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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, 1998
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
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation 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:
None
Securities registered under Section 12(g) of the
Exchange Act:
Common Stock, No Par Value
(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. [X]
The issuer's revenues for its most recent fiscal year was $6,277,370.
The aggregate market value of the Common Stock of the issuer held by
non-affiliates as of November 30, 1998, was approximately $1,170,537 by
reference to the average bid and ask price of the Common Stock as quoted by
Nasdaq OTC Bulletin Board on such date. As of November 30, 1998, there were
4,155,428 issued and outstanding shares of issuer's Common Stock.
Traditional Small Business Disclosure Format (check one): Yes No XX
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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. Premier Laser Systems, Inc., a
California corporation ("Premier"), currently owns 51.3% of the Company's
outstanding common stock.
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(TM) and
WinStation 640(TM). 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, combined with lower cost imaging devices and systems, are
emerging that allow physicians and managed care organizations to deliver a high
quality of patient care while reducing costs. OIS is currently a market leader
in the ophthalmic imaging field and plans to expand this role by applying its
technology to the development of new ocular imaging devices and
telemedicine/managed care applications targeted at the mass markets of general
ophthalmology and optometry.
The Company's objective is to become a leading provider of a diverse
range of complimentary ophthalmic products and services for the ocular health
care industry, while maintaining its position as a market leader in digital
imaging.
In this regard, the Company refocused its resources during 1998 on the
marketing and sales of its WinStation digital imaging systems and the
development of two ocular imaging devices, the Digital Fundus Imager ("DFI") and
the Digital Slit Lamp Imager ("DSLI"). These two new products, which were
introduced at the recently completed Annual Meeting of the American Academy of
Ophthalmology (the "AAO") held in New Orleans in November 1998 (the "1998 AAO
Meeting"), represent a paradigm shift in imaging for ocular health professionals
by providing diagnostic imaging devices and digital imaging systems that are
affordable to the general ophthalmology and optometry markets. The Company is
currently focusing its development efforts on its DFI and DSLI products, as well
as features and enhancements to its existing products.
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On February 25, 1998, the Company entered into a Stock Purchase Agreement
(the "Stock Purchase Agreement") with Premier, pursuant to which, among other
things: (i) Premier agreed to commence a tender offer ("Tender Offer") to
acquire all shares of the Company's common stock not held by Premier or its
affiliates in exchange for a combination of cash and Premier securities; and
(ii) the Company agreed to recommend that shareholders tender their shares of
the Company's common stock in the Tender Offer and not to solicit any competing
acquisition proposals. As a condition to the Stock Purchase Agreement, the
Company agreed to amend its Rights Agreement ("Rights Agreement") dated as of
December 31, 1997 by and between the Company and American Securities Transfer,
Inc., as rights agent, to permit Premier to acquire up to 51.3% of the Company's
outstanding common stock in private purchase agreements made simultaneously with
the execution of the Stock Purchase Agreement. Following the execution of the
Stock Purchase Agreement, the Company and Premier worked together with regard to
certain aspects of their respective businesses. In this regard, the Company
provided management of certain of Premier's sales and marketing efforts and
Premier assisted the Company in the manufacture of prototypes of certain of its
new products and in the procurement of its inventory and payment of certain
other expenses.
In August 1998, Premier notified the Company that, due to a variety of
factors, Premier would not be able to close the transactions contemplated under
the Stock Purchase Agreement. On August 14, 1998, the Company issued a press
release announcing the termination of the Stock Purchase Agreement. In view of
the termination of the Stock Purchase Agreement, the Company is currently
re-evaluating the alternatives available to it and is in active discussions with
Premier regarding the nature of the future relationship between the two
companies. In addition, the Company has received several informal indications of
interest from third parties regarding, among other things, transactions
involving potential joint business venture arrangements, acquisition of the
Company's assets and equity investments in the Company. The Company intends to
pursue these indications of interest in the context of the arrangements, if any,
with Premier. For additional information regarding the terms and conditions of
the Stock Purchase Agreement, see the Company's Form 8-K filed on March 9, 1998
and Note 9 of the Notes to Financial Statements included in this Form 10-KSB.
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, including the DFI and DSLI, 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 used for a variety of standard
diagnostic test procedures which are performed in most eye care practices.
The Industry
There are approximately 16,000 ophthalmologists in the United States and
28,000 ophthalmologists practicing medicine in countries outside the United
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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. There are approximately 29,000 practicing optometrists in
the United States, with the preponderance of practicing optometrists worldwide
located in the United States.
Products
The Company currently offers four products to the ophthalmic market. The
Company's WinStation products, the WinStation 640 and the WinStation 1024, have
been offered for a number of years. At the recently completed 1998 AAO Meeting,
the Company introduced two new products targeted at the ophthalmic and
optometric markets: a Digital Fundus Imager and a Digital Slit Lamp Imager.
While the Company received significant initial purchase commitments for these
products at the AAO convention, the Company does not anticipate commencing
delivery of these products until the latter half of fiscal 1999.
WinStation Systems (640 & 1024)
The Company's WinStation systems and products (640 and 1024 resolution)
are targeted primarily at the retina specialist and general ophthalmologist.
These products 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. These digital images can 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 diagnostic
test procedure which is yielding potentially new 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 5% of patient angiography by retinal specialists, is a dye
procedure that can only be performed using a digital imaging system.
Digital Fundus Imager
The DFI is intended for use by a majority of eye care practitioners,
including most ophthalmologists and optometrists. The DFI is a significantly
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lower cost alternative to currently available fundus cameras for use in color
fundus imaging and fluorescein angiography, with the emphasis on the posterior
segment of the eye. The system is unique in that it is the first "digital only"
fundus camera which utilizes a proprietary optical design allowing patients to
be imaged through a small pupil. The DFI is also capable of real-time video
capture, database management and archiving, all of which can benefit
practitioners, particularly in the areas of patient screening, tracking and
monitoring relative to certain ocular pathologies, primarily retinal, as well as
patient record retention. In addition to optometrists and general
ophthalmologists, the Company's target market for the DFI includes retail
optometry chain outlets, teaching institutions and military hospitals. The
Company is hopeful that there will be favorable market acceptance of the DFI and
that the DFI and related products will become a significant product line for the
Company. However, there can be no assurance that this product line will be
accepted by the target market.
Digital Slit Lamp Imager
The DSLI is targeted at a market similar to that of the DFI with an
emphasis on imaging the anterior segment of the eye. Slit lamps are imaging
devices used in virtually all ophthalmic and optometric practices. The DSLI
adapts to most slit lamp models and, similar to the DFI, is capable of real-time
video capture, database management and archiving.
Other
The Company also developed the Glaucoma-Scope(R), 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(R) 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 camera 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. It is estimated that new fundus camera sales
fluctuate between 800 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 2,000 in the U.S. OIS digital imaging
system sales have also been driven in this segment by ICG angiography. ICG
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angiography is a diagnostic test procedure which is yielding potentially new
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 approximately 5% of patient
angiography by retinal specialists, it has been the catalyst to digital imaging
system purchases. Competition is intense in the retinal community and it has
been reported that those practices without ICG capability have been losing
referral business from general ophthalmologists. The Company expects the demand
for digital angiography to continue as it becomes a standard of care.
The DFI and DSLI are intended for use by a majority of eye care
practitioners, including most ophthalmologists and optometrists. The primary
target markets for the DFI and DSLI products are optometrists, the majority of
whom are among the approximately 29,000 practicing in the United States (which
number includes those employed by or affiliated with retail optometry
organizations); retinal specialists and general ophthalmologists who, combined,
number approximately 16,000 in the United States; 5,000 retail optometry chain
outlets in the United States; and teaching institutions and military hospitals.
It is estimated that annually approximately 3,000 fundus cameras, including new
and previously-owned, are sold worldwide at an average selling price of
approximately $20,000. The fundus camera market is estimated to be approximately
65% penetrated in ophthalmology, with a significant number of fundus cameras
currently in use estimated to be more than 5 years old, and approximately 5% in
optometry. The DFI is a significantly lower cost alternative to currently
available fundus cameras for use in color fundus imaging and fluorescein
angiography, with the emphasis on the posterior segment of the eye and both the
DFI and DSLI provide the features, capabilities and benefits of digital imaging.
Although the Company no longer actively manufactures or markets the
Glaucoma-Scope(R) for sale, it continues 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.
In addition, as a result of the recent affiliation with Premier, during the
past year the Company has assisted in the sales and marketing efforts of Premier
with respect to its EyeSys products, principally in the areas of marketing and
sales management. In contrast to the Company's products, the EyeSys product line
includes corneal topography systems and devices used to assist eye care
practitioners in patient assessment for refractive surgery and contact lens
fitting. However, since the Stock Purchase Agreement was terminated, the Company
has provided only limited assistance to Premier. The Company is currently
negotiating with Premier as to whether these efforts will continue and, if so,
the terms of such arrangements.
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With respect to those marketing activities involving the Company's
products, 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,, 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 9,675 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 WinStation 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 and video
optical interfaces. The Glaucoma-Scope(R) optical head is also manufactured by
the Company.
With respect to the Company's two new products, the DFI and the DSLI, the
Company has not yet finalized the manufacturing and production strategies for
these product lines. The Company has limited capacity to manufacture the DFI and
DSLI in its present facilities with its current employees. However, the Company
is optimistic that these products will be readily accepted by the marketplace
and that the demand will exceed its current capacity. The Company is analyzing
the manufacturing alternatives available to it in the event that such demand
should be realized, including, but not limited to, outsourcing opportunities and
potential joint venture arrangements. No decision has been made at this time.
The Company has been routinely audited by the Food and Drug Administration
( the "FDA") and was deemed to conform to Good Manufacturing Practices ("GMP").
The Company has 510(k)'s on file for both its digital angiography products,
including its recently introduced DFI and DSLI, and the Glaucoma-Scope. 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. During the past year, Premier assisted the
Company in the procurement of the inventory components necessary for the
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manufacturing of its products, including the advancement or assumption of
certain costs. This arrangement, however, is not currently in effect and is a
subject of current negotiations between the companies.
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.
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.
With respect to the Company's new products, the DFI and the DSLI, the
Company anticipates offering similar warranties, installation and training
services and service plans.
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 one primary competitor in the U.S. which
produces and is delivering digital fundus imaging systems in volume, Topcon.
Four other companies are known to have systems in primarily the international
market, and to a limited extent the U.S. 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 of fundus cameras from
a wide variety of manufacturers.
The primary competition for the DFI is expected to be traditional fundus
cameras manufactured by Topcon, Kowa, Zeiss, Canon, Nidek and Nikon. None of the
current digital fundus cameras include a digital imaging system or certain other
features of the DFI, including live motion imaging. These fundus cameras, when
combined with an imaging system comparable to the DFI, are significantly more
expensive than the DFI. The Company is aware of two companies that currently
have prototype units that could be similar in function to the DFI but such units
have not yet been introduced.
