FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 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 April 14, 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
February 29, 2000
(Unaudited)
Assets
Current assets:
Cash and equivalents $ 137,499
Accounts receivable, net 583,170
Inventories, net 329,653
Prepaid expenses and other current assets 36,242
------------
Total current assets 1,086,564
Furniture and equipment, net of accumulated
depreciation and amortization of $1,062,452 254,019
Other assets 18,216
============
$ 1,358,799
============
Liabilities and Stockholders' Equity
Current liabilities:
Borrowings under line of credit $ -
Borrowings under note payable to, and unsecured
advances from significant shareholder 1,882,280
Accounts payable 687,018
Accrued liabilities 1,281,033
Accrued warrant appreciation right 307,329
Deferred extended warranty revenue 88,728
Customer deposits 536,949
Capitalized lease obligation and other notes payable 8,939
------------
Total current liabilities 4,792,276
Capitalized lease obligation and other notes payable,
less current portion 15,828
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 (54,689)
Accumulated deficit (13,917,220)
------------
Total stockholders' deficit (3,449,305)
============
$ 1,358,799
============
See accompanying notes.
<PAGE>3
Ophthalmic Imaging Systems
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
February 29, 2000 February 28,1999 February 29, 2000 February 28,1999
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net revenues $ 2,010,828 $ 1,860,053 $ 3,020,996 $ 3,350,287
Cost of sales 1,219,735 1,077,985 1,966,081 2,050,406
----------------- ---------------- ----------------- ----------------
Gross Profit 791,093 782,068 1,054,915 1,299,881
Operating expenses:
Sales and marketing 397,684 400,153 946,331 925,540
General and administrative 278,274 223,928 525,622 523,792
Research and development 74,316 262,999 196,736 470,913
----------------- ---------------- ----------------- ----------------
Total operating expenses 750,274 887,080 1,668,689 1,920,245
----------------- ---------------- ----------------- ----------------
Income (loss) from operations 40,819 (105,012) (613,774) (620,364)
Other expense, net (17,864) (21,926) (55,635) (63,936)
----------------- ---------------- ----------------- ----------------
Net income (loss) $ 22,955 $ (126,938) $ (669,409) $ (684,300)
================= ================ ================= ================
Shares used in the calculation of basic
net income (loss) per share 4,305,428 4,155,428 4,263,395 4,155,428
================= ================ ================= ================
Basic net income (loss) per share $ 0.01 $ (0.03) $ (0.16) $ (0.16)
================= ================ ================= ================
Shares used in the calculation of diluted
net income (loss) per share 4,427,332 4,155,428 4,263,395 3,906,817
================= ================ ================= ================
Diluted net income (loss) per share $ 0.01 $ (0.03) $ (0.16) $ (0.18)
================= ================ ================= ================
</TABLE>
See accompanying notes.
<PAGE>4
Ophthalmic Imaging Systems
Condensed Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
February 29, 2000 February 28, 1999
----------------- -----------------
<S> <C> <C>
Operating activities:
Net loss $ (669,409) $ (684,300)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 63,105 66,192
Stock option compensation expense 39,444 55,240
Net increase in current assets other than
cash and equivalents (108,820) (185,996)
Net increase in current liabilities other than
short-term borrowings 873,747 327,067
---------------- ----------------
Net cash provided by (used in) operating activities 198,067 (421,797)
Investing activities:
Purchases of furniture and equipment (13,994) (9,663)
Net increase in other assets (10,831) (11,277)
---------------- ----------------
Net cash used in investing activities (24,825) (20,940)
Financing activities:
Principal payments on notes payable -- (318)
Net (repayments of) proceeds from borrowings under
note payable to and unsecured advances from
significant shareholder (273,750) 9,289
Net proceeds from (repayments of) line-of-credit
borrowings -- 50,519
Net proceeds from sale of common stock 56,250 --
Net proceeds from sale of preferred stock 3,750 --
---------------- ----------------
Net cash (used in) provided by financing activities (213,750) 59,490
---------------- ----------------
Net decrease in cash and equivalents (40,508) (383,247)
Cash and equivalents at beginning of period 178,007 514,186
---------------- ----------------
Cash and equivalents at end of period $ 137,499 $ 130,939
================ ================
Supplemental schedule of noncash financing activities:
Increase in borrowings under note payable to and
other advances from significant shareholder,
net of reductions in exchange for inventory $ 685,178 $ --
================ ================
</TABLE>
See accompanying notes.
