-----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, EUwoRXfsH3kVNLfC3dFvwjN0zByEJdoq/1ukU7zNbo/SBPCyUHu4QcqzK/1MDAvc 8fov+ilBEtm36W2NhVwa+w== 0001001277-98-000076.txt : 19980716 0001001277-98-000076.hdr.sgml : 19980716 ACCESSION NUMBER: 0001001277-98-000076 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980715 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: SEC FILE NUMBER: 001-11140 FILM NUMBER: 98666819 BUSINESS ADDRESS: STREET 1: 221 LATHROP WAY STE 1 CITY: SACRAMENTO STATE: CA ZIP: 95815 BUSINESS PHONE: 9166462020 10QSB 1 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, 1998 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 July 14, 1998, 4,155,428 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, 1998 (Unaudited) ASSETS Current assets: Cash and equivalents $ 81,615 Accounts receivable, net 963,972 Inventories, net 879,441 Prepaid expenses and other current assets 92,111 -------------- Total current assets 2,017,139 Furniture and equipment, net of accumulated depreciation and amortization of $870,643 432,691 Other assets 18,772 ------------- $ 2,468,602 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowings under line of credit $ 125,147 Borrowings under note payable to significant shareholder 910,027 Accounts payable 504,954 Accrued liabilities 1,666,405 Accrued warrant appreciation right 262,113 Deferred extended warranty revenue 122,281 Customer deposits 279,116 Current portion of other notes payable 186 ------------- Total current liabilities 3,870,229 Notes payable, less current portion -- Commitments Stockholders' deficit: Preferred stock, no par value, 20,000,000 shares authorized; none issued or outstanding -- Common stock, no par value, 20,000,000 shares authorized; 4,155,428 issued and outstanding 10,492,365 Deferred compensation (243,519) Accumulated deficit (11,650,473) -------------- Total stockholders' deficit (1,401,627) -------------- $ 2,468,602 ============= SEE ACCOMPANYING NOTES. 3 Ophthalmic Imaging Systems Condensed Statements of Operations (Unaudited)
Three months ended Nine Months Ended May 31, May 31 1998 1997 1998 1997 Net revenues $ 1,377,830 $ 1,975,085 $ 4,747,864 $ 5,144,738 Cost of sales 889,882 1,103,344 3,098,530 3,021,321 ------------------------------- ------------------------------ Gross Profit 487,948 871,741 1,649,334 2,123,417 Operating expenses: Sales and marketing 524,586 463,893 1,585,422 1,352,504 General and administrative 538,645 132,176 1,792,003 664,852 Research and development 206,647 256,808 608,352 754,234 ------------------------------- ------------------------------ Total operating expenses 1,269,878 852,877 3,985,777 2,771,590 ------------------------------- ------------------------------- Income (loss) from operations (781,930) 18,864 (2,336,443) (648,173) Other expense, net (15,199) (15,196) (44,078) (42,475) ------------------------------- ------------------------------- Net income (loss) $ (797,129) $ 3,668 $(2,380,521) $ (690,648) =============================== =============================== Shares used in the calculation of basic net income (loss) per share 4,155,428 3,729,433 3,989,687 3,729,433 =============================== =============================== Basic net income (loss) per share $ (0.19) $ 0.00 $ (0.60) $ (0.19) =============================== =============================== Shares used in the calculation of diluted net income (loss) per share 4,155,428 4,692,334 3,989,687 3,729,433 =============================== =============================== Diluted net income (loss) per share $ (0.19) $ 0.00 $ (0.60) $ (0.19) =============================== ===============================
SEE ACCOMPANYING NOTES. 4 Ophthalmic Imaging Systems Condensed Statements of Cash Flows Increase (Decrease) in Cash and Equivalents) (Unaudited)
Nine months ended May 31, 1998 1997 Operating activities: Net loss $ (2,380,521) $ (690,648) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 95,812 103,964 Stock option compensation expense 97,375 -- Net decrease (increase) in current assets other than cash and equivalents 596,477 (726,751) Net increase (decrease) in current liabilities other than short-term borrowings 753,406 (19,846) ------------- -------------- Net cash used in operating activities (837,451) (1,333,281) Investing activities: Purchases of furniture and equipment (147,721) (152,526) Net (increase) decrease in other assets (11,387) 18,032 ------------- --------------- Net cash used in investing activities (159,108) (134,494) Financing activities: Principal payments on notes payable (2,048) (4,751) Net proceeds from borrowings under note payable to significant shareholder 910,027 -- Net repayments of line-of-credit borrowings (185,855) (50,000) Net proceeds from sale of common stock 213,750 641,346 -------------- -------------- Net cash provided by financing activities 935,874 586,595 -------------- -------------- Net decrease in cash and equivalents (60,685) (881,180) Cash and equivalents at beginning of period 142,300 1,051,325 -------------- -------------- Cash and equivalents at end of period $ 81,615 $ 170,145 ============== ==============
See accompanying notes. 5 Ophthalmic Imaging Systems Notes to Condensed Financial Statements Three and Nine Month Periods ended May 31, 1998 and 1997 (Unaudited) Note 1. Basis of Presentation The accompanying unaudited condensed balance sheet as of May 31, 1998, condensed statements of operations for the three and nine month periods ended May 31, 1998 and 1997 and the condensed statements of cash flows for the three and nine month periods ended May 31, 1998 and 1997 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, 1997 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, 1998 are not necessarily indicative of the operating results for the full year. Certain amounts in the fiscal 1997 financial statements have been reclassified to conform with the presentation in the fiscal 1998 financial statements. Note 2. Net Income (Loss) Per Share In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share". Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All net income (loss) per share amounts for all periods have been presented, and where necessary, restated to conform to the Statement 128 requirements. 6 Note 2. Net Income (Loss) Per Share (continued) The following table sets forth the computation of basic and diluted income (loss) per share:
Unaudited Unaudited Three Months Ended Nine Months Ended May 31, May 31, 1998 1997 1998 1997 Numerator for basic and diluted net income (loss) per share $ (797,129) $ 3,668 $ (2,380,521) $ (690,648) ================================================================ Denominator for basic net income (loss) per share: Weighted average shares 4,155,428 3,729,433 3,989,687 3,729,433 Effect of dilutive securities: Employee stock options -- 361,259 -- -- Warrants and other -- 601,642 -- -- ---------------------------------------------------------------- Dilutive potential common shares -- 962,901 -- -- ---------------------------------------------------------------- Denominator for diluted net income (loss) per share 4,155,428 4,692,334 3,989,687 3,729,433 ================================================================= Basic net income (loss) per share $ (0.19) $ 0.00 $ (0.60) $ (0.19) ================================================================= Diluted net income (loss) per share $ (0.24) $ 0.00 $ (0.65) $ (0.19) =================================================================
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") which, after several amendments, expired on November 7, 1997. The maximum amount available under the terms of the Credit Agreement was $750,000 and was based upon eligible outstanding accounts receivable balances. Borrowings under the Credit Agreement bore interest at the Bank's prime lending rate plus three percent and were secured by virtually all assets of the Company. The Credit Agreement also contained certain restrictive covenants which provided for, among other things, certain working capital and net worth balance and ratios. The Credit Agreement was subsequently converted to a full recourse accounts receivable credit agreement. 