U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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 January 16, 2001, 8,138,305 shares of common stock, at no par value,
were outstanding.
Transitional Small Business Disclosure Format:
Yes No XX
------------- -------------
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
FORM 10-QSB
FOR THE QUARTER ENDED NOVEMBER 30, 2000
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheet as of November 30, 2000 2
Condensed Statements of Operations for the Three Months
ended November 30, 2000 and November 30, 1999 3
Condensed Statements of Cash Flows for the Three Months
ended November 30, 2000 and November 30, 1999 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ophthalmic Imaging Systems
Condensed Balance Sheet
November 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
Current assets:
<S> <C>
Cash and equivalents $ 95,284
Accounts receivable, net 146,229
Inventories, net 651,347
Prepaid expenses and other current assets 43,254
--------------------
Total current assets 936,114
Furniture and equipment, net of accumulated
depreciation and amortization of $1,127,469 210,668
Other assets 10,335
--------------------
$ 1,157,117
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 577,775
Accrued liabilities 905,865
Accrued warrant appreciation right 226,823
Deferred extended warranty revenue 133,620
Customer deposits 480,009
Notes payable to related party 289,468
Capitalized lease obligation and other notes payable 8,939
--------------------
Total current liabilities 2,622,499
Capitalized lease obligation, less current portion 10,994
Notes payable to related party, less current portion 1,178,146
Commitments
Stockholders' deficit:
Preferred stock, without par value, 20,000,000 shares authorized;
none issued or outstanding --
Common stock, no par value, 20,000,000 shares authorized;
8,138,305 issued and outstanding 12,630,604
Deferred compensation (6,098)
Accumulated deficit (15,279,028)
--------------------
Total stockholders' deficit (2,654,522)
--------------------
$ 1,157,117
====================
</TABLE>
See accompanying notes.
2
<PAGE>
Ophthalmic Imaging Systems
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended November 30,
2000 1999
------------------ -----------------
<S> <C> <C>
Net revenues $ 734,189 $ 1,010,168
Cost of sales 641,421 746,346
------------------ -----------------
Gross Profit 92,768 263,822
Operating expenses:
Sales and marketing 509,855 548,647
General and administrative 308,092 247,348
Research and development 98,359 122,420
------------------ -----------------
Total operating expenses 916,306 918,415
------------------ -----------------
Loss from operations (823,538) (654,593)
Other expense, net (36,116) (37,771)
------------------ -----------------
Net loss $ (859,654) $ (692,364)
================== =================
Shares used in the calculation of basic
net loss per share 8,138,305 4,221,362
================== =================
Basic net loss per share $ (0.11) $ (0.16)
================== =================
Shares used in the calculation of diluted
net loss per share 8,138,305 4,221,362
================== =================
Diluted net loss per share $ (0.11) $ (0.16)
================== =================
</TABLE>
See accompanying notes.
3
<PAGE>
Ophthalmic Imaging Systems
Condensed Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Three months ended November 30,
2000 1999
-------------------- --------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (859,654) $ (692,364)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 26,536 31,359
Stock option compensation expense 9,147 19,722
Net decrease in current assets other than
cash and equivalents 44,612 138,786
Net increase in current liabilities other than
short-term borrowings 90,108 509,243
-------------------- --------------------
Net cash (used in) provided by operating activities (689,251) 6,746
INVESTING ACTIVITIES:
Purchases of furniture and equipment (46,676) (13,994)
Net increase in other assets (150) (5,001)
-------------------- --------------------
Net cash used in investing activities (46,826) (18,995)
FINANCING ACTIVITIES:
Net proceeds from (repayments of) borrowings under
notes payable to and unsecured advances from
significant shareholders 575,401 (3,750)
Net proceeds from line-of-credit borrowings -- 24,844
Net proceeds from sale of common stock -- 56,250
Net proceeds from sale of preferred stock -- 3,750
-------------------- --------------------
Net cash provided by financing activities 575,401 81,094
-------------------- --------------------
Net (decrease) increase in cash and equivalents (160,676) 68,845
Cash and equivalents at beginning of period 255,960 178,007
-------------------- --------------------
Cash and equivalents at end of period $ 95,284 $ 246,852
==================== ====================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Reduction of borrowings under note payable to and
unsecured advances from significant shareholder
in exchange for inventory, net $ -- $ 143,213
==================== ====================
</TABLE>
See accompanying notes.
