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 May 31, 2000
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, including area code)
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 July 19, 2000, 4,305,428 shares of common stock, at no par value, were
outstanding.
<PAGE>1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>2
Ophthalmic Imaging Systems
Condensed Balance Sheet
May 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and equivalents $ 117,341
Accounts receivable, net 276,377
Inventories, net 232,323
Prepaid expenses and other current assets 35,058
--------------
Total current assets 661,099
Furniture and equipment, net of accumulated
depreciation and amortization of $1,094,197 222,274
Other assets 8,302
--------------
$ 891,675
==============
Liabilities and Stockholders' Equity
Current liabilities:
Borrowings under line of credit -
Borrowings under note payable to, and unsecured
advances from significant shareholder 1,875,658
Accounts payable 725,514
Accrued liabilities 1,170,056
Accrued warrant appreciation right 314,357
Deferred extended warranty revenue 118,344
Customer deposits 458,120
Capitalized lease obligation and other notes payable 8,939
--------------
Total current liabilities 4,670,988
Capitalized lease obligation and other notes payable,
less current portion 14,264
Commitments
Stockholders' deficit:
Preferred stock, without par value, 20,000,000
shares authorized:
Series A Junior Participating Preferred Stock, without par value,
100,000 shares authorized; none issued or outstanding Series B
Preferred Stock, $.01 par value, 2,000 shares
authorized; 150 issued and outstanding 3,750
Common stock, no par value, 20,000,000 shares authorized;
4,305,428 issued and outstanding 10,518,854
Deferred compensation (34,967)
Accumulated deficit (14,281,214)
--------------
Total stockholders' deficit (3,793,577)
--------------
$ 891,675
==============
</TABLE>
See accompanying notes.
<PAGE>3
Ophthalmic Imaging Systems
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended May 31, Nine months ended May 31,
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues $ 1,109,278 $ 1,655,610 $ 4,130,274 $ 5,005,897
Cost of sales 766,428 869,533 2,732,509 2,919,939
----------- ----------- ------------ -----------
Gross Profit 342,850 786,077 1,397,765 2,085,958
Operating expenses:
Sales and marketing 270,045 459,353 1,216,376 1,384,893
General and administrative 323,025 209,568 848,647 733,360
Research and development 60,377 241,527 257,113 712,440
----------- ----------- ------------ -----------
Total operating expenses 653,447 910,448 2,322,136 2,830,693
----------- ----------- ------------ -----------
Loss from operations (310,597) (124,371) (924,371) (744,735)
Other expense, net (53,397) (42,502) (109,032) (106,438)
----------- ----------- ------------ -----------
Loss before extraordinary item (363,994) (166,873) (1,033,403) (851,173)
Extraordinary item - 350,000 - 350,000
----------- ------------ ------------ -----------
Net income (loss) $ (363,994) $ 183,127 $ (1,033,403) $ (501,173)
=========== ============ ============ ===========
Shares used in the calculation of basic
net income (loss) per share 4,305,428 4,155,428 4,277,406 4,155,428
=========== ============ ============ ===========
Basic loss per share before
extraordinary item (0.08) $ (0.04) $ (0.24) $ (0.20)
Extraordinary item - 0.08 - 0.08
----------- ------------ ------------ -----------
Basic net income (loss) per share $ (0.08) $ 0.04 $ (0.24) $ (0.12)
=========== ============ ============ ===========
Shares used in the calculation of diluted
net income (loss) per share 4,305,428 4,155,428 4,277,406 4,155,428
=========== ============ ============ ===========
Diluted loss per share before
extraordinary item (0.08) $ (0.04) $ (0.24) $ (0.20)
Extraordinary item - 0.08 - 0.08
----------- ------------ ------------ -----------
Diluted net income (loss) per share $ (0.08) $ 0.04 $ (0.24) $ (0.12)
=========== ============ ============ ===========
</TABLE>
See accompanying notes.
<PAGE>3
Ophthalmic Imaging Systems
Condensed Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended May 31,
2000 1999
------------ ----------
<S> <C> <C>
Operating activities:
Net loss $ (1,033,403) $ (501,173)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 94,850 85,277
Stock option compensation expense 59,166 78,115
Net decrease (increase) in current assets other
than cash and equivalents 296,487 (399,292)
Net increase in current liabilities other than
short-term borrowings 750,895 245,842
------------ ----------
Net cash provided by (used in) operating activities 167,995 (491,231)
Investing activities:
Purchases of furniture and equipment (13,994) 1,607
Net (increase) decrease in other assets (917) (7,284)
------------ ----------
Net cash used in investing activities (14,911) (5,677)
Financing activities:
Principal payments on notes payable - (318)
Net (repayments of) proceeds from borrowings under
note payable to and other advances from
significant shareholder (273,750) 9,289
Net proceeds from (repayments of) line-of-credit
borrowings - 120,977
Net proceeds from sale of common stock 56,250 -
Net proceeds from sale of preferred stock 3,750 -
------------ ----------
Net cash used in financing activities (213,750) 129,948
------------ ----------
Net decrease in cash and equivalents (60,666) (366,960)
Cash and equivalents at beginning of period 178,007 514,186
------------ ----------
Cash and equivalents at end of period $ 117,341 $ 147,226
============ ==========
Supplemental schedule of noncash financing activities:
Increase in (reduction of) borrowings under note payable
to and other advances from significant shareholder,
net of reductions in exchange for inventory 678,556 $ (182,778)
============ ==========
</TABLE>
See accompanying notes.
<PAGE>5
Ophthalmic Imaging Systems
Notes to Condensed Financial Statements
Three and Nine Month Periods ended May 31, 2000 and 1999
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed balance sheet as of May 31, 2000,
condensed statements of operations for the three and nine month
periods ended May 31, 2000 and 1999 and the condensed statements of
cash flows for the nine month periods ended May 31, 2000 and 1999 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, 1999 on Form 10-KSB/A. 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 May 31, 2000 are not necessarily
indicative of the operating results for the full year.
