-----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, FLnnmlOKrFRfjSIgz6LPWCupRjxLG3K96eTDrQdjGxhEoqfJnI7yEVsZBSuBl5sW /38hJFyw495Lrx8VryJY9g== 0001001277-97-000045.txt : 19970716 0001001277-97-000045.hdr.sgml : 19970716 ACCESSION NUMBER: 0001001277-97-000045 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970715 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPHTHALMIC IMAGING SYSTEMS INC CENTRAL INDEX KEY: 0000885317 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 943035367 STATE OF INCORPORATION: CA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11140 FILM NUMBER: 97641068 BUSINESS ADDRESS: STREET 1: 221 LATHROP WAY STE 1 CITY: SACRAMENTO STATE: CA ZIP: 95815 BUSINESS PHONE: 9166462020 10QSB 1 FORM 10QSB FOR 5/31/97 FOR OIS FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 1997 Commission File Number: 1-11140 OPHTHALMIC IMAGING SYSTEMS (Exact name of registrant as specified in its charter) CALIFORNIA 94-3035367 (State of Incorporation) (IRS Employer Identification No.) 221 LATHROP WAY, SUITE I, SACRAMENTO, CA 95815 (Address of principal executive offices) (916) 646-2020 (Issuer's telephone number) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No As of June 30, 1997, 3,732,999 shares of common stock, at no par value, were outstanding. 1 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 2 Ophthalmic Imaging Systems Condensed Balance Sheet May 31, 1997 (Unaudited) Assets Current assets: Cash and equivalents $ 170,145 Accounts receivable, net 1,971,638 Inventories, net 1,340,847 Prepaid expenses and other current assets 131,753 ------------ Total current assets 3,614,383 Furniture and equipment, net of accumulated depreciation and amortization of $737,725 410,273 Other assets 68,087 ------------ $ 4,092,743 ============ Liabilities and Stockholders' Equity Current liabilities: Borrowings under line of credit $ 500,000 Accounts payable 597,481 Accrued liabilities 891,723 Accrued warrant appreciation right 245,857 Deferred extended warranty revenue 101,067 Customer deposits 21,386 Current portion of notes payable 3,733 ------------ Total current liabilities 2,361,247 Notes payable, less current portion -- Commitments Stockholders' equity: Preferred stock, no par value, 20,000,000 shares authorized; none issued or outstanding -- Common stock, no par value, 20,000,000 shares authorized; 3,732,999 issued and outstanding 9,581,542 Accumulated deficit (7,850,046) ----------- Total stockholders' equity 1,731,496 ----------- $ 4,092,743 =========== See accompanying notes. 3 Ophthalmic Imaging Systems Condensed Statements of Operations (Unaudited)
Three months ended May 31, Nine months ended May 31, 1997 1996 1997 1996 Net revenues $ 1,975,085 $ 1,808,632 $ 5,144,738 $ 5,888,311 Cost of sales 1,195,359 1,190,646 3,179,099 3,913,858 ----------------------------------- ------------------------------ Gross Profit 779,726 617,986 1,965,639 1,974,453 Operating expenses: Sales and marketing 371,878 403,742 1,194,726 1,257,492 General and administrative 132,176 179,490 664,852 542,351 Research and development 256,808 217,899 754,234 585,747 ------------------------------------ ------------------------------ Total operating expenses 760,862 801,131 2,613,812 2,385,590 ------------------------------------ ------------------------------ Income (loss) from operations 18,864 (183,145) (648,173) (411,137) Other expense, net (15,196) (166,321) (42,475) (234,762) ------------------------------------ ----------------------------- Net income (loss) $ 3,668 $ (349,466) $ (690,648) $ (645,899) ==================================== ============================= Shares used in the calculation of net income (loss) per share 4,692,333 2,243,533 3,729,433 1,836,953 ==================================== ============================= Net income (loss) per share $ 0.00 $ (0.16) $ (0.19) (0.35) ==================================== ============================= See accompanying notes. 4 Ophthalmic Imaging Systems Condensed Statements of Cash Flows Increase (Decrease) in Cash and Equivalents (Unaudited) Nine months ended May 31, 1997 1996 Operating activities: Net loss $ (690,648) $ (645,899) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 103,964 74,327 Net increase in current assets other than cash and equivalents (726,751) (613,160) Net (decrease) increase in current liabilities other than short-term borrowings (19,846) 397,686 ------------------------------ Net cash used in operating activities (1,333,281) (787,046) Investing activities: Purchases of furniture and equipment (152,526) (102,257) Net decrease (increase) in other assets 18,032 (2,152) ------------------------------ Net cash used in investing activities (134,494) (104,409) Financing activities: Principal payments on notes payable (4,751) (5,295) Net (repayments of) proceeds from line-of-credit borrowings (50,000) 150,000 Net proceeds from sale of common stock 641,346 2,269,261 ------------------------------ Net cash (used) provided by financing activities 586,595 2,413,966 ------------------------------ Net increase (decrease) in cash and equivalents (881,180) 1,522,511 Cash and equivalents at beginning of period 1,051,325 317,205 ------------------------------ Cash and equivalents at end of period $ 170,145 $ 1,839,716 ============================== See accompanying notes. 