4
<PAGE>
Ophthalmic Imaging Systems
Notes to Condensed Financial Statements
Three Month Periods ended November 30, 2000 and 1999
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed balance sheet as of
November 30, 2000, condensed statements of operations for the
three month periods ended November 30, 2000 and 1999 and the
condensed statements of cash flows for the three month periods
ended November 30, 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, 2000 on Form 10-KSB. In the opinion of
management, the accompanying condensed financial statements
include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's
financial position and results of operations for the periods
presented. The results of operations for the period ended
November 30, 2000 are not necessarily indicative of the
operating results for the full year.
Certain amounts in the fiscal 2000 financial statements have
been reclassified to conform with the presentation in the fiscal
2001 financial statements.
Note 2. Net Income (Loss) Per Share
Basic earnings (loss) per share ("EPS"), which excludes
dilution, is computed by dividing income (loss) available to
common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock, such as stock options, result
in the issuance of common stock which shares in the earnings of
the Company. The treasury stock method is applied to determine
the dilutive effect of stock options in computing diluted EPS.
However, diluted EPS are not presented when a net loss occurs
because the conversion of potential common stock is
antidilutive.
5
<PAGE>
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
Three Months Ended
November 30,
2000 1999
------------- ---------------
Numerator for basic and diluted
<S> <C> <C>
net income (loss) per share $ (859,654) $ (692,364)
============= ===============
Denominator for basic net income
(loss) per share:
Weighted average shares 8,138,305 4,221,362
Effect of dilutive securities:
Employee/director stock -- --
options
Warrants and other -- --
------------- ---------------
Dilutive potential common shares -- --
------------- ---------------
Denominator for diluted net
income (loss) per share 8,138,305 4,221,362
============= ===============
Basic net income (loss) per share $ (0.11) $ (0.16)
============= ===============
Diluted net income (loss) per
share $ (0.11) $ (0.16)
============= ===============
</TABLE>
Note 3. Notes Payable to Related Parties
In July 2000, the Company, Premier Laser Systems, Inc.
("Premier"), a California corporation and the Company's majority
shareholder, and MediVision Medical Imaging Ltd. ("MediVision"),
an Israeli corporation, entered into a series of definitive
agreements relating to the transfer of Premier's ownership
interests in the Company to MediVision, including, among other
things, converting in favor of Premier the Company's entire debt
owed to Premier, calculated at an approximate book value of $2.1
million, into shares of the Company's common stock at conversion
price of $0.55 per share. This occurred in August 2000 in
connection with the closing of the transactions contemplated by
the definitive agreements (the "Closing"). In addition, at the
Closing, Premier and the Company executed a mutual waiver and
release of claims, thereby releasing each other from any and all
claims, whether known or unknown between them.
Also in connection with the definitive agreements, in July 2000,
the Company executed a promissory note in favor of MediVision
(the "Short-Term Note"). The Company has borrowed the maximum
principal amount of $260,000 available under the Short-Term
Note, which principal amount outstanding, together with any and
all accrued interest, was payable the earlier of the closing or
termination of the transactions contemplated by the definitive
agreements, October 13, 2000 or as otherwise stipulated in the
Short-Term Note. Under the terms of the Short-Term Note,
borrowings bear interest at the rate of 9.3% per
6
<PAGE>
annum and are secured by certain of the Company's assets. At
November 30, 2000, the Company had recorded approximately
$269,000 in principal and interest outstanding under the
Short-Term Note. MediVision and the Company are in discussions
with regard to reclassifying amounts currently owing under the
Short-Term Note to amounts owing under the Working Capital Note
discussed in further detail below.