Certain amounts in the fiscal 1999 financial statements have been
reclassified to conform with the presentation in the fiscal 2000
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 Ended May 31, Nine Months Ended May 31,
2000 1999 2000 1999
============ ============ ============ ============
<S> <C> <C> <C> <C>
Numerator for basic and
diluted net income (loss) $ (363,994) $ 183,127 $ (1,033,403) $ (501,173)
============ ============ ============ ============
Denominator for basic net
income (loss) per share:
Weighted average shares 4,305,428 4,155,428 4,277,406 4,155,428
Effect of dilutive securities:
Employee stock options -- -- -- --
Warrants and other -- -- -- --
------------ ------------ ------------ ------------
Dilutive potential common shares -- -- -- --
============ ============ ============ ============
Denominator for diluted
net income (loss) per share 4,305,428 4,155,428 4,277,406 4,155,428
============ ============ ============ ============
Basic net income (loss) per share $ (0.08) $ 0.04 $ (0.24) $ (0.12)
============ ============ ============ ============
Diluted net income (loss) per share $ (0.08) $ 0.04 $ (0.24) $ (0.12)
============ ============ ============ ============
</TABLE>
Note 3. Short-Term Borrowings
The Company entered into an accounts receivable credit agreement (the
"Credit Agreement") with a bank (the "Bank") in July 1999. The
Agreement allowed for up to an 80% advance rate on eligible receivable
balances. Borrowings were secured by substantially all assets of the
Company and bore interest at the Bank's prime lending rate plus 10%.
The minimum monthly amount charged by the Bank was the greater of
interest calculated in accordance with the immediately preceding
sentence or $1,200. The Credit Agreement remained in effect from year
to year unless terminated in writing by the Company or the Bank. At
May 31, 2000, no principal borrowings were outstanding under the
Credit Agreement. By letter to the Bank dated June 23, 2000, the
Company confirmed the termination of the Credit Agreement effective
upon earlier verbal notification to the Company by the Bank that the
Bank was no longer willing to make advances under the Credit Agreement
(see Note 9).
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"). Under the Note, borrowings against the Note were
available to the Company in the form of periodic advances. The maximum
principal amount available under the Note was $500,000, which
principal amount outstanding, together with any and all accrued
interest, was payable the earlier of (i) written demand by Premier or
(ii) April 30, 1999. Under the terms of the Note, borrowings bear
<PAGE>7
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
accounts receivable credit line with the Company's Bank (see Note 3).
Premier also has made other substantial advances to the Company that
are not covered by the Note.
In February 2000, Premier made demand for repayment of gross amount of
intercompany debt calculated by Premier to be in excess of $2 million.
At May 31, 2000, the Company had recorded approximately $2,122,000 in
principal and interest outstanding under the Note and other advances,
of which approximately $247,000 of accrued interest was included in
other accrued liabilities. The principal amount is net of, among other
things, an offset for inventory transferred to Premier pursuant to a
Manufacturing Agreement entered into between the Company and Premier
(see Note 5). The principal amount is not net of a $500,000
termination fee in connection with the terminated Stock Purchase
Agreement in 1998 ("Termination Fee") over which there is disagreement
between Premier and the Company as to whether the Company is entitled
to the Termination Fee and whether such Termination Fee can be used as
an offset to the Company's debt to Premier, nor is it net of other
offsets in presently undetermined amounts to which the Company
believes it is entitled.
In July 2000, the Company, Premier and MediVision Medical Imaging
Ltd., an Israeli corporation ("MediVision"), entered into a series of
definitive agreements whereupon, among other things, MediVision has
agreed to purchase from Premier the Note and all outstanding debt of
the Company currently owed to Premier. The debt will be converted per
the agreements into shares of the Company's common stock. The purchase
of the Note and other debt from Premier is contingent upon the
satisfaction of certain preconditions and closing conditions set forth
in the agreements. In connection with the closing of the agreements
with MediVision, Premier and the Company will execute a mutual waiver
and release of claims, thereby releasing each other from any and all
claims, whether known or unknown between them, other than the
Termination Fee claimed by the Company against Premier (see Note 9).
<PAGE>8
Note 5. Manufacturing Agreement
In March 1999, the Company and Premier entered into a manufacturing
agreement ("Manufacturing Agreement") whereby Premier was to
manufacture the majority of the Company's products.
Under the terms of the Manufacturing Agreement, among other things,
the Company charged Premier for certain inventory transferred to
Premier and Premier charged the Company for products manufactured
pursuant to the Manufacturing Agreement.
In February 2000, Premier discontinued production of the Company's
products under the Manufacturing Agreement. Premier alleged that the
Company breached the Manufacturing Agreement and therefore was
entitled to terminate the Manufacturing Agreement and force the
Company to purchase inventory in an amount in excess of $850,000. The
amount of the claim has since been reduced to $625,000 and the Company
has agreed to purchase inventory from Premier up to such value with
proceeds from the loan from MediVision subject to closing of the
agreements with MediVision. In any event, the Company believes that
Premier was not entitled to terminate the Manufacturing Agreement for
breach and the claim for recovery of termination damages is therefore
not valid (see Note 9).
Note 6. Merger Agreement
On October 21, 1999, the Company and Premier entered into an agreement
and plan of reorganization (the "Merger Agreement"), whereby, upon
requisite shareholder approval and the satisfaction of certain other
preconditions, the Company would become a wholly-owned subsidiary of
Premier.
In February 2000, Premier notified the Company that it was considering
seeking protection under the U.S. Bankruptcy Code and the Company
thereupon terminated the Merger Agreement on February 17, 2000. In
March 2000, Premier filed a voluntary petition for protection and
reorganization under Chapter 11 of the U.S. Bankruptcy Code.
<PAGE>9
Note 7. Series B Preferred Stock and Related Agreements
The Company and Premier executed a Series B Preferred Stock Purchase
Agreement on October 21, 1999 whereby, among other things, the Company
agreed to sell to Premier, upon the issuance by the Company of shares
of its common stock pursuant to the exercise of stock options, shares
of the Company's Series B Preferred Stock at a price of $25 per share
with each share carrying the voting power of 1,000 shares of the
Company's common stock.