The Company is aware of five primary competitors for the DSLI, including
Veatch, MVC, Kowa, Helioasis and Lombard. Additionally, there are approximately
four other companies which manufacture low-end systems, but these systems have
little market presence. To the Company's knowledge, however, the DSLI is the
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only low-end product offering live motion imaging, database management,
archiving and voice annotation.
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 further
development of the DFI and DSLI, telemedicine applications of its imaging
systems, the improvement of optics, software development targeting modules
specific to particular ocular diseases (including the continued enhancement of
WinStation) and hardware optimization. The Company's research and development
expenditures in the periods ended August 31, 1998 and 1997, were $866,745 and
$1,070,192, 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(R) 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.
Additionally, the Company has recently developed a digital fundus imaging
system incorporating its Digital Fundus Imager, and has initiated the patent
protection process by filing a United States Provisional Patent Application
describing the system. The Company's attorneys are presently evaluating
patentability of the system in preparation for filing a further utility patent
application. While the Company believes that this digital fundus imaging system
is innovative and intends to aggressively pursue patent protection, there can be
no assurance that a patent will ultimately be obtained, that such a patent will
provide commercially valuable protection or that any patent, if obtained, will
not be circumvented or invalidated.
Further, although the Company believes that its 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(R), infringe
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
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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.
In that regard, the Company recently received from Winstation Systems
Corporation ("WSC") a notice of an alleged trademark infringement. WSC is the
owner of a federal trademark registration for WINSTATION and sells personal
computers and related equipment under that name. For several years, the Company
has used the "OIS WinStation" trademark for its ocular digital imaging systems.
Because the Company's products are relatively expensive medical devices sold in
a narrow specialty market channel to highly educated consumers, the Company does
not believe there is any likelihood of confusion between the products of the two
companies. The Company also believes that another word or words could be
substituted for its use of "WinStation," if necessary, without material adverse
impact on the Company's marketing efforts. For these reasons, the Company
believes the infringement allegations can be resolved without a material adverse
impact on the Company. However, there can be no assurance that WSC will not take
legal action, and that such action, if taken, would not potentially have a
material adverse affect on the Company (see "Legal Proceedings" in Item 3 of
this Form 10-KSB).
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.
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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
FDA which provides certain safety and effectiveness information concerning the
Company's diagnostic imaging systems, including its recently developed DFI and
DSLI, and the Glaucoma-Scope(R). The FDA has approved the Company's
pre-marketing notification submittals thereby granting the Company permission to
market its products, 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, 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.
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, 1998, 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.
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Employees
As of August 31, 1998, the Company had 27 employees, of which 26 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, on a month-to-month basis under a triple net lease,
approximately 9,675 square feet of office, manufacturing, and warehouse space in
Sacramento, California. 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 $7,700.
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. In October 1998, the Company was notified by its counsel that the
case was voluntarily dismissed.
On or about September 18, 1998, the Company received from WSC a notice of
an alleged trademark infringement. WSC is the owner of a federal trademark
registration for WINSTATION and sells personal computers and related equipment
under that name. For several years, the Company has used the "OIS WinStation"
trademark for its ocular digital imaging systems. Because the Company's products
are relatively expensive medical devices sold in a narrow specialty market
channel to highly educated consumers, the Company does not believe there is any
likelihood of confusion between the products of the two companies. The Company
also believes that another word or words could be substituted for its use of
"WinStation," if necessary, without material adverse impact on the Company's
marketing efforts. For these reasons, the Company believes the infringement
allegations can be resolved without a material adverse impact on the Company.
However, there can be no assurance that WSC will not take legal action, and that
<PAGE>13
such action, if taken, would not potentially have a material adverse affect on
the Company (see "Patents, Trademarks and Other Intellectual Property" in Item 1
of this Form 10-KSB).
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.
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, 1998
covered by this Annual Report on Form 10-KSB.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of common stock of the Company have been listed and
principally quoted on the Nasdaq OTC Bulletin Board under the trading symbol
"OISI" since May 28, 1998 and prior thereto on the Nasdaq Small-Cap Market.
Through March 3, 1998, the Company's common stock also had been listed under,
and traded on, the Boston Stock Exchange under the symbol "OIS."
The following table sets forth the high ask and low bid prices for the
Company's common stock as reported on the Nasdaq Small-Cap Market through May
27, 1998, and thereafter on the Nasdaq OTC Bulletin Board. These quotations
reflect inter-dealer prices, without retail markup, markdown or commissions, and
may not necessarily represent actual transactions.
<TABLE>
<S> <C> <C> <C> <C>
Fiscal Year 1997 Fiscal Year 1998
------ ------------------- ----- -------------------
High Low High Low
Ask Bid Dividend Ask Bid Dividend
------ ----- -------- ----- ----- --------
First Quarter...................................... 5-3/4 3-1/4 -- 1-3/16 3/4 --
Second Quarter..................................... 5-3/16 3 -- 2 1/2 --
Third Quarter...................................... 3-7/8 1-7/8 -- 2 9/16 --
Fourth Quarter..................................... 2-1/4 1/2 -- 1-5/16 7/16 --
</TABLE>
On November 30, 1998 the closing price for the Company's common stock as
reported by the Nasdaq OTC Bulletin Board was $.50 per share and there were
approximately 138 shareholders of record.
The Company was notified by Nasdaq that the Company no longer satisfied
Nasdaq Small-Cap Market listing requirements and, in accordance with the terms
of the Nasdaq Listing Qualifications Panel decision, the Company's common stock
was delisted therefrom on May 27, 1998.
<PAGE>14
Due to the Company's inability to comply with the Boston Stock Exchange
listing requirements, the Company's common stock was delisted therefrom on March
3, 1998.
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 with Imperial
Bank, 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. See "Management's Discussion and Analysis or Plan of Operation" in Item
6 of this Form 10-KSB.
<PAGE>15
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 of demand for medical imaging equipment and services. New opportunities
in telemedicine, combined with lower cost imaging devices and systems, are
emerging that allow physicians and managed care organizations to deliver a high
quality of patient care while reducing costs. OIS is currently a market leader
in the ophthalmic imaging field and plans to expand this role by applying its
technology to the development of new ocular imaging devices and
telemedicine/managed care applications targeted at the mass markets of general
ophthalmology and optometry.
The Company's objective is to become a leading provider of a diverse
range of complimentary ophthalmic products and services for the ocular health
care industry, while maintaining its position as a market leader in digital
imaging.
In this regard, the Company has recently refocused its resources on the
marketing and sales of its WinStation digital imaging systems and the
development of two ocular imaging devices, the DFI and the DSLI. These two new
products, which were introduced at the recently completed 1998 AAO Meeting,
represent a paradigm shift in imaging for ocular health professionals by
providing diagnostic imaging devices and digital imaging systems affordable to
the general ophthalmology and optometry markets. The Company is focusing its
current development efforts on its DFI and DSLI products, as well as features
and enhancements to its existing products.
The Company is hopeful that there will be favorable market acceptance of
the DFI and the DSLI and that the DFI and DSLI and related products will become
significant product lines for the Company. The Company has limited capacity to
manufacture these products from its present facility with its current workforce.
However, if future demand for the products meets or exceeds the Company's
optimistic expectations, demand will exceed the Company's current production
capacity. In such an event, the Company may need to seek additional funds and
manufacturing capacity in order to produce and distribute its products in
sufficient quantities to meet any such demand for these new products. In the
longer term, the Company believes that it can generate significant
<PAGE>16
revenues from sales of said products which will be sufficient to fund the future
production and distribution of these products. There can be no assurance,
however, that there will be favorable market acceptance of these products.
Furthermore, if there is favorable market acceptance, then there can be no
assurance that the Company will be able to identify a suitable manufacturing
alternative to alleviate any over-capacity situation or that there will be
arrangements available to the Company to secure or otherwise generate the funds
necessary to produce and distribute a large demand for these products or, if
available, that such alternatives or financing arrangements will be on terms
favorable to the Company.
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.
On February 25, 1998, the Company and Premier entered into the Stock
Purchase Agreement whereby Premier made an offer to stockholders to buy those
shares of the Company's common stock which were not already owned by it. As a
result of the negotiation of the Stock Purchase Agreement, and in contemplation
of its consummation, the Company incurred significant costs and expenses and
diverted a significant amount of its resources away from its core business. In
addition, the Company entered into various financing arrangements with Premier.
On or about August 20, 1998, it was determined that the transactions
contemplated under the Stock Purchase Agreement between the Company and Premier
would not be consummated and the Stock Purchase Agreement was terminated. As a
result of such termination, the Company has made demand to Premier for payment
of the $500,000 termination fee (the "Termination Fee") as provided for in the
Stock Purchase Agreement. The Termination Fee, however,among other things, is a
subject of current negotiations between the companies. For additional
information regarding the terms and conditions of the Stock Purchase Agreement,
see the Company's Form 8-K filed on March 9, 1998, and as referenced in Note 9
of the Notes to Financial Statements included in this Form 10-KSB. See also
"Management's Discussion and Analysis or Plan of Operation -- Liquidity and
Capital Resources."
As a result of the transactions contemplated under the Stock Purchase
Agreement, together with certain private purchase agreements made simultaneously
with the execution of the Stock Purchase Agreement, Premier currently owns
approximately 51.3% of the Company's outstanding common stock.
Results of Operations
The Company incurred a net loss of $2,735,019, or $.68 per share,
during 1998 compared to a net loss of $2,110,554, or $.59 per share, during
1997. The per share figures are basic amounts in accordance with Financial
Accounting Standards No. 128 (see Note 1 of Notes to Financial Statements
included in Item 7 of this Form 10-KSB).
<PAGE>17
The 1998 figures reflect the adverse impact on revenues and corporate
operations resulting from efforts associated with the contemplated transaction
with Premier. The Company has incurred significant costs and professional fees
and expenses in connection therewith, while diverting a significant amount of
the Company's resources and management's attention and selling efforts away from
the Company's core operations during this period.
The Company's revenues decreased approximately 5% to $6,277,370 in 1998
from $6,625,616 in 1997. The primary factor contributing to the reduced 1998
revenue level was the adverse impact of management's efforts being directed to
the negotiations with Premier and less time devoted to the generation of sales.
During the recently completed 1998 AAO Meeting, the Company introduced its
low-cost digital imaging systems incorporating its recently developed ocular
imaging devices, the DFI and the DSLI. The Company received substantially more
purchase commitments for its products as compared to previous AAO meetings, with
significant purchase commitments for the newly introduced products. As such, the
Company will continue and direct the majority of its resources to both support
the demand for its digital imaging products as well as pursue other
opportunities in these and related markets, including general ophthalmology and
optometry.