7 Note 3. Line of Credit (continued) On November 18, 1997, the Company entered into an accounts receivable credit agreement (the "Agreement") with the Bank, and all amounts outstanding under the Credit Agreement were considered to be the initial advance under the Agreement. The Agreement allows for up to an 80% advance rate on eligible accounts receivable balances, and the maximum borrowing base under the Agreement is $1.2 million. The Bank has full recourse against the Company and the Agreement expires in November 1998. Borrowings under the Agreement bear interest at the bank's prime lending rate plus 4%. In addition, the Bank will charge monthly an administrative fee equal to the greater of 1/2 % of the average daily balance for the month or $1,200. Under the terms of the Agreement, borrowings are secured by substantially all of the Company's assets. At May 31, 1998, approximately $125,000 was outstanding under the Agreement. Note 4. Private Placement In November 1995, the Company completed a private placement of 1,368,421 shares of its common stock with detachable warrants. The net proceeds from this offering was approximately $1,075,000. Along with each share of common stock issued, the purchasers were given an "A Warrant" and "B Warrant" to purchase shares of the Company's common stock. The A and B Warrants per share exercise prices were $1.25 and $1.75, respectively. The A and B Warrants expired on February 19, 1997, as amended, and November 21, 1997, respectively. The private placement underwriter was issued a warrant ("C 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 on November 21, 1999. In addition, the underwriter will receive as a commission 10% of the proceeds received by the Company upon exercise of the A and B Warrants described above. In February 1998, the underwriter sold its rights under the C Warrant and the C Warrant was exercised for all 250,000 shares exercisable thereunder. The net proceeds recognized from the exercise of said C Warrant was approximately $213,750 (see Note 6). 8 Note 5. Nonstatutory Stock Option Plan In October 1997, the Company's board of directors approved the 1997 Nonstatutory Stock Option Plan (the "Plan") under which all officers, employees, directors and consultants may participate. The Plan expires in October 2002. Options granted under the Plan are non-qualified stock options and will have a term of not longer than ten (10) years from the date of grant, unless otherwise specified in the option agreement. The exercise prices under the Plan will generally be at 100% of the fair market value of the Company's common stock on the date of grant. The maximum number of shares of the Company's common stock which may be optioned and sold under the Plan is 1,000,000, of which 793,000 options remained available for granting as of May 31, 1998. As of May 31, 1998, stock options to purchase 207,000 shares at exercise prices of between $1.09 and $1.94 were granted and outstanding under the Plan and none of the granted options were exercised. Note 6. Stock Purchase Agreement On February 25, 1998, the Company entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with Premier Laser Systems, Inc., a California corporation ("Premier") pursuant to which, among other things: (i) Premier agreed to commence a tender offer ("Tender Offer") to acquire all shares of the Company's common stock not held by Premier or its affiliates in exchange for a combination of cash and Premier securities; and (ii) the Company agreed to recommend that shareholders tender their shares of the Company's common stock in the Tender Offer and not to solicit any competing acquisition proposals. As a condition to the Stock Purchase Agreement, the Company agreed to amend its Rights Agreement ("Rights Agreement") dated as of December 31, 1997, by and between the Company and American Securities Transfer, Inc., as rights agent, to permit Premier to acquire up to 51.3% of the Company's outstanding Common Stock in private transactions to be made simultaneously with the execution of the Stock Purchase Agreement. 9 Note 6. Stock Purchase Agreement (continued) Under the Stock Purchase Agreement, pursuant to the Tender Offer, each of the Company's shareholders will receive, in exchange for each share of the Company's common stock: (i) $1.75 per share in cash; (ii) $0.25 in value (measured by a formula in the Stock Purchase Agreement) of Premier Class A Common Stock; and (iii) one Class C and one Class D Warrant (collectively, the "Warrants"). Each Warrant will be exercisable for fractional shares of Premier common stock having a value (at the measurement date as defined in the Stock Purchase Agreement) of $0.25, but the exercisability of such Warrants will be conditional upon the achievement of certain sales targets for the Company's products. No fractional shares of Premier common stock will be issued pursuant to the Tender Offer, and the Company's shareholders who otherwise would be entitled to receive a fractional share of Premier common stock will receive a cash payment in lieu thereof. It is anticipated that following consummation of the Tender Offer, Premier will engage in a merger transaction in which the remaining holders of the Company's common stock will receive an economic benefit similar to that being paid in the Tender Offer. The Tender Offer will be extended to any shares of the Company's common stock which are unconditionally issued or allotted upon the exercise of vested options granted under the Company's stock option plans or otherwise until the expiration date of the Tender Offer. In addition, option holders under the Company's stock option plans will be offered an opportunity to cancel any unexercised options in return for the grant of comparable Premier options (after giving effect to an exchange ratio based on a value of $2.18 per share of the Company's common stock), to purchase Premier common stock. The Company has been advised that the cash portion of the Private Acquisitions (as defined below), the Warrant exercise and the proposed Tender Offer (and any proposed merger), and the fees and costs incurred or to be incurred in connection therewith, have been and will be paid from existing cash and other working capital of Premier and that no outside sources of funds or borrowings will be used. Simultaneous with execution of the Stock Purchase Agreement, Premier entered into individual purchase agreements ("Purchase Agreement" or "Purchase Agreements") with three shareholders, including a director of the Company and JB Oxford & Company ("JBO"), providing for these parties to sell to Premier an aggregate of 730,360 shares of the Company's common stock. Additionally, JBO sold to Premier, pursuant to the terms of the JBO Purchase Agreement, warrants (the "JBO Warrants") to purchase 250,000 shares of the Company's common stock. Premier exercised the JBO Warrants on February 26, 1998 (the purchases made pursuant to the Purchase Agreements are referred to collectively as the "Private Acquisitions"). 10 Note 6. Stock Purchase Agreement (continued) The purchase of the Company's shares pursuant to the Private Acquisitions and the exercise of the JBO Warrants have increased Premier's beneficial ownership of the Company's common stock to an aggregate of 2,131,758 shares, or approximately 51.3% of the outstanding shares of the Company's common stock. The total consideration paid by Premier for the Company's common stock pursuant to the Private Acquisitions was approximately $2,137,185, or $2.18 per share, which consideration was paid for in a combination of cash and Premier securities in approximately the same relative amounts as to be paid to the Company's stockholders under the terms of the Stock Purchase Agreement. The Purchase Agreement with the Company's director provides for recession if Premier fails to make, or withdraws, abandons, or terminates the Tender Offer without purchasing all shares validly tendered and not withdrawn. In order to permit the Private Acquisitions and the offer contemplated by the Stock Purchase Agreement, the Board of Directors of the Company, after considering the terms of the Stock Purchase Agreement and an opinion rendered by the Company's independent financial advisors as to the fairness of Premier's offer to the shareholders of the Company, amended the Company's Rights Agreement. Note 7. Promissory Note with Significant Shareholder On April 30, 1998, the Company executed a promissory note (the "Note") in favor of Premier Laser Systems, Inc., a California corporation ("Premier"). Borrowings against the Note are available to the Company in the form of periodic advances. The maximum principal amount available under the Note is $500,000, which principal amount outstanding, together with any and all accrued interest, is payable the earlier of (i) written demand by Premier or (ii) April 30, 1999. Under the terms of the Note, borrowings bear interest at the rate of 8 1/2 % per annum, are secured by substantially all of the Company's assets and are subordinate to borrowings against the Line of Credit with the Company's Bank (see Note 3). At May 31, 1998, approximately $900,000 in principal and interest was outstanding under the Note and the Company and Premier were in negotiations to increase the maximum principal amount available under the Note accordingly. 11 Note 8. Subsequent Events (continued) The Company and Premier are currently in discussion concerning the possibility of revising the Stock Purchase Agreement to provide for an all cash offer (see Note 6). At May 31, 1998, the amounts advanced by Premier under the Note exceeded the originally stated maximum amount. Accordingly, during the fourth quarter the parties have agreed in principle to increase the maximum principal amount to cover all advances to date plus anticipated future advances. The maximum principal amount available under the Note is expected to be not less than $1.5 million. It is anticipated that an amendment to the Note reflecting the revised terms will be executed in the near term (see Note 7). 