FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
Commission File Number: 1-11140
OPHTHALMIC IMAGING SYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3035367
(State of Incorporation) (IRS Employer Identification No.)
221 LATHROP WAY, SUITE I, SACRAMENTO, CA 95815
(Address of principal executive offices)
(916) 646-2020
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes XX No
As of April 13, 1998, 4,155,428 shares of common stock, at no par value,
were outstanding.
<PAGE>1
PART I FINANCIAL INFORMATION
<PAGE>2
ITEM 1. FINANCIAL STATEMENTS
Ophthalmic Imaging Systems
Condensed Balance Sheet
February 28, 1998
(Unaudited)
Assets
- ------
Current assets:
Cash and equivalents $ 74,960
Accounts receivable, net 882,048
Inventories, net 987,574
Prepaid expenses and other current assets 113,223
---------------
Total current assets 2,057,805
Furniture and equipment, net of accumulated
depreciation and amortization of $835,371 416,205
Other assets 16,473
$ 2,490,483
===============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Borrowings under line of credit $ 115,951
Accounts payable 609,106
Accrued liabilities 1,695,213
Accrued warrant appreciation right 262,175
Deferred extended warranty revenu e 110,592
Customer deposits 336,105
Current portion of notes payable 186
-----------------
Total current liabilities 3,129,328
Notes payable, less current portion --
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 issued and outstanding 10,492,365
Deferred compensation (277,866)
Accumulated deficit (10,853,344)
-------------
Total stockholders' deficit (638,845)
-------------
$ 2,490,483
=============
See accompanying notes.
<PAGE>3
Ophthalmic Imaging Systems
Condensed Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
(Unaudited)
Six months ended February 28,
1998 1997
------------------------------------
Operating activities:
Net loss $ (1,583,392) $ (694,316)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 60,540 67,283
Stock option compensation expense 63,028 --
Net decrease (increase) in current assets
other than cash and equivalents 549,156 (439,064)
Net increase in current liabilities
other than short-term borrowings 931,728 116,446
----------------------------------
Net cash provided by (used in) operating
activities 21,060 (949,651)
Investing activities:
Purchases of furniture and equipment (95,963) (116,581)
Net (increase) decrease in other assets (9,088) 16,882
------------------------------------
Net cash used in investing activities (105,051) (99,699)
Financing activities:
Principal payments on notes payable (2,048) (3,287)
Net proceeds from (repayments of)
line-of-credit borrowings (195,051) (269,000)
Net proceeds from sale of common stock 213,750 605,481
------------------------------------
Net cash provided by (used in) financing
activities 16,651 333,194
------------------------------------
Net increase (decrease) in cash and
equivalents (67,340) (716,156)
Cash and equivalents at beginning of
period 142,300 1,051,325
-----------------------------------
Cash and equivalents at end of period $ 74,960 $ 335,169
====================================
See accompanying notes.
<PAGE>4
OPHTHALMIC IMAGING SYSTEMS
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended February 28, Six months ended February 28,
1998 1997 1998 1997
------------------------------- ---------------------------------
Net revenues $ 1,468,157 $ 2,285,407 $ 3,370,034 $ 3,169,653
Cost of sales 1,026,652 1,296,445 2,208,648 1,917,977
Gross Profit 441,505 988,962 1,161,386 1,251,676
Operating expenses:
Sales and marketing 488,418 391,633 1,060,836 888,611
General and administrative 929,940 249,908 1,253,358 532,676
Research and development 189,437 232,645 401,705 497,426
------------------------------- -------------------------------
Total operating expenses 1,607,795 874,186 2,715,899 1,918,713
------------------------------- -------------------------------
Income (loss) from operations (1,166,290) 114,776 (1,554,513) (667,037)
Other expense, net (19,750) (13,557) (28,879) (27,279)
------------------------------ -------------------------------
Net income (loss) $ (1,186,040) $ 101,219 $(1,583,392) $ (694,316)
=============================== =================================
Shares used in the calculation of
basic net income (loss) per
share 3,908,206 3,544,163 3,906,817 3,432,566
============================== =================================
Basic net income (loss) per share $ (0.30) $ 0.03 $ (0.41) $ (0.20)
=============================== =================================
Shares used in the calculation of
diluted net income (loss) per
share 3,908,206 5,014,422 3,906,817 3,432,566
=============================== ================================
Diluted net income (loss) per
share $ (.30) $ 0.02 $ (0.41) $ (0.20)
================================ ================================
See accompanying notes.