In further connection with the Closing in August 2000, the
Company executed a second promissory note in favor of MediVision
(the "Working Capital Note"). The maximum principal amount
available under the Working Capital Note is $1.5 million, which
principal amount outstanding, together with any and all accrued
interest, is payable by August 31, 2003 or as otherwise
stipulated in the Working Capital Note, except that MediVision
may, at its option, at any time convert any amount of principal
and accrued but unpaid interest then outstanding into shares of
the Company's common stock at a conversion price of $.80 per
share, which price is subject to adjustment upon the occurrence
of certain events set forth in the Working Capital Note. Under
the terms of the Working Capital Note, borrowings bear interest
at the rate of 9.3% per annum and are secured by all of the
Company's assets. At November 30, 2000, the Company had recorded
approximately $1,199,000 in principal and interest outstanding
under the Working Capital Note.
Note 4 MediVision and Premier Transactions
In February 1998, the Company and Premier entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement"), whereby
Premier would offer to by those shares of the Company's common
stock not already owned by it. In August 1998, however, Premier
notified the Company that, due to a variety of factors, Premier
would not be able to close the transactions contemplated under
the Stock Purchase Agreement and the Company thereupon
terminated the Stock Purchase Agreement.
In October 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 in October 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. In
March 2000, Premier filed a voluntary petition for protection
and reorganization under Chapter 11 of the U.S. Bankruptcy Code.
7
<PAGE>
As a result of the foregoing transactions, at the time of its
bankruptcy filing, Premier owned 49.5% of the Company's
outstanding common stock and all 150 shares of the Company's
Series B Preferred Stock, thereby giving Premier majority voting
control.
In July 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 (see
Note 3). At the Closing, among other things, MediVision
purchased all of the stock of the Company then held by Premier,
including 150 shares of the Company's Series B Preferred Stock
which were converted by their terms into shares of common stock,
and 3,832,727 shares of common stock issued pursuant to the
conversion of the Premier debt.
As a result of the foregoing transactions, MediVision currently
owns approximately 73% of the Company's outstanding common
stock.
Note 5. Ability to Continue as a Going Concern
The Company has an accumulated deficit of $15,279,028 at
November 30, 2000. In addition, current liabilities exceed
current assets by $1,686,385 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.
Notwithstanding the foregoing, recent transactions between the
Company and MediVision (see Notes 3 and 4), will, in
Management's opinion, significantly improve the Company's
financial condition and enhance Management's ability to achieve
profitable operations.
The relationship with MediVision will provide the Company access
to resources in addition to the working capital described in
Note 3. As a direct consequence of the MediVision transactions,
the Company has undertaken certain gross margin enhancement
efforts, including improved production cost control and
sustaining engineering programs. In addition, the Company and
MediVision have begun collaborative efforts with respect to
design and implementation of certain product development
programs. The relationship with MediVision will further assist
the Company in reducing selling, general and administrative
expenses, particularly in connection with co-marketing and
co-selling arrangements currently contemplated with respect to
certain international markets.
Management anticipates that additional sources of capital beyond
those currently available to the Company will be required to
continue operations and procure inventory necessary to meet
current and anticipated demand for the Company's products.
In that regard, the Company and MediVision are currently in
discussions with
8
<PAGE>
respect to increasing available working capital beyond the $1.5
million under the Working Capital Note. Concurrent with these
discussions, management will continue to evaluate alternative
sources of capital to meet its cash requirements, including
other asset or debt financing, issuing equity securities and
entering into other financing arrangements. There can be no
assurance, however, that any of the contemplated financing
arrangements described herein will be available and, if
available, can be obtained on terms favorable to the Company.
9
<PAGE>
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, including the WinStation 1400 and
WinStation 3000 systems introduced at the recently concluded 2000 Annual Meeting
of the American Academy of Ophthalmology (the "2000 AAO Meeting") held during
the first quarter of fiscal 2001 in Dallas, Texas, 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, the Company has applied significant resources in
recent 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, 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. ("Premier"), a
California corporation and the Company's
10
<PAGE>
majority shareholder at the time, whereby Premier began assembling and
manufacturing the Company's products, including the DFI and DSLI.
