-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dhn/6PYw6hYzEmGEtcCz/OQwwBNa01h08fasucTvq451Le5GMPmyYsxdhH5jt7f8 LFX9wnFcKf6IDHrtbN6GYA== 0001019687-00-000164.txt : 20000223 0001019687-00-000164.hdr.sgml : 20000223 ACCESSION NUMBER: 0001019687-00-000164 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 20000222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER LASER SYSTEMS INC CENTRAL INDEX KEY: 0000878543 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 330476284 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-14013 FILM NUMBER: 550825 BUSINESS ADDRESS: STREET 1: 3 MORGAN CITY: IRVINE STATE: CA ZIP: 92660 BUSINESS PHONE: 9498590656 MAIL ADDRESS: STREET 1: 3 MORGAN CITY: IRVINE STATE: CA ZIP: 92660 10-K/A 1 PREMIER LASER, AMENDMENT #2 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 2 (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended March 31, 1999. |_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to ____________. Commission file number 0-25242 PREMIER LASER SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 33-0472684 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3 MORGAN, IRVINE, CALIFORNIA 92618 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (949) 859-0656 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A Common Stock and Class B Warrants ----------------------------------------- (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act or 1934 during the preceding 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 [X] No |_| Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of the registrant's voting stock held by nonaffiliates was approximately $45,636,917 on October 5, 1999, based upon the closing sale price of such stock on October 5, 1999. Number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of October 5, 1999: Class A Common Stock: 15,634,897 Shares Class E-1 Common Stock: 1,257,461 Shares Class E-2 Common Stock: 1,257,461 Shares DOCUMENTS INCORPORATED BY REFERENCE. List hereunder the following documents if incorporated by reference, and the part of the Form 10- K/A (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933: None. The sole purpose of this Amendment No. 2 to the Annual Report on Form 10-K/A of Premier Laser Systems, Inc. is to provide updated financial statements and report of the registrant's independent accountants, as set forth below. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data required by this item, as amended, are included in Part IV, Item 14 of this Form 10-K/A and are presented beginning on page F-1. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Page in Annual Report on Form 10-K/A ------------ (a) The following documents are filed as part of this Annual Report on Form 10-K/A. (1) Report of Haskell & White LLP, Independent Auditors................................. F-2 Consolidated Balance Sheets at March 31, 1999 (restated) and 1998 (restated).........F-3 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended March 31, 1999, (restated) 1998 (restated) and 1997 (restated)...F-4 Consolidated Statements of Shareholders' Equity for the years ended March 31, 1999, (restated) 1998 (restated) and 1997 (restated).................F-5 Consolidated Statements of Cash Flows for the Years Ended March 31, 1999 (restated), 1998 (restated) and 1997 (restated).......................F-7 Notes to Consolidated Financial Statements...........................................F-9 (2) Financial Statements Schedules Schedule II-Valuation and Qualifying Accounts for the Years Ended March 1999, 1998 and 1997.....................................................F-27 Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. (3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)......................................................................
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Exhibits. EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 Agreement and Plan of Merger dated as of April 24, 1997 among the Registrant, EyeSys Technologies, Inc. and Premier Acquisition of Delaware, Inc. (incorporated herein by this reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4, Registration No. 33-29573). 2.2 First Amendment to Agreement and Plan of Merger dated as of August 6, 1997, among the Registrant, EyeSys Technologies, Inc. and Premier Acquisition of Delaware, Inc. (incorporated herein by this reference to Exhibit 2.2 to the Registrant's Current Report of Form 8-K filed October 15, 1997). 2.3 Second Amendment to Agreement and Plan of Merger dated as of September 16, 1997 among the Registrant, EyeSys Technologies, Inc. and Premier Acquisition of Delaware, Inc., EyeSys Technologies, Inc. and Premier Acquisition of Delaware, Inc. (incorporated herein by this reference to Exhibit 2.3 to the Registrant's Current Report on Form 8-K filed October 15, 1997). 2.4 Stock Purchase Agreement dated February 25, 1998 between the Registrant and Ophthalmic Imaging Systems (incorporated herein by this reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed March 9, 1998). 2.5 Purchase Agreement dated February 25, 1998 between the Registrant and Mark S. Blumenkranz, M.D. and Recia Blumenkranz, M.D. (incorporated herein by this reference to Exhibit 99.4 to the Registrant's Current Report on Form 8-K filed March 9, 1998). Exhibit - ------- 2.6 Purchase Agreement dated February 25, 1998 between the Registrant and Stanley Chang, M.D. (incorporated herein by this reference to Exhibit 99.8 to the Registrant's Current Report on Form 8-K filed March 9, 1998). 2.7 Purchase Agreement dated February 25, 1998 between the Registrant and J.B. Oxford & Company (incorporated herein by this reference to Exhibit 99.12 to the Registrant's Current Report on Form 8-K filed March 9, 1998). 3.1 Amended and Restated Articles of Incorporation filed with the California Secretary of state on November 23, 1994 (incorporated herein by this reference to Exhibit 4.8 to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1994). 3.2 Bylaws (incorporated herein by this reference to Exhibit 3.3 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 4.1 Rights Agreement dated as of March 31, 1998 between Premier Laser Systems, Inc. and American Stock Transfer and Trust Company acting as rights agent (incorporated herein by this reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed April 2, 1998). 10.1 Letter Agreement and Patent License Agreement dated August 29, 1991 among the Registrant, Patlex Corporation and Gordon Gould (incorporated herein by this reference to Exhibit 1.1 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 10.2 Assignment Agreement dated July 27, 1992 between the Registrant and Michael Colvard, M.D. (incorporated herein by this reference to Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 10.3 Form of International Distribution Agreement (incorporated herein by this reference to Exhibit 10.12 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). Exhibit - ------- 10.4 Letter of Intent between the Registrant and Richard Leaderman, D.D.S., together with related Patent Assignments as filed in the U.S. Patent and Trademark Office on February 22, 1994 (incorporated herein by this reference to Exhibit 10.13 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 10.5 Exclusive Marketing Agreement dated July 26, 1994 between the Registrant, Proclosure, Inc. and Nippon Shoji Kaisha, Ltd. (incorporated herein by this reference to Exhibit 10.14 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 10.6 Form of Indemnification Agreement (incorporated herein by this reference to Exhibit 10.23 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 10.7 Purchase/Supply Agreement dated January 13, 1987 between Infrared Fiber Systems, Inc. and Pfizer Hospital Products Group, Inc., as amended (incorporated herein by this reference to Exhibit 10.26 to the Registrant's Registration Statement on Form SB-2, Registration No. 33- 83984). 10.8 Form of Warrant Agreement (including forms of Class B Warrant Certificates) (incorporated herein by this reference to Exhibit 4.1 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 10.9 Form of Underwriter's Unit Purchase Option (incorporated herein by this reference to Exhibit 4.2 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). Exhibit - ------- 10.10 1992 Stock Option Plan, together with form of Nonstatutory Stock Option Agreement and form of Incentive Stock Option Agreement (incorporated herein by this reference to Exhibit 4.5 to the Registrant's Registration statement on Form SB-2, Registration No. 33-83984). 10.11 Employee Bonus Stock Plan, together with form of Bonus Stock Agreement (incorporated herein by this reference to Exhibit 4.6 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 10.12 Letter agreement dated October 13, 1987 between Pfizer Laser Systems, Inc. and Duke University, together with patent assignment as filed in the U.S. Patent and Trademark Office on October 23, 1993 (incorporated herein by this reference to Exhibit 10.8 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984). 10.13 Industrial Lease dated December 6, 1995 between the Registrant and The Irvine Company (incorporated herein by this reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996). 10.14 Form of Consulting Agreement (incorporated herein by this reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996). 10.15 Form of Termination Agreement between the Registrant and certain of the Registrant's executive officers (incorporated herein by this reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996). 10.16 1995 Employee Stock Option Plan, together with form of Nonqualified Stock Option Agreement and form of Incentive Stock Option Agreement (incorporated herein by this reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996). 10.17 February 1996 Stock Option Plan (incorporated herein by this reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996). 10.18 1996 Stock Option Plan (incorporated herein by this reference to Exhibit 10.36 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996). 10.19 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon Valley Bank (incorporated herein by this reference to Exhibit 10.38 to the Registrant's Registration Statement on Form SB-2 Registration No. 333-04219). 10.20 Registration Rights Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank (incorporated herein by this reference to Exhibit 10.39 to the Registrant's Registration Statement on Form SB-2 Registration No. 333-04219). 10.21 Antidilution Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank (incorporated herein by this reference to Exhibit 10.40 to the Registrant's Registration Statement on Form SB-2 Registration No. 33-04219). 10.22 Joint Venture Agreement dated January 31, 1997 between the Registrant, RSS, LLC and Data.Site (incorporated herein by this reference to Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1997). Exhibit - ------- 10.23 Operating Agreement of Data.Site dated January 31, 1997 (incorporated herein by this reference to Exhibit 10.40 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1997). 10.24 Agreement and Plan of Merger dated April 24, 1997 between the Registrant, Premier Acquisition of Delaware, Inc. and EyeSys Technologies, Inc. (incorporated herein by this reference to Exhibit 10.41 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1997). 10.25 1997 Stock Option, together with form of Nonqualified Stock Option Agreement (incorporated herein by the reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K filed August 26, 1998). 10.26 1998 Stock Option Plan (incorporated herein by this reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K filed August 26, 1998). 10.27 Rights Agreement dated March 31, 1998 between the Registrant and American Stock Transfer and Trust Company (incorporated herein by this reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed April 2, 1998). 10.28 Secured Convertible Debenture Purchase Agreement dated May 17, 1999 between the Registrant and the investors signatory thereto. 10.29 Registration Rights Agreement dated May 17, 1999 between the Registrant and the investors signatory thereto. 