</TABLE>
<PAGE 5>
Ophthalmic Imaging Systems
Notes to Condensed Financial Statements
Three and Six Month Periods ended February 28, 1998 and 1997
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed balance sheet as of
February 28, 1998, condensed statements of operations
for the three and six month periods ended February 28,
1998 and 1997 and the condensed statements of cash flows
for the three and six month periods ended February 28,
1998 and 1997 have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation S-B. Accordingly,
they do not include all of the information and footnote
disclosures required by generally accepted accounting
principles for complete financial statements. It is
suggested that these condensed financial statements be
read in conjunction with the audited financial
statements and notes thereto included in the
registrant's (the Company's) Annual Report for the
Fiscal Year Ended August 31, 1997 on Form 10-KSB. In
the opinion of management, the accompanying condensed
financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position
and results of operations for the periods presented.
The results of operations for the period ended February
28, 1998 are not necessarily indicative of the operating
results for the full year.
Certain amounts in the fiscal 1997 financial statements
have been reclassified to conform with the presentation
in the fiscal 1998 financial statements.
Note 2. Net Income (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128,
"Earnings per Share". Statement 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 very similar to the previously reported
fully diluted earnings per share. All net income (loss)
per share amounts for all periods have been presented,
and where necessary, restated to conform to the
Statement 128 requirements.
<PAGE>6
Note 2. Net Income (Loss) Per Share (continued)
The following table sets forth the computation of basic
and diluted income (loss) per share:
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Six Months Ended
Ended February 28,
February 28,
1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator for basic and
diluted net income
(loss) per share $(1,186,040) 101,219 (1,583,392) (694,316)
===============================================================
Denominator for basic
net income (loss) per
share:
Weighted average
shares 3,908,206 3,544,163 3,906,817 3,432,566
Effect of dilutive securities:
Employee stock options -- 569,484 -- --
Warrants and other -- 900,775 -- --
-------------------------------------------------------------
Dilutive potential common
shares -- 1,470,259 -- --
--------------------------------------------------------------
Denominator for diluted
net income (loss) per share 3,908,206 5,014,422 3,906,817 3,432,566
=============================================================
Basic net income (loss)
per share $ (0.30) $ (0.03) $ (0.41) $ (0.20)
==============================================================
Diluted net income (loss)
per share $ (0.30) $ 0.02 $ (0.41) $ (0.20)
==============================================================
</TABLE>
Note 3. Line of Credit
In April 1995, the Company entered into a revolving line
of credit agreement (the "Credit Agreement") with a bank
(the "Bank") which, after several amendments, expired on
November 7, 1997. The maximum amount available under the
terms of the Credit Agreement was $750,000 and was based
upon eligible outstanding accounts receivable balances.
Borrowings under the Credit Agreement bore interest at the
Bank's prime lending rate plus three percent and were
secured by virtually all assets of the Company. The
Credit Agreement also contained certain restrictive
covenants which provided for, among other things, certain
working capital and net worth balance and ratios. The
Credit Agreement was subsequently converted to a full
recourse accounts receivable credit agreement.
On November 18, 1997, the Company entered into an accounts
receivable credit agreement (the "Agreement") with the
Bank, and all amounts outstanding under the Credit
Agreement were considered to be the initial advance under
the Agreement. The Agreement allows for up to 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
and the Agreement expires in November 1998. Borrowings
under the Agreement bear interest at the Banks's prime
lending rate plus 4%. In addition, the Bank will charge
monthly an administrative fee equal to the greater of
1/2 % of the average daily balance for the month or
$1,200. Under the terms of the Agreement, borrowings are
secured by substantially all of the Company's assets.
<PAGE>7
Note 4. 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 "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 A
and B Warrants expired on February 19, 1997 as amended and
November 21, 1997, respectively.
The private placement underwriter was issued a warrant ("C
Warrant") to purchase 250,000 shares of the Company's
common stock at $.95 per share. The number of shares
exercisable as well as the per share exercise price are
subject to adjustment upon the occurrence of certain
events. This warrant expires on November 21, 1999. In
addition, the underwriter will receive as a commission,
10% of the proceeds received by the Company upon exercise
of the A and B Warrants described above.
In February 1998, the underwriter sold its rights under
the C Warrant and the C Warrant was exercised for all
250,000 shares exercisable thereunder. The net proceeds
recognized from the exercise of said C Warrant was
approximately $213,750 (see Note 6).