Contribution to revenues from sales of Glaucoma-Scope(R) units have been
negligible and management does not anticipate near-term sales improvement from
the Glaucoma-Scope(R).
Gross margins were approximately 34% in 1998 as compared to approximately
26% in 1997. This increase in gross margin percentage was attributable primarily
to the adverse impact during the fourth quarter of 1997 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.
Sales and marketing and general and administrative expenses accounted for
approximately 63% of revenues for the fiscal year ended August 31, 1998 as
compared to approximately 41% for the previous fiscal year. Expenses were
$3,957,205 in 1998 as compared to $2,714,140 in 1997, representing an increase
of approximately 46%. The primary factors contributing to this increase were
significant investment banking, legal and other professional costs recognized
during the second, third and fourth quarters of 1998 associated with the
negotiation and termination of the Stock Purchase Agreement as well as on-going
negotiations with Premier, the costs related to additional senior management
personnel hired during the fourth quarter of fiscal 1997, the costs related to
additional sales personnel hired during 1998 as well as increased compensation
expense recognized in connection with stock options issued to non-employees and
non-directors. The Company anticipates that recurring expenses in this area will
continue to run above historical levels.
<PAGE>18
Research and development expenses decreased by approximately 19% to
$866,745, or approximately 14% of revenues in 1998 from $1,070,192, or
approximately 16% of revenues in 1997. The Company intends to focus its research
and development efforts on its recently introduced digital image capture
products, current product enhancements and reducing cost configurations for its
current products. The Company anticipates that research and development expense
will be maintained at or above current levels in the near term.
Interest income was $1,381 during 1998 versus $13,912 during 1997. Interest
expense accounted for $65,187 and $80,746 in 1998 and 1997, respectively.
Export Sales
Revenues from sales to customers located outside of the United States
(primarily Europe) accounted for approximately 17% and 30% of the net sales for
the years ended August 31, 1998 and 1997, 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.
<PAGE>19
Liquidity and Capital Resources
- -------------------------------
The Company's operating activities used cash of $956,258 in 1998 as
compared to $1,411,425 in 1997. The cash used in operations during 1998 was
expended principally to fund the net loss during the year. This amount was
offset in large measure by collections of accounts receivable and, to a lesser
extent, increases in accrued liabilities, particularly those liabilities accrued
in connection with significant investment banking, legal and other professional
costs recognized during the second, third and fourth quarters of 1998 associated
with the negotiation and termination of the Stock Purchase Agreement as well as
on-going negotiations with Premier. The cash used in operations in 1997 was
expended primarily to fund the loss during the period and the increase in
accounts receivable associated with the timing of product deliveries toward the
end of the period, which amount was partially offset by a significant reduction
in inventory levels during the period.
Net cash used in investing activities was $163,460 during 1998 as
compared to $161,735 during 1997. The Company's primary investing activities
consist of equipment and other capital asset acquisitions. The Company does not
currently have any pending material commitments for capital expenditures. While
the Company had anticipated that it would continue to upgrade its existing
management information and corporate communication systems, the Company deferred
significant capital acquisition decisions as a result of the contemplated
acquisition of the Company pursuant to the Stock Purchase Agreement.
The Company generated cash of $1,491,604 from financing activities during
1998 as compared to $664,135 during 1997. The principal sources of cash from
financing activities in 1998 were the net proceeds from the exercise of certain
warrants issued pursuant to a private placement of the Company's common stock in
November 1995 and borrowings under the Premier Note (as defined below), which
amounts were partially offset by net repayments of borrowings under the Credit
Agreement which is more fully described immediately below. The cash generated
from financing activities during 1997 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 issued to employees, which amounts were partially offset by the
net repayments of borrowings under the Credit Agreement. See Note 9 of the Notes
to Financial Statements included in this Form 10-KSB for a more detailed
description of the private placement. Principal repayments on notes payable to
parties other than Premier was negligible in both 1998 and 1997.
As discussed in Note 4 of the Notes to Financial Statements included in
this Form 10-KSB, on November 18, 1997, the Company entered into an accounts
receivable credit agreement (the "Agreement") with Imperial Bank (the "Bank").
Advances outstanding under a line of credit agreement with the Bank which
matured on November 7, 1997 (the "Credit Agreement") were recorded as the
initial advances 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 remains in effect from year to
year unless terminated in writing by the Company or the Bank. Borrowings under
the Agreement bear interest at the Bank's prime lending
<PAGE>20
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.
Additionally, on April 30, 1998, the Company executed a promissory note in
favor of Premier (the "Premier Note"). Borrowings against the Premier Note are
available to the Company in the form of periodic advances. The maximum principal
amount available under the Note is $500,000, which principal amount outstanding,
together with any and all accrued interest, is payable the earlier of (i)
written demand by Premier or (ii) April 30, 1999. Under the terms of the Premier
Note, borrowings bear interest at the rate of 8 1/2% per annum, are secured by
certain of the Company's assets and are subordinate to borrowings against the
Agreement with the Company's Bank. Premier also has made certain unsecured
advances to the Company which are not covered by the Premier Note. Approximately
$1,487,000 in principal and interest was outstanding under the Premier Note and
unsecured advances at August 31, 1998. The Company and Premier are currently in
negotiations, among other things, to reduce the aggregate amount of the
Company's debt to Premier by the $500,000 Termination Fee, to increase the
maximum principal amount available under the Premier Note accordingly and to
establish mutually acceptable repayment terms. While the parties have agreed in
principle on these issues, there can be no assurance that a final agreement
between the parties can be reached. In the event that no agreement can be
reached, if demand for payment in full is made by Premier and the Company cannot
obtain financing to make such payment, then the Company would not be able to
satisfy such demand, thereby seriously jeopardizing, if not precluding, its
ability to continue as a going concern.
At August 31, 1998, the Company's cash and cash equivalents were
approximately $514,200. Barring demand for payment of amounts owing under the
Premier Note, the Company believes that its existing cash balances together with
ongoing collections of its accounts receivable and available borrowing capacity
under the Agreement could be adequate to meet its liquidity and capital
requirements in the near term. However, demand for payment of amounts due under
the alternative stock appreciation right with the Bank or the increase in demand
for the Company's new products could result in the need for additional cash.
While no request for payment has yet been made, principal and interest amounts
due under the alternative stock appreciation right with the Bank, which amounts
were approximately $268,000 as of August 31, 1998, are also currently due. If
demand for payment were to be made by the Bank, then the Company would also have
to seek financing to make such payment, including, but not limited to, debt or
equity financing. Further, although the Company has capacity to produce the DFI
and DSLI products from its present facility with its current workforce, if
future demand meets the Company's optimistic expectations for these products,
then the Company may need to seek additional funds and manufacturing capacity in
order to produce and distribute that level of demand for these new products.
The Company will 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 any of the contemplated
financing arrangements described herein will be available and, if available, can
be obtained on terms favorable to the Company.
<PAGE>21
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.
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
The Company filed a Current Report on Form 8-K and an Amendment No. 1 to
that Current Report on Form 8-K on August 27, 1998 and September 8, 1998,
respectively, to report the resignation of Ernst & Young LLP as the Company's
auditors.
On October 23, 1998, the Company retained the accounting firm of
Perry-Smith & Co. to serve as the Company's independent auditors.
<PAGE>22
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Information required by Item 9 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders for fiscal year 1998 which will be filed with the Securities and
Exchange Commission no later than 120 days after the close of the Registrant's
fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Information required by Item 10 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders for fiscal year 1998 which will be filed with the Securities and
Exchange Commission no later than 120 days after the close of the Registrant's
fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 11 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders for fiscal year 1998 which will be filed with the Securities and
Exchange Commission no later than 120 days after the close of the Registrant's
fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 12 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders for fiscal year 1998 which will be filed with the Securities and
Exchange Commission no later than 120 days after the close of the Registrant's
fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<PAGE>24
Footnote
Exhibit Number Description of Exhibit Reference
-------------- ---------------------------------------------- ----------
2.1 Stock Purchase Agreement, dated as of
February 25, 1998, by and between Registrant and
Premier Laser Systems, Inc. (13)
3.1 Articles of Incorporation of the Registrant,
as amended. *
3.1(a) Amendment to Articles of Incorporation
(Certificate of Determination of Preferences of
Series A Junior Participating Preferred Stock of
Ophthalmic Imaging Systems). (11)
3.2 Amended Bylaws of the Registrant. *
3.3 Amendment to Amended Bylaws of the Registrant
dated January 28, 1998. (16)
4.1 See Exhibits 3.1 and 3.2 for provisions
of the Articles of Incorporation, as amended,
and the amended Bylaws of the Registrant
defining the rights of holders of common stock
of the Registrant. *
4.2 Specimen of Stock Certificate. *
4.3 Rights Agreement, dated as of December 31, 1997,
between Registrant and American Securities
Transfer, Inc., including form of Rights
Certificate attached thereto. (10)
4.4 Amendment to Rights Agreement, dated as of
February 25, 1998, between Registrant and
American Securities Transfer, Inc. (14)
10.1 Lease Agreement, dated as of July 10, 1987,
between the Registrant (as tenant)and
Transamerica/Emkay Income Properties I, as
amended on July 23, 1990 and June 11, 1991. *
10.1(a) Seventh Amendment to lease effective as of
July 18, 1996. (7)
10.2 Employment Agreement, dated March 27, 1992,
between the Registrant and Dennis J. Makes. *
10.2(a) Amendment dated June 30, 1993 to the Employment
Agreement between the Registrant and
Dennis J. Makes dated March 27, 1992. (1)
10.3 Confidentiality Agreement, dated March 27, 1992
between the Registrant and Dennis J. Makes. *
10.4 Confidentiality Agreement, dated March 27, 1992
between the Registrant and Steven R. Verdooner. *
<PAGE>25
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 Cross-Indemnification Agreement, dated February 14,
1991, among Dennis Makes, Steven Verdooner, and
Richard Wullaert. *
10.13 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. *
10.14 Stock Option Plan. (1)
10.15 Rental Agreement dated May 1, 1994 by and between
the Registrant and Robert J. Rossetti. (2)
10.16 Security and Loan Agreement (with Credit Terms
and Conditions) dated April 12, 1995 by
and between the Registrant and Imperial Bank. (3)
10.16(a) General Security Agreement dated April 12,
1995 by and between the Registrant and Imperial Bank. (3)
<PAGE>26
10.16(b) Warrant dated November 1, 1995 issued by the
Registrant to Imperial Bank to purchase 67,500
shares of common stock. (4)
10.16(c) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated November 1, 1995. (4)
10.16(d) Registration Rights Agreement dated November 1,
1995 between the Registrant and Imperial Bank. (4)
10.16(e) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated April 4, 1996. (6)
10.16(f) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated July 12, 1996. (7)
10.16(g) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated November 21, 1996. (7)
10.16(h) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated June 3, 1997. (8)
10.16(i) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated August 28, 1997. (9)
10.16(j) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated October 24, 1997. (9)
10.16(k) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated November 3, 1997. (9)
10.16(l) Amended Loan and Security Agreement (with Credit
Terms and Conditions) dated November 21, 1997. (9)
10.16(m) Agreement of Purchase of Receivable (Full Recourse)
dated November 18, 1997 between Registrant and
Imperial Bank. (9)
10.17 Employment Agreement dated November 20, 1995 between
the Registrant and Steven R. Verdooner. (4)
10.17(a) Amendment dated effective July 14, 1997 to
Employment Agreement dated November 20, 1995 between
the Registrant and Steven R. Verdooner. (16)
10.18 The Registrant's 1995 Nonstatutory Stock Option
Plan and sample form of Nonstatutory Stock
Option Agreement. (5)
10.19 The Registrant's 1997 Nonstatutory Stock Option
Plan and sample form of Nonstatutory Stock
Option Agreement. (12)
<PAGE>27
10.20 Promissory Note dated April 30, 1998 from the
Registrant to Premier Laser Systems, Inc. in the
maximum amount of $500,000 due in full upon the
earlier of (i) written demand by Premier or (ii)
April 30, 1999. (15)
10.21 Security Agreement dated April 30, 1998 by and
between the Registrant and Premier Laser
Systems, Inc. (15)
10.22 Form of Indemnification Agreement dated January 23,
1998 between the Registrant and each of its
directors, officers and certain key employees. (16)
11.1 Computation of net loss per share. (16)
23.1 Consent of Perry-Smith & Company LLP, Independent
Auditors. (16)
23.2 Consent of Ernst & Young LLP, Independent Auditors. (16)
27 Financial Data Schedule (for SEC use only). (16)
99.1 Press release dated June 1, 1998. (15)
99.2 Press release dated August 14, 1998. (16)
99.3 Press release dated October 21, 1998. (16)
-----------------------------------------------------------------
* Incorporated by reference to the 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.
