Number Contractual Life Exercise Price Number Exercise Price
- ----------------- ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$0.94-$1.38 759,492 5.1 $1.30 330,513 $1.30
$1.38-$3.00 390,000 4.0 $2.59 167,708 $2.57
$3.00-$4.50 108,500 4.3 $4.34 21,531 $4.32
--------- -------
1,257,992 $1.96 519,752 $1.84
========= =======
</TABLE>
Pro forma information regarding net loss and net
loss per share is required by SFAS 123, which also
requires that the information be determined as if
the Company has accounted for its employee stock
options granted subsequent to August 31, 1995 under
the fair value method of that Statement. The fair
value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing
model with the following weighted-average
assumptions for the years ended August 31, 1996 and
1997, respectively; dividend yield of zero;
volatility factors of the expected market price of
the Company's common stock ranged from 1.052 to
1.125 for both years; risk-free interest rate of
6%; and a weighted-average expected life of 5
years.
The Black-Scholes option valuation, model was
developed for use in estimating the fair value of
traded options which have no vesting restrictions
and are fully transferable. In addition, option
valuation models require the input of highly
subjective assumptions including the expected stock
price volatility. Because the Company's employee
stock options have characteristics significantly
different from those of traded options, and because
changes in the subjective input assumptions can
materially affect the fair value estimate, in
management's opinion, the existing models do not
necessarily provide a reliable single measure of
the fair value of its employee stock options.
<PAGE>F-16
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
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 pro forma information follows:
YEARS ENDED AUGUST 31,
1997 1996
---------------------------------
Pro forma net loss $(2,326,390) $ (1,453,678)
=================================
Pro forma net loss per share $(.65) $ (.66)
=================================
During the year ended August 31, 1997, the Company
recorded deferred compensation of approximately
$395,000 for financial reporting purposes to
reflect the deemed fair value of the certain
options granted to non-employees. Deferred
compensation is being amortized over the vesting
period of the related options. For the year ended
August 31, 1997, the amortized deferred
compensation expense was approximately $88,000.
Since SFAS 123 is applicable only to options
granted subsequent to August 31, 1995, its pro
forma effect will not be fully realized until 2000.
<PAGE>F-17
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
8. INCOME TAXES
There was no provision (benefit) for income taxes
during the years ended August 31, 1997 or 1996.
The significant components of the Company's
deferred tax assets and liabilities as of August
31, 1997 are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 1,310,000
Inventory reserves 549,000
Accrued warrant appreciation right 99,000
Payroll related accruals 98,000
Warranty accrual 67,000
Sales and accounts receivable reserves 39,000
Uniform capitalization 29,000
Other 3,000
------------
Total deferred tax assets 2,194,000
Valuation allowance (2,192,000)
------------
Net deferred tax assets 2,000
Deferred tax liabilities:
Depreciation 2,000
------------
Total deferred tax liabilities 2,000
------------
Net deferred taxes $ -
============
The valuation allowance as of August 31, 1996 was
approximately $1,473,000 resulting in a net
increase in the allowance of approximately $719,000
for the year.
<PAGE>F-18
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The principal reasons for the difference between
the effective tax rate and the federal statutory
income tax rate are presented in the following
table:
YEAR ENDED AUGUST 31,
1997 1996
--------------------------
Federal benefit expected at statutory rates $ (718,000) $ (480,000)
Net operating loss with no current benefit 718,000 480,000
--------------------------
$ - $ -
==========================
In connection with the Company's private placement
of common stock (Note 7) a change of ownership (as
defined in Section 382 of the Internal Revenue Code
of 1986, as amended) occurred. As a result of this
change, the Company's federal and state net
operating loss carryforwards generated through
November 21, 1996 (approximately $4,800,000 and
$2,500,000, respectively) and the Company's federal
and state Research and Development credits
(approximately $126,000 and $79,000, respectively)
will be subject to a total annual limitation in the
amount of approximately $107,000.
As a consequence of the limitation, as discussed
above, the Company has at August 31, 1997 a net
operating loss carryover of approximately
$3,580,000 for federal income tax purposes which
expires between 2007 and 2011, and a net operating
loss carryforward of approximately $1,521,000 for
state income tax purposes which expires between
1997 and 2002.
9. 401(K) PLAN
The Company has a tax deferred investment plan (the
"401(k) Plan"). All full-time employees are
eligible to participate in the 401(k) Plan. The
401(k) Plan originally required mandatory employer
contributions of 10% of the participants
contributions. The 401(k) Plan was subsequently
amended to provide for discretionary employer
contributions. The Company did not make any
matching contributions during either of the years
ended August 31, 1997 or 1996.
<PAGE>F-19
Ophthalmic Imaging Systems
Notes to Financial Statements (continued)
10. SUBSEQUENT EVENT
On November 18, 1997, the Company entered into an
accounts receivable credit agreement (the
"Agreement") with the Bank, and all amounts
outstanding under the Credit Agreement were
considered to be the initial advance under the
Agreement. The Agreement allows for up to an 80%
advance rate on eligible accounts receivable
balances, and the maximum borrowing base under the
Agreement is $1.2 million. The Bank has full
recourse against the Company. The Agreement expires
in November 1998. Borrowings under the Agreement
bear interest at the Bank's prime lending rate plus
4%. In addition, the Bank will charge monthly an
administrative fee equal to the greater of .5% of
the average daily balance for the month or $1,200.
Under the terms of the Agreement, borrowings are
secured by substantially all of the Company's
assets.
Exhibit 10.19(i)
IMPERIAL BANK
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025 (415) 233-3000
August 28, 1997
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: Mr. Steven R. Verdooner, President
Mr. Steven C. Lagorio, Director of Finance
Re: Imperial Bank Loan No. 700000559
Gentlemen:
With reference to the Credit Terms and Conditions ("CTC") dated April 12,
1995 with addendum dated April 10, 1995 between Imperial Bank ("Bank") and
Ophthalmic Imaging Systems ("Borrower"), the Bank hereby modifies the
following numbered terms and conditions of the addendum attached to the CTC
(hereinafter referred to as the "Addendum"):
1. Paragraph 2 of the Addendum, as previously modified, is deleted in its
entirety and is replaced with the following:
"2. TERM AND REPAYMENT
The line of credit will require monthly payments of interest
through and including October 5, 1997, at which time all
outstanding principal, accrued but unpaid interest and other
charges thereinafter shall be due and payable in full."
2. Paragraph 3 of the Addendum, is deleted in its entirety and is
replaced with the following:
"3. BORROWING BASE
Advances will be limited to the lesser of: (i) 70% of Eligible
Accounts (as hereinafter defined); or (ii) $750,000. As used
herein, "Eligible Accounts" shall only include such accounts as
Bank in its sole discretion shall from time to time determine are
eligible. Eligible Accounts shall also not include any of the
following:
a. Accounts with respect to which the account debtor is an
officer, director, shareholder, employee, subsidiary or
affiliate of Borrower.
b. Accounts due from a customer if more than twenty-five
percent (25%) or more of the aggregate amount of accounts of
such customer have at that time remained unpaid for more
than ninety (90) days from the invoice date. (CROSS AGE)
<PAGE>
Ophthalmic Imaging Systems
August 28, 1997
Page 2 of 4
c. Accounts representing billings for service or maintenance
contracts or for inventory or equipment on rent to the
account debtor.
d. Accounts with respect to international transactions unless
insured or covered by a letter of credit in a manner and
form acceptable to the Bank.
e. Salesman's accounts for promotional purposes.
f. The amount by which any one account exceeds fifteen percent
(15%) of the total accounts receivable balance.
(CONCENTRATION)
g. Accounts where the account debtor is a seller to borrower,
to the extent that a potential offset exists. (CONTRA)
h. Accounts due from customers that remain unpaid after ninety
(90) days from the invoice date.
i. United States government accounts unless properly
documented."
3. Paragraph 5 of the Addendum, as previously modified, is deleted in its
entirety and is replaced with the following:
"5. PRICING
Interest Rate: Bank's Prime Rate + 3% per annum. Rate shall
be reduced to Bank's Prime Rate + 2% per
annum following the achievement of two
consecutive fiscal quarters of operating and
after-tax profitability in excess of $100,000
each.
Facility Fee: $1,875
4. Sub-section B of Paragraph 6 of the Addendum is deleted in its
entirety and is replaced with the following:
"B. Borrower to provide to Bank:
1) Unqualified audited financial statements within 90 days
after each fiscal year end.
2) Company prepared monthly financial statements and Compliance
Certificate within 25 days after the end of each month.