Note 5. Nonstatutory Stock Option Plan
In October 1997, the Company's board of directors approved
the 1997 Nonstatutory Stock Option Plan (the "Plan") under
which all officers, employees directors and consultants
may participate. The Plan expires in October 2002.
Options granted under the Plan are non-qualified stock
options and will have a term of not longer than ten (10)
years from the date of grant, unless otherwise specified
in the option agreement. The exercise prices under the
Plan will generally 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 Plan is
1,000,000, of which 798,000 options remained available for
granting as of February 28, 1998. As of February 28,
1998, stock options to purchase 202,000 shares at exercise
prices of between $1.09 and $1.38 were granted and
outstanding under the Plan and none of the granted options
were exercised.
<PAGE>8
Note 6. Stock Purchase Agreement
On February 25, 1998, the Company entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with
Premier Laser Systems, Inc., a California corporation
("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
transactions to be made simultaneously with the execution
of the Stock Purchase Agreement.
Under the Stock Purchase Agreement, pursuant to the
Tender Offer, each of the Company's shareholders will
receive, in exchange for each share of the Company's common
stock: (i) $1.75 per share in cash; (ii) $0.25 in value
(measured by a formula in the Stock Purchase Agreement) of
Premier Class A Common Stock; and (iii) one Class C and
one Class D Warrant (collectively, the "Warrants"). Each
Warrant will be exercisable for fractional shares of
Premier common stock having a value (at the measurement date
as defined in the Stock Purchase Agreement) of $0.25, but
the exercisability of such Warrants will be conditional
upon the achievement of certain sales targets for the
Company's products. No fractional shares of Premier
common stock will be issued pursuant to the Tender
Offer, and the Company's shareholders who otherwise
would be entitled to receive a fractional share of Premier
common stock will receive a cash payment in lieu thereof.
It is anticipated that following consummation of the Tender
Offer, Premier will engage in a merger transaction in which
the remaining holders of the Company's common stock will
receive an economic benefit similar to that being paid in the
Tender Offer.
The Tender Offer will be extended to any shares of the
Company's common stock which are unconditionally issued or
allotted upon the exercise of vested options granted
under the Company's stock option plans or otherwise until
the expiration date of the Tender Offer. In addition,
option holders under the Company's stock option plans
will be offered an opportunity to cancel any unexercised
options in return for the grant of comparable Premier
options (after giving effect to an exchange ratio based on a
value of $2.18 per share of the Company's common stock), to
purchase Premier common stock.
<PAGE>9
Note 6. Stock Purchase Agreement (continued)
The Company has been advised that the cash portion of the
Private Acquisitions (as defined below), the Warrant
exercise and the proposed Tender Offer (and any proposed
merger), and the fees and costs incurred or to be incurred
in connection therewith, have been and will be paid from
existing cash and other working capital of Premier and
that no outside sources of funds or borrowings will be
used.
Simultaneous with execution of the Stock Purchase
Agreement, Premier entered into individual purchase
agreements ("Purchase Agreement" or "Purchase Agreements")
with three shareholders, including a director of the
Company and JB Oxford & Company ("JBO"), providing for
these parties to sell to Premier an aggregate of 730,360
shares of the Company's common stock. Additionally, JBO
sold to Premier, pursuant to the terms of the JBO Purchase
Agreement, warrants (the "JBO Warrants") to purchase
250,000 shares of the Company's common stock. Premier
exercised the JBO Warrants on February 26, 1998 (the
purchases made pursuant to the Purchase Agreements are
referred to collectively as the "Private Acquisitions").
The purchase of the Company's shares pursuant to the
Private Acquisitions and the exercise of the JBO Warrants
have increased Premier's beneficial ownership of the
Company's common stock to an aggregate of 2,131,758
shares, or approximately 51.3% of the outstanding shares
of the Company's common stock. The total consideration
paid by Premier for the Company's common stock pursuant to
the Private Acquisitions was approximately $2,137,185, or
$2.18 per share, which consideration was paid for in a
combination of cash and Premier securities in
approximately the same relative amounts as to be paid to
the Company's stockholders under the terms of the Stock
Purchase Agreement.
The Purchase Agreement with the Company's director
provides for recession if Premier fails to make, or
withdraws, abandons, or terminates the Tender Offer
without purchasing all shares validly tendered and not
withdrawn.