<PAGE>5
Ophthalmic Imaging Systems
Notes to Condensed Financial Statements
Three and Six Month Periods ended February 29, 2000 and February 28, 1999
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed balance sheet as of February
29, 2000, condensed statements of operations for the three and six
month periods ended February 29, 2000 and February 28, 1999 and the
condensed statements of cash flows for the six month periods ended
February 29, 2000 and February 28, 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 February 29, 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 Six Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator for basic and
diluted net income (loss)
per share $ 22,954 $ (126,938) $ (669,410) $ (684,300)
============ ============ ============ ============
Denominator for basic net
income (loss) per share:
Weighted average shares 4,305,428 4,155,428 4,263,395 4,155,428
Effect of dilutive securities:
Employee stock options 121,904 -- -- --
Warrants and other -- -- -- --
------------ ------------ ------------ ------------
Dilutive potential common shares 121,904 -- -- --
============ ============ ============ ============
Denominator for diluted
net income (loss) per share 4,427,332 4,155,428 4,263,395 4,155,428
============ ============ ============ ============
Basic net income (loss) per share $ 0.01 $ (0.03) $ (0.16) $ (0.16)
============ ============ ============ ============
Diluted net income (loss)
per share $ 0.01 $ (0.03) $ (0.16) $ (0.16)
============ ============ ============ ============
</TABLE>
Note 3. Short-Term Borrowings
The Company entered into an accounts receivable credit agreement
(the "Agreement") with a bank (the "Bank") in July 1999. The
Agreement allows for up to an 80% advance rate on eligible
receivable balances. Borrowings are secured by substantially all
assets of the Company and bear interest at the Bank's prime lending
rate plus 10%. The minimum monthly amount charged by the Bank is
the greater of interest calculated in accordance with the
immediately preceding sentence or $1,200. The Agreement remains in
effect from year to year unless terminated in writing by the
Company or the Bank. At February 29, 2000, no principal borrowings
were outstanding under the Agreement.
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 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
<PAGE>7
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 February 29, 2000, the Company had recorded approximately
$2,086,000 in principal and interest outstanding under the Note and
other advances, of which approximately $203,500 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 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 presently undetermined amounts to which
the Company believes it is entitled.
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 has 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 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 that the Company has
its own substantial claims for breach in presently undetermined
amounts.
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
<PAGE>8
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.
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.
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 (see Note 6). 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%.
Note 8. Ability to Continue as a Going Concern
The Company has an accumulated deficit of $13,917,220 at February
29, 2000. In addition, current liabilities exceed current assets by
$3,705,712 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 will likely have difficulty in meeting its
near-term cash requirements, including those resulting from any
significant demand for its products, without an infusion of capital
or other improvements in its liquidity position (see Note 4, Note 5
<PAGE>9
and Note 6). Its ability to continue as a going concern will depend
upon its ability to restructure payment terms and/or obtain
substantial new financing to repay its debts and ensure continued
supply of materials and services. To that end, the Company is
exploring alternative sources of funding, including debt financing,
issuing equity securities and entering into other financing
arrangements and/or strategic alliances. While certain parties have
expressed interest in these regards, to date, the Company has no
commitment for outside funding and no assurance that it will be
able to obtain outside funding upon terms and conditions that are
satisfactory to the Company, if at all.
<PAGE>10
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>11
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. 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 February 29,
2000, the Company had an accumulated deficit in excess of $13 million and its
current liabilities exceeded its current assets by more than $3 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.
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 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.
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.
<PAGE>12
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 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 that the Company has its own
substantial claims for breach in presently undetermined amounts.
The Company is actively exploring alternative sources of funding, including debt
financing, issuing equity securities and entering into other financing
arrangements and/or strategic alliances. While certain parties have expressed
interest in these regards, to date, the Company has no commitment for outside
funding and no assurance that it will be able to obtain outside funding upon
terms and conditions that are satisfactory to the Company, if at all.
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.
Results of Operations
The Company generated net income of $22,954, or $.01 per share, for the second
quarter of fiscal 2000 as compared to incurring a net loss of $126,938, or $.03
per share, for the second quarter of fiscal 1999. The Company incurred a net
loss of $669,410, or $.16 per share, for the first six months of 2000 versus a
net loss of $684,300, or $.16 per share per share, for the comparable period of
1999. 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>13
The 1999 figures reflect the negative impact attributable to continuing
diversion of the Company's resources and management's attention to acquisition
matters during the period. The results of operations for the first six months of
2000 figures 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 during the
period under the Manufacturing Agreement with Premier. In addition, the Company
has incurred higher than normal costs and professional fees and expenses in
connection 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.