3) Borrower to provide Bank with agings of accounts receivable
and accounts payable, along with a Borrowing Base
Certificate, Bank forms AC1-AR and Inventory Transaction
Report; AC11-Computation of Ineligible AR; and AC12-Monthly
AR Reconciliation upon such a schedule as determined by Bank
in Bank's sole discretion. All customer collections (wire
transfer, checks, cash) shall be applied to the outstanding
loan balance, and such collections shall
<PAGE>
Ophthalmic Imaging Systems
August 28, 1997
Page 3 of 4
reduce the gross AR availability as calculated on the
Borrowing Base Certificate by the amounts collected. New
invoices during the same period shall increase the gross A/R
availability as calculated on the Borrowing Base Certificate
by the amounts involved.
4) Budgets, sales projections, operating plan, or other
financial exhibits which Bank may reasonably request.
In addition to the modifications above, Borrower shall be subject to the
following additional conditions:
1. Concurrently with execution hereof, Borrower shall pay Bank the
$7,375.80 in fees that are due to the Bank per the Invoice dated May
5, 1997 (these are in addition to the "Facility Fee" in Paragraph 3
above).
2. Bank and Borrower agree that Borrower is subject to following
obligations under the stock appreciation right set forth in Section
1.3 of the Warrant to Purchase Stock issued November 1, 1995 ("SAR"):
A. The principal amount due from Borrower to Bank under the SAR
is $219,750.00, which represents the spread between the
closing price of Borrower's stock on Friday May 24, 1996
($6.125) and the exercise price per the Warrant to Purchase
Stock ($1.73) multiplied by 50,000 warrant shares (reduced
from 67,500 pursuant to the occurrence of certain events
stipulated in the letter agreement dated November 1, 1995).
Interest due on the principal balance is accruing at the
Bank's prime rate and has been accruing from the exercise
date of the SAR which was May 28, 1996. (Principal and
accrued interest due on the SAR shall hereinafter be
referred to as the "SAR Balance").
B. Borrower shall pay to Bank the SAR Balance as detailed in
the following schedule:
1. Within 5 days after the receipt of any new equity or
subordinated debt up to $300,000, Borrower shall apply
20% of such equity or subordinated debt amounts to the
SAR Balance. Within 5 days after the receipt of any
new equity for amounts in excess of $300,000, Borrower
shall apply 30% of such equity amounts to the remaining
SAR Balance. In any event, the SAR Balance shall be
due and payable in full November 30, 1997.
3. Borrower shall provide Bank with a revised annual forecast by
September 30, 1997.
<PAGE>
Ophthalmic Imaging Systems
August 28, 1997
Page 4 of 4
Except for the above-described modifications, the Addendum shall remain
unaltered and in full force and effect.
Please acknowledge your approval by signing and returning the original of
this letter to me.
Sincerely,
THOMAS D. JORGENSEN
Thomas D. Jorgensen
Assistance Vice President
Special Markets Group
Accepted and agreed to:
OPHTHALMIC IMAGING SYSTEMS
By: STEVEN R. VERDOONER
Title: Chief Executive Officer
Date: September 19, 1997
Exhibit 10.19(j)
IMPERIAL BANK
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025 (415) 233-3000
October 24, 1997
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: Mr. Steven R. Verdooner, President
Mr. Steven C. Lagorio, Director of Finance
Re: Imperial Bank Loan No. 700000559
Gentlemen:
With reference to the Credit Terms and Conditions dated April 12, 1995 (as
previously amended the "CTC") with addendum dated April 10, 1995 (as
previously amended the "Addendum") between Imperial Bank ("Bank") and
Ophthalmic Imaging Systems ("Borrower"), (the CTC and the Addendum herein
jointly referred to as the "Agreement") defaults have occurred in the
following covenants of the of the Agreement:
Pursuant to Section 6, A, 2 of the Addendum the Borrower is required to
maintain Working Capital of not less than $750,000. As shown on the
financial statement for the fiscal quarter ending 8/31/97 the Working
Capital was $579,000.
Pursuant to Section 6, A, 3 of the Addendum the Borrower is required to
maintain Tangible Net Worth of not less than $1,000,000. As shown on the
financial statement for the fiscal quarter ending 8/31/97 the Tangible Net
Worth was $715,000.
Pursuant to Section 6, A, 3 of the Addendum the Borrower is required to
maintain Total Liabilities to Tangible Net Worth of not more than 2.25 to
1.00. As shown on the financial statement for the fiscal quarter ending
8/31/97 this ratio was 3.29 to 1.00.
As a result of the above breaches the Bank has certain rights and remedies
pursuant to the Agreement and law. The Bank will forebear from enforcing
those rights, provided the Bank my revoke this forbearance at any time.
Section 2 of the Addendum deleted in its entirety and is replaced with the
following:
"2. TERM AND REPAYMENT
The line of credit will require monthly payments of interest
through and including October 30, 1997, at which time all
outstanding principal, accrued but unpaid interest and other
charges thereinafter shall be due and payable in full."
<PAGE>
Ophthalmic Imaging Systems
October 24, 1997
Page 2
The above forbearance and amendment are specific as to content and time,
and other than the forbearance and amendment mentioned above this letter is
not a forbearance, waiver or modification of any other rights or remedies
that the Bank may have pursuant to any agreement or law as a result of the
above defaults or of any other violations past, present, or future of any
agreement between the Borrower and the Bank, and the Bank reserves all
rights, powers and remedies available to it. The Bank and the Borrower
hereby agree that except as modified herein the Agreement remains in full
force and effect.
Sincerely,
THOMAS D. JORGENSEN
Thomas D. Jorgensen
Assistance Vice President
Special Markets Group
Accepted and agreed to:
OPHTHALMIC IMAGING SYSTEMS
By: STEVEN R. VERDOONER
Title: Chief Executive Officer
Date: October 27, 1997
Exhibit 10.19(k)
IMPERIAL BANK
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025 (415) 233-3000
November 3, 1997
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: Mr. Steven R. Verdooner, President
Mr. Steven C. Lagorio, Director of Finance
Re: Imperial Bank Loan No. 700000559
Gentlemen:
With reference to the Credit Terms and Conditions dated April 12, 1995 (as
previously amended the "CTC") with addendum dated April 10, 1995 (as
previously amended the "Addendum") between Imperial Bank ("Bank") and
Ophthalmic Imaging Systems ("Borrower"), (the CTC and the Addendum herein
jointly referred to as the "Agreement"), Bank hereby modifies the Addendum
as follows:
Section 2 of the Addendum deleted in its entirety and is replaced with the
following:
"2. TERM AND REPAYMENT
The line of credit will require monthly payments of interest
through and including November 7, 1997, at which time all
outstanding principal, accrued but unpaid interest and other
charges thereinafter shall be due and payable in full."
This amendment is specific as to content and time, and other than the
amendment mentioned above this letter is not a forbearance, waiver or
modification of any other rights or remedies that the Bank may have
pursuant to any agreement or law as a result of the above defaults or of
any other violations past, present, or future of any agreement between the
Borrower and the Bank, and the Bank reserves all rights, powers and
remedies available to it. The Bank and the Borrower hereby agree that
except as modified herein the Agreement remains in full force and effect.
Sincerely,
THOMAS D. JORGENSEN
Thomas D. Jorgensen
Assistance Vice President
Special Markets Group
<PAGE>
Ophthalmic Imaging Systems
November 3, 1997
Page 2
Accepted and agreed to:
OPHTHALMIC IMAGING SYSTEMS
By: STEVEN C. LAGORIO
Title: Director of Finance
Date: November 6, 1997
Exhibit 10.19(l)
IMPERIAL BANK
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025 (415) 233-3000
November 21, 1997
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: Mr. Steven R. Verdooner, President
Mr. Steven C. Lagorio, Director of Finance
Re: Imperial Bank Loan No. 700000559
Gentlemen:
With reference to the Credit Terms and Conditions dated April 12, 1995 (as
previously amended the "CTC") with addendum dated April 10, 1995 (as
previously amended the "Addendum") between Imperial Bank ("Bank") and
Ophthalmic Imaging Systems ("Borrower"), (the CTC and the Addendum herein
jointly referred to as the "Agreement"), Bank and Borrower hereby agree to
the following modification:
With reference to Paragraph 2, Section B, Sub-Section 1 of Page 3 of
the letter agreement dated August 28, 1997, the due date for the SAR
Balance is extended to April 1, 1998, at which time the SAR Balance
shall be due and payable in full.
The above modification is specific as to content and time, and other than
the modification mentioned above this letter is not a forbearance, waiver
or modification of any other rights or remedies that the Bank may have
pursuant to any agreement or law as a result of the above defaults or of
any other violations past, present, or future of any agreement between the
Borrower and the Bank, and the Bank reserves all rights, powers and
remedies available to it. The Bank and the Borrower hereby agree that
except as modified herein the Agreement remains in full force and effect.