<PAGE>28
(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) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended August 31, 1997 filed on
December 1, 1997.
(10) Incorporated by reference to Exhibit 1 of the Registrant's
Form 8-K filed on January 2, 1998.
(11) Incorporated by reference to Exhibit A of Exhibit 1 of the
Registrant's Form 8-K filed on January 2, 1998.
(12) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended November 30, 1997
filed on January 14, 1998.
(13) Incorporated by reference to Exhibit 2.1 of the Registrant's
Form 8-K filed on March 9, 1998.
(14) Incorporated by reference to Exhibit 4.1 of the Registrant's
Form 8-K filed on March 9, 1998.
(15) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended May 31, 1998 filed
on July 15, 1998.
(16) Exhibit filed herewith.
B. Reports on Form 8-K
A Form 8-K/A was filed on September 8, 1998, to report under
Item 4 thereof a change in the Registrant's certifying accountant.
On August 21, 1998, the Company was notified by Ernst & Young
LLP ("EY") that as a result of the Company's majority ownership by Premier
Laser Systems, Inc., a company which EY previously resigned as auditors, EY
has chosen to terminate its auditor relationship with the Company.
The reports of EY on the Company's financial statements for
the past two fiscal years did not contain an adverse opinion or a
disclaimer of opinion and are not qualified or modified as to uncertainty,
audit scope, or accounting principles.
In connection with the audits of the Company's financial
statements for each of the two fiscal years ended August 31, 1997 and 1996,
<PAGE>29
and in the subsequent interim period, there were no disagreements with EY
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of EY would have caused EY to make reference to the matter in
their report.
<PAGE>30
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: December 15, 1998
By /s/ 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.
/s/ STEVEN R. VERDOONER Chief Executive Officer, Chief December 15, 1998
------------------ Financial Officer, Secretary
Steven R. Verdooner and Director
(Principal Executive Officer and
Principal Financial Officer)
/s/ STEVEN C. Lagorio Director of Finance December 15, 1998
- --------------------- (Principal Accounting Officer)
Steven C. Lagorio
/s/ MARK S. BULMENKRANZ Director December 15, 1998
-------------------
Mark S. Blumenkranz, M.D.
/s/ ROBERT W. MEDEARIS Director December 15, 1998
- ----------------------
Robert W. Medearis
/s/ ROBERT I. SCHNUER Director December 15, 1998
- ---------------------
Robert I. Schnuer
/s/ Lawrence A. Yannuzzi, MD Director December 15, 1998
----------------------
Lawrence A. Yannuzzi, M.D.
<PAGE>32
OPHTHALMIC IMAGING SYSTEMS
FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
AND
INDEPENDENT AUDITOR'S REPORT
<PAGE>F-1
Report of Perry-Smith & Co., 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, 1998, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the year ended August 31,
1998. 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 audit. The financial statements of Ophthalmic Imaging
Systems as of August 31, 1997 were audited by other auditors, whose report dated
October 21, 1997, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, in a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ophthalmic Imaging
Systems as of August 31, 1998, and the results of its operations and its cash
flows for the year ended August 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 12 to the
financial statements, current liabilities exceed current assets by $2,130,895.
In addition, the Company has a history of losses from operations resulting in an
accumulated deficit of $12,004,971. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Sacramento, California Perry-Smith & Co., LLP
November 6, 1998
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Ophthalmic Imaging Systems
We have audited the accompanying statements of operations, stockholders' equity,
and cash flows for the year ended August 31, 1997 of Ophthalmic Imaging Systems,
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 audit.
We conducted our audit in accordance with generally accepted auditing standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
respects, the results of operations and cash flows of Ophthalmic Imaging Systems
for the year ended August 31, 1997, in confoinuty 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, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 514,186
Accounts receivable, net of allowance for doubtful
accounts of approximately $131,000 506,984
Inventories 687,409
Prepaid expenses and other current assets 25,964
-------------
Total current assets 1,734,543
Furniture and equipment, net 411,392
Other assets 7,385
Total assets $ 2,153,320
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings $ 98,175
Accounts payable 436,930
Accrued liabilities 1,375,345
Accrued warrant appreciation right 268,187
Deferred extended warranty revenue 113,171
Customer deposits 102,079
Note payable to related party due after one year 1,462,480
Capitalized lease obligation 9,071
--------------
Total current liabilities 3,865,438
Capitalized lease obligation 21,549
Total liabilities 3,886,987
Commitments
Stockholders' deficit:
Preferred stock, no par value, 20,000,000 shares authorized;
none issued or outstanding -
Common stock, no par value, 20,000,000 shares authorized;
4,155,428 shares issued and outstanding 10,462,604
Deferred compensation (191,300)
Accumulated deficit (12,004,971)
----------------
Total stockholders' deficit (1,733,667)
Total liabilities and stockholders' deficit $ 2,153,320
================
The accompanying notes are an integral part of these financial statements.
<PAGE>F-3
OPHTHALMIC IMAGING SYSTEMS
STATEMENT OF OPERATIONS
For the Years Ended August 31, 1998 and 1997
1998 1997
-------------- --------------
Revenues:
Net sales $ 6,064,180 $ 6,480,055
Other revenue 213,190 145,561
-------------- --------------
Total revenues 6,277,370 6,625,616
Cost of sales 4,124,633 4,885,004
--------------- -------------
Gross profit 2,152,737 1,740,612
--------------- --------------
Operating expenses:
Sales and marketing 1,929,752 1,624,470
General and administrative 2,027,453 1,089,670
Research and development 866,745 1,070,192
--------------- -------------
Total operating expenses 4,823,950 3,784,332
--------------- --------------
Loss from operations (2,671,213) (2,043,720)
Other income (expense):
Interest income 1,381 13,912
Interest expense (65,187) (80,746)
---------------- -------------
Net loss $ (2,735,019) $ (2,110,554)
================ ==============
Basic loss per share $ (.68) $ (.59)
================ ============
Shares used in the calculation of net loss
per share 4,030,428 3,597,879
================ =============
The accompanying notes are an integral part of these financial statements.
<PAGE>F-4
OPHTHALMIC IMAGING SYSTEMS
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended August 31, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C>
Total
Common Stock Deferred Stockholders'
-------------------- Compen- Accumulated Equity
Shares Amount sation Deficit (Deficit)
----------- --------- ---------- ------------ -------------
Balance,
September 1, 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 compen-
sation expense 88,142 88,142
Net loss (2,110,554) (2,110,554)
------------- ------------- ------------ -------------- -------------
Balance,
August 31, 1997 3,905,428 10,244,615 (306,894) (9,269,952) 667,769
Issuance of common
stock upon exercise
of warrants 250,000 213,750 213,750
Deferred compensation
related to stock
options granted to
non-employees 4,239 (4,239)
Stock option compen-
sation expense 119,833 119,833
Net loss (2,735,019) (2,735,019)
----------- ------------- ------------ ------------- ------------
Balance,
August 31, 1998 4,155,428 $ 10,462,604 $ (191,300) $(12,004,971) $(1,733,667)
========== ============== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-5
OPHTHALMIC IMAGING SYSTEMS
STATEMENT OF CASH FLOWS
For the Years Ended August 31, 1998 and 1997
1998 1997
--------- ---------
Cash from operating activities:
Net loss $(2,735,019) $(2,110,554)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accrued warrant appreciation right 16,690 27,215
Depreciation and amortization 133,038 142,148
Provision for doubtful accounts 30,747 (6,116)
Stock option compensation expense 119,830 88,142
Net changes in operating assets and
liabilities:
Accounts receivable 1,106,810 (566,421)
Inventories 106,643 786,483
Prepaid expenses and other current assets 67,444 (28,460)
Other assets 79,250
Accounts payable (379,579) (120,950)
Accrued liabilities 581,040 196,664
Deferred extended warranty revenue 19,557 12,417
Customer deposits (23,459) 88,757
------------ ----------
Net cash used in operating activities (956,258) (1,411,425)
------------ ----------
Cash flows used in investing activities:
Cash expenditures for furniture and equipment (163,460) (161,735)
------------ -----------
Cash flows from financing activities:
Proceeds from short-term borrowings 308,000
Repayment of short-term borrowings (212,827) (546,998)
Proceeds from note payable to related party 1,462,480
Capitalized lease obligation 30,435
Principal payments on notes payable (2,234) (6,250)
Issuance of common stock 213,750 909,383
------------ -----------
Net cash provided by financing
activities 1,491,604 664,135
------------ -----------
Net increase (decrease) in cash and cash equivalents 371,886 (909,025)
Cash and cash equivalents, beginning of the year 142,300 1,051,325
------------ -----------
Cash and cash equivalents, end of the year $ 514,186 $ 142,300
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>F-6
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
1. 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 year 1998 or 1997 comprised 10% or more of net
sales.
