UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended DECEMBER 31, 2010 |
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _____________ |
Commission File No. 1-11140
OPHTHALMIC IMAGING SYSTEMS
![](https://capedge.com/proxy/10-KA/0000910680-11-000307/ois-logo2.jpg)
(Exact name of registrant as specified issuer in its charter)
California | 94-3035367 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
221 Lathrop Way, Suite I, Sacramento, CA | 95815 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (916) 646-2020
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, no par value
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1934. Yes o No x
Indicate by checkmark whether the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Exchange Act. Yes o No x
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. o
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of voting stock (which consists solely of shares of common stock) held by non-affiliates of the registrant based upon the closing price of $1.00 on June 30, 2010, the last business day of our most recently completed second fiscal quarter was $19,790,656.
As of April 8, 2011, there were 30,304,151 shares of common stock issued and outstanding.
OPHTHALMIC IMAGING SYSTEMS
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
TABLE OF CONTENTS
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Part II | ||
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2
Ophthalmic Imaging Systems (“we,” “us,” or “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment No. 1”) to amend our Annual Report on Form 10-K, for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2011 (the “Original Filing”). This Amendment No. 1 is being filed solely to (1) amend and restate in its entirety Item 8. Financial Statements and Supplementary Data, Note 2. Restatement of Consolidated Financial Statements and Item 9A Controls and Procedures and to reflect that our restatements for the fiscal years ended December 31, 2007 and 2008 relate solely to our valuation and accounting for the relative fair value of warrants and the beneficial conversion feature of the debt issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. on October 27, 2007 and (2) amend and restate in its entirety Item 9A, Controls and Procedures, to clearly state that management concluded that internal control over financial reporting were not effective at December 31, 2010.
This Amendment No. 1 does not reflect events occurring after the filing of the Original Filing or modify or update any disclosures affected by subsequent events. Except as noted above, this Amendment No. 1 continues to speak as of the date of the Original Filing, and does not modify, amend or update in any way the financial statements or any other item or disclosures in the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and the Company’s other filings made with the SEC.
3
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements for the year ended December 31, 2010 and 2009 are attached hereto.
4
OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2010 and 2009 and
For the Years Ended December 31, 2010 and 2009
Table of Contents
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F-2 | ||
F-3 | ||
F-5 | ||
F-7 | ||
F-8 | ||
F-9 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Ophthalmic Imaging Systems
We have audited the accompanying consolidated balance sheets of Ophthalmic Imaging Systems and subsidiaries (the "Company") as of December 31, 2010, 2009, 2008 and 2007, and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Ophthalmic Imaging Systems and subsidiaries as of December 31, 2010, 2009, 2008 and 2007, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the accompanying consolidated financial statements, the Company restated its consolidated financial statements for the years ended December 31, 2009, 2008 and 2007.
As discussed in Note 1 to the accompanying consolidated financial statements, effective January 1, 2009, the Company changed its method of accounting for business combinations with the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations.
/s/ Perry-Smith, LLP
Sacramento, California
April 15, 2011
F-2
OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED BALANCE SHEETS
December 31, | ||||||||
2010 | 2009 | |||||||
ASSETS | Restated | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,905,910 | $ | 5,406,239 | ||||
Accounts receivable, net | 4,088,269 | 2,710,987 | ||||||
Inventories, net | 1,757,873 | 991,325 | ||||||
Prepaid expenses and other current assets | 357,380 | 179,451 | ||||||
Total current assets | 10,109,432 | 9,288,002 | ||||||
Restricted cash | - | 158,213 | ||||||
Furniture and equipment, net | 470,717 | 481,394 | ||||||
Capitalized imaging software, net | 168,239 | 336,475 | ||||||
Capitalized software development, net | 383,607 | 767,220 | ||||||
AcerMed asset purchase, net | 190,029 | 380,053 | ||||||
Goodwill | 807,000 | 807,000 | ||||||
Customer relationship intangible assets, net | 411,863 | 481,364 | ||||||
Other intangible assets, net | 66,075 | 298,111 | ||||||
Prepaid financing | - | 22,195 | ||||||
Other assets | 12,524 | 17,350 | ||||||
Total assets | $ | 12,619,486 | $ | 13,037,377 | ||||
(Continued)
F-3
OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED BALANCE SHEETS
(Continued)
December 31, | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | 2010 | 2009 | ||||||
As Restated | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,256,515 | $ | 867,672 | ||||
Accounts payable related party | - | 41,847 | ||||||
Accrued liabilities | 1,709,616 | 1,115,902 | ||||||
Derivative liability financial instruments | 1,698,416 | 1,863,976 | ||||||
Deferred extended warranty revenue – current portion | 1,722,235 | 1,632,491 | ||||||
Customer deposits | 312,731 | 561,244 | ||||||
Notes payable - current portion | 1,518,099 | 34,048 | ||||||
Total current liabilities | 8,217,612 | 6,117,180 | ||||||
Deferred extended warranty revenue, less current portion | 251,785 | 247,231 | ||||||
Line of credit | - | 150,000 | ||||||
Notes payable, less current portion | 1,301,523 | 2,886,698 | ||||||
Total liabilities | 9,770,920 | 9,401,109 | ||||||
Commitments and contingencies Equity: | ||||||||
Ophthalmic Imaging Systems stockholders’ equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2010 and 2009, respectively. Common stock, no par value, 100,000,000 shares authorized; 30,304,151 and 26,500,059 shares issued and outstanding at December 31, 2010 and 2009, respectively | 21,708,743 | 19,981,977 | ||||||
Additional paid in capital | 65,544 | 47,044 | ||||||
Accumulated deficit | (19,284,427 | ) | (16,859,483 | ) | ||||
Cumulative translation adjustment | (58,368 | ) | 2,241 | |||||
Total Ophthalmic Imaging Systems stockholders’ equity | 2,431,492 | 3,171,779 | ||||||
Noncontrolling Interest | 417,074 | 464,489 | ||||||
Total equity | 2,848,566 | 3,636,268 | ||||||
Total liabilities and stockholders’ equity | $ | 12,619,486 | $ | 13,037,377 | ||||
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2010 and 2009
2010 | 2009 As Restated | |||||||
Sales – products | $ | 14,418,870 | $ | 9,530,555 | ||||
Cost of sales – products | 5,388,383 | 3,799,236 | ||||||
Cost of sales – amortization | 741,871 | 741,871 | ||||||
Gross profit – products | 8,288,616 | 4,989,448 | ||||||
Sales – products to related parties | - | 338,492 | ||||||
Cost of sales – products to related parties | - | 201,093 | ||||||
Gross profit –products to related parties | - | 137,399 | ||||||
Sales – service | 4,213,042 | 3,700,253 | ||||||
Cost of sales – service | 2,198,160 | 1,500,079 | ||||||
Gross profit – service | 2,014,882 | 2,200,174 | ||||||
Net revenues | 18,631,912 | 13,569,300 | ||||||
Cost of sales | 8,328,414 | 6,242,279 | ||||||
Gross profit | 10,303,498 | 7,327,021 | ||||||
Operating expenses: | ||||||||
Sales and marketing | 6,908,325 | 4,124,480 | ||||||
General and administrative | 2,433,619 | 2,255,389 | ||||||
Impairment related to the debt of MediVision | - | 4,436,187 | ||||||
Research and development | 3,880,593 | 2,559,478 | ||||||
Research and development-related parties | - | 294,014 | ||||||
Total operating expenses | 13,222,537 | 13,669,548 | ||||||
Loss from operations | (2,919,039 | ) | (6,342,527 | ) | ||||
Other income (expense), net: | ||||||||
Change in fair value of derivative financial liabilities | 683,742 | (1,466,805 | ) | |||||
Interest expense | (248,138 | ) | (275,584 | ) | ||||
Other expense | (97,799 | ) | (186,592 | ) | ||||
Interest income | 32,605 | 63,239 | ||||||
Legal settlement | - | 1,200,000 | ||||||
Total other income (expense) | 370,410 | (665,742) | ||||||
Net loss before provision for income tax expense | (2,548,629 | ) | (7,008,269 | ) | ||||
Benefit from (provision) for income taxes | 76,270 | (3,787 | ) | |||||
Net loss | (2,472,359 | ) | (7,012,056 | ) | ||||
Less: Noncontrolling interest’s share | (47,415 | ) | (8,511) | |||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (2,424,944 | ) | $ | (7,003,545 | ) | ||
Basic loss per share attributable to Ophthalmic Imaging Systems’ Stockholders | $ | (0.08 | ) | $ | (0.32 | ) | ||
Shares used in the calculation of basic loss per share | 28,805,067 | 21,842,234 |
The amount of anti-dilutive shares for the twelve months ended December 31, 2010 and 2009 are 1,625,021 and 520,748, respectively.
The accompanying notes are an integral
part of these consolidated financial statements.
F-5
OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS
As of and For the Years Ended December 31, 2010 and 2009
2010 | 2009 | |||||||
As Restated | ||||||||
Net loss attributable for Ophthalmic Imaging Systems | $ | (2,424,944 | ) | $ | (7,003,545 | ) | ||
Other comprehensive (loss) income | ||||||||
Foreign currency translation | (60,609 | ) | 2,241 | |||||
Comprehensive net loss | $ | (2,485,553 | ) | $ | (7,001,304 | ) | ||
The accompanying notes are an integral
part of these consolidated financial statements.
F-6
OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2010 and 2009
Ophthalmic Imaging Systems’ Stockholders’ Equity | ||||||||||||||||||||||||||||||||
Common Stock | Additional Paid in | Accumulated | Cumulative | Non-Controlling | Total Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Translation | Interest | Equity | ||||||||||||||||||||||||||
Balance as previously stated, January 1, 2009 | 16,866,831 | $ | 16,504,773 | $ | 966 | $ | (10,059,285 | ) | — | — | $ | 6,446,454 | ||||||||||||||||||||
Restated Balance, January 1, 2009 | 16,866,831 | 16,504,773 | 762,580 | (10,576,615 | ) | — | — | 6,690,738 | ||||||||||||||||||||||||
Cumulative effect of change of accounting for warrants and loan conversion option | — | — | (762,580) | 720,676 | (41,904) | |||||||||||||||||||||||||||
Net loss, restated | — | — | — | (7,003,545 | ) | — | $ | (8,511 | ) | (7,012,056 | ) | |||||||||||||||||||||
Stock based compensation | — | 32,220 | — | — | — | — | 32,220 | |||||||||||||||||||||||||
Stock issuance, net of $158,899 issuance cost | 9,633,228 | 3,444,984 | 47,044 | — | — | — | 3,492,029 | |||||||||||||||||||||||||
Noncontrolling interest | — | — | — | — | — | 473,000 | 473,000 | |||||||||||||||||||||||||
Cumulative translation | — | — | — | — | 2,241 | — | 2,241 | |||||||||||||||||||||||||
Balance, December 31, 2009 | 26,500,059 | 19,981,977 | 47,044 | (16,859,483 | ) | 2,241 | 464,489 | 3,636,268 | ||||||||||||||||||||||||
Net loss | — | — | — | (2,424,944 | ) | — | (47,415 | ) | (2,472,359 | ) | ||||||||||||||||||||||
Stock based compensation | 34,667 | 34,667 | ||||||||||||||||||||||||||||||
Debt conversion at $1.14 per share | 219,780 | 250,000 | — | — | — | — | 250,000 | |||||||||||||||||||||||||
Stock issuance, net of $22,960 issuance cost | 3,581,089 | 1,440,326 | 18,500 | — | — | — | 1,458,826 | |||||||||||||||||||||||||
Stock option conversion | 3,223 | 1,773 | 1,773 | |||||||||||||||||||||||||||||
Cumulative translation | — | — | — | — | (60,609 | ) | — | (60,609 | ) | |||||||||||||||||||||||
Balance, December 31, 2010 | 30,304,151 | $ | 21,708,743 | $ | 65,544 | $ | (19,284,427 | ) | $ | (58,368 | ) | $ | 417,074 | $ | 2,848,566 |
The accompanying notes are an integral
part of these consolidated financial statements.
F-7
OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2010 and 2009
2010 | 2009 As Restated | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,472,359 | ) | $ | (7,012,056 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 260,420 | 225,588 | ||||||
Amortization | 102,538 | 11,636 | ||||||
Loss on disposal of assets | 18,143 | 207 | ||||||
Impairment of intangible asset | 199,000 | - | ||||||
Stock based compensation expense | 34,677 | 32,220 | ||||||
Warranty expense | 239,550 | 202,249 | ||||||
Discount related to note payable | 66,427 | 191,026 | ||||||
Change in accounts receivable | (1,315,895 | ) | (1,244,171 | ) | ||||
Provision for bad debt | (62,651) | 425,598 | ||||||
Write-off of MediVision assets | - | 3,152,042 | ||||||
Change in related party receivable | - | 500,365 | ||||||
Change in fair value of derivative liability financial instruments | (683,742) | 1,466,805 | ||||||
Change in prepaid products | - | 560,000 | ||||||
Change in inventories | (774,961) | 307,939 | ||||||
Change in prepaid expenses and other current assets | (177,930) | 53,967 | ||||||
Amortization of prepaid financing related to note payable | 22,195 | 66,585 | ||||||
Amortization of Symphony Web software | 168,236 | 168,236 | ||||||
AcerMed software license amortization | 573,635 | 573,635 | ||||||
Change in other assets | 3,668 | 49,317 | ||||||
Change in accounts payable | 389,513 | (13,968 | ) | |||||
Change in accounts payable – related parties | (58,883) | 41,847 | ||||||
Change in accrued liabilities | 351,358 | (253,749 | ) | |||||
Change in deferred extended warranty revenue | 94,285 | (31,102 | ) | |||||
Change in customer deposits | (246,375) | 463,781 | ||||||
Net cash used in operating activities | (3,269,151 | ) | (62,003) | |||||
Cash flows from investing activities: | ||||||||
APA acquisition, net of cash acquired | - | (1,235,523 | ) | |||||
Acquisition of furniture and equipment | (267,885 | ) | (132,951 | ) | ||||
Net cash used in investing activities | (267,885 | ) | (1,368,474 | ) | ||||
Cash flows from financing activities: | ||||||||
Principal payments on notes payable | (13,287 | ) | (732,984 | ) | ||||
Proceeds from note payable | 113,314 | 1,500,000 | ||||||
Proceeds from sale of stock and warrants | 1,999,967 | 3,999,971 | ||||||
Stock issuance costs | (22,960 | ) | (158,899 | ) | ||||
Net cash provided by financing activities | 2,077,034 | 4,608,088 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (40,327 | ) | 4,003 | |||||
Net (decrease) increase in cash and cash equivalents | (1,500,329 | ) | 3,181,614 | |||||
Cash and cash equivalents, beginning of the year | 5,406,239 | 2,224,625 | ||||||
Cash and cash equivalents, end of the year | $ | 3,905,910 | $ | 5,406,239 | ||||
Supplemental schedule of cash flow information: | ||||||||
Cash (received) paid for taxes | $ | (108,921 | ) | $ | 12,405 | |||
Cash paid for interest | $ | 79,460 | $ | 19,987 |
The accompanying notes are an integral
part of these consolidated financial statements.
F-8
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ophthalmic Imaging Systems (the “Company,” “OIS,” “we,” “us” or “our”) was incorporated under the laws of the State of California on July 14, 1986. We are headquartered in Sacramento, California and are engaged in the business of designing, developing, manufacturing and marketing digital imaging systems, image enhancement and analysis software and informatics solutions for use by practitioners in the ocular health field. Our products are used for a variety of standard diagnostic test procedures performed in most eye care practices.
Principals of Consolidation
In January 2008, the Company, through Abraxas Medical Solutions, Inc., a wholly-owned subsidiary (“Abraxas”), purchased substantially all of the assets of AcerMed, Inc., a leading software developer for Electronic Medical Records (EMR) and Practice Management (PM) software.
On October 21, 2009, the Company completed its Asset Purchase transaction with MediVision to purchase substantially all the assets of MediVision, which was completed on October 21, 2009. Such assets include the European operations which consisted of MediVision’s business as conducted by CCS Pawlowski GmbH (“CCS”) and its branch office in Belgium (the “OIS Europe”). Accordingly, the Company began consolidating the results of operations of CCS and OIS Europe as of October 21, 2009.
The consolidated financial statements include the accounts of OIS, Abraxas, the 63% investment in CCS, OIS Europe, and OIS Global. All significant intercompany balances and transactions have been eliminated in consolidation.
Foreign currencies
The consolidated financial statements are presented in the reporting currency of Ophthalmic Imaging Systems, U.S. Dollars (“USD”). The functional currency for the Company’s wholly-owned subsidiary, OIS Europe and its 63% investment in CCS, is the European Union Euro (€). Accordingly, the balance sheet of OIS Europe and CCS is translated into USD using the exchange rate in effect at the balance sheet date. Revenues and expenses are translated using the average exchange rates in effect during the period. Translation differences are recorded directly in shareholders’ equity as “Foreign currency translation adjustment.” Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded in the statement of operations. The statement of cash flows reflects the reporting currency equivalent of foreign currency cash flows using the exchange rates in effect at the time of the cash flow.
Segment Reporting
Our business consists of two operating segments: OIS and Abraxas, our wholly-owned subsidiary. Our management reviews Abraxas’ results of operation separately from that of OIS. Our operating results for Abraxas exclude income taxes. The provision for income taxes is calculated on a consolidated basis, and accordingly, is not presented by segment. It is excluded from the measure of segment profitability as reviewed by our management. CCS does not meet the materiality requirements for segment reporting, and accordingly, CCS’ financial information is reported as Other in the following table.
F-9
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
We evaluate our reporting segments in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting (“Topic 280”). Our Chief Financial Officer (“CFO”) has been determined as the Chief Operating Decision Maker as defined by Topic 280. The CFO allocates resources to Abraxas based on its business prospects, competitive factors, net sales and operating results.
All significant intercompany balances and transactions have been eliminated in consolidation.
The following presents our financial information by segment for the years ended December 31, 2010 and 2009:
2010 | OIS | Abraxas | Other | Total | ||||
Statement of Operations: | ||||||||
Net revenues | $14,665,362 | $3,171,740 | $794,810 | $18,631,912 | ||||
Gross profit | 8,843,429 | 1,127,709 | 332,360 | 10,303,498 | ||||
Operating loss | (874,601) | (1,958,785) | (85,653) | (2,919,039) | ||||
Net loss (consolidated) | (2,472,359) | |||||||
Balance Sheet: | ||||||||
Assets | 10,897,744 | 1,259,072 | 462,670 | 12,619,486 | ||||
Liabilities | 9,080,718 | 554,515 | 135,688 | 9,770,921 | ||||
Stockholders’ equity | $5,262,922 | ($2,741,339) | $326,982 | $2,848,565 | ||||
2009 | OIS | Abraxas | Other | Total | ||||
Statement of Operations: | As Restated | As Restated | As Restated | As Restated | ||||
Net revenues | $11,666,981 | $1,752,474 | $149,845 | $13,569,300 | ||||
Gross profit | 6,812,957 | 401,459 | 112,605 | 7,327,021 | ||||
Operating loss | (4,445,823) | (1,879,061) | (17,643) | (6,342,527) | ||||
Net loss (consolidated) | (7,012,056) | |||||||
Balance Sheet: | ||||||||
Assets | 10,848,803 | 1,592,057 | 596,517 | 13,037,377 | ||||
Liabilities | 8,764,659 | 511,580 | 124,870 | 9,401,109 | ||||
Stockholders’ equity | $5,538,687 | ($2,361,507) | $459,088 | $3,636,268 |
F-10
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid investments with original maturities of three months or less as cash equivalents.
At December 31, 2010, the Company had deposits with carrying amounts of $3,905,910 including bank balances of $3,843,573, Federally insured balances totaled $1,799,143 and uninsured balances totaled $2,044,430 at December 31, 2010.
Concentrations of Credit Risk and Export Sales
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high quality financial institutions. Concentrations of credit risk with respect to trade receivables are limited due to the Company’s policy of requiring deposits from customers, the number of customers we have and their geographic dispersion. The Company maintains reserves for potential credit losses and such losses have historically been within management’s expectations. No single customer comprised 10% or more of net sales during the years ended December 31, 2010 or 2009.
Revenues from sales to customers located outside of the United States accounted for approximately 18% and 9% of net sales during the years ended December 31, 2010 and 2009, respectively.
Inventories
Inventories, which consist primarily of purchased system parts, subassemblies and assembled systems, are stated at the lower of cost (determined using the first-in, first-out method) or market.
Allowance for Doubtful Accounts
The Company generally offers customer terms of 50% deposit paid up-front, remaining 50%, less installation portion, net 15 days after shipment of product, and the installation portion after installation is complete. The allowance for doubtful accounts balance is estimated based on historical experience and any specific customer/installation issues that have been identified. The Company periodically assesses the adequacy of its recorded allowance for doubtful accounts, and adjusts the balance as necessary.
Changes in the allowance for doubtful accounts were as follows:
Allowance at January 1, 2009 | $ | 210,146 | ||
Provision | 425,598 | |||
Bad debt | (200,795 | ) | ||
Allowance at December 31, 2009 | 434,949 | |||
Provision | (62,651) | |||
Bad debt | (19,344) | |||
Allowance at December 31, 2010 | $ | 352,954 |
F-11
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Change in Rebate Estimates
Our rebate program provides customers with an incentive to purchase system upgrades. When purchasing an upgrade, we provide the customer with a discount upon receipt of the old system. Typically, customers pay for the upgrade net of the discount and the old system is returned to us.