Sincerely,
THOMAS D. JORGENSEN
Thomas D. Jorgensen
Assistance Vice President
Special Markets Group
<PAGE>
Ophthalmic Imaging Systems
November 21, 1997
Page 2
Accepted and agreed to:
OPHTHALMIC IMAGING SYSTEMS
By: STEVEN R. VERDOONER
Title: Chief Executive Officer
Date: November 24, 1997
Exhibit 10.19(m)
IMPERIAL BANK
AGREEMENT FOR PURCHASE OF RECEIVABLE
(Full Recourse)
THIS AGREEMENT is made on November 18, 1997 by and between Ophthalmic
Imaging Systems having its principal place of business at 221 Lathrop Way,
Suite I, Sacramento, CA 95825, County of Sacramento, State of CA, 95815,
(the "Seller") and Financial Accounts Management Services, a division of
Imperial Bank, having a place of business at 226 Airport Parkway, San Jose,
California 95110 (the "Purchaser").
1. DEFINITIONS. The following terms shall have the meanings stated:
1.1 "ACCOUNT BALANCE" - on any given day, the gross amount of all
Purchased Receivable and other Obligations unpaid on that day.
1.2 "ACCOUNT DEBTOR" - the Obligor on a Purchased Receivable.
1.3 "ADJUSTMENTS" - all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments asserted by or on behalf of any Account
Debtor with respect to any Purchased Receivable.
1.4 "ADVANCE" - the dollar amount computed with respect to each
Purchased Receivable, equal to the Advance Rate multiplied by the face
amount of the Purchased Receivable.
1.5 "ADVANCE RATE" - 80%
1.6 "COLLATERAL" -
1.6.1 All now owned and hereafter acquired right title and
interest in, to and in respect of all accounts, interests in goods
represented by accounts, returned, reclaimed or repossessed goods with
respect thereto and rights as an unpaid vendor; contract rights; chattel
paper; general intangibles (including but not limited to, tax refunds,
registered and unregistered patents, trademarks, service marks, copyrights,
trade names, applications for the foregoing, trade secrets, goodwill,
customer lists, licenses, whether as licenser or licensee, chooses in
action and other claims, and existing and future leasehold interests in
equipment, real estate and fixtures); documents; instruments; letters of
credit, bankers' acceptances or guaranties; deposits, securities, bank
accounts, deposit accounts, credits and other property now or hereafter
held in any capacity by Purchaser, or its affiliates;
1.6.2 All now owned and hereafter acquired right, title and
interest in, to and in respect of all goods, including but not limited to:
1.6.2.1 All inventory, wherever located, whether no owned
or hereafter acquired, of whatever kind, nature or description, including
all raw materials, work-in-process, finished goods;
1.6.2.2 All equipment and fixtures, wherever located,
whether now owned or hereafter acquired, and any and all additions,
substitutions, replacements (including spare parts), and accessions thereof
and thereto;
1.6.2.3 All present and future books and records relating
to any of the above including, without limitation, all computer programs,
printed output and computer readable data in the possession or control of
the Seller, any computer service bureau or other third party;
1.6.2.4 All products and proceeds of the foregoing in
whatever form and wherever located, including, without limitation, all
insurance proceeds, all claims against third parties for loss or
destruction of or damage to any of the foregoing, and all income from the
lease or rental of any of the foregoing.
1.7 "CUSTOMER PAYMENTS" - all good funds received by Purchaser from
or on behalf of an Account Debtor with respect to Purchased Receivables.
1.8 "Face Amount of Purchased Receivables" - the gross amount due
from the Account Debtor, less all discounts allowed to the Account Debtor,
computed on the shortest selling terms stated in the invoice evidencing the
Purchased Account.
1.9 "Factor Fee" - rate of Imperial Bank's Prime Rate plus 4%
calculated on the daily net funds employed.
Insert A
1.10 "Administrative Fee" - rate of 0.5% of the average daily balance
for each monthly period. The minimum monthly fee is $1,200.00.
Insert B
1.11 "Obligations" - all obligations now or hereafter owed by the
Seller to the Purchaser, including but not limited to the obligations
created hereunder.
1.12 "Obligor" - the Seller and all guarantors and other entities who
may be obligated to pay the Obligations.
1.13 "Purchased Receivables" - all those accounts, chattel paper,
instruments, contract rights, documents, general intangibles, and rights to
payment, and proceeds thereof, arising out of the invoices and other
agreements identified on or delivered with any Transmittal Sheet provided
by Seller to Purchaser.
1.14 "Receivables" - all present and future accounts and general
intangibles of the Seller.
Insert C
1.15 "Remittance" - the amount, if any, which Purchaser owes to Seller
at each Settlement Date, according to the accounting prepared by Purchaser
equal to:
<PAGE>
1.15.1 The sum of:
1.15.1.1 The Reserve as of the beginning of the last
Settlement Date, Plus
1.15.1.1.1 The Reserve created for each Purchased
Receivable purchase during since last Settlement Date, minus
1.15.2 The total since the last Settlement Date of:
1.15.2.1 The Administrative Fees on paid Purchased
Receivables,
1.15.2.2 Factor Fee on paid Purchased Receivables;
1.15.2.3 Adjustments;
1.15.2.4 Repurchase Amounts (to the extent Purchaser
has agreed to accept payment thereof by deduction from the Remittance); and
1.15.2.5 The Reserve based on the Account Balance as
of the Settlement Date.
1.16 "Repurchase Amount" - see 4.1 below.
1.17 "Reserve" - a percentage of the Account Balance, computed as the
difference between the Face Amount of Purchased Receivables and the
Advance, which shall be determined by Purchaser in its reasonable sole
discretion, based on the nature and quality of the Purchased Receivables,
and which shall not be less than 30% less all fees on unpaid Purchased
Receivables. The Reserve shall be the book balance maintained in the
records of Purchaser and shall not be a segregated fund.
Insert C
1.18 "Settlement Date" - the day that remittance is calculated and
paid.
1.19 "Transmittal Sheet" - the forms supplied by Purchaser to Seller
which identify the receivables of Seller which it requests that Purchaser
purchase.
2. Purchase of Receivables.
2.1 Seller for and in consideration of the Advances and other
valuable consideration, does hereby absolutely sell, assign and transfer to
Purchaser, its successors and assigns, all of Seller's right, title and
interest in and to the Purchased Receivables and all moneys due or which
may become due upon such Purchased Receivables.
2.2 Purchaser is not obligated to purchase any Receivables from
Seller.
2.3 Purchaser may exercise its sole discretion in approving the
credit of each Account Debtor before buying any Receivables.
2.4 Purchaser shall have with respect to the Purchased Receivables,
all the rights and remedies of an unpaid seller under the Uniform
Commercial Code and other applicable law, including the rights of replevin,
claim and delivery, reclamation, and stoppage in transit.
Insert D
3. Terms of Purchase.
3.1 Each Transmittal Sheet shall reasonably identify the Purchased
Receivables, correctly state the amount owed by the Account Debtor, and
shall be signed by an authorized signatory of Seller.
3.2 Seller hereby authorizes Purchaser to insert in the Transmittal
Sheet information to describe the Purchased Receivables.
3.3 Purchaser is entitled to rely on the contents of any Transmittal
Sheet delivered by Seller, to treat the Receivables described therein as
Purchased Receivables, and to rely on the signature as an authorized
signatory of Seller.
3.4 Upon acceptance and purchase by Purchaser of the Receivables
described on each Transmittal Sheet and upon Seller's request, Purchaser
shall pay the Advance to Seller.
3.5 Should Purchaser determine at any time in the reasonable exercise
of its discretion that the nature and quality of the Purchased Receivables
has deteriorated, Purchaser may change the Advance Rate with respect to all
future purchases of Receivables.
Insert E
3.6 As Purchaser collects Customer Payments from or on behalf of
Account Debtors, Purchaser shall promptly credit the Customer Payments to
the Account Balance on a daily basis as funds clear, as determined by
Seller in its reasonable discretion. In the alternative, Purchaser shall
have the right to delay credit to the Account Balance for a fixed number of
days with respect to all Customer Payments, to allow for clearance and
collection of funds.
3.7 If Seller is in default under this Agreement, all Customer
Payments will be applied to any Obligations in such order and manner as
Purchaser shall determine, irrespective of contrary instructions which may
be received from Seller or the payor.
3.8 Purchaser shall charge and be entitled to, and Seller shall pay
on each Settlement Date the Administrative Fee and the Factor Fee on all
paid Purchased Receivables.