Revenues from sales to customers located outside of the United States
(primarily Europe) accounted for approximately 17% and 30% of net sales
during the years ended August 31, 1998 and 1997, 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.
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 generally 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.
<PAGE>F-7
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition and Warranties (Continued)
----------------------------------
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
------------------
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement
No. 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share is similar to the previously reported fully
diluted earnings per share. Diluted earnings per share has not been
presented for 1998 or 1997 as the inclusion of potential common shares
would have an antidilutive effect on the loss per share. All net loss
per share amounts have been restated to conform to Statement No. 128
requirements.
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 $41,000 and $64,000
during the years ended August 31, 1998 and 1997, respectively. Cash paid
for income taxes amounted to approximately $800 for each of the years
ended August 31, 1998 and 1997.
Stock Based Compensation
------------------------
The Company has elected to follow accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its 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 9 for pro forma disclosures of compensation
expense.
<PAGE>F-8
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. INVENTORIES
Inventories consist of the following as of August 31, 1998:
Raw materials $ 482,165
Work-in-process 47,891
Finished goods 157,353
---------------
$ 687,409
===============
3. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following as of August 31, 1998:
Research and manufacturing equipment $ 643,086
Office furniture and equipment 433,059
Demonstration equipment 183,938
Vehicles 58,991
---------------
1,319,074
Less accumulated depreciation and amortization (907,682)
$ 411,392
==============
4. SHORT-TERM BORROWINGS
The Company entered into an accounts receivable credit agreement (the
"Agreement") with a bank (the "Bank") on November 18, 1997. The
Agreement allows for up to an 80% advance rate on eligible accounts
receivable balances with a maximum borrowing base of $1.2 million.
Borrowings are secured by substantially all assets of the Company and
bear interest at the Bank's prime lending rate plus 4%. In addition, the
Bank charges an administrative fee equal to the greater of .5% of the
average daily balance for the month or $1,200. The Agreement remains in
effect from year to year unless terminated in writing by the Company or
the Bank. Advances outstanding under a line of credit agreement with the
Bank (which matured November 7, 1997) were recorded as the initial
advance under the Agreement.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of August 31, 1998:
Accrued compensation $ 269,762
Accrued warranty expenses 319,071
Other accrued liabilities 786,512
---------------
$ 1,375,345
===============
<PAGE>F-9
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. CAPITALIZED LEASE OBLIGATIONS
The Company leases certain office equipment under the terms of a capital
lease. Payments of $740 with interest at 9.8% are due in 60 monthly
installments. The equipment has a net book value of approximately
$28,500 at August 31, 1998. Future minimum lease payments are as
follows:
Year Ending
August 31,
1999 $ 8,886
2000 8,886
2001 8,886
2002 8,886
2003 1,710
---------------
37,254
Less amount representing interest (6,819)
---------------
$ 30,435
===============
7. NOTE PAYABLE TO RELATED PARTY
On April 30, 1998, the Company executed a promissory note (the "Note")
in favor of a related party (the "Related Party"). Borrowings against
the Note are available to the Company in the form of periodic advances.
The maximum principal amount available under the Note is $500,000, which
principal amount outstanding, together with any and all accrued
interest, is payable the earlier of: (i) written demand by the Related
Party; or (ii) April 30, 1999. Under the terms of the Note, borrowings
bear interest at the rate of 8 1/2% per annum, are secured by
substantially all of the Company's assets and are subordinate to
borrowings against the Line of Credit with the Company's Bank (see Note
4).
At August 31, 1998, $1,486,925 in principal and interest was outstanding
under the Note, of which $24,445 of accrued interest included in other
accrued liabilities. At August 31, 1998, the Company and the Related
Party were in negotiations to, among other things, modify the payment
terms and increase the maximum principal amount available under the Note
accordingly.
8. COMMITMENTS
Operating Leases
The Company leases its facility under a month-to-month lease. The lease
agreement requires minimum lease payments of approximately $7,000 per
month.
Rental expense charged to operations for all operating leases was
approximately $120,000 and $126,000 during the years ended August 31,
1998 and 1997, respectively.
<PAGE>F-10
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. COMMITMENTS (Continued)
Employment Agreement
The Company has an employment agreement with its chief executive
officer. The agreement calls for an annual salary of $150,000 and a
performance-based bonus plan. The agreement has a 24 month term
expiring in July 1999.
9. STOCKHOLDERS' EQUITY
Common Stock
Of the 15,844,572 shares of common stock authorized but unissued as of
August 31, 1998, 2,338,267 shares are reserved for issuance under the
stock option plans.
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 were $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 were 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. 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.
The private placement underwriter was issued a warrant to purchase
250,000 shares of the Company's common stock at $.95 per share. The
warrant was transferred to a Related Party in connection with a
transaction executed concurrently with a Stock Purchase Agreement
defined immediately below. The proceeds noted herein are net of, among
other things, the underwriters' commission equal to 10% of the gross
proceeds received by the Company.
Stock Purchase Agreement
On February 25, 1998, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with a related party (the
"Related Party") pursuant to which, among other things: (i) the Related
Party agreed to commence a tender offer ("Tender Offer") to acquire all
shares of the Company's common stock not held by the Related Party or
its affiliates in exchange for a combination of cash and the Related
Party's securities; and (ii) the Company agreed to recommend that
shareholders tender their shares of the Company's common stock in the
Tender Offer and not to solicit any competing acquisition proposals. As
a condition to the Stock Purchase Agreement, the Company agreed to amend
its Rights Agreement ("Rights Agreement") dated as of December 31, 1997,
by and between the Company and its rights agent, to permit the Related
Party to acquire up to 51.3% of the Company's outstanding Common Stock
in private transactions to be made simultaneously with the execution of
the Stock Purchase Agreement.
<PAGE>F-11
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. STOCKHOLDERS' EQUITY (Continued)
Stock Purchase Agreement (Continued)
Simultaneous with the execution of the Stock Purchase Agreement, the
Related Party entered into individual purchase agreements with certain
shareholders, providing for these parties to sell to the Related Party
an aggregate of 730,360 shares of the Company's common stock.
Additionally, the Related Party purchased from one of the shareholders
a warrant to purchase 250,000 shares of the Company's common stock.
The Related Party exercised the warrants on February 26, 1998,
resulting in aggregate net proceeds to the Company of approximately
$214,000.
In August 1998, the Company was notified by the Related Party that the
Related Party would be unable to proceed with its previously proposed
acquisition of the remaining 48.7% interest in the Company by the
termination date of the Stock Purchase Agreement. As a result, the Stock
Purchase Agreement was terminated. As a result of such termination, the
Company made demand to the Related Party for a $500,000 termination fee
(the "Termination Fee") as provided for in the Stock Purchase Agreement.
The Related Party has not yet acknowledged the validity of the
Termination Fee and the Termination Fee, among other things, is the
subject of current negotiations between the Company and the Related
Party. Accordingly, the Company has not recognized the Termination Fee
in its financial statements.
Other Warrants
In 1993, the Company issued a warrant to the Bank that provided a
line-of-credit. The warrant was amended several times in connection with
amendments to the line-of-credit. 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 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 with interest, $268,187, and it is reflected as a
current liability on the accompanying balance sheet. The Appreciation
Right was due on April 1, 1998.
Stock Option Plans
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 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.
<PAGE>F-12
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. STOCKHOLDERS' EQUITY (Continued)
Stock Option Plans (Continued)
In 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 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. The maximum number of
shares of the Company's common stock which may be optioned and sold
under the Plan is 116,667, of which 1,667 options remained available for
granting as of August 31, 1998. As of August 31, 1998, stock options to
purchase 65,000 shares at exercise prices ranging from $1.00 to $2.75
were granted and outstanding under the Plan. No options were exercised
during the year ended August 31, 1998 and options to purchase 50,000
shares were exercised during the year ended August 31, 1997.
In 1992 and 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 26,024 remained
available for granting of options as of August 31, 1998. As of August
31, 1998, stock options to purchase 110,576 shares at exercise prices
ranging from $.94 to $4.25 were granted and outstanding under the Option
Plan. No options were exercised during the year ended August 31, 1998
and options to purchase 2,400 shares were exercised during the year
ended August 31, 1997.
In 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 5,000 options remained available for granting as of August 31,
1998. As of August 31, 1998, stock options to purchase 1,030,000 shares
at exercise prices ranging from $1.00 to $4.50 were granted and
outstanding under the Nonstatutory Plan and none of the granted options
were exercised.
<PAGE>F-13
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. STOCKHOLDERS' EQUITY (Continued)
Stock Option Plans (Continued)
In October 1997, the Company's Board of Directors approved a
Nonstatutory Stock Option Plan (the "1997 Nonstatutory Plan") under
which all officers, employees, directors and consultants may
participate. The 1997 Nonstatutory Plan expires October 2002. Options
granted under the 1997 Nonstatutory Plan are non-qualified stock options
and will have a term of not longer than ten years from the date of
grant. The exercise prices under the 1997 Nonstatutory Plan will be at
100% of the fair market value of the Company's common stock on the date
of grant, unless otherwise specified in the option agreement. The
maximum number of shares of the Company's common stock which may be
optioned and sold under the Plan is 1,000,000, of which 800,500 options
remained available for granting as of August 31, 1998. As of August 31,
1998, stock options to purchase 199,500 shares at exercise prices
ranging from $1.09 to $1.94 were granted and outstanding under the 1997
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:
<TABLE>
<S> <C> <C>
Weighted
Average
Exercise
Options Price
--------------- -------------
Balance, September 1, 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, August 31, 1997 1,257,992 $ 1.96
Options granted 272,000 $ 1.17
Options canceled (24,916) $ 3.13
---------------
Balance, August 31, 1998 1,505,076 $ 1.80
===============
</TABLE>
The weighted average fair value of options granted during the years ended August
31, 1998 and August 31, 1997 was $.86 and $2.26, respectively.
<PAGE>F-14
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. STOCKHOLDERS' EQUITY (Continued)
Stock Option Plans (Continued)
The following table summarizes information about the stock options
outstanding at August 31, 1998:
Options Outstanding Options Exercisable
Weighted
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Number Life Price Number Price
- ---------------- --------- ---------- -------- -------- ---------
$0.94 - $1.38 1,017,076 4.4 $ 1.26 782,726 $ 1.25
$1.38 - $3.00 395,000 2.1 $ 2.52 289,600 $ 2.53
$3.00 - $4.50 93,000 3.4 $ 4.36 40,640 $ 4.34
------------ ----------
1,505,076 1,112,966
============ ==========
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, 1998 and 1997, respectively; dividend yield of zero;
volatility factors of the expected market price of the Company's common
stock ranged from 1.436 to 1.052 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.