Also on October 21, 1999, the Company, Premier and three of the
Company's outside directors (the "exercising Directors") entered into
a stock purchase agreement (the "Agreement") pursuant to which, among
other things, the Exercising Directors each exercised options to
purchase 50,000 shares of common stock at an exercise price of $0.375
per share resulting in net proceeds to the Company of $56,250.
Also under the terms of the Agreement, Premier purchased 150 shares of
the Company's Series B Preferred Stock at a per share price of $25 in
exchange for Premier's cancellation of certain of the Company's debt
in the aggregate amount of $3,750.
As a result of the foregoing transactions, Premier owns approximately
49 1/2% of the Company's outstanding common stock and all 150
outstanding shares of the Company's Series B Preferred Stock, thereby
giving Premier majority voting control.
Note 8. Ability to Continue as a Going Concern
The Company has an accumulated deficit of $14,281,214 at May 31, 2000.
In addition, current liabilities exceed current assets by $4,009,889
as of that date. These factors, among others, may indicate that the
Company will be unable to continue as a going concern for a reasonable
period of time.
As a consequence of Premier's repayment demands, together with the
impact of the termination of the Merger Agreement and Manufacturing
Agreement, the Company is having difficulty in meeting its near-term
cash requirements, and, without an infusion of capital or other
improvements in its liquidity position, its ability to continue as a
going concern is doubtful.
In July 2000, to secure outside funding, the Company entered into
definitive agreements with MediVision and Premier, certain of which
are contingent upon the satisfaction of preconditions and closing
conditions set forth in the agreements (see Note 9). There can be no
assurance, however, that the transactions contemplated under the
agreements will be consummated, resulting in the anticipated funding.
If the parties fail to consummate the funding for any reasons, there
can be no assurance that the Company will be able to obtain other
third party funding or be able to continue as an ongoing concern.
<PAGE>10
Note 9. Subsequent Events
By letter to the Bank dated June 23, 2000, the Company confirmed the
termination of the Credit Agreement with the Bank effective upon
earlier verbal notification to the Company by the Bank that the Bank
was no longer willing to make advances under the Credit Agreement (see
Note 3).
On July 13, 2000, the Company, Premier and MediVision entered into a
series of definitive agreements relating to the transfer of Premier's
ownership interests in the Company to MediVision in exchange for $3.2
million in cash and stock (the "MediVision Investments"). In separate
but related transactions, MediVision has agreed to loan the Company up
to $260,000 as short-term funding to purchase inventory for continued
manufacturing operations and, upon the closing of the transactions
contemplated under the agreements (the "Closing"), MediVision will
also loan $1.5 million to the Company, which shall be convertible at
MediVision's option into shares of the Company's common stock.
Pursuant to the agreements relating to the MediVision Investments,
MediVision will purchase all of the stock and debt of the Company
currently held by Premier, and the debt, calculated at its approximate
book value of $2.1 million, will be converted per the agreements into
shares of the Company's common stock at a conversion price of $0.55
per share.
At the Closing, Premier and the Company will execute a mutual waiver
and release of claims, thereby releasing each other from any and all
claims, whether known or unknown between them, other than the $500,000
Termination Fee claimed by the Company against Premier (see Note 4).
The Company intends to submit the Termination Fee as an unsecured
claim against Premier as part of the bankruptcy reorganization
process, although there can be no assurance that the claim will be
confirmed by the bankruptcy court or otherwise paid by Premier.
Until the Closing, there can be no assurance that the bankruptcy court
will approve the MediVision Investments or that the parties will
consummate the transactions or that any party will not seek to avoid
its obligations under the definitive agreements. The contemplated
transactions are still subject to customary closing conditions,
including, among other things, absence of material adverse events.
<PAGE>11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of the
federal securities laws. The Company intends such forward-looking statements to
be covered by the safe harbor provisions contained in Section 27A of the
Securities Act of 1933, as amended, and in Section 21E of the Exchange Act of
1934, as amended. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
effect on its operations and future prospects include, but are not limited to,
changes in: economic conditions generally and the medical instruments market
specifically, legislative or regulatory changes affecting OIS, including changes
in healthcare regulation, the availability of working capital, the introduction
of competing products, and other risk factors described herein. These risks and
uncertainties, together with the other risks described from time to time in
reports and documents filed by OIS with the SEC should be considered in
evaluating forward-looking statements, and undue reliance should not be placed
on such statements. Indeed, it is likely that some of the Company's assumptions
will prove to be incorrect. The Company's actual results and financial position
will vary from those projected or implied in the forward-looking statements, and
the variances may be material.
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 primary target market for the
Company's digital angiography systems has been retinal specialists.
In an effort to expand its role in the ophthalmic imaging field by developing
products and applications targeted at the broader markets of general
ophthalmology and optometry, OIS has applied significant resources over the past
two years to the development of two ocular imaging devices, the Digital Fundus
Imager the ("DFI") and the Digital Slit Lamp Imager (the "DSLI").
At the 1998 Annual Meeting of the American Academy of Ophthalmology (the "1998
AAO Meeting") held during the first quarter of fiscal 1999, the DFI received
considerable interest and the Company has received significant purchase
commitments for that product.
The Company, however, has had limited financial and operational resources to
meet the demand resulting from the introduction of this product. In that regard,
during the third quarter of fiscal 1999, the Company entered into the
Manufacturing Agreement with Premier Laser Systems, Inc. a California
corporation ("Premier"), whereby Premier began assembling and manufacturing the
Company's products, including the DFI and DSLI.
In addition, the Company agreed with Premier on co-marketing and selling
arrangements whereby, among other things: (a) the Company would distribute in
<PAGE>12
the United States and Canada certain of Premier's EyeSys products; and (b)
Premier would distribute the Company's products in certain international
markets. In anticipation of these arrangements, the Company and Premier had been
selling their ophthalmic products through a jointly managed EyeSys Vision Group,
which made its debut at the American Society of Cataract and Refractive Surgery
meeting in April 1999.
The Company entered into these arrangements in anticipation of the Merger
Agreement, discussed in further detail below, and consummation of the
transactions contemplated thereby.
In February 2000, however, Premier informed the Company of its inability to
pursue acquisition of the Company under the Merger Agreement and its intentions
to seek voluntary bankruptcy protection under Chapter 11. The Company responded
by terminating the Merger Agreement.