The quote/purchase order the customer signs includes a line item for the rebate discount, which is then calculated into the net total. The quote specifically states that the old system must be received within 30 days from the completion of the installation of the upgrade for the customer to receive the discount. We then bill the customer for the full amount. At this point we record the gross sale amount and reserve for the rebate portion of the sale. If a customer pays the full amount and the old system has not been returned yet, we assume that the customer will return the old system and record the rebate portion of the payment in a deposit liability account. If the customer pays the net amount and the old system has not been returned, we continue to bill the customer for the rebate portion until the old system is returned or the rest of the amount due is paid.
When 30 days have elapsed from the date the upgrade has been installed and the old system has not been received, we contact the customer and ask what the customer intends to do with the old system. If the customer intends to return the system, we continue to record the reserve. If the customer disposed of the system or intends to keep the system or contact cannot be made, we bill the customer for the full price of the upgrade system and stop reserving for the rebate credit. Until then, we continue to reserve for the rebate until we receive payment for the full price of the upgrade or the old system. These arrangements are not pervasive with our customers. If the old system is not returned, we stop reserving for the rebate portion. If the old system is not returned and we have received the full invoice amount, we remove the rebate portion of the payment out of the deposit liability account and apply it to the sale. At this point we stop reserving for the rebate.
If the old system is returned, we remove the rebate portion from the reserve account and reduce the accounts receivable.
Furniture and Equipment
Furniture and equipment are stated at cost and depreciated or amortized on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives generally range from three to seven years. The Company evaluates furniture and equipment for financial impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable.
Acquisitions
The Company accounts for acquisitions using the purchase method. The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Any excess purchase price over the net assets acquired is recorded as goodwill. For all acquisitions, operating results are included in the Consolidated Statement of Operations since the date of the acquisitions.
F-12
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill and Other Intangible Assets
The Company tests goodwill and other intangible assets for impairment on an annual basis and between annual tests if current events or circumstances require an interim impairment assessment. Goodwill is allocated to various reporting units, which are generally an operating segment or one reporting level below the operating segment. The Company compares the fair value of each reporting unit to its carrying amount to determine if there is potential goodwill impairment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value of its goodwill. The Company compares the fair values of other intangible assets to their carrying amounts. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of goodwill and other intangible assets are determined based on discounted cash flows or appraised values, as appropriate.
The Company has not recorded an impairment loss related to goodwill during the years ended December 31, 2010 and 2009, respectively. During the year ended December 31, 2010 the Company considered intangible assets related to the Electro-optical Unit, purchased from MediVision on October 21, 2009, to be impaired. The Company recorded an impairment loss equal to the total value of Electro-optical Unit intangible assets of $199,000 during the year ended December 31, 2010. The Company did not record an impairment loss related to other intangible assets during the year ended December 31, 2009.
Software Capitalization
The cost of software developed internally is expensed until technological feasibility of the software product has been established. Thereafter, software development costs are capitalized through the general release of the software products and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized software development costs are amortized on a straight-line basis over the products’ respective estimated economic lives, which are typically three years. The amortization of capitalized software development costs is included in cost of product sales in the consolidated statements of operation.
In 2008, the Company capitalized our EMR and PM software that we acquired from AcerMed through the bankruptcy court. This software was purchased with the intention that it would be sold, leased or marketed upon modification by our research and development team to our customers. The amount that we capitalized for this software was $570,077. During the first three months of 2009, the Company began to sell this software and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years. Amortization expense related to these assets was $190,024 for the years ended December 31, 2010 and 2009.
The Company also capitalized the development costs incurred to prepare this software for sale. Development costs were capitalized once technological feasibility was established. We believe that the software was technologically feasible when we began to capitalize the costs because we had worked with a model/prototype that had been in the market before our acquisition. The amount of development that we capitalized in connection with this software is $1,150,831. During the first three months of 2009, we began to sell this software, and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years. Amortization expense related to this asset was $383,612 for the years ended December 31, 2010, and 2009.
In 2008, the Company also capitalized $504,711 of costs associated with the development of a web-based software once technological feasibility was established. During the first three months of 2009, we began to sell this software and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years. Amortization expense related to this asset was $168,236 for the yeas ended December 31, 2010 and 2009.
F-13
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company’s revenue recognition policies comply with applicable accounting rules and regulations including FASB Accounting Standards Codification Topic 985, Software, and Topic 605, Revenue, and Subtopic 25, Multiple-Element Arrangements. Under Topic 605, Subtopic 25, the multiple components of our revenue are considered separate units of accounting in that revenue recognition occurs at different points of time for (1) product shipment, (2) installation and training services, and (3) service contracts based on performance or over the contract term as we incur expenses related to the contract revenue.
Revenue for products is recognized when title passes to the customer, which is upon shipment, provided there are no conditions to acceptance, including specific acceptance rights. If we make an arrangement that includes specific acceptance rights, revenue is recognized when the specific acceptance rights are met. In addition, consideration received from our customer agreements are reliably measurable because the amount of the consideration is fixed and no specific refund rights are included in the arrangement and, thus, such consideration is reliably measurable. We defer 100% of the revenue from sales shipped during the period that we believe may be uncollectible.
Installation revenue is recognized when the installation is complete. Separate amounts are charged and assigned in the customer quote, sales order and invoice, for installation and training services. These amounts are determined based on fair value, which is calculated in accordance with industry and competitor pricing of similar services and adjustments according to market acceptance. There is no price reduction in the product price if the customer chooses not to have us complete the installation.
Extended product service contracts are offered to our customers and are generally entered into prior to the expiration of our one year product warranty. The revenue generated from these transactions is recognized over the contract period, normally one to four years.
We do not have a general policy for cancellation, termination, or refunds associated with the sale of our products and services. All items are on one quote/purchase order with payment terms specified for the whole order.
Warranty Reserve
The Company’s warranty reserve contains two components, a general product reserve recorded on a per product basis and specific reserves recorded as we become aware of system performance issues. The product reserve is calculated based on a fixed dollar amount per product shipped each quarter. Specific reserves usually arise from the introduction of new products. When a new product is introduced, we reserve for specific problems arising from potential issues, if any. As issues are resolved, we reduce the specific reserve. These types of issues can cause our warranty reserve to fluctuate outside of sales fluctuations.
The Company estimates the cost of the various warranty services by taking into account the estimated cost of servicing routine warranty claims in the first year, including parts, labor and travel costs for service technicians. We analyze the gross profit margin of our service department, the price of our extended warranty contracts, factor in the hardware costs of the various systems, and use a percentage to calculate the cost per system to use for the first year manufacturer’s warranty.
Shipping and Handling Costs
Shipping and handling costs are included with cost of sales.
Advertising Costs
Advertising expenditures totaled $292,946 and $114,301, for the years ended December 31, 2010 and 2009, respectively.
F-14
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Liability Financial Instruments
Derivative liability financial instruments are comprised of warrants to purchase shares of our common stock and embedded conversion options issued in connection with a convertible note. Anti-dilution provisions present in these instruments adjust the exercise price of the warrants and conversion price of the convertible debt if the Company sells any equity securities or securities convertible into equity, options or rights to purchase equity securities, at a per share selling price less than the exercise price pursuant to a weighted-average formula. The Company records all derivative liability financial instruments in the balance sheet within the Derivative Financial Instruments Liabilities financial statement caption at fair value. Changes in the fair values of these instruments are reported in the results of operations for the period. The Company does not hold any derivative liability financial instruments that reduce risk associated with hedging exposure accordingly the Company has not designated any of its derivatives liability financial instruments as hedge instruments.
Income Taxes
Deferred taxes are calculated using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
FASB Accounting Standards Codification Topic No. 740, Taxes, provides the accounting for uncertainty in income taxes recognized in a company’s financial statements. Topic No. 740 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. In addition, Topic No. 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We apply Topic No. 740 to all of our tax positions.
Pursuant to Topic No. 740, interest and penalties related to unrecognized tax positions are recorded in tax expense.
Loss Per Share
Basic earnings (loss) per share which excludes dilution, is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock, which shares in the earnings of the Company. The treasury stock method is applied to determine the dilutive effect of stock options in computing diluted earnings per share. The Company currently is in a loss position and does not calculate diluted earnings per share.
Stock-based Compensation
The Company uses a Black-Scholes-Merton option valuation model to determine the fair value of stock-based compensation. The Black-Scholes-Merton model incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield. The expected term of an award is generally no less than the option vesting period and is based on the Company’s historical experience. Expected volatility is based upon the historical volatility of the Company’s stock price. The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s expected life. The Company uses a dividend yield of zero in the Black-Scholes-Merton option valuation model as it does not anticipate paying cash dividends in the foreseeable future.
F-15
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were 6,205,129 warrants outstanding and exercisable as of December 31, 2010 with a weighted average remaining contractual life of 1.57 years, a weighted average exercise price of $1.03. There is no intrinsic value of warrants outstanding at December 31, 2010. (For additional details, see Note. 12. Warrants)
Impact of New Financial Accounting Statements
Financial Accounting Statements issued and not yet adopted.
FASB Accounting Standards Update No. 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
In December 2010, the FASB issued Accounting Update No. 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, to modify step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. The effect of the update will eliminate an entity’s ability to assert that a reporting unit is not required to perform step 2 of the goodwill impairment test because the carrying amount of the reporting unit is zero or negative despite qualitative factors that indicate the goodwill is more likely than not impaired. As a result, goodwill impairment may be reported sooner than under current factors. Accounting Standards Update No. 2010-28 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not expect the adoption of Accounting Standards Update No. 2010-28 to have a material impact on the consolidated financial statements.
FASB Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force.
In October 2009, the FASB issued Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force, to amend guidance used to allocate and measure revenues by an enterprise that sells or leases tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The amendments in the Update require that hardware components of a tangible product containing software elements always be excluded from the software revenue guidance. The Update provides additional guidance on how to determine which software, if any, related to the tangible products also would be excluded from the scope of the software revenue guidance. Update No. 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the adoption of Accounting Standards Update No. 2009-14 to have a material impact on the consolidated financial statements.
FASB Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, a Consensus of the FASB Emerging Issues Task Force, to amend guidance which establishes a selling price hierarchy for determining the selling price of a deliverable in a multiple-deliverable revenue arrangement. The amendments in this Update also will replace the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenues is based on entity-specific assumptions rather than assumptions of marketplace participation. In addition, the amendment revises certain disclosure requirements. Update No. 2009-13 will become effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the adoption of Accounting Standards Update No. 2009-13 to have a material impact on the consolidated financial statements.
Financial Accounting Statements Issued and Adopted
FASB Accounting Standards Update No. 2010-8, Technical Corrections to Various Topics.
In February 2010, the FASB issued Accounting Update No. 2010-8, Technical Corrections to Various Topics, to eliminate inconsistencies and to clarify guidance on various Codification Topics. Except for certain amendments to Topic 815 and the nullification of paragraph 852-740-45-2, Update No. 2010-08 was effective for the first reporting period beginning after issuance. The adoption of Accounting Standards Update No. 2010-8 did not have a material impact on our consolidated financial statements.
F-16
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FASB Accounting Standards Update No. 2010-06, Fair Value Measurement and Disclosures.
In January 2010, the FASB issued Accounting Update No. 2010-06, Fair Value Measurement and Disclosures, to improve disclosures about Fair Value Measurements. The amendments in this Update will require new disclosures related to the transfer in and out of Level 1 and 2, and require that a reporting company present Level 3 activity on a gross basis rather than one net number. In addition, the amendments in this Update clarify existing disclosures related to the level of disaggregation and disclosures about inputs and valuation techniques. Update No. 2010-06 was effective for reporting periods beginning after December 15, 2009. The adoption of Accounting Standards Update No. 2010-06 did not have a material impact on the consolidated financial statements.
FASB Accounting Standards Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash.
In January 2010, the FASB issued Accounting Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, to clarify the accounting for a distribution to shareholders that offers the ability to elect to receive the entire distribution in cash or shares. Accounting Standards Update No. 2010-06 was effective for reporting periods beginning after December 15, 2009. The adoption of Accounting Standards Update No. 2010-01 did not have a material impact on the consolidated financial statements.
FASB Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles.
In October 2009, the FASB issued Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles, to amend the FASB Accounting Standards Codification for the issuance of the FASB Statement No. 168, the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB. Rules and interpretive releases of the Security and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. The adoption of Update No. 2009-01 did not have a material impact on the consolidated financial statements.
FASB Accounting Standards Codification Topic 855, Subsequent Events.
On June 30, 2009, we adopted Topic 855, Subsequent Events, which is generally based on Financial Accounting Standard 165 which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, Topic 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of Topic 855 did not have a material impact on the consolidated financial statements.
FASB Accounting Standards Codification Topic 810, Consolidation.
Topic 810 Consolidation, is generally based on Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R), which was issued in June 2009, which among other things requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. Topic 810, Consolidation, became effective on January 1, 2010. The adoption of Topic 810 did not have a material impact on the consolidated financial statements.
F-17
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements
During the year-end financial close process of fiscal 2010, the Company discovered errors in its accounting treatment for warrants to purchase shares of the Company’s common stock and embedded conversion options issued in connection with a convertible note. The warrants were issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. (together with The Tail Wind Fund Ltd., the “Holders”) on October 27, 2007 and June 24, 2009, to United Mizrahi Bank on October 26, 2009, and to U.M. AccelMed, Limited Partnership, an Israeli limited partnership (“AccelMed”) on June 24, 2009 and May 24, 2010. The embedded conversion options were issued in connection with a convertible note issued to the Holders on October 27, 2007 (For additional details on these transactions see Note 6, Notes Payable and Note 7 Related Party Transactions).
Anti-dilution provisions present in all of these instruments adjust the exercise price of the warrants and conversion price of the convertible debt if the Company sells any equity securities or securities convertible into equity, options or rights to purchase equity securities, at a per share selling price less than the exercise price pursuant to a weighted-average formula. These anti-dilution provisions present in these instruments require liability accounting treatment rather than equity accounting treatment during fiscal year ended December 31, 2009 and 2010. The restatements for the fiscal years ended December 31, 2007 and 2008 relate solely to the Company’s valuation and accounting for the relative fair value of warrants and the beneficial conversion feature of the debt issued to the Holders on October 27, 2007. The Company evaluated the effects of these errors on prior periods’ consolidated financial statements, individually and in the aggregate, in accordance with guidance provided by SEC Staff Accounting Bulletin No. 108 codified as Topic 1.N “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements,” and concluded that the consolidated balance sheets at December 31, 2009, 2008 and 2007 and the respective consolidated statements of operations, stockholders’ equity, and cash flows for the fiscal years ended December 31, 2009, 2008 and 2007 interim financial information for the quarters of the fiscal years ended December 31, 2010 and 2009 are materially misstated as follows.