3.9 Purchaser shall prepare and send to Seller, after close of
business each month, an accounting of the transactions for that month. The
accounting shall be deemed correct and conclusive, and shall constitute an
account stated between the parties unless Seller makes written objection to
Purchaser within 30 days after mailing of the accounting to the Seller.
3.10 Purchaser shall pay the Remittance to Seller within ten days
after the Settlement Date.
<PAGE>
3.11 In the event the calculation of the Remittance results in an
amount due to Purchaser from Seller, Seller shall make such payment in the
same manner as set forth in Section 4.2.
4. Repurchase and Recourse. Purchaser's purchase of Purchased
Receivables from Seller shall be with full recourse.
4.1 Purchaser may increase the Reserve, and Seller agrees to pay to
Purchaser on demand, the full amount or any unpaid portion thereof, of any
Purchased Receivable (the "Repurchase Amount"):
4.1.1 Which remains unpaid ninety (90) calendar days after invoice
date;
4.1.2 Which is owed by an Account Debtor which has filed, or has
had filed against it, any bankruptcy case or insolvency proceeding or who
has become insolvent (as defined in the Federal Bankruptcy Code) or who is
generally not paying its debts as such debts become due;
4.1.3 With respect to which there has been any breach of warranty
set forth in Section 6 hereof or any breach of any covenant contained in
this Agreement; or
4.1.4 With respect to which the account debtor asserts any
discount, allowance, return, dispute, counterclaim, offset, defense, right
of recoupment, right of return, warranty claim, or short payment, together
with all reasonable attorneys' and professional fees and expenses and all
court costs incurred by Purchaser in collecting the Purchased Receivable
and/or enforcing its rights under this Agreement.
4.2 Purchaser may, in its sole discretion, demand that the Repurchase
Amount be paid by Seller (A) in cash immediately upon demand therefor; (B)
by delivery of substitute invoices acceptable to Purchaser which shall
thereupon become Purchased Receivables; or (C) by deduction from the
Remittance which would otherwise be due to Seller, or by any combination of
the foregoing as Purchaser may from time to time choose.
5. Power of Attorney. Seller hereby irrevocably appoints Purchaser and
its successors and assigns as Seller's true and lawful attorney in fact,
with respect to Purchased Receivables and Collateral, (A) to sell, assign,
transfer, pledge, compromise, or discharge the whole or any part of such
Receivables; (B) to demand, collect, receive, sue and give releases for
moneys due or which may become due upon such receivables and to compromise,
prosecute, or defend any action, claim, case, or proceeding relating to
such Receivables, including the filing of a claim or the voting of such
claims in any bankruptcy case, all in Purchaser's name or Seller's name, as
Purchaser may choose; (C) to prepare, file and sign Seller's name on any
notice, claim, assignment or satisfaction of lien or mechanics' lien or
similar document; (D) to notify all account debtors to pay Purchaser
directly; (E) to receive, open, and dispose of all mail addressed to Seller
for the purpose of collecting such Receivables; (F) to endorse Seller's
name on any checks or other forms of payment on receivables; (G) to sign
Seller's name to any form UCC-1 or other document necessary to perfect any
security interest granted by Seller to Purchaser; (H) to complete, execute
and file any franchise tax return or other documents necessary to qualify
Seller to do business in any state which Purchaser deems necessary to
enforce collection of Receivables, and to pay, on Seller's behalf any taxes
or fees which may be due by Seller in connection therewith (all such fees
and taxes shall be added to the Account Balance) and (I) to do all acts and
things necessary or expedient, in furtherance of any such purpose.
Insert D
Insert F
6. Representations, Warranties & Covenants. To induce Purchaser to
render its services available to Seller, and with full knowledge that the
truth and accuracy of the following are being relied upon by the Purchaser
in determining whether to accept purchase Receivables the Seller
represents, warrants, covenants and agrees, with respect to each
Transmittal Sheet delivered to Purchaser, that:
6.1 The Seller is the absolute owner of each receivable set forth in
each Transmittal Sheet and has full legal right to make said sale,
assignment and transfer thereof;
6.2 The correct amount of each Receivable is as set forth in the
Transmittal Sheet and is not in dispute;
6.3 The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future, and any and all
obligations required of the Seller have been fulfilled as of the date of
each Transmittal Sheet;
6.4 Each Receivable set forth in a Transmittal Sheet is based on an
actual sale and delivery of goods and/or services actually rendered, is
presently due and owing to Seller, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged, and is free of any
encumbrance or lien except to Purchaser;
6.5 There are no defenses, offsets, or counterclaims against any of
the Receivables, and no agreement has been made under which the Account
Debtor may claim any deduction or discount, except as otherwise stated on
each invoice submitted to Purchaser which is listed on the Transmittal
Sheet;
6.6 Each Purchased Receivable shall be the property of the Purchaser
and shall be paid directly to Purchaser, but if for any reason it should be
paid to Seller, Seller shall promptly notify Purchaser of such payment,
shall hold any checks, drafts, or moneys so received in trust for the
benefit of Purchaser, and shall promptly transfer and deliver the same to
the Purchaser;
6.7 Purchaser shall have the right to endorse, and also the right to
require endorsement by Seller, on all payments received in connection with
each Purchased Receivable and any proceeds of Collateral;
<PAGE>
6.8 The Seller, and to Seller's best knowledge, each Account Debtor
set forth in the Transmittal Sheet, are and shall remain solvent as that
term is defined in the Federal Bankruptcy Code;
6.9 Each Account Debtor named in the Transmittal Sheet will not
object to the payment for or the quality or the quantity of the subject
matter of the Receivable and is liable for the amount set forth on the
Transmittal Sheet;
6.10 Each Account Debtor shall be promptly notified after acceptance
by Purchaser that the Purchased Receivable has been transferred to and is
payable to Purchaser, and Seller shall not take or permit any action to
countermand such notification;
6.11 The Seller's place of business, and the place where records
concerning all Receivables herein referred to are kept, is the one set
forth at the beginning of this Agreement, and Seller will promptly advise
Purchaser in writing if such place of business or record keeping is changed
or a new place of business or record keeping is added;
6.12 Seller is not and will not hold any letter of credit or
negotiable instrument as support for or in payment of any Purchased
Receivable, and any such documentation received by Seller will be
immediately turned over to Purchaser, with any necessary assignment or
endorsement;
6.13 Seller will not assign, transfer, sell or grant any lien or
security interest in the Collateral to any other party without Purchaser's
prior written consent; and
6.14 No Account Debtor is affiliated with Seller, either by common
ownership or family relationship.
6.15 All Receivables forwarded to and accepted by Purchaser after the
date hereof, and thereby becoming Purchased Receivables, shall comply with
each and every one of the foregoing representations, warranties, covenants
and agreements referred to above in this section 6.
7. Adjustments. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall
promptly advise Purchaser and shall, subject to the Purchaser's approval,
resolve such disputes and advice Purchaser of any adjustment. Unless
reassigned to Seller, Purchaser shall remain the absolute owner of any
Purchased Receivable, which is subject to Adjustment or Repurchase under
Sections 1.3 or 4 hereof, and any rejected, returned, or recovered personal
property, with the right to take possession thereof at any time. If such
possession is not taken by Purchaser, Seller is to resell it for
Purchaser's account at Seller's expense with the proceeds made payable to
Purchaser. While Seller retains possession of said returned goods, Seller
shall segregate said goods and mark them "property of Financial Accounts
Management Services."
Insert F
8. Security Interest
8.1 This Agreement for Purchase of Receivables is the security
agreement referred to in the Transmittal Sheet.
8.2 In order to secure the Obligations Seller hereby grants to
Purchaser a continuing lien upon and security interest in all Seller's now
existing or hereafter arising rights and interest in the Collateral.
8.3 Seller is not authorized to sell, transfer or otherwise convey
any Collateral without Purchaser's consent, except for the sale of finished
goods inventory in the Seller's ordinary course of business. Purchaser
shall have the right, upon default by Seller hereunder, to withdraw its
consent to Seller's sale of finished goods inventory, and Seller agrees
that Purchaser may notify the Account Debtors of this withdrawal of
consent.
8.4 Seller agrees to sign all UCC financing statements required by
and in a form satisfactory to Purchaser.
8.5 Purchaser shall have the right at any time to notify Seller's
Account Debtors of its security interest. Said notification may be in the
form of Exhibit A hereto.
9. Default
9.1 The following shall constitute Events of Default:
9.1.1 Seller fails to pay as when due any Obligations owed to
Purchaser.