As a consequence of the termination of the Merger Agreement in February 2000 and
Premier's filing for protection under the U.S. Bankruptcy Code in March 2000 and
the related furlough of the preponderance of its workforce, the co-marketing and
selling arrangements are no longer in effect and Premier has discontinued
producing the Company's products under the Manufacturing Agreement. The Company
has resumed manufacture and assembly of its products in its facilities in
Sacramento, California but has incurred increased costs and significant delays
in production and product deliveries as a result of these failed arrangements.
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. The Company has experienced operating losses for
each fiscal year since its initial public offering in 1992. At May 31, 2000, the
Company had an accumulated deficit in excess of $14 million and its current
liabilities exceeded its current assets by more than $4 million. The Company
continues to experience cash flow deficits and there can be no assurance that
the Company will be able to achieve or sustain significant positive cash flows,
revenues or profitability in the future.
Premier Transactions
On February 25, 1998, the Company and Premier entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement"), whereby Premier would offer to buy
those shares of the Company's common stock not already owned by it. In August
1998, however, Premier notified that Company that, due to a variety of factors,
Premier would not be able to close the transactions contemplated under the Stock
Purchase Agreement and the Company thereupon terminated the Stock Purchase
Agreement. 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 demand was not pursued at the time
because of a revival of plans for merger of the companies.
<PAGE>13
On October 21, 1999, the Company and Premier entered into an Agreement and Plan
of Reorganization (the "Merger Agreement") whereby, upon requisite shareholder
approval, the Company would have become a wholly-owned subsidiary of Premier.
Also on October 21, 1999, the Company and Premier entered into two stock
purchase agreements with respect to the Company's Series B Preferred Stock
whereby, among other things, Premier purchased 150 shares of the Company's
Series B Preferred Stock with each share carrying the voting power of 1,000
shares of the Company's common stock, at a per share price of $25 in exchange
for Premier's cancellation of certain of the Company's debt in the aggregate
amount of $3,750.
In February 2000, Premier notified the Company that it was considering seeking
protection under the U.S. Bankruptcy Code and the Company thereupon terminated
the Merger Agreement on February 17, 2000. In March 2000, Premier filed a
voluntary petition for protection and reorganization under Chapter 11 of the
U.S. Bankruptcy Code.
As a result of the foregoing transactions, Premier currently owns 49 1/2% of the
Company's outstanding common stock and all 150 outstanding shares of the
Company's Series B Preferred Stock, thereby giving Premier majority voting
control.
By letter dated February 17, 2000, Premier made demand for the repayment by the
Company of certain intercompany debt allegedly owed to Premier, which Premier
claims exceeds $2 million. Premier also alleged that the Company breached the
Manufacturing Agreement and therefore was entitled to terminate the
Manufacturing Agreement and force the Company to purchase inventory in an amount
in excess of $850,000. The amount of the claim has since been reduced to
$625,000 and the Company has agreed to purchase inventory from Premier up to
such value with proceeds from the loan from MediVision Medical Imaging Ltd., an
Israeli corporation ("MediVision"), subject to the Closing described below. In
any event, the Company believes that Premier was not entitled to terminate the
Manufacturing Agreement for breach and the claim for recovery of termination
damages is therefore not valid
On July 13, 2000, the Company, Premier and MediVision entered into a series of
definitive agreements relating to the transfer of Premier's ownership interests
in the Company to MediVision in exchange for $3.2 million in cash and stock (the
"MediVision Investments"). In separate but related transactions, MediVision has
agreed to loan the Company up to $260,000 as short-term funding to purchase
inventory for continued manufacturing operations and, upon the closing of the
transactions contemplated under the agreements (the "Closing"), MediVision will
also loan $1.5 million to the Company, which shall be convertible at
MediVision's option into shares of the Company's common stock. Pursuant to the
agreements relating to the MediVision Investments, MediVision will purchase all
of the stock and debt of the Company currently held by Premier, and the debt,
calculated at its approximate book value of $2.1 million, will be converted per
the agreements into shares of the Company's common stock at a conversion price
of $0.55 per share.
At the Closing, Premier and the Company will execute a mutual waiver and release
of claims, thereby releasing each other from any and all claims, whether known
<PAGE>14
or unknown between them, other than the $500,000 Termination Fee claimed by the
Company against Premier (see Note 4 of the Notes to Condensed Financial
Statements included in Item 1 of this Form 10-QSB). The Company intends to
submit the Termination Fee as an unsecured claim against Premier as part of the
bankruptcy reorganization process, although there can be no assurance that the
claim will be confirmed by the bankruptcy court or otherwise paid by Premier.
Until the Closing, there can be no assurance that the bankruptcy court will
approve the MediVision Investments or that the parties will consummate the
transactions or that any party will not seek to avoid its obligations under the
definitive agreements. The contemplated transactions are still subject to
customary closing conditions, including, among other things, absence of material
adverse events.
If the parties are unable or unwilling to consummate the contemplated investment
transactions, there can be no assurance that the Company will be able to secure
alternative funding upon terms and conditions that are satisfactory to the
Company, if at all, and there will be no assurance that the Company could meet
its short-term liquidity commitments.
Results of Operations
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, 2000. There can be no assurance that revenue growth or
profitability can be achieved or sustained in the future.
The following discussion should be read in conjunction with the unaudited
interim financial statements and the notes thereto which are set forth elsewhere
in this Report on Form 10-QSB. In the opinion of management, the unaudited
interim period financial statements include all adjustments, all of which are of
a normal recurring nature, that are necessary for a fair presentation of the
results of the periods.
The Company incurred a net loss of $363,994, or $.08 per share, for the third
quarter of fiscal 2000 as compared to generating net income of $183,127, or $.04
per share, for the third quarter of fiscal 1999. The Company incurred a net loss
of $1,033,403, or $.24 per share, for the first nine months of 2000 versus a net
loss of $501,173, or $.12 per share per share, for the comparable period of
1999. The 1999 figures for both the third quarter and the nine-month period
include an extraordinary gain of $350,000, or $.08 per share, resulting from the
negotiated reduction of certain professional fees and expenses previously
recorded in connection with the terminated Stock Purchase Agreement with
Premier.