F-18
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Balance Sheet | ||||||||
December 31, 2009 | ||||||||
Assets | As Reported | Adjustments | As Restated | |||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 5,406,239 | $ | - | $ | 5,406,239 | ||
Accounts receivable, net | 2,710,987 | - | 2,710,987 | |||||
Inventories | 991,325 | - | 991,325 | |||||
Prepaid expenses and other current assets | 179,451 | - | 179,451 | |||||
Total current assets | 9,288,002 | - | 9,288,002 | |||||
Restricted cash | 158,213 | - | 158,213 | |||||
Furniture and equipment, net | 481,394 | - | 481,394 | |||||
Capitalized imaging software, net | 336,475 | - | 336,475 | |||||
Capitalized software development, net | 767,220 | - | 767,220 | |||||
AcerMed asset purchase, net | 380,053 | - | 380,053 | |||||
Goodwill | 807,000 | - | 807,000 | |||||
Customer relationship intangible assets, net | 481,364 | - | 481,364 | |||||
Other intangible assets, net | 298,111 | - | 298,111 | |||||
Prepaid financing | 22,195 | - | 22,195 | |||||
Other assets | 17,350 | - | 17,350 | |||||
Total assets | $ | 13,037,377 | $ | - | $ | 13,037,377 |
F-19
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Restatement of Consolidated Financial Statements (continued) |
Consolidated Balance Sheet (continued) | ||||||||
December 31, 2009 | ||||||||
Liabilities and Stockholders’ Equity | As Reported | Adjustments | As Restated | |||||
Current liabilities: | ||||||||
Accounts payable | $ | 867,672 | $ | - | $ | 867,672 | ||
Accounts payable related party | 41,847 | - | 41,847 | |||||
Accrued liabilities | 1,115,902 | - | 1,115,902 | |||||
Derivative liability financial instruments | - | 1,863,976 | 1,863,976 | |||||
Deferred extended warranty revenue – current portion | 1,632,491 | - | 1,632,491 | |||||
Customer deposits | 561,244 | - | 561,244 | |||||
Notes payable - current portion | 34,048 | - | 34,048 | |||||
Total current liabilities | 4,253,204 | 1,863,976 | 6,117,180 | |||||
Deferred extended warranty revenue, less current portion | 247,231 | 247,231 | ||||||
Line of credit | 150,000 | 150,000 | ||||||
Notes payable, less current portion | 2,946,179 | (59,481) | 2,886,698 | |||||
Total liabilities | 7,596,615 | 1,804,495 | 9,401,109 | |||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Ophthalmic Imaging Systems stockholders’ equity: | ||||||||
Preferred stock 20,000,000 shares authorized ; 0 shares outstanding Common stock, no par value, 100,000,000 shares authorized; 26,500,059 shares issued and outstanding | 20,089,592 | (107,615) | 19,981,977 | |||||
Additional paid in capital | 420,610 | (373,566) | 47,044 | |||||
Accumulated deficit | (15,536,170) | (1,323,313) | (16,859,483) | |||||
Cumulative translation adjustment | 2,241 | - | 2,241 | |||||
Total Ophthalmic Imaging Systems’ stockholders’ equity | 4,976,273 | (1,804,494) | 3,171,779 | |||||
Noncontrolling Interest | 464,489 | - | 464,489 | |||||
Total equity | 5,440,762 | (1,804,494) | 3,636,268 | |||||
Total liabilities and stockholders’ equity | $ | 13,037,377 | $ | - | $ | 13,037,377 |
F-20
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Statement of Operations | ||||||||
For the Year Ended December 31, 2009 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales – products | $ | 9,530,555 | $ | - | $ | 9,530,555 | ||
Cost of sales – products | 3,799,236 | - | 3,799,236 | |||||
Cost of sales – amortization | 741,871 | - | 741,871 | |||||
Gross profit – products | 4,989,448 | 4,989,448 | ||||||
Sales – products to related parties | 338,492 | - | 338,492 | |||||
Cost of sales – products to related parties | 201,093 | - | 201,093 | |||||
Gross profit –products to related parties | 137,399 | - | 137,399 | |||||
Sales – service | 3,700,253 | - | 3,700,253 | |||||
Cost of sales – service | 1,500,079 | - | 1,500,079 | |||||
Gross profit – service | 2,200,174 | - | 2,200,174 | |||||
Net revenues | 13,569,300 | - | 13,569,300 | |||||
Cost of sales | 6,242,279 | - | 6,242,279 | |||||
Gross profit | 7,327,021 | 7,327,021 | ||||||
Operating expenses: | ||||||||
Sales and marketing | 4,124,480 | - | 4,124,480 | |||||
General and administrative | 2,255,389 | - | 2,255,389 | |||||
Impairment related to the debt of MediVision | 4,436,187 | - | 4,436,187 | |||||
Research and development | 2,559,478 | - | 2,559,478 | |||||
Research and development-related parties | 294,014 | - | 294,014 | |||||
Total operating expenses | 13,669,548 | - | 13,669,548 | |||||
Loss from operations | (6,342,527) | - | (6,342,527) | |||||
Other income (expense): | ||||||||
Change in fair value of derivative financial liabilities | - | (1,466,805) | (1,466,805) | |||||
Interest expense | (215,729) | (59,855) | (275,584) | |||||
Other expense | (186,592) | - | (186,592) | |||||
Interest income | 63,239 | - | 63,239 | |||||
Other income-legal settlement | 1,200,000 | - | 1,200,000 | |||||
Total other income (expense) | 860,918 | (1,526,660) | (665,742) | |||||
Net loss before provision for income tax expense | (5,481,609) | (1,526,660) | (7,008,269) | |||||
Provision for income tax expense | (3,787) | - | (3,787) | |||||
Net loss | (5,485,396) | (1,526,660) | (7,012,056) | |||||
Less: Noncontrolling interest’s share | 8,511 | - | 8,511 | |||||
Net loss attributable to Ophthalmic Imaging Systems’ stockholders | $ | (5,476,885) | $ | (1,526,660) | $ | (7,003,545) | ||
Shares used in the calculation of basic loss per share | 21,842,234 | 21,842,234 | 21,842,234 | |||||
Basic loss per share | $ | (0.25) | $ | (0.07) | $ | (0.32) |
F-21
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Statement of Comprehensive Loss | ||||||||
As of and for the Year Ended December 31, 2009 | ||||||||
As Reported | Adjustments | As Reported | ||||||
Net loss attributable for Ophthalmic Imaging Systems | $ | (5,476,885) | $ | (1,526,660) | $ | (7,003,545) | ||
Other comprehensive income | ||||||||
Foreign currency translation | 2,241 | - | 2,241 | |||||
Comprehensive net loss | $ | (5,474,644) | $ | (1,526,660) | $ | (7,001,304) |
F-22
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Statement of Cash Flows | ||||||||
For the Year Ended December 31, 2009 | ||||||||
As Reported | Adjustments | As Reported | ||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (5,485,396) | $ | (1,526,660) | $ | (7,012,056) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 237,224 | - | 237,224 | |||||
Loss (gain) on disposal of asset | 207 | - | 207 | |||||
Stock based compensation expense | 32,220 | - | 32,220 | |||||
Warranty expense | 269,249 | - | 269,249 | |||||
Discount related to note payable | 131,171 | 59,855 | 191,026 | |||||
Change in accounts receivable | (1,043,376) | - | (1,043,376) | |||||
Provision for bad debt | 224,803 | - | 224,803 | |||||
Write-off of MediVision assets | 3,152,042 | - | 3,152,042 | |||||
Change in related party receivable | 500,365 | - | 500,365 | |||||
Change in fair value of derivative liability financial instruments | - | 1,466,805 | 1,466,805 | |||||
Change in prepaid products | 560,000 | - | 560,000 | |||||
Change in inventories | 307,939 | - | 307,939 | |||||
Change in prepaid expenses and other current assets | 53,967 | - | 53,967 | |||||
Amortization of prepaid financing related to note payable | 66,585 | - | 66,585 | |||||
Amortization of Symphony Web software | 168,236 | - | 168,236 | |||||
AcerMed software license amortization | 573,635 | - | 573,635 | |||||
Change in other assets | 49,317 | - | 49,317 | |||||
Change in accounts payable | (13,968) | - | (13,968) | |||||
Change in accounts payable – related parties | 41,847 | - | 41,847 | |||||
Change in accrued liabilities | (320,749) | - | (320,749) | |||||
Change in deferred extended warranty revenue | (31,102) | - | (31,102) | |||||
Change in customer deposits | 463,782 | - | 463,782 | |||||
Net cash used in operating activities | (62,003) | - | (62,003) | |||||
Cash flows from investing activities: | ||||||||
APA acquisition, net of cash acquired | (1,235,523) | - | (1,235,523) | |||||
Acquisition of furniture and equipment | (132,951) | - | (132,951) | |||||
Net cash used in investing activities | (1,368,474) | - | (1,368,474) | |||||
Cash flows from financing activities: | ||||||||
Principal payments on notes payable | (732,984) | - | (732,984) | |||||
Proceeds from note payable | 1,500,000 | - | 1,500,000 | |||||
Proceeds from sale of stock, net of expenses | 3,999,971 | - | 3,999,971 | |||||
Stock issuance costs (payment of due diligence) | (158,899) | - | (158,899) | |||||
Net cash provided by financing activities | 4,608,088 | - | 4,608,088 | |||||
Effect of exchange rate changes on cash and cash equivalents | 4,003 | - | 4,003 | |||||
Net increase cash and cash equivalents | 3,181,614 | - | 3,181,614 | |||||
Cash and cash equivalents, beginning of the year | 2,224,625 | - | 2,224,625 | |||||
Cash and cash equivalents, end of the year | $ | 5,406,239 | $ | - | $ | 5,406,239 | ||
Supplemental schedule of cash flow information: | ||||||||
Cash paid for taxes | $ | 12,405 | $ | $ | 12,405 | |||
Cash paid for interest | $ | 19,987 | $ | $ | 19,987 |
F-23
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Balance Sheet | ||||||||
December 31, 2008 | ||||||||
Assets | As Reported | Adjustments | As Restated | |||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,224,625 | $ | - | $ | 2,224,625 | ||
Accounts receivable, net | 1,698,093 | - | 1,698,093 | |||||
Receivables from related parties | 500,365 | - | 500,365 | |||||
Notes receivable from related party | 2,878,234 | - | 2,878,234 | |||||
Inventories | 1,206,733 | - | 1,206,733 | |||||
Prepaid expenses and other current assets | 233,418 | 233,418 | ||||||
Total current assets | 8,741,468 | - | 8,741,468 | |||||
Restricted cash | 158,031 | - | 158,031 | |||||
Furniture and equipment, net | 409,280 | - | 409,280 | |||||
Licensing agreement | 273,808 | - | 273,808 | |||||
Prepaid products | 560,000 | - | 560,000 | |||||
Capitalized imaging software | 504,711 | - | 504,711 | |||||
Capitalized software development | 1,150,831 | - | 1,150,831 | |||||
AcerMed asset purchase | 570,077 | - | 570,077 | |||||
Prepaid financing | 88,780 | - | 88,780 | |||||
Other assets | 167,723 | 167,723 | ||||||
Total assets | $ | 12,624,709 | $ | - | $ | 12,624,709 |
F-24
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Balance Sheet (continued) | ||||||||
December 31, 2008 | ||||||||
Liabilities and Stockholders’ Equity | As Reported | Adjustments | As Restated | |||||
Current liabilities: | ||||||||
Accounts payable | $ | 831,980 | $ | - | $ | 831,980 | ||
Accrued liabilities | 1,072,551 | - | 1,072,551 | |||||
Deferred extended warranty revenue – current portion | 1,522,308 | - | 1,522,308 | |||||
Customer deposits | 101,678 | - | 101,678 | |||||
Notes payable - current portion | 1,611,063 | (244,284) | 1,366,779 | |||||
Total current liabilities | 5,139,580 | (244,284) | 4,895,296 | |||||
Deferred extended warranty revenue, less current portion | 388,516 | - | 388,516 | |||||
Line of credit | 150,000 | - | 150,000 | |||||
Notes payable, less current portion | 500,159 | - | 500,159 | |||||
Total liabilities | 6,178,255 | (244,284) | 5,933,971 | |||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 35,000,000 shares authorized; 16,866,831 shares issued and outstanding | 16,504,773 | - | 16,504,773 | |||||
Additional paid in capital | 966 | 761,614 | 762,580 | |||||
Accumulated deficit | (10,059,285) | (517,330) | (10,576,615) | |||||
Total Stockholders’ equity | 6,446,454 | 244,284 | 6,690,738 | |||||
Total liabilities and stockholders’ equity | $ | 12,624,709 | $ | - | $ | 12,624,709 |
F-25
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Statement of Operations | ||||||||
For the Year Ended December 31, 2008 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales – products | $ | 7,990,300 | $ | - | $ | 7,990,300 | ||
Cost of sales – products | 3,811,212 | - | 3,811,212 | |||||
Gross profit – products | 4,179,088 | - | 4,179,088 | |||||
Sales – products to related parties | 822,980 | - | 822,980 | |||||
Cost of sales – products to related parties | 444,186 | - | 444,186 | |||||
Gross profit –products to related parties | 378,794 | - | 378,794 | |||||
Sales – service | 3,677,837 | - | 3,677,837 | |||||
Cost of sales – service | 1,513,085 | - | 1,513,085 | |||||
Gross profit – service | 2,164,752 | - | 2,164,752 | |||||
Net revenues | 12,491,117 | - | 12,491,117 | |||||
Cost of sales | 5,768,483 | - | 5,768,483 | |||||
Gross profit | 6,722,634 | 6,722,634 | ||||||
Operating expenses: | ||||||||
Sales and marketing | 4,034,816 | - | 4,034,816 | |||||
General and administrative | 2,070,212 | - | 2,070,212 | |||||
Research and development | 332,123 | - | 332,123 | |||||
Research and development-related parties | 1,887,537 | - | 1,887,537 | |||||
Total operating expenses | 8,324,688 | - | 8,324,688 | |||||
Loss from operations | (1,602,054) | - | (1,602,054) | |||||
Other (expense) income: | ||||||||
Interest expense | (145,255) | (435,490) | (580,745) | |||||
Other expense | (173,890) | - | (173,890) | |||||
Interest income | 234,675 | - | 234,675 | |||||
Total other (expense), net | (84,470) | (435,490) | (519,960) | |||||
Net loss before provision for income tax expense | (1,686,524) | (435,490) | (2,122,014) | |||||
Provision for income tax expense | (1,299,000) | - | (1,299,000) | |||||
Net loss | (2,985,524) | (435,490) | (3,421,014) | |||||
Shares used in the calculation of basic loss per share | 16,866,831 | 16,866,831 | 16,866,831 | |||||
�� | ||||||||
Basic loss per share | $ | (0.18) | $ | (0.02) | $ | (0.20) |
F-26
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Restatement of Consolidated Financial Statements (continued) |
Consolidated Statement of Cash Flows | ||||||||
For the Year Ended December 31, 2008 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,985,524) | $ | (435,490) | $ | (3,421,014) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 187,796 | - | 187,796 | |||||
Gain on disposal of asset | (2,114) | - | (2,114) | |||||
Stock based compensation expense | 30,053 | - | 30,053 | |||||
Discount related to note payable | (23,817) | 435,490 | 411,673 | |||||
Change in accounts receivable | 832,268 | - | 832,268 | |||||
Provision for bad debt | 5,482 | - | 5,482 | |||||
Change in accounts receivable – related parties | (103,059) | - | (103,059) | |||||
Change in inventories | (460,391) | - | (460,391) | |||||
Change in prepaid expenses and other current assets | 274,314 | - | 274,314 | |||||
Amortization of prepaid financing related to note payable | 59,585 | - | 59,585 | |||||
Change in other assets | 10,187 | - | 10,187 | |||||
Change in accounts payable | 105,407 | - | 105,407 | |||||
Change in accrued liabilities | (364,762) | - | (364,762) | |||||
Change in deferred extended warranty revenue | 306,509 | - | 306,509 | |||||
Change in customer deposits | 46,244 | - | 46,244 | |||||
Change in deferred tax asset | 1,342,000 | - | 1,342,000 | |||||
Net cash used in operating activities | (739,822) | (739,822) | ||||||
Cash flows from investing activities: | ||||||||
AcerMed asset purchase | (479,262) | - | (479,262) | |||||
Advance to related parties | (1,731,362) | - | (1,731,362) | |||||
Development of imaging software | (424,244) | - | (424,244) | |||||
Software development capitalization | (1,150,831) | - | (1,150,831) | |||||
Other capitalized software investments | (88,418) | - | (88,418) | |||||
Licensing rights | (24,112) | - | (24,112) | |||||
Patents | 59,483 | - | 59,483 | |||||
Acquisition of furniture and equipment | (178,125) | - | (178,125) | |||||
Net cash used in investing activities | (4,016,871) | (4,016,871) | ||||||
Cash flows from financing activities: | ||||||||
Principal payments on notes payable | (648,966) | - | (648,966) | |||||
Net cash used in financing activities | (648,966) | - | (648,966) | |||||
Net decrease in cash and cash equivalents | (5,405,659) | - | (5,405,659) | |||||
Cash and cash equivalents, beginning of the year | 7,630,284 | - | 7,630,284 | |||||
Cash and cash equivalents, end of the year | $ | 2,224,625 | $ | - | $ | 2,224,625 | ||
Supplemental schedule of cash flow information: | ||||||||
Cash paid for taxes | $ | 5,619 | $ | - | $ | 5,619 | ||
Cash paid for interest | $ | 120,225 | $ | - | $ | 120,225 |
F-27
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Balance Sheet | ||||||||
December 31, 2007 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 7,630,284 | $ | - | $ | 7,630,284 | ||
Accounts receivable, net | 2,535,843 | - | 2,535,843 | |||||
Receivables from related parties | 397,307 | - | 397,307 | |||||
Notes receivable from related party | 1,146,872 | - | 1,146,872 | |||||
Inventories | 746,342 | - | 746,342 | |||||
Prepaid expenses and other current assets | 507,732 | - | 507,732 | |||||
Deferred tax assets | 1,342,000 | - | 1,342,000 | |||||
Total current assets | 14,306,380 | - | 14,306,380 | |||||
Restricted cash | 168,218 | - | 168,218 | |||||
Furniture and equipment, net | 416,838 | - | 416,838 | |||||
Licensing agreement | 273,808 | - | 273,808 | |||||
Prepaid products | 460,000 | - | 460,000 | |||||
AcerMed asset purchase | 90,815 | - | 90,815 | |||||
Prepaid financing | 148,365 | - | 148,365 | |||||
Other assets | 295,144 | - | 295,144 | |||||
Total assets | $ | 16,159,568 | $ | - | $ | 16,159,568 |
F-28
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Balance Sheet (continued) | ||||||||
December 31, 2007 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 726,573 | $ | - | $ | 726,573 | ||
Accrued liabilities | 1,437,313 | - | 1,437,313 | |||||
Deferred extended warranty revenue | 1,604,315 | - | 1,604,315 | |||||
Customer deposits | 55,435 | - | 55,435 | |||||
Notes payable - current portion | 1,029,643 | (489,636) | 540,007 | |||||
Total current liabilities | 4,853,279 | (489,636) | 4,363,643 | |||||
Line of credit | 150,000 | - | 150,000 | |||||
Notes payable, less current portion | 1,564,226 | - | 1,564,226 | |||||
Total liabilities | 6,567,505 | (489,636) | 6,077,869 | |||||
Commitments and contingencies | ||||||||
Stockholders' equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 35,000,000 shares authorized; 16,866,831 shares issued and outstanding | 16,474,720 | - | 16,474,720 | |||||
Additional paid in capital | 191,104 | 571,476 | 762,580 | |||||
Accumulated deficit | (7,073,761) | (81,840) | (7,155,601) | |||||
Total stockholders' equity | 9,592,063 | 489,636 | 10,081,699 | |||||
Total liabilities and stockholders' equity | $ | 16,159,568 | $ | 0 | $ | 16,159,568 |
F-29
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Statement of Operations | ||||||||
December 31, 2007 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 10,679,860 | $ | - | $ | 10,679,860 | ||
Cost of sales - products | 4,458,093 | - | 4,458,093 | |||||
Gross profit -products | 6,221,767 | 6,221,767 | ||||||
- | ||||||||
Sales – products to related parties | 777,867 | - | 777,867 | |||||
Cost of sales – products to related parties | 446,673 | - | 446,673 | |||||
Gross profit –products to related parties | 331,194 | 331,194 | ||||||
Sales - service | 3,031,317 | - | 3,031,317 | |||||
Cost of sales - service | 1,360,929 | - | 1,360,929 | |||||
Gross profit - service | 1,670,388 | - | 1,670,388 | |||||
- | ||||||||
Net revenues | 14,489,044 | 14,489,044 | ||||||
Cost of sales | 6,265,695 | - | 6,265,695 | |||||
Gross profit | 8,223,349 | - | 8,223,349 | |||||
Operating expenses: | ||||||||
Sales and marketing | 3,494,926 | - | 3,494,926 | |||||
General and administrative | 2,212,078 | - | 2,212,078 | |||||
Research and development | 280,283 | - | 280,283 | |||||
Research and development-related parties | 1,350,937 | - | 1,350,937 | |||||
Total operating expenses | 7,338,224 | - | 7,338,224 | |||||
Income from operations | 885,125 | - | 885,125 | |||||
Other income (expense): | ||||||||
Interest expense | (52,627) | (81,840) | (134,467) | |||||
Other expense | (139,582) | - | (139,582) | |||||
Interest income | 333,313 | - | 333,313 | |||||
Total other income, net | 141,104 | (81,840) | 59,264 | |||||
Net income before provision for income tax expense | 1,026,229 | (81,840) | 944,389 | |||||
Provision for income tax expense | (940) | - | (940) | |||||
Net income | $ | 1,025,289 | $ | (81,840) | $ | 943,449 | ||
Shares used in the calculation of basic earnings per share | 16,682,773 | 16,682,773 | 16,682,773 | |||||
Basic earnings per share | $ | 0.06 | $ | - | $ | 0.06 | ||
Shares used in the calculation of diluted earnings per share | 18,023,500 | 18,023,500 | 18,023,500 | |||||
Diluted earnings per share | $ | 0.09 | $ | - | $ | 0.05 |
F-30
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Consolidated Statement of Cash Flows | ||||||||
December 31, 2007 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 1,025,289 | $ | (81,840) | $ | 943,449 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 175,164 | - | 175,164 | |||||
Loss on disposal of asset | (1,171) | - | (1,171) | |||||
Stock based compensation expense | 33,296 | - | 33,296 | |||||
Discount related to note payable | (170,629) | 272,944 | 102,315 | |||||
Accounts receivable | (93,779) | - | (93,779) | |||||
Accounts receivable – related parties | 333,331 | - | 333,331 | |||||
Inventories | 61,896 | - | 61,896 | |||||
Prepaid expenses and other current assets | (326,988) | - | (326,988) | |||||
Deferred tax asset | (170,000) | - | (170,000) | |||||
Prepaid products | (300,000) | - | (300,000) | |||||
Other assets | (108,704) | - | (108,704) | |||||
Accounts payable | (38,662) | - | (38,662) | |||||
Accrued liabilities | (575,474) | - | (575,474) | |||||
Deferred extended warranty revenue | 353,422 | - | 353,422 | |||||
Customer deposits | (255,333) | - | (255,333) | |||||
Net cash provided by operating activities | (58,342) | 191,104 | 132,762 | |||||