12 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. The Company, a California corporation, is engaged in the business of designing, developing, manufacturing and marketing ophthalmic digital imaging systems and has derived substantially all of its revenues from the sale of such products. Since its inception, the Company's products have addressed primarily the needs of the ophthalmic fluorescein angiography market, and more recently the indocyanine green ("ICG") market. While the Company believes that the overall angiography market has modest growth potential, sustaining growth in its traditional angiography equipment business may become increasingly difficult due to increased competition. During the past quarter, the Company's product development efforts continued to be primarily involved with features and enhancements to its existing products targeting various telemedicine applications, including screening, remote consultation and distance learning, as well as exploration of new products. On February 25, 1998, the Company entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with Premier Laser Systems, Inc., a California corporation ("Premier"), pursuant to which, among other things: (i) Premier agreed to commence a tender offer ("Tender Offer") to acquire all shares of the Company's common stock not held by Premier or its affiliates in exchange for a combination of cash and Premier securities; and (ii) the Company agreed to recommend that shareholders tender their shares of the Company's common stock in the Tender Offer and not to solicit any competing acquisition proposals. As a condition to the Stock Purchase Agreement, the Company agreed to amend its Rights Agreement ("Rights Agreement") dated as of December 31, 1997 by and between the Company and American Securities Transfer, Inc., as rights agent, to permit Premier to acquire up to 51.3% of the Company's outstanding common stock in private purchase agreements made simultaneously with the execution of the Stock Purchase Agreement. For additional information regarding the terms and conditions of the Stock Purchase Agreement, see the Company's Form 8-K filed on March 9, 1998, as referenced in Part II, Item 6 of this Form 10-QSB and Note 8 of the Notes to Condensed Financial Statements. 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, 1998. There can be no assurance that revenue growth or profitability can be achieved or sustained in the future. 13 The following discussion should be read in conjunction with the unaudited interim financial statements and the notes thereto which are set forth elsewhere in this Report on Form 10-QSB. In the opinion of management, the unaudited interim period financial statements include all adjustments, all of which are of a normal recurring nature, that are necessary for a fair presentation of the results of the periods. RESULTS OF OPERATIONS The Company incurred a net loss of $797,129, or $.19 per share, for the third quarter of fiscal 1998 as compared to net income of $3,668, or breakeven, for the third quarter of fiscal 1997. The Company incurred a net loss of $2,380,521, or $.60 per share, for the first nine months of 1998 versus a net loss of $690,648, or $.19 per share, for the comparable period of 1997. The per share figures are diluted amounts in accordance with Financial Accounting Standards No. 128 (see Note 2 of Notes to Condensed Financial Statements). The 1998 figures reflect the adverse impact on revenues and corporate operations resulting from efforts associated with the contemplated transaction with Premier. The Company has incurred significant costs and professional fees and expenses in connection therewith, while diverting management's attention and selling efforts away from the Company's core operations during this period. The Company's revenues for the third quarter of fiscal 1998 were $1,377,830, representing a decrease of approximately 30% from revenues of $1,975,085 for the third quarter of fiscal 1997. Revenues for the first nine months of fiscal 1998 were $4,747,864, or a decrease of approximately 8% versus $5,144,738 for the comparable period of 1997. One of the primary reasons for the significantly decreased revenue levels during the third quarter of 1998 versus the third quarter of 1997 was revenues recognized during the second and third quarters of 1997 from deliveries against orders received during the first quarter of 1997, which orders were carried over in an unusually high deliverable backlog from the first quarter of fiscal 1997. Additionally, pending the completion of certain software upgrades, the Company deferred delivery of units against several orders during the recently completed third quarter. Delivery of these units began toward the end of the third quarter and are anticipated to continue during the fourth quarter of 1998. As indicated above, sales during the third quarter and first nine months of 1998 were also adversely impacted by management's efforts being directed to the negotiations with Premier and less time devoted to the generation of sales. 14 Gross margins before operating expenses ("gross margins") were approximately 35% during the third quarter ended May 31, 1998 versus approximately 44% for the comparable quarter of 1997. For the nine-month period ended May 31, 1998, gross margins were approximately 35% as compared to approximately 41% during the comparable period of 1997. The decrease in gross margin percentage during the third quarter was attributable primarily to the significantly decreased revenue levels during the third quarter of 1998 and, to a lesser extent, the adverse impact of increased reserves for potential field upgrades recognized for certain systems delivered during the 1998 third quarter. Furthermore, the increase of such reserves for systems delivered during the first nine months of 1998 was a principal factor for the decrease in gross margins for the nine month period of 1998 as compared to 1997. As a percentage of revenues, sales and marketing and general and administrative expenses accounted for approximately 77% of total revenues during the third quarter of fiscal 1998 versus approximately 30% of total revenues during the comparable third quarter of fiscal 1997. For the first nine months of fiscal 1998 and fiscal 1997, such expenses accounted for approximately 71% and 39% of total revenues for the respective nine- month periods. Expense levels also increased to $1,063,231 during the third quarter of 1998 versus $596,069 during the third quarter of 1997. For the first nine months of 1998, expense levels increased to $3,377,425 from $2,017,356 during the comparable period of 1997. The primary factors contributing to these increases were significant investment banking, legal and other professional costs recognized during the second and third quarters of 1998 associated with the negotiation of the Stock Purchase Agreement, the costs related to additional senior management personnel hired during the fourth quarter of fiscal 1997, as well as increased compensation expense recognized in connection with stock options issued to non-employees and non-directors. The Company anticipates expenses in this area will continue to run above historical levels. Research and development expenses, as a percentage of revenues, were approximately 15% in the third quarter of 1998 versus approximately 13% in the third quarter of 1997. For the first nine months of fiscal 1998, such expenses accounted for approximately 13% of total revenues as compared to approximately 15% during the comparable period of 1997. Expense levels decreased in actual dollar terms to $206,647 during the third quarter of 1998 from $256,808 in 1997. During the first nine months of fiscal 1998, expense levels also decreased in actual dollar terms to $608,352 versus $754,234 in 1997. The Company has focused its research and development efforts on current product enhancements and reducing cost configurations for its current products. Other expense was $15,036 during the third quarter of fiscal 1998 versus $15,196 during the third quarter of 1997. For the first nine months of 1998 and 1997, other expense was $43,915 and $42,475, respectively. The primary component of other expenses in all periods presented is interest and related expenses associated with borrowings against existing credit lines with the Company's Bank and against the promissory note executed in favor of Premier during the third quarter of 1998 (see Note 7 and Note 8 of Notes to Condensed Financial Statements). 15 LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities used cash of $837,451 during the first nine months of fiscal 1998 and $1,333,281 during the comparable period for 1997. Cash used in operating activities in the first nine months of 1998 was expended principally to fund the net loss during the period. This amount was partially offset by collection of accounts receivable and increases in customer deposits and accrued liabilities, particularly those liabilities accrued in conjunction with significant investment banking, legal and other professional costs recognized during the second and third quarters of 1998 associated with the negotiation of the Stock Purchase Agreement. The cash used by operations in 1997 was expended primarily to fund 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. Cash used in investing activities was $159,108 during the first nine months of 1998 as compared to $134,494 during the same period for 1997. 