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).
<PAGE>15
Notwithstanding the positive impact of the extraordinary item, some negative
impact on earnings was attributable to continuing diversion of the Company's
resources and management's attention to acquisition matters in 1999. The results
of operations for the first nine months of 2000 reflect the adverse impact on
revenues and corporate operations resulting from delays in delivery of the
Company's products associated with the outsourcing of the manufacture and
assembly of the Company's products under the Manufacturing Agreement with
Premier during the first two quarters, as well as the disruption resulting from
termination of the Manufacturing Agreement and return of production to the
Company's facilities in Sacramento, California. In addition, the Company has
incurred higher than normal costs and professional fees and expenses in
connection with the contemplated transactions with Premier, 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.
Further, the Company has noted a reduction in its new order bookings following
the termination of the Merger Agreement and Premier's subsequent filing for
bankruptcy protection, which could impact the Company's future results from
operations. It is believed that much of this order pattern reflects concern
about the Company's financial stability.
The results of operations do not include any amounts with respect to a potential
contingent liability in connection with the collection of sales taxes from the
Company's customers, which amount has been estimated on the basis of numerous
factors and assumptions that might, in the least favorable combination, reach
$1.5 million. Management believes that the probability of such an assessment is
remote and accordingly, has not recorded a liability in its financial
statements. However, there can be no assurance that the amount that might
ultimately be assessed for prior periods would not materially affect the
Company's results of operations or cash flows in any given reporting period.
The results of operations also do not include any amounts with respect to
Premier's allegation that the Company is in breach of the Manufacturing
Agreement and therefore owes to Premier an amount in excess of $850,000 for the
purchase of certain inventory. The Company believes that Premier was not
entitled to terminate the Manufacturing Agreement for breach and the claim for
recovery of termination damages is therefore not valid and accordingly, has not
recorded a liability in its financial statements. Further, the amount of the
claim has been reduced to $625,000 and it would be eliminated by purchase of the
inventory by the Company from Premier in connection with the Closing described
above. However, if the parties to the MediVision Investments are unable or
unwilling to consummate the contemplated investment transactions, there can be
no assurance that the amount of termination damages relating to the
Manufacturing Agreement, if any, would not materially affect the Company's
results of operations or cash flows in any given reporting period. Subsequent to
the claim, the Company has purchased and would be willing to continue to
purchase inventory from Premier as and when needed to meet future production
schedules.
The Company's revenues for the third quarter of fiscal 2000 were $1,109,278
representing a decrease of approximately 33% from revenues of $1,655,610 for the
third quarter of fiscal 1999. Revenues for the first nine months of fiscal 2000
were $4,130,274 representing a decrease of approximately 18% from revenues of
$5,005,897 for the comparable period of fiscal 1999. The reduced revenue levels
<PAGE>16
during the first nine months of fiscal 2000 resulted, in large part, from delays
in delivery of the Company's products associated with the outsourcing of the
manufacture and assembly of the Company's products during the first six months
of the year under the Manufacturing Agreement with Premier as well as the
disruptive impact on production efforts during the third quarter resulting from
the termination of the Manufacturing Agreement. In addition, this reduction
reflects, to some extent, the adverse impact of management's efforts being
directed to the negotiation of the failed Merger Agreement with Premier as well
as subsequent acquisition matters during the period and less time devoted to the
generation of sales. Lastly, the fiscal 2000 nine-month revenue levels were
negatively affected by the allocation of the Company's selling resources away
from its core WinStation products. Some selling resources were allocated during
the period to EyeSys products in support of co-marketing and co-selling
arrangements with Premier which have been terminated, as well as the Company's
low-cost digital imaging systems incorporating its recently developed ocular
imaging devices, the DFI and the DSLI. These low-cost digital imaging products
were introduced at the 1998 AAO Meeting and the Company has received significant
purchase commitments for these products. While the Company made its initial
commercial deliveries of these products during the fourth quarter of fiscal
1999, revenues from the sales of these units to date have been below
management's initial expectations for a variety of reasons, including those
noted above as well as certain delays inherent in the launch of new
technology-based products. While, as a result of the foregoing, the Company
currently has a significant backlog of orders, the Company has noted a reduction
in its new order bookings following the termination of the Merger Agreement and
Premier's subsequent filing for bankruptcy protection. In addition, certain of
the Company's sales, marketing and executive management personnel have resigned
their positions during 2000, which could further adversely impact the Company's
ability to generate new order bookings in the future. Certain of the executive
management personnel are currently working with, and providing consulting
services for, the Company as independent contractors. The Company's Chairman of
the Board of Directors is presently acting as the Company's President until it
is able to recruit and hire new management pending the results of its efforts to
secure additional funding. Reference is made to the Company's Form 8-K filed on
March 17, 2000 summarizing the executive management resignations.
Gross margins were approximately 31% during the third quarter ended May 31, 2000
versus approximately 48% for the comparable quarter of 1999. For the nine-month
period ended May 31, 2000, gross margins were approximately 34% as compared to
approximately 42% during the comparable period of 1999. The lower gross margin
percentages during the fiscal 2000 third quarter and nine-month periods are due
in large measure to product and other direct costs comprising a higher
percentage of revenues during the periods as compared with the comparable
periods of fiscal 1999 as well as the impact of fixed costs absorption over
substantially lower revenue levels during fiscal 2000 versus 1999. The Company
has expended considerable resources in connection with the outsourcing
arrangements under the terminated Manufacturing Agreement, including efforts to
resume manufacture and assembly of its products in its facilities in Sacramento,
California commencing at the end of the second quarter of 2000. Costs associated
with these efforts, together with delays in the timely delivery of certain of
its products under and subsequent to termination of the Manufacturing Agreement
<PAGE>17
also have adversely impacted gross margins. Continued delays in delivering
products, if significant, would adversely impact the Company.