9.1.2 There shall be commenced by or against any Obligor any
voluntary or involuntary case under the Federal Bankruptcy Code, or any
assignment for the benefit of creditors, or appointment of a receiver or
custodian for a substantial portion of its assets;
9.1.3 Any Obligor shall become insolvent, in that its debts are
greater than the fair value of its assets, or such entity is generally not
paying its debts as they become due;
9.1.4 Any involuntary lien, levy, garnishment, attachment or the
like is issued against or attaches to the Purchased Receivables or the
Collateral and the same is not released within fifteen (15) days; or
9.1.5 Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Purchaser's
satisfaction within ten (10) days after Purchaser has given Seller written
notice thereof.
9.2 Upon the occurrence of an Event of Default
9.2.1 Without implying the existence of any obligation to
Purchaser to buy receivables, which implication is specifically negated by
the terms hereof, Purchaser may cease buying Receivables;
<PAGE>
9.2.2 Purchaser may immediately exercise its rights and remedies
with respect to the Purchased Receivables and the Collateral, as a secured
party under this Agreement, the Uniform Commercial Code, and applicable
law;
9.2.3 Purchaser shall have the rights as set forth in Section 8
hereof.
10. Nonpayment of Obligations. If any Obligation is not paid when due
(including amounts due under section 3.11, Repurchase Amounts due under
section 4, or professional fees and expenses under section 11), such amount
may be added to the Account Balance and shall be subject to the Factor Fee
rate until payment in full.
Insert G
11. Professional Fees. The Seller will pay all reasonable fees and
expenses of attorneys and other professionals that Purchaser incurs in
negotiating, amending, and enforcing this Agreement and protecting or
enforcing its interest in the Purchased Receivables or the Collateral, in
collecting Purchased Receivables, or in the representation of Purchaser in
connection with any bankruptcy case or insolvency proceeding involving
Seller, the Collateral, any Account Debtor, or any Purchased Receivable.
12. Severability and Choice of Law. In the event that any provision of
this Agreement is deemed invalid by reason of law, this Agreement will be
construed as not containing such provision and the remainder of the
Agreement shall remain in full force and effect. This Agreement has been
transmitted by Seller to Purchaser at Purchaser's office in the State of
California and has been executed and accepted by Purchaser in the State of
California. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California without reference to
choice of law.
13. Account Collection Service. In the event that Purchaser requires that
all of Seller's Receivables be paid to Purchaser, subject to Purchaser's
rights in the Collateral, Purchaser agrees to remit the amount of
collections on the Receivables it receives and does not own to Seller after
deducting a handling fee of 0% of such amount received. It is understood
and agreed by Seller that this Section does not impose any affirmative duty
on Purchaser to do any act other than to turn over such amounts. All such
Receivables and collections are Collateral and in the event of Seller's
Default hereunder, Purchaser shall have no duty to remit collections of
Collateral and may apply same to the Obligations until said Default is
cured.
Insert H
14. Term and Termination. The term of this Agreement shall be for one (1)
year from the date hereof, and from year to year thereafter unless
terminated in writing by Purchaser or Seller. Seller and Purchaser each
have the right to terminate at any time provided that there is no
outstanding Account Balance and no fees, charges or other obligations owed
to Purchaser at the time of termination. Any termination of this Agreement
shall not affect Purchaser's security interest in the Collateral and
Purchaser's ownership of the Purchased Receivables, and this Agreement
shall continue to be effective, until all transactions entered into and
Obligations incurred hereunder have been completed and satisfied in full.
IN WITNESS WHEREOF, the Seller has executed this Agreement on the date
and year above written, and the Purchaser has accepted by its authorized
representative.
SELLER: Ophthalmic Imaging Systems
By: STEVEN R. VERDOONER
Steven R. Verdooner, Chief Executive Officer
ACCEPTED AT SAN JOSE, CALIFORNIA
FINANCIAL ACCOUNTS MANAGEMENT SERVICES,
a division of Imperial Bank
By: GARY HANSON
Gary Hanson, President
<PAGE>
IMPERIAL BANK
AGREEMENT FOR PURCHASE OF RECEIVABLE
NOVEMBER 18, 1997
Insert A
Section 1.9
"Daily Net Funds Employed" refers to the amount advanced against factored
receivables that remains unpaid.
Insert B
Section 1.10
The "monthly period" is the number of days in the month. The "average
daily balance" is the average amount of unpaid factored invoices
outstanding during the monthly period.
Insert C
Section 1.15 and Section 1.18
It is our understanding that the Purchaser generally pays excess reserves
bi-monthly, on the 1st day and the 15th day of the month, and, if requested
by the Seller and in the sole discretion of the Purchaser, the Purchaser
may pay excess reserves on an as requested basis.
Insert D
Section 3 (inclusive)
Section 6 (inclusive)
For receivables pending installation, the advance rate is reduced to 50%
from 80%. This is subject to all other TERMS OF PURCHASE as outlined in
Section 3 of the Agreement for Purchase of Receivable.
Insert E
Section 3.6
It is our understanding that the Purchaser normally credits the Account
Balance on the date that Purchaser receives payment, with a maximum delay
of 1 day for in-state checks and 3 days for out-of-state checks.
Insert F
Section 6 (inclusive)
Section 8 (inclusive)
It is our understanding that the Purchaser will subordinate its security
position in vendor-financed equipment or inventory exclusive of Accounts
Receivable, provided Seller is not in default.
Reference facsimile dated 11/18/97 (FileName: IMP1118A.DOC) attached
hereto and included as a part hereof.
<PAGE>
IMPERIAL BANK
AGREEMENT FOR PURCHASE OF RECEIVABLE
NOVEMBER 18, 1997
(continued)
Insert G
Section 11
All reasonable fees and expenses of attorneys and other professionals will
be paid to the prevailing party.
Insert H
Section 14
There is no pre-payment penalty.
Insert I
Section 15
Insert I has been deleted.
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815 (916) 646-2020
18 November, 1997
VIA FACSIMILE
Gary Hanson
Imperial Bank
Financial Accounts Management Services
Dear Gary:
This letter is intended to confirm the salient points our conversation
today regarding a third party loaning funds to Ophthalmic Imaging Systems
("OIS" or the "Company"), and the potential ramifications of said
transaction in light of the factoring relationship and related agreements
currently contemplated between the Company and Imperial Bank (the "Bank").
- - It is our understanding that Imperial Bank will allow this third party
to loan funds to the Company and the Company will not be in violation
of any agreements in accepting such loans.
- - It is the Bank's intention to allow the Company to accept the loan for
use as general working capital for purposes of assisting the Company
in fulfilling its obligations to deliver products to its customers.
- - The Bank will subordinate to the third party, receivables specifically
identified in a schedule to be submitted to the Bank by the Company,
the funds received in payment therefore which will be used to repay
the third party in accordance with said schedule.
- - The Bank will exclude from its collateral the receivables specifically
identified in said schedule and, with regard to said receivables, will
subordinate to the third party under all circumstances.
If the foregoing accurately reflects our understanding, then please so note
by signing below and returning to my attention via return facsimile.
Thank you again for your flexibility in working with OIS and I look forward
to a continued positive business relationship with Imperial Bank.
Sincerely,
STEVEN R. VERDOONER
Steven R. Verdooner
Chief Executive Officer
SRV/s
IMPERIAL BANK
BY:
TITLE:
DATE:
While it is Bank's intention "in principle" to agree to a future
subordination of some specific invoices, any future subordination agreement
must in a form that is acceptable to Bank's legal counsel.
<PAGE>
(TO BE MAILED ONLY IN THE EVENT OF DEFAULT)
EXHIBIT A
(Letterhead of Financial Accounts Management Services)
(Date)
(Name and Address of Customer)
Re: Ophthalmic Imaging Systems ("Debtor")
Gentlepersons:
Please be advised that the Ophthalmic Imaging Systems has assigned all
its present and future accounts to FAMS. To the extent that you are now
indebted or may in the future become indebted to Debtor on an account, any
payments must be made to FAMS and not to Debtor or any other entity. The
payments should be mailed to us at the above address.
PAYMENTS MADE IN ANY OTHER MANNER MAY EXPOSE YOU TO MULTIPLE LIABILITY.
We also hereby notify you that we have revoked Debtor's right to sell
inventory free and clear of our security interest therein. Consequently,
any inventory of the Debtor (or proceeds thereof) which you receive
subsequent to your receipt of this letter shall be subject to our security
interest therein, and we hereby demand that you turn over any such
inventory and/or proceeds to us at the address set forth above.
This letter may only be revoked by a writing signed by one of our
officers the authenticity of which you have verified by telephone or
facsimile.
Thank you.
Sincerely yours,
Financial Accounts Management Services
By:
Title:
<PAGE>
CERTIFICATE OF RESOLUTIONS
I, Steven R. Verdooner, do hereby certify that:
1. I am the duly elected Chief Executive Officer of Ophthalmic Imaging
Systems (the "Corporation").