In order to permit the Private Acquisitions and the offer
contemplated by the Stock Purchase Agreement, the Board of
Directors of the Company, after considering the terms of
the Stock Purchase Agreement and an opinion rendered by the
Company's independent financial advisors as to the fairness
of Premier's offer to shareholders of the Company, amended
the Company's Rights Agreement.
<PAGE>10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE STATEMENTS BELOW INCLUDE STATEMENTS THAT ARE "FORWARD LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 21A OF THE SECURITIES ACT OF 1933, AS AMENDED,
IN SECTION 21E OF THE SECURITIES ACT OF 1934, AS AMENDED, AND IS SUBJECT
TO THE SAFE HARBOR CREATED THEREBY. FUTURE OPERATING RESULTS MAY BE
ADVERSELY EFFECTED AS A RESULT OF A NUMBER OF FACTORS ENUMERATED IN THE
COMPANY'S PUBLIC REPORTS.
The Company, a California corporation, is engaged in the business of
designing, developing, manufacturing and marketing ophthalmic digital
imaging systems and has derived substantially all of its revenues from
the sale of such products.
Since its inception, the Company's products have addressed primarily the
needs of the ophthalmic fluorescein angiography market, and more recently
the indocyanine green ("ICG") market. While the Company believes that
the overall angiography market has modest growth potential, sustaining
growth in its traditional angiography equipment business may become
increasingly difficult due to increased competition.
During the past quarter, the Company's product development efforts
have been primarily involved with features and enhancements to its
existing products targeting various telemedicine applications, including
screening, remote consultation and distance learning, as well as
exploration of new products.
On February 25, 1998, the Company entered into a Stock Purchase Agreement
(the "Stock Purchase Agreement") with Premier Laser Systems, Inc., a
California corporation ("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. 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, as referenced in Part II,
Item 6 of this Form 10-QSB.
The Company's results of operations have historically fluctuated from
quarter to quarter due to a number of factors and are not necessarily
indicative of the results to be expected for any future period or
expected for the fiscal year ending August 31, 1998. There can be no
assurance that revenue growth or profitability can be achieved or
sustained in the future.
<PAGE>11
The following discussion should be read in conjunction with the unaudited
interim financial statements and the notes thereto which are set forth
elsewhere in this Report on Form 10-QSB. In the opinion of management,
the unaudited interim period financial statements include all
adjustments, all of which are of a normal recurring nature, that are
necessary for a fair presentation of the results of the periods.
RESULTS OF OPERATIONS
- ---------------------
The Company incurred a net loss of 1,186,040, or $.30 per share,
for the second quarter of fiscal 1998 as compared to net income of
$101,219, or $.02 per share, for the second quarter of fiscal 1997. The
Company incurred a net loss of $1,583,392, or $.41 per share, for the first
six months of 1998 versus a net loss of $694,316, or $.20 per share, for
the comparable period of 1997. The per share figures are diluted amounts
in accordance with Financial Accounting Standards No. 128 (see Note 2
of Notes to Condensed Financial Statements).
The Company's revenues for the second quarter of fiscal 1998 were
$1,468,157, representing a decrease of approximately 36% from revenues of
$2,285,407 for the second quarter of fiscal 1997. Revenues for the
first six months of fiscal 1998 were $3,370,034, or an increase of
approximately 6% versus $3,169,653 for the comparable
period of 1997. One of the primary reasons for the significantly
decreased revenue levels during the second quarter of 1998 versus the
second quarter of 1997 was revenues recognized during the second
quarter of 1997 from deliveries against orders received during the
first quarter of 1997, which orders were carried over in an unusually high
deliverable backlog from the first quarter of fiscal 1997. To a lesser
extent, sales during the second quarter of 1998 were adversely impacted by
management's efforts being directed to the negotiation of the Stock Purchase
Agreement and less time devoted to the generation of sales. The
slightly increased year to date 1998 revenue levels include revenues
from initial deliveries during the first half of 1998 of new models of
the Company's digital angiography products introduced at the 1997 of all
meeting of the AAO.
Gross margins were approximately 30% during
the second quarter ended February 28, 1998
versus approximately 43% for the comparable
quarter of 1997. For the six-month period
ended February 28, 1998, gross margins were
approximately 33% as compared to
approximately 39% during the comparable
period of 1997. The decrease in gross
margin percentage during the second quarter
was attributable primarily to the
significantly decreased revenue levels
during the second quarter of 1998 and, to a
lesser extent, the adverse impact of
increased reserves for potential field
upgrades recognized for certain systems
delivered during the 1998 second quarter.