Cash flows used in investing activities: | ||||||||
AcerMed asset purchase | (90,815) | (90,815) | ||||||
Advance to related parties | (1,050,191) | - | (1,050,191) | |||||
Licensing rights | (75,000) | �� - | (75,000) | |||||
Patents | (31,407) | - | (31,407) | |||||
Acquisition of furniture and equipment | (200,278) | - | (200,278) | |||||
Net cash used in investing activities | (1,447,691) | - | (1,447,691) | |||||
Cash flows from financing activities: | ||||||||
Principal payments on notes payable | (6,625) | - | (6,625) | |||||
Proceeds from note payable, other | 2,749,999 | (762,581) | 1,987,418 | |||||
Financing costs related to note payable, other | (148,365) | - | (148,365) | |||||
Additional paid in capital | 191,104 | 571,477 | 762,581 | |||||
Proceeds from sale of stock | 186,347 | - | 186,347 | |||||
Net cash provided by financing activities | 2,972,460 | (191,104) | 2,781,356 | |||||
Net increase in cash and cash equivalents | 1,466,427 | - | 1,466,427 | |||||
Cash and cash equivalents, beginning of the year | 6,163,857 | - | 6,163,857 | |||||
Cash and cash equivalents, end of the year | $ | 7,630,284 | $ | - | $ | 7,630,284 | ||
Supplemental schedule of cash flow information: | ||||||||
Cash paid for taxes | $ | 237,285 | - | $ | 237,285 | |||
Cash paid for interest | $ | 33,048 | - | $ | 33,048 |
F-31
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
September 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,789,069 | $ | - | $ | 4,789,069 | ||
Accounts receivable, net | 4,151,638 | - | 4,151,638 | |||||
Inventories, net | 1,831,941 | - | 1,831,941 | |||||
Prepaid expenses and other current assets | 391,664 | - | 391,664 | |||||
Total current assets | 11,164,312 | - | 11,164,312 | |||||
Furniture and equipment, net | 491,264 | - | 491,264 | |||||
Capitalized imaging software, net | 210,298 | - | 210,298 | |||||
Capitalized software development, net | 479,511 | - | 479,511 | |||||
AcerMed asset purchase, net | 237,535 | - | 237,535 | |||||
Goodwill | 807,000 | - | 807,000 | |||||
Other intangible assets, net | 632,929 | - | 632,929 | |||||
Licensing rights intangible asset, net | 74,334 | - | 74,334 | |||||
Other assets | 9,635 | - | 9,635 | |||||
Total assets | $ | 14,106,818 | $ | - | $ | 14,106,818 | ||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,360,989 | $ | - | $ | 1,360,989 | ||
Accounts payable-related party | - | - | - | |||||
Accrued liabilities | 1,529,194 | - | 1,529,194 | |||||
Derivative liability financial instruments | - | 2,287,017 | 2,287,017 | |||||
Deferred extended warranty revenue-current portion | 1,782,267 | - | 1,782,267 | |||||
Customer deposits | 423,614 | - | 423,614 | |||||
Notes payable-current portion | 1,665,527 | (24,144) | 1,641,383 | |||||
Total current liabilities | 6,761,591 | - | 9,024,464 | |||||
Deferred extended warranty revenue, less current portion | 270,979 | - | 270,979 | |||||
Line of credit | - | - | - | |||||
Notes payable, less current portion | 1,202,775 | - | 1,202,775 | |||||
Total liabilities | 8,235,345 | 2,262,873 | 10,498,218 | |||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Ophthalmic Imaging Systems’ stockholders' equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 100,000,000 shares authorized; 30,302,151 shares issued and outstanding | 21,715,692 | (13,618) | 21,702,074 | |||||
Additional paid-in-capital | 1,099,684 | (1,034,140) | 65,544 | |||||
Accumulated deficit | (17,337,027) | (1,215,115) | (18,552,142) | |||||
Cumulative translation adjustment | (39,319) | - | (39,319) | |||||
Total Ophthalmic Imaging Systems’ stockholders’ equity | 5,439,030 | (2,262,873) | 3,176,157 | |||||
Noncontrolling interest | 432,443 | - | 432,443 | |||||
Total equity | 5,871,473 | (2,262,873) | 3,608,600 | |||||
Total liabilities and stockholders' equity | $ | 14,106,818 | $ | - | $ | 14,106,818 |
F-32
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Three Months Ended September 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 3,824,914 | $ | - | $ | 3,824,914 | ||
Cost of sales - products | 1,492,364 | - | 1,492,364 | |||||
Cost of sales – amortization | 185,468 | - | 185,468 | |||||
Gross profit - products | 2,147,082 | - | 2,147,082 | |||||
Sales - service | 1,099,967 | - | 1,099,967 | |||||
Cost of sales - service | 547,975 | - | 547,975 | |||||
Gross profit - service | 551,992 | - | 551,992 | |||||
Total net sales | 4,924,881 | - | 4,924,881 | |||||
Cost of sales | 2,225,807 | - | 2,225,807 | |||||
Gross profit | 2,699,074 | - | 2,699,074 | |||||
Operating expenses: | ||||||||
Sales and marketing | 1,696,581 | - | 1,696,581 | |||||
General and administrative | 592,416 | - | 592,416 | |||||
Research and development | 956,565 | - | 956,565 | |||||
Total operating expenses | 3,245,562 | - | 3,245,562 | |||||
Loss from operations | (546,488) | - | (546,488) | |||||
Interest and other expense, net | 48,675 | 89,185 | 137,860 | |||||
Loss from continuing operations before taxes | (497,813) | 89,185 | (408,628) | |||||
Income taxes | 12,553 | - | 12,553 | |||||
Net loss | (485,260) | 89,185 | (396,075) | |||||
Less: noncontrolling interest’s share | (18,472) | - | (18,472) | |||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (466,788) | $ | 89,185 | $ | (377,603) | ||
Shares used in the calculation of basic and diluted net loss per share | 30,301,686 | 30,301,686 | 30,301,686 | |||||
Basic and diluted net loss per share | $ | (0.02) | $ | 0.01 | $ | (0.01) |
F-33
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Comprehensive Loss | ||||||||
(Unaudited) | ||||||||
Three Months Ended September 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (466,788) | $ | 89,185 | $ | (377,603) | ||
Other comprehensive loss | ||||||||
Foreign currency translation | 59,338 | - | 59,338 | |||||
Comprehensive net loss | $ | (407,450) | $ | 89,185 | $ | (318,265) |
F-34
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 10,694,430 | $ | - | $ | 10,694,430 | ||
Cost of sales - products | 3,849,498 | - | 3,849,498 | |||||
Cost of sales – amortization | 556,404 | - | 556,404 | |||||
Gross profit - products | 6,288,528 | - | 6,288,528 | |||||
- | ||||||||
Sales - service | 3,123,895 | - | 3,123,895 | |||||
Cost of sales - service | 1,600,606 | - | 1,600,606 | |||||
Gross profit - service | 1,523,289 | - | 1,523,289 | |||||
Total net sales | 13,818,325 | - | 13,818,325 | |||||
Cost of sales | 6,006,508 | - | 6,006,508 | |||||
Gross profit | 7,811,817 | - | 7,811,817 | |||||
Operating expenses: | ||||||||
Sales and marketing | 5,017,609 | - | 5,017,609 | |||||
General and administrative | 1,694,318 | - | 1,694,318 | |||||
Research and development | 2,663,263 | - | 2,663,263 | |||||
Total operating expenses | 9,375,190 | - | 9,375,190 | |||||
Loss from operations | (1,563,373) | - | (1,563,373) | |||||
Interest and other expense, net | (273,549) | 108,198 | (165,351) | |||||
Loss from continuing operations before taxes | (1,836,922) | 108,198 | (1,728,724) | |||||
Income taxes | 4,019 | - | 4,019 | |||||
Net loss | (1,832,903) | 108,198 | (1,724,705) | |||||
Less: noncontrolling interest’s share | (32,046) | - | (32,046) | |||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (1,800,857) | $ | 108,198 | $ | (1,692,659) | ||
Shares used in the calculation of basic and diluted net loss per share | 28,305,828 | 28,305,828 | 28,305,828 | |||||
Basic and diluted net loss per share | $ | (0.06) | $ | 0.00 | $ | (0.06) |
F-35
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Comprehensive Loss | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (1,800,857) | $ | 108,198 | $ | (1,692,659) | ||
Other comprehensive loss | ||||||||
Foreign currency translation | (41,560) | - | (41,560) | |||||
Comprehensive net loss | $ | (1,842,417) | $ | 108,198 | $ | (1,734,219) |
F-36
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Cash Flows | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Operating activities: | ||||||||
Net loss | $ | (1,832,903) | $ | 108,198 | $ | (1,724,705) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 171,528 | - | 171,528 | |||||
Loss on disposal of equipment | 3,311 | - | 3,311 | |||||
Stock based compensation expense | 29,100 | - | 29,100 | |||||
Change in derivative liability financial instrument | - | (95,141) | (95,141) | |||||
Amortization of AcerMed software license | 142,518 | - | 142,518 | |||||
Amortization of imaging software | 126,177 | - | 126,177 | |||||
Amortization of R&D | 287,708 | - | 287,708 | |||||
Amortization of licensing rights intangible asset | 24,779 | - | 24,779 | |||||
Amortization of prepaid financing related to note payable | 22,195 | - | 22,195 | |||||
Discount related to note payable | 63,846 | (13,057) | 50,789 | |||||
Amortization of customer relationship intangibles | 45,091 | - | 45,091 | |||||
Net increase in accounts receivable – customer | (1,424,675) | - | (1,424,675) | |||||
Provision for bad debt | (10,373) | - | (10,373) | |||||
Net (increase) in inventories | (843,939) | - | (843,939) | |||||
Net (increase) in prepaid and other assets | (212,214) | - | (212,214) | |||||
Net decrease in other assets | 6,541 | - | 6,541 | |||||
Net (decrease) in accounts payable – related parties | (61,542) | - | (61,542) | |||||
Net increase in other liabilities | 957,166 | - | 957,166 | |||||
Net cash used in operating activities | (2,505,686) | (2,505,686) | ||||||
Investing activities: | ||||||||
Acquisition of furniture and equipment | (182,365) | - | (182,365) | |||||
Financing activities: | ||||||||
Principal payments on notes and leases payable | (10,479) | - | (10,479) | |||||
Notes payable - Abraxas | 109,758 | - | 109,758 | |||||
Lease payable | 24,052 | - | 24,052 | |||||
Stock Issued | 673 | - | 673 | |||||
Payments for financing fees | (22,960) | - | (22,960) | |||||
Proceeds from equity investment | 1,999,967 | - | 1,999,967 | |||||
Net cash provided by financing activities | 2,101,011 | - | 2,101,011 | |||||
Effect of exchange rate changes on cash | (30,130) | - | (30,130) | |||||
Net decrease in cash and equivalents | (617,170) | - | (617,170) | |||||
Cash and equivalents, beginning of the period | 5,406,239 | - | 5,406,239 | |||||
Cash and equivalents, end of the period | $ | 4,789,069 | $ | - | $ | 4,789,069 |
F-37
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
June 30, 2010 | ||||||||
Assets | As Reported | Adjustments | As Restated | |||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 6,173,124 | $ | - | $ | 6,173,124 | ||
Accounts receivable, net | 3,192,328 | - | 3,192,328 | |||||
Inventories, net | 1,345,782 | - | 1,345,782 | |||||
Prepaid expenses and other current assets | 431,990 | - | 431,990 | |||||
Total current assets | 11,143,224 | - | 11,143,224 | |||||
Restricted cash | 158,221 | - | 158,221 | |||||
Furniture and equipment, net | 456,449 | - | 456,449 | |||||
Capitalized imaging software, net | 252,357 | - | 252,357 | |||||
Capitalized software development, net | 575,413 | - | 575,413 | |||||
AcerMed asset purchase, net | 285,041 | - | 285,041 | |||||
Goodwill | 807,000 | - | 807,000 | |||||
Other intangible assets, net | 647,959 | - | 647,959 | |||||
Licensing rights intangible asset, net | 82,593 | - | 82,593 | |||||
Other assets | 9,634 | - | 9,634 | |||||
Total assets | $ | 14,417,891 | $ | - | $ | 14,417,891 | ||
F-38
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
June 30, 2010 | ||||||||
Liabilities and Stockholders' Equity | As Reported | Adjustments | As Restated | |||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,377,928 | $ | - | $ | 1,377,928 | ||
Accrued liabilities | 1,499,868 | - | 1,499,868 | |||||
Derivative liability financial instruments | - | 2,470,397 | 2,470,397 | |||||
Deferred extended warranty revenue-current portion | 1,425,479 | - | 1,425,479 | |||||
Customer deposits | 471,024 | - | 471,024 | |||||
Notes payable- current portion | 1,168,800 | (14,723) | 1,154,077 | |||||
Total current liabilities | 5,943,099 | 2,455,674 | 8,398,773 | |||||
Deferred extended warranty revenue, less current portion | 262,081 | - | 262,081 | |||||
Line of credit | 150,000 | - | 150,000 | |||||
Notes payable, less current portion | 1,660,337 | - | 1,660,337 | |||||
Total liabilities | 8,015,517 | 2,455,674 | 10,471,191 | |||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Ophthalmic Imaging Systems’ stockholders' equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 100,000,000 shares authorized; 30,300,928 shares issued and outstanding | 21,717,047 | (13,618) | 21,703,429 | |||||
Additional paid-in-capital | 1,203,300 | (1,137,756) | 65,544 | |||||
Accumulated deficit | (16,870,231) | (1,304,300) | (18,174,531) | |||||
Cumulative translation adjustment | (98,657) | - | (98,657) | |||||
Total Ophthalmic Imaging Systems’ stockholders’ equity | 5,951,459 | (2,455,674) | 3,495,785 | |||||
Noncontrolling interest | 450,915 | - | 450,915 | |||||
Total equity | 6,402,374 | (2,455,674) | 3,946,700 | |||||
Total liabilities and stockholders' equity | $ | 14,417,891 | $ | - | $ | 14,417,891 |
F-39
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statements of Operations | ||||||||
(Unaudited) | ||||||||
Three Months Ended June 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 3,750,391 | $ | - | $ | 3,750,391 | ||
Cost of sales - products | 1,221,225 | - | 1,221,225 | |||||
Cost of sales – amortization | 185,468 | - | 185,468 | |||||
Gross profit - products | 2,343,698 | - | 2,343,698 | |||||
Sales - service | 1,009,737 | - | 1,009,737 | |||||
Cost of sales - service | 507,255 | - | 507,255 | |||||
Gross profit - service | 502,482 | - | 502,482 | |||||
Total net sales | 4,760,128 | - | 4,760,128 | |||||
Cost of sales | 1,913,948 | - | 1,913,948 | |||||
Gross profit | 2,846,180 | - | 2,846,180 | |||||
Operating expenses: | ||||||||
Sales and marketing | 1,776,435 | - | 1,776,435 | |||||
General and administrative | 585,023 | - | 585,023 | |||||
Research and development | 862,499 | - | 862,499 | |||||
Total operating expenses | 3,223,957 | - | 3,223,957 | |||||
Loss from operations | (377,777) | - | (377,777) | |||||
Interest and other expense, net | (91,302) | 668,072 | 576,770 | |||||
Income from continuing operations before taxes | (469,079) | 668,072 | 198,993 | |||||
Income taxes | (21,409) | - | (21,409) | |||||
Net income | (490,488) | 668,072 | 177,584 | |||||
Less: noncontrolling interest’s share | 2,351 | - | 2,351 | |||||
Net income attributable to Ophthalmic Imaging Systems | $ | (488,137) | $ | 668,072 | $ | 179,935 | ||
Shares used in the calculation of basic earnings per share | 28,097,181 | 28,097,181 | 28,097,181 | |||||
Basic earnings per share | $ | (0.02) | $ | 0.02 | $ | 0.01 | ||
Shares used in the calculation of diluted earnings per share | N/A | 30,062,640 | 30,062,640 | |||||
Diluted earnings per share | $ | N/A | $ | 0.02 | $ | 0.01 |
F-40
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Comprehensive Income (Loss) | ||||||||
(Unaudited) | ||||||||
Three Months Ended June 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Net income attributable to Ophthalmic Imaging Systems | $ | (488,137) | $ | 668,072 | $ | 179,935 | ||
Other comprehensive income | ||||||||
Foreign currency translation | (78,868) | - | (78,868) | |||||
Comprehensive net income | $ | (567,005) | $ | 668,072 | $ | 101,067 |
F-41
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statement (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Six Months Ended June 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 6,869,516 | $ | - | $ | 6,869,516 | ||
Cost of sales - products | 2,357,134 | - | 2,357,134 | |||||
Cost of sales – amortization | 370,936 | - | 370,936 | |||||
Gross profit - products | 4,141,446 | - | 4,141,446 | |||||
Sales - service | 2,023,927 | - | 2,023,927 | |||||
Cost of sales - service | 1,052,631 | - | 1,052,631 | |||||
Gross profit - service | 971,296 | - | 971,296 | |||||
Total net sales | 8,893,443 | - | 8,893,443 | |||||
Cost of sales | 3,780,701 | - | 3,780,701 | |||||
Gross profit | 5,112,742 | - | 5,112,742 | |||||
Operating expenses: | ||||||||
Sales and marketing | 3,321,029 | - | 3,321,029 | |||||
General and administrative | 1,101,902 | - | 1,101,902 | |||||
Research and development | 1,706,697 | - | 1,706,697 | |||||
Total operating expenses | 6,129,628 | - | 6,129,628 | |||||
Loss from operations | (1,016,886) | - | (1,016,886) | |||||
Interest and other expense, net | (322,224) | 19,013 | (303,211) | |||||
Loss from continuing operations before taxes | (1,339,110) | 19,013 | (1,320,097) | |||||
Income taxes | (8,533) | - | (8,533) | |||||
Net loss | (1,347,643) | 19,013 | (1,328,630) | |||||
Less: noncontrolling interest’s share | 13,575 | - | 13,575 | |||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (1,334,068) | $ | 19,013 | $ | (1,315,055) | ||
Shares used in the calculation of basic and diluted net loss per share | 27,307,900 | 27,307,900 | 27,307,900 | |||||
Basic and diluted net loss per share | $ | (0.05) | $ | - | $ | (0.05) |
F-42
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Comprehensive Loss | ||||||||
(Unaudited) | ||||||||
Six Months Ended June 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (1,334,068) | $ | 19,013 | $ | (1,315,055) | ||
Other comprehensive loss | ||||||||
Foreign currency translation | (98,657) | - | (98,657) | |||||
Comprehensive net loss | $ | (1,432,725) | $ | 19,013 | $ | (1,413,712) |
F-43
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Cash Flows | ||||||||
(Unaudited) | ||||||||
Six Months Ended June 30, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Operating activities: | ||||||||
Net loss | $ | (1,347,643) | $ | 19,013 | $ | (1,328,630) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 147,555 | - | 147,555 | |||||
Loss on disposal of equipment | 1,541 | - | 1,541 | |||||
Stock based compensation expense | 19,127 | - | 19,127 | |||||
Change in fair value of derivative liability financial instruments | - | 88,239 | 88,239 | |||||
Amortization of AcerMed software license | 95,012 | - | 95,012 | |||||
Amortization of imaging software | 84,118 | - | 84,118 | |||||
Amortization of R&D | 191,807 | - | 191,807 | |||||
Amortization of licensing rights intangible asset | 16,519 | - | 16,519 | |||||
Amortization of prepaid financing related to note payable | 22,195 | - | 22,195 | |||||
Discount related to note payable | 142,405 | (107,252) | 35,153 | |||||
Amortization of customer relationship intangibles | 32,405 | - | 32,405 | |||||
Net (increase) in accounts receivable, net | (506,476) | - | (506,476) | |||||
Provision for bad debt | 16,764 | - | 16,764 | |||||
Net (increase) in inventories | (374,336) | - | (374,336) | |||||
Net (increase) in prepaid and other assets | (252,539) | - | (252,539) | |||||
Net decrease in other assets | 3,247 | - | 3,247 | |||||
Net (decrease) in accounts payable – related parties | (41,847) | - | (41,847) | |||||
Net increase in other liabilities | 605,740 | - | 605,740 | |||||
Net cash used in operating activities | (1,144,406) | - | (1,144,406) | |||||
Investing activities: | ||||||||
Acquisition of furniture and equipment | (124,151) | - | (124,151) | |||||
Financing activities: | ||||||||
Principal payments on notes and leases payable | (13,590) | - | (13,590) | |||||
Lease payable | 26,410 | - | 26,410 | |||||
Notes payable - Abraxas | 109,759 | - | 109,759 | |||||
Payments for financing fees | (10,960) | - | (10,960) | |||||
Proceeds from equity investment | 1,999,967 | - | 1,999,967 | |||||
Net cash provided by financing activities | 2,111,586 | - | 2,111,586 | |||||
Effect of exchange rate changes on cash | (76,144) | - | (76,144) | |||||
Net increase in cash and equivalents | 766,885 | - | 766,885 | |||||
Cash and equivalents, beginning of the period | 5,406,239 | - | 5,406,239 | |||||
Cash and equivalents, end of the period | $ | 6,173,124 | $ | - | $ | 6,173,124 |
F-44
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
March 31, 2010 | ||||||||
Assets | As Reported | Adjustments | As Restated | |||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 5,274,241 | $ | - | $ | 5,274,241 | ||
Accounts receivable, net | 2,317,001 | - | 2,317,001 | |||||
Inventories | 1,167,922 | - | 1,167,922 | |||||
Prepaid expenses and other current assets | 570,110 | - | 570,110 | |||||
Total current assets | 9,329,274 | - | 9,329,274 | |||||
Restricted cash | 158,217 | - | 158,217 | |||||
Furniture and equipment, net | 466,275 | - | 466,275 | |||||
Capitalized imaging software, net | 294,416 | - | 294,416 | |||||
Capitalized software development, net | 671,317 | - | 671,317 | |||||
AcerMed asset purchase, net | 332,547 | - | 332,547 | |||||
Goodwill | 807,000 | - | 807,000 | |||||
Other intangible assets, net | ||||||||
Prepaid financing | 5,549 | - | 5,549 | |||||
Other assets | 105,846 | - | 105,846 | |||||
Total assets | $ | 12,835,775 | $ | - | $ | 12,835,775 |
F-45
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheets | ||||||||
(Unaudited) | ||||||||
March 31, 2010 | ||||||||
Liabilities and Stockholders' Equity | As Reported | Adjustments | As Restated | |||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,156,866 | $ | - | $ | 1,156,866 | ||
��Accounts payable – related party | 34,333 | - | 34,333 | |||||
Accrued liabilities | 1,267,258 | - | 1,267,258 | |||||
Derivative liability financial instruments | - | 2,632,582 | 2,632,582 | |||||
Deferred extended warranty revenue-current portion | 1,758,387 | - | 1,758,387 | |||||
Customer deposits | 475,624 | - | 475,624 | |||||
Notes payable- current portion | 229,243 | (16,480) | 212,763 | |||||
Total current liabilities | 4,921,711 | 2,616,102 | 7,537,813 | |||||
Deferred extended warranty revenue, less current portion | 283,500 | - | 283,500 | |||||
Line of credit | 150,000 | - | 150,000 | |||||