5 Ophthalmic Imaging Systems Notes to Condensed Financial Statements Three and Nine Month Periods ended May 31, 1997 and 1996 (Unaudited) Note 1. Basis of Presentation The accompanying unaudited condensed balance sheet as of May 31, 1997, condensed statements of operations for the three and nine month periods ended May 31, 1997 and 1996 and the condensed statements of cash flows for the nine month periods ended May 31, 1997 and 1996 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and notes thereto included in the registrant's (the Company's) Annual Report for the Fiscal Year Ended August 31, 199 on Form 10-KSB. In the opinion of management, the accompanying condensed financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial position and results of operations for the periods presented. The results of operations for the period ended May 31, 1997 are not necessarily indicative of the operating results for the full year. Certain amounts in the fiscal 1996 financial statements have been reclassified to conform with the presentation in the fiscal 1997 financial statements. Note 2. Net Income (Loss) Per Share Net income per share is computed using the weighted average number of common and common equivalent shares of common stock outstanding, which common equivalent shares include the dilutive effect from stock options and warrants. Net loss per share is computed using the weighted average number of shares of common stock outstanding. Common equivalent shares from stock options and warrants are excluded from the computation of net loss per share because their effect is antidilutive. 6 Note 3. Line of Credit In April 1995, the Company entered into a revolving line of credit agreement (the "Credit Agreement") with a bank (the "Bank"). The maximum amount available under the terms of the Credit Agreement is $750,000 and is based upon eligible outstanding accounts receivable balances. Borrowings under the Credit Agreement bear interest at the Bank's prime lending rate plus two and one-half percent and are secured by virtually all assets of the Company (11% as of May 31, 1997). The Credit Agreement contains certain restrictive covenants which provide for, among other things, certain working capital and net worth balances and ratios, and limitations on the amount of net loss the Company may incur in a quarter. In connection with the Credit Agreement, the Company also modified a warrant previously issued to the Bank. The modifications included increasing the number of common shares for which the warrant is exercisable to 25,000, changing the per share exercise price to $2.39 and extending the expiration date to April 2000. In November 1995, the Company and the Bank amended the Credit Agreement. The amendments included extending the maturity date to April 1996, and increasing the amount of the loss the Company may incur in a quarter. As a condition to amending the Credit Agreement, the Company modified the warrant issued to the Bank. The modifications included increasing the number of common shares under the warrant for which the warrant is exercisable to 67,500, reducing the per share exercise price to $1.73 and extending the expiration date to November 2000. The number of shares for which the warrant is exercisable was reduced to 50,000 due to the occurrence of certain events set forth in the Credit Agreement. In April 1996, the Company and the Bank again amended the Credit Agreement. The amendments included extending the maturity date to July 1996 and limiting the amount of the net loss the Company may incur in a quarter. 7 Note 3. Line of Credit (continued) In May 1996, the Bank exercised an alternative stock appreciation right available under the warrant. In conjunction with said exercise, the Company accrued a liability of approximately $220,000 as of May 31, 1996, said amount being the entire amount of the obligation under the warrant. The Company recognized additional interest expense of approximately $151,000 during the quarter ended May 31, 1996 in connection with said exercise. The Company had previously accrued as interest expense approximately $69,000 in connection with a put right under the warrant, which right is foregone in lieu of the Bank exercising its alternative stock appreciation right. The parties have agreed in principal to revise the form of consideration and timing of payment under the alternative stock appreciation right, but have not as yet agreed to the definitive terms thereof. In November 1996, the Company and the Bank again amended the Credit Agreement. Then amendments included, among other things, extending the maturity date to March 1997, subject to the occurrence of certain equity transactions, and limiting the amount of the net loss the Company may incur in the first and second quarter of fiscal 1997. As of May 31, 1997, borrowings in the amount of $500,000 were outstanding against the Credit Agreement. The Company was not in compliance with certain of the restrictive covenants for the quarter ending November 30, 1996 and the Company has requested from the Bank a waiver with respect to such non- compliance. The potential impact of not