10.30 Warrant dated May 17, 1999 issued by the Registrant to certain investors. 10.31 Intellectual Property Security Agreement dated May 17, 1999 between the Registrant and the secured parties signatory thereto. 10.32 Security Agreement dated May 17, 1999 between the Registrant and the secured parties signatory thereto. 10.33 Form of 6% Secured Convertible Debenture dated May 17, 1999 issued by the Registrant to certain investors. 16 Letter dated June 11, 1998 from Ernst & Young, LLP (incorporated herein by this reference to Exhibit 16 to the Registrant's Current Report on Form 8-K filed June 1, 1998, and as amended June 15, 1998). 21 Subsidiaries (incorporated herein by this reference to Exhibit 21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1998). 23.1 Consent of Haskell & White LLP. (previously filed) 23.2 Consent of Eisenhauer & Co. (previously filed) 27 Financial Data Schedule. (previously filed) 99.1 Form of Class D Warrant (OIS transaction) (incorporated herein by this reference to Exhibit 99.3 to the Registrant's Current Report on From 8-K filed March 9, 1998). Exhibit - ------- 99.2 Class D Warrant dated February 25, 1998 issued by the Registrant to Mark S. Blumenkranz, M.D. and Recia Blumenkranz, M.D. (OIS transaction) (incorporated herein by this reference to Exhibit 99.6 to the Registrant's Current Report on Form 8-K filed March 9, 1998). 99.3 Registration Rights Agreement dated February 25, 1998 issued by the Registrant and Mark S. Blumenkranz, M.D. and Recia Blumenkranz, M.D. (OIS transaction) (incorporated herein by this reference to Exhibit 997 to the Registrant's Current Report on Form 8-K filed March 9, 1998). 99.4 Class D Warrant dated February 25, 1998 issued by the Registrant to Stanley Chang, M.D. (OIS transaction) (incorporated herein by this reference to Exhibit 99.10 to the Registrant's Current Report on Form 8-K filed March 9, 1998). 99.5 Registration Rights Agreement dated February 25, 1998 issued by Registrant to Stanley Chang, M.D. (OIS transaction) (incorporated herein by this reference to Exhibit 99.11 to the Registrant's Current Report on Form 8-K filed March 9, 1998). 99.6 Class D Warrant dated February 25, 1998 issued by the Registrant to J.B. Oxford & Company (OIS transaction) (incorporated herein by this reference to Exhibit 99.14 to the Registrant's Current Report on From 8-K filed March 9, 1998). 99.7 Registration Rights Agreement dated February 25, 1998 between the Registrant and J. B. Oxford & Company (OIS transaction) (incorporated herein by this reference to Exhibit 99.18 to the Registrant's Current Report on Form 8-K filed March 9, 1998). +99.8 Agreement dated July 23, 1997 between Nidek Co., Ltd. and EyeSys Technologies, Inc. (incorporated herein by this reference to Exhibit 99.1 to the Registrant's Registration Statement on Form S-4 Registration No. 333-29573). +99.9 Exclusive Distribution Agreement dated June 2, 1997 between EyeSys Technologies, Inc. and Marco Ophthalmic Inc. (incorporated herein by this reference to Exhibit 99.3 to the Registrant's Registration Statement on Form S-4 Registration No. 333-29573). - -------------------- * Filed herewith. + Confidential treatment has been granted with respect to portions of this Exhibit. (b) Financial Statement Schedules. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PREMIER LASER SYSTEMS, INC. By: /s/ Michael Quinn ------------------------------------- Michael Quinn Chief Executive Officer and President PREMIER LASER SYSTEMS, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Haskell & White LLP, Independent Auditors F-2 Consolidated Balance Sheets at March 31, 1999 (Restated) and 1998 (Restated) F-3 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended March 31, 1999 (Restated), 1998 (Restated), and 1997 (Restated) F-4 Consolidated Statements of Shareholders' Equity for the Years Ended March 31, 1999 (Restated), 1998 (Restated), and 1997 (Restated) F-5 Consolidated Statements of Cash Flows for the Years Ended March 31, 1999 (Restated), 1998 (Restated), and 1997 (Restated) F-7 Notes to Consolidated Financial Statements F-8
REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Premier Laser Systems, Inc. We have audited the accompanying consolidated balance sheets of Premier Laser Systems, Inc. (the Company) as of March 31, 1999 and 1998, and the related consolidated statements of operations and comprehensive loss, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 1999. Our audits also included the financial schedule of valuation and qualifying accounts for each of the years ended March 31, 1999, 1998 and 1997. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2, the Company has restated its previously issued 1999, 1998 and 1997 consolidated financial statements. In our opinion, the 1999, 1998, and 1997 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit, cash flow difficulties and, in February 2000, laid-off a substantial portion of its employees. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. HASKELL & WHITE LLP Irvine, California June 9, 1999, except for Notes 2, 3 and 8, as to which the date is October 4, 1999 and the fourth paragraph of Note 1, as to which the date is February 17, 2000 F-2 PREMIER LASER SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, ------------------------------- 1999 1998 ------------- ------------- (RESTATED) (RESTATED) ASSETS ------------------------------------- Current assets: Cash and cash equivalents $ 888,767 $ 9,722,514 Short-term investments -- 9,666,918 Restricted cash 50,000 2,150,000 Accounts receivable, net of allowance for doubtful accounts and sales returns of $1,997,158 and $1,224,845, respectively 1,342,917 4,952,892 Inventories, net 6,977,104 7,083,526 Prepaid expenses and other current assets 531,459 2,528,996 ------------- ------------- Total current assets 9,790,247 36,104,846 Property and equipment, net 1,473,420 1,778,423 Intangible assets, net 11,278,560 13,104,006 Other assets 21,953 434,300 ------------- ------------- Total assets $ 22,564,180 $ 51,421,575 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------- Current liabilities: Accounts payable $ 3,802,606 $ 6,536,044 Line of credit 70,470 2,068,163 Accrued compensation and related costs 968,969 964,691 Accrued acquisition costs 1,074,067 2,080,184 Accrued purchase commitments 1,180,050 2,600,828 Accrued warranty 739,298 822,401 Due to joint venture partner 549,194 -- Unearned revenue 678,085 461,832 Other accrued liabilities 2,090,307 1,553,916 ------------- ------------- Total current liabilities 11,153,046 17,088,059 ------------- ------------- Commitments and contingencies (Notes 5, 6, 9, and 10) Shareholders' equity: Preferred stock, no par value: Authorized shares - 8,850,000 Issued and outstanding shares--none Common stock, Class A, no par value: Authorized shares--35,600,000 Issued and outstanding shares--16,859,355 including 2,250,000 subject to issuance for shareholder litigation settlement at March 31, 1999, and 14,546,498 at March 31, 1998 89,354,340 81,436,013 Common stock, Class E-1, no par value: Authorized shares--2,200,000 Issued and outstanding shares--1,257,461 at March 31, 1999 and 1998 4,769,878 4,769,878 Common stock, Class E-2, no par value: Authorized shares--2,200,000 Issued and outstanding shares--1,257,461 at March 31, 1999 and 1998 4,769,878 4,769,878 Warrants and options 1,723,842 1,723,842 Accumulated deficit (89,206,804) (58,366,095) ------------- ------------- Total shareholders' equity 11,411,134 34,333,516 ------------- ------------- Total liabilities and shareholders' equity $ 22,564,180 $ 51,421,575 ============= =============
See accompanying notes. F-3 PREMIER LASER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEAR ENDED MARCH 31, ------------------------------------------------------ 1999 1998 1997 -------------- -------------- -------------- (RESTATED) (RESTATED) (RESTATED) Net sales $ 14,036,951 $ 10,417,841 $ 5,090,861 Cost of sales 13,661,526 17,942,290 3,648,539 -------------- -------------- -------------- Gross profit (loss) 375,425 (7,524,449) 1,442,322 Selling and marketing expenses 8,229,967 5,398,162 2,415,010 Research and development expenses 4,974,470 3,378,600 1,563,228 General and administrative expenses 9,891,899 5,460,606 2,050,184 Shareholder litigation settlement expenses 8,081,770 -- -- Write off of investment in Mattan Corporation -- -- 881,010 Termination of strategic alliance with IBC -- -- 331,740 In process research and development acquired in connection with business acquisitions -- 12,800,000 250,000 Asset impairment charges 240,905 228,000 -- -------------- -------------- -------------- Loss from operations (31,043,586) (34,789,817) (6,048,850) Interest income (expense), net 202,877 1,073,493 15,493 -------------- -------------- -------------- Net loss (30,840,709) (33,716,324) (6,033,357) Items of other comprehensive income (loss) -- -- -- -------------- -------------- -------------- Comprehensive loss $ (30,840,709) $ (33,716,324) $ (6,033,357) ============== ============== ============== Basic and diluted net loss per share Net loss per share $ (2.11) $ (2.95) $ (1.03) ============== ============== ============== Weighted average number of shares used in computation of basic and diluted net loss per share 14,601,294 11,444,123 5,833,326 ============== ============== ==============
See accompanying notes. F-4 PREMIER LASER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1999 (RESTATED), 1998 (RESTATED), AND 1997 (RESTATED)
COMMON STOCK COMMON STOCK COMMON STOCK CLASS A CLASS E-1 CLASS E-2 --------------------------- --------------------------- --------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS ------------- ------------- ------------- ------------- ------------- ------------- ------------ Balance at March 31, 1996 4,702,203 $ 16,317,376 1,256,818 $ 4,769,878 1,256,818 $ 4,769,878 $ 2,321,057 Common stock and B warrants issued in connection with secondary public offering 2,403,500 9,363,298 -- -- -- -- -- Common stock issued in connection with the formation of the Data.Site joint venture 159,787 1,200,000 -- -- -- -- -- Exercise of stock options and warrants 48,351 249,774 360 -- 360 -- (25,729) Stock options issued to Advisory Board members, clinical evaluators, medical directors, and other consultants -- 190,001 -- -- -- -- -- Decrease in unrealized holding gain on short-term investments -- -- -- -- -- -- -- Net loss for the year (restated) -- -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------ Balance at March 31, 1997 (restated) 7,313,841 27,320,449 1,257,178 4,769,878 1,257,178 4,769,878 2,295,328 Common stock and options issued in connection with business acquisitions (restated) 962,343 9,646,526 -- -- -- -- -- Exercise of stock options and warrants 6,270,314 43,989,418 283 -- 283 -- (2,295,328) Stock options issued to Advisory Board members, clinical evaluators, medical directors, and other consultants -- 479,620 -- -- -- -- -- Net loss for the year (restated) -- -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------ Balance at March 31, 1998 (restated) 14,546,498 81,436,013 1,257,461 4,769,878 1,257,461 4,769,878 -- Common stock reserved for issuance in connection with litigation settlement 2,250,000 7,447,500 -- -- -- -- -- Exercise of stock options and warrants 62,857 202,619 -- -- -- -- -- Stock options issued to Advisory Board members, clinical Evaluators, medical directors, and other consultants (restated) -- 268,208 -- -- -- -- -- Net loss for the year (restated) -- -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------ Balance at March 31, 1999 (restated) 16,859,355 $ 89,354,340 1,257,461 $ 4,769,878 1,257,461 $ 4,769,878 $ -- ============= ============= ============= ============= ============= ============= ============
See accompanying notes. F-5 PREMIER LASER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED) FOR THE YEARS ENDED MARCH 31, 1999 (RESTATED), 1998 (RESTATED), AND 1997 (RESTATED)