Sales and marketing and general and administrative expenses accounted for
approximately 53% of total revenues during the third quarter of fiscal 2000
versus approximately 40% of total revenues during the same period of fiscal
1999. For the first nine months of fiscal 2000 and fiscal 1999 such expenses
accounted for approximately 50% and 42% of total revenues for the respective
nine-month periods, with the increased percentage resulting principally as a
function of the reduced revenue levels during the nine-month period of 2000.
Expense levels decreased to $593,070 during the third quarter of 2000 versus
$668,921 during the third quarter of 1999. For the first nine months of 2000,
expense levels decreased to $2,065,023 from $2,118,253 during the comparable
period of 1999. As previously noted, certain sales, marketing and executive
management personnel have recently resigned their positions and the Company's
ability to recruit and hire new management is largely dependent on the results
of its efforts to secure additional funding.
Research and development expenses decreased by approximately 75% to $60,377, or
approximately 5% of revenues in the third quarter of fiscal 2000 from $241,527,
or approximately 15% of revenues in the third quarter of fiscal 1999. For the
first nine months of fiscal 2000, such expenses accounted for approximately 6%
of total revenues as compared to approximately 14% during the comparable period
of 1999. While the Company intends to continue to focus its research and
development efforts on its new digital image capture products and reducing cost
configurations for its current products, the extent and focus of future research
and development efforts will be extremely limited and depend, in large measure,
on the Company's ability to secure additional funding.
Other expense was $53,397 during the third quarter of fiscal 2000 versus $42,502
during the same period of 1999. For the nine-month periods, other expense was
$109,032 and $106,438 in fiscal 2000 and fiscal 1999, respectively. Other
expense in both years was comprised principally of interest expense associated
with borrowings and other advances from Premier, as well as borrowings under
credit facilities with the Company's bank. The fiscal 2000 expenses were
partially offset by an insurance claim settlement during the second quarter.
Liquidity and Capital Resources
The Company's operating activities generated cash of $167,995 in the first nine
months of fiscal 2000 and used cash of $491,231 in the first nine months of
fiscal 1999. The cash generated from operations during the first nine months of
fiscal 2000 was principally from increased liability in connection with the
Manufacturing Agreement with Premier, increased accounts payable and collection
of accounts receivable, which amounts more than offset cash expended to fund the
net loss during the period (see Note 4 of Notes to Condensed Financial
Statements included in Item 1 of this Form 10-QSB). The cash used in operations
during the first nine months of 1999 was expended principally to fund the net
loss during the period and the increase in accounts receivable associated with
<PAGE>18
timing of product deliveries toward the end of the period. This amount was
partially offset by increases in customer deposits.
Cash used in investing activities was $14,911 during the first nine months of
2000 as compared to $5,677 during the same period for 1999. 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 improved cash flow.
The Company used cash for financing activities of $213,750 during the first nine
months of fiscal 2000 as compared to generating cash of $129,948 during the same
period of fiscal 1999. The cash generated from financing activities during the
first nine months of fiscal 2000 resulted from the exercise of stock options by
the Exercising Directors during the period as well as the purchase by Premier of
shares of the Company's Series B Preferred Stock. These amounts only partially
offset amounts paid to Premier during the second quarter in connection with
inventory purchases under the Manufacturing Agreement. The source of cash from
financing activities during the 1999 period was principally proceeds from
increased borrowings under the credit facility with Imperial Bank (the "Bank")
and, to a lesser extent, an increase in the amount of borrowings under the note
payable to and other advances by Premier.
As discussed in further detail in Note 3 of the Notes to Condensed Financial
Statements included in Item 1 of this Form 10-QSB, an accounts receivable credit
agreement (the "Credit Agreement") entered into by the Company with the Bank on
July 13, 1999 has recently been terminated. There were no outstanding borrowings
under the Credit Agreement at May 31, 2000.
Additionally, as discussed further in Note 4 of the Notes to Condensed 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"). The
Company has borrowed the maximum principal amount of $500,000 available under
the Premier Note, which principal amount outstanding, together with any and all
accrued interest, was payable the earlier of written demand by Premier or April
30, 1999. Premier also has made other substantial advances to the Company that
are not specifically covered by the Premier Note. At May 31, 2000, the Company
had recorded approximately $2.1 million of indebtedness to Premier, including
principal and interest outstanding under the Premier Note and other advances, as
well as charges and credits pursuant to the terms of the Manufacturing
Agreement. The amount is not net of the $500,000 Termination Fee in connection
with the terminated Stock Purchase Agreement in 1998, nor is it net of certain
other offsets in a presently undetermined amount to which the Company believes
it is entitled. Premier has made demand for the repayment of gross intercompany
debt owed to Premier as well as certain amounts in connection with Premier's
allegation that the Company breached the Manufacturing Agreement as discussed
above. Also as described above, the debt will be sold to MediVision and
ultimately retired in connection with the transactions contemplated pursuant to
the agreements with Premier and MediVision.
<PAGE>19
At May 31, 2000, the Company's cash and cash equivalents were $117,341. The
Company is having difficulty in meeting its near-term cash requirements, and, in
light of the termination of the Credit Agreement and Premier's repayment demand
notwithstanding, the Company's existing cash balances together with ongoing
collections of its accounts receivable will likely not be adequate to meet its
other liquidity and capital requirements in the immediate term. Substantial
delays in the delivery of the Company's products would result in reduced
anticipated cash flow from sales of such products as well as potential increased
costs associated therewith. Additionally, such delays could prompt customers to
request return deposits which would further adversely impact the Company's cash
position. Further, demand for payment by the Bank of amounts claimed pursuant to
a stock appreciation right granted to the Bank in connection with a Credit
Agreement could also result in the immediate need for additional cash. At May
31, 2000, the Company had accrued approximately $314,000 in contingent liability
under the stock appreciation right.
While the Company has recently entered into definitive agreements with
MediVision and Premier to secure outside funding, certain of the agreements are
contingent upon the satisfaction of preconditions and closing conditions set
forth in the agreements. Although the Company anticipates that these conditions
will be satisfied, there can be no assurance that the transactions contemplated
under the agreements will be consummated, resulting in the anticipated funding.
If the parties fail to consummate the funding for any reasons, there can be no
assurance that the Company will be able to obtain other third party funding or
be able to continue as a going concern.
