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 November 30, 1998
Commission File Number: 1-11140
OPHTHALMIC IMAGING SYSTEMS
(Exact name of registrant as specified in its charter)
California94-3035367
(State of Incorporation)(IRS Employer Identification No.)
221Lathrop 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 January 14, 1999, 4,155,428 shares of common stock, at no par value, were
outstanding.
<PAGE>1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>2
Opthalmic Imaging Systems
Condensed Balance Sheet
November 30, 1998
(Unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash and equivalents $ 364,088
Accounts receivable, net 569,493
Inventories, net 695,545
Prepaid expenses and other current assets 22,952
----------------------
Total current assets 1,652,078
Furniture and equipment, net of accumulated
depreciation and amortization of $940,606 378,468
Other assets 7,932
======================
$ 2,038,478
======================
Liabilities and Stockholders' Equity
Current liabilities:
Borrowings under line of credit $ 20,171
Borrowings under note payable to, and unsecured
advances from significant shareholder 1,471,769
Accounts payable 414,599
Accrued liabilities 1,652,911
Accrued warrant appreciation right 274,335
Deferred extended warranty revenue 114,018
Customer deposits 320,145
Capitalized lease obligation and other notes payable 9,125
----------------------
Total current liabilities 4,277,073
Capitalized lease obligation and other notes payable, less current portion 20,069
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 10,462,604
Deferred compensation (158,935)
Accumulated deficit (12,562,333)
----------------------
Total stockholders' deficit (2,258,664)
======================
$ 2,038,478
======================
</TABLE>
See accompanying notes.
<PAGE>3
Opthalmic Imaging Systems
Condensed Statement of Operations
(Unaudited)
<TABLE>
<S> <C> <C>
Three months ended November 30,
1998 1997
-------------------- --------------------
Net revenues $ 1,490,234 $ 1,901,877
Cost of sales 972,421 1,247,596
-------------------- --------------------
Gross Profit 517,813 654,281
Operating expenses:
Sales and marketing 525,387 506,818
General and administrative 299,864 323,418
Research and development 207,914 212,268
-------------------- --------------------
Total operating expenses 1,033,165 1,042,504
-------------------- --------------------
Income (loss) from operations (515,352) (388,223)
Other expense, net (42,010) (9,129)
==================== ====================
Net income (loss) $ (557,362) $ (397,352)
==================== ====================
Shares used in the calculation of basic
net income (loss) per share 4,155,428 3,905,428
==================== ====================
Basic net income (loss) per share $ (0.13) $ (0.10)
==================== ====================
Shares used in the calculation of diluted
net income (loss) per share 4,155,428 3,905,428
==================== ====================
Diluted net income (loss) per share $ (0.13) $ (0.10)
==================== ====================
</TABLE>
See accompanying notes.
<PAGE>4
Opthalmic Imaging Systems
Consensed Statement of Cash Flows
Increase (Decrease) in Cash and Equivalents
(Unaudited)
<TABLE>
<S> <C> <C>
Three months ended November 30,
1998 1997
---------------------- ----------------------
Operating activities:
Net loss $ (557,362) $ (397,352)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 32,924 29,459
Stock option compensation expense 32,365 28,681
Net increase in current assets other than
cash and equivalents (67,633) (126,605)
Net increase in current liabilities other than
short-term borrowings 479,002 485,991
---------------------- ----------------------
Net cash used in operating activities (80,704) 20,174
Investing activities:
Purchases of furniture and equipment -- (18,526)
Net (increase) decrease in other assets (547) (1,831)
---------------------- ----------------------
Net cash used in investing activities (547) (20,357)
Financing activities:
Principal payments on notes payable (132) (1,534)
Net proceeds from borrowings under note payable to
and unsecured advances from significant shareholder 9,289 --
Net (repayments of) proceeds from line-of-credit
borrowings (78,004) 86,930
---------------------- ----------------------
Net cash provided by financing activities (68,847) 85,396
---------------------- ----------------------
Net decrease in cash and equivalents (150,098) 85,213
Cash and equivalents at beginning of period 514,186 142,300
====================== ======================
Cash and equivalents at end of period $ 364,088 $ 227,513
====================== ======================
</TABLE>
See accompanying notes.
<PAGE>5
Ophthalmic Imaging Systems
Notes to Condensed Financial Statements
Three Month Periods ended November 30, 1998 and 1997
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed balance sheet as of November
30, 1998, condensed statements of operations for the three month
periods ended November 30, 1998 and 1997 and the condensed
statements of cash flows for the three month periods ended November
30, 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 includ 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, 1998 on Form 10-KSB. In the opinion of management,
the accompanying condensed financial statements include all
adjustments, consisting on 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 November 30, 1998 are not necessarily
indicative of the operating results for the full year.