receiving a waiver from the Bank is that the Bank could demand payment of the balance owing against the Credit Agreement, which amount was $500,000 as of the date of this report. Note 4. Private Placement On November 21, 1995, the Company completed a private placement of 1,368,421 shares of its common stock with detachable warrants. With respect to each share of Common Stock purchased pursuant to the private placement, each purchaser received an "A Warrant" and a "B Warrant" to purchase shares of the Company's common stock. The A and B Warrants per share exercise prices are $1.25 and $1.75, respectively. The number of shares exercisable as well as the per share exercise prices of the A and B Warrants are subject to adjustment upon the occurrence of certain events. The A Warrants which were not previously exercised expired on March 5, 1997, as amended, and the B Warrants will expire on November 21, 1997. 8 Note 4. Private Placement (continued) In addition, the B Warrants are subject to redemption by the Company at $.10 per warrant commencing May 21, 1997 (the "Redemption Date") if the Company's common stock price exceeds $2.50 for the twenty trading days immediately preceding the corresponding Redemption Date. The placement agent was issued a warrant to purchase 250,000 shares of the Company's common stock at $.95 per share. The number of shares exercisable as well as the per share exercise price are subject to adjustment upon the occurrence of certain events. This warrant expires in November 1999. In addition, the placement agent will receive as a commission, 10% of the proceeds received by the Company upon the exercise of the A and B Warrants described above. In May 1996, 1,052,631 of the A Warrants were exercised. The net proceeds from this exercise were approximately $1,184,000. During the quarter ended February 28, 1997, the Company received net proceeds of approximately $495,000 for the exercise of certain of the A and B Warrants, the certificates for which shares have not been issued but which shares have been shown as outstanding as of May 31, 1997 in the accompanying Balance Sheet. Note 5. Subsequent Events The Credit Agreement discussed in Note 3 above expired in March 1997. In June 1997, the Bank extended the maturity date of the Credit Agreement to July 1997 and the Company is currently negotiating with the Bank to further extend said Credit Agreement. The potential impact of not negotiating an extension with the Bank is that the Bank could demand payment of the balance owing against the Credit Agreement, which amount was $500,000 as of the date of this report. In conjunction with said extension in June 1997, the Bank also granted to the Company waivers of the Company's non-compliance with certain of the restrictive covenants for the quarter ending November 30, 1996 as well as the non-occurrence of certain required equity transactions pursuant to the November 1996. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE STATEMENTS BELOW INCLUDE STATEMENTS THAT ARE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 21A OF THE SECURITIES ACT OF 1933, AS AMENDED, IN SECTION 21E OF THE SECURITIES ACT OF 1934, AS AMENDED, AND IS SUBJECT TO THE SAFE HARBOR CREATED THEREBY. FUTURE OPERATING RESULTS MAY BE ADVERSELY EFFECTED AS A RESULT OF A NUMBER OF FACTORS ENUMERATED IN THE COMPANY'S PUBLIC REPORTS. OVERVIEW To date, the Company has designed, developed, manufactured and marketed ophthalmic digital imaging systems and has derived substantially all of its revenues from the sale of such products. The Company has a reputation within the ophthalmic community for producing high quality, reliable, easy to use equipment and believes itself to be an acknowledged industry leader in the sales of digital ophthalmic imaging systems for instant fluorescein angiography. The Company continues to believe that as the U.S. healthcare system moves toward managed care, the needs of the managed care providers are changing the nature and demand for medical imaging equipment and services. New opportunities in telemedicine are emerging that may allow managed care organizations to reduce costs while maintaining their quality of patient care. The Company plans to leverage its digital imaging technology and established customer base to develop product features and services targeting telemedicine/managed care applications for the ocular health care industry. Since its inception, the Company's products have addressed primarily the needs of the ophthalmic flourescein angiography market, and more recently the indocyanine green ("ICG") market. The Company believes that the overall angiography market remains limited, however, and that sustaining growth in its traditional angiography equipment business will become increasingly difficult. In recognition of this, the Company is expanding its product capabilities to address the emerging telemedicine market, including remote consultation. The Company will continue to support its entire line of digital angiography products, focusing its future efforts on developing product enhancements and pursuing viable opportunities in this market, particularly as they relate to telemedicine/managed care applications. The Company's objective is to become a leading provider of telemedicine products and services in the ocular health care industry, while maintaining its position as a market leader in its existing digital imaging products. In this regard, in fiscal 1996 the Company developed a Reading and Documentation Center, through which it intends to provide documentation services of electronically transmitted digital images acquired at remote locations. 