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. While the Company had anticipated that it would continue to upgrade its existing management information and corporate communications systems, the Company will defer significant capital acquisition decisions as a result of the contemplated acquisition of the Company. To the extent that any capital expenditures are made, the Company anticipates that the source of such funds may be any one or more of the following sources: (i) borrowings under an existing credit agreement, if available; (ii) working capital; or (iii) other financing arrangements, if any, available to the Company, including loans or other advances made to, or on behalf of, the Company by Premier. In this regard, in the recently completed third quarter, the Company executed a promissory note if favor of Premier (the "Note") as discussed in further detail below. The Company generated cash of $935,874 from financing activities during the first nine months of fiscal 1998 as compared to $586,595 during the same period of fiscal 1997. The sources of cash from financing activities in 1998 were the net proceeds from the exercise of certain warrants issued pursuant to a private placement of the Company's common stock in November 1995 and borrowings under the Note, which amounts were partially offset by net repayments of borrowings under the Credit Agreement. The cash generated from financing activities during the 1997 period was principally the net proceeds from the exercise of certain other 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. Principal repayments on notes payable to parties other than Premier was negligible in both 1998 and 1997. 16 As indicated in Note 3 of the Notes to Condensed Financial Statements, on November 18, 1997, the Company entered into an accounts receivable credit agreement (the "Agreement") with the Bank, and all amounts outstanding under the Credit Agreement were considered to be the initial advance under the Agreement. The Agreement allows for up to an 80% advance rate on eligible accounts receivable balances, and the maximum borrowing base under the Agreement is $1.2 million. The Bank has full recourse against the Company and the Agreement expires in November 1998. Borrowings under the Agreement bear interest at the Bank's prime lending rate plus 4%. In addition, the Bank will charge monthly an administrative fee equal to the greater of 1/2 % of the average daily balance for the month or $1,200. Under the terms of the Agreement, borrowings are secured by substantially all of the Company's assets. At May 31, 1998, approximately $125,000 was outstanding under the Agreement. Additionally, as indicated in Note 7 of the Notes to Condensed Financial Statements, on April 30, 1998, the Company executed the Note. Borrowings against the Note are available to the Company in the form of periodic advances. The maximum principal amount available under the Note is $500,000, which principal amount outstanding, together with any and all accrued interest, is payable the earlier of (i) written demand by Premier or (ii) April 30, 1999. Under the terms of the Note, borrowings bear interest at the rate of 8 1/2 % per annum, are secured by substantially all of the Company's assets and are subordinate to borrowings against the Agreement with the Company's Bank as discussed immediately above. Approximately $900,000 in principal and interest was outstanding under the Note at May 31, 1998 and the Company and Premier are currently in negotiations to increase the maximum principal amount available under the Note accordingly. The parties have agreed in principle to increase the maximum principal amount under the Note to cover all advances to date plus anticipated future advances. The maximum principal amount available under the Note is expected to be not less than $1.5 million. It is anticipated that an amendment to the Note reflecting the revised terms will be executed in the near term. The Company believes that its existing cash balances together with ongoing collections of its accounts receivable, available borrowing capacity under the Agreement and financing arrangements with Premier will be adequate to meet its liquidity and capital requirements in the near term. Principal and interest amounts due under the alternative stock appreciation right with the Bank, which amounts were approximately $262,000 as of May 31, 1998, are currently due; however, no request for payment has yet been made. If demand for payment were to be made by the Bank, the Company would have to seek financing to make such payment. There can be no assurance, however, that any of the contemplated financing arrangements described herein will be available and, if available, can be obtained on terms favorable to the Company. 17 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES In October 1997, the Company's board of directors approved the 1997 Nonstatutory Stock Option Plan (the "Plan") under which all officers, employees, directors and consultants may participate. The Plan expires in October 2002. Options granted under the Plan are non-qualified stock options and will generally have a term of ten (10) years from the date of grant, unless otherwise specified in the option agreement. The exercise prices under the Plan will generally be at 100% of the fair market value of the Company's common stock on the date of grant. The maximum number of shares of the Company's common stock which may be optioned and sold under the Plan is 1,000,000, of which 798,000 options remained available for granting as of February 28, 1998. As of February 28, 1998, stock options to purchase 202,000 shares at exercise prices of between $1.09 and $1.38 were granted and outstanding under the Plan and none of the granted options were exercised. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES None. ITEM 5. OTHER INFORMATION In a letter dated May 27, 1998 from NASDAQ, the Company was notified by NASDAQ that, in accordance with the terms of the NASDAQ Listing Qualifications Panel decision dated March 23, 1998, the Company's common stock was deleted from the NASDAQ SmallCap Market effective with the close of business on that date. Pursuant to the NASDAQ Listing Qualifications Panel decision, the Company's securities were be delisted on the earlier of the completion date of the Tender Offer by Premier or May 20, 1998 (see Exhibit 99.1). In a letter dated March 3, 1998 from the Boston Stock Exchange ("BSE"), the Company was notified by BSE, that, due to the Company's noncompliance with the BSE requirement to maintain capital and surplus of at least $500,000, BSE suspended the Company's common stock from trading as of the close of business on March 3, 1998 and filed for delisting with the Securities and Exchange Commission. 18 ITEM 5. OTHER INFORMATION (continued) On June 30, 1998, William L. Mince, the Company's President and Chief Operating Officer, vacated his positions with the Company in contemplation of the transaction with Premier (see Exhibit 99.3). 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) A Form 8-K was filed on March 9, 1998, to report under Item 1 thereof that the Company and Premier Laser Systems, Inc. entered into a Stock Purchase Agreement dated as of February 25, 1998, and to report under Item 5 thereof, the Company's amendment to its Rights Agreement, dated as of December 31, 1997, between Ophthalmic Imaging Systems and American Securities Transfer, Inc., a copy of which Form 8-K will be made available upon request to the Company at its principal offices. 19 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, Chief Executive Officer and Chief Financial Officer (principal executive officer and principal financial and accounting officer) Dated: July 15, 1998 20 INDEX TO EXHIBITS