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
$1.4 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. However, there can be no
assurance that the amount of termination damages, if any, would not materially
affect the Company's results of operations or cash flows in any given 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 second quarter of fiscal 2000 were $2,010,828
representing an increase of approximately 8% from revenues of $1,860,053 for the
second quarter of fiscal 1999. Revenues for the first six months of fiscal 2000
were $3,020,996, representing a decrease of approximately 10% from revenues of
$3,350,287 for the comparable period of fiscal 1999. The reduced revenue levels
during the first six 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 period under the
Manufacturing Agreement with Premier. In addition, this reduction reflects, to
some extent, the adverse impact of management's efforts being directed to the
negotiation of the Merger Agreement with Premier during the period and less time
devoted to the generation of sales. Lastly, the fiscal 2000 six-month revenue
levels were negatively affected by the allocation of the Company's selling
resources away from its core WinStation products. Substantial selling resources
were allocated during the period to EyeSys products in support of co-marketing
and co-selling arrangements with Premier 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
<PAGE>14
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 recently
resigned their positions, 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 39% during the second quarter ended February
29, 2000 versus approximately 42% for the comparable quarter of 1999. For the
six-month period ended February 29, 2000, gross margins were approximately 35%
as compared to approximately 39% during the comparable period of 1999. The lower
gross margin percentages during the fiscal 2000 second quarter and six-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. The Company has expended considerable resources in
connection with the outsourcing arrangements under the Manufacturing Agreement
and has experienced delays in the timely delivery of certain of its products
during the transition period, both of which have adversely impacted gross
margins. Premier has recently discontinued producing the Company's products
under the Manufacturing Agreement and the Company has resumed manufacture and
assembly of its products in its facilities in Sacramento, California. During
this transition period, delays in delivering products, if significant, would
adversely impact the Company.
Sales and marketing and general and administrative expenses accounted for
approximately 34% of total revenues during the second quarter of both fiscal
2000 fiscal 1999. For the first six months of fiscal 2000 and fiscal 1999 such
expenses accounted for approximately 49% and 43% of total revenues for the
respective six-month periods, with the increased percentage resulting
principally as a function of the reduced revenue levels during the six-month
period of 2000. Expense levels increased to $675,958 during the second quarter
of 2000 versus $624,081 during the second quarter of 1999. For the first six
months of 2000, expense levels increased to $1,471,953 from $1,449,332 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 72% to $74,316, or
approximately 4% of revenues in the second quarter of fiscal 2000 from $262,999,
or approximately 14% of revenues in the second quarter of fiscal 1999. For the
first six months of fiscal 2000, such expenses accounted for approximately 7% of
total revenues as compared to approximately 14% during the comparable period of
<PAGE>15
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 $17,864 during the second quarter of fiscal 2000 versus
$21,926 during the same period of 1999. For the six-month periods, other expense
was $55,635 and $63,936 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 $198,067 in the first six
months of fiscal 2000 and used cash of $421,797 in the first six months of
fiscal 1999. The cash generated from operations during the first six months of
fiscal 2000 was principally from increased liability in connection with the
Manufacturing Agreement with Premier, increases in customer deposits, increased
accounts payable and collection of accounts receivable, which amounts more than
offset cash expended to fund the net loss during the period. The cash used in
operations during the first six months of 1999 was expended principally to fund
the net loss during the period. This amount was partially offset by increases in
customer deposits and increases in accrued liabilities, including accrued but
unpaid 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 used in investing activities was $24,825 during the first six months of
2000 as compared to $20,940 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 six
months of fiscal 2000 as compared to generating cash of $59,490 during the same
period of fiscal 1999. The cash generated from financing activities during the
first six 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.
<PAGE>16
As discussed in further detail in Note 3 of the Notes to Condensed Financial
Statements included in Item 1 of this Form 10-QSB, on July 13, 1999, the Company
entered into an accounts receivable credit agreement (the "Credit Agreement")
with the Bank. There were no outstanding borrowings under the Credit Agreement
at February 29, 2000.