10 During fiscal 1996, the Company also secured an agreement to conduct a pilot program with a major managed care provider to evaluate remote image interpretation for diabetic retinopathy screening. This pilot program is currently targeted for completion at the end of calendar 1997. At the conclusion of the pilot program, if successful, the Company anticipates entering into negotiations with the provider, and others, for contracting the Reading Center services. The Company currently has several initial commitments to purchase its Reading and Documentation Center services. There can be no assurance, however, that the pilot program will prove a success or that these negotiations or commitments will result in contracts for these services. During the 1996 fall meeting of the American Academy of Ophthalmology, the Company introduced a lower-priced digital imaging system incorporating telemedicine features and targeting the general ophthalmology market. The majority of orders received in conjunction with this introduction were delivered during the second and third quarters of fiscal 1997. The Company continues to assess potential market opportunities in anticipation of results from clinical validation studies of its Glaucoma- Scope product, an instrument specifically designed for the early diagnosis of glaucoma, a commonly occurring eye disease regularly screened for by eye care practitioners. The Company's results of operations have historically fluctuated from quarter to quarter due to a number of factors and are not necessarily indicative of the results to be expected for any future period or expected for the fiscal year ending August 31, 1997. There can be no assurance that revenue growth or profitability can be achieved or sustained in the future. The following discussion should be read in conjunction with the unaudited interim financial statements and the notes thereto which are set forth elsewhere in this Report on Form 10-QSB. In the opinion of management, the unaudited interim period financial statements include all adjustments, all of which are of a normal recurring nature, that are necessary for a fair presentation of the results of the periods. 11 RESULTS OF OPERATIONS The Company generated net income of $3,668, or essentially breakeven per share for the third quarter of fiscal 1997 as compared to a net loss of $349,466, or $.16 per share, for the third quarter of fiscal 1996. For the first nine months of fiscal 1997, the Company incurred a net loss of $690,648, or $.19 per share, as compared to a net loss of $645,899, or $.35 for the comparable period of fiscal 1996. The Company's revenues for the third quarter of fiscal 1997 were $1,975,085, representing an increase of approximately 9% from revenues of $1,808,632 for the third quarter of fiscal 1996. Revenues for the first nine months of fiscal 1997 were $5,144,738 versus $5,888,311 for the comparable period of 1996. The 1997 third quarter revenues include revenues from the Company's initial deliveries of lower-priced higher- margin digital imaging systems incorporating telemedicine features, which systems were introduced at the 1996 fall meeting of the American Academy of Ophthalmology. A primary factor contributing to the reduced 1997 nine-month revenue level was the reallocation of the Company's resources to address emerging opportunities in the telemedicine/managed care market. In addition, the 1996 nine-month revenue levels were largely attributable to strong sales of the Company's digital angiography systems incorporating ICG and Windows features introduced over the previous two years. The Company will continue to allocate resources to address the telemedicine/managed care market. Based on its backlog of current orders, the Company does not anticipate maintaining revenue or profitability levels attained during the 1997 third quarter and, in comparison to previous years, the Company may experience reduced revenue levels from sales of its digital imaging equipment products in the near- term. Contributions to revenues from sales of Glaucoma-Scope units have been negligible and management does not anticipate significant near-term sales improvement for the Glaucoma-Scope, recognizing that longer-term sales growth remains dependent upon market acceptance of the system and resolution of healthcare reform and reimbursement issues. 