Certain amounts in the fiscal 1998 financial statements have been
reclassified to conform with the presentation in the fiscal 1999
financial statements.
Note 2. Net 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 ear 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:
Unaudited
Three Months Ended
November 30,
1998 1997
---------------------------
Numerator for basic and diluted
net income (loss) per share $ (557,362) $ (397,352)
============= =============
Denominator for basic net income
(loss) per share: Weighted average
shares 4,155,428 3,905,428
Effect of dilutive securities:
Employee stock options -- --
Warrants and other -- --
- ------------- -------------
Dilutive potential common shares -- --
Denominator for diluted net income
(loss) per share 4,155,428 3,905,428
============= =============
Basic net income (loss) per share $ (0.13) $ (0.10)
============= =============
============= =============
Diluted net income (loss) per share $ (0.13) $ (0.10)
============= =============
Note 3. Short-Term Borrowings
In April 1995, the Company entered into a revolving line of credit
agreement (the "Credit Agreement") with its bank (the "Bank")
which, after several amendments, matured in November 1997.
In November 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
remains in effect from year to year terminated in writing by the
Company or the Bank. 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. At November 30, 1998, approximately
$20,200 in principal was outstanding under the Agreement.
<PAGE>
Note 4. Note Payable to Related Party
On April 30, 1998, the Company executed a promissory note (the
"Note") in favor of Premier Laser Systems, Inc., a California
corporation ("Premier"). 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 Premier
or (ii) April 30, 1999. Under the terms of the Note 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 accounts receivable credit line with the Company's Bank (see
Note 3). Premier also has made certain unsecured advances to the
Company which are not covered by the Note.
At November 30, 1998, approximately $1,527,000 in principal and
interest was outstanding under the Note and unsecured advances.
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 (see Note 5), to increase
the maximum principal amount available under the Note accordingly
and to establish mutually acceptable repayment terms.
Note 5. Stock Purchase Agreement
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 to acquire those shares of the Company's common stock
which were not already owned by it; and (ii) the Company agreed to
amend its Rights Agreement dated as of December 31, 1997 by and
between the Company and its rights agent, to permit Premier to
acquire up to 51.3% of the Company's outsta stock in private
transactions executed simultaneous with the execution of the Stock
Purchase Agreement.
In August 1998, the Company was notified by Premier that Premier
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 Premier for payment of a
$500,000 termination fee (the "Termination Fee") as provided for
in the Stock Purchase Agreement. The Termination among other
things, is the subject of current negotiations between the
companies. Accordingly, the Company has not recognized the
Termination Fee in its financial statements.
<PAGE>8
Note 6. Ability to Continue as a Going Concern
The Company has an accumulated deficit of $12,562,333 at November
30, 1998. In addition, current liabilities exceed current assets
by $2,624,995 as of that date. These factors, among others, may
suggest that the Company could be unable to continue as a going
concern.
The Company is currently negotiating with Premier, among other
things, the repayment terms of the Note and unsecured advances
described in Note 4 and the Termination Fee described in Note 5.
While management is confident that the negotiations will result in
extended repayment terms and that the aggregate amount owing under
the Note and unsecured advances will be reduced by the $500,000
Termination Fee, there can be no assurances that the Company will
generated sufficient liquidity from opera
obligations as they become due even if the Note is renegotiated.
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. In addition, the Company will continue to evaluate
alternative sources of capital to meet its cash require including
debt financing, issuing equity securities and entering into other
financing arrangements and/or strategic alliances. There can be
not 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>9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements below include statements that are "forward looking statements"
within the meaning of Section 21A of the Securities Act of 1933, as amended, in
Section 21E of the Securities Act of 1934, as amended, and is subject to the
safe harbor created thereby. Future operating results may be adversely effected
as a result of a number of factors enumerated in the Company's public reports.
Overview
To date, the Company has designed, developed, manufactured and marketed
ophthalmic digital imaging systems and has derived substantially all of its
revenues from the sale of such products. The Company has a reputation within the
ophthalmic community for producing high quality, reliable, easy to use equipment
and believes itself to be an acknowledged industry leader in the 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 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 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.
<PAGE>10
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. Although the Company has limited
capacity to produce these products from its present facility with its current
workforce, if future demand meets the Company's optimistic expectations, 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. In
the longer term, the Company is optimistic that it can generate significant
revenues from sales of these products sufficient to fund the production and
distribution of said 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
overcapacity 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 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.