In addition, the Company agreed with Premier on certain co-marketing and selling
arrangements and the two companies began 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 of the U.S. Bankruptcy
Code. 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,
the co-marketing and selling arrangements between the companies became
non-effective and Premier discontinued producing the Company's products under
the Manufacturing Agreement. The Company resumed manufacture and assembly of its
products in its facilities in Sacramento, California commencing in the second
quarter of fiscal 2000 but incurred increased costs and significant delays in
production and product deliveries as a result of these failed arrangements.
The Company also 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 resigned their positions during 2000, which
adversely impacted the Company's ability to generate new order bookings during
the latter half of fiscal 2000 and the first quarter of fiscal 2001.
In July 2000, the Company, Premier and MediVision entered into a series of
agreements, discussed in further detail below, the closing of which in August
2000 resulted in, among other things, transfer of majority voting control of the
Company from Premier to MediVision, conversion of the debt owed to Premier to
shares of the Company's common stock and capital commitments to the Company by
MediVision of $1,500,000.
The Company has experienced operating losses for each fiscal year since its
initial public offering in 1992. At November 30, 2000, the Company had an
accumulated deficit in excess of $15,000,000 and its current liabilities
exceeded its current assets by approximately $1,686,000. 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.
11
<PAGE>
MediVision and 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.
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, at the time of its bankruptcy filing,
Premier owned 49.5% 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.
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 cash and stock (the "MediVision
Investments"). In separate but related transactions, MediVision loaned the
Company $260,000 as short-term funding for continued operations and, upon the
closing of the transactions contemplated under the agreements in August 2000
(the "Closing"), MediVision has committed to loan up to $1,500,000 to the
Company, which is convertible at MediVision's option into shares of the
Company's common stock. Pursuant to the agreements relating to the MediVision
Investments, among other things: (i) the Company's entire debt owed to Premier,
calculated at an approximate book value of $2,100,000, was converted per the
agreements in favor of Premier into shares of the Company's common stock at a
conversion price of $0.55 per share; and (ii) MediVision purchased all of the
stock of the Company then held by Premier, including 150 shares of the Company's
Series B Preferred Stock which were converted by their terms into shares of
common stock, and 3,832,727 shares of common stock issued pursuant to the
conversion of the Premier debt.
In addition, at the Closing, Premier and the Company executed a mutual waiver
and release of claims, thereby releasing each other from any and all claims,
whether known or
12
<PAGE>
unknown between them, including the $500,000 Termination Fee claimed by the
Company against Premier.
As a result of the foregoing transactions, MediVision currently owns
approximately 73% of the Company's outstanding common stock.
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
---------------------
Revenues
The Company's revenues for the first quarter of fiscal 2001 were $734,189
representing a decrease of approximately 27% from revenues of $1,010,168 for the
first quarter of fiscal 2000. The reduced revenue levels during fiscal 2001
reflect the impact of a number of factors as noted above, including continued
delays in delivery of certain of the Company's products associated with
resumption of manufacture and assembly efforts in Sacramento, California
following termination during 2000 of the Manufacturing Agreement with Premier. A
number of products targeted for delivery during the first quarter of fiscal
2001were shipped during the second quarter of fiscal 2001. As also previously
noted, another contributing factor to the reduced revenue levels during the
first quarter of fiscal 2000 was the continued diversion of significant
resources and management efforts to the negotiation of the failed Stock Purchase
and Merger Agreements with Premier as well as subsequent acquisition matters
over the past two years. A reduction in its new order bookings following the
termination of the Merger Agreement and Premier's subsequent filing for
bankruptcy protection further adversely impacted revenues for the first fiscal
quarter of 2001. Lastly, the resignation during fiscal 2000 of certain of the
Company's sales, marketing and executive management personnel adversely effected
the Company's ability to market its products.
Gross Margins
Gross margins were approximately 13% during the first quarter ended November 30,
2000 versus approximately 26% for the comparable quarter of 2000. As a
consequence of both higher support costs and fixed expense levels representing a
higher percentage of revenues during the first quarter of fiscal 2001 versus the
comparable period of fiscal 2000, the lower gross margin percentage during the
first quarter of 2001 is due in large measure to the significantly reduced
revenue levels.