Furthermore, the increase of such reserves
for systems delivered during the first half
of 1998 was a principal factor for the
decrease in gross margins for the six month
period of 1998 as compared to 1997.
<PAGE>12
As a percentage of revenues, sales and
marketing and general and administrative
expenses accounted for approximately 97% of
total revenues during the second quarter of
fiscal 1998 versus approximately 28% of
total revenues during the comparable second
quarter of fiscal 1997. For the first six
months of fiscal 1998 and fiscal 1997, such
expenses accounted for approximately 69% and
45% of total revenues for the respective
six-month periods. Expense levels also
increased to $1,418,358 during the second
quarter of 1998 versus $641,541 during the
second quarter of 1997. For the first six
months of 1998, expense levels increased to
$2,314,194 from $1,421,287 during the
comparable period of 1998. The primary
factors contributing to these increases were
significant investment banking, legal and
other professional costs recognized during
the second quarter of 1998 associated with
the negotiation of the Stock Purchase
Agreement, the costs related to additional
senior management personnel hired during the
fourth quarter of fiscal 1997, as well as
increased compensation expense recognized in
connection with stock options issued to non-
employees and non-directors. To a lesser
extent, increased commissions and other
costs associated with increase revenue
levels also contributed to the increased
expense levels for the first six months of
1998. The Company anticipates expenses in
this area will continue to run above
historical levels.
Research and development expenses, as a
percentage of revenues, were approximately
13% in the second quarter of 1998 versus
approximately 10% in the second quarter of
1997. For the first six months of fiscal
1998, such expenses accounted for
approximately 12% of total revenues as
compared to approximately 16% during the
comparable period of 1997. Expense levels
decreased in actual dollar terms to $189,437
during the second quarter of 1998 from
$232,645 in 1997. During the first six
months of fiscal 1998, expense levels also
decreased in actual dollar terms to $401,705
versus $497,426 in 1997. The Company has
focused its research and development efforts
on current product enhancements and reducing
cost configurations for its current
products.
Other expense was $19,750 during the second
quarter of fiscal 1998 versus $13,557 during
the second quarter of 1997. For the first
six months of 1998 and 1997, other expense
was $28,879 and $27,279, respectively. The
primary contributing factor to the increase
during the second quarter was increased
interest expense associated with higher
interest rates and related bank charges on
average daily borrowings against existing
credit lines during 1998 versus 1997.
<PAGE>13
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's operating activities generated
cash of $21,060 during the first six months
of fiscal 1998 and used cash of $949,651
during the comparable period for 1997. Cash
generated from operating activities in the
first six months of 1998 resulted
principally from the collection of accounts
receivable, increased revenue levels and
increases in customer deposits and accrued
liabilities, the aggregate impact of which
more than offset the net loss for the
quarter. The cash used by operations in
1997 resulted primarily from the net loss
during the period and the decrease in
accounts receivable associated with
significantly reduced revenue levels during
the period, which amount was partially
offset by increases in customer deposits
from orders generated at the AAO meeting and
other current liabilities, excluding
borrowings under the Credit Agreement (see
Note 3 in Notes to Condensed Financial
Statements.
Cash used in investing activities was
$105,051 during the first half of 1998 as
compared to $99,699 during the same period
for 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 regarding capital expenditures.
While the Company had anticipated that it
would continue to upgrade its existing
management information and corporate
communications systems, the Company will
defer significant capital acquisition
decisions as a result of the contemplated
acquisition of the Company. The Company
anticipates that related expenditures, if
any, will be financed from one or more of
the following sources: (i) working capital;
(ii) borrowings under an existing credit
agreement, if available; or (iii) debt,
equity or other financing arrangements, if
any, available to the Company, including
possible loans or other advances made to, or
on behalf of, the Company by Premier. In
this regard, Premier has agreed to advance
certain funds for the procurement of
inventory and certain other expenditures
pending consummation of the Tender Offer.