On February 25, 1998, the Company and Premier Laser Systems, Inc., a California
corporation ("Premier"), entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") whereby, among other things, Premier would offer 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 it resources away from its core
business. In addition, the Company entered into various financing arrangements
with Premier.
In August 1998, it was determined that the transactions contemplated under the
Stock Purchase Agreement between the Company and Premier would not be
consummated. As a result, 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
the subject of current negotiations between th 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 5
of the Notes to Condensed Financial Statements included in Item 1 of this Form
10-QSB.
As a result of the transactions contemplated under the Stock Purchase Agreement,
together with certain private purchase transactions made simultaneously with the
execution of the Stock Purchase Agreement, Premier currently owns approximately
51.3% of the Company's outstanding common stock.
<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 $557,362, or $.13 per share, for the first
quarter of fiscal 1999 as compared to a net loss of $397,352, or $.10 per share,
for the first quarter of fiscal 1998. The per share figures are basic amounts
in accordance with Financial Accounting Standards No. 128 (see Note 2 of Notes
to Condensed Financial Statements included in Item 1 of this Form 10-QSB).
The 1999 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 for the first quarter of fiscal 1999 were $1,490,234
representing a decrease of approximately 22% from revenues of $1,901,877 for the
first quarter of fiscal 1998. The primary factor contributing to the reduced
1999 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.
Gross margins were approximately 35% during the first quarter ended November 30,
1998 versus approximately 34% for the comparable quarter of 1998. The Company
continues to evaluate its expenses in this area consistent with current and
anticipated business conditions and management anticipates that near-term margin
improvement, if any, would result principally from reduced material costs
associated with current deliverable system configurations, outsourcing
additional manufacturing and assembly operations and related fixed cost
reduction measures implemented during the latter half of 1997, including
personnel cutbacks, economies of scale from increased unit production and other
manufacturing efficiencies.
<PAGE>12
Sales and marketing and general and administrative expenses accounted for
approximately 55% of total revenues during the first quarter of fiscal 1998 as
compared with approximately 44% during the first quarter of fiscal 1998, with
the increased percentage resulting principally as a function of the reduced
revenue levels during the first quarter of 1999. Actual expense levels decreased
slightly, to $825,251 during the first quarter of 1999 versus $830,236 during
the first quarter of 1998. Reduced commissions and other costs associated with
decreased revenue levels during the first quarter of 1999 versus the comparable
period 1998, as well as the cost reductions realized during the first quarter of
1999 from the termination of certain management personnel during the latter half
of 1998, were partially offset by increased marketing costs associated with the
1998 AAO Meeting and, to a lesser extent, costs associated with the on-going
negotiations with Premier. The Company anticipates that recurring expenses in
this area will continue to run at or above historical levels.
Research and development expenses, as a percentage of revenues, was
approximately 14% in the first quarter of 1999 versus approximately 11% during
the same period of 1998. This percentage increase is a function of the reduced
revenue levels during the first quarter of 1999. Expense levels, however,
decreased slightly in actual dollar terms to $207,914 during the first quarter
of 1999 from $212,268 in 1998. 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.
Other expense was $42,010 during the first quarter of fiscal 1999 versus $9,129
during the same period of 1998. The primary contributing factor to this change
was an increase in interest expense during 1999 versus 1998 associated with
borrowings and unsecured advances from Premier, which borrowings and unsecured
advances were made after the first quarter of 1998 (see Note 4 of Notes to
Condensed Financial Statements included in Item 1 of this Form 10-QSB).
Liquidity and Capital Resources
The Company's operating activities used cash of $80,704 in the first quarter of
fiscal 1999 and generated cash of $20,174 in the first quarter of fiscal 1998
and used cash of $325,820 in the first quarter of fiscal 1997. The cash used in
operations during the first quarter of 1999 was expended principally to fund the
net loss during the period. This amount was significantly offset by increases in
customer deposits from orders generated at the 1998 AAO Meeting and increases in
accrued liabilities, including those liabilities accrued in connection with
professional costs associated with on-going negotiations with Premier as well as
interest associated with borrowings from Premier (see Note 4 of Notes to
Condensed Financial Statements included in Item 1 of this Form 10-QSB). Cash
generated from operating activities in the first quarter of 1998 resulted
principally from the collection of accounts receivable, significantly increased
revenue levels during the period and increases in customer deposits from orders
generated at the 1997 AAO fall meeting, the aggregate impact of which more than
offset the net loss for the quarter.