13
<PAGE>
Sales, Marketing, General and Administrative Expenses
Sales and marketing and general and administrative expenses accounted for
approximately 111% of total revenues during the first quarter of fiscal 2001 as
compared with approximately 79% during the first quarter of fiscal 2000, with
the increased percentage resulting principally as a function of the reduced
revenue levels during the first quarter of 2001. Actual expense levels increased
slightly, to $817,947 during the first quarter of 2001 versus $795,995 during
the first quarter of 2000. Primary contributing factors to the increased
expenses were professional, administrative and other costs in connection with or
as a consequence of the transactions with MediVision, the impact of which were
substantially offset by reduced commissions and other costs associated with
decreased revenue levels during the first quarter of 2001 versus the comparable
period of 2000. Subsequent to the Closing of the transactions with MediVision,
the Company has hired, among others, a Director of Operations and has undertaken
recruitment efforts for management and other personnel in this and other areas.
Research and Development Expenses
Research and development expenses decreased by approximately 20% to $98,359, or
approximately 13% of revenues in the first quarter of fiscal 2001 from $122,420,
or approximately 12% of revenues in fiscal 2000. The Company has focused its
recent research and development efforts on new digital image capture products
and reducing cost configurations for its current products, and the extent and
focus of future research and development efforts will depend, in large measure,
on direction from MediVision, including potential collaborative projects between
MediVision and the Company.
Other Expense
Other expense was $36,116 during the first quarter of fiscal 2001 versus $37,771
during the same period of 2000. These amounts were comprised principally of
interest expense associated with borrowings from MediVision and Premier during
fiscal 2001 and 2000, respectively, as well as interest expense during both
periods in connection with a stock appreciation right granted to the Company's
bank discussed in further detail below.
Net Loss
The Company incurred a net loss of $859,654, or $0.11 per share, for the first
quarter of fiscal 2001 as compared to a net loss of $692,364, or $0.16 per
share, for the first quarter of fiscal 2000.
The 2001 figures reflect the adverse impact on revenues and corporate operations
attributable to diversion of substantial Company's resources and management's
attention to acquisition, reorganization, integration and related matters during
the period preceding and immediately following the Closing of the transactions
with MediVision. The results of operations for the first quarter of 2000
reflect, in large measure, the negative impact resulting principally from delays
in delivery of the Company's products during the period under the Manufacturing
Agreement with Premier, as well as higher than normal costs and professional
fees and expenses in connection the contemplated transactions with Premier,
14
<PAGE>
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 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
$1.6 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.
Liquidity and Capital Resources
-------------------------------
The Company's operating activities used cash of $689,251 in the first quarter of
fiscal 2001 and generated cash of $6,746 in the first quarter of fiscal 2000.
The cash used in operations during the first quarter of 2001 was expended
principally to fund the net loss during the period. This amount was partially
offset by increases in accounts payable and accrued liability levels, as well as
increases in customer deposits from orders generated at the recently completed
2000 AAO Meeting. The cash generated from operations during the first quarter of
fiscal 2000 resulted principally from customer deposits from orders generated at
the 1999 Annual Meeting of the American Academy of Ophthalmology, increased
accounts payable and accrued liability levels and collection of accounts
receivable, which amounts essentially offset cash expended to fund the net loss
during the period.
Cash used in investing activities was $46,826 during the first quarter of 2001
as compared to $18,995 during the same period for 2000. The Company's primary
investing activities consist of equipment and other capital asset acquisitions.
The Company anticipates continued certain near-term capital expenditures in
connection with its ongoing efforts to upgrade its existing management
information and corporate communication systems. The Company anticipates that
related expenditures, if any, will be financed from borrowings under existing
arrangements with MediVision, if available, or other financing arrangements, if
any, available to the Company.