Exhibit NUMBER DESCRIPTION OF EXHIBIT Footnote REFERENCE DESCRIPTION OF EXHIBIT 2.1 Stock Purchase Agreement, dated as of February 25, 1998, (13) by and between Registrant and Premier Laser Systems, Inc. 3.1 Articles of Incorporation of the Registrant, as amended. * 3.1(a) Amendment to Articles of Incorporation (Certificate of (11) Determination of Preferences of Series A Junior Participating Preferred Stock of Ophthalmic Imaging Systems). 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. * 4.3 Rights Agreement, dated as of December 31, 1997, between (10) Registrant and American Securities Transfer, Inc., including form of Rights Certificate attached thereto. 4.4 Amendment to Rights Agreement, dated as of February 25, (14) 1998, between Registrant and American Securities Transfer, Inc. 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 July 18, 1996. (7) 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 Agreement (1) between the Registrant and Dennis J. Makes dated March 27, 1992. 21 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. 10.7 Assignment dated October 23, 1990 of U.S. Patent * Application for Apparatus and Method for Topographical 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. 22 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. 10.15 Warrant dated February 12, 1993 issued by the Registrant (1) 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 Registrant (1) 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 the (2) Registrant and Robert J. Rossetti. 10.19 Security and Loan Agreement (with Credit Terms and (3) Conditions) dated April 12, 1995 by and between the Registrant and Imperial Bank. 10.19(a) General Security Agreement dated April 12, 1995 by and (3) between the Registrant and Imperial Bank. 10.19(b) Warrant dated November 1, 1995 issued by the Registrant to (4) Imperial Bank to purchase 67,500 shares of Common Stock. 10.19(c) Amended Loan and Security Agreement (with Credit Terms and (4) Conditions) dated November 1, 1995. 10.19(d) Registration Rights Agreement dated November 1, 1995 (4) between the Registrant and Imperial Bank. 10.19(e) Amended Loan and Security Agreement (with Credit Terms and (6) Conditions) dated April 4, 1996. 23 10.19(f) Amended Loan and Security Agreement (with Credit Terms and (7) Conditions) dated July 12, 1996. 10.19(g) Amended Loan and Security Agreement (with Credit Terms and (7) Conditions) dated November 21, 1996. 10.19(h) Amended Loan and Security Agreement (with Credit Terms and (8) Conditions) dated June 3, 1997. 10.19(i) Amended Loan and Security Agreement (with Credit Terms and (9) Conditions) dated August 28, 1997. 10.19(j) Amended Loan and Security Agreement (with Credit Terms and (9) Conditions) dated October 24, 1997. 10.19(k) Amended Loan and Security Agreement (with Credit Terms and (9) Conditions) dated November 3, 1997. 10.19(l) Amended Loan and Security Agreement (with Credit Terms and (9) Conditions) dated November 21, 1997. 10.19(m) Agreement of Purchase of Receivable (Full Recourse) dated (9) November 18, 1997 between Registrant and Imperial Bank. 10.20 Purchase Agreements dated November 21, 1995 between the (4) Registrant, JB Oxford & Company and certain Investors. 10.20(a) Warrant Agreement dated November 21, 1995 between the (4) Registrant, JB Oxford & Company and certain Investors. 10.20(b) First Amendment Warrant Agreement dated November 21, 1996 (7) between the Registrant, JB Oxford & Company and certain Holders. 10.20(c) Registration Rights Agreement dated November 21, 1995 (4) between the Registrant, JB Oxford & Company and certain Investors. 10.21 Employment Agreement dated November 20, 1995 between the (4) Registrant and Steven R. Verdooner. 10.22 Employment Agreement dated November 20, 1995 between the (4) Registrant and R. Michael Clark. 24 10.23 Employment Agreement dated July 14, 1997 between the (9) Registrant and William L. Mince. 10.25 The Registrant's 1995 Nonstatutory Stock Option Plan and (5) sample form of Nonstatutory Stock Option Agreement. 10.26 The Registrant's 1997 Nonstatutory Stock Option Plan and (12) sample form of Nonstatutory Stock Option Agreement. 10.27 Promissory Note dated April 30, 1998 from the Registrant (15) to Premier Laser Systems, Inc. in the maximum amount of $500,000 due in full upon the earlier of (i) written demand by Premier or (ii) April 30, 1999. 10.28 Security Agreement dated April 30, 1998 by and between the (15) Registrant and Premier Laser Systems, Inc. 27 Financial Data Schedule (for SEC use only). (15) 99.1 Press release dated June 1, 1998. (15)
* 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. 25 (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. (8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended May 31, 1997 filed on July 15, 1997. (9) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended August 31, 1997 filed on December 1, 1997. (10) Incorporated by reference to Exhibit 1 of the Registrant's Form 8-K filed on January 2, 1998. (11) Incorporated by reference to Exhibit A of Exhibit 1 of the Registrant's Form 8-K filed on January 2, 1998. (12) Incorporated by reference to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended November 30, 1997 filed on January 14, 1998. (13) Incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K filed on March 9, 1998. (14) Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on March 9, 1998. (15) Exhibit included herewith. EX-10 2 Exhibit 10.27 PROMISSORY NOTE Maximum Amount Sacramento, California $500,000 April 30, 1998 On demand, the undersigned Ophthalmic Imaging Systems, a California corporation, ("Borrower") promises to pay to Premier Laser Systems, Inc., a California corporation ("Lender"), or order, at its office located at 3 Morgan, Irvine, California 92618, or at such other place as the holder hereof may from time to time designate by written notice to Borrower, the principal amount of Five Hundred Thousand Dollars ($500,000) or such lesser amount as may be borrowed and remain unpaid hereunder. Advances hereunder, to the total amount of the principal sum stated above, may be made by Lender at the oral or written request of CEO or Director of Finance. Such advances shall be made by means of payments by Lender, on behalf of Borrower and may be made for various purposes, including to acquire inventory for Borrower. Inventory required through the use of advances made hereunder shall be owned by Borrower and subject to the Security Agreement (described below). Borrow may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any agreement executed in connection with this Note, provided that the outstanding principal balance of this Note shall at no time exceed the principal amount stated above, and provided further that regardless of the outstanding balance of this Note, Lender shall be under no obligation at any time to make any further loans or advances, it being expressly agreed that the decision whether to make any advances or loans to Borrower shall be made by Lender in his solo and absolute discretion. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. Borrower promises to pay interest on each advance hereunder, from the disbursement date of each such advance, and whether before or after any breach hereof except as set forth below, at a per annum rate of 8.50%. Interest is computed on the basis of a 360 day year, and on the basis of actual days elapsed. All principal and accrued interest owing hereunder shall be due and payable upon the earlier of (i) written demand for payment by Lender or (ii) one year from the date of this Note. Principal and interest shall be payable in lawful money of the United States in immediately available funds. Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, all advances made by Lender hereunder and all payments and prepayments made an account of the principal balance hereof. This Note may be prepaid in whole or in part at my time without penalty. This Note is secured by a Security Agreement ("Security Agreement") of even date herewith covering the inventory purchased on behalf of Borrower with the advances made under this Note, and the proceeds thereof. All agreements between Borrower and Lender hereof are expressly limited so that in no contingency or event whatsoever, whether by reason of advancement of the proceeds hereof, acceleration of maturity of the unpaid principal balance hereof, or otherwise, shall the amount paid or agreed to be paid to Lender hereof for the use, forbearance or detention of the money to be advanced hereunder exceed the highest lawful rate permissible under applicable usury laws. If, from any circumstances whatsoever, fulfillment of any provision hereof or the Security Agreement securing this Note or any other agreement referred to herein, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law which a court of competent jurisdiction may deem applicable hereto, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any circumstances the holder hereof shall ever receive as interest an amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance due hereunder and not to the payment of interest. This provision shall control every other provision of all agreements between Borrower and Lender. In the event of (i) a default in the making or paying of any payment hereunder or (ii) a breach or default in the performance of observance of any covenant, condition, or breach or any representation or warranty contained in the Security Agreement or any other agreement or instrument evidencing or securing this Note, Lender may, at its option, declare this Note to be immediately due and payable. The makers, sureties, endorsers and guarantors hereof (if any) (1) agree to pay all actual and reasonable costs and expenses, including reasonable attorneys' fees, expended or incurred in the collection and enforcement of this Note, in actions for declaratory relief in any way related to this Note, or in the protection or preservation of any rights of the holder hereunder; (2) consent to renewals and extensions of