The Company generated cash of $16,651 from
financing activities during the first six
months of fiscal 1998 as compared to
$333,194 during the same period of fiscal
1997. The source of cash from financing
activities in 1998 was the net proceeds from
the exercise of certain warrants issued
pursuant to a private placement of the
Company's common stock in November 1995,
which amount was significantly offset by net
repayments of borrowings under the Credit
Agreement. The cash generated from financing
activities during the 1997 period was
principally the net proceeds from the
exercise of certain other warrants issued
pursuant to the private placement of the
Company's common stock in November 1995,
and, to a lesser extent, net proceeds from
the exercise of stock options issued to
employees, which amounts were partially
offset by repayments of borrowings under the
Credit Agreement. Principal repayments on
notes payable was negligible in both 1998
and 1997.
<PAGE>14
As indicated in Note 3 of the Notes to
Condensed Financial Statements, on November
18, 1997, the Company entered into an
accounts receivable credit agreement (the
"Agreement") with the Bank, and all amounts
outstanding under the Credit Agreement were
considered to be the initial advance under
the Agreement. The Agreement allows for up
to an 80% advance rate on eligible accounts
receivable balances, and the maximum
borrowing base under the Agreement is $1.2
million. The Bank has full recourse against
the Company and the Agreement expires in
November 1998. Borrowings under the
Agreement bear interest at the Bank's prime
lending rate plus 4%. In addition, the Bank
will charge monthly an administrative fee
equal to the greater of 1/2 % of the
average daily balance for the month or
$1,200. Under the terms of the Agreement,
borrowings are secured by substantially all
of the Company's assets.
The Company believes that its existing cash
balances together with ongoing collections
of its accounts receivable, available
borrowing capacity under the Agreement, and
financing arrangements with Premier, will be
adequate to meet its liquidity and capital
requirements in the near term. Principal
and interest amounts due under the
alternative stock appreciation right with
the Bank, which amounts were approximately
$262,000 as of February 28, 1998, are
currently due; however, no request for
payment has yet been made. If demand for
payment were to be made by the Bank, the
Company would have to seek financing to make
such payment. There can be no assurance,
however, that such financing will be
available and, if available, can be obtained
on terms favorable to the Company.
In a letter dated March 23, 1998 from
NASDAQ, the Company was notified that on or
before May 20, 1998, the Company must make a
public filing with the Securities and
Exchange Commission and NASDAQ evidencing
the successful completion of the Tender
Offer by Premier. The Company's securities
will be delisted on the earlier of the
Tender Offer completion date or May 20,
1998.
In a letter dated March 3, 1998 from the
Boston Stock Exchange ("BSE"), the Company
was notified by BSE, that, due to the
Company's noncompliance with the BSE
requirement to maintain capital and surplus
of at least $500,000, BSE suspended the
Company's common stock from trading as of
the close of business on March 3, 1998 and
filed for delisting with the Securities and
Exchange Commission.
<PAGE>15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In October 1997, the Company's board of directors
approved the 1997 Nonstatutory Stock Option Plan
(the "Plan") under which all officers, employees
directors and consultants may participate. The
Plan expires in October 2002. Options granted
under the Plan are non-qualified stock options and
will generally have a term of ten (10) years
from the date of grant, unless otherwise
specified in the option agreement. The
exercise prices under the Plan will generally 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 Plan is
1,000,000, of which 798,000 options remained
available for granting as of February 28, 1998.
As of February 28, 1998, stock options to
purchase 202,000 shares at exercise prices of
between $1.09 and $1.38 were granted and outstanding
under the Plan and none of the granted options
were exercised.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
None.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the accompanying Index
to Exhibits below are filed as a part hereof
and are incorporated by reference as noted.
(b) A Form 8-K was filed on January 2, 1998, to
report under Item 5 thereof the Company's
adoption of a Rights Agreement, dated as of
December 31, 1997, between Ophthalmic Imaging
Systems and American Securities Transfer,
Inc. (the "Rights Agreement"), a copy of
which Form 8-K will be made available upon
request to the Company at its principal
offices.
A Form 8-K was filed on March 9, 1998, to
report under Item 1 thereof that the Company
and Premier Laser Systems, Inc. entered into
a Stock Purchase Agreement dated as of
February 25, 1998, and to report under Item 5
thereof, the Company's amendment to its
Rights Agreement, a copy of which Form 8-K
will be made available upon request to the
Company at its principal offices.
<PAGE>16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the undersigned has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
OPHTHALMIC IMAGING SYSTEMS
(Registrant)
By: STEVEN R. VERDOONER
Steven R. Verdooner,
Chief Executive Officer
and Chief Financial
Officer (principal
executive officer and
principal financial and
accounting officer)
By: WILLIAM L. MINCE
William L. Mince,
President and Chief
Operating Officer
Dated: April 14, 1998
<PAGE>17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Footnote
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
<S> <C> <C> <C>
2.1 Stock Purchase Agreement, dated as of (13)
February 25, 1998, by and between
Registrant and Premier Laser Systems,
Inc.