<PAGE>20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
On October 18, 1999, the Company filed with the California Secretary
of State a certificate of determination establishing the rights and
privileges of the Company's convertible Series B Preferred Stock.
Reference is made to the Company's Form 8-K filed on November 24, 1999
summarizing those rights and privileges.
On October 21, 1999, the Company and Premier executed a Series B
Preferred Stock Purchase Agreement whereby, among other things, the
Company agreed to sell to Premier, upon the issuance by the Company of
shares of its common stock pursuant to the exercise of stock options,
shares of the Company's Series B Preferred Stock at a price of $25 per
share with each share carrying the voting power of 1,000 shares of the
Company's common stock.
Also on October 21, 1999, the Company, Premier and three of the
Company's outside directors (the "exercising Directors") entered into
a stock purchase agreement (the "Agreement") pursuant to which, among
other things, the Exercising Directors each exercised options to
purchase 50,000 shares of common stock at an exercise price of $0.375
per share resulting in net proceeds to the Company of $56,250.
The stock purchased by the Exercising Directors is restricted and
subject to repurchase by the Company until the earlier of May 9, 2000
or the Effective date of the Company's acquisition by Premier, as
defined in the Merger Agreement. Also under the terms of the
Agreement, Premier purchased 150 shares of the Company's Series B
Preferred Stock at a per share price of $25 in exchange for Premier's
cancellation of certain of the Company's debt in the aggregate amount
of $3,750. These 150 shares of Series B Preferred Stock are also
restricted and subject to repurchase by the Company if the Company
repurchases any of the common stock purchased by the Exercising
Directors.
As a result of the foregoing transactions, Premier owns approximately
49 1/2% of the Company's outstanding common stock and all 150
outstanding shares of the Company's Series B Preferred Stock,
resulting in sole voting power of approximately 53%.
The sale of Series B Preferred Stock to Premier was exempt under the
federal securities laws by virtue of Regulation D. Premier was a
corporation with total assets in excess of $5 million, the total
purchase price was of the transaction was less than $1 million and
there was no general solicitation with respect to the transaction.
<PAGE>21
Under the transactions contemplated pursuant to the agreements entered
into by the Company with Premier and MediVision in July 2000, among
other things, all of the Company's debt owed to Premier, including
amounts under the Premier Note, will be converted into shares of the
Company's common stock and the direct loan of $1.5 million by
MediVision into the Company shall be convertible at MediVision's
option into shares of the Company's common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As indicated in Note 4 of the Notes to Condensed Financial Statements,
and addressed further in the Liquidity and Capital Resources
discussion of Item 2 of Part I of this report, the Company is in
default of its principal and interest payment obligations under the
Note with Premier.
In addition, the Company also has recorded liability to Premier for
other advances made to the Company by Premier.
The aggregate amount recorded as liability at May 31, 2000 under the
Note and other advances, including principal and interest, was
approximately $2,122,000, which amount was net of certain offset
charges pursuant to the terms of the Manufacturing Agreement described
in Note 5 of the Notes to Condensed Financial Statements. This amount
is not net of a $500,000 termination fee in connection with the
terminated Stock Purchase Agreement in 1998 over which there is
disagreement between Premier and the Company as to whether the Company
is entitled to said termination fee and whether such termination fee
can be used as an offset to the Company's debt to Premier, nor is it
net of other offsets in an undetermined amount to which the Company
believes it is entitled.
By letter dated February 17, 2000, Premier made demand for the
repayment of gross intercompany debt allegedly owed to Premier, which
Premier claims exceeds $2 million. Premier also alleged that the
Company is in breach of the Manufacturing Agreement and therefore owes
Premier in excess of $850,000 for the purchase of certain inventory.
This amount has since been reduced to $625,000.
Under the transactions contemplated pursuant to the agreements entered
into by the Company with Premier and MediVision in July 2000, among
other things, all of the Company's debt owed to Premier, including
amounts under the Premier Note, will be purchased by MediVision as
part of the MediVision Investment transactions. The Note and other
debt so purchased will be automatically converted into shares of the
Company's common stock.
<PAGE>22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the accompanying Index to Exhibits below
are filed as a part hereof and are incorporated by reference as
noted.
(b) On March 17, 2000, Issuer filed a Form 8-K to report (a) the
resignation on January 29, 2000 of Issuer's President/Chief
Executive Officer; (b) the resignation on February 14, 2000 of
Issuer's Chief Financial Officer/Secretary; (c) the termination
on February 17, 2000 of the Merger Agreement; and (d) the receipt
by Issuer of letter dated February 17, 2000 in which Premier made
a demand for the repayment by Issuer of certain intercompany debt
allegedly owed to Premier and also alleging that Issuer is in
breach of the Manufacturing Agreement.
<PAGE>23
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/ WALT WILLIAMS
--------------------------------
Walt Williams
Chief Executive Officer
Dated: July 19, 2000
<PAGE>24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Footnote
Exhibit Number Description of Exhibit Reference
-------------- ---------------------- ---------
<S> <C> <C>
2.1 Stock Purchase Agreement, dated as of February 25, 1998, by and (13)
between OIS and Premier.
2.2 Agreement and Plan of Reorganization By and Among Premier,
Ophthalmic (18) Acquisition Corporation and OIS, dated as of
October 21, 1999.
2.3 Series B Preferred Stock Purchase Agreement dated as of October 21, (19)
1999 by and among OIS and Premier.
2.4 Agreement dated as of October 21, 1999 by and among OIS, Premier, (20)
Walt Williams, Daniel S. Durrie and Randall C. Fowler.
3.1 Articles of Incorporation of OIS, as amended. *
3.2 Amendment to Articles of Incorporation (Certificate of Determination (11)
of Preferences of Series A Junior Participating Preferred Stock of
OIS).
3.3 Amendment to Articles of Incorporation (Certificate of
Determination (21) of Preferences of Series B Preferred Stock
of OIS).
3.4 Amended Bylaws of OIS. *
3.5 Amendment to Amended Bylaws of OIS dated January 28, 1998. (16)
4.1 Specimen of Stock Certificate. *
4.2 Rights Agreement, dated as of December 31, 1997, between OIS
and (10) American Securities Transfer, Inc., including form of
Rights
Certificate attached thereto.