COMMON UNREALIZED ADDITIONAL CLASS B STOCK HOLDINGS PAID-IN ACCUMULATED WARRANTS WARRANTS GAINS CAPITAL DEFICIT TOTAL ------------- ------------- ------------- ------------- ------------- ------------- Balance at March 31, 1996. $ 376,774 $ 192,130 $ 3,666,367 $ -- $(18,616,414) $ 13,797,046 Common stock and B warrants issued in connection with secondary public offering 1,037,514 -- -- -- -- 10,400,812 Common stock issued in connection with the formation of the Data.Site joint venture -- -- -- -- -- 1,200,000 Exercise of stock options and Warrants 76,530 -- -- -- -- 300,575 Stock options issued to Advisory Board members, clinical Evaluators, medical directors, and other consultants -- -- -- -- -- 190,001 Decrease in unrealized holding gain on short-term investments -- -- (3,666,367) -- -- (3,666,367) Net loss for the year (restated) -- -- -- -- (6,033,357) (6,033,357) ------------- ------------- ------------- ------------- ------------- ------------- Balance at March 31, 1997 (restated) 1,490,818 192,130 -- -- (24,649,771) 16,188,710 Common stock and options issued in connection with business acquisitions (restated). -- -- -- -- -- 9,646,526 Exercise of stock options and warrants. 40,894 -- -- -- -- 41,734,984 Stock options issued to Advisory Board members, clinical evaluators, medical directors, and other consultants. -- -- -- -- -- 479,620 Net loss for the year (restated) -- -- -- -- (33,716,324) (33,716,324) ------------- ------------- ------------- ------------- ------------- ------------- Balance at March 31, 1998 (restated) 1,531,712 192,130 -- -- (58,366,095) 34,333,516 Common stock reserved for issuance in connection with litigation settlement. -- -- -- -- -- 7,447,500 Exercise of stock options and wrrants -- -- -- -- -- 202,619 Stock options issued to Advisory Board members, clinical Evaluators, medical directors, and other consultants (restated). -- -- -- -- -- 268,208 Net loss for the year (restated) -- -- -- -- (30,840,709) (30,840,709) ------------- ------------- ------------- ------------- ------------- ------------- Balance at March 31, 1999 (restated) $ 1,531,712 $ 192,130 $ -- $ -- $(89,206,804) $ 11,411,134 ============= ============= ============= ============= ============= =============
See accompanying notes. F-6 PREMIER LASER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, ---------------------------------------------------- 1999 1998 1997 -------------- -------------- -------------- (RESTATED) (RESTATED) (RESTATED) Operating Activities: Net loss $ (30,840,709) $ (33,716,324) $ (6,033,357) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,473,711 1,464,517 841,467 Stock reserved for issuance in connection with shareholder litigation settlement 7,447,500 -- -- Asset impairment charges 2,845,156 -- -- Write off of investment in Mattan Corporation -- -- 881,010 Acquired in-process research and development -- 12,800,000 250,000 Stock options issued to advisors and consultants 268,208 479,620 190,001 Termination of strategic alliance with IBC -- -- 125,000 Changes in operating assets and liabilities: Accounts receivable 3,609,976 (2,253,457) (539,045) Inventories (2,496,389) (2,207,836) (1,099,277) Prepaid expenses and other current assets 1,919,115 (1,555,257) (342,438) Accounts payable (1,764,114) 2,190,093 (184,769) Accrued liabilities and unearned revenue (169,233) 7,482,925 319,936 Other -- 236,516 -- -------------- -------------- -------------- Net cash used in operating activities (15,706,779) (15,079,203) (5,591,472) -------------- -------------- -------------- Investing Activities: Maturities of short-term investments 9,666,918 -- -- Purchases of short-term investments -- (5,698,630) (3,968,288) Patent and intangible expenditures (2,714,402) (3,140,617) (178,139) Business acquisitions -- (5,002,172) (96,028) Purchase of property and equipment (384,410) (888,294) (24,477) Other -- (410,179) -- -------------- -------------- -------------- Net cash provided by (used in) investing activities 6,568,106 (15,139,892) (4,266,932) -------------- -------------- -------------- Financing Activities: Proceeds from equity offerings -- -- 10,400,812 Net borrowings (repayments) under line of credit (1,997,693) (695,340) 800,000 Proceeds from exercise of stock options and warrants 202,619 41,734,984 300,575 Decrease (increase) in restricted cash 2,100,000 (1,100,000) (1,050,000) Other -- (171,645) (454,836) -------------- -------------- -------------- Net cash provided by financing activities 304,926 39,767,999 9,996,551 -------------- -------------- -------------- Net (decrease) increase in cash and cash equivalents (8,833,747) 9,548,904 138,147 Cash and cash equivalents at beginning of period 9,722,514 173,610 35,463 -------------- -------------- -------------- Cash and cash equivalents at end of period $ 888,767 $ 9,722,514 $ 173,610 ============== ============== ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 124,011 $ 120,000 $ 115,283 ============== ============== ==============
Significant noncash investing and financing activities excluded from the accompanying consolidated statements of cash flows are as follows: In fiscal 1998 and 1997, the Company issued Class A common stock valued at $9,646,526 and $1,200,000, respectively, in connection with business acquisitions. In fiscal 1999, the Company reserved for issuance 2,250,000 shares of Class A common stock valued at $7,447,500 in connection with an agreement in principle to settle a lawsuit (Note 6). See accompanying notes. F-7 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION, NATURE OF OPERATIONS AND LIQUIDITY Premier Laser Systems, Inc. (the Company) was incorporated in July 1991 and commenced operations in August 1991 after acquiring substantially all of the assets and certain liabilities of Pfizer Laser Systems (Pfizer), a division of Pfizer Hospital Products Group, Inc. The Company designs, develops, manufactures and markets several lines of lasers for surgical and other medical purposes, disposables and associated accessory products for the medical and dental market. The Company also designs, develops, manufactures and markets digital imaging systems and image enhancement and analysis software for use by practitioners in the ocular health field. The accompanying consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company has suffered recurring losses from operations and may continue to incur losses for the foreseeable future due to the significant costs anticipated to be incurred in connection with manufacturing, marketing and distributing its laser and imaging products. In addition, the Company intends to conduct continuing research and development activities, including regulatory submittals and clinical trials to develop additional applications for its technology. The Company operates in a highly competitive environment and is subject to all of the risks inherent in a new business enterprise. Further, as discussed in Note 6, the Company has been named in class action lawsuits alleging violations of federal and state securities laws. In November 1998, the Company reached an agreement in principle with lead plaintiffs and their counsel to settle related matters. Any significant uninsured judgment or settlement amount ultimately associated with the class action litigation would significantly impact the Company's ability to satisfy its working capital requirements. As a result of the factors described above, the Company is experiencing significant strains on its operating cash flow. On February 16, 2000, the Company placed 54 of its 80 employees on temporary unpaid leave in order to address its short term liquidity issues. These conditions raise substantial doubt about the Company's ability to continue as a going concern. In response to these matters, the Company's management is seeking additional debt or equity financing. The Company may have to pursue restructuring alternatives, as appropriate, including a possible restructuring through the Bankruptcy Code. In February 2000, management engaged the services of a consulting firm to assist in identifying and assessing strategic and financial alternatives. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RESTATEMENT OF AMOUNTS PREVIOUSLY REPORTED The Company's independent auditors unexpectedly resigned during May 1998 and withdrew their opinion on the Company's fiscal year 1997 financial statements. Accordingly, the Company retained new auditors to re-examine the 1997 financial statements. Because of the extended period of time that had passed since the initial report was issued, a number of matters were identified of which the Company was not aware when it initially issued the 1997 financial statements. Although the Company believes that the initially issued 1997 financial statements were not materially misstated in terms of net loss, total assets and shareholders' equity, the statements have nonetheless been restated in the interest of full disclosure. Upon review and comment by the staff of the United States Securities and Exchange Commission, the restatements originally presented have been modified with respect to the initial accounting for the acquisition of Data.Site and the assets contributed by the minority joint venture partner. The summary effects that follow have been revised to reflect the resolution of this matter. The following is a summary of the impact of the restatement on the 1997 consolidated balance sheet.
1. Reduction of accounts receivable $(440,000) 2. Additional allowance for doubtful accounts (226,000) 3. Revision to inventory valuation allowance 320,000 4. Reduction in prepaid expenses and other current assets (9,000) 5. Additional accounts payable 88,000 ---------- 6. Additional net loss $(443,000) ==========
F-8 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The following is a summary of the impact of the restatement on the 1997 consolidated statement of operations and comprehensive loss.
1. Reduction of previously reported sales, net of related cost of sales $(280,000) 2. Revision to inventory valuation allowances 160,000 3. Additional bad debts expense (313,000) 4. Other, net (10,000) ---------- Net increase in 1997 loss $(443,000) ==========
The effects on the Company's previously issued 1997 financial statements are summarized as follows:
PREVIOUSLY INCREASE REPORTED (DECREASE) RESTATED ------------- ------------- ------------- Consolidated balance sheet: Current assets $ 10,658,161 $ (355,000) $ 10,303,161 Other assets 8,662,450 -- 8,662,450 ------------- ------------- ------------- Total assets $ 19,320,611 $ (355,000) $ 18,965,611 ============= ============= ============= Current liabilities $ 2,688,901 $ 88,000 $ 2,776,901 Net shareholders' equity 16,631,710 (443,000) 16,188,710 ------------- ------------- ------------- Total liabilities and shareholders' equity $ 19,320,611 $ (355,000) $ 18,965,611 ============= ============= ============= Consolidated statement of operations and comprehensive loss: Net sales $ 5,530,861 $ (440,000) $ 5,090,861 Cost of sales 3,968,539 (320,000) 3,648,539 ------------- ------------- ------------- Gross profit 1,562,322 (120,000) 1,442,322 Selling and marketing expenses 2,406,010 9,000 2,415,010 General and administrative expenses 1,736,184 314,000 2,050,184 Other expenses 3,025,978 -- 3,025,978 ------------- ------------- ------------- Loss from operations (5,605,850) (443,000) (6,048,850) Interest income, net 15,493 -- 15,493 ------------- ------------- ------------- Net loss (5,590,357) (443,000) (6,033,357) -- Items of other comprehensive income (loss) -- -- ------------- ------------- ------------- Comprehensive loss $ (5,590,357) $ (443,000) $ (6,033,357) ============= ============= ============= Net loss per share $ (.96) $ (1.03)
As the result of inquiries made by the staff of the United States Securities and Exchange Commission, the Company has restated its 1999 and 1998 consolidated financial statements. These restatements resulted primarily from adjustments to the accounting for the acquisitions of EyeSys Technologies, Inc. (EyeSys) and Ophthalmic Imaging Systems (OIS). Additionally, the consolidated statements of operations and comprehensive loss and cash flows reflect reclassifications to eliminate the original separate reporting of the cessation of Data.Sites LLC's (Data.Site) operations as "discontinued operations." F-9 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The following is a summary of the impact of the restatement on the 1998 consolidated balance sheet.