12 Gross margins were approximately 39% during the third quarter ended May 31, 1997 versus approximately 34% for the comparable quarter of 1996. For the nine-month period ended May 31, 1997, gross margins were approximately 38% as compared to approximately 34% during the comparable period of 1996. The increase in gross margin percentage for the nine- month period is attributable primarily to reduced direct material costs associated with delivered systems, principally the sales of the lower- priced higher-margin digital imaging systems delivered during the 1997 second and third quarters. The increased gross margin percentage during the 1997 third quarter also reflects the impact of reduced fixed manufacturing and support costs during 1997 compared to the comparable quarter of 1996. The Company continues to evaluate its expenses in this area consistent with current and anticipated business conditions and management anticipates that near-term margin improvement, if any, would result principally from reduced material costs associated with current deliverable system configurations, outsourcing certain manufacturing and assembly operations and related fixed cost reduction measures implemented during the recently completed third quarter of 1997, including personnel cutbacks, economies of scale from increased unit production, and other manufacturing efficiencies. Sales and marketing and general and administrative expenses accounted for approximately 26% of total revenues during the third quarter of fiscal 1997 compared to approximately 32% for the third quarter of fiscal 1996. For the first nine months of fiscal 1997 and 1996, such expenses accounted for approximately 36% and 31%, respectively. Expense levels decreased to $504,054 during the third quarter of 1997 versus $583,232 during the third quarter of 1996, primarily due to the impact of a non- recurring downward revision of amounts owed under certain of the Company's accounts payable during the 1997 third quarter. For the first nine months of 1997, expense levels increased to $1,859,578 from $1,799,843 during the comparable period of 1996. The primary factors contributing to this increase were costs associated with hiring additional support personnel, and related costs associated with the telemedicine/managed care start-up marketing efforts. While the Company has implemented during the third fiscal quarter of 1997 certain fixed cost reduction measures, including personnel cutbacks, management anticipates that expenses in this area will continue to run above historical levels for the foreseeable future, in particular conjunction with the hiring of additional senior management level personnel targeted for the fourth quarter of fiscal 1997. 13 Research and development expenses, as a percentage of revenues, were approximately 13% in the third quarter of 1997 versus approximately 12% in the third quarter of 1996. For the first nine months of fiscal 1997, such expenses accounted for approximately 15% of total revenues as compared to approximately 10% during the comparable period of 1996. Expense levels increased in actual dollar terms to $256,808 during the third quarter of 1997 from $217,899 in 1996. During the first nine months of fiscal 1997, expense levels also increased in actual dollar terms to $754,234 versus $585,747 in 1996. The Company anticipates that it will incur increased expense levels in the near-term as it dedicates more resources to the research and development of telemedicine/managed care applications, while continuing to incur expenses with respect to its current products. In this regard, the Company intends to continue research and development efforts on product enhancements and reducing cost configurations for its current products, particularly as they impact telemedicine/managed care applications. Other expense was $15,196 during the second quarter of fiscal 1997 versus $166,321 during the same period of 1996. Other expense during the first nine months of fiscal 1997 was $42,475 as compared to $234,762 during the comparable period of 1996. The primary contributing factor to these changes was a significant decrease in interest expense during 1997 versus 1996 associated with an existing credit line, in particular conjunction with an alternative stock appreciation right pursuant to a warrant previously issued to the Company's Bank. In May 1996, the Bank exercised an alternative stock appreciation right available under the warrant. In conjunction with said exercise, the Company recognized additional interest expense of approximately $151,000 during the quarter ended May 31, 1996. The Company had previously recognized interest expense of approximately $69,000 in connection with a put right under the warrant, which right is foregone in lieu of the Bank exercising its alternative stock appreciation right. During the 1996 nine-month period, the Company recognized as interest expense approximately $208,000 in connection with both the put right and the alternative stock appreciation right. The parties have agreed in principal to revise the form of consideration and timing of payment under the alternative stock appreciation right, but have not as yet agreed to the definitive terms thereof. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities used cash of $1,333,281 and $787,046 in the first nine months of fiscal 1997 and 1996, respectively. The cash used by operations in 1997 resulted primarily from the net loss during the period and the increase in accounts receivable associated with timing of product deliveries toward the end of the period, which amount was partially offset by a reduction in inventory levels during the period. The cash used by operations in the first nine months of fiscal 1996 resulted primarily from the net loss during the period and increases in accounts receivable and inventory, which amounts were partially offset by increases in accounts payable and other current liabilities, excluding borrowings under the Credit Agreement. 