Notes payable, less current portion | 2,508,273 | - | 2,508,273 | |||||
Total liabilities | 7,863,484 | 2,616,102 | 10,479,586 | |||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Ophthalmic Imaging Systems’ stockholders' equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 100,000,000 shares authorized; 26,719,839 shares issued and outstanding | 20,337,757 | (107,615) | 20,230,142 | |||||
Additional paid-in-capital | 583,160 | (536,116) | 47,044 | |||||
Accumulated deficit | (16,382,103) | (1,972,371) | (18,354,474) | |||||
Cumulative translation adjustment | (19,789) | - | (19,789) | |||||
Total Ophthalmic Imaging Systems’ stockholders’ equity | 4,519,025 | (2,616,102) | 1,902,923 | |||||
Noncontrolling interest | 453,266 | - | 453,266 | |||||
Total equity | 4,972,291 | (2,616,102) | 2,356,189 | |||||
Total liabilities and stockholders' equity | $ | 12,835,775 | $ | - | $ | 12,835,775 |
F-46
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Three Months Ended March 31, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales – products | $ | 3,119,125 | $ | - | $ | 3,119,125 | ||
Cost of sales – products | 1,135,909 | - | 1,135,909 | |||||
��Cost of sales – amortization | 185,468 | - | 185,468 | |||||
Gross profit – products | 1,797,748 | - | 1,797,748 | |||||
Sales – service | 1,014,190 | - | 1,014,190 | |||||
Cost of sales – service | 545,376 | - | 545,376 | |||||
Gross profit – service | 468,814 | - | 468,814 | |||||
Net revenues | 4,133,315 | - | 4,133,315 | |||||
Cost of sales | 1,866,753 | - | 1,866,753 | |||||
Gross profit | 2,266,562 | - | 2,266,562 | |||||
Operating expenses: | ||||||||
Sales and marketing | 1,544,594 | - | 1,544,594 | |||||
General and administrative | 516,879 | - | 516,879 | |||||
Research and development | 844,198 | - | 844,198 | |||||
Total operating expenses | 2,905,671 | - | 2,905,671 | |||||
Loss from operations | (639,109) | - | (639,109) | |||||
Interest income, interest and other expenses, net | (230,922) | (649,059) | (879,981) | |||||
Net loss before income taxes | (870,031) | (649,059) | (1,519,090) | |||||
Income tax benefit | 12,876 | - | 12,876 | |||||
Net loss | (857,155) | (649,059) | (1,506,214) | |||||
Less: Noncontrolling interest’s share | 11,224 | - | 11,224 | |||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (845,931) | $ | (649,059) | $ | (1,494,990) | ||
Shares used in the calculation of basic and diluted net loss per share | 26,518,618 | 26,518,618 | 26,518,618 | |||||
Basic and diluted net loss per share | $ | (0.03) | $ | (0.03) | $ | (0.06) |
F-47
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Comprehensive Loss | ||||||||
(Unaudited) | ||||||||
Three Months Ended March 31, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Net loss attributable to Ophthalmic Imaging Systems | $ | (845,931) | $ | (649,059) | $ | (1,494,990) | ||
Other comprehensive loss | ||||||||
Foreign currency translation | (19,789) | - | (19,789) | |||||
Comprehensive net loss | $ | (865,720) | $ | (649,059) | $ | (1,514,779) |
F-48
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Cash Flows | ||||||||
(Unaudited) | ||||||||
Three Months Ended March 31, 2010 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Operating activities: | ||||||||
Net loss | $ | (857,155) | $ | (649,059) | $ | (1,506,214) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 77,305 | - | 77,305 | |||||
Loss on disposal of equipment | 1,541 | - | 1,541 | |||||
Stock based compensation expense | 9,125 | - | 9,125 | |||||
Change in fair value of derivative liability financial instruments | - | 768,605 | 768,605 | |||||
Amortization of AcerMed software license | 47,506 | - | 47,506 | |||||
Amortization of imaging software | 42,059 | - | 42,059 | |||||
Amortization of R&D | 95,902 | - | 95,902 | |||||
Amortization of prepaid financing related to note payable | 16,646 | - | 16,646 | |||||
Discount related to note payable | 162,549 | (119,546) | 43,003 | |||||
Amortization of customer relationship intangibles | 15,030 | - | 15,030 | |||||
Net decrease in accounts receivable - customer | 411,159 | - | 411,159 | |||||
Provision for bad debt | (17,173) | - | (17,173) | |||||
Net (increase) in inventories | (176,598) | - | (176,598) | |||||
Net (increase) in prepaid and other assets | (390,659) | - | (390,659) | |||||
Net decrease in other assets | 10,611 | - | 10,611 | |||||
Net decrease in accounts payable – related parties | (7,514) | - | (7,514) | |||||
Net increase in other current liabilities | 513,507 | - | 513,507 | |||||
Net cash used in operating activities | (46,159) | - | (46,159) | |||||
Investing activities: | ||||||||
Acquisition of furniture and equipment | (63,727) | - | (63,727) | |||||
Financing activities: | ||||||||
Principal payments on notes payable | (20,533) | (20,533) | ||||||
Principal payments on notes payable - auto | (10,679) | - | (10,679) | |||||
Notes payable Abraxas | 43,400 | - | 43,400 | |||||
Payments for financing fees | (10,960) | - | (10,960) | |||||
Net cash provided by financing activities | 1,228 | - | 1,228 | |||||
Effect of exchange rate changes on cash and cash equivalents | (23,340) | - | (23,340) | |||||
Net decrease in cash and equivalents | (131,998) | - | (131,998) | |||||
Cash and equivalents, beginning of the period | 5,406,239 | - | 5,406,239 | |||||
Cash and equivalents, end of the period | $ | 5,274,241 | $ | - | $ | 5,274,241 |
F-49
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
September 30, 2009 | ||||||||
Assets | As Reported | Adjustments | As Restated | |||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,811,027 | $ | - | $ | 4,811,027 | ||
Accounts receivable, net | 2,585,400 | - | 2,585,400 | |||||
Receivables from related parties, net | 42,919 | - | 42,919 | |||||
Inventories | 867,958 | - | 867,958 | |||||
Prepaid expenses and other current assets | 257,164 | - | 257,164 | |||||
Total current assets | 8,564,468 | - | 8,564,468 | |||||
Restricted cash | 158,209 | - | 158,209 | |||||
Furniture and equipment, net | 349,362 | - | 349,362 | |||||
Capitalized imaging software, net | 378,534 | - | 378,534 | |||||
Capitalized software development, net | 863,123 | - | 863,123 | |||||
AcerMed asset purchase, net | 427,559 | - | 427,559 | |||||
Prepaid financing | 38,841 | - | 38,841 | |||||
Other assets | 106,806 | - | 106,806 | |||||
Total assets | $ | 10,886,902 | - | $ | 10,886,902 |
F-50
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
September 30, 2009 | ||||||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 770,239 | $ | - | $ | 770,239 | ||
Accounts payable – related party | 33,774 | - | 33,774 | |||||
Accrued liabilities | 1,026,620 | - | 1,026,620 | |||||
Derivative liability financial instruments | - | 841,519 | 841,519 | |||||
Deferred extended warranty revenue | 1,858,443 | - | 1,858,443 | |||||
Customer deposits | 264,186 | - | 264,186 | |||||
Notes payable- current portion | 7,046 | - | 7,046 | |||||
Total current liabilities | 3,960,308 | 841,519 | 4,801,827 | |||||
Line of credit | 149,607 | - | 149,607 | |||||
Notes payable, less current portion | 1,368,676 | (72,655) | 1,296,021 | |||||
Total liabilities | 5,478,591 | 768,863 | 6,247,454 | |||||
Stockholders' equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 35,000,000 shares authorized; 26,500,059 shares issued and outstanding | 20,174,957 | (107,615) | 20,067,342 | |||||
Additional paid-in-capital | 319,477 | (272,431) | 47,046 | |||||
Accumulated deficit | (15,086,123) | (388,817) | (15,474,940) | |||||
Total stockholders' equity | 5,408,311 | (768,863) | 4,639,448 | |||||
Total liabilities and stockholders' equity | $ | 10,886,902 | $ | - | $ | 10,886,902 |
F-51
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Three Months Ended September 30, 2009 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 2,765,878 | $ | - | $ | 2,765,878 | ||
Cost of sales - products | 1,024,093 | - | 1,024,093 | |||||
Cost of sales – amortization | 185,468 | - | 185,468 | |||||
Gross profit - products | 1,556,317 | - | 1,556,317 | |||||
Sales – products to related parties | 97,287 | - | 97,287 | |||||
Cost of sales – products to related parties | 58,524 | - | 58,524 | |||||
Gross profit – products to related parties | 38,763 | - | 38,763 | |||||
Sales - service | 1,070,018 | - | 1,070,018 | |||||
Cost of sales - service | 386,113 | - | 386,113 | |||||
Gross profit - service | 683,905 | - | 683,905 | |||||
Net revenues | 3,933,183 | - | 3,933,183 | |||||
Cost of sales | 1,654,198 | - | 1,654,198 | |||||
Gross profit | 2,278,985 | - | 2,278,985 | |||||
Operating expenses: | ||||||||
Sales and marketing | 959,282 | - | 959,282 | |||||
General and administrative | 478,484 | - | 478,484 | |||||
Research and development | 692,512 | - | 692,512 | |||||
Total operating expenses | 2,130,278 | - | 2,130,278 | |||||
Income from operations | 148,707 | 148,707 | ||||||
Interest and other expense, net | (60,681) | (389,909) | (450,590) | |||||
Loss before income taxes | 88,026 | (389,909) | (301,883) | |||||
Income taxes | (2,370) | - | (2,370) | |||||
Net loss | $ | 85,656 | $ | (389,909) | $ | (304,253) | ||
Shares used in the calculation of basic and diluted net loss per share | 26,500,059 | 26,500,059 | 26,500,059 | |||||
Basic and diluted net loss per share | $ | - | $ | (0.01) | $ | (0.01) |
F-52
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30, 2009 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 5,786,504 | $ | - | $ | 5,786,504 | ||
Cost of sales - products | 2,493,988 | - | 2,493,988 | |||||
Cost of sales – amortization | 556,404 | - | 556,404 | |||||
Gross profit - products | 2,736,112 | - | 2,736,112 | |||||
Sales – products to related parties | 338,492 | - | 338,492 | |||||
Cost of sales – products to related parties | 201,093 | - | 201,093 | |||||
Gross profit – products to related parties | 137,399 | - | 137,399 | |||||
Sales - service | 3,116,334 | - | 3,116,334 | |||||
Cost of sales - service | 1,086,387 | - | 1,086,387 | |||||
Gross profit - service | 2,029,947 | - | 2,029,947 | |||||
Net revenues | 9,241,330 | - | 9,241,330 | |||||
Cost of sales | 4,337,872 | - | 4,337,872 | |||||
Gross profit | 4,903,458 | - | 4,903,458 | |||||
Operating expenses: | ||||||||
Sales and marketing | 2,731,518 | - | 2,731,518 | |||||
General and administrative | 1,649,391 | - | 1,649,391 | |||||
Impairment related to the debt of MediVision | 4,436,187 | - | 4,436,187 | |||||
Research and development | 1,813,830 | - | 1,813,830 | |||||
Research and development – related parties | 294,014 | - | 294,014 | |||||
Total operating expenses | 10,924,940 | - | 10,924,940 | |||||
Loss from operations | (6,021,482) | - | (6,021,482) | |||||
Other income – settlement | 1,200,000 | - | 1,200,000 | |||||
Interest and other expense, net | (200,332) | (592,164) | (792,496) | |||||
Loss before income taxes | (5,021,814) | (592,164) | (5,613,978) | |||||
Income taxes | (5,023) | - | (5,023) | |||||
Net Loss | $ | (5,026,837) | $ | (592,164) | $ | (5,619,001) | ||
Shares used in the calculation of basic and diluted net loss per share | 20,289,626 | 20,289,626 | 20,289,626 | |||||
Basic and diluted net loss per share | (0.25) | (0.03) | (0.28) |
F-53
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Cash Flows | |||||||
September 30, 2009 | |||||||
As Reported | Adjustments | As Restated | |||||
Operating activities: | |||||||
Net loss | (5,026,837) | (592,164) | (5,619,001) | ||||
Adjustments to reconcile net loss to net cash used in operating activities | |||||||
Depreciation and amortization | 160,289 | - | 160,289 | ||||
Loss on disposal of equipment | 16,369 | - | 16,369 | ||||
Amortization of AcerMed software license | 142,518 | - | 142,518 | ||||
Amortization of imaging software | 126,177 | - | 126,177 | ||||
Amortization of R&D – AcerMed software | 287,709 | - | 287,709 | ||||
Amortization of prepaid financing related to note payable | 49,939 | - | 49,939 | ||||
Stock based compensation expense | 23,656 | - | 23,656 | ||||
Change in derivative liability financial instrument | - | 484,487 | 484,487 | ||||
Discount related to note payable | 70,174 | 107,678 | 177,852 | ||||
Impairment of debt from MediVision | 3,152,043 | - | 3,152,043 | ||||
Net increase in current assets | 331,116 | - | 331,116 | ||||
Net decrease in accounts receivable – customer | (887,307) | - | (887,307) | ||||
Net decrease in accounts receivable – related parties | 441,359 | - | 441,359 | ||||
Net decrease in prepaid products | 560,000 | - | 560,000 | ||||
Net decrease in other assets | 60,736 | - | 60,736 | ||||
Net increase in accounts payable – related parties | 33,774 | - | 33,774 | ||||
Net decrease in current liabilities | 2,455 | - | 2,455 | ||||
Net cash used in operating activities | (455,830) | - | (455,830) | ||||
Investing activities: | |||||||
Acquisition of furniture and equipment | (116,740) | - | (116,740) | ||||
Net cash used in investing activities | (116,740) | - | (116,740) | ||||
Financing activities: | |||||||
Principal payments on notes payable | (735,893) | - | (735,893) | ||||
Payments for financing fees | (105,107) | - | (105,107) | ||||
Proceeds from equity investment | 3,999,972 | - | 3,999,972 | ||||
Net cash provided by in financing activities | 3,158,972 | - | 3,158,972 | ||||
Net increase in cash and equivalents | 2,586,402 | - | 2,586,402 | ||||
Cash and equivalents, beginning of the period | 2,224,625 | - | 2,224,625 | ||||
Cash and equivalents, end of the period | 4,811,027 | - | 4,811,027 |
F-54
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
June 30, 2009 | ||||||||
Assets | As Reported | Adjustments | As Restated | |||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 5,506,541 | $ | - | $ | 5,506,541 | ||
Accounts receivable, net | 1,384,385 | - | 1,384,385 | |||||
Receivables from related parties, net | 85,157 | - | 85,157 | |||||
Inventories | 825,147 | - | 825,147 | |||||
Prepaid expenses and other current assets | 209,515 | - | 209,515 | |||||
Total current assets | 8,010,745 | - | 8,010,745 | |||||
Restricted cash | 158,205 | - | 158,205 | |||||
Furniture and equipment, net | 328,129 | - | 328,129 | |||||
Capitalized imaging software, net | 420,593 | - | 420,593 | |||||
Capitalized software development, net | 959,025 | - | 959,025 | |||||
AcerMed asset purchase, net | 475,065 | - | 475,065 | |||||
Prepaid financing | 55,487 | - | 55,487 | |||||
Other assets | 106,807 | - | 106,807 | |||||
Total assets | $ | 10,514,056 | $ | - | $ | 10,514,056 |
F-55
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
June 30, 2009 | ||||||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 464,422 | $ | - | $ | 464,422 | ||
Accounts payable – MediVision | 13,144 | - | 13,144 | |||||
Accrued liabilities | 1,101,553 | - | 1,101,553 | |||||
Derivative liability financial instruments | - | 470,360 | 470,360 | |||||
Deferred extended warranty revenue | 1,944,874 | - | 1,944,874 | |||||
Customer deposits | 74,799 | - | 74,799 | |||||
Notes payable- current portion | 7,046 | - | 7,046 | |||||
Total current liabilities | 3,605,838 | 470,360 | 4,076,198 | |||||
Line of credit | 150,000 | 150,000 | ||||||
Notes payable, less current portion | 1,389,742 | (111,067) | 1,278,675 | |||||
Total liabilities | 5,145,580 | 359,293 | 5,504,873 | |||||
Stockholders’ equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 35,000,000 shares authorized; 26,500,059 shares issued and outstanding | 20,233,119 | (107,615) | 20,125,504 | |||||
Additional paid-in-capital | 307,136 | (252.769) | 54,367 | |||||
Accumulated deficit | (15,171,779) | 1,091 | (15,170,688) | |||||
Total stockholders’ equity | 5,368,476 | (359,293) | 5,009,183 | |||||
Total liabilities and stockholders’ equity | $ | 10,514,056 | $ | $ | 10,514,056 |
F-56
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Three Months Ended June 30, 2009 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 1,695,603 | $ | - | $ | 1,695,603 | ||
Cost of sales - products | 779,565 | - | 779,565 | |||||
Cost of sales - amortization | 185,468 | - | 185,468 | |||||
Gross profit - products | 730,570 | - | 730,570 | |||||
Sales – products to related parties | 122,125 | - | 122,125 | |||||
Cost of sales – products to related parties | 77,087 | - | 77,087 | |||||
Gross profit – products to related parties | 45,038 | - | 45,038 | |||||
Sales - service | 1,080,888 | - | 1,080,888 | |||||
Cost of sales - service | 371,090 | - | 371,090 | |||||
Gross profit - service | 709,798 | - | 709,798 | |||||
Net revenues | 2,898,616 | - | 2,898,616 | |||||
Cost of sales | 1,413,201 | - | 1,413,201 | |||||
Gross profit | 1,485,406 | - | 1,485,406 | |||||
Operating expenses: | ||||||||
Sales and marketing | 868,080 | - | 868,080 | |||||
General and administrative | 659,884 | - | 659,884 | |||||
Impairment reserve for bad debt related to the debt of MediVision | 4,436,187 | - | 4,436,187 | |||||
Research and development | 596,442 | - | 596,442 | |||||
Research and development – amortization expense | 185,488 | - | 185,488 | |||||
Research and development – related parties | 33,116 | - | 33,116 | |||||
Total operating expenses | 6,593,709 | - | 6,593,709 | |||||
Loss from operations | (5,108,303) | - | (5,108,303) | |||||
Other income – settlement | 1,200,000 | - | 1,200,000 | |||||
Interest and other expense, net | (95,741) | (167,558) | (263,299) | |||||
Loss from continuing operations before taxes | (4,004,044) | (167,558) | (4,171,602) | |||||
Income taxes | (500) | - | (500) | |||||
Net loss | $ | (4,004,544) | $ | (167,558) | $ | (4,172,102) | ||
Shares used in the calculation of basic and diluted net loss per share | 17,501,989 | 17,501,989 | 17,501,989 | |||||
Basic and diluted net loss per share | $ | (0.23) | $ | (0.01) | $ | (0.24) |
F-57
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Six Months Ended June 30, 2009 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales - products | $ | 3,020,626 | $ | - | $ | 3,020,626 | ||
Cost of sales - products | 1,469,895 | - | 1,469,895 | |||||
Cost of sales - amortization | 370,936 | - | 370,936 | |||||
Gross profit - products | 1,179,795 | - | 1,179,795 | |||||
Sales – products to related parties | 241,205 | - | 241,205 | |||||
Cost of sales – products to related parties | 142,569 | - | 142,569 | |||||
Gross profit – products to related parties | 98,636 | - | 98,636 | |||||
Sales - service | 2,046,316 | - | 2,046,316 | |||||
Cost of sales - service | 700,274 | - | 700,274 | |||||
Gross profit - service | 1,346,042 | - | 1,346,042 | |||||
Net revenues | 5,308,147 | - | 5,308,147 | |||||
Cost of sales | 2,683,674 | - | 2,683,674 | |||||
Gross profit | 2,624,473 | - | 2,624,473 | |||||
Operating expenses: | ||||||||
Sales and marketing | 1,772,236 | - | 1,772,236 | |||||
General and administrative | 1,170,907 | - | 1,170,907 | |||||
Impairment reserve for bad debt related to the debt of MediVision | 4,436,187 | - | 4,436,187 | |||||
Research and development | 1,121,318 | - | 1,121,318 | |||||
Research and development – related parties | 294,014 | - | 294,014 | |||||
Total operating expenses | 8,794,662 | - | 8,794,662 | |||||
Loss from operations | (6,170,189) | - | (6,170,189) | |||||
Other income – settlement | 1,200,000 | - | 1,200,000 | |||||
Interest and other expense, net | (139,651) | (202,256) | (341,907) | |||||
Loss from continuing operations before taxes | (5,109,840) | (202,256) | (5,312,096) | |||||
Income taxes | (2,653) | - | (2,653) | |||||
Net loss | $ | (5,112,493) | $ | (202,256) | $ | (5,314,749) | ||
Shares used in the calculation of basic and diluted net loss per share | 17,184,410 | 17,184,410 | ||||||
Basic and diluted net loss per share | $ | (0.30) | $ | (0.01) | $ | (0.31) |
F-58
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Cash Flows | ||||||||
(Unaudited) | ||||||||
June 30, 2009 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Operating activities: | ||||||||
Net loss | $ | (5,112,493) | $ | (202,256) | $ | (5,314,749) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 105,933 | - | 105,933 | |||||
Loss on disposal of equipment | 16,369 | - | 16,369 | |||||
Amortization of AcerMed software license | 95,012 | - | 95,012 | |||||
Amortization of imaging software | 84,118 | - | 84,118 | |||||
Amortization of R&D – AcerMed software | 191,806 | - | 191,806 | |||||
Amortization of prepaid financing related to note payable | 33,292 | - | 33,292 | |||||
Stock based compensation expense | 16,711 | - | 16,711 | |||||
Change in derivative liability financial instrument | - | 113,328 | 113,328 | |||||
Discount related to note payable | 57,832 | 88,928 | 146,760 | |||||
Impairment of debt from MediVision | 3,152,043 | - | 3,152,043 | |||||
Net decrease in current assets | 719,198 | - | 719,198 | |||||
Net decrease in accounts receivable – related parties | 415,208 | - | 415,208 | |||||
Net decrease in prepaid products | 560,000 | - | 560,000 | |||||
Net decrease in other assets | 60,742 | - | 60,742 | |||||
Net increase in accounts payable – related parties | 13,144 | - | 13,144 | |||||
Net decrease in current liabilities | (331,389) | - | (331,389) | |||||
Net cash provided by operating activities | 77,529 | - | 77,526 | |||||
Investing activities: | ||||||||
Acquisition of furniture and equipment | (41,151) | - | (41,151) | |||||
Net cash used in investing activities | (41,151) | - | (41,151) | |||||
Financing activities: | ||||||||
Principal payments on notes payable | (714,434) | - | (714,434) | |||||
Payments for financing fees | (40,000) | - | (40,000) | |||||
Advance to related parties | - | - | - | |||||
Proceeds from equity investment | 3,999,972 | - | 3,999,972 | |||||
Net cash provided by in financing activities | 3,245,538 | - | 3,245,538 | |||||
Net increase in cash and equivalents | 3,281,916 | - | 3,281,916 | |||||