Additionally, as discussed further in Note 4 of the Notes to Condensed Financial
Statements included in Item 1 of this Form 10-KSB, 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. Under the terms of the Premier Note, borrowings bear interest at the
rate of 8 1/2% per annum, are secured by certain of the Company's assets and are
subordinate to borrowings under the Credit Agreement with the Bank. Premier also
has made other substantial advances to the Company that are not specifically
covered by the Premier Note. At February 29, 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 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 certain other offsets in a presently
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 in an amount calculated by Premier
to be in excess of $2 million. Premier also alleged that the Company breached
the Manufacturing Agreement and therefore owes Premier 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 that the Company has
its own substantial claims for breach in presently undetermined amounts.
At February 29, 2000, the Company's cash and cash equivalents were $137,499.
Premier's repayment demand notwithstanding, the Company's existing cash balances
together with ongoing collections of its accounts receivable and available
borrowing capacity under the Credit Agreement 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 February 29, 2000, the Company had accrued approximately $307,000 in
contingent liability under the stock appreciation right.
As a consequence of Premier's repayment demands, together with the impact of the
termination of the Merger Agreement and Manufacturing Agreement, the Company
will likely have difficulty in meeting its near-term cash requirements,
including those resulting from any significant demand for its products, without
<PAGE>17
an infusion of capital or other improvements in its liquidity position (see Note
4, Note 5 and Note 6 of the Notes to Consolidated Financial Statements included
in Item 1 of this Form 10-QSB). Its ability to continue as a going concern will
depend upon its ability to restructure payment terms and/or obtain substantial
new financing to repay its debts and ensure continued supply of materials and
services. To that end, the Company is exploring alternative sources of funding,
including debt financing, issuing equity securities and entering into other
financing arrangements and/or strategic alliances. While certain parties have
expressed interest in these regards, to date, the Company has no commitment for
outside funding and no assurance that it will be able to obtain outside funding
upon terms and conditions that are satisfactory to the Company, if at all.
<PAGE>18
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 (see Note 6). 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
<PAGE>19
purchase price was of the transaction was less than $1 million and
there was no general solicitation with respect to the transaction.
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 February 29, 2000 under
the Note and other advances, including principal and interest, was
approximately $2,086,000, 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.
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
<PAGE>20
certain intercompany debt allegedly owed to Premier and also
alleging that Issuer is in breach of the Manufacturing Agreement.
<PAGE>21
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: April 14, 2000
<PAGE>22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Footnote
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, Walt (20)
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>23
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) dated (3)
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 Conditions) (4)
dated November 1, 1995.
10.17 Registration Rights Agreement dated November 1, 1995 between the (4)
Issuer and Imperial Bank.
<PAGE>24
10.18 Amended Loan and Security Agreement (with Credit Terms and Conditions) (6)
dated April 4, 1996.
10.19 Amended Loan and Security Agreement (with Credit Terms and Conditions) (7)
dated July 12, 1996.
10.20 Amended Loan and Security Agreement (with Credit Terms and Conditions) (7)
dated November 21, 1996.
10.21 Amended Loan and Security Agreement (with Credit Terms and Conditions) (8)
dated June 3, 1997.
10.22 Amended Loan and Security Agreement (with Credit Terms and Conditions) (9)
dated August 28, 1997.
10.23 Amended Loan and Security Agreement (with Credit Terms and Conditions) (9)
dated October 24, 1997.
10.24 Amended Loan and Security Agreement (with Credit Terms and Conditions) (9)
dated November 3, 1997.
10.25 Amended Loan and Security Agreement (with Credit Terms and Conditions) (9)
dated November 21, 1997.
10.26 Agreement of Purchase of Receivable (Full Recourse) dated November 18, (9)
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>25
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). (23)
</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>26
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10QSB FOR
OPHTHALMIC IMAGING SYSTEMS FOR THE PERIOD ENDED NOVEMBER 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 137,499
<SECURITIES> 0
<RECEIVABLES> 583,170
<ALLOWANCES> 0
<INVENTORY> 329,653
<CURRENT-ASSETS> 1,086,564
<PP&E> 1,316,471
<DEPRECIATION> (1,062,452)
<TOTAL-ASSETS> 1,358,799
<CURRENT-LIABILITIES> 4,792,276
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> (54,689)
<SALES> 2,010,828
<TOTAL-REVENUES> 2,010,828
<CGS> 1,219,735
<TOTAL-COSTS> 1,219,735
<OTHER-EXPENSES> 750,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,864
<INCOME-PRETAX> 22,955
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,955
<EPS-BASIC> 0.01
<EPS-DILUTED> 0
</TABLE>