14 Cash used in investing activities was $134,494 during the first nine months of 1997 as compared to $104,409 during the same period for 1996. The Company's primary investing activities consist of equipment and other capital asset acquisitions. The Company does not currently have any pending material commitments regarding capital expenditures. The Company, however, will continue to upgrade its existing management information systems, which may result in increased near-term capital expenditures. In addition, the Company anticipates certain capital expenditures to support efforts to expand its technology to telemedicine/managed care applications. The Company anticipates that related expenditures, if any, will be financed from one or more of the following sources: (i) working capital; (ii) borrowings under an existing credit agreement, if available; or (iii) debt, equity or other financing arrangements, if any, available to the Company. The Company generated cash of $586,595 from financing activities during the first nine months of fiscal 1997 as compared to $2,413,966 during the same period of fiscal 1996. The cash generated from financing activities during the 1997 period was principally the net proceeds from the exercise of warrants issued pursuant to a private placement of the Company's common stock in November 1995, and, to a lesser extent, net proceeds from the exercise of stock options issued to employees, which amounts were partially offset by repayments of borrowings under the Credit Agreement. The sources of cash from financing activities during the 1996 period were principally the net proceeds from a private placement of the Company's common stock in November 1995, the net proceeds from the exercise of certain A Warrants issued pursuant to said private placement in May 1996 and, to a lesser extent, borrowings under the Credit Agreement. Principal repayments on notes payable was negligible in both 1997 and 1996. As indicated above, the Company intends to allocate significant resources to the development and marketing of telemedicine/managed care products and services. During this development period, the Company anticipates that it could experience a decrease in revenues and an increase in operating losses as a result of incurring additional expenses in connection with activities relating to the development and marketing of telemedicine/ managed care products and services. Accordingly, the Company anticipates that it could continue to experience negative cash flow from operations in the near-term. In addition, as indicated in Note 5 of the Notes to Condensed Financial Statements, the Company is currently negotiating with the Bank to extend the Credit Agreement which expired in July 1997. While the Company has negotiated previous such extensions with the Bank, there can be no assurance that it will be able to negotiate further extensions. The potential impact of not negotiating an extension from the Bank is that the Bank could demand payment of the balance owing against the Credit Agreement, which amount was $500,000 as of May 31, 1997. As also indicated above, although the Company and the Bank have agreed in principal to revise the form of consideration and timing of payment under the alternative stock appreciation right and the Company believes that it will be able to enter into a final agreement with the Bank with regard to such matters, there can be no assurance that it will be able to do so, in which case the entire amount of the obligation, which amount at May 31, 1997, including accrued interest thereon, was approximately $246,000, would be due. 15 Although the Company believes that it will be able to raise the funds necessary to satisfy its liquidity and capital requirements during the next twelve months from alternative sources including extending or refinancing its Credit Agreement, other debt financing, issuing equity securities or entering into other financing arrangements, there can be no assurance that such financing will be available and, if available, that it will be obtained in terms favorable to the Company. Additional capital could also be made available to the Company pursuant to the exercise of additional warrants issued in connection with the November 1995 private placement, as well as from other outstanding options and warrants. In this regard, the Company has received a commitment to exercise a significant number of these warrants from certain of the warrant holders, and while the Company is currently in active discussions with such warrant holders regarding said exercise, there can be no assurance that any such warrants will be exercised in the near-term, if at all. 16 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES In November 1996, the expiration date for the unexercised A Warrants issued pursuant to the Private Placement of the Company's Common Stock effective November 21, 1995, was extended from November 21, 1996 to February 19, 1997. In February 1997, said expiration date was extended from February 19, 1997 to March 5, 1997. During the quarter, the Company issued 11,800 shares of its Common Stock in consideration of $35,400 from the exercise of stock options granted under the Company's 1992 Nonstatutory Stock Option Plan. The Common Stock issued upon the exercise of the options were issued pursuant to an exemption under rule 701 promulgated under the Securities Act of 1933 (the "Securities Act"). There were no underwriting discounts or commissions paid in connection with such issuance. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits listed on the accompanying Index to Exhibits below are filed as a part hereof and are incorporated by reference as noted. (b) No reports on Form 8-K were filed during the quarter for which this report was filed. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the undersigned has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OPHTHALMIC IMAGING SYSTEMS (Registrant) By: STEVEN R. VERDOONER Steven R. Verdooner, President and Chief Financial Officer (principal executive officer and principal financial and accounting officer) Dated: July 15, 1997 18 INDEX TO EXHIBITS Exhibit Footnote Number Description of Exhibit Reference 3.1 Articles of Incorporation of the Registrant, as * amended. 3.2 Amended Bylaws of the Registrant * 4.1 See Exhibits 3.1 and 3.2 for provisions of the * Articles of Incorporation, as amended, and the amended Bylaws of the Registrant defining the rights of holders of Common Stock of the Registrant. 4.2 Specimen of Stock Certificate. * 10.1 Lease Agreement, dated as of July 10, 1987, * between the Registrant (as tenant) and Transamerica/Emkay Income Properties I, as amended on July 23, 1990 and June 11, 1991. 10.1(a) Seventh Amendment to lease effective as of (7) July 18, 1996. 10.2 Employment Agreement, dated March 27, 1992, * between the Registrant and Dennis J. Makes. 10.2(a) Amendment dated June 30, 1993 to the Employment (1) Agreement between the Registrant and Dennis J. Makes dated March 27, 1992. 10.3 Confidentiality Agreement, dated March 27, 1992 * between the Registrant and Dennis J. Makes. 10.4 Confidentiality Agreement, dated March 27, 1992 * between the Registrant and Steven R. Verdooner. 10.5 Confidentiality Agreement, dated March 27, 1992 * between the Registrant and Richard Wullaert. 10.6 Consulting Agreement, dated January 23, 1992, * between the Registrant and G. Peter Halberg, M.D. 19 10.7 Assignment dated October 23, 1990 of U.S. Patent * Application for Apparatus and Method for Topo- graphical Analysis of the Retina to the Registrant by Steven R. Verdooner, Patricia C. Meade, and Dennis J. Makes (as recorded on Reel 5490, Frame 423 in the Assignment Branch of the U.S. Patent and Trademark Office). 10.8 Form of International Distribution Agreement used * by the Registrant and sample form of End User Software License Agreement. 10.9 Original Equipment Manufacturer Agreement, dated * April 1, 1991, between the Registrant and SONY Medical Electronics, a division of SONY Corporation of America. 10.10 Original Equipment Manufacturer/Value Added * Reseller Agreement, dated May 7, 1991, between the Registrant and Eastman Kodak Company. 10.11 The Registrant's 1992 Nonstatutory Stock Option * Plan and sample form of Nonstatutory Stock Option Agreement. 10.12 Common Stock and Warrant Purchase Agreement * ("Stock Purchase Agreement"), dated as of February 8, 1992, among the Registrant, Jonnie R. Williams, Kathleen M. O'Donnell, as Trustee of Irrevocable Trust No. 6, FBO F.E. O'Donnell, Jr., M.D., Steven R. Verdooner and Dennis J. Makes. 10.12(a) Amendment No. 1 to Stock Purchase Agreement, * dated March 25, 1992, among the Registrant, Jonnie R. Williams, individually, Jonnie R. Williams, as Trustee of Irrevocable Trust No. 1, Rambert Simmons, and Kathleen M. O'Donnell, as Trustee of Irrevocable Trust No. 6, FBO F.E. O'Donnell, Jr., M.D. 10.13 Cross-Indemnification Agreement, dated * February 14, 1991, among Dennis Makes, Steven Verdooner, and Richard Wullaert. 10.14 Key Man Life Insurance Policies in the amount of * $1,000,000 for each of Dennis J. Makes and Steven R. Verdooner, with the Registrant as the named beneficiary. 20 10.15 Warrant dated February 12, 1993 issued by the (1) Registrant to Steven R. Verdooner to purchase 50,000 shares of Common Stock. 10.16 Stock Option Plan. (1) 10.17 Promissory Note dated January 4, 1993 from the (1) Registrant to Western Financial Savings Bank in the amount of $25,209.83 due in full by January 4, 1998. 10.18 Rental Agreement dated May 1, 1994 by and between (2) the Registrant and Robert J. Rossetti. 10.19 Security and Loan Agreement (with Credit Terms (3) and Conditions) dated April 12, 1995 by and between the Registrant and Imperial Bank. 10.19(a) General Security Agreement dated April 12, 1995 (3) by and between the Registrant and Imperial Bank. 10.19(b) Warrant dated November 1, 1995 issued by the (4) Registrant to Imperial Bank to purchase 67,500 shares of Common Stock. 10.19(c) Amended Loan and Security Agreement (with Credit (4) Terms and Conditions) dated November 1, 1995. 