Cash and equivalents, beginning of the period | 2,224,625 | - | 2,224,625 | |||||
Cash and equivalents, end of the period | $ | 5,506,541 | $ | - | $ | 5,506,541 |
F-59
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheet | ||||||||
(Unaudited) | ||||||||
March 31, 2009 | ||||||||
Assets | As Reported | Adjustments | As Restated | |||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,097,788 | $ | - | $ | 1,097,788 | ||
Accounts receivable, net | 1,581,717 | - | 1,581,717 | |||||
Receivables from related parties | 517,300 | - | 517,300 | |||||
Note receivable from related party | 3,080,282 | - | 3,080,282 | |||||
Inventories | 1,057,182 | - | 1,057,182 | |||||
Prepaid expenses and other current assets | 193,292 | - | 193,292 | |||||
Total current assets | 7,527,561 | - | 7,527,561 | |||||
Furniture and equipment, net | 386,428 | - | 386,428 | |||||
Restricted cash | 158,172 | - | 158,172 | |||||
Licensing agreement | 273,808 | - | 273,808 | |||||
Prepaid financing | 72,134 | - | 72,134 | |||||
AcerMed asset purchase, net | 522,571 | - | 522,571 | |||||
Capitalized imaging software | 462,652 | - | 462,652 | |||||
Capitalized software development | 1,054,928 | - | 1,054,928 | |||||
Prepaid products | 460,000 | - | 460,000 | |||||
Other assets | 266,972 | - | 266,972 | |||||
Total assets | $ | 11,185,226 | $ | - | $ | 11,185,226 | ||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 471,412 | $ | - | $ | 471,412 | ||
Accrued liabilities | 902,231 | - | 902,231 | |||||
Derivative liability financial instruments | - | 18,908 | 18,908 | |||||
Deferred extended warranty revenue | 2,348,877 | - | 2,348,877 | |||||
Customer deposits | 44,191 | - | 44,191 | |||||
Notes payable- current portion | 1,641,082 | (180,479) | 1,460,603 | |||||
Total current liabilities | 5,407,793 | (161,571) | 5,246,222 | |||||
Line of credit | 150,000 | - | 150,000 | |||||
Notes payable, less current portion | 272,927 | - | 272,927 | |||||
Total liabilities | 5,830,720 | (161,571) | 5,704,240 | |||||
Stockholders’ equity: | ||||||||
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 35,000,000 shares authorized; 16,866,831 shares issued and outstanding | 16,513,832 | - | 16,513,832 | |||||
Additional paid-in-capital | 7,908 | (7,079) | 829 | |||||
Accumulated deficit | (11,167,234) | 168,650 | (10,998,584) | |||||
Total stockholders’ equity | 5,354,506 | 161,571 | 5,516,077 | |||||
Total liabilities and stockholders’ equity | $ | 11,185,226 | $ | $ | 11,185,226 |
F-60
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Operations | ||||||||
(Unaudited) | ||||||||
Three Months Ended March 31, 2009 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Sales – products | $ | 1,325,023 | $ | - | $ | 1,325,023 | ||
Cost of sales – products | 690,330 | - | 690,330 | |||||
Gross profit – products | 634,693 | - | 634,693 | |||||
Sales – products to related parties | 119,080 | - | 119,080 | |||||
Cost of sales – products to related parties | 65,482 | - | 65,482 | |||||
Gross profit – products to related parties | 53,598 | 53,598 | ||||||
Sales – service | 965,428 | - | 965,428 | |||||
Cost of sales – service | 329,184 | - | 329,184 | |||||
Gross profit – service | 636,244 | 636,244 | ||||||
Net revenues | 2,409,531 | - | 2,409,531 | |||||
Cost of sales | 1,084,996 | - | 1,084,996 | |||||
Gross profit | 1,324,535 | 1,324,535 | ||||||
Operating expenses: | ||||||||
Sales and marketing | 904,156 | - | 904,156 | |||||
General and administrative | 511,023 | - | 511,023 | |||||
Research and development | 710,344 | - | 710,344 | |||||
Research and development – related parties | 260,898 | - | 260,898 | |||||
Total operating expenses | 2,386,421 | - | 2,386,421 | |||||
Loss from operations | (1,061,886) | - | (1,061,886) | |||||
Interest and other expense, net | (43,910) | (34,698) | (78,608) | |||||
Net loss before income taxes | (1,105,796) | (1,140,494) | ||||||
Income taxes | (2,153) | (2,153) | ||||||
Net loss | $ | (1,107,949) | $ | (34,698) | $ | (1,142,647) | ||
Shares used in the calculation of basic and diluted | ||||||||
net loss per share | 16,866,831 | 16,866,831 | 16,866,831 | |||||
Basic and diluted net loss per share | $ | (0.07) | $ | - | $ | (0.07) |
F-61
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Restatement of Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Cash Flows | ||||||||
(Unaudited) | ||||||||
March 31, 2009 | ||||||||
As Reported | Adjustments | As Restated | ||||||
Operating activities: | ||||||||
Net loss | $ | (1,107,949) | $ | (34,698) | $ | (1,142,647) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 52,709 | - | 52,709 | |||||
Amortization of AcerMed software license | 47,506 | - | 47,506 | |||||
Amortization of imaging software | 42,059 | - | 42,059 | |||||
Amortization of R&D – AcerMed software | 95,903 | - | 95,903 | |||||
Amortization of prepaid financing related to note payable | 16,646 | - | 16,646 | |||||
Stock based compensation expense | 9,060 | - | 9,060 | |||||
Change in derivative liability financial instrument | - | 15,632 | 15,632 | |||||
Discount related to note payable | - | 19,065 | 19,065 | |||||
Net decrease in current assets | 301,288 | - | 301,288 | |||||
Net increase in accounts receivable – related parties | (16,935) | - | (16,935) | |||||
Net decrease in other assets | 610 | - | 610 | |||||
Net decrease in current liabilities other than short-term borrowings | (155,221) | - | (155,221) | |||||
Net cash used in operating activities | (714,324) | - | (714,324) | |||||
Investing activities: | ||||||||
Acquisition of furniture and equipment | (25,092) | - | (25,092) | |||||
Net cash used in investing activities | (25,092) | (25,092) | ||||||
Financing activities: | ||||||||
Principal payments on notes payable | (196,751) | - | (196,751) | |||||
Advance to related parties | (202,048) | - | (202,048) | |||||
Increase in discount/premium related to note payable | 6,942 | 6,942 | ||||||
Proceeds from line of credit | 4,436 | - | 4,436 | |||||
Net cash used in financing activities | (387,421) | - | (387,421) | |||||
Net decrease in cash and equivalents | (1,126,837) | - | (1,126,837) | |||||
Cash and equivalents, beginning of the period | 2,224,625 | - | 2,224,625 | |||||
Cash and equivalents, end of the period | $ | 1,097,788 | $ | - | $ | 1,097,788 |
F-62
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVENTORIES
Inventories as of December 31, 2010 and 2009 consist of the following:
2010 | 2009 | |||||||
Raw materials | $ | 555,899 | $ | 240,953 | ||||
Work-in-process | 520,824 | 392,440 | ||||||
Finished goods | 681,150 | 357,932 | ||||||
$ | 1,757,873 | $ | 991,325 |
4. FURNITURE AND EQUIPMENT
Furniture and equipment as of December 31, 2010 and 2009 consist of the following:
2010 | 2009 | |||||||
Research and manufacturing equipment | $ | 70,022 | $ | 196,655 | ||||
Office furniture and equipment | 1,058,813 | 1,050,106 | ||||||
Automobiles | 143,065 | 182,662 | ||||||
Demonstration equipment | 133,188 | 128,055 | ||||||
1,405,088 | 1,557,478 | |||||||
Less: accumulated depreciation | (934,371 | ) | (1,076,084 | ) | ||||
$ | 470,717 | $ | 481,394 |
Depreciation expense was $260,420 and $225,588 for fiscal years ended 2010 and 2009, respectively.
5. ACCRUED LIABILITIES, PRODUCT WARRANTY AND DEFERRED REVENUE
Accrued Liabilities
Accrued liabilities as of December 31, 2010 and 2009 consist of the following:
2010 | 2009 | |||||||
Accrued compensation | $ | 915,581 | $ | 548,910 | ||||
Accrued warranty expenses | 172,725 | 98,599 | ||||||
Other accrued liabilities | 621,310 | 468,393 | ||||||
$ | 1,709,616 | $ | 1,115,902 |
Accrued Warranty Expenses
Product warranty reserve changes as of December 31, 2010 and 2009 consist of the following:
2010 | 2009 | |||||||
Warranty balance at beginning of the year | $ | 98,599 | $ | 67,000 | ||||
Reductions for warranty services provided | (165,424 | ) | (170,650 | ) | ||||
Change in the accrual for warranties existing at the beginning of the current period | (90,000) | (67,000) | ||||||
Changes for accruals in current period | 329,550 | 269,249 | ||||||
Warranty balance at end of the year | $ | 172,725 | $ | 98,599 |
F-63
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. ACCRUED LIABILITIES, PRODUCT WARRANTY AND DEFERRED REVENUE (CONTINUED)
Deferred Extended Warranty Revenue
In addition to the Company’s one-year warranty, the Company offers an extended warranty for an additional charge. The Company records the sale of the extended warranty as deferred revenue and amortizes the revenue over the term of the agreement, generally one to four years. At December 31, 2010 and 2009, deferred extended warranty revenue was $1,974,020 and $1,879,722, respectively.
6. NOTES PAYABLE
Notes payable at December 31, 2010 and 2009 consist of the following:
2010 | 2009 | |||||
Convertible note | $ | 1,094,947 | $ | 1,244,472 | ||
United Mizrahi Bank Loan | 1,500,000 | 1,500,000 | ||||
Other | 224,675 | 176,274 | ||||
Total | 2,819,622 | 2,920,746 | ||||
Less: current portion | 1,518,099 | 34,048 | ||||
Long-term portion | $ | 1,301,523 | $ | 2,886,698 |
As of December 31, 2010, the Company’s long-term debt payment obligations for each of the next five years are:
Long term debt | |
2011 | $ 893,861 |
2012 | 386,901 |
2013 | 12,302 |
2014 | 8,459 |
2015 | - |
$ 1,301,523 |
Convertible note
On October 29, 2007, we issued 6.5% convertible notes (the “Notes”) which are convertible into shares of our common stock and warrants (the “Warrants”) to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. (together with The Tail Wind Fund Ltd., the “Holders”) to purchase an aggregate of 616,671 shares of our common stock at an exercise price of $1.87 per share. These warrants expire on December 10, 2012.
On June 24, 2009, we entered into an Extension Agreement (the “Extension Agreement”) by and between us and the Holders. Pursuant to the Extension Agreement, with respect to the Notes, the Holders agreed to extend the principal payments due thereon for 18 months, such that the first principal payment of $208,333 was December 31, 2010. Principal payments of $229,167 are due on April 30, 2011, June 30, 2011, August 30, 2011, and October 31, 2011 the extended maturity date of the Notes. As consideration for these extensions and waivers, we issued warrants (the “New Warrants”) to the Holders to purchase an aggregate of 500,000 shares of our common stock. These New Warrants have an exercise price of $1 per share and expire on June 24, 2012. Pursuant to certain anti-dilution provisions in the Notes and Warrants, which were triggered as a result of the sale of securities under the Purchase Agreement with AccelMed, the conversion and exercise prices changed from $1.64 to $1.06 per share for the Notes and $1.87 to $1.21 per share for the Warrants. Based on these changes, the Holders received an additional 371,157 and 333,686 shares of common stock under the Notes and Warrants, respectively. During the 1st quarter of 2010 the Holders converted an aggregate of $250,000 of the Convertible Notes principal balance into 219,780 shares of our common stock.
F-64
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. NOTES PAYABLE (CONTINUED)
The fair value of the conversion option of the Note has been recorded in the balance sheet as a derivative financial liability. The fair value of the conversion option of the Note is determined based on a lattice valuation model and changes in the fair value of the conversion option is reported in earning each reporting period. As of December 31, 2010 and 2009 the total value of the conversion option was $70,400 and $229,398, respectively. The fair value of the Warrants and New Warrants has been recorded in the balance sheet as financial liabilities. The fair values of the Warrants and New Warrants are determined based on a lattice valuation model and changes in the fair value are reported in earning each reporting period. As of December 31, 2010 and 2009 the total value of the Warrants and New Warrants was $363,606 and $430,960, respectively.
United Mizrahi Bank Loan
The United Mizrahi Bank Loan was executed in connection with the close of the MediVision Asset Purchase. (For more details on the United Mizrahi Bank Loan, Note 7.)
7. RELATED PARTY TRANSACTIONS
U.M. AccelMed, Limited Partnership
As of December 31, 2010, U.M. AccelMed, Limited Partnership, an Israeli limited partnership (“AccelMed”) is our largest shareholder with 13,338,603 shares of our common stock or 44%. On June 24, 2009, we entered into a Purchase Agreement with AccelMed. Pursuant to the terms of the Purchase Agreement, we authorized the issuance and sale of up to an aggregate of 13,214,317 shares of our common stock and warrants to purchase up to an aggregate of 4,404,772 shares of our common stock in two installments. On the date of the Purchase Agreement, we completed the 1st installment, under which we issued to AccelMed 9,633,228 shares and a warrant to purchase up to 3,211,076 shares for an aggregate purchase price of $3,999,972. The 1st Installment Warrant entitles AccelMed to purchase 3,211,076 shares of our common stock at an exercise price of $1.00 per share and expires on June 24, 2012. We recorded $3,552,599 of the aggregate purchase price of $3,999,972 to common stock, net of stock issuance costs and amount allocated to warrants. On May 26, 2010 the 2nd and final installment was completed, under which we issued to AccelMed 3,581,089 shares and a warrant to purchase up to 1,193,696 shares for an aggregate purchase price of $1,999,967. The 2nd installment warrant has an exercise price of $1.00 per share and expires on June 23, 2012. We recorded $1,346,326 of the aggregate purchase price of $1,999,967 to common stock, net of stock issuance costs and amount allocated to warrants. The remaining 124,286 shares of common stock were purchased from MediVision Medical Imaging Ltd. on January 6, 2010 at a purchase price of $0.70 per share. As of April 8, 2011, AccelMed owns 13,338,603 shares of our common stock, or 44%.
The warrants issued to Accelmed include certain anti-dilution provisions which trigger if we issue or sell any equity securities or securities convertible into equity, options or rights to purchase equity securities at a per share selling price less than the exercise price, then the exercise price will be adjusted pursuant to a weighted-average formula. We record the fair value of the warrants issued to AccelMed on June 24, 2009 and May 26, 2010, in the balance sheet as a derivative financial liability. The fair values of these warrants are determined based on a lattice valuation model and changes in the fair value of the warrants are reported in earning each reporting period. As of December 31, 2010 and 2009 the total value of these warrants was $1,169,280 and $1,082,133, respectively.
Pursuant to the terms of the Purchase Agreement, on June 24, 2009, the Company entered into an Agreement (the “ Voting Agreement ”) by and among (i) AccelMed, (ii) MediVision Medical Imaging Ltd. (“ MediVision ”), (iii) Agfa Gevaert N.V. (“ Agfa ”), (iv) Delta Trading and Services (1986) Ltd. (“ Delta ”), and (v) Gil Allon, Noam Allon, Ariel Shenhar and Yuval Shenhar (collectively, the “ Allon/Shenhar Group ” and together with Agfa and Delta, the “ Principal MV Shareholders ”). MediVision and the Principal MV Shareholders are referred to as the “ MediVision/Principal Shareholders Group .” Under the Voting Agreement, following the 1st Installment Closing Date, as long as each of AccelMed and the MediVision/Principal MV Shareholders Group holds between 25% and 50% of the outstanding shares of common stock, the Company agreed to use its best efforts and will take all actions (including, if necessary, amend its bylaws) to cause to be nominated for election to the Company’s Board of Directors, and each of AccelMed and the members of the MediVision/Principal MV Shareholders Group, agreed to vote its shares of common stock owned, whether directly or indirectly, and whether now owned or thereafter acquired, in favor of, the following nominees: (1) two “Independent Directors” as defined under the listing standards of The Nasdaq Capital Market, the identity of one will be designated and named by AccelMed and the identity of the other by the MediVision/Principal MV Shareholders Group; (2) three persons designated and named by AccelMed; (3) three persons designated and named by MediVision; and (4) one person designated and named jointly by AccelMed and MediVision who shall be a reputable individual from the Company’s industry.
F-65
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
Pursuant to the terms of the Voting Agreement, following the 1st Installment Closing Date, as long as either AccelMed or the MediVision/Principal MV Shareholders Group holds less than 25% or more than 50% of the outstanding shares of common stock, the Company agreed to use its best efforts and will take all actions (including, if necessary, amend its bylaws) to cause to be nominated for election to the Company’s Board of Directors, and each of AccelMed and the members of the MediVision/Principal MV Shareholders Group, agreed to vote its shares of common stock, in favor of, the following nominees: (1) two “Independent Directors” as defined under the listing standards of The Nasdaq Capital Market, the identity of one will be designated and named by AccelMed and the identity of the other by either MediVision/Principal MV Shareholders Group; (2) six persons designated and named by AccelMed and the MediVision/Principal MV Shareholders Group, with each of AccelMed and the MediVision/Principal MV Shareholders Group entitled to name the number of persons for election to the Company’s Board of Directors in proportion to their shareholdings in the Company (i.e., calculated based on the percentages of holdings of each out of their combined aggregate holdings, multiplied by six, and rounded to the nearest whole number); (3) one person designated and named jointly by AccelMed and MediVision who shall be a reputable individual from the Company’s industry.
The Voting Agreement will terminate when AccelMed ceases to own 10% of the common stock on a fully-diluted basis or the MediVision/Principal MV Shareholder Group ceases to own, in the aggregate, 10% of the common stock on a fully-diluted basis.
Gil Allon (the Company’s Chief Executive Officer), together with Noam Allon, President and Chief Executive Officer of MediVision and Gil Allon’s brother own 20.31% of MediVision’s ordinary shares. Ariel Shenhar (the Company’s Chief Financial Officer) owns 0.58% of MediVision’s ordinary shares. Agfa and Delta own 15.59% and 42.08% of MediVision’s ordinary shares, respectively.
MediVision Medical Imaging Ltd.
As of December 31, 2010, MediVision Medical Imaging Ltd., an Israeli corporation (“MediVision”), is our second largest shareholder with 9,096,481 shares of our common stock, or 30%. As of April 8, 2011, MediVision owns 8,630,825 shares of our common stock, or 28%.
MediVision Asset Purchase
On June 24, 2009, we entered into an Asset Purchase Agreement (“APA”) with MediVision to purchase substantially all the assets of MediVision, which was completed on October 21, 2009 (the “MediVision Asset Purchase”). Such assets included the European operations which consisted of MediVision’s business as conducted by CCS Pawlowski GmbH (“CCS”), its branch office in Belgium (the “Belgium Activities”), certain agreements under which MediVision contracted with third parties for distribution and other services (the “Purchased Agreements”), and rights to intellectual property which resulted from MediVision’s research and development (“R&D”) activities performed in Israel.
As payment for such assets, we agreed to assume a bank loan outstanding with Mizrahi Tefahot Bank Ltd. (the “United Mizrahi Bank”) in the amount of $1,500,000, to which we were previously a guarantor (For more details of the guaranty, see “Note 7. Related Party Transactions, United Mizrahi Bank Loan” below.), liabilities associated with the acquired assets on and after October 21, 2009, the closing date, and certain taxes, and extinguishment of all intercompany indebtedness owed to us with a principal amount of $4,178,622. On March 3, 2011, we and United Mizrahi Bank amended the terms of the loan to increase the principal amount thereunder from $1,500,000 to $2,250,000 and defer principal payments due thereon for 6 months. As consideration for the refinance of the note, the Company issued warrants to purchase an aggregate of 215,000 shares of the Company’s common stock. These Warrants have an exercise price of $1 per share and expire on March 3, 2014.
In addition, in early 2009, we hired all of MediVision’s research and development staff and moved them to our offices in the United States and Israel.
During 2009, we had recorded intercompany accounts and notes receivable due from MediVision of $450,000 and $3,168,622, respectively, prepaid product advances to MediVision of $560,000, which were in anticipation of the completion of the Electro-optical Unit, and $273,808 of exclusivity rights paid to MediVision to sell the Electro-optical Unit in the U.S. All such amounts were extinguished upon completion of the MediVision Asset Purchase. At June 30, 2009, management determined the intercompany indebtedness owed to us by MediVision was impaired and recorded an allowance for doubtful accounts for the outstanding balance equal to $4,436,187. In connection with the MediVision Asset Purchase, management wrote off the balance of intercompany indebtedness owed to us by MediVision, thus, eliminating the allowance for doubtful accounts. Following the completion of the MediVision Asset Purchase, management extinguished an additional $16,243 of intercompany notes receivable due from MediVision.