3.1 Articles of Incorporation of the *
Registrant, as amended.
3.1(a) Amendment to Articles of Incorporation (11)
(Certificate of Determination of
Preferences of Series A Junior
Participating Preferred Stock of
Ophthalmic Imaging Systems).
3.2 Amended Bylaws of the Registrant. *
4.1 See Exhibits 3.1 and 3.2 for provisions *
of the Articles of Incorporation, as
amended, and the amended Bylaws of the
Registrant defining the rights of
holders of Common Stock of the
Registrant.
4.2 Specimen of Stock Certificate. *
4.3 Rights Agreement, dated as of December (10)
31, 1997, between Registrant and
American Securities Transfer, Inc.,
including form of Rights Certificate
attached thereto.
4.4 Amendment to Rights Agreement, dated as (14)
of February 25, 1998, between
Registrant and 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 (7)
of July 18, 1996.
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 (1)
Employment Agreement between the
Registrant and Dennis J. Makes dated
March 27, 1992.
<PAGE>18
10.3 Confidentiality Agreement, dated March *
27, 1992 between the Registrant and
Dennis J. Makes.
10.4 Confidentiality Agreement, dated March *
27, 1992 between the Registrant and
Steven R. Verdooner.
10.5 Confidentiality Agreement, dated March *
27, 1992 between the Registrant and
Richard Wullaert.
10.6 Consulting Agreement, dated January 23, *
1992, between the Registrant and G.
Peter Halberg, M.D.
10.7 Assignment dated October 23, 1990 of *
U.S. Patent Application for Apparatus
and Method for Topographical Analysis
of the Retina to the Registrant by
Steven R. Verdooner, Patricia C. Meade,
and Dennis J. Makes (as recorded on
Reel 5490, Frame 423 in the Assignment
Branch of the U.S. Patent and Trademark
Office).
10.8 Form of International Distribution *
Agreement used by the Registrant and
sample form of End User Software
License Agreement.
10.9 Original Equipment Manufacturer *
Agreement, dated April 1, 1991, between
the Registrant and SONY Medical
Electronics, a division of SONY
Corporation of America.
10.10 Original Equipment Manufacturer/Value *
Added Reseller Agreement, dated May 7,
1991, between the Registrant and
Eastman Kodak Company.
10.11 The Registrant's 1992 Nonstatutory *
Stock Option Plan and sample form of
Nonstatutory Stock Option Agreement.
10.12 Common Stock and Warrant Purchase *
Agreement ("Stock Purchase Agreement"),
dated as of February 8, 1992, among the
Registrant, Jonnie R. Williams,
Kathleen M. O'Donnell, as Trustee of
Irrevocable Trust No. 6, FBO F.E.
O'Donnell, Jr., M.D., Steven R.
Verdooner and Dennis J. Makes.
<PAGE>19
10.12(a) Amendment No. 1 to Stock Purchase *
Agreement, dated March 25, 1992, among
the Registrant, Jonnie R. Williams,
individually, Jonnie R. Williams, as
Trustee of Irrevocable Trust No. 1,
Rambert Simmons, and Kathleen M.
O'Donnell, as Trustee of Irrevocable
Trust No. 6, FBO F.E. O'Donnell, Jr.,
M.D.
10.13 Cross-Indemnification Agreement, dated *
February 14, 1991, among Dennis Makes,
Steven Verdooner, and Richard Wullaert.
10.14 Key Man Life Insurance Policies in the *
amount of $1,000,000 for each of
Dennis J. Makes and Steven R.
Verdooner, with the Registrant as the
named beneficiary.
10.15 Warrant dated February 12, 1993 issued (1)
by the Registrant to Steven R.
Verdooner to purchase 50,000 shares of
Common Stock.
10.16 Stock Option Plan. (1)
10.17 Promissory Note dated January 4, 1993 (1)
from the Registrant to Western
Financial Savings Bank in the amount of
$25,209.83 due in full by January 4,
1998.
10.18 Rental Agreement dated May 1, 1994 by (2)
and between the Registrant and Robert
J. Rossetti.
10.19 Security and Loan Agreement (with (3)
Credit Terms and Conditions) dated
April 12, 1995 by and between the
Registrant and Imperial Bank.