1. Cumulative effect of adjustments to the 1997 balance sheet for the Data.Site accounting, including: a. Reduction of intangible assets (goodwill) recorded $(2,113,725) b. Elimination of the minority interest liability 1,764,736 c. Accumulated deficit--1997 profit and loss impact of elimination of the minority interest liability (60,000) 2. Reduction of EyeSys purchase price for shares of Series A Common Stock held in escrow and stock options ultimately not issued in connection with the acquisition (2,110,900) 3. Recording of goodwill resulting from EyeSys and OIS acquisitions, initially recorded as fully impaired 3,052,628 4. Reduction of goodwill (258,155) 5. Amortization of goodwill, based on initial life of 5 years (84,731) 6. Reclassification of purchase commitments from inventory reserves to current liabilities 2,600,828 7. Overall reduction of net loss for the year 5,047,963 The following is a summary of the impact of the restatement on the 1998 consolidated statement of operations and comprehensive loss. 1. Reduction of merger and integration costs related to the shares of Series A Common Stock held in escrow and stock options ultimately not issued $(2,110,900) 2. Reduction of merger and integration costs for amounts capitalized as goodwill in the EyeSys and OIS acquisitions (3,052,628) 3. Amortization expense recorded on goodwill 84,731 4. Reduction of goodwill (258,155) 5. Elimination of loss allocated to minority interest in Data.Site 288,989 ------------ Net decrease in the 1998 loss $(5,047,963) ============
F-10 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The effects of these restatements on the Company's previously issued 1998 financial statements are summarized as follows:
PREVIOUSLY INCREASE REPORTED (DECREASE) RESTATED ------------- ------------- ------------- Consolidated balance sheet: Current assets $ 33,504,018 $ 2,600,828 $ 36,104,846 Other assets 14,204,402 1,112,327 15,316,729 ------------- ------------- ------------- Total assets $ 47,708,420 $ 3,713,155 $ 51,421,575 ============= ============= ============= Current liabilities $ 14,487,231 $2,600,828 $ 17,088,059 Minority interest 1,764,736 (1,764,736) -- Net shareholders' equity 31,456,453 2,877,063 34,333,516 ------------- ------------- ------------- Total liabilities and shareholders' equity $ 47,708,420 $ 3,713,155 $ 51,421,575 ============= ============= ============= Consolidated statement of operations and comprehensive loss: Net sales $ 9,885,569 $ 532,272 $ 10,417,841 Cost of sales 17,234,288 (708,002) 17,942,290 ------------- ------------- ------------- Gross profit (7,348,719) (175,730) (7,524,449) Selling and marketing expenses 5,113,080 285,082 5,398,162 Research and development 3,087,360 291,240 3,378,600 General and administrative expenses 3,699,541 1,761,065 5,460,606 In-process research and development 12,800,000 -- 12,800,000 Asset impairment charges -- 228,000 228,000 Merger and integration costs 7,616,924 (7,616,924) -- ------------- ------------- ------------- Loss from operations (39,665,624) 4,875,807 (34,789,817) Interest income, net 1,073,493 -- 1,073,493 Minority interest in loss 273,811 (273,811) -- ------------- ------------- ------------- Loss from continuing operations (38,318,320) 4,601,996 (33,716,324) Loss from discontinued operations (445,967) 445,967 -- ------------- ------------- ------------- Net loss and comprehensive loss $(38,764,287) $ 5,047,963 $(33,716,324) ============== ============= ============= Basic and diluted loss per share: Loss from continuing operations $ (3.35) $ (2.95) Loss from discontinued operations (.04) -- ------------- ------------- Net loss per share $ (3.39) $ (2.95) ============= =============
F-11 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The following is a summary of the impact of the restatement on the 1999 consolidated balance sheet.
1. Cumulative effect of adjustments to the 1998 balance sheet for the Data.Site accounting, including: a. Reduction of intangible assets (goodwill) recorded $(2,113,725) b. Elimination of the minority interest liability 1,764,736 2. Accumulated deficit--1998 and 1997 profit and loss impact of elimination of the minority interest liability 348,989 3. Cumulative effect of adjustments to the 1998 balance sheet for the reduction of EyeSys purchase price for shares of Series A Common Stock held in escrow and stock options ultimately not issued in connection with the acquisition (2,110,900) 4. Cumulative effect of adjustments to the 1998 balance sheet for the recording of goodwill resulting from EyeSys and OIS acquisitions, initially recorded as fully impaired, net of amortization (2,967,897) 5. Cumulative effect of 1998 goodwill reduction (258,155) 6. Write-off of Data.Site minority interest liability 1,764,736 7. Reversal of EyeSys stock option recoveries 1,110,900 8. Reduction of Data.Site goodwill 1,634,104 9. Amortization of goodwill, based on initial life of 5 years 610,525 10. Reclassification of purchase commitments from inventory reserves to current liabilities 1,180,050 11. Overall increase in net loss for the year 1,879,763 The following is a summary of the impact of the restatement on the 1999 consolidated statement of operations and comprehensive loss. 1. Reversal of EyeSys stock option recoveries $ 1,110,900 2. Amortization expense recorded on goodwill 610,525 3. Reduction of Data.Site goodwill (1,634,104) 4. Write-off of Data.Site minority interest liability 1,764,736 ------------ Net increase in the 1999 loss $ 1,879,763 ============
F-12 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The effects of these restatements on the Company's previously issued 1999 financial statements are summarized as follows:
PREVIOUSLY INCREASE REPORTED (DECREASE) RESTATED ------------- ------------- ------------- Consolidated balance sheet: Current assets $ 8,610,197 $ 1,180,050 $ 9,790,247 Other assets 10,665,733 2,108,200 12,773,933 ------------- ------------- ------------- Total assets $ 19,275,930 $ 3,288,250 $ 22,564,180 ============= ============= ============= Current liabilities $ 9,972,996 $ 1,180,050 $ 11,153,046 Net shareholders' equity 9,302,934 2,108,200 11,411,134 ------------- ------------- ------------- Total liabilities and shareholders' equity $ 19,275,930 $ 3,288,250 $ 22,564,180 ============= ============= ============= Consolidated statement of operations and comprehensive loss: Net sales $ 13,971,085 $ 65,866 $ 14,036,951 Cost of sales 13,405,182 256,344 13,661,526 ------------- ------------- ------------- Gross profit 565,903 (190,478) 375,425 Selling and marketing expenses 7,930,444 299,523 8,229,967 Research and development 4,164,919 809,551 4,974,470 General and administrative expenses 6,625,247 3,266,652 9,891,899 Shareholder litigation settlement expenses 8,081,770 -- 8,081,770 Asset impairment charges -- 240,905 240,905 ------------- ------------- ------------- Loss from operations (26,236,477) (4,807,109) (31,043,586) Interest income, net 202,877 -- 202,877 Minority interest in loss (1,764,736) 1,764,736 -- ------------- ------------- ------------- Loss from continuing operations (24,268,864) (6,571,845) (30,840,709) Loss from discontinued operations (4,692,082) 4,692,082 -- ------------- ------------- ------------- Net loss and comprehensive loss $(28,960,946) $ (1,879,763) $(30,840,709) ============= ============= ============= Basic and diluted loss per share: Loss from continuing operations $ (1.56) $ (1.99) Loss from discontinued operations (.30) -- ------------- ------------- Net loss per share $ (1.86) $ (1.99) ============= =============
REVENUE RECOGNITION Revenue related to sales to end customers and to distributors are recognized upon shipment. The Company's price to the purchaser is fixed at the date of sale and the purchaser's obligation is not contingent on resale of related merchandise. The Company does not have significant obligations for future performance in connection with its sales. It is the Company's policy not to accept sales returns, however, the Company may choose to accept returns on a case-by-case basis. Allowances for sales returns are provided for based upon previous experience and have historically been within management's expectations. F-13 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) SHORT-TERM INVESTMENTS AND RESTRICTED CASH The Company invests excess cash in United States Treasury securities and commercial paper, generally with maturities of less than one year. Short-term investments with a maturity of less than three months when purchased are classified as cash equivalents. Investments with maturities in excess of three months are presented as short-term investments in the accompanying financial statements. Pursuant to Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company's short-term investments are classified as available-for-sale and are reported at fair market value with unrealized gains and losses reflected as an adjustment to shareholders' equity. There were no material unrealized gains or losses at March 31, 1999 or 1998. Restricted cash consists of certificates of deposits held to secure borrowings under the Company's line of credit, and is classified as a current asset since it is collateral for a current liability. CONCENTRATION OF CREDIT RISK AND FOREIGN SALES The Company generates revenues principally from sales in the medical field. As a result, the Company's accounts receivable are concentrated primarily in this industry. Sales in foreign countries accounted for approximately 11%, 13%, and 25% of the Company's total sales in fiscal 1999, 1998, and 1997, respectively. These foreign sales related almost entirely to sales in Asia and Europe. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on its accounts receivable, other than the products being sold. Frequently, letters of credit are obtained for international sales. The Company maintains allowances for estimated potential credit losses. LONG LIVED ASSETS During the year ended March 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS No. 121"). This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. For the purposes of evaluating potential impairment, the Company's assets are grouped by the entity to which they relate. Since adopting SFAS No. 121, the Company gives consideration to events or changes in circumstances for each of its entities. Related asset impairment charges are presented on a separate line item in the accompanying consolidated statements of operations and comprehensive loss and are described in Note 3. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and are comprised of the following:
MARCH 31, MARCH 31, 1999 1998 ------------ ------------ Raw materials $ 8,980,306 $ 5,980,793 Work-in-process 756,122 1,313,974 Finished goods 7,048,239 5,876,710 ------------ ------------ 16,784,667 13,171,477 Less reserve for slow moving and excess inventories (9,807,563) (6,087,951) ------------ ------------ $ 6,977,104 $ 7,083,526 ============ ============
F-14 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) During the year ended March 31, 1998, the Company recorded a one-time charge to cost of sales aggregating $2,600,828 that related to noncancellable purchase commitments for items deemed to be excess inventories. As of March 31, 1999 and March 31, 1998, the remaining accrued noncancellable purchase commitments aggregated $1,180,050 and $2,600,828, respectively. Because the items required to be purchased by the Company under these commitments have been deemed to be excess inventories, the Company records an increase in gross inventories and a corresponding increase in the reserve for slow moving and excess inventories upon receipt of related items. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Expenditures for replacements and improvements are capitalized while expenditures for repairs and maintenance are charged to operating expense as incurred. Property and equipment are comprised of the following:
MARCH 31, MARCH 31, 1999 1998 ------------ ------------ Machinery, equipment, molds and tooling $ 2,826,774 $ 1,948,560 Furniture, fixtures, and office equipment 2,277,443 3,004,906 Software 114,345 375,000 ------------ ------------ 5,218,562 5,328,466 Less accumulated depreciation (3,745,142) (3,550,043) ------------ ------------ $ 1,473,420 $ 1,778,423 ============ ============
Depreciation of property and equipment is calculated on a straight-line basis over the following estimated useful lives:
Machinery, equipment, molds and tooling 5-10 years Furniture, fixtures, and office equipment 10 years Software 3 years Leasehold improvements Shorter of estimated useful life or term of lease
INTANGIBLE ASSETS Intangible assets consist primarily of patents and technology rights, goodwill and license agreements. The costs assigned to acquired intangible assets, partially based upon independent appraisals, are being amortized on a straight-line basis over the estimated useful lives of the assets ranging from 2 to 15 years. Intangibles are comprised of the following:
MARCH 31, MARCH 31, 1999 1998 ------------ ----------- Patents and technology rights $13,963,247 $13,062,710 Goodwill 4,036,628 4,036,628 License agreements 110,000 110,000 ------------ ----------- 18,109,875 17,209,338 Less accumulated amortization (6,831,315) (4,105,332) ------------ ----------- $11,278,560 $13,104,006 ============ ============