F-66
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
The purchase price of the MediVision Asset Purchase was allocated to the assets acquired, liabilities assumed and noncontrolling interest in CCS using the fair values as determined by management at October 21, 2009. Goodwill was computed as follows:
Fair Value of Assets Acquired: | ||||||||
Net financial assets | $ | 163,000 | ||||||
Tangible assets | 311,000 | |||||||
Intangible assets | 692,000 | |||||||
Total Assets | 1,166,000 | |||||||
Fair Value of Liabilities Assumed and Noncontrolling Interest | ||||||||
Debt to United Mizrahi Bank | (1,500,000 | ) | ||||||
Noncontrolling interest in CCS | (473,000 | ) | ||||||
Total Liabilities and Noncontrolling Interest | (1,973,000 | ) | ||||||
Goodwill Resulting from the Business Combination: | $ | 807,000 |
In connection with the MediVision Asset Purchase, we recorded (1) financial assets of approximately $163,000 which represents cash, (2) tangible assets of approximately $311,000 which are primarily comprised of net accounts receivable, inventory and fixed assets, and (3) intangible assets of approximately $692,000 which are attributable to customer relationships and the Purchased Agreements related to the European operations of approximately $493,000 and intellectual property related to the Electro-optical Unit of approximately $199,000 which resulted from MediVision’s R&D activities performed in Israel. The intangible assets related to customer relationships and Purchased Agreements were valued on the date of acquisition at fair value and will be amortized over an estimated useful life of 8.2 years and will result in additional amortization expense of approximately $60,000 annually. During the year ended December 31, 2010 and 2009, the Company recognized $44,916 and $8,693, respectively, of amortization expense related to customer relationships and Purchased Agreements. At December 31, 2010, the carrying values of the intangible assets acquired from MediVision were as follows: intangible assets related to customer relationships were $411,863 and goodwill was $807,000. During the year ended December 31, 2010 the Company considered intangible assets related to the Electro-optical Unit, purchased from MediVision on October 21, 2009, to be impaired. During the year ended December 31, 2010 the Company recorded an impairment loss equal to the total value of Electro-optical Unit intangible assets of $199,000.
At December 31, 2010 the value of noncontrolling interest related to the business operations purchased from MediVision was $417,074.
Goodwill reflects the replacement cost of an assembled workforce associated with personal reputations, relationships and business specific knowledge and the value of expected synergies and the noncontrolling interest holders. The fair value of goodwill exceeds its carrying amount at December 31, 2010. The Company tests goodwill for impairment on an annual bases and between annual test periods if an event occurs or circumstances change that would reduce its carrying value. During the year ended December 31, 2009, in connection with the MediVision Asset Purchase, we recorded attorney and accounting services expenses of $52,500.
During the years ended December 31, 2010 and 2009, the Company recognized revenue of $1,234,596 and $188,683, respectively, and net losses of $319,689 and $121,333, respectively, related to the business operations purchased in connection with the MediVision Asset Purchase.
F-67
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
The following unaudited pro forma information, prepared in accordance with Generally Accepted Accounting Principles, presents the results of operations for the twelve month period ended December 31, 2009 presented as though our acquisition of certain assets of MediVision had occurred on January 1, 2009. This summary of unaudited pro forma results of operation is presented for informational purposes only and does not purport to be indicative of the results of future operations of the Company or the results that would have actually been attained had the acquisition taken place at the beginning of 2009:
Twelve Months ended December 31, 2009 As Restated | ||||
Total Revenue | $ | 14,027,917 | ||
Net loss | (7,247,456 | ) | ||
Denominator for basic net loss per share | 21,842,234 | |||
Net loss per share—Basic (1) | $ | (0.33 | ) |
(1) The amount of anti-dilutive shares for the twelve months ended December 31, 2009 is 520,748.
Escrow Agreement
Pursuant to the terms of the APA and an Escrow Agreement (the “Escrow Agreement”) between us, MediVision and Stephen L. Davis, Esq. dated June 24, 2009, MediVision deposited 5,793,452 shares (the “Escrow Shares”) of our common stock into escrow. If MediVision fails to make certain payments under the APA, the Escrow Shares will be distributed to us or sold and the proceeds thereof distributed to us. The agreement will terminate upon the later of (i) October 21, 2011 or (ii) the satisfaction and discharge of the $1,800,000 claim made by the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade & Labor to MediVision. MediVision satisfied the obligation under the ELOP Settlement Agreement on June 28, 2010 and the $1,800,000 claim made by the Office of Chief Scientist of the Israeli Ministry of Industry, Trade and Labor on November 16, 2009.
United Mizrahi Bank Loan
In 2005, we entered into a Secured Debenture (the “Debenture”) in favor of United Mizrahi Bank Ltd., in an amount of up to $2,000,000 (plus interest, commissions and all expenses). Under the terms of the Debenture, we guaranteed the payment of all of the debts and liabilities of MediVision to United Mizrahi Bank up to $2,000,000. The Debenture is secured by a first lien on all of our assets. On June 24, 2009, pursuant to the Purchase Agreement, we agreed, that upon consummation of the APA, to assume MediVision’s loan under the Debenture. On October 23, 2009, we entered into a Secured Debenture (the “Secured Debenture”) with United Mizrahi Bank. Under the Secured Debenture we agreed to assume MediVision’s loan under the Debenture in an amount of up to $1,500,000 (the “Loan Amount”). We also agreed to secure the Loan Amount by granting United Mizrahi Bank a security interest in all or substantially all of our assets. Under the Secured Debenture, United Mizrahi Bank may require the immediate payment of the entire Loan Amount upon certain events, which include among other things, our failure to make a payment on a due date or a breach or failure to perform its obligations pursuant to the Secured Debenture. Upon failure to make a payment, we must pay, within seven days, the amount demanded by United Mizrahi Bank. On March 3, 2011 we and United Mizrahi Bank Ltd amended the terms of the Secured Debenture to increase the Loan Amount from $1,500,000 to $2,250,000 and to defer principal payments due thereon for 6 months.
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
The Loan Amount accrues interest at a rate equal to LIBOR plus 4.75%. In addition, principal payments are required to be made in 18 equal monthly installments beginning January 31, 2011. We must maintain a cash balance of at least $400,000 at the United Mizrahi Bank, as long as the loan remains outstanding. As the balance of the deposit is not legally restricted or held as a compensating balance against borrowings, it is not reported as restricted cash on the balance sheet at December 31, 2010. We are also subject to a debt covenant, whereby our cash plus accounts receivable must be at least 150% of the principal and interest outstanding under the loan. We did not make any principal payment to the United Mizrahi Bank in 2010. On March 3, 2011, the Company, entered into a Refinance Agreement (the “Refinance Agreement ”) by and between the Company and Mizrahi Tefahot Bank Ltd. Pursuant to the terms of the Refinance Agreement, Mizrahi Tefahot Bank Ltd. agreed to increase the Loan Amount from $1,500,000 to $2,250,000 and defer principal payments due thereon for 6 months, such that the next principal payment of $62,500 will be due July 1, 2011. Thereafter principal payments of $62,500 will be due each month until June, 2014, the maturity.
Warrant to United Mizrahi Bank
On October 23, 2009, in connection with the assumption of the United Mizrahi loan, we issued to United Mizrahi Bank a warrant (the “Warrant”) to purchase 350,000 shares of our common stock at an exercise price of $1.00 which will expire upon the earlier of October 23, 2012 or twelve months following the completion of (1) a primary public offering of our common stock (a “Public Offering”) or (2) (a) the sale of all or substantially all of our assets or (b) the merger or consolidation of the Company with or into another entity, pursuant to which 50% of the Company’s outstanding common stock is held by person(s) who prior to the transaction held, in aggregate, less than 5% (together, a “Liquidity Event,” and together with a Public Offering, an “Exit Event”); provided however, if the underwriter in a Public Offering or the purchasing person(s) in a Liquidity Event require that all our outstanding warrants and options, including the Warrant be exercised prior to or part of the Public Offering or Liquidity Event, as applicable, then the Warrant will terminate, subject to certain notice requirements, upon completion of such transaction.
The exercise price of the Warrant is $1.00, subject to the happening of certain events, including, but not limited to, the payment of a stock dividend or a stock split. The Warrant also includes certain anti-dilution provisions if we issue or sell any equity securities or securities convertible into equity, options or rights to purchase equity securities at a per share selling price less than the exercise price, then the exercise price will be adjusted pursuant to a weighted-average formula.
Upon or immediately prior to an Exit Transaction, United Mizrahi may elect to waive all or any portion of the rights under the Warrant for $225,000 (the “Alternative Payment”). If only a portion of the Warrant is waived or if the Warrant was partially exercised prior to the Exit Event, the Alternative Payment will be reduced proportionately. In connection with the issuance of the Warrant to United Mizrahi Bank, we record the fair value of the Warrant, using a lattice valuation model, in the balance sheet as a derivative financial liability. Changes in the fair value of the Warrant are reported in earning each reporting period. As of December 31, 2010 and 2009 these options were recorded as derivative financial liability instruments and were at their fair value of $95,130 and $121,485, respectively.
On March 3, 2011, in consideration for the aforementioned refinance of the note, the Company issued warrants to Mizrahi Tefahot Bank Ltd. To purchase an aggregate of 215,000 shares of the Company’s common stock. These Warrants have an exercise price of $1 per share and expire on March 3, 2014.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
MediVision Loans and Advances
In connection with the MediVision Asset Purchase, management has written off the balance of intercompany indebtedness which was comprised of accounts receivable and notes receivable from MediVision of $450,000 and $3,168,622, respectively, $560,000 in prepaid assets for funds advanced to MediVision in anticipation of the completion of the Electro-optical Unit and $273,808 that we paid to MediVision for exclusivity rights to sell the Electro-optical Unit in the U.S. As of June 30, 2009, based upon revised estimates and the timing of the shifting of our focus from the Electro-optical Unit to other products through the end of 2010, management decided to impair the aggregate balance of intercompany indebtedness and thus, recorded an allowance for doubtful accounts equal to $4,436,187 offsetting each account and thus, recording an impairment expense for the same amount. Following the completion of the MediVision Asset Purchase, management extinguished an additional $16,243 of intercompany notes receivable due from MediVision.
As of December 31, 2010 and 2009, OIS owed MediVision $0 and $41,847, respectively, related to the settlement of its business relationships with MediVision.
Intercompany Transactions
Until October 21, 2009, upon completion of the MediVision Asset Purchase, we were parties to several agreements with MediVision, pursuant to which MediVision performed the following services:
Distributed our WinStation and Symphony Products in Europe, Africa, Israel and India. Products were sold to MediVision at a volume driven discount according to the price list, set forth below. The volume discount table is applicable to all of our distributors, including MediVision. Below is the volume discount table for our distributors for 2009.
Annual amounts purchased | Discount | |||
$ | 0 - $ 199,999 | 0 | % | |
$ | 200,000 - $ 299,999 | 10 | % | |
$ | 300,000 - $ 399,999 | 20 | % | |
$ | 400,000 - $ 499,999 | 30 | % | |
$ | 500,000 and above | 40 | % |
In 2009, until the completion of the MediVision Asset Purchase MediVision purchased products of approximately $225,000. Sales derived from product shipments to MediVision are made at transfer pricing which is based on similar volume discounts that are available to other resellers or distributors of our products.
Performed Research and Development. Prior to July 2009, MediVision performed research and development services. MediVision billed us, on a monthly basis, at cost plus 12%. These research and development services include direct labor, consultants’ fees, travel expenses and the applicable portion of general and administrative expenses. During the years ended December 31, 2009 we paid approximately $294,000 to MediVision for research and development services.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
CCS Pawlowski GmbH
CCS Pawlowski GmbH, a German corporation (“CCS”), was a subsidiary of MediVision which owned 63% of CCS’ ownership interests. We acquired this ownership interest in the MediVision Asset Purchase.
During the years ending December 31, 2009, CCS was our exclusive distributor of certain of our products in Germany and Austria. Products were sold to CCS at a volume driven discount according to the price list, set forth below. The volume discount table is applicable to all of our distributors, including CCS.
During 2009, prior to the MediVision APA, we sold products to CCS of approximately $113,000. After completion of the MediVision Asset Purchase all inter-company amounts were eliminated upon consolidation.
MediStrategy, Ltd.
We entered into a services agreement with MediStrategy Ltd. (“MS”), an Israeli company owned by Noam Allon, the Company’s Chief Technology Officer. All services provided by MS are performed solely by Noam Allon. In 2010 and 2009, in consideration for the services provided, we agreed to pay MS an annual sum of $216,000 and $30,316. In addition, MS is to be paid an annual performance bonus of up to $40,000 upon achievement of goals specified under the terms of the services agreement as determined by MS, Noam Allon, and our Chairman of the Board.
8. SHARE-BASED COMPENSATION
At December 31, 2010, we have five active stock-based compensation plans (the “Plans”). Options granted under these plans generally have a term of ten years from the date of grant unless otherwise specified in the option agreement. The plans generally expire ten years from the inception of the plans. Options granted under these agreements have a vesting period of up to four years. Incentive stock options under these plans are granted at fair market value on the date of grant and non-qualified stock options granted cannot be less than 85% of the fair market value on the date of grant.
A summary of the Company’s plans as of December 31, 2010 is presented below:
Plan Name | Options Authorized Per Plan | Plan Expiration | Options Outstanding | Range of Exercise Prices | Available for Future Grants | ||||||||||||
2000 Option Plan | 1,500,000 | September 2010 | 1,213,836 | $0.10 - $2.83 | -- | ||||||||||||
2003 Option Plan | 750,000 | October 2013 | 577,831 | $0.16 - $1.96 | 2,833 | ||||||||||||
2005 Option Plan | 750,000 | December 2015 | 750,000 | $0.16 - $1.05 | -- | ||||||||||||
2009 Option Plan | 750,000 | January 2019 | 720,426 | $0.55 - $0.65 | 26,351 | ||||||||||||
2010 Option Plan | 1,000,000 | April 2020 | 172,500 | $1.10 | 827,500 | ||||||||||||
Individual Option Agreement | 123,500 | June 2012 | 123,500 | $0.01 | -- | ||||||||||||
Individual Option Agreement | 36,464 | May 2013 | 36,464 | $0.01 | -- | ||||||||||||
Individual Option Agreement | 180,000 | December 2019 | 180,000 | $0.84 | -- | ||||||||||||
Total | 3,774,557 | 856,684 |
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. SHARE-BASED COMPENSATION (CONTINUED)
In calculating compensation recorded related to stock option grants for the year ended December 31, 2010, the fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option-pricing model and the following weighted average assumptions:
2010 | 2009 | |||
Dividend yield | None | None | ||
Expected volatility | 83% | 83% | ||
Risk-free interest rate | 3.69 | 3.11 | ||
Expected term (years) | 10 | 10 |
The computation of expected volatility used in the Black-Scholes-Merton option-pricing model is based on the historical volatility of our share price. The expected term is estimated based on a review of historical and future expectations of employee exercise behavior.
A summary of the changes in stock options outstanding under our equity-based compensation plans during the fiscal year ended December 31, 2010 is presented below:
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at January 1, 2009 | 2,272,000 | $ | 0.72 | 5.64 | ||||||||||||
Granted | 1,659,759 | $ | 0.46 | 9.43 | $ | 481,330 | ||||||||||
Exercised | - | - | - | - | ||||||||||||
Forfeited/expired | (346,833 | ) | $ | 0.64 | - | - | ||||||||||
Outstanding at January 1, 2010 | 3,584,926 | $ | 0.60 | 6.01 | $ | 537,739 | ||||||||||
Granted | 208,964 | $ | 0.91 | 9.04 | - | |||||||||||
Exercised | (3,223) | $ | 0.55 | - | - | |||||||||||
Forfeited/expired | (16,110 | ) | $ | 0.61 | - | - | ||||||||||
Outstanding at December 31, 2010 | 3,774,557 | $ | 0.62 | 6.29 | $ | 868,148 | ||||||||||
Exercisable at December 31, 2010 | 3,067,927 | $ | 0.59 | 3.31 | $ | 797,662 | ||||||||||
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. SHARE-BASED COMPENSATION (CONTINUED)
Options issued to non-employees reflected in the table above include 717,500 options outstanding on January 1, 2010. None of these shares were exercised in 2010. 86,464 options were granted to non-employees in 2010. None of these options lapsed during the year ended December 31, 2010, resulting in 803,964 options outstanding and 647,297 exercisable at December 31, 2010 for non-employees.
The weighted-average grant-date fair value of OIS options granted during 2010 and 2009 was $0.91 and $0.46, respectively. The weighted-average grant-date fair value of OIS options exercised in 2010 was $0.55. There were no OIS options exercised in 2009.
We recorded an incremental expense of $34.667 and $32,220 for stock-based compensation during the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010, we had $26,191 of unrecognized expense related to non-vested stock-based compensation, which is expected to be recognized through 2013. The total fair value of options vested during the years ended December 31, 2010 and 2009 was $34,667 and $32,220, respectively.
A summary of the status of nonvested shares at December 31, 2010 and changes during the year then ended, is presented below:
Shares | Weighted Average Grant Date Fair Value | |||||||
Non-vested shares at January 1, 2010 | 1,218,426 | $ | 0.62 | |||||
Granted | 208,964 | 0.91 | ||||||
Vested | (704,650) | 0.77 | ||||||
Forfeited/Expired | (16,110 | ) | 0.61 | |||||
Non-vested shares at December 31, 2010 | 706,630 | $ | 0.75 |
Non-vested shares relating to non-employees reflected in the table above include 250,000 and 156,667 shares outstanding at January 1, 2010 and December 31, 2010, respectively.
Abraxas
On December 9, 2009 we granted Abraxas employees options to purchase a total of 10,000 shares of Abraxas common stock. The options are exercisable at $5.00 per share, expire on December 9, 2019, and begin vesting quarterly over three years as follows: 34%, 33%, and 33%.
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. FAIR VALUE MEASUREMENT
The following are the methods and assumptions we used to estimate the fair value of our financial instruments
Cash and cash equivalents
Due to their short term nature, carrying amount approximates fair value
Accounts receivable
Due to their short term nature, carrying amount approximates fair value
Trade accounts payable
Due to their short term nature, carrying amount approximates fair value
Long-term debt
Due to the short term nature of the current portion of long-term debt, the carrying amount approximates fair value. The noncurrent portion of long-term debt approximates fair value because of the variable rate terms of these instruments.
Derivative Liability Financial Instruments
Our financial instruments are accounted for at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or price paid to transfer a liability in an orderly transaction between market participants at the measurement date. A market or observable input is the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.
The standard characterizes inputs used in determining fair value according to a hierarchy that prioritizes those inputs based upon the degree to which they are observable. The three levels of the fair-value-measurement hierarchy are as follows:
· | Level 1 – inputs represent quoted prices in active markets for identical assets or liabilities (for example exchange-traded commodity derivatives). |
· | Level 2- inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs). |
· | Level 3- inputs that are not observable from objective sources, such as the Company’s internally developed assumptions used in pricing as asset or liability (for example, an estimate of future cash flows used in a company’s internally developed present value in that company’s internally developed present value of future cash flows model that underlies the fair-value measurement). |
In determining fair value, we utilize observable market data when available, or models that incorporate observable market data. In addition to market information, we incorporate transaction-specific details that, in management’s judgment, market participants would take into account in measuring fair value.
In arriving at fair-value estimates, we utilize the most observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement characterized based upon the lowest level of input that is significant to the fair-value measurement. For us, recurring fair-value measurements are performed for warrant liabilities and embedded conversion option liabilities related to notes payable.
All derivative liability financial instruments are recognized in the balance sheet at their fair value. Changes in the fair values of derivative liability financial instruments are reported in earnings. We do not hold any derivative liability financial instruments that reduce risk associated with hedging exposure and we have not designated any of our derivative liability financial instruments as hedge instruments.
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. FAIR VALUE MEASUREMENT (Continued)
The Company has no items valued using Level 1 and Level 2 inputs. The following table sets forth the fair value hierarchy of the Company’s financial liabilities that were accounted for at fair value on a recurring bases as of December 31, 2010. No asset financial instruments were recorded at fair value on a recurring basis at December 31, 2010 and December 31, 2009.
The following table summarizes the valuation of our financial liabilities by the fair value hierarchy at December 31, 2010 and 2009.
2010 | |||||||||||||||||
Liabilities at Fair Value: | Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Loan conversion option | |||||||||||||||||
The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | $ | 70,400 | - | - | $ | 70,400 | |||||||||||
Warrants | |||||||||||||||||
The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | 363,606 | 363,606 | |||||||||||||||
United Mizrahi Bank | 95,130 | - | - | 95,130 | |||||||||||||
AccelMed | 1,169,280 | - | - | 1,169,280 | |||||||||||||
Total | $ | 1,698,416 | - | - | $ | 1,698,416 | |||||||||||
2009 | |||||||||||||||||
Liabilities at Fair Value: | Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Loan conversion option | |||||||||||||||||
The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | $ | 229,398 | - | - | $ | 229,398 | |||||||||||
Warrants | |||||||||||||||||
The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | 430,960 | - | - | 430,960 | |||||||||||||
United Mizrahi Bank | 121,486 | - | - | 121,486 | |||||||||||||
AccelMed | 1,082,132 | - | - | 1,082,132 | |||||||||||||
Total | $ | 1,863,976 | - | - | $ | 1,863,976 | |||||||||||
The Company utilizes inputs that are not observable from objective sources, such as the Company’s internally developed assumptions used in pricing as asset or liability. The company market data or assumptions that market participants would use in pricing the liability. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy. The Company uses an income approach to value its convertible debt and warrant derivative liability financial instruments. These instruments are valued using a lattice valuation model using market information as of the reporting date such as prevailing interest rates, the Company’s stock price volatility, and expected term.