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,
1998 1997
-------------- --------------
Pro forma net loss $ (2,982,019) $ (2,326,390)
================ ================
Pro forma net loss per share $ (.74) $ (.65)
================ =================
<PAGE>F-15
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. STOCKHOLDERS' EQUITY (Continued)
Stock Option Plans (Continued)
During the years ended August 31, 1998 and 1997, the Company recorded
deferred compensation of approximately $4,000 and $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, 1998 and 1997, the amortized deferred compensation
expense was approximately $120,000 and $88,000, respectively.
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.
10. INCOME TAXES
There was no provision (benefit) for income taxes during the years ended
August 31, 1998 or 1997.
The significant components of the Company's deferred tax assets and
liabilities as of August 31, 1998 are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 1,566,000
Inventory reserves 637,000
Accrued warrant appreciation right 112,000
Payroll related accruals 118,000
Warranty accrual 133,000
Sales and accounts receivable reserves 79,000
Uniform capitalization 50,000
Deferred revenue 50,000
Other 2,000
---------------
Total deferred tax assets 2,747,000
Valuation allowance 2,740,000
--------------
Net deferred tax assets 7,000
--------------
Deferred tax liabilities:
Depreciation 7,000
--------------
Total deferred tax liabilities 7,000
Net deferred taxes $ -
===============
The valuation allowance as of August 31, 1997 was approximately $2,192,000
resulting in a net increase in the allowance of approximately $548,000 for the
year.
<PAGE>F-16
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. 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:
Years Ended August 31,
1998 1997
------------- ----------
Federal benefit expected at statutory rates $(930,000) $(718,000)
Net operating loss with no current benefit 930,000 718,000
------------ ------------
$ - $ -
============ =============
In connection with the Company's private placement of common stock (Note
9) a change of ownership (as defined in Section 382 of the Internal
Revenue Code) 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.
During 1998 another change of ownership occurred when a shareholder
acquired more than 50% of the Company's common stock (Note 9). The
resulting limitation on net operating loss and tax credit carry forwards
is approximately $168,000 per year.
As a consequence of these limitations, as discussed above, the Company
has at August 31, 1998, a net operating loss carryover of approximately
$4,179,000 for federal income tax purposes which expires between 2007
and 2012, and a net operating loss carryforward of approximately
$2,360,000 for state income tax purposes which expires between 1998 and
2003.
11. 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, 1998 or 1997.
<PAGE>F-17
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. ABILITY TO CONTINUE AS A GOING CONCERN
For the years ended August 31, 1998 and 1997, the Company incurred
losses of $2,735,019 and $2,110,554 respectively and at August 31, 1998,
the Company had an accumulated deficit of $12,004,971. In addition,
current liabilities exceed current assets by $2,130,895. These factors
among others may indicate that the Company will be unable to continue as
a going concern for a reasonable period of time.
The Company is currently negotiating with a Related Party regarding,
among other things, the repayment terms of the Note described in Note 7
and the Termination Fee described in Note 9. While Management is
confident that the negotiations will result in extended repayment terms
and that the aggregate amount owing under the Note will be reduced by
the $500,000 Termination Fee, there can be no assurances that the
Company will generate sufficient liquidity from operations to meet
obligations as they become due even if the Note is renegotiated.
In addition, the Company has recently received several informal
indications of interest from third parties regarding, among other
things, transactions involving potential joint business venture
arrangements, acquisition of the Company's assets and equity investments
in the Company. The Company intends to pursue these indications of
interest in the context of the arrangements, if any, with the Related
Party. In addition, the Company will continue to evaluate alternative
sources of capital to meet its cash requirements, including debt
financing, issuing equity securities and entering into other financing
arrangements and/or strategic alliances. There can be no assurance,
however, that any of the contemplated financing arrangements described
herein will be available and, if available, can be obtained on terms
favorable to the Company.
<PAGE>32
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Footnote
Exhibit Number Description of Exhibit Reference
- -------------- ------------------------------------------ ---------
2.1 Stock Purchase Agreement, dated as of February 25, 1998, by and between Registrant and (13)
Premier Laser Systems, Inc.
3.1 Articles of Incorporation of the Registrant, as amended. *
3.1(a) Amendment to Articles of Incorporation (Certificate of Determination of Preferences of (11)
Series A Junior Participating Preferred Stock of Ophthalmic Imaging Systems).
3.2 Amended Bylaws of the Registrant. *
3.3 Amendment to Amended Bylaws of the Registrant dated January 28, 1998. (16)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation, as amended, *
and the amended Bylaws of the Registrant defining the rights of holders of common stock
of the Registrant.
4.2 Specimen of Stock Certificate. *
4.3 Rights Agreement, dated as of December 31, 1997, between Registrant and American (10)
Securities Transfer, Inc., including form of Rights Certificate attached thereto.
4.4 Amendment to Rights Agreement, dated as of February 25, 1998, between Registrant and (14)
American Securities Transfer, Inc.
10.1 Lease Agreement, dated as of July 10, 1987, between the Registrant (as tenant)
and Transamerica/Emkay Income Properties I, as amended on July 23, 1990 and June 11, 1991.
10.1(a) Seventh Amendment to lease effective as of July 18, 1996. (7)
10.2 Employment Agreement, dated March 27, 1992, between the Registrant and Dennis J. Makes. *
10.2(a) Amendment dated June 30, 1993 to the Employment Agreement between the Registrant and (1)
Dennis J. Makes dated March 27, 1992.
10.3 Confidentiality Agreement, dated March 27, 1992 between the Registrant and Dennis J. *
Makes.
<PAGE>33
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 Cross-Indemnification Agreement, dated February 14, 1991, among Dennis Makes, Steven *
Verdooner, and Richard Wullaert.
10.13 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.
10.14 Stock Option Plan. (1)
10.15 Rental Agreement dated May 1, 1994 by and between the Registrant and Robert J. Rossetti. (2)
<PAGE>34
10.16 Security and Loan Agreement (with Credit Terms and Conditions) dated April 12, 1995 by (3)
and between the Registrant and Imperial Bank.
10.16(a) General Security Agreement dated April 12, 1995 by and between the Registrant and (3)
Imperial Bank.
10.16(b) Warrant dated November 1, 1995 issued by the Registrant to Imperial Bank to purchase (4)
67,500 shares of common stock.
10.16(c) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated November 1, (4)
1995.
10.16(d) Registration Rights Agreement dated November 1, 1995 between the Registrant and Imperial (4)
Bank.
10.16(e) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated April 4, (6)
1996.
10.16(f) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated July 12, (7)
1996.
10.16(g) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated November (7)
21, 1996.
10.16(h) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated June 3, (8)
1997.
10.16(i) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated August 28, (9)
1997.
10.16(j) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated October 24, (9)
1997.
10.16(k) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated November 3, (9)
1997.
10.16(l) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated November (9)
21, 1997.
10.16(m) Agreement of Purchase of Receivable (Full Recourse) dated November 18, 1997 between (9)
Registrant and Imperial Bank.
10.17 Employment Agreement dated November 20, 1995 between the Registrant and Steven R. (4)
Verdooner.
<PAGE>35
10.17(a) Amendment dated effective July 14, 1997 to Employment Agreement dated November 20, 1995 (16)
between the Registrant and Steven R. Verdooner.
10.18 The Registrant's 1995 Nonstatutory Stock Option Plan and sample form of Nonstatutory (5)
Stock Option Agreement.
10.19 The Registrant's 1997 Nonstatutory Stock Option Plan and sample form of Nonstatutory (12)
Stock Option Agreement.
10.20 Promissory Note dated April 30, 1998 from the Registrant to Premier Laser Systems, Inc. (15)
in the maximum amount of $500,000 due in full upon the earlier of (i) written demand by
Premier or (ii) April 30, 1999.
10.21 Security Agreement dated April 30, 1998 by and between the Registrant and Premier Laser (15)
Systems, Inc.
10.22 Form of Indemnification Agreement dated January 23, 1998 between the Registrant and each (16)
of its directors, officers and certain key employees.
11.1 Computation of net loss per share. (16)
23.1 Consent of Perry-Smith & Company LLP, Independent Auditors. (16)
23.2 Consent of Ernst & Young LLP, Independent Auditors. (16)
27 Financial Data Schedule (for SEC use only). (16)
99.1 Press release dated June 1, 1998. (15)
99.2 Press release dated August 14, 1998. (16)
99.3 Press release dated October 21, 1998. (16)
</TABLE>
* Incorporated by reference to the 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.
<PAGE>36
(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) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended August 31, 1997 filed on
December 1, 1997.
(10) Incorporated by reference to Exhibit 1 of the Registrant's Form
8-K filed on January 2, 1998.
(11) Incorporated by reference to Exhibit A of Exhibit 1 of the
Registrant's Form 8-K filed on January 2, 1998.
(12) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended November 30, 1997
filed on January 14, 1998.
(13) Incorporated by reference to Exhibit 2.1 of the Registrant's
Form 8-K filed on March 9, 1998.
(14) Incorporated by reference to Exhibit 4.1 of the Registrant's
Form 8-K filed on March 9, 1998.
(15) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended May 31, 1998 filed
on July 15, 1998.
(16) Exhibit filed herewith.
Exhibit 3.3
AMENDMENT TO AMENDED BYLAWS OF
OPHTHALMIC IMAGING SYSTEMS
The following amendment to the bylaws originally certified on July 21, 1986, and
amended on May 9, 1992 and January 23, 1993, (together "Amended Bylaws"), was
approved by the Board of Directors (the "Board") of Ophthalmic Imaging Systems
(the "Company") at a duly called meeting of the Board held on January 28, 1998.
1. Article IV, Section 2 of the Company's Amended Bylaws has been deleted and
replaced with the following:
"Section 2. Annual Meetings. An annual meeting of the Shareholders for the
election of directors and for the transaction of any other business as may
properly come before the meeting shall be held on such date and at such time as
the Board of Directors may specify by resolution."
CERTIFICATE
I, Steven R. Verdooner, Secretary of Ophthalmic Imaging Systems, a
California corporation, do hereby certify that the foregoing amendment of the
Amended Bylaws of Ophthalmic Imaging Systems is true and correct as of the date
hereof.