F-15 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) During the year ended March 31, 1999, the Company accelerated the amortization of goodwill recorded in connection with its acquisition of 51% of Data.Site because of the Company's decision to cease its funding of Data.Site (Note 3). As a result of this acceleration, the Data.Site goodwill is fully amortized as of March 31, 1999. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. A substantial portion of the Company's research and development expense is related to developing new products, improving existing products or processes, and clinical research programs. From time to time, the Company enters into agreements with certain doctors to exchange a portion of a product's sales price for services related to the completion of certain portions of clinical studies necessary for obtaining product approval from the U.S. Food and Drug Administration. Typically, the amounts consist of a portion of the product sales price which is equal to the cost of the services to be rendered by the doctor. Pursuant to the agreements, in the event the doctor is unable to complete the agreed upon clinical study, the doctor is required to remit a cash payment for the entire amount. ADVERTISING EXPENSES The Company expenses advertising costs as they are incurred. Advertising expenses aggregated $758,301, $628,410, and $143,608 for the years ended March 31, 1999, 1998, and 1997, respectively. INCOME TAXES The Company accounts for income taxes in accordance with statement of Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. SFAS 109 requires the liability method of accounting for income taxes. No credits for tax benefits have been recognized, since their realization is not reasonably assured (see Note 7). STATEMENTS OF CASH FLOWS The Company considers all highly liquid investments, including money market accounts and mutual funds, with a maturity of three months or less when acquired to be cash equivalents. NET LOSS PER SHARE Net loss per share has been computed based on the weighted average number of the Company's common shares outstanding during each presented period and excludes all shares of Class E-1 and Class E-2 common stock, outstanding or subject to option, because all such shares of stock are subject to escrow and the conditions for the release of those shares from escrow have not been satisfied. Furthermore, common stock equivalents, such as stock options and warrants, were not considered in the net loss per share calculation because the effect would be antidilutive. As discussed in Note 10, the Company issued convertible debentures in a private placement subsequent to year-end. F-16 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ACCOUNTING FOR STOCK-BASED COMPENSATION The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations, in accounting for its employee stock option grants. Options granted to consultants and other non-employees are accounted for under the fair value method in accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock Based Compensation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates and assumptions include inventory valuation and the realizability of certain intangible assets. The Company's inventories and intangible assets largely relate to technologies which have yet to gain widespread market acceptance. Inventory reserves have been established based upon sales forecasts. The Company believes that no further losses will be incurred on the disposition of its inventories and that the remaining economic life of the Company's intangible assets is reasonable. If widespread market acceptance of the Company's products is not achieved, the carrying amount of inventories and intangible assets could be materially affected. Conversely, better than expected sales could yield improved margins. RECENT ACCOUNTING STANDARDS In June 1997, the FASB issued SFAS No. 130 (SFAS No. 130), Reporting Comprehensive Income. This statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in an entity's financial statements. This statement requires an entity to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of a statement of financial position. The Company had no items of other comprehensive income during fiscal years 1999, 1998 and 1997. In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of and Enterprise and Related Information. This statement requires public enterprises to report financial and descriptive information about its reportable operating segments and establishes standards for related disclosures about product and services, geographic areas, and major customers. The Company has adopted the disclosure requirements of SFAS No. 131, however, management believes that the Company currently has only one reportable operating segment. During each of the years ended March 31, 1999, 1998 and 1997, the Company's revenues can be attributed to the following geographic locations:
1999 1998 1997 ------------ ------------ ----------- United States $12,500,000 $ 9,133,000 $3,818,000 Foreign countries 1,537,000 1,285,000 1,273,000 ------------ ------------ ----------- $14,037,000 $10,418,000 $5,091,000 ============ ============ ===========
Revenues attributed to an individual foreign country were not material for each of the years ended March 31, 1999, 1998 and 1997. The Company has no material assets located in foreign countries. F-17 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) All of the Company's revenues in each of the years ended March 31, 1999, 1998 and 1997 related to sales of products for a variety of dental, ophthalmic and surgical applications. It would be impracticable for the Company to report revenues from sales of each product or groups of similar products as the Company does not use such financial information to produce its general-purpose financial statements. During the years ended March 31, 1999, 1998 and 1997, no single external customer accounted for 10 percent or more of the Company's revenues. RECLASSIFICATIONS Certain amounts in the 1998 consolidated financial statements have been reclassified to conform to current year presentations. 3. BUSINESS ACQUISITIONS AND DISPOSITIONS DATA.SITE, LLC Effective January 31, 1997, the Company entered into a joint venture agreement with Refractive Surgical Services, LLC (RSS), a Kansas City, Missouri based entity engaged in the development of certain medical outcomes software. Pursuant to this joint venture agreement, the Company and RSS formed Data.Site, LLC (Data.Site). RSS contributed substantially all of its tangible and intangible assets and substantially all of its liabilities to Data.Site. The Company then acquired a 51 percent interest in Data.Site through the issuance of 159,787 shares of its Class A common stock to RSS valued at approximately $1.2 million. These 159,787 shares were valued at $7.53 per share, which represented the average quoted closing price of the Company's common stock over the 15-day period prior to the effective date of this transaction. The Company also committed to contribute $1,000,000 in cash to Data.Site. This commitment was satisfied through cash payments made by the Company to Data.Site of $900,000 and $100,000 during the years ended March 31, 1998 and 1997, respectively. Data.Site has been consolidated with the Company commencing with the effective date of the acquisition. In connection with this transaction, the Company also assumed net liabilities of Data.Site aggregating $305,000 on the date of acquisition. The Company incurred no material direct or indirect acquisition costs in connection with this transaction. The Data.Site acquisition was accounted for under the purchase method of accounting. Accordingly, the total acquisition purchase price, as detailed above, of approximately $1.5 million was allocated among receivables from RSS ($266,000), purchased software ($250,000) and goodwill ($984,000). The goodwill is being amortized over an estimated useful life of 5 years, which considers factors such as expected technical obsolescence and industry competition. Through March 31, 1999, the Company has funded Data.Site's operations with advances of cash or equivalent services in the aggregate amount of $2,036,452. As of March 31, 1999 and 1998, RSS owed the Company $599,194 and $266,000, respectively, and such amounts have been fully reserved. In March 1999, Data.Site's board of directors adopted a plan to discontinue its operations through the cessation of funding to Data.Site by the Company. As a result, the Company has effectively phased out the operations of Data.Site. As of March 31, 1999, Data.Site is no longer conducting business and has only two remaining employees and no material assets. The Company does not expect to realize significant gains or losses upon the ultimate disposal of the assets of Data.Site. As of March 31, 1999, Data.Site has trade accounts payable of $238,862, amounts due to the Company of $537,258, and amounts due to the minority interest member of $549,194. F-18 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BUSINESS ACQUISITIONS AND DISPOSITIONS As a result of the decision to phase out the operations of Data.Site, the amortization period of the goodwill recorded in the Data.Site acquisition was accelerated to reduce the balance of the Data.Site goodwill to $0 as of March 31, 1999. Additionally, the Company recognized asset impairment charges of $240,905 during the year ended March 31, 1999 related to certain of Data.Site's property and equipment. EYESYS TECHNOLOGIES, INC. On September 30, 1997, the Company closed its acquisition of 100% of the equity interests of EyeSys Technologies, Inc. (EyeSys), a manufacturer and distributor of a specialized line of diagnostic ophthalmic equipment. The related purchase price consisted of 1,236,668 shares of the Company's common stock (including 319,684 shares held in an escrow account), $470,000 in cash and options to purchase 210,000 shares of the Company's common stock. The common stock issued in this transaction was valued at $9.716 per share. As provided in the related purchase agreement, such amount was determined using average quoted closing prices over the 15-day period prior to the acquisition closing date. The escrowed shares were placed in escrow in order to provide a source for payment of claims that might be made by the Company relating to representations and warranties made by EyeSys in the acquisition. These representations and warranties generally related to the assets, liabilities, business, and operations of EyeSys. The escrow period has lapsed, but there is currently a dispute between the Company and the former EyeSys shareholders concerning whether these representations and warranties have been breached. The escrow shares will be released to the Company and/or the former EyeSys shareholders upon resolution of these claims. The resolution of these claims may be made either through an agreement of the parties, arbitration, or other legal process. The 319,684 escrowed shares have been excluded from the determination of the acquisition purchase price, as such shares were deemed to be "contingent consideration" under the provisions of APB No. 16. If and when they are released, the allocation of the adjusted purchase price will be re-assessed. The estimated value of options to purchase 210,000 shares of the Company's common stock aggregated $214,500 and was determined in accordance with SFAS 123. EyeSys has been consolidated with the Company commencing with the acquisition date. In connection with this transaction, the Company assumed net liabilities of EyeSys in the amount of $2,183,489 on the acquisition date. Additionally, under the provisions of EITF 94-3 and 95-3, the Company recognized liabilities related to a noncancellable lease for facilities previously utilized by EyeSys ($206,000) and employee relocation costs ($187,000). As of March 31, 1999, the Company has satisfied all relocation costs liabilities, but has not yet satisfied the lease liability as the Company is attempting to negotiate a settlement with the related landlord. Direct acquisition costs associated with this transaction aggregated $1,035,845 and related primarily to due diligence, legal, accounting, and closing costs. Such amounts have been included in the purchase price of the acquisition. The EyeSys acquisition was accounted for under the purchase method of accounting. Accordingly, the total acquisition purchase price, as detailed above, of approximately $13.2 million was allocated among in-process research and development ($10,200,000) patents ($2,600,000) and goodwill ($406,000). The acquired patents relate to developed technologies for products generating revenue at the time of acquisition and are being amortized over estimated useful lives up to 15 years. The goodwill is being amortized over an estimated useful life of 5 years, which considers factors such as expected technological obsolescence and industry competition. F-19 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BUSINESS ACQUISITIONS AND DISPOSITIONS (continued) The Company obtained an independent third-party valuation report to assist management in determining the value of the purchased in-process research and development as of the acquisition date. The estimated value of these projects was determined to be $10,200,000, which was recorded as in-process research and development acquired in connection with business acquisitions in the consolidated statements of operations and comprehensive loss. In determining the estimated value of these projects, the valuation report used the discounted cash flow method and a 40% discount rate. The research and development projects acquired by the Company, each related project's estimated percent complete at the acquisition date, and the estimated timing of the commencement of cash flows for each acquired project on the acquisition date are included in the following table.