2. At a meeting of the Board of Directors of the Corporation, duly
convened and held in accordance with the Corporation's By-Laws and the laws
of the state of incorporation, at which a quorum was present and acting
throughout or by unanimous written consent of all the Directors if
permitted by law, the following resolutions were adopted:
RESOLVED that the Corporation be and hereby is authorized to sell the
Corporation's accounts receivable to Financial Accounts Management
Services, a division of Imperial Bank, and to grant to Financial Accounts
Management Services a security interest in the Corporation's personal
property.
RESOLVED FURTHER that the officers of the Corporation be and hereby are
authorized and directed to execute and deliver certain agreements in
connection with the sale of accounts receivable, and the grant of security
interests in the Corporation's personal property to Financial Accounts
Management Services, including, without limitation, Agreement for Purchase
of Accounts, Certification of Officers, Certification of Resolutions,
[other Agreements that might be needed] and UCC Financing Statements.
RESOLVED FURTHER that the following named officers of the Corporation
("Authorized Officers") be, and any of them hereby are, authorized,
empowered, and directed to execute and deliver to Financial Accounts
Management Services on behalf of the Corporation, the agreements listed in
the foregoing resolution, and to do or cause to be done all such acts and
things and make, execute, and deliver or cause to be made, executed and
delivered, on behalf of the Corporation, all such further agreements and
instruments as may be deemed necessary or advisable in order fully
effectuate the purposes and intent of the foregoing resolutions.
STEVEN R. VERDOONER, CHIEF EXECUTIVE OFFICER
WILLIAM L. MINCE, PRESIDENT
(Names of Authorized Officers)
RESOLVED FURTHER that any one of the Corporate Officers shall execute and
deliver to Financial Accounts Management Services a certificate of these
resolutions.
3. The foregoing resolutions have not been modified, amended or rescinded
in any respect and are in full force as of today's date.
IN WITNESS WHEREOF, I have hereunder signed my name on November 18, 1997.
STEVEN R. VERDOONER
Steven R. Verdooner, Chief Executive Officer
<PAGE>
CERTIFICATION OF OFFICERS
The undersigned, being all Officers of Ophthalmic Imaging Systems, a CA
corporation, (the "Corporation") hereby certify to Financial Accounts
Management Services that:
1. The correct name of the Corporation is as set forth in the Articles of
Incorporation.
2. The Corporation was incorporated on 7/14/86 under the laws of the
State of CA and is in good standing under such laws.
3. The chief place of the Corporation, being the place at which the
Corporation maintains its books and records pertaining to accounts,
accounts receivable, contract rights, chattel paper, general intangibles,
instruments, documents, inventory, and equipment, is located at:
221 Lathrop Way, Suite I
Sacramento, CA 95815
4. The Corporation has other places of business at the following
addresses:
5. There is no provision in the Certificate of Incorporation, Articles of
Incorporation, or Bylaws of the Corporation, or in the laws of the state of
its incorporation, requiring any vote or consent of shareholders to
authorize the sale of accounts receivable or the grant of security interest
in any assets of the Corporation. Such power is vested exclusively in the
Corporation's Board of Directors.
6. The officers of the Corporation, and their respective titles are as
follows:
CHIEF EXECUTIVE OFFICER: Steven R. Verdooner Other:
VICE PRESIDENT: Other:
SECRETARY: Steven R. Verdooner Other:
Other: Other:
7. Except as indicated in this paragraph 7, each of the officers listed in
paragraph six has signatory powers with respect to all the Corporation's
transactions with Financial Accounts Management Services, a division of
Imperial Bank.
8. The undersigned shall give Imperial Bank Financial Accounts Management
Services prompt written notice of any change or amendment with respect to
any of the foregoing. Until further notice is received by Financial
Accounts Management Services, it shall be entitled to rely upon the
foregoing in all respects.
IN WITNESS WHEREOF, the undersigned have executed this Certification of
Officers on 11/18/97.
STEVEN R. VERDOONER Other
Steven R. Verdooner
Chief Executive Officer
Vice President Other
STEVEN R. VERDOONER Other
Steven R. Verdooner
Secretary
<PAGE>
SIGNATURE AUTHORIZATION
Date: November 18, 1997
Each person whose specimen signature appears below is hereby authorized and
empowered to transact any and all business with the Financial Accounts
Management Services division of Imperial Bank, San Jose, California, which
the undersigned could in any way transact and is further authorized to
execute, acknowledge and/or deliver on behalf of the undersigned any and
all assignments, documents, instruments and agreements which he may deem
necessary or convenient in transaction of such business of the undersigned.
Signatures and titles are as follows:
Name (print or typewrite) Title Specimen of Signature
STEVEN R. VERDOONER CEO STEVEN R. VERDOONER
WILLIAM L. MINCE PRESIDENT WILLIAM L. MINCE
STEVEN C. LAGORIO DIRECTOR OF STEVEN C. LAGORIO
FINANCE
Ophthalmic Imaging Systems
By: STEVEN R. VERDOONER
<PAGE>
VALIDITY INDEMNIFICATION
Financial Accounts Management Services (FAMS)
a division of Imperial Bank
226 Airport Blvd.
San Jose, California 95110
Re: Ophthalmic Imaging Systems ("Seller") and Financial Accounts
Management Services ("Purchaser") Agreement for Purchase of Receivables and
related documents ("Agreements") dated 11/18/97.
The undersigned is the CEO of the Seller.
In order to induce Purchaser to purchase accounts receivable from the
Seller, pursuant to the Agreements between Purchaser and Seller, the
undersigned hereby represents and warrants to Purchaser, on behalf of the
Seller, as follows:
1. All Seller accounts which have been or will be reported to Purchaser
by or on behalf of the Seller and in which Purchaser holds a security
interest ("Accounts"), whether such reports are in the form of agings,
borrowing base certificates, collateral reports, transmittals or financial
statements, are genuine and in all respects what they purport to be,
represent bonafied obligations of delivery of merchandise and or services
sold by the Seller (the "Sold Goods/Services") in the ordinary course of
its business and in accordance with and in full and complete performance of
customer's (each, an "Account Debtor") order therefore.
2. All original checks, drafts, notes, letters of credit, acceptances and
other proceeds of the Accounts, received by the Seller, will be held in
trust for Purchaser and will immediately be forwarded to Purchaser upon
receipt, in kind, in accordance with the terms of Agreements.
3. None of the Accounts are or will be the subject of any offsets,
defenses or counterclaims of any nature whatsoever, and Seller will not in
any way impede or interfere with the normal collection and payment of the
Accounts.
4. Seller is presently solvent.
5. The sold Goods/Services are and will be up to the point of sales, the
sole and absolute property of the Seller, and the Accounts and sold
Goods/Services will be free and clear of all liens and security interests,
except your security interest.
6. The due dates of the Accounts will be as reported to Purchaser by or
on behalf of the Seller.
7. Seller will promptly report to Purchaser all disputes, rejections,
returns and resales of sold Goods/Services and all credits allowed by the
Seller upon all accounts.
8. All reports which Purchaser receives from the Seller, including BUT
NOT LIMITED TO those concerning its Accounts and its inventory, will be
true and accurate except for minor inadvertent errors.
9. Seller will not sell its inventory except in the ordinary course of
business.
The undersigned, on behalf of the Seller, hereby indemnifies Purchaser and
holds Purchaser harmless from any direct, indirect, or consequential damage
or loss which Purchaser may sustain as a result of the breach of any
representation or warranty contained herein, (all of which are continuing
and irrevocable for so long as the Seller is indebted to Purchaser), or of
Purchaser's reliance (whether such reliance was reasonable) upon any
misstatement (whether or not intentional), fraud, deceit or criminal act on
the part of any officer, employee, or agent of the Seller, or any costs
(including reasonable attorney's fees and expenses) incurred by Purchaser
in the enforcement of any rights granted Purchaser hereunder. All such
sums will be paid by the undersigned to Purchaser on demand.
<PAGE>
Nothing herein contained shall be in any way impaired or affected by any
change in or amendment of any of the Agreements. This indemnification
shall be binding upon the undersigned corporation, its successors and
assigns.
Very truly yours,
INDEMNITOR'S INFORMATION
Name OPHTHALMIC IMAGING SYSTEMS Address 221 Lathrop Way,
Suite I
Signature STEVEN R. VERDOONER City State Sacramento, CA 95815
CEO
Dated Signed November 18, 1997 SS# 94-3035367
It is the sole intent that this indemnification be made by Ophthalmic
Imaging Systems, a corporation, and not by any individual.
<PAGE>
IMPERIAL BANK
TRANSMITTAL SHEET
(Schedule A) Trans #
Date Page
Relationship #
Seller Name Ophthalmic Imaging Systems
Account Customer Name Invoice Invoice Purchase Net
Code (Detail if Needed)** Number Date Order # Sale
Special Instructions: This section to be completed by
FAMS.