10.19(d) Registration Rights Agreement dated November 1, (4) 1995 between the Registrant and Imperial Bank. 10.19(e) Amended Loan and Security Agreement (with Credit (6) Terms and Conditions) dated April 4, 1996. 10.19(f) Amended Loan and Security Agreement (with Credit (7) Terms and Conditions) dated July 12, 1996. 10.19(g) Amended Loan and Security Agreement (with Credit (7) Terms and Conditions) dated November 21, 1996. 10.19(h) Amended Loan and Security Agreement (with Credit Terms and Conditions) dated June 3, 1997. 10.20 Purchase Agreements dated November 21, 1995 (4) between the Registrant, JB Oxford & Company and certain Investors. 10.20(a) Warrant Agreement dated November 21, 1995 between (4) the Registrant, JB Oxford & Company and certain Investors. 21 10.20(b) First Amendment Warrant Agreement dated November (7) 21, 1996 between the Registrant, JB Oxford & Company and certain Holders. 10.20(c) Registration Rights Agreement dated November 21, (4) 1995 between the Registrant, JB Oxford & Company and certain Investors. 10.21 Employment Agreement dated November 20, 1995 (4) between the Registrant and Steven R. Verdooner. 10.22 Employment Agreement dated November 20, 1995 (4) between the Registrant and R. Michael Clark. 10.25 The Registrant's 1995 Nonstatutory Stock Option (5) Plan and sample form of Nonstatutory Stock Option Agreement. * Incorporated by reference to the like-numbered exhibits previously filed with Registrant's Registration Statement on Form S-18, number 33-46864-LA. (1) Incorporated by reference to the Registrant's Annual Report on Form 10- KSB for the fiscal year ended August 31, 1993 filed on November 26, 1993. (2) Incorporated by reference to the Registrant's Annual Report on Form 10- KSB for the fiscal year ended August 31, 1994 filed on November 29, 1994. (3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended May 31, 1995 filed on July 14, 1995. (4) Incorporated by reference to the Registrant's Annual Report on Form 10- KSB for the fiscal year ended August 31, 1995 filed on November 29, 1995. (5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 filed on May 28, 1996, number 333-0461. (6) Incorporated by reference to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended May 31, 1996 filed on July 15, 1996. (7) Incorporated by reference to the Registrant's Annual Report on Form 10- KSB for the fiscal year ended August 31, 1996 filed on November 29, 1996.
EX-10 2 EXHIBIT 10.19(h) [IMPERIAL BANK LETTERHEAD] June 3, 1997 OPHTHALMIC IMAGING SYSTEMS 221 Lathrop Way, Suite I Sacramento, CA 95815 Attention: Mr. Steven R. Verdooner, President Mr. Steven C. Lagorio, Director of Finance Re: Imperial Bank Loan No. 700000559 Gentlemen: With reference to the Credit Terms and Conditions with Addendum (collectively referred to as the "Agreement") between Imperial Bank ("Bank") and Ophthalmic Imaging Systems ("Borrower") dated April 12, 1995 in connection with the above-referenced loan ("Loan"), and from time to time, the Bank and Borrower hereby modify the Agreement as follows: Paragraph 2 of the Addendum to the Loan Agreement, entitled, "Term and Repayment," as previously amended, is deleted in its entirety and is hereby replaced by the following: "The line of credit will require monthly payments of interest through and including July 5, 1997, at which time all outstanding principal, accrued but unpaid interest and other charges thereinafter shall be due and payable in full". Borrower shall pay Bank a $1,000 fee for this modification, which shall be due and payable upon execution hereof by Borrower. Bank hereby waives the Borrower's violation of the minimum quick ratio and minimum working capital covenants for the period ending 11/30/96. Bank hereby also waives the violation of the covenant which reads: "By 12-6-96, Borrower shall provide Bank with evidence satisfactory to Bank that Borrower has received a minimum of $500,000 in new equity. By 1-6-97, Borrower shall provide Bank with evidence satisfactory to Bank that Borrower has received a minimum of $250,000 in new equity in addition to the $500,000 in new equity described above." Except for the above-described waiver, the Agreement shall remain unaltered and in full force and effect. This letter is specific as to content and time and shall not constitute a waiver of any other current or future default or breach of any covenants contained in the Agreement or the terms and conditions of any other documents signed by Borrower in favor of Bank. The Bank may still exercise its rights or any other or further rights against Borrower because of any other breach not waived above. Ophthalmic Imaging Systems June 3, 1997 Page 2 of 2 Sincerely, THOMAS D. JORGENSEN Thomas D. Jorgensen Assistant Vice President Special Markets Group Accepted and agreed to: OPHTHALMIC IMAGING SYSTEMS By: STEVEN R. VERDOONER Title: President Date: June 6, 1997 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10QSB FOR OPHTHALMIC IMAGING SYSTEMS FOR THE PERIOD ENDED MAY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS AUG-31-1997 MAY-31-1997 170,145 0 1,971,638 0 1,340,847 3,614,383 1,147,998 (737,725) 4,092,743 2,361,247 0 0 0 9,581,542 0 1,731,496 1,975,085 1,975,085 1,195,359 1,195,359 760,862 0 15,196 3,668 0 3,668 0 0 0 3,668 0.00 0.00
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