Dated: January 28, 1998 OPHTHALMIC IMAGING SYSTEMS
/s/ STEVEN R. VERDOONER
By: ------------------------------
Steven R. Verdooner, Secretary
Exhibit 10.17(a)
OPHTHALMIC IMAGING SYSTEMS
EMPLOYMENT AGREEMENT
AMENDMENT NUMBER 1
JULY 14, 1997
THIS EMPLOYMENT AGREEMENT AMENDMENT NUMBER 1 IS MADE PURSUANT TO ACTION BY THE
BOARD OF DIRECTORS OF OPHTHALMIC IMAGING SYSTEMS, OR AN APPROPRIATE COMMITTEE
THEREOF, DURING A MEETING CONVENED ON THE 13TH DAY OF SEPTEMBER 1997.
THIS EMPLOYMENT AGREEMENT AMENDMENT NUMBER 1 is made effective the 14th day
of July 1997 and hereby amends the Employment Agreement made and entered into as
of the 20th day of November 1995, by and between OPHTHALMIC IMAGING SYSTEMS, a
California corporation ("Employer") and STEVE VERDOONER ("Employee") as follows:
Paragraph 1. is eliminated in its entirety and replaced with the following:
o Employee's Duties and Authority. Employer hereby employs Employee, and
Employee hereby accepts employment with Employer, as Chief Executive Officer of
the Employer. Employee's duties shall be as provided in Employer's bylaws and as
specified by Employer's board of directors from time to time.
Paragraph 4. is eliminated in its entirety and replaced with the following:
o 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
Amendment Number 1 to this Agreement.
Paragraph 5.A. is eliminated in its entirety and replaced with the following:
o 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 FIFTY THOUSAND DOLLARS ($150,000)
per year, payable in accordance with the Company's standard payroll policies.
Paragraph 5.F. is added as follows:
o Employee shall be eligible for an annual bonus. The criteria and/or formulae
by which the actual bonus amount, if any, is calculated will be determined
pursuant to a separate agreement.
Except as noted above, the Employment Agreement made and entered into as of
the 20th day of November 1995, by and between Employer and Employee, remains in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
EMPLOYER:
OPHTHALMIC IMAGING SYSTEMS,
a California corporation
By: /s/ROBERT I. SCHNUER
--------------------
Robert I. Schnuer
Its: Compensation Committee Chairman
EMPLOYEE:
/s/ STEVEN R. VERDOONER
-------------------
Steven R. Verdooner
Exhibit 10.22
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT ("Agreement") made and entered into as of January 23,
1998, by and between OPHTHALMIC IMAGING SYSTEMS, a California corporation (the
"Corporation", which term shall include any one or more of its subsidiaries
where appropriate), and the individual whose name appears on the signature page
hereof (the "Indemnitee").
WHEREAS, highly competent persons are becoming more reluctant to serve
corporations as directors or officers or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to, and activities on behalf of, such corporations; and WHEREAS, the
current impracticability of obtaining adequate insurance and the uncertainties
relating to indemnification have increased the difficulty of attracting and
retaining such persons;
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Corporation's shareholders and that the
Corporation should act to assure such persons that there will be increased
certainty of such protection in the future; -----
WHEREAS, it is reasonable, prudent, and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
undertake additional service for or on behalf of the Corporation on the
condition that he be so indemnified;
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
1. Services by Indemnitee. Indemnitee agrees to serve or continue to serve
as a director and/or officer of the Corporation for so long as Indemnitee is
duly elected or appointed and qualified or until such time as Indemnitee
(subject to any contractual obligation or any obligation imposed by operation of
law) tenders his resignation in writing or is removed as a director and/or
officer. This Agreement shall not impose any obligation on the Indemnitee or the
Corporation to continue the Indemnitee's position with the Corporation beyond
any period otherwise applicable.
2. General. (a) The Corporation shall indemnify, and shall advance Expenses
(as hereinafter defined) to, Indemnitee as provided in this Agreement and to the
fullest extent permitted by law in effect on the date hereof and to such greater
extent as applicable law may thereafter from time to time permit.
(b) The Corporation shall not adopt any amendments to its Articles of
Incorporation ("Articles") or bylaws ("Bylaws") the effect of which would be to
deny, diminish, or encumber Indemnitee's rights to indemnity pursuant to the
Articles, Bylaws, or the California General Corporation Law ("CGCL"), or any
<PAGE>
other applicable law as applied to any act or failure to act occurring in whole
or in part prior to the date upon which such amendment was approved by the Board
or the Corporation's stockholders, as the case may be ("Effective Date"). In the
event that the Corporation shall adopt any amendment to its Articles or Bylaws,
the effect of which is to deny, diminish, or encumber Indemnitee's right to
indemnity pursuant to the Articles, Bylaws, or CGCL, or any other such law, such
amendment shall apply only to acts of failures to act occurring entirely after
the Effective Date thereof.
3. Proceedings Other than Proceedings by or in the Right of the
Corporation. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, wholly or partly by reason of his Corporate
Status (as hereinafter defined), he is, or is threatened to be made, a party to
any threatened, pending or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Corporation. Pursuant to this
Section 3, Indemnitee shall be indemnified against Expenses, judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue, or matter
therein, if he acted in good faith and in a manner he reasonably believed to be
in the best interests of the Corporation, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
4. Proceedings By or In the Right of the Corporation. Indemnitee shall
be entitled to the rights of indemnification provided in this Section 4 if, by
reason of his Corporate Status, he is, or is threatened to be made, a party to
any threatened, pending, or completed Proceeding brought by or in the right of
the Corporation to procure a judgment in its favor. Pursuant to this Section 4,
Indemnitee shall be indemnified against Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he believed to be in the best interests of the
Corporation and its stockholders. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue, or matter as to which Indemnitee shall have been adjudged to be liable to
the Corporation if such indemnification is not permitted by California or other
applicable law; provided, however, that indemnification against Expenses shall
nevertheless be made by the Corporation in such event to the extent that the
Superior Court of the State of California, or the court in which such proceeding
shall have been brought or is pending, shall determine.
5. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues, or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue, or matter. For purposes of this Section 5 and without limitation, the
termination of any claim, issue, or matter in such a Proceeding by dismissal or
withdrawal with or without prejudice, shall be deemed to be a successful result
as to such claim, issue, or matter.
6. Advance of Expenses. The Corporation shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty (20) days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
<PAGE>
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
7. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit
to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board in writing
that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 7(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in the specific case:
(i) if a Change in Control (as hereinafter defined) shall have occurred, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee (unless Indemnitee shall
request that such determination be made by the Board or the stockholders, in
which case the determination shall be made in the manner provided below in
Section 7(b)(ii) or 7(b)(iii); (ii) if a Change of Control shall not have
occurred, (A) by the Board by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), (B) if a quorum of the Board
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee,
or (C) by the stockholders of the Corporation; or (iii) as provided in Section
8(b) of this Agreement. If it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons, or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons, or entity upon
reasonable advance request any documentation or information that is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Corporation (irrespective of
the determination as to Indemnitee's entitlement to indemnification), and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 7(b) of this Agreement, the
Independent Counsel shall be selected as provided in this Section 7(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board, and the Corporation shall give written notice to
Indemnitee advising him of the identity of the Independent Counsel so selected.
If a Change of Control shall have occurred, the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board, in which event the preceding sentence shall apply), and
Indemnitee shall given written notice to the Corporation advising it of the
identity of the Independent Counsel so selected. In either event, Indemnitee of
the Corporation, as the case may be, may within seven (7) days after such
written notice of selection shall have been given, deliver to the Corporation or
to Indemnitee, as the case may be, a written objection to such selection. Such
objection may be asserted only on the ground that the Independent Counsel so
<PAGE>
selected does not meet the requirement of "Independent Counsel" as defined in
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without merit.
If, within twenty (20) days after submission by Indemnitee of a written request
for indemnification pursuant to Section 7(a) of this Agreement, no Independent
Counsel shall have been selected or, if selected, shall have been objected to,
in accordance with this Section 7(c), either the Corporation or Indemnitee may
petition the Superior Court of the State of California or other court of
competent jurisdiction for resolution for resolution of any objection that shall
have been made by the Corporation or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom an objection is favorably
resolved or the person so appointed shall act as Independent Counsel under
Section 7(b) of this Agreement. The Corporation shall pay any and all reasonable
fees and expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 7(b) of this Agreement, and the
Corporation shall pay all reasonable fees and expenses incident to the
procedures of this Section 7(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement of any
judicial proceeding or arbitration pursuant to Section 9(a)(iii) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
8. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons, or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 7(a) of this
Agreement, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons, or entity of
any determination contrary to that presumption.
(b) If the person, persons, or entity empowered or selected under
Section 7 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within sixty (60) days
after receipt by the Corporation of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made, and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such sixty-day
period may be extended for a reasonable time, not to exceed an additional thirty
(30) days, if the person, persons, or entity making the determination with
respect to entitlement to indemnification in good faith requires such additional
time for the obtaining or evaluating of documentation and/or information
relating thereto; and provided, further, that the foregoing provisions of this
Section 8(b) shall not apply (i) if the determination of entitlement to
indemnification is to be made by the shareholders pursuant to Section 7(b) of
this Agreement and if (A) within fifteen (15) days after receipt by the
Corporation of the request for such determination the Board has resolved to
submit such determination to the shareholders for their consideration at an
annual meeting thereof to be held within seventy-five (75) days after such
receipt and such determination is made thereat, or (B) a special meeting of
shareholders is called within fifteen (15) days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
<PAGE>
within sixty (60) days after having been so called and such determination is
made thereat, or (ii) if the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 7(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue, or matter
therein by judgment, order, settlement, or conviction, or upon a plea of nolo
contendre or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Corporation or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
9. Remedies of Indemnitee.
(a) If (i) a determination is made pursuant to Section 7 of this Agreement
that Indemnitee is not entitled to indemnification under this Agreement, (ii)
advancement of Expenses is not timely made pursuant to Section 6 of this
Agreement, (iii) the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 7(b) of this Agreement and such
determination shall not have been made and delivered in a written opinion within
ninety (90) days after receipt by the Corporation of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Corporation of a
written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 7 or 8 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of California, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator, pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within one hundred
eighty (180) days following the date on which Indemnitee first has the right to
commence such proceeding pursuant to this Section 9(a). The Corporation shall
not oppose Indemnitee's right to any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 7 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 9
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 9, the Corporation
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 9, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification or (ii) a
prohibition of such indemnification under applicable law.
<PAGE>
(d) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
(e) If Indemnitee, pursuant to this Section 9, seeks a judicial
adjudication of or an award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation
against, any and all expenses (of the types described in the definition of
Expenses in Section 14 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
10. Security. To the extent requested by the Indemnitee and approved by the
Board, the Corporation may at any time and from time to time provide security to
the Indemnitee for the Corporation's obligations hereunder through an
irrevocable bank line of credit, funded trust, or other collateral. Any such
security, once provided to the Indemnitee, may not be revoked or released
without the prior written consent of Indemnitee.