The Company generated cash from financing activities of $575,401 during the
first quarter of fiscal 2001 as compared to $81,094 during the same period of
fiscal 2000. The cash generated from financing activities during the first
quarter of fiscal 2001 resulted from increased borrowings under existing
arrangements with MediVision. The cash generated from financing activities
during the first quarter of fiscal 2000 resulted from the exercise of stock
options by the Exercising Directors during the period as well as an increase in
the amount of borrowings under the credit facility with Imperial Bank (the
"Bank") which was terminated during fiscal 2000. In addition, pursuant to
certain stock purchase agreements with respect to the Company's Series B
Preferred Stock, Premier purchased 150 shares of the Company's Series B
Preferred Stock at a per share price of $25
15
<PAGE>
in exchange for Premier's cancellation of a portion of the Company's debt in the
aggregate amount of $3,750.
As discussed further above and in Note 3 and Note 4 of the Notes to Condensed
Financial Statements included in Item 1 of this Form 10-QSB, on July 21, 2000,
the Company executed a promissory note in favor of MediVision (the "Short-Term
Note"). The Company has borrowed the maximum principal amount of $260,000
available under the Short-Term Note, and the Company is currently in discussions
with MediVision with regard to reclassifying amounts currently owing under the
Short-Term Note to amounts owing under the Working Capital Note discussed in
further detail below.
In addition, in connection with the Closing in August 2000 of the transactions
contemplated by the MediVision Investments, the Company executed a second
promissory note in favor of MediVision (the "Working Capital Note"). The maximum
principal amount available under the Working Capital Note is $1,500,000, which
principal amount outstanding, together with any and all accrued interest, is
payable by August 31, 2003, except that any principal and accrued but unpaid
interest amount outstanding is convertible at any time at MediVision's option
into shares of the Company's common stock at a conversion price of $0.80 per
share. Under the terms of the Working Capital Note, borrowings bear interest at
the rate of 9.3% per annum, are secured by substantially all of the Company's
assets. On November 30, 2000, the Company had recorded approximately $1,199,000
in principal and interest outstanding under the Working Capital Note.
On November 30, 2000, the Company's cash and cash equivalents were $95,284.
Management anticipates that additional sources of capital beyond those currently
available to the Company will be required to continue operations and procure
inventory necessary to meet current and anticipated demand for the Company's
products. Substantial delays in the delivery of the Company's products would
result in reduced cash flow from sales of such products as well as potential
increased costs. 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. On
November 30, 2000, the Company had accrued approximately $227,000 in contingent
liability under the stock appreciation right.
Recent transactions between the Company and MediVision will, in Management's
opinion, significantly improve the Company's financial condition and enhance
Management's ability to achieve profitable operations.
Its relationship with MediVision will provide the Company access to resources in
addition to working capital. As a direct consequence of the MediVision
transactions, the Company has undertaken certain gross margin enhancement
efforts, including improved production cost control and sustaining engineering
programs. In addition, Company and MediVision have begun collaborative efforts
with respect to design and implementation of certain product development
programs. Further, the relationship with MediVision could assist the Company in
reducing selling, general and administrative expenses,
16
<PAGE>
particularly in connection with co-marketing and co-selling arrangements
currently contemplated with respect to certain international markets.
In these regards, the Company and MediVision are currently in discussions with
respect to, among other things, increasing available working capital beyond the
$1,500,000 under the Working Capital Note. Concurrent with these discussions,
the Company will continue to evaluate alternative sources of capital to meet its
cash requirements, including other asset or debt financing, issuing equity
securities and entering into other financing arrangements and is hopeful that it
will be successful in this regard. There can be no assurance, however, that any
of the contemplated financing arrangements described herein will be available
and, if available, can be obtained on terms favorable to the Company.
17
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27. Financial Data Schedule (for SEC use only).
(b) None.
18
<PAGE>
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/ GIL ALLON
-----------------------
Gil Allon,
Chief Executive Officer
Dated: January 16, 2001
19
<PAGE>
INDEX TO EXHIBITS
Exhibit Footnote
Number Description of Exhibit Reference
------ ---------------------- ---------
27 Financial Data Schedule (for SEC use only). (*)
------------------------------------
* Filed herewith.