Gross Total 100%
Reserve %
Detail of Charges/Reason Charges/
for Adjustment: Adjustments
Net Advance
**Please include contact person, Method of Disbursement:
phone number, fax number, and Check #, Account #, Other
address for all new Customers,
or when needed. Include location
for customers with multiple
billing/processing centers.
The undersigned hereby sells and assigns to Financial Accounts Management
Services, a division of Imperial Bank, a security interest in the accounts
listed in the above schedule, monies due and to become due upon the same,
and all merchandise returned or rejected. The undersigned, to the best of
his/her knowledge, represents that the above schedule correctly sets forth
accounts now owing the undersigned for bonafide sales and deliveries of
merchandise and/or service; that there are no offsets or counterclaims of
any nature whatsoever against any of the accounts; that none of said
accounts are past due; that proper entries have been made on the books of
the undersigned disclosing the sale and assignment of such accounts to
Financial Accounts Management Services; that none of said accounts have
been sold or assigned to any other party; that said accounts are sold and
assigned pursuant to and in accordance with all the terms and provisions of
the Agreement for Purchase of Receivable executed by Financial Accounts
Management Services and the undersigned relating to advances made by
Financial Accounts Management Services on such accounts and the assignment
thereof; and that all such accounts are eligible accounts as defined in
said Agreement for Purchase of Receivable.
Authorized signer Signature
<PAGE>
(LETTERHEAD OF SELLER)
(Please Complete one for all DBA's)
All future advances under the "Agreement for Purchase of Receivable" are
subject to Bank's receipt of an Assignment letter that is acceptable to
Bank.
Exhibit 10.23
OPHTHALMIC IMAGING SYSTEMS
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 14 day
of July 1997, by and between OPHTHALMIC IMAGING SYSTEMS, a California
corporation ("Employer") and WILLIAM L. MINCE ("Employee").
NOW, THEREFORE, in consideration of the mutual promises set forth
below, the parties to this Agreement mutually agree as follows:
AGREEMENTS
1. EMPLOYEE'S DUTIES AND AUTHORITY. Employer hereby employs
Employee, and Employee hereby accepts employment with Employer, as
President/Chief Operating Officer of Employer. Employee's duties shall be
as provided in Employer's bylaws and/or as specified by Employer's board of
directors from time to time.
2. LIMITATIONS ON OUTSIDE ACTIVITIES. During the term of this
Agreement, Employee shall devote his best efforts, full energies, abilities
and productive time to the performance of his duties under this Agreement
and shall not, without Employer's prior written consent, render to others
services of any kind for compensation, or engage in any other business
activities that would materially interfere with the performance of his
duties under this Agreement.
3. COMPETITION, SOLICITATION.
A. During the term of this Agreement, Employee shall not,
directly or indirectly, whether as a partner, employee,
creditor, shareholder or otherwise, promote, participate or
engage in any activity or other business competitive with
Employer's business.
B. Because of his employment by Employer, Employee will have
access to trade secrets, customer lists and customers and
its methods of doing business. Employee agrees not to use
or disclose, directly or indirectly, to any person,
organization or entity:
(1) any confidential information or knowledge concerning
the business and affairs of the company or
(2) any inventions, discoveries, improvements, products,
processes, technology, trade secrets, customer lists or
any other confidential materials whether acquired
before or after the effective date of this Agreement is
disclosure or use would adversely affect the business
of the company or accord to a competitor of Employer a
material commercial advantage. This paragraph does not
restrict Employee from disseminating or
<PAGE>2
using any information which is published or available
to the general public, except where such publication or
availability results from Employee's acts.
C. Employee agrees that for a period of three (3) years after
expiration or earlier termination of this Agreement, he will
not, directly or indirectly, solicit any of the customers of
Employer's to transact business with any other firm or
enterprise which is engaged in competition with Employer.
4. TERM OF AGREEMENT. Subject to earlier termination as provided in
this Agreement, the term of this Agreement shall be two (2) years from the
date of this Agreement.
5. COMPENSATION. Employer makes no representations and provides no
advice concerning the treatment by taxing authorities of any Employee
compensation set forth in this Agreement. Employer strongly urges Employee
to consult with his own independent tax advisers. Employer shall
compensate Employee according to the terms of this Agreement as follows:
A. In consideration for the services to be rendered by Employee
under this Agreement, the Employer agrees to pay, and
Employee agrees to accept as compensation, an annual salary
of ONE HUNDRED FORTY THOUSAND DOLLARS ($140,000) per year,
payable in accordance with the Company's standard payroll
policies.
B. Employee shall be eligible for an annual bonus in an amount
not to exceed FORTY TWO THOUSAND DOLLARS ($42,000), which
amount is equal to 30% of Employee's annual salary. The
criteria and/or formulae by which the actual bonus amount is
calculated will be determined pursuant to a separate
agreement. With respect to 50% of the actual bonus amount
Employee agrees to accept as payment thereof, and Employer
agrees to issue as payment, unregistered shares of the
Company's Common Stock, which includes customary transfer
restrictions, the fair market value ("FMV") of which at the
date of issuance, is equal to 50% of the actual bonus
payment. FMV of each share so issued shall be the closing
price on the applicable national securities exchange on the
date of issuance.
C. Employer agrees to grant, and Employee agrees to accept, a
stock option to purchase 100,000 shares of the Company's
Common Stock at the closing market price of the stock on the
date duly granted by the Company's Board of Directors, which
date will not be before the date of this Agreement, nor
later than the minimum period practicable after the date of
this Agreement and in any event no later than the day before
any public announcement of Employee's hiring. The option
shall vest and become exercisable with respect to TWENTY
FIVE THOUSAND (25,000) of the shares at the completion of
Employee's sixth month of employment and with respect to TWO
THOUSAND FIVE HUNDRED (2,500) of the shares at the
completion of each of the subsequent 30 months thereafter
for a total vesting period of 36 months, subject to the
<PAGE>3
terms and conditions of the Stock Option Agreement pursuant
to which stock option is granted.
D. In consideration for relocation expenses to be incurred by
the Employee, including, but not limited to temporary
housing, meals, moving and other related expenses, Employer
agrees to pay, and Employee agrees to accept as a relocation
allowance, up to THIRTY THOUSAND DOLLARS ($30,000), with
such allowance to be used at the sole discretion of the
Employee.
E. Employee shall be entitled to up to five (5) days of
professional development during the first year of employment
for which time the Employer agrees to pay the Employee's
salary. Employee shall be entitled to be reimbursed for
expenses incurred in connection with such development,
including, but not limited to, expenses of travel and
entertainment, meals, lodgings and other expenses of a
business nature, upon presentation of appropriate vouchers.
F. Employee shall be reimbursed for ordinary and necessary
business expenses incurred in connection with his
employment, including, but not limited to, expenses of
travel and entertainment, meals, lodgings and other expenses
of a business nature, upon presentation of appropriate
vouchers.
G. Employee shall be entitled to such fringe benefits,
including life, disability, accident, health, wage
continuation and other insurance and contributions to
retirement plans, employee benefits plans, savings or
profit-sharing plans, deferred compensation plans,
supplemental retirement or excess-benefit plans stock
option, incentive or other bonus plans, paid vacations and
other similar plans or programs, if any, subject in each
case to the generally applicable terms and conditions of the
plan or program in question and to the determination of any
committee administering such plan or program.
H. Salary increases, if any, will be made only at the sole
discretion of Employer during the term of this Agreement.
I. Employee shall receive full compensation and benefits for
any period of illness or incapacity during the term of this
Agreement, provided, however, Employer shall have the right
to terminate this agreement if such illness or incapacity
shall be of such a character as to totally disable Employee
from rendering any services to Employer for a period of more
than sixty (60) days, by giving at least twenty-one (21)
days' written notice of its intention to do so. If Employee
shall resume his duties within the twenty-one (21) day
period following receipt of such notice, and shall perform
such duties on a regular basis for sixty (60) days
thereafter, this Agreement and Employee's employment
hereunder shall continue in full force and effect, and
Employer's notice of intention to terminate shall have no
further force or validity.
<PAGE>4
J. Employee shall be entitled to severance pay if Employer
terminates Employee's employment under this Agreement,
except as set forth in Section 7, below, or if Employee
resigns because of Employer's breach of this Agreement or
because of a reduction in scope of Employee's
responsibilities or corresponding change in title.