time at or after the maturity hereof; (3) waive diligence, presentment, protest, notice of protest, demand, and notice of dishonor; (4) waive the right to plead any statute of limitations as a defense to any claim hereunder or in connection with any security for this Note, to the full extent permitted by law; and (5) agree that no failure on the part of the holder of this Note to exercise any power, right or privilege hereunder, or to insist upon prompt compliance with the terms hereof, shall constitute a waiver thereof. Time is of the essence of this Note. [PARAGRAPH REPLACED WITH INSERT A ATTACHED HERETO AND AS PART HEREOF] Notwithstanding the foregoing, so long as the holder of this Note has not received written notification or the occurrence of an event of default under the Senior Debt, the holder of this Note may make demand for, and accept payment of, this Note, and any payments so received may be retained by the holder hereof. No present or future holder of Senior Debt shall be prejudiced in its right to enforce the subordination of this Note by any act or failure to act on the part of Borrower. The foregoing provisions as to subordination are solely for the purpose of defining the relative rights of the holders of the Senior Debt on the one hand, and the holder of this Note on the other hand, and none of such provisions shall impair, as between Borrower and the holders of this Note, the obligations of Borrower, which is unconditional and absolute, to pay to the holder of this Note the principal and interest thereon, in accordance with the terms of this Note, nor shall any such provisions prevent any holder of this Note from exercising all remedies otherwise permitted by applicable law or under the terms of this Note upon default thereunder, subject to the rights, if any, under the foregoing provisions, of holders of Senior Debt to receive cash, property or securities otherwise payable or deliverable to the holder of this Note. This Note and all matters relating or pertaining thereto shall be governed by and construed under the laws of the State of California. OPHTHALMIC IMAGING SYSTEMS, a California corporation By: _______________________________ Its: Chief Executive Officer The undersigned each agree to the subordination provisions contained in the Note. PREMIER LASER SYSTEMS, INC. IMPERIAL BANK By __________________________ By __________________________ Title _________________________ Title Vice President/Team Leader ADVANCES AND PAYMENTS Date Amount of Advance Aggregate Amount Aggregate Amount Notation (+) or Paydown ( ) Outstanding Still Available Made By (up to $_________) PROMISSORY NOTE TO PREMIER LASER SYSTEMS, INC. FROM OPHTHALMIC IMAGING SYSTEMS DATED APRIL 30, 1998 INSERT A PAGE 3 All claims of Lender against Borrower now or hereafter existing, whether matured or not, are and shall be at all times subordinate and subject to any and all claims of Imperial Bank against Borrower now or hereafter existing, whether matured or not, so long as any such claim on Imperial Bank's part against Borrower shall remain unpaid, in whole or in part, and Lender agrees not to sue upon, or to collect, or to receive payment upon, by setoff or in any other manner, any claim or claims on Lender's part against Borrower now or hereafter existing, not to sell, assign, transfer, pledge, or give a security interest in the same (except subject expressly to this Agreement), nor to enforce or apply any security now or hereafter existing, nor to join in any petition in bankruptcy or any assignment for the benefit of creditors or any creditors agreement, nor to take any lien or security on any of Borrower's property, real or personal, nor to incur any obligation to nor receive any loans, advances or gifts from Borrower, so long as any such claim on Imperial Bank's part against Borrower shall exist or so long as Imperial Bank is committed or otherwise obligated to make any loans to, or grant any credit to, Borrower. All claims on Imperial Bank's part against Borrower now or hereafter existing shall be first paid by Borrower before any payment shall be made by Borrower to Lender. Said priority of payment shall apply during the ordinary course of Borrower's business and in case of any assignment by Borrower for the benefit of Borrower's creditors, and in case of any bankruptcy proceedings instituted by or against Borrower, and in case of the appointment of any receive for Borrower or Borrower's business or assets, and in case of any dissolution or other winding up of the affairs of Borrower, or of Borrower's business, and in all such cases respectively, the officers of Borrower and any assignee, trustee in bankruptcy, receiver, and other person or persons in charge, are hereby directed to pay to Imperial Bank the full amount of Imperial Bank's claims against Borrower before making any payment to Lender, and so far as may be necessary for that purpose, Lender hereby transfers and assigns to Imperial Bank all of Lender's rights to any payment or distribution which might otherwise be coming to Lender. Imperial Bank is hereby irrevocably constituted and appointed the attorney-in-fact of Lender to file any and all proofs of claim and any other documents and to take all other action, either in Imperial Bank's name, or in the name of Lender, or any of them, which in Imperial Bank' opinion is necessary or desirable to enable Imperial Bank to obtain all such payments. Lender further agrees that in case Lender should take or receive any security interest in, or lien by way of attachment, execution, or otherwise on any of the property, real or personal, of Borrower, or should take or join in any other measure or advantage contrary to this Agreement, while any claim exists on Imperial Bank's part against Borrower, Imperial Bank shall be entitled to have the same vacated, dissolved and set aside by such proceedings at law, or otherwise, as Imperial Bank may deem proper, and this Agreement shall be and constitute full and sufficient ground therefor and shall entitle Imperial Bank to be and become party to any proceedings at law, or otherwise, initiated by Imperial Bank or by any other party, in or by which Imperial Bank may deem it proper to protect Imperial Bank's interest hereunder; and the party so violating this Agreement shall be liable to Imperial Bank for all loss and damages sustained by Imperial Bank by reasons of such breach, including attorney's fees in any such legal action. EX-10 3 EXHIBIT 10.28 SECURITY AGREEMENT THIS SECURITY AGREEMENT ("Security Agreement") is made and entered into on April 30, 1998, by and between OPHTHALMIC IMAGING SYSTEMS, a California corporation ("Debtor") and PREMIER LASER SYSTEMS, INC., a California ("Secured Party"). AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by each of the parties, the Debtor and the Secured Party hereby agree as follows: 1. GRANT OF SECURITY. (a) GRANT OF SECURITY INTEREST. To secure the prompt payment in full of the Secured Obligations (as defined in Section 2), and to ensure the observance and performance or all the terms, provisions, agreements and covenants of the Secured Obligations and this Security Agreement, the Debtor hereby grants to the Secured Party a security interest (the "Security Interest") in all of the Debtor's right, title and interest in and to the following property, whether now owned or hereafter acquired by the Debtor and whether now existing or hereafter coming into existence (the "Collateral"): (i) all parts, goods, raw material, components and inventory acquired by Debtor through the use of funds advanced by Secured Party on Debtor's behalf under the Note (described in Section 2); (ii) all proceeds and products of the foregoing, including, but not limited to, accounts, accounts receivable, general intangibles, money, deposit accounts, goods, chattel paper, documents, instruments, insurance proceeds, and any other tangible or intangible property received upon the sale or other disposition of any of the foregoing. (b) CONTINUED SECURITY INTEREST. At the request of the Secured Party, the Debtor shall take whatever steps are appropriate or necessary to ensure that the Security Interest shall at all times constitute a valid lien upon and perfected security interest in the Collateral, enforceable against the Debtor, securing, in accordance with the terms of this Security Agreement, the Secured Obligations, and the Collateral shall not at any time be subject to any liens that are prior to or on a parity with the Security Interest except for liens that may be held by Imperial Bank to secure ally "Senior Debt" (as defined in the Note). (c) FILING; NOTIFICATION; REFILING, ETC. (i) The Debtor shall, at its sole cost and expense, take all action which may be requested by the Secured Party in order to defend the Security Interest, to ensure that the Security Interest will at all times comply with the provisions of Section 1(b), and to enable the Secured Party to exercise or enforce its rights hereunder, including, but not limited to, executing and delivering such financing statements, pledges, designations, mortgages, hypothecations, notices