There have been no transfers between Level 1, Level 2, or Level 3 categories.
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. FAIR VALUE MEASUREMENT (Continued)
The embedded conversion option listed above was issued in connection with a convertible note issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. (together with The Tail Wind Fund Ltd., the “Holders”). The warrants listed above issued to the Holders were issued on October 27, 2007 and June 24, 2009 (See Note 6). The warrants issued to United Mizrahi Bank listed above were issued on October 26, 2009 (See Note 7). The warrants issued to U.M. AccelMed, Limited Partnership, an Israeli limited partnership (“AccelMed”) listed above were issued to on June 24, 2009 and May 26, 2010 (See Note 7).
The following table summarizes current derivative liability financial instruments.
2010 | 2009 | |||||
Cost | Fair Value | Carrying Value | Cost | Fair Value | Carrying Value | |
Current Liabilities at fair value: | ||||||
Loan conversion option | ||||||
The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | $34,631 | $70,400 | $70,400 | $34,631 | $229,398 | $229,398 |
Warrants | ||||||
The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | 83,929 | 363,606 | 363,606 | 83,929 | 430,960 | 430,960 |
United Mizrahi Bank | 40,139 | 95,130 | 95,130 | 40,139 | 121,486 | 121,486 |
AccelMed | 813,471 | 1,169,280 | 1,169,280 | 201,291 | 1,082,132 | 1,082,132 |
Total current | $972,170 | $1,698,416 | $1,698,416 | $359,990 | $1,863,976 | $1,863,976 |
The activity relating to derivative liability financial instruments valued on a recurring basis utilizing Level 3 inputs for the twelve months ended December 31, 2010 and December 31, 2009 is summarized below:
Conversion Option
Conversion Option | ||||||||
2010 | 2009 | |||||||
The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | |||||||
Beginning Balance, January 1 | $ | 229,398 | $ | 34,631 | ||||
Conversion | (76,923 | ) | - | |||||
Other adjustments | - | - | ||||||
Valuation Adjustment | (82,075 | ) | 194,767 | |||||
Ending Balance, December 31, | $ | 70,400 | $ | 229,398 | ||||
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. FAIR VALUE MEASUREMENT (Continued)
The activity relating to derivative liability financial instruments valued on a recurring basis utilizing Level 3 inputs for the twelve months ended December 31, 2010 and December 31, 2009 is summarized below:
Warrants
Beginning Balance, January 1 | $ | 430,960 | $ | 1,082,133 | $ | 121,485 | ||||||
Conversion | - | - | - | |||||||||
Other adjustments | - | - | ||||||||||
Valuation Adjustment | (67,354 | ) | (87,147 | ) | (26,355 | ) | ||||||
Ending Balance, December 31, | $ | 363,606 | $ | 1,169,280 | $ | 95,130 | ||||||
2009 Warrants | ||||||||||||
The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | AccelMed | United Mizrahi Bank | ||||||||||
Beginning Balance, January 1 | $ | 3,268 | $ | - | $ | - | ||||||
Conversion | - | - | - | |||||||||
Other adjustments | - | - | - | |||||||||
Valuation Adjustment | 427,692 | 1,082,133 | 121,485 | |||||||||
Ending Balance, December 31, | $ | 430,960 | $ | 1,082,133 | $ | 121,485 |
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES
The income tax expense for the years ended December 31, 2010 and 2009 consisted of the following:
Federal | State | Total | ||||||||
2010 | ||||||||||
Current | $ | (87,000 | ) | $ | 10,730 | $ | (76,270 | ) | ||
Deferred | 234,000 | 23,000 | 257,000 | |||||||
Change in valuation allowance | (234,000 | ) | (23,000 | ) | (257,000 | ) | ||||
Total income tax expense | $ | (87,000 | ) | $ | 10,730 | $ | (76,270) |
Federal | State | Total | ||||||||
2009 | As Restated | As Restated | As Restated | |||||||
Current | $ | - | $ | 3,787 | $ | 3,787 | ||||
Deferred | (1,974,000 | ) | (280,000 | ) | (2,254,000 | ) | ||||
Change in valuation allowance | 1,974,000 | 280,000 | 2,254,000 | |||||||
Total income tax expense | $ | - | $ | 3,787 | $ | 3,787 |
In 2010 and 2009, we determined that it is not more-likely-than-not that we will be able to use any of our deferred tax asset in the future. Accordingly we have recorded a full valuation allowance against our deferred tax assets at December 31, 2010 and 2009.
The Company’s effective tax rate for the years ended December 31, 2010 and 2009 was 3% and 0%. The reconciliation of the statutory rate to the effective rate is as follows:
2010 | 2009 | |||||||
Statutory rate | 34 | % | 34 | % | ||||
State income taxes, net of Federal benefit | 6 | 6 | ||||||
Other | 3 | |||||||
Change in valuation allowance | (40 | ) | (40 | ) | ||||
Total | 3 | % | 0 | % |
The Company did not incur material foreign income tax expense as of or for the years ended December 31, 2010 or 2009.
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (CONTINUED)
The significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31, | ||||||||
2010 | 2009 | |||||||
Deferred tax assets: | As Restated | |||||||
Net operating loss carry forwards | $ | 3,502,000 | $ | 3,773,000 | ||||
Inventory reserves | 239,000 | 197,000 | ||||||
Payroll related accruals | 245,000 | 165,000 | ||||||
Warranty accrual | 71,000 | 39,000 | ||||||
Accounts receivable reserve | 268,000 | 281,000 | ||||||
Uniform capitalization | 33,000 | 19,000 | ||||||
Research and development tax credit | 175,000 | 230,000 | ||||||
Deferred revenue | 737,000 | 823,000 | ||||||
Total deferred tax assets | 5,270,000 | 5,527,000 | ||||||
Valuation allowance | (5,249,000 | ) | (5,506,000 | ) | ||||
Net deferred tax assets | 21,000 | 21,000 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation | (21,000) | (21,000 | ) | |||||
Net deferred tax assets | $ | - | $ | - |
At December 31, 2010 and 2009, management reviewed recent operating results and projected future operating results, as well as the current conditions in the global economy and medical industry. On each of these dates, management determined whether it was more-likely-than-not that a portion of the deferred tax assets attributable to net operating losses would be realized. Net operating loss expire beginning in 2017 through 2030.
We re-evaluate our estimates and assumptions we use in our financial statements on an ongoing and quarterly basis. We adjust these estimates and assumptions as needed and as circumstances change. If circumstances change in the future, we will adjust our estimates and assumptions accordingly. At the present time, we cannot determine whether our assumptions and estimates will change in the future. Based on historical knowledge, however, it is reasonably likely that there will be some changes in some of our estimates and assumptions. The Company did not identify any material uncertain tax positions or record any interest or penalties associated with uncertain tax positions as of and for the years ended December 31, 2010 and 2009. We do not expect the amount of unrecognized tax positions to increase or decrease in the next twelve months. We do not expect the amount of unrecognized tax positions if recognized to affect the effective tax rate in the next twelve months.
11. COMMITMENTS AND CONTINGENCIES
The Company has no significant commitments and contingencies other than as disclosed in these financial statements and notes thereto.
Operating Leases
The Company leases its corporate headquarters and manufacturing facility under a cancelable operating lease that expires in June 2012. The lease agreement provides for minimum lease payments of $143,109 for the twelve months ended December 31, 2011 and $71,555 for the six months ended June 30, 2012. Abraxas leases a facility for their office under a non cancelable operating lease that expires in August 2013. The lease agreement provides for minimum lease payments of $128,503 and $156,751 for the twelve months ending December 31, 2011 and 2012, and $106,975 for the eight months ending August 2013, respectively. Rental expense charged to operations for all operating leases was $256,454 and $220,685 during the years ended December 31, 2010 and 2009, respectively.
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OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. WARRANTS
Warrant activity for the years ended December 31, 2010 and 2009 is summarized as follows:
2010 | 2009 | |||||||
Warrants | Weighted Average Exercise Price | Warrants | Weighted Average Exercise Price | |||||
Outstanding at beginning of year | 4,950,168 | $1.05 | 929,671 | $1.79 | ||||
Granted | 1,254,961 | 1.01 | 4,333,497 | 1.02 | ||||
Exercised | - | - | - | - | ||||
Lapsed | - | - | (313,000) | 1.64 | ||||
Outstanding at end of year | 6,205,129 | $1.03 | 4,950,168 | $1.05 | ||||
Currently exercisable | 6,205,129 | $1.03 | 4,950,168 | $1.05 |
There were 6,205,129 warrants outstanding and exercisable as of December 31, 2010 with a weighted average remaining contractual life of 1.57 years and a weighted average exercise price of $1.03. There is no intrinsic value of warrants outstanding at December 31, 2010. There were an aggregate of 4,950,168 warrants outstanding and exercisable as of December 31, 2009 with a weighted average remaining contractual life of 2.59 years, a weighted average exercise price of $1.05. There is no intrinsic value of warrants outstanding at December 31, 2009.
We record the fair value of warrants in the balance sheet as financial liabilities. The fair values of warrants are determined based on a lattice valuation model and changes in the fair value of the warrants are reported in earning each reporting period.
13. OTHER INCOME - SETTLEMENT
On May 3, 2009, we entered into a Confidential Settlement and Mutual Release Agreement (the “Settlement Agreement”) by and between us, Steven Verdooner, OPKO Health, Inc. and The Frost Group, LLC (collectively “Defendants”). Mr. Verdooner was formerly our president. Pursuant to the Settlement Agreement described further under “Legal Proceedings” below, we received a cash settlement of $1,200,000 on May 13, 2009.
14. SUBSEQUENT EVENTS
On March 3, 2011 the Company and United Mizrahi Bank Ltd amended the terms of the Secured Debenture to increase the Loan Amount from $1,500,000 to $2,250,000 and defer principal payments due thereon for 6 months (For additional details on this transaction see Note 7 Related Party Transactions). In consideration for the refinance of the note, the Company issued warrants to Mizrahi Tefahot Bank Ltd. To purchase an aggregate of 215,000 shares of the Company’s common stock. These Warrants have an exercise price of $1 per share and expire on March 3, 2014.
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2010, management of the Company, with the participation of the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act. Disclosure controls and procedures are defined as the controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act are accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2010, the Company’s disclosure controls and procedures were not effective because of the material weakness described below.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate “internal control over financial reporting” for the Company, as defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is defined as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. A “material weakness” is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “control deficiency” exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Company, including the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Management believes that this evaluation provides a reasonable basis for its opinion.
5
Management identified the following control deficiency as of December 31, 2010 that constituted a material weakness in the Company’s internal control over financial reporting. Management concluded that internal controls over financial reporting were not effective at December 31, 2010.
The Company did not maintain an effective control over derivative liability financial instrument policies. Management failed to properly analyze, account and record warrant and derivative liability financial transactions.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission applicable to smaller reporting company’s that permit the Company to provide only management’s report in this annual report.
PLAN FOR REMEDIATION OF MATERIAL WEAKNESSES
The Company’s management has been actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness. These remediation efforts are intended both to address the identified material weakness and to enhance our overall financial control environment. The Company plans to implement proper process of consultation with outside consultants in analyzing complex transactions. The Company will enforce the need for proper documentation and analysis of each significant transaction as noted in each agreement. Accounting position papers will be prepared on a timely manner and will be cleared with the Company’s independent auditors for appropriate accounting.
We recognize that continued improvement in our internal controls is necessary and are committed to continuing our significant investments as necessary to make these improvements in our internal controls over financial reporting other than related to the aforementioned material weakness.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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Item 15. Exhibits, Financial Statement Schedules
Financial Statements | F-1 |
Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Balance Sheets | F-3 |
Consolidated Statements of Operations | F-5 |
Consolidated Statement of Stockholders’ Equity | F-7 |
Consolidated Statement of Cash Flows | F-8 |
Notes to Consolidated Financial Statements | F-9 |
Exhibit Number | Description of Exhibit | Footnote Reference |
2.1 | Asset Purchase Agreement dated June 24, 2009, by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd. | (5) |
3.1 | Articles of Incorporation of Ophthalmic Imaging Systems. | (1) |
3.2 | Amendment to Articles of Incorporation (Certificate of Determination of Preferences of Series A Junior Participating Preferred Stock of Ophthalmic Imaging Systems). | (2) |
3.3 | Amendment to Articles of Incorporation (Certificate of Determination of Preferences of Series B Preferred Stock of Ophthalmic Imaging Systems). | (3) |
3.4 | Certificate of Amendment to Articles of Incorporation of Ophthalmic Imaging Systems. | (4) |
3.5 | Amended and Restated Bylaws of Ophthalmic Imaging Systems. | (4) |
4.1 | Specimen of Stock Certificate. | (1) |
7
Exhibit Number | Description of Exhibit | Footnote Reference |
4.2 | Purchase Agreement dated October 29, 2007 among Ophthalmic Imaging Systems, The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | (7) |
4.3 | Form of Convertible Notes dated October 29, 2007 issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | (7) |
4.4 | Form of Warrant dated October 29, 2007 issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. | (7) |
4.5 | Registration Rights Agreement dated October 29, 2007 by and among Ophthalmic Imaging Systems, The Tail Wind Fund Ltd., and Solomon Strategic Holdings, Inc. | (7) |
4.6 | Warrant dated June 24, 2009, issued in favor of U.M. AccelMed, Limited Partnership | (5) |
4.7 | Warrant dated May 25, 2010, issued in favor of U.M. AccelMed, Limited Partnership | (6) |
4.8 | Warrant agreement dated March 3, 2011 between Ophthalmic Imaging Systems and Mizrahi Tefahot Bank Ltd. | (19) |
10.1 | Lease Agreement, dated as of April 21, 2001, between Ophthalmic Imaging Systems and Jackson-Jahn, Inc. | (8) |
10.2 | First Amendment to the Lease Agreement dated as of April 21, 2001 between Ophthalmic Imaging Systems and Jackson-Jahn, Inc. | (9) |
10.3 | Second Amendment to the Lease Agreement dated as of April 21, 2001 between Ophthalmic Imaging Systems and Jackson-Jahn, Inc. | (9) |
10.4 | Assignment dated October 23, 1990 of U.S. Patent Application for Apparatus and Method for Topographical Analysis of the Retina to Ophthalmic Imaging Systems 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). | (1) |
10.5 | Form of International Distribution Agreement used by Ophthalmic Imaging Systems and sample form of End User Software License Agreement. | (1) |
10.6 | Rental Agreement dated May 1, 1994 by and between Ophthalmic Imaging Systems and Robert J. Rossetti. | (10) |
10.7 | Ophthalmic Imaging Systems’ 1997 Nonstatutory Stock Option Plan and sample form of Nonstatutory Stock Option Agreement. | (11)+ |
10.8 | Form of Indemnification Agreement between Ophthalmic Imaging Systems and each of its directors, officers and certain key employees. | (12) |
10.9 | Cooperation and Project Funding Agreement dated January 21, 2001, among Israel- United States Binational Industrial Research and Development Foundation, MediVision and Ophthalmic Imaging Systems. | (13) |
10.10 | 2000 Stock Option Plan. | (8)+ |
10.11 | 2003 Stock Option Plan. | (14) |
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Exhibit Number | Description of Exhibit | Footnote Reference |
10.12 | 2005 Stock Option Plan. | (4)+ |
10.13 | 2009 Stock Option Plan. | (4)+ |
10.14 | 2010 Stock Option Plan | (18)+ |
10.15 | Loan and Security Agreement dated as of February 28, 2005 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd. | (9) |
10.16 | Promissory Note dated as of February 28, 2005 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd. | (9) |
10.17 | Secured Debenture dated as of July 20, 2005 by and between Ophthalmic Imaging Systems and United Mizrahi Bank Ltd. | (15) |
10.18 | Research and Development Services Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd. | (15) |
10.19 | Distribution Agreement dated as of February 14, 2006 by and between Ophthalmic Imaging Systems and CCS Pawlowski GmbH. | (15) |
10.20 | Distribution Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd. and Addendum thereto dated December 9, 2005. | (15) |
10.21 | Services Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems, MediStrategy Ltd. and Noam Allon and Addendum thereto dated September 30, 2005. | (15) |
10.22 | Employment Agreement dated December 1, 2001 between Ophthalmic Imaging Systems and Gil Allon. | (16)+ |
10.23 | Amendment to Employment Agreement dated April 12, 2006 between Ophthalmic Imaging Systems and Gil Allon. | (16)+ |
10.24 | Employment Agreement dated July 11, 2002, between Ophthalmic Imaging Systems and Ariel Shenhar. | (16)+ |
10.25 | Amendment to Employment Agreement dated December 3, 2003, between Ophthalmic Imaging Systems and Ariel Shenhar. | (16)+ |
10.26 | Amendment to Employment Agreement dated February 29, 2004, between Ophthalmic Imaging Systems and Ariel Shenhar. | (16)+ |
10.27 | Amendment to Employment Agreement dated April 12, 2006, between Ophthalmic Imaging Systems and Ariel Shenhar. | (16)+ |
10.28 | Letter Agreement dated March 12, 2009, between Ophthalmic Imaging Systems and Uri Ram. | (4)+ |
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Exhibit Number | Description of Exhibit | Footnote Reference |
10.30 | Letter Agreement dated August 31, 2007, between Ophthalmic Imaging Systems and William Greer. | (4)+ |
10.31 | Letter Agreement dated October 30, 2009, between Ophthalmic Imaging Systems and William Greer. | (4)+ |
10.32 | Letter Agreement dated August 31, 2007, between Ophthalmic Imaging Systems and Jonathan Phillips. | (4)+ |
10.33 | Letter Agreement dated October 30, 2009, between Ophthalmic Imaging Systems and Jonathan Phillips. | (4)+ |
10.34 | Letter Agreement dated October 29, 2010, between Ophthalmic Imaging Systems and Merle Symes. | (19)+ |
10.35 | Letter Agreement dated February 8, 2911, between Ophthalmic Imaging Systems and John Brown | (19) + |
10.36 | Letter Agreement dated February 8, 2011, between Ophthalmic Imaging Systems and Barak Azmon. | (19)+ |
10.37 | Purchase Agreement dated June 24, 2009, by and between Ophthalmic Imaging Systems and U.M. AccelMed, Limited Partnership. | (5) |
10.39 | Agreement dated June 24, 2009, by and among U.M. AccelMed, Limited Partnership, MediVision Medical Imaging Ltd., Agfa Gevaert N.V., Delta Trading and Services (1986) Ltd., Gil Allon, Noam Allon, Ariel Shenhar and Yuval Shenhar. 10.38 Form of Indemnification Agreement. | (5) |
10.40 | Extension Agreement dated June 24, 2009, by and between the Company, The Tail Wind Fund Ltd. and Solomon Strategic Holdings. | (5) |
14 | Code of Ethics. | (9) |
23.1 | Consent of Perry-Smith LLP, Independent Auditors. | * |
31.1 | * | |
31.2 | * | |
32 | * |
________________________
+ | Management contract or compensatory plan or arrangement. |
(1) | Incorporated by reference to Ophthalmic Imaging Systems’ Registration Statement on Form S-18, number 33-46864-LA. |
(2) | Incorporated by reference to Exhibit A of Exhibit 1 of Ophthalmic Imaging Systems’ Form 8-K, filed on January 2, 1998. |
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(3) | Incorporated by reference to Exhibit 3.1 of Ophthalmic Imaging Systems’ Form 8-K, filed on November 24, 1999. |
(4) | Incorporated by reference to Ophthalmic Imaging Systems Annual report on Form 10-K for the fiscal year ended December 31, 2009, filed on March 29, 2010. |
(5) | Incorporated by reference to Ophthalmic Imaging Systems Form 8-K filed on June 29, 2009. |
(6) | Incorporated by reference to Ophthalmic Imaging Systems Form 8-K filed on May 27, 2010 |
(7) | Incorporated by reference to Ophthalmic Imaging Systems’ Form 8-K filed on October 31, 2007. |
(8) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001, filed on March 26, 2002. |
(9) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, filed on March 18, 2005. |
(10) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the fiscal year ended August 31, 1994, filed on November 29, 1994. |
(11) | Incorporated by reference to Ophthalmic Imaging Systems’ Quarterly Report on Form 10-QSB for the quarterly period ended November 30, 1997, filed on January 14, 1998. |
(12) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended August 31, 1998, filed on December 15, 1998. |
(13) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the transition period from September 1, 2000 to December 31, 2000, filed on March 29, 2001. |
(14) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 25, 2004. |
(15) | Incorporated by reference to Exhibit 99.2 of Ophthalmic Imaging Systems’ Form 8-K filed on July 25, 2005. |
(16) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, filed on March 29, 2006. |
(17) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed on March 29, 2010. |
(18) | Incorporated by reference to Ophthalmic Imaging Systems’ Form S-8 Registration Statement, file on November 2, 2010. |
(19) | Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed on April 15, 2011. |
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Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OPHTHALMIC IMAGING SYSTEMS | |||||
Dated: July 1, 2011 | By: | /s/ Gil Allon | |||
Name: Gil Allon | |||||
Title: Chief Executive Officer (Principal Executive Officer) | |||||
By: | /s/ Ariel Shenhar | ||||
Name: Ariel Shenhar | |||||
Title: Chief Financial Officer (Principal Accounting and Financial Officer) |
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