ESTIMATE PERCENT INITIAL EXPECTATION ACQUIRED PROJECT: COMPLETE: OF CASH FLOWS: ----------------- ---------- -------------- System 2000 v.4 50% 1997 20/20 Handheld Topographer 85% 1997 Innovative Corneal Topography Checkerboard 75% 1998 Spatial Resolved Refractometry 100% 1998
In addition to these in-process research and development projects, there were three other projects under way at EyeSys, which were based on technologies that the Company elected not to pursue. Other costs incurred by the Company that related to the EyeSys acquisition aggregated $2,540,585 and these costs were excluded from the acquisition purchase price as they were not considered direct acquisition costs in accordance with APB No. 16. Such costs included salaries and travel related expenses associated with the individuals responsible for the transition and integration of the EyeSys business ($830,000), related moving and storage costs ($135,000) and other costs ($200,000). These amounts are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. In addition, subsequent to the closing of the EyeSys acquisition, the Company determined that certain adjustments were required to properly reflect the EyeSys opening balance sheet. Accordingly, the Company recorded general and administrative expenses of $350,000 that related to license fees previously received by EyeSys for which management believes it is probable that such fees will be contested, and $250,000 that related to receivables acquired from EyeSys that are considered uncollectible. The Company also recorded a charge to cost of sales aggregating $548,000 that related to obsolete inventories acquired from EyeSys, and an asset impairment charge of $228,000 related to fixed assets acquired from EyeSys. As of March 31, 1999 and 1998, the Company has accrued direct and indirect acquisition costs of $785,980 and $1,620,224, respectively, and such amounts are included in the accompanying consolidated balance sheets. The major components of the liability that remains as of March 31, 1999 include potential refund of certain license fees ($350,000), a noncancellable lease liability ($206,000) and legal fees ($150,000). At the time of the acquisition of EyeSys, management recognized that there were several major steps that had to be taken to integrate the operations of EyeSys. These included: o Shutting down the manufacturing operations of EyeSys and moving that function to the Company's facility in Irvine, California. This involved terminating the lease on an EyeSys facility in Houston, Texas and terminating the EyeSys employees engaged in manufacturing. The key employees involved in this function were given a three-month pay package to assist in the transition. This occurred in the first three months following the acquisition. o Relocating the marketing and sales function and the research and development function to the Company's facility in Irvine within the first three months following acquisition. This involved moving one person in research and development and one person in sales and marketing from Texas to California. F-20 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BUSINESS ACQUISITIONS AND DISPOSITIONS (continued) o Relocating the general and administrative functions from Texas to California within the first three months following acquisition. This involved retaining one EyeSys employee for a several month period to assist in the transition. With the exception of terminating the lease on the EyeSys Houston facility, all of these actions were completed by March 31, 1998. The Company is currently in a dispute with the landlord of the Houston facility concerning the termination of the Houston lease. In November 1998, EyeSys' corporate name was changed to EyeSys-Premier, Inc. OPHTHALMIC IMAGING SYSTEMS During the final four months of fiscal 1998, the Company acquired a controlling interest in Ophthalmic Imaging Systems (OIS) for $3.3 million in cash and 24,734 shares of the Company's common stock valued at $245,064. The common stock issued in this transaction was valued at $9.908 per share. As provided in the related purchase agreement, such amount was determined using average quoted closing prices over the 15-day period prior to the acquisition closing date. OIS is engaged in the business of designing, developing, manufacturing and marketing digital imaging systems and image enhancement and analysis software for use by practitioners in the ocular health field. Equity accounting was used during the period in which the Company owned at least 20% but less than 50% of the OIS stock (December 1997 through February 1998). Upon acquiring a controlling interest in OIS, the Company had a 51% interest in OIS, which it held as of March 31, 1999 and 1998. Accordingly, OIS has been consolidated with the Company in the accompanying consolidated financial statements since February 1998. In connection with this transaction, the Company assumed net liabilities of OIS in the amount of $761,063 on the acquisition date. Additionally, under the provisions of EITF 95-3, the Company recognized liabilities related to "stay" bonuses for certain key OIS employees that aggregated $266,600. As of March 31, 1999, the Company has satisfied $150,000 of these liabilities and the remaining amounts are expected to be satisfied when the functions performed by these key OIS employees are integrated with the Company. Direct acquisition costs associated with this transaction aggregated $673,650 and related primarily to investment banker fees, due diligence, legal and accounting costs. Such amounts have been included in the purchase price of the acquisition. The OIS acquisition has been accounted for under the purchase method of accounting. Accordingly, the total acquisition purchase price, as detailed above, of approximately $5.2 million was allocated among in-process research and development ($2,600,000) and goodwill ($2,646,000). The goodwill is being amortized over an estimated useful life of 5 years, which considers factors such as expected technological obsolescence and industry competition. F-21 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BUSINESS ACQUISITIONS AND DISPOSITIONS (continued) The Company's management was responsible for the allocation of a portion of the purchase price to in-process research and development. The estimated value of these projects was determined to be $2,600,000, which was recorded as in-process research and development acquired in connection with business acquisitions in the consolidated statements of operations and comprehensive loss. In determining the estimated value of these projects, management used the discounted cash flow method and a 25% discount rate. The research and development projects acquired by the Company, each related project's estimated percent complete at the acquisition date, and the estimated timing of the commencement of cash flows for each acquired project on the acquisition date are included in the following table.