and assignments, in each case in form and substance satisfactory to the Secured Party, relating to the creation, validity, perfection, maintenance or continuation of the Security Interest under the California Commercial Code, the Uniform Commercial Code, or similar laws of any jurisdiction in which the Collateral or any part thereof is located, and of such other states as the Secured Party may from time to time request. The Debtor shall mark its books and records as may be necessary or appropriate to evidence, protect or perfect in all respects the Security Interest. (ii) The Debtor shall, at its sole cost and expense, from time to time upon the request of the Secured Party, (A) take whatever steps are necessary or appropriate to perfect the Security Interest with respect to any portion of the Collateral which cannot be perfected by the filing of Uniform Commercial Code financing statements, (B) upon the exercise by the Secured Party of any remedy provided herein, use its diligent best efforts to obtain all necessary consents to the transfer of any contract, license, franchise, approval or other agreement, instrument, or document which is not transferable without such consents, and (c) permit representatives of the Secured Party, upon reasonable notice, at any time during normal business hours to inspect the Collateral. (iii) In the event that any rerecording or refiling (or the filing of any statement of continuation or assignment of any financing statement) or any remortgage, repledge or reassignment, or any confirmatory assignment, or any other action, is required or desirable at any time to protect and preserve and maintain the Security Interest, the Debtor shall, at its sale cost and expense, cause the same to be done or taken at such time and in such manner as may be requested by the Secured Party. (d) DISPOSAL OF COLLATERAL. So long as any of the Secured Obligations is outstanding and unsatisfied and unless the Secured Patty shall have otherwise given its prior consent, the Debtor shall not sell, assign, transfer, license, lease or otherwise dispose of any Collateral to anyone other than the Secured Party, except for sales of inventory in the ordinary course or business. 2. SECURED OBLIGATIONS. The Security Interest granted hereby shall secure the following indebtedness, obligations, debts and liabilities of the Debtor, which are herein collectively called the "Secured Obligations": (a) PROMISSORY NOTE. The performance of all obligations and the repayment of all indebtedness evidenced by that certain Promissory Note, of even date herewith, from Debtor in favor of Secured Party (the "Note") in the maximum principal amount of $500,000, and all modifications, renewals, extensions, substitutions, replacements, and/or arrangements thereof. (b) FURTHER OBLIGATIONS. Any and all indebtedness, obligations, debts and liabilities of any kind of the Debtor to the Secured Party, whether now existing or hereafter arising and whether arising directly or indirectly between or among the Debtor and the Secured Party or acquired outright, conditionally or as collateral security from another by the Secured Party. (c) COSTS OF ENFORCEMENT AND COLLECTION. Any and all amounts advances or expended by the Secured Party for the maintenance or preservation of the Collateral or the exercise by the Secured Party of any rights or remedies granted herein or otherwise existing at law or in equity. 3. REPRESENTATIONS AND WARRANTIES. The Debtor represents and warrants to the Secured Party as follows: (a) NATURE OF SECURITY INTEREST. This Security Agreement creates a valid and perfected security interest in the Collateral, prior to that of any other party (except Imperial Bank) securing the payment or the Secured Obligations, and all filings and other actions neceesary or desirable to perfect and protect such Security Interest have been duly taken or will be duly taken as soon as commercially practicable after the execution of this Security Agreement; (b) AUTHORIZATION. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the grant by the Debtor of the Security Interest granted hereby or for the execution, delivery or performance of this Security Agreement by the Debtor or (ii) for the perfection or the exercise by the Secured Party pf its rights and remedies hereunder; (c) POWER AND CAPACITY. The Debtor has full legal right power, capacity, and authority to make, enter into, execute and perform its obligations hereunder, and this Security Agreement constitutes a valid and binding obligation of the Debtor, enforceable against it in accordance with its terms. All representations and warranties of the Debtor made herein shall survive the execution and delivery of this Security Agreement . 4. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. The Debtor hereby irrevocably appoints the Secured Party as the Debtor's attorney-in-fact, with full authority in the place and stead of the Debtor and in the name of the Debtor, the Secured Party or otherwise, subsequent to the occurrence and during the continuation of an Event of Default (as defined in Section 7 below) to take any action and to execute any instrument which the Secured Party may deem necessary, appropriate, or advisable to accomplish the intent and purposes of this Security Agreement, including, without limitation: (a) RECEIPT OF PAYMENT IN RESPECT OF THE COLLATERAL. To ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) COLLECTION. To receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) or (b) above; and (c) COLLECTION PROCEEDINGS. To file any claims or take any action or institute any proceedings which the Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Secured Party with respect to any of the Collateral. 5. SECURED PARTY MAY PERFORM. If the Debtor fails to perform any agreement or covenant contained herein, the Secured Party may itself perform, or cause performance of, such agreement or covenant, and the expenses of the Secured Party incurred in connection therewith shall be payable by the Debtor under Section 8(b). 6. SECURED PARTY'S DUTIES. The powers conferred on the Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. 7. REMEDIES. If the Debtor shall fail to pay or promptly perform any of the Secured Obligations when due or shall breach any representation, warranty, covenant, agreement or term under this Security Agreement (collectively, an "Event of Default"): (a) COLLATERAL FORECLOSURE. The Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the California Commercial Code or the Uniform Commercial Code (together, the "Code") (whether or not the Code applies to the affected Collateral) and also may (i) require the Debtor to, and the Debtor hereby agrees that it will at its own expense upon request of the Secured Party, forthwith assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party or its agent at a place to be designated by the Secured Party and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Secured Party may deem commercially reasonable, and at any such public sale the Secured Party may bid for and/or purchase all or any part of the Collateral so sold. The Debtor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to the Debtor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and shall be deemed to meet any requirement under any applicable law (including both the California and Uniform Commercial Codes) that reasonable notification be given of the time and place of such sale or disposition. The Debtor hereby waives and releases to the fullest extent permitted by applicable law any right of equity or redemption with respect to the Collateral, whether before or after sale hereunder, and any right of marshalling the Collateral and any other security for the Secured Obligations or otherwise. The Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned; (b) APPLICATION OF PROCEEDS. All cash proceeds received by the Secured Party in respect (i) of any sale or other realization upon all or any part of the Collateral, or (ii) of any collection upon any policy of insurance, may, in the discretion of the Secured Party, be held by the Secured Parry as collateral for the Secured Obligations, and/or then or at any time thereafter applied (after payment of any amounts payable to the Secured Party pursuant to Section 8) in whole or in part by the Secured Party against, all or any part of the Secured Obligations in such order as the Secured Party shall elect, without resorting to and without regard to any guaranty, other security, or source of reimbursement which may at the time be available to it. Any surplus of such cash or cash proceeds held by the Secured Party and remaining after payment in full of all the Secured Obligations and expenses of enforcement and collection shall be paid over to the Debtor or to whomsoever may be lawfully entitled to receive such surplus; (c) RETAKING OF COLLATERAL. The Secured Party may at any time and from time to time, with reasonable notice (in light of the circumstances) and during regular business hours, with or without judicial process or the aid or