Employer agrees to pay, and Employee agrees to accept, as full
and complete severance, if applicable, an amount equal to the
greater of: (i) SEVENTY THOUSAND DOLLARS ($70,000); or (ii) one
twelfth of Employee's annual salary for each month of employment,
not to exceed ONE HUNDRED FORTY THOUSAND DOLLARS ($140,000). The
severance pay is deemed to be a reasonable estimate of Employee
damages, the exact amount of which cannot be ascertained.
6. INDEMNIFICATION BY EMPLOYER. Employer shall, to the maximum
extent permitted by law, indemnify and hold Employee harmless against
expenses, including reasonable attorney's fees, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with any proceeding arising by reason of Employee's employment
by Employer. Employer shall advance to Employee any expenses incurred in
defending any such proceeding to the maximum extent permitted by law.
7. TERMINATION. Employer shall be entitled at its option to
terminate Employee's employment under this Agreement at any time, for the
following reasons:
A. Because of Employee's fraud, misappropriation, embezzlement
or theft;
B. Because of Employee's conviction of a felony;
C. Because Employee has engaged in competitive activities in
breach of his covenants under Section 3 above;
D. Because Employee has abandoned his duties; or
E. As provided in Section 5I, above.
F. Without cause, and for any reason, provided that in such
event Employer shall pay to Employee, and Employee shall
accept, severance pay as provided in Section 5J, above.
Such a termination of Employee's employment shall not constitute
a breach of this Agreement by Employer. Upon a termination under
subsection 7A, 7B, 7C or 7D, Employer shall be obligated to pay only
compensation which has accrued due to actions to Employee before such
termination. Employee shall not be entitled to severance pay or continuing
benefits of any kind upon such termination, other than such benefits
mandated by law.
8. PROPRIETARY INFORMATION AND INVENTIONS. All processes,
inventions, patents, copyrights, trademarks and other intangible rights
that may be conceived or developed by Employee, either alone or with
others, during the term of Employee's employment, whether or not conceived
or developed during Employee's working hours, and with respect to which the
<PAGE>5
equipment, supplies, facilities or trade secret information of Employer was
used, or that relate to the ocular health care business of Employer, or
that result from any work performed by Employee for Employer, shall be the
sole property of Employer. Employee shall disclose to Employer all
inventions conceived during the term of employment, whether or not the
property of Employer under the terms of preceding sentence provided that
such disclosure shall be received by Employer in confidence. Employee
shall execute all documents, including patent applications and assignments,
required by Employer to establish Employer's rights under this section.
This section does not apply to any invention that qualifies fully under the
provisions of section 2870 of the California Labor Code, a copy of which
attached hereto as Exhibit A.
9. VACATION. Employee shall be entitled to vacation benefits as
made available by the Company in accordance with standard Company vacation
policy, except that Employee shall be entitled to 15 vacation days per year
during the term of this Agreement, during which time his compensation shall
be paid in full.
10. DEATH DURING EMPLOYMENT. If Employee dies during the term of
this Agreement, this Agreement shall terminate immediately, and Employer
shall pay to the estate of Employee the basic annual salary and expense
requirement which would otherwise be payable to Employee through the last
day of the calendar year in which his death shall have occurred, provided
that the salary payment shall not, in any event, represent less than one
(1) month salary.
11. MISCELLANEOUS.
A. NO CONFLICT. Employee hereby warrants that he is not now
under any legal or contractual obligation that would
conflict in any manner whatsoever with the obligations and
duties by him herein undertaken, and that the execution of
this Agreement will not breach any agreement to which
Employee is presently a party.
B. CONSTRUCTION. This Agreement shall be governed by, and
shall be construed in accordance with, the laws of the State
of California and shall be binding upon, and shall inure to
the benefit of the heirs, executors, assigns, transferees
and successors in interest of the parties hereto,
notwithstanding the reorganization, merger, consolidation or
change in personnel or Employer.
C. NOTICES. Any notice to Employer required or permitted under
this Agreement shall be given in writing to Employer, either
by personal service or by registered or certified mail,
postage prepaid, addressed to Employer at its then principal
place of business. Any such notice to Employee shall be
given in a like manner, and if mailed, shall be addressed to
Employee at his home address then shown in Employer's files.
For the purpose of determining compliance with any time
limit in this Agreement, a notice shall be deemed to have
been duly given (a) on the date of service, if personally
served on the party to whom notice is to be given, or (b) on
the second business day after mailing, if mailed to the
party to whom the notice is to be given in the manner
provided in his section.
<PAGE>6
D. WAIVER OF BREACH. The waiver of either party of a breach of
any provision of this Agreement shall not operate or be
construed as a waiver of any provision or of any subsequent
breach of the same provision or of any subsequent breach of
the same provision thereof.
E. ENTIRE AGREEMENT. This instrument contains the entire
agreement of the parties and supersedes all prior and
contemporaneous, oral or written, agreements, understandings
and the like between the parties. It may not be changed
orally, but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
F. SEVERABILITY. If any portion of this Agreement is held by a
court of competent jurisdiction to conflict with any
federal, state or local law, such portion or portions of
this Agreement are hereby declared to be of no force or
effect in such jurisdiction, and this Agreement shall
otherwise remain in full force and effect and be construed
as if such portion had not been included herein.
G. SECTION HEADINGS. The section headings used herein are
provided for informational purposes only and shall effect
neither the meaning of the terms nor the intent of the
parties.
H. ATTORNEYS' FEES. If any action is commenced to enforce or
interpret the terms of this Agreement, the prevailing party
is such action shall be entitled to recover his or its
attorneys' fees and other costs incurred.
I. ASSIGNABILITY; SUCCESSORS AND MERGERS. Neither party
hereunder shall have the right to assign this Agreement or
any rights or obligations hereunder without the consent of
the other party; provided, however, that upon the sale of
all or substantially all the assets, business and goodwill
of Employer to another corporation, or upon the merger or
consolidation of Employer with another corporation or
corporations, this Agreement shall inure to the benefit of
and be binding upon, both Employee and the corporation
purchasing such assets, business or goodwill or surviving
such merger or resulting from such consolidation, as the
case may be, in the same manner and to the same extent as
though such other corporation were Employer.
J. REMEDIES. If any of the covenants or agreements contained
in paragraphs 3 or 8 here of are violated, Employee agrees
and acknowledges that such violation or threatened violation
will cause irreparable injury to Employer and that the
remedy at law for such violation or threatened violation
will be inadequate and that Employer will be entitled to
injunctive relief without the necessity of proving actual
damages.
<PAGE>7
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
EMPLOYER:
OPHTHALMIC IMAGING SYSTEMS,
a California corporation
By: STEVEN R. VERDOONER
Its: Chief Executive Officer
EMPLOYEE:
WILLIAM L. MINCE
William L. Mince
Exhibit 11.1
OPHTHALMIC IMAGING SYSTEMS
CALCULATION OF NET LOSS PER SHARE
1997 1996
Net loss.......................... $(2,110,554) $(1,413,183)
=========== ===========
Weighted average common shares
outstanding..................... 3,597,879 2,204,506
Common stock equivalents (1)...... -- --
----------- -----------
3,597,879 2,204,506
=========== ===========
Net loss per share................ $ (.59) $ (.64)
=========== ===========
(1) No amounts are included, as amounts are anti-dilutive.
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-57518 and Form S-8 No. 333-0461) pertaining to the Stock
Option Plan and the 1995 Nonstatutory Stock Option Plan of Ophthalmic Imaging
Systems of our report dated October 21, 1997 (except for Note 10, as to which
the date is November 18, 1997), with respect to the financial statements of
Ophthalmic Imaging Systems included in the Annual Report (Form 10-KSB) for
the year ended August 31, 1997.
ERNST & YOUNG LLP
Sacramento, California
November 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-KSB FOR THE PERIOD ENDED AUGUST 31, 1997 FOR OPHTHALMIC IMAGING SYSTEMS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 142,300
<SECURITIES> 0
<RECEIVABLES> 1,644,541
<ALLOWANCES> (100,346)
<INVENTORY> 794,052
<CURRENT-ASSETS> 2,674,301
<PP&E> 1,155,613
<DEPRECIATION> (774,831)
<TOTAL-ASSETS> 3,062,468
<CURRENT-LIABILITIES> 2,394,699
<BONDS> 0
0
0
<COMMON> 10,244,615
<OTHER-SE> (9,576,846)
<TOTAL-LIABILITY-AND-EQUITY> 3,062,468
<SALES> 6,480,055
<TOTAL-REVENUES> 6,625,616
<CGS> 4,885,004
<TOTAL-COSTS> 4,885,004
<OTHER-EXPENSES> 3,784,332
<LOSS-PROVISION> (2,043,720)
<INTEREST-EXPENSE> 80,746
<INCOME-PRETAX> (2,110,554)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,110,554)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,110,554)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> 0
</TABLE>