4.3 Amendment to Rights Agreement, dated as of February 25, 1998, between (14)
OIS and American Securities Transfer, Inc.
4.4 Second Amendment to Rights Agreement, effective as of October 20, (22)
1999, between OIS and American Securities Transfer, Inc.
10.1 Lease Agreement, dated as of July 10, 1987, between OIS (as
tenant) * and Transamerica/Emkay Income Properties I, as
amended on July 23, 1990 and June 11, 1991.
10.2 Seventh Amendment to Lease Agreement, effective as of July 18, 1996. (7)
<PAGE>25
10.3 Confidentiality Agreement, dated March 27, 1992 between OIS and *
Steven R. Verdooner.
10.4 Assignment dated October 23, 1990 of U.S. Patent Application *
for Apparatus and Method for Topographical Analysis of the
Retina to the Issuer 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).
10.5 Form of International Distribution Agreement used by OIS and *
sample form of End User Software License Agreement.
10.6 Original Equipment Manufacturer Agreement, dated April 1, *
1991, between the Issuer and SONY Medical Electronics, a
division of SONY Corporation of America.
10.7 Original Equipment Manufacturer/Value Added Reseller Agreement, dated *
May 7, 1991, between the Issuer and Eastman Kodak Company.
10.8 The Company's 1992 Nonstatutory Stock Option Plan and sample form of *
Nonstatutory Stock Option Agreement.
10.9 Cross-Indemnification Agreement, dated February 14, 1991, among *
Dennis Makes, Steven Verdooner and Richard Wullaert.
10.10 Key Man Life Insurance Policies in the amount of $1,000,000 *
for each of Dennis J. Makes and Steven R. Verdooner, with
the Issuer as the named beneficiary.
10.11 Stock Option Plan. (1)
10.12 Rental Agreement dated May 1, 1994 by and between the Issuer and (2)
Robert J. Rossetti.
10.13 Security and Loan Agreement (with Credit Terms and Conditions) (3)
dated April 12, 1995 by and between the Issuer and
Imperial Bank.
10.14 General Security Agreement dated April 12, 1995 by and between the (3)
Issuer and Imperial Bank.
10.15 Warrant dated November 1, 1995 issued by the Issuer to Imperial Bank (4)
to purchase 67,500 shares of common stock.
10.16 Amended Loan and Security Agreement (with Credit Terms and (4)
Conditions) dated November 1, 1995.
10.17 Registration Rights Agreement dated November 1, 1995 between the (4)
Issuer and Imperial Bank.
<PAGE>26
10.18 Amended Loan and Security Agreement (with Credit Terms and (6)
Conditions) dated April 4, 1996.
10.19 Amended Loan and Security Agreement (with Credit Terms and (7)
Conditions) dated July 12, 1996.
10.20 Amended Loan and Security Agreement (with Credit Terms and (7)
Conditions) dated November 21, 1996.
10.21 Amended Loan and Security Agreement (with Credit Terms and (8)
Conditions) dated June 3, 1997.
10.22 Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated August 28, 1997.
10.23 Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated October 24, 1997.
10.24 Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated November 3, 1997.
10.25 Amended Loan and Security Agreement (with Credit Terms and (9)
Conditions) dated November 21, 1997.
10.26 Agreement of Purchase of Receivable (Full Recourse) dated (9)
November 18, 1997 between the Issuer and Imperial Bank.
10.27 Agreement of Purchase of Receivable dated July 13, 1999 between the (23)
Issuer and Imperial Bank.
10.28 Employment Agreement dated November 20, 1995 between the Issuer and (4)
Steven R. Verdooner.
10.29 Amendment dated effective July 14, 1997 to Employment Agreement dated (16)
November 20, 1995 between the Issuer and Steven R. Verdooner.
10.30 The Company's 1995 Nonstatutory Stock Option Plan and sample form of (5)
Nonstatutory Stock Option Agreement.
10.31 The Company's 1997 Nonstatutory Stock Option Plan and sample form of (12)
Nonstatutory Stock Option Agreement.
10.32 Promissory Note dated April 30, 1998 from the Issuer to Premier Laser (15)
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.
10.33 Security Agreement dated April 30, 1998 by and between the Issuer and (15)
Premier Laser Systems, Inc.
<PAGE>27
10.34 Form of Indemnification Agreement between the Issuer and each of its (16)
directors, officers and certain key employees.
10.35 Manufacturing Agreement dated March 7, 1999 between the Issuer and (17)
Premier Laser Systems, Inc.
27 Financial Data Schedule (for SEC use only). (24)
</TABLE>
* Incorporated by reference to the Company's Registration Statement on Form
S-18, number 33-46864-LA.
(1) Incorporated by reference to the Company'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 Company'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 Company'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 Company'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 Company's Registration Statement on Form
S-8, filed on May 28, 1996, number 333-0461.
(6) Incorporated by reference to the Company'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 Company'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 Company'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 Company'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 Company's Form 8-K, filed on
January 2, 1998.
(11) Incorporated by reference to Exhibit A of Exhibit 1 of the Company's Form
8-K, filed on January 2, 1998.
<PAGE>28
(12) Incorporated by reference to the Company'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 Company's Form 8-K, filed
on March 9, 1998.
(14) Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K, filed
on March 9, 1998.
(15) Incorporated by reference to the Company'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 Company's Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1998, filed on December 15, 1998.
(17) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended February 28, 1999, filed on April 14, 1999.
(18) Incorporated by reference to Exhibit 2.1 of the Company's Form 8-K, filed
on November 24, 1999.
(19) Incorporated by reference to Exhibit 4.2 of the Company's Form 8-K, filed
on November 24, 1999.
(20) Incorporated by reference to Exhibit 4.3 of the Company's Form 8-K, filed
on November 24, 1999.
(21) Incorporated by reference to Exhibit 3.1 of the Company's Form 8-K, filed
on November 24, 1999.
(22) Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K, filed
on November 24, 1999.
(23) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1999, filed on November 29, 1999.
(24) Exhibit filed herewith.