assistance of others, (i) enter upon any premises in which Collateral may be located and, without resistance or interference by the Debtor, take physical possession of any items of Collateral and maintain such possession on the Debtor's premises or move the same or any part thereof to such other places as the Secured Party shall choose without being liable to the Debtor on account of any losses, damage or depreciation that may occur as a result thereof so long as the Secured Party shall act reasonably and in good faith, (ii) dispose of all or any part of the Collateral on any premises of the Debtor, (iii) require the Debtor to assemble and make available to the Secured Party, at the Debtor's expense all or any part of the Collateral at any reasonable place and time designated by the Secured Party, or (iv) remove all or any part of the Collateral from any premises in which any part may be located for the purpose of effecting the sale or other disposition thereof; and (d) NATURE OF REMEDIES. All rights and remedies existing under this Security Agreement are cumulative to, and not exclusive of, any other rights or remedies available under contract or applicable law. 8. INDEMNITY AND EXPENSES. (a) INDEMNIFICATION. The Debtor agrees to indemnify the Secured Party from and against any and all claims, demands, costs, losses and liabilities, including reasonable attorneys' fees and legal costs, growing out of, arising in connection with, or resulting from this Security Agreement (including, without limitation, enforcement of this Security Agreement) (collectively, "Claims"), except Claims resulting directly from the Secured Party's gross negligence or willful misconduct. The indemnification in this subsection (a) shall survive the repayment of all principal, interest, and fees payable in connection with the Secured Obligations. (b) EXPENSES. The Debtor will upon demand pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and disbursements of the Secured Party's legal counsel and of any experts and agents, which the Secured Party may incur in connection with, arising from, or relating to (i) the administration or enforcement of this Security Agreement, (ii) the custody, preservation, use or operation of, or the sale of collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any or the rights of the Secured Party hereunder, or (iv) the failure by the Debtor to perform or observe any of the provisions hereof. All expenses incurred by the Scoured Party shall, until paid in full by the Debtor, constitute a part of the Secured Obligations. 9. MISCELLANEOUS. (a) AMENDMENT. No amendment or waiver of any provision of this Security Agreement nor consent to any departure by the Debtor herefrom shall in any event be effective unless the same shall be in writing and signed by the Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) NOTICE. All notices, demands and other communications provided for hereunder shall be in writing and will be deemed to have been given when personally delivered, one (2) business day after being sent by overnight mail or Federal Express, three (3) business days after being sent by United States mail, postage prepaid, or when receipt is acknowledged, if telecopied. Notices, demands and communications to the Debtor and the Secured Party will, unless another address is specified in writing, be sent to their respective addresses as set forth on the signature page hereof. (c) CONTINUING SECURITY INTEREST. This Security Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until payment, performance and satisfaction in full of the Secured Obligations and the terms and conditions of this Security Agreement, (ii) be binding upon the Debtor, its successors and assigns, and (iii) inure to the benefit of the Secured Party and its successors, transferees and assigns. The Debtor shall not assign or transfer any of their rights or obligations under this Security Agreement without the prior written consent of the Secured Party. Upon the payment in full and complete performance and satisfaction of the Secured Obligations and the terms and conditions of this Security Agreement, the Security Interest granted hereby shall terminate and all rights to the Collateral shall revert to the Debtor. Upon any such termination, the Secured party will, at the Debtor's expense, execute and deliver to the Debtor such documents as the Debtor shall reasonably request to evidence such termination. (d) GOVERNING LAW. This Security Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to principles of conflict of laws, except to the extent that the validity or perfection of the Security Interest hereunder, or remedies hereunder, in respect of any particular Collateral are governed by the laws of a jurisdiction other than the State of California. (e) WAIVERS. The rights and remedies of the Secured Party under this Security Agreement shall be cumulative and not exclusive of any rights or remedies which it would otherwise have, now or hereafter existing at law or inequity or by statute or otherwise and no failure or delay by the Secured Party in exercising any right shall operate as a waiver of such right, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right. (f) SPECIFIC PERFORMANCE. The Debtor recognizes that the rights of the Secured Party hereunder are unique and, accordingly, the Secured Party shall, in addition to such other remedies as may be available to it at law or in equity have the right to enforce its rights hereunder by actions for injunctive relief and specific performance to the fullest extent permitted by law, without the necessity of posting bond or other security. This Security Agreement is not intended to limit or abridge any rights the Secured Party which may exist apart from this Security Agreement. (g) DEFEASANCE. This Security Agreement shall terminate upon the payment and performance of the Secured Obligations in full; provided that, if at any time any payment made in respect of the Secured Obligations shall be recovered or rescinded by or on behalf of the Debtor, or must be otherwise restored or returned, whether upon the insolvency, bankruptcy or reorganization or otherwise, the obligations of the Debtor under this Security Agreement shall continue to be effective or be reinstated, as the case may be, and shall continue as though such payment had not been made. (h) SEVERABILITY. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall be so only as to such jurisdiction and only to the errant of such prohibition or unenforceability, but all the remaining provisions of this Security Agreement shall remain valid and enforceable to the fullest extent permitted by law. (i) ENTIRE AGREEMENT. This Security Agreement and the Note are intended by the parties as the final expressions of the Debtor's obligations to the Secured Party in connection with the Collateral and supersede all prior understandings or agreements concerning the subject matter hereof. (j) COUNTERPARTS. This Security Agreement may be simultaneously executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Debtor and the Secured Party have executed or caused this Security Agreement to be executed by their duly authorized representatives as of the date first written above. DEBTOR: OPHTHALMIC IMAGING SYSTEMS, a California corporation By: ________________________________ Its: Chief Executive Officer Address: 221 Lathrop Way, Suite I Sacramento, CA 95815 SECURED PARTY: PREMIER LASER SYSTEMS, INC. a California corporation By: ______________________________ Colette Cozean Chief Executive Officer Address: EX-27 4
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-QSB FOR OPHTHALMIC IMAGING SYSTEMS FOR THE PERIOD ENDED MAY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS AUG-31-1998 MAY-31-1998 81,615 0 963,972 0 879,441 2,017,139 1,303,334 (870,643) 2,468,602 3,870,229 0 0 0 10,492,365 0 2,468,602 1,377,830 1,377,830 889,882 889,882 1,269,878 0 15,199 (797,129) 0 (797,129) 0 0 0 (797,129) (0.19) 0
EX-99 5 EXHIBIT 99.1 JR BOTHE & ASSOCIATES Strategic Business Consulting & Financial Public Relations JR BOTHE & ASSOCIATES CONTACT: Jack Bothe 2140 Professional Dr., Suite 200 800.261.8552 Roseville, CA 95661 OPHTHALMIC IMAGING SYSTEMS FOR IMMEDIATE RELEASE 221 Lathrop Way, Suite I Sacramento, CA 95815 Ophthalmic Imaging Systems Announces Delisting by Nasdaq SACRAMENTO, Calif., June 1, 1998 - Ophthalmic Imaging Systems (OIS) today announced that the Company's common stock is no longer listed on The Nasdaq SmallCap Market. The Company's shares are now traded on the OTC-Bulletin Board under the symbol OISI. As previously reported, OIS had been granted a temporary exception from one of The Nasdaq SmallCap Market requirements, which exception expired on May 20, 1998. The Company does not currently intend to seek re-listing pending the exchange offer previously announced by Premier Laser Systems, Inc. (PLSIA) and OIS. Spokespersons from PLSIA and OIS confirmed that they are continuing to work towards consummation of the transaction although certain conditions to closing remain. ### -----END PRIVACY-ENHANCED MESSAGE-----