ESTIMATE INITIAL EXPECTATION ACQUIRED PROJECT: PERCENT COMPLETE: OF CASH FLOWS: ----------------- ----------------- -------------- Future Angiography Products 85% 1999 Glaucoma-Scope(R)Modification Products 50% 2000 Digital Fundus Imager 80% 1999
In addition to these in-process research and development projects, there was one other project under way at OIS, which was based on technologies that the Company elected not to pursue. Other costs incurred by the Company that related to the OIS acquisition aggregated $48,000 and these costs were excluded from the acquisition purchase price as they were not considered direct acquisition costs in accordance with APB No. 16. Such costs were primarily comprised of moving, shipping and storage costs, and are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. As of March 31, 1999 and 1998, the Company has accrued direct and indirect acquisition costs of $288,087 and $459,960, respectively, and such amounts are included in the accompanying consolidated balance sheets. The major components of the liability that remains as of March 31, 1999 include legal and professional fees ($150,000), "stay" bonuses ($116,600) and other costs ($21,400). At the time of the acquisition of a majority interest in OIS in February 1998, management recognized that there were several major steps that had to be taken to integrate the operations of OIS. These included: o Completing the acquisition of the remaining 49% interest of OIS. This was expected to occur within the following six to nine months after the acquisition of 51% of OIS, but has not yet occurred. o Transferring the manufacturing function of OIS from Sacramento, California to the Company's facility in Irvine, California. This was expected to occur within three months following the acquisition of the balance of OIS and would have involved the layoff of approximately six people. o Transferring the sales and marketing function of OIS, including technical support and customer service, from Sacramento to Irvine. This would have involved the integration of the sales force of OIS with our ophthalmic sales force, the transfer of one technical support person and the layoff of approximately seven persons. These actions were scheduled to occur within three months following the acquisition of the remaining 49% interest of OIS. o Transferring the research and development function of OIS from Sacramento to Irvine within three months following the acquisition of the balance of OIS. This would have involved the layoff of one person. F-22 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BUSINESS ACQUISITIONS AND DISPOSITIONS (continued) o Transferring the general and administrative functions of OIS from Sacramento to Irvine within three months following the acquisition of the balance of OIS. This would have involved the layoff of approximately three people. o Closing down the Sacramento facility of OIS approximately three to four months following the acquisition of the balance of OIS. Although the Company is in continuing discussions with OIS concerning the acquisition of the balance of OIS, it has not yet reached such an agreement. Accordingly, the steps mentioned above have not occurred in their entirety. As of March 1999, the Company has become an OEM manufacturer for OIS. The Company also has integrated the sales forces of the two companies in early fiscal year 1999. In addition, the Company and OIS have begun to jointly develop new products which are now selling. The following unaudited pro forma condensed consolidated results of operations for the years ended March 31, 1998 and 1997 give effect to the EyeSys and OIS acquisitions as if they had occurred at the beginning of fiscal 1998 and 1997: 1998 1997 ------------- ------------ Net sales $ 17,975,000 $ 12,638,000 Net loss (37,837,000) (9,799,000) Net loss per share (3.31) (1.68) The unaudited pro forma information is not necessarily indicative of the combined results of operations that would have occurred during the periods presented nor for future results of operations. The Company entered into a Stock Purchase Agreement, dated February 25, 1998, pursuant to which it agreed, subject to certain conditions, to commence an exchange offer to acquire all of the outstanding common stock of OIS not owned by the Company. This Stock Purchase Agreement was terminated as of August 21, 1998. In connection with this termination, the Company may be liable to pay OIS a $500,000 break-up fee, which could be satisfied by the reduction of indebtedness of OIS to the Company which arose after March 31, 1998. The parties are currently negotiating various issues relating to the termination of the Purchase Agreement and the Company's acquisition of the 49% minority interest of OIS. None of the in-process research and development projects acquired in fiscal year 1998 had yet reached technological feasibility as of the date of acquisition and no alternative future uses currently exist. OTHER During fiscal 1998, three other business acquisitions occurred. Total consideration paid by the Company included cash of $350,000, shares of the Company's common stock aggregating $200,000, and other consideration aggregating $138,000. These business acquisitions were not individually or collectively significant to the financial condition or operating results of the Company. F-23 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. RESEARCH GRANT In September 1995, the Company obtained a Small Business Innovative Research Grant totaling approximately $750,000 for the study of laser emulsification. Pursuant to the terms of the grant, the Company is eligible to receive reimbursement for research and development costs incurred in connection with the laser emulsification study up to $750,000 upon the achievement of certain milestones, as defined. During fiscal 1997, the Company received the final grant payment of approximately $450,000. Amounts received under the grant were offset against research and development costs incurred in the study. 5. LINES OF CREDIT The Company had a credit facility with a bank which provided for borrowings of up to $2,100,000. As of March 31, 1998, total borrowings under this agreement were $1,936,000, bearing interest at the bank's prime rate (8.50% at March 31, 1998). Borrowings under the agreement were secured by a certificate of deposit and were repaid in September 1998. The agreement expired in September 1998. The Company's OIS subsidiary has an accounts receivable financing agreement, which allows for advances of up to 80% of eligible receivables up to $960,000. The financing agreement is subject to annual renewal in November of each year, unless terminated by either party. As of June 30, 1999, March 31, 1999 and 1998, $16,157, $70,470 and $132,634 were outstanding under OIS's line of credit, respectively. 6. COMMITMENTS AND CONTINGENCIES COMMITMENTS The Company leases its office and production facilities under a noncancellable operating lease that expires in December 2000. Total rental expense under operating leases was $331,000, $251,000, and $296,000 for the fiscal years ended March 31, 1999, 1998, and 1997, respectively. At March 31, 1999, future minimum lease payments under noncancellable operating leases are as follows: 2000 $ 245,412 2001 187,866 ---------- $ 433,278 ========== OIS has a month to month operating lease which requires minimum monthly payments of $7,000. IFS LITIGATION The Company entered into an agreement with Infrared Fiber Systems, Inc. (IFS), a supplier of certain fiber optics, that expires in the fiscal year ending March 31, 2002. The agreement requires the supplier to sell exclusively to the Company fiber optics for medical and dental applications as long as the Company purchases defined minimum amounts. F-24 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES (continued) In March 1994, the Company initiated litigation against IFS. The Company's complaint alleges that IFS and two of its officers misrepresented IFS' ability to supply optical fibers, and that IFS breached its supply agreement and certain warranties. In April 1994, IFS filed a cross-complaint alleging breach of contract and intentional interference with prospective economic advantage, seeking declaratory relief that the contract has been terminated and that IFS is free to market its fiber optics to others. In July 1994, Coherent, Inc., a major shareholder of IFS and a manufacturer of medical lasers which employ IFS optical fibers, joined the lawsuit for the express purpose of defending their rights to the IFS optical fibers. In May 1995, the Company instituted litigation concerning this dispute in Orange County, California Superior Court against Coherent, Westinghouse Electric Corporation (Westinghouse) and an individual employee of Westinghouse, who was an officer of IFS from 1986 to 1993, when the events involved in the federal action against IFS took place and while Westinghouse owned a substantial minority interest in IFS. The complaint charges that Coherent conspired with IFS in the wrongful conduct which is the subject of the federal lawsuit and interfered with the Company's contracts and relations with IFS and with prospective contracts and advantageous economic relations with third parties. The complaint asserts that Westinghouse is liable for its employee's wrongful acts as an IFS executive while acting within the scope of his employment at Westinghouse. The lawsuit seeks injunctive relief and compensatory damages. In October 1995, the federal action was stayed by order of the court in favor of the California state court action, in which the pleadings have been amended to include all claims asserted by the Company in the federal action. In July 1996, the court in the California state court action granted demurrers by Westinghouse and the employee of Westinghouse to all causes of action against them, as well as all but one of the Company's claims against Coherent. As a result, the claims that were the subject of the granted demurrers have been dismissed, subject to the Company's right to appeal. The Company has filed an appeal of these decisions as they relate to Westinghouse and the Westinghouse employee, and briefs have been submitted. No date has been set for a hearing of this appeal. No trial date has been set as to the remaining outstanding causes of action. SHAREHOLDERS LITIGATION The Company and certain of the officers and directors have been named in a number of securities class action lawsuits which allege violations of the Securities Exchange Act or the California Corporations Code. The plaintiffs seek damages on behalf of classes of investors who purchased the Company's stock between May 7, 1997 and April 15, 1998. The complaints allege that the Company misled investors by failing to disclose material information and making material misrepresentations regarding the Company's business operations and projections. The Company has also been named in a shareholder derivative action purportedly filed on its behalf against certain officers and directors arising out of the same alleged acts. The Company has reached an agreement in principle with lead plaintiffs and their counsel to settle the class and derivative actions. Under the terms of the agreement in principle, in exchange for a release of all claims, the Company would pay 2,250,000 shares of common stock and $4,600,000 in cash. The cash portion of the settlement would be paid by the Company's insurance carrier. Completion of the settlement is subject to execution of the final settlement agreement, court approval and certain other conditions. If the settlement is not completed, is not approved, or is not consummated for any reason, the parties would continue to litigate the actions. In accordance with the terms of the agreement in principle to settle class and derivative actions, the Company established a reserve during the quarter ended December 31, 1998 for the issuance of 2,250,000 shares of common stock. These shares were valued at a price of $3.31 per share, which was the closing price of the Company's stock on November 18, 1998, the effective date of the proposed settlement agreement. The Company has also included approximately $634,000 of associated legal and professional fees in this reserve, but has not included in the reserve approximately $4,600,000 in cash that would be paid by the Company's insurers, as the Company's insurers have deposited the cash portion of the settlement into an escrow account for direct payment to the plaintiffs upon final completion and approval of the settlement agreement. F-25 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES (continued) The Company is involved in various other disputes and lawsuits arising from its normal operations. The litigation process is inherently uncertain and it is possible that the resolution of these disputes and other lawsuits may adversely affect the Company. However, it is the opinion of management, that the outcome of such other matters will not have a material adverse impact on the Company's consolidated financial position, results of operations, or cash flows. EMPLOYMENT CONTRACTS Certain of the Company's executive officers are employed pursuant to arrangements which provide for severance payments upon the termination of their employment. These officers have also entered into Termination Agreements with the Company, under which they would be paid an amount equal to two times his or her highest annual cash compensation during the preceding three calendar years if, following a change in control of the Company, their employment was terminated other than Premier Laser Systems, Inc. or cause, their pay, bonus, title or responsibilities was reduced or other adverse employment actions were taken. For purposes of this Agreement, a change in control includes among other things the acquisition by any person of 25% or more of the voting power of the Company's outstanding securities, there is a change in the composition of the majority of the members of the Board of Directors under circumstances described in the agreement, or the Company ceases to exist following a merger or consolidation. OTHER The Company has executed royalty agreements with certain parties that require the payment of royalties upon the achievement of defined sales levels. To date, no such royalty payments have been required pursuant to the royalty agreements. 7. INCOME TAXES The Company has incurred operating losses since its inception and, as a result, no provision for or benefit from income tax has been recorded. Deferred tax assets comprised the following at March 31:
1999 1998 ------------- ------------- Tax operating loss carryforwards $ 18,659,120 $ 14,502,970 Inventory and receivable reserves and related temporary differences 8,433,262 1,705,050 Depreciation and amortization 1,139,454 890,215 Research and development credit carryforwards 539,630 424,494 Accruals not currently deductible 3,623,530 193,255 ------------- ------------- Total deferred tax assets 32,394,996 17,715,984 Valuation allowance for deferred tax assets (32,394,996) (17,715,984) ------------- ------------- Net deferred taxes $ -- $ -- ============= =============
F-26 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (continued) The Company's income tax provision (benefit) for the years ended March 31, 1999, 1998, and 1997, differs from that computed at the federal statutory corporate tax rate, as follows:
1999 1998 1997 ---------- ---------- ---------- Statutory rate (34.0)% (34.0)% (34.0)% Change in valuation allowance 33.5 % 18.8 % 27.4 % Merger and acquisition costs -- % 3.7 % -- % Purchased in-process research and development -- % 11.3 % 1.4 % Write-off of investment -- % -- % 5.1 % Other .5 % .2 % .1 % ---------- ---------- ---------- Effective tax rate -- % -- % -- % ========== ========== ==========
The Company has approximately $55 million of federal net operating loss carryforwards at March 31, 1999 ($36 million for state purposes), which will begin to expire in 2006. A valuation allowance has been established for the entire deferred tax asset. The Tax Reform Act of 1986 contains provisions which could substantially limit the availability of the net operating loss carryforwards if there is a greater than 50% change in ownership during a three year period. As a result of the Company's public offerings, the Company experienced an ownership change of more than 50%, Premier Laser Systems, Inc resulting in a limitation on the utilization of their net operating loss carryforwards. As of March 31, 1999, management estimates that annual loss carryforward limitations aggregated approximately $2,000,000. Further ownership changes may occur as a result of shares to be issued to settle litigation (Note 6) or may occur as a result of the exercise of stock options or issuance of stock to complete business combinations. The limitation is based on the value of the Company on the date that the change in ownership occurred. The ultimate realization of the loss carryforwards is dependent on the extent of limitations and the future profitability of the Company. 8. SHAREHOLDERS' EQUITY INITIAL AND SECONDARY PUBLIC OFFERINGS On December 7, 1994, the Company completed an initial public offering of 2,760,000 Units of the Company's securities, each unit consisting of one share of Class A common stock, one redeemable Class A warrant and one redeemable Class B warrant (the Units). The Company realized net proceeds of $10,953,000 from this offering and the related exercise of the underwriters over allotment option. Each Class A warrant consisted of the right to purchase one share of Class A common stock and one Class B warrant through November 30, 1999 at an exercise price of $6.50. Each Class B warrant consists of the right to purchase one share of Class A common stock at an exercise price of $8.00. The Company has the right to redeem the Class A and Class B warrants after November 30, 1997 at a price of $.05 per warrant subject to certain conditions regarding the bid price of the Class A common stock. On October 18, 1996, the Company completed a public offering of 11,000 Units of the Company's securities. On November 6, 1996, the Company's underwriter exercised its over allotment option, purchasing 1,650 additional Units of the Company's securities. Each of the above Units consisted of 190 shares of Class A common stock and 95 redeemable Class B warrants. The Company realized a combined net proceeds of $10,401,000. Each Class B warrant consists of the right to purchase one share of Class A common stock through November 30, 1999 at an exercise price of $8.00. F-27 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SHAREHOLDERS' EQUITY (continued) During fiscal 1998, the Company received approximately $41,735,000 from the exercise of options and warrants, and issued an additional 4,176,000 Class B Warrants and 6,270,000 shares of Class A Common Stock. As a result of such exercises, no Class A warrants remain outstanding. STOCK OPTIONS The Company has adopted several stock option plans that authorize the granting of options to employees, officers and/or consultants to purchase shares of the Company's Class A common stock. The stock option plans are administered by the Board of Directors or a committee appointed by the Board of Directors, which determines the terms of the options, including the exercise price, the number of shares subject to option and the exercisability of the options. The options are generally granted at the fair market value of the shares underlying the options at the date of the grant and generally expire within ten years of the grant date. In addition to options granted pursuant to the stock option plans, the Company has issued options to purchase shares of the Company's Class A common stock to certain members of the Board of Directors, consultants and former notes payable holders. The Company has elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its employee stock option grants. Accordingly, no compensation expense has been recognized for its employee stock option awards because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant. The Company recognizes expense related to grants of options to non-employees in accordance with the fair value provisions of SFAS No. 123. Such expenses aggregated $268,208 in 1999, $479,624 in 1998 and $190,001 in 1997. FASB Statement No. 123, Accounting for Stock-Based Compensation, requires proforma information regarding net income (loss) and net income (loss) per share using compensation that would have been incurred if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of options granted have been estimated at the date of grant using a Black-Scholes option pricing model using the following assumptions:
1999 1998 1997 ----------- ---------- ---------- Risk free interest rate 5.50% 6.00% 6.00% Stock volatility factor 1.50 0.64 0.58 Weighted average expected option life 4 years 4 years 4 years Expected dividend yield 0% 0% 0%
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's compensation expense used in determining the pro forma information ($2,049,615, $1,947,458, and $974,469 for fiscal years 1999, 1998, and 1997, respectively) may not be indicative of such expense in future periods as the 1997 amounts are based only on option grants after December 15, 1994. Proforma information is as follows:
1999 1998 1997 ------------- ------------- ------------- Pro forma net loss $(32,890,324) $(35,663,782) $ (7,007,826) Pro forma net loss per share $ (2.25) $ (3.12) $ (1.20)
F-28 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SHAREHOLDERS' EQUITY (continued) A summary of the Company's stock option activity, and related information for the years ended March 31 follows (excluding option grants that are subject to shareholder approval):
1999 1998 1997 ------------------------ ------------------------ ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ----------- ------- ----------- ------- ----------- ------- Outstanding--beginning of year 2,841,669 $ 6.44 2,308,049 $ 5.51 1,423,949 $ 5.58 Granted 1,729,000 7.40 1,254,500 8.58 1,042,756 6.16 Exercised (57,115) 4.69 (395,271) 6.20 (1,899) 1.00 Forfeited/cancelled (268,953) 6.61 (325,609) 8.40 (156,757) 10.53 ----------- ------- ----------- ------- ----------- ------- Outstanding--end of year 4,244,601 $ 6.84 2,841,669 $ 6.44 2,308,049 $ 5.51 =========== ======= =========== ======= =========== =======
The weighted average remaining contractual life of options as of March 31, 1999 was as follows:
WEIGHTED WEIGHTED WEIGHTED NUMBER OF AVERAGE AVERAGE AVERAGE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE YEARS PRICE EXERCISABLE PRICE ------------------------ ----------- ---------- ------- ------------ ------- $1.00--$2.81........... 485,923 5 $ 2.10 122,230 $ 2.32 $4.50--$8.85........... 2,792,306 8 6.48 1,765,306 5.98 Greater than $9.00..... 966,372 9 10.29 486,537 10.46 ----------- ------------ 4,244,601 2,374,073 =========== ============
CLASS E-1 AND CLASS E-2 COMMON STOCK The Company's Class E-1 and Class E-2 common stock is held in escrow, is not transferable, can be voted and will be converted into Class A common stock only upon the occurrence of specified events. All of the PREMIER LASER SYSTEMS, INC. Class E-1 common stock will be automatically converted into Class A common stock in the event that the Company's net income before provision for income taxes, as defined, exceeds certain amounts. Such amount is $26,343,900 for the fiscal year ending March 31, 2000, and such amount will be increased in proportion to increases in the weighted average number of shares of common stock outstanding (as defined) during the relevant year, as compared to the number of shares outstanding immediately after the Company's initial public offering. If the above event does not occur, the Class E-1 common stock will be canceled on June 30, 2000. All of the Class E-2 common stock will be automatically converted into Class A common stock in the event that the Company's net income before provision for income taxes, as defined, amounts to at least $71,181,750 for the year ending March 31, 2000 (which amount shall be adjusted in the same manner as that for the Class E-1 common stock). If the above event does not occur, the Class E-2 common stock will be canceled on June 30, 2000. The Company will, in the event of the release of the Class E-1 and Class E- 2 common stock, recognize during the period in which the earnings thresholds are met, a substantial noncash charge to earnings equal to the fair value of such shares on the date of their release, which would have the effect of significantly increasing the Company's loss or reducing or eliminating earnings, if any, at such time. F-29 PREMIER LASER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. EMPLOYEE BENEFIT PLAN The Company adopted a Defined Contribution 401(k) Profit Sharing Plan, effective January 1, 1997, covering substantially all of its employees. The Plan permits eligible employees to contribute a portion of their compensation to the Plan, on a tax deferred basis. The Company may make matching contributions, in amounts determined by the Company's Board of Directors. The Company's contributions are in the form of shares of the Company's common stock. During 1997, no amounts were contributed by the Company to the Plan. During 1999 and 1998, 32,397 and 3,752 shares have been approved for contribution by the Company, respectively. 10. SUBSEQUENT EVENTS In May 1999, the Company filed a registration statement to register 4,278,146 shares of its Class A common stock underlying convertible debentures issued in a private placement. Upon filing the registration statement and other certain documents, the Company received $2.5 million in the private transaction and the Company expects to receive an additional $1.5 million on the effective date of the registration statement. In September 1999, $1,000,000 of the Company's convertible debentures, and the accrued interest thereon, was converted into 673,461 shares of the Company's Class A common stock (unaudited). In connection with the acquisition of OIS by Premier (Note 3), OIS previously recorded approximately $400,000 in professional fees and expenses owing to a financial advisor. In May 1999, OIS reached an agreement with this financial advisor to reduce the aggregate amount of professional fees and expenses previously recorded in connection with the acquisition to $50,000 (unaudited). F-30 PREMIER LASER SYSTEMS, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 1999 (RESTATED), 1998 (RESTATED) AND 1997 (RESTATED)
DEDUCTIONS/ BALANCE AT RECOVERIES BALANCE AT BEGINNING OF AND END OF DESCRIPTION PERIOD ADDITIONS WRITE-OFF OTHER * PERIOD ----------------------------- ------------ --------- ----------- ------- ---------- 1999 Allowance for doubtful accounts receivable $1,224,845 $1,079,566 $(307,253) $ -- $1,997,158 Inventory reserves 6,087,951 3,719,612 -- -- 9,807,563 1998 Allowance for doubtful accounts receivable $ 613,263 $ 385,407 $(149,801) $ 375,976 $1,224,845 Inventory reserves 1,203,324 3,103,627 -- 1,781,000 6,087,951 1997 Allowance for doubtful accounts receivable $ 154,677 $ 403,515 $(119,054) $ 174,125 $ 613,263 Inventory reserves 950,325 252,999 -- -- 1,203,324 * Allowance amounts were recorded in connection with business acquisitions.
F-31 EX-23.1 2 CONSENT OF HASKELL & WHITE LLP CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-1680) pertaining to the 1995 Stock Option Plan of Premier Laser Systems, Inc., and related Prospectus, the Registration Statement (Form S-8 No. 333-27151) pertaining to the February 1996 Stock Option Plan of Premier Laser Systems, Inc., and related Prospectus, the Registration Statement (Form S-8 No. 333-48379) pertaining to the 1996 Stock Option Plan of Premier Laser Systems, Inc., and related Prospectus, and the Registration Statement (Form S-8 No. 333-29497) pertaining to the 1997 Stock Option Plan of Premier Laser Systems, Inc., and related Prospectus, of our report dated June 9, 1999, except for Notes 2, 3 and 8, as to which the date is October 4, 1999 and the fourth paragraph of Note 1 as to which the date is February 17, 2000, with respect to the consolidated financial statements and schedule of Premier Laser Systems, Inc., included in its Annual Report (Form 10-K/A) for the year ended March 31, 1999. HASKELL & WHITE LLP Irvine, California February 18, 2000 -----END PRIVACY-ENHANCED MESSAGE-----