11. Non-Exclusivity; Duration of Agreement; Insurance; Subrogation. (a) The
rights to be indemnified and to receive advancement of Expenses as provided by
this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may at any time be entitled under applicable law, the Articles, as
amended, or Bylaws, any other agreement, a vote of shareholders or a resolution
of directors, or otherwise. This Agreement shall continue until, and terminate
upon, the latter of: (a) ten (10) years after the date that Indemnitee shall
have ceased to serve as a director and officer of the Corporation or fiduciary
of any other corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise that Indemnitee served at the request of the
Corporation; or (b) the final termination of all pending Proceedings in respect
of which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 9 of this Agreement relating thereto. This Agreement shall be binding
upon the Corporation and its successors and assigns and shall inure to the
benefit of Indemnitee and his heirs, executors, and administrators.
(b) If the Corporation maintains an insurance policy or policies providing
liability insurance for directors or officers of the Corporation or fiduciaries
of any other corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise that such person serves at the request of the
Corporation, Indemnitee shall be covered by such policy or policies in
accordance with the terms thereof to the maximum extent of the coverage
available for any such director or officer under such policy or policies.
<PAGE>
(c) If any payment is made under this Agreement, the Corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Corporation to bring suit to enforce such rights.
(d) The Corporation shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement, or otherwise.
12. Severability. If any provision or provisions of this Agreement shall be
held to be invalid, illegal, or unenforceable for any reason whatsoever: (a) the
validity, legality, and enforceability of the remaining provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal, or
unenforceable, that is not itself invalid, illegal, or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal, or unenforceable, that is not itself invalid, illegal, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
13. Exception to Right of Indemnification or Advancement of Expenses.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any claim, issue, or matter therein, brought or
made by him against the Corporation, except as may be provided in Section 9(e)
of this Agreement.
14. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Corporation of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item or any
similar schedule or form) promulgated under the Securities Exchange Act of 1934,
as amended (the "Act"), whether or not the Corporation is then subject to such
reporting requirement; provided, however, that, without limitation, such a
Change in Control shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii) the
Corporation is a party to a merger, consolidation, sale of assets, or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter; or (iii) during any period of two (2)
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose election or
nomination for election by the Corporation's shareholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least a
majority of the Board.
(b) "Corporate Status" describes the status of a person who is or was or
has agreed to become a director of the Corporation, or is or was an officer,
employee, agent, or fiduciary of the Corporation or of any other corporation,
<PAGE>
partnership, joint venture, trust, employee benefit plan, or other enterprise
that such person is or was serving at the request of the Corporation.
(c) "Disinterested Director" means a director of the Corporation who is not
and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts and witnesses, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the type
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, or investigating a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither at the time of
designation is, nor in the five years immediately preceding such designation
was, retained to represent: (i) the Corporation or Indemnitee in any matter
material to either such party or (ii) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Corporation or Indemnitee in an
action to determine Indemnitee's rights under this Agreement arising on or after
the date of this Agreement, regardless of when the Indemnitee's act or failure
to act occurred.
(f) "Proceeding" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing and any other
proceeding (including any appeals from any of the foregoing) whether civil,
criminal, administrative or investigative, except one initiated by an Indemnitee
pursuant to Section 9 of this Agreement to enforce his rights under this
Agreement.
15. Headings. The headings of the sections of this Agreement are inserted
for convenience of reference only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
16. Modification and Waiver. This Agreement may be amended from time to
time to reflect changes in California law or for other reasons. No supplement,
modification, or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the
Corporation in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any Proceeding
or matter that may be subject to indemnification or advancement of Expenses
covered hereunder; provided, however, that the failure to give any such notice
shall not disqualify the Indemnitee from indemnification hereunder.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (a) if
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, at the time of delivery, (b) if mailed
by certified mail (return receipt
<PAGE>
requested) with postage prepaid, on the third business day after the date
on which it is so mailed, or (c) if sent by facsimile or by telegraph, when
confirmation of transmission is indicated by the sender's telecopy or facsimile
machine, and addressed: (i) if to the Corporation, to 221 Lathrop Way, Suite 1,
Sacramento, California 95815, Attention: Secretary, or (ii) if to Indemnitee, to
the address listed on the signature page hereof, or (iii) to such other address
as any party hereto have specified in a notice given in accordance with this
Section 18.
19. Governing Law. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
California applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above set forth.
OPHTHALMIC IMAGING SYSTEMS
By: ____________________________
Name: ____________________________
Title: ____________________________
INDEMNITEE:
----------------------------------
(Signature)
----------------------------------
(Printed Name)
Address:__________________________
EXHIBIT 11.1
OPHTHALMIC IMAGING SYSTEMS
CALCULATION OF NET LOSS PER SHARE
The following table sets forth the calculation of basic and diluted loss per
share:
1998 1997
============ ==========
Numerator for basic and diluted net loss per share $ (2,735,019) $ (2,110,554)
============ ==========
Denominator for basic net loss per share:
Weighted average shares 4,030,428 3,784,332
Effect of dilutive securities (1):
Employee stock options -- --
Warrants and other -- --
------------ -----------
Dilutive potential common shares -- --
============= ===========
Denominator for diluted net loss per share 4,030,428 3,784,332
============= ===========
Basic net loss per share $ (0.68) $ (0.59)
============= ===========
Diluted net loss per share $ (0.68) $ (0.59)
============= ===========
(1) No amounts are included, as amounts are anti-dilutive.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the incorporation by reference in this Form 10-KSB,
Item 7 of our report, dated November 6, 1998 relating to the financial
statements of Ophthalmic Imaging Systems.
PERRY-SMITH & CO., LLP
Sacramento, California
December 15, 1998
Exhibit 23.2
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 1997 financial statements of Ophthalmic
Imaging Systems Annual Report (Form 10-KSB) for the year ended August 31, 1998.
ERNST & YOUNG
Sacramento, California
December 14,1998
Exhibit 99.2
Page 1 of 1
JR BOTHE & ASSOCIATES
STRATEGIC BUSINESS CONSULTING & FINANCIAL PUBLIC RELATIONS
JR BOTHE & ASSOCIATES CONTACT: Jack Bothe
12035 Sutton Way, Suite A 800.261.8552
Grass Valley, Ca 95945
OPHTHALMIC IMAGING SYSTEMS FOR IMMEDIATE RELEASE
221 Lathrop Way, Suite I
Sacramento, CA 95815
Ophthalmic Imaging Systems Comments on Transaction with
Premier Laser Systems, Inc.
SACRAMENTO, Calif., August 14, 1998 - Ophthalmic Imaging Systems (OTCBB: OISI)
today announced that it has been advised by Premier Laser Systems that, due to
the unavailability of Premier's financial statements, Premier will be unable to
proceed with its previously proposed acquisition of the remaining 49% interest
in OIS by the August 21, 1998 termination date of the acquisition agreement
between the companies. OIS is in the process of considering various alternatives
available to it, including the possible restructuring of the transaction with
Premier. As of the date hereof, Premier continues to own a 51% stock ownership
of OIS.
Ophthalmic Imaging Systems is the leading provider of ophthalmic digital imaging
systems. The Company designs, develops, manufactures, and markets digital
imaging and image enhancement systems and analysis software. With over a decade
in the ophthalmic imaging business, OIS has consistently been the first to
introduce new technology and features. The Company offers customer support
through a worldwide network of service technicians.
NOTE: This press release contains forward looking statements that are subject to
risks and uncertainties that could cause actual results to differ materially
from those set forth in the forward looking statements. These forward looking
statements represent Ophthalmic Imaging Systems' judgment as of the date of this
release. OIS disclaims any intent or obligation to update these forward-looking
statements.
------------------------------------------------------------------------
12035 Sutton Way, Suite A o Grass Valley, California 95945 Tel: 530.274.8197
Fax: 530.274.8198
Email: [email protected]
Exhibit 99.3
OPHTHALMIC IMAGING SYSTEMS CONTACT:Steven R. Verdooner, CEO
221 Lathrop Way, Suite I (916) 646-2020
Sacramento, CA 95815
FOR IMMEDIATE RELEASE
OPHTHALMIC IMAGING SYSTEMS ANNOUNCES ANNUAL MEETING OF SHAREHOLDERS
SACRAMENTO, Calif., October 21, 1998 -- Ophthalmic Imaging Systems (OTCBB: OISI)
today announced that the Company's Board of Directors (the "Board") has
tentatively scheduled an annual meeting of its shareholders to be held on
January 7, 1999.
The Board recognizes that the Company did not hold an annual meeting of its
shareholders last year in anticipated completion of a transaction with Premier
Laser Systems, Inc. ("Premier") pursuant to an agreement between the parties
entered into in February 1998. As previously announced, however, the agreement
with Premier was terminated in August 1998 due to Premier's inability to close.
Accordingly, in view of the fact that the agreement with Premier has been
terminated, the Board has determined that it would be appropriate to schedule
its annual meeting of shareholders as soon as practicable following the release
of the Company's audited financial statements for the year ended August 31,
1998. The Company anticipates the distribution of proxy materials and other
requisite information to its shareholders in early December 1998.
Ophthalmic Imaging Systems is the leading provider of ophthalmic digital imaging
systems. The Company designs, develops, manufactures and markets digital imaging
and image enhancement systems and analysis software. With over a decade in the
ophthalmic imaging business, OIS has consistently been the first to introduce
new technology and features. The Company offers customer support through a
worldwide network of service technicians.
NOTE: THIS PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS THAT ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SET FORTH IN THE FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING
STATEMENTS REPRESENT OPHTHALMIC IMAGING SYSTEMS' JUDGMENT AS OF THE DATE OF THIS
RELEASE. OIS DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE THESE FORWARD-LOOKING
STATEMENTS.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(THIS SCHEDULE FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-QSB FOR
OPHTHALMIC IMAGING SYSTEMS FOR THE PERIOD ENDED AUGUST 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANICAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 514,186
<SECURITIES> 0
<RECEIVABLES> 637,984
<ALLOWANCES> 131,000
<INVENTORY> 687,409
<CURRENT-ASSETS> 1,734,543
<PP&E> 1,319,074
<DEPRECIATION> (907,682)
<TOTAL-ASSETS> 2,153,320
<CURRENT-LIABILITIES> 3,865,438
<BONDS> 0
0
0
<COMMON> 10,462,604
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,153,320
<SALES> 6,064,180
<TOTAL-REVENUES> 6,277,370
<CGS> 4,124,633
<TOTAL-COSTS> 4,124,633
<OTHER-EXPENSES> 4,823,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,187
<INCOME-PRETAX> (2,735,019)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,735,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,735,019)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> 0
</TABLE>