10.19(a) General Security Agreement dated (3)
April 12, 1995 by and between the
Registrant and Imperial Bank.
10.19(b) Warrant dated November 1, 1995 issued (4)
by the Registrant to Imperial Bank to
purchase 67,500 shares of Common Stock.
10.19(c) Amended Loan and Security Agreement (4)
(with Credit Terms and Conditions)
dated November 1, 1995.
10.19(d) Registration Rights Agreement dated (4)
November 1, 1995 between the Registrant
and Imperial Bank.
10.19(e) Amended Loan and Security Agreement (6)
(with Credit Terms and Conditions)
dated April 4, 1996.
<PAGE>20
10.19(f) Amended Loan and Security Agreement (7)
(with Credit Terms and Conditions)
dated July 12, 1996.
10.19(g) Amended Loan and Security Agreement (7)
(with Credit Terms and Conditions)
dated November 21, 1996.
10.19(h) Amended Loan and Security Agreement (8)
(with Credit Terms and Conditions)
dated June 3, 1997.
10.19(i) Amended Loan and Security Agreement (9)
(with Credit Terms and Conditions)
dated August 28, 1997.
10.19(j) Amended Loan and Security Agreement (9)
(with Credit Terms and Conditions)
dated October 24, 1997.
10.19(k) Amended Loan and Security Agreement (9)
(with Credit Terms and Conditions)
dated November 3, 1997.
10.19(l) Amended Loan and Security Agreement (9)
(with Credit Terms and Conditions)
dated November 21, 1997.
10.19(m) Agreement of Purchase of Receivable (9)
(Full Recourse) dated November 18, 1997
between Registrant and Imperial Bank.
10.20 Purchase Agreements dated November 21, (4)
1995 between the Registrant, JB Oxford
& Company and certain Investors.
10.20(a) Warrant Agreement dated November 21, (4)
1995 between the Registrant, JB Oxford
& Company and certain Investors.
10.20(b) First Amendment Warrant Agreement dated (7)
November 21, 1996 between the
Registrant, JB Oxford & Company and
certain Holders.
10.20(c) Registration Rights Agreement dated (4)
November 21, 1995 between the
Registrant, JB Oxford & Company and
certain Investors.
10.21 Employment Agreement dated November 20, (4)
1995 between the Registrant and Steven
R. Verdooner.
10.22 Employment Agreement dated November 20, (4)
1995 between the Registrant and R.
Michael Clark.
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10.23 Employment Agreement dated July 14, 1997 (9)
between the Registrant and William L.
Mince.
10.25 The Registrant's 1995 Nonstatutory Stock (5)
Option Plan and sample form of Nonstatutory
Stock Option Agreement.
10.26 The Registrant's 1997 Nonstatutory Stock (12)
Option Plan and sample form of Nonstatutory
Stock Option Agreement.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
* Incorporated by reference to the like-numbered exhibits previously
filed with Registrant's Registration Statement on Form S-18, number
33-46864-LA.
(1) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1993 filed on November
26, 1993.
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1994 filed on November
29, 1994.
(3) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended May 31, 1995 filed on July
14, 1995.
(4) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1995 filed on November
29, 1995.
(5) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 filed on May 28, 1996, number 333-0461.
(6) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended May 31, 1996 filed on July
15, 1996.
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1996 filed on November
29, 1996.
(8) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended May 31, 1997 filed on July
15, 1997.
(9) 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.
<PAGE>22
(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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10QSB FOR
OPHTHALMIC IMAGING SYSTEMS FOR THE PERIOD ENDED FEBRUARY 28, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 74,960
<SECURITIES> 0
<RECEIVABLES> 882,048
<ALLOWANCES> 0
<INVENTORY> 987,574
<CURRENT-ASSETS> 2,057,805
<PP&E> 1,251,576
<DEPRECIATION> (835,371)
<TOTAL-ASSETS> 2,490,483
<CURRENT-LIABILITIES> 3,129,328
<BONDS> 0
0
0
<COMMON> 10,492,365
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> (638,845)
<SALES> 1,468,157
<TOTAL-REVENUES> 1,468,157
<CGS> 1,026,652
<TOTAL-COSTS> 1,026,652
<OTHER-EXPENSES> 1,607,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,750
<INCOME-PRETAX> (1,186,040)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,186,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,186,040)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> 0
</TABLE>