<PAGE>13
Cash used in investing activities was $547 during the first quarter of 1999 as
compared to $20,357 during the same period for 1998. 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 and the Company has deferred significant capital
acquisition decisions pending the on-going negotiations with Premier.
The Company used cash in the amount of $68,847 during the first quarter of
fiscal 1999 as compared to generating cash of $85,396 from financing activities
during the same period of fiscal 1998. The use of cash in financing activities
during the 1998 period was principally repayments of borrowings under the credit
facility with Imperial Bank (the "Bank"), which amount was partially offset by
an increase in the amount of borrowings under the note payable to and unsecured
advances by Premier. The source of cash from financing activities in 1998 was
proceeds from increased borrowings under the credit facility with the Bank.
Principal repayments on notes payable was negligible in both 1999 and 1998.
As indicated in Note 3 of the Notes to Condensed Financial Statements, in
November 1997, the Company entered into an accounts receivable credit agreement
(the "Agreement") with the Bank, and all amounts outstanding under a matured
revolving line of credit agreement with the Bank 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.
At November 30, 1998, approximately $20,200 in principal was outstanding under
the Agreement.
<PAGE>14
Additionally, as discussed in Note 4 of the Notes to Financial Statements
included in Item 1 of this Form 10-QSB, 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 Premier 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 substantially all of the Company's assets and are
subordinate to borrowings against the Agreement with the Company's Bank as
discussed immediately above. Premier also has made certain unsecured advances to
the Company which are not covered by the Premier Note. Approximately $1,527,000
in principal and interest was outstanding under the Premier Note and unsecured
advances at November 30, 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 November 30, 1998, the Company's cash and cash equivalents were $364,088.
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 $274,000 as of November 30, 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>15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
None.
ITEM 5. OTHER INFORMATION
In November 1998, the Company granted to certain of its
employees options to purchase, in the aggregate, up to 168,480 shares of the
Company's common stock at an exercise price of $0.625 per share. The exercise
of these options is subject to certain vesting requirements. These options were
not granted pursuant to any of the Company's existing stock option plans. None
of these options have been exercised as of the date hereof.
In November 1998, the Company granted to each of its directors
options to purchase up to 5,000 shares (or 25,000 shares in the aggregate of all
directors) of the Company's common stock at an exercise price of $0.625 per
share. These options were granted pursuant to the Company's 1997 Nonstatutory
Stock Option Plan and are immediately exercisable. None of these options
have been exercised as of the date hereof.
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) None.
<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: /s/ STEVEN R. VERDOONER
------------------------------------
Steven R. Verdooner,
Chief Executive Officer
and Chief Financial Officer (principal
executive officer and principal financial
and accounting officer)
Dated: January 14, 1999
<PAGE>17
16
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit Footnote
Number Description of Exhibit Reference
------- ----------------------- ----------
2.1 Stock Purchase Agreement, dated as of February 25, 1998, by and between Registrant and Premier (13)
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 Series A (11)
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 Securities Transfer, Inc., (10)
including form of Rights Certificate attached thereto.
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 an Dennis J Makes *
10.2(a) Amendment dated June 30, 1993 to the Employment Agreement between the Registra(1)and Dennis J. Makes
dated March 27, 1992. (1)
<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 Regrstrant 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 Nonstatatory 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)
<PAGE>19
10.16(a) General Security Agreement dated April 12, 1995 by and between the Registrant Imperial Bank. (3)
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)
<PAGE>20
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)
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)
27 Financial Data Schedule (for SEC use only). (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.
(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.
<PAGE>21
(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) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended August 31, 1998
filed on December 15, 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10QSB FOR OPTHALMIC IMAGIN SYSTEMS FOR THE PERIOD ENDED NOVEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL DOCUMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 364,088
<SECURITIES> 0
<RECEIVABLES> 569,493
<ALLOWANCES> 0
<INVENTORY> 695,545
<CURRENT-ASSETS> 1,652,078
<PP&E> 1,319,074
<DEPRECIATION> (940,606)
<TOTAL-ASSETS> 2,038,478
<CURRENT-LIABILITIES> 4,277,073
<BONDS> 0
0
0
<COMMON> 10,462,604
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,038,478
<SALES> 1,490,234
<TOTAL-REVENUES> 1,490,234
<CGS> 972,421
<TOTAL-COSTS> 972,421
<OTHER-EXPENSES> 1,033,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,010
<INCOME-PRETAX> (557,362)
<INCOME-TAX> 0
<INCOME-CONTINUING> (557,362)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (557,362)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
