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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 2004
REGISTRATION FILE NO. 333-110334
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
OPHTHALMIC IMAGING SYSTEMS
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
CALIFORNIA 3841 94-3035367
(State or other jurisdiction of (primary standard (I.R.S. Employer
incorporation or organization) industrial code) Identification Number)
221 LATHROP WAY, SUITE I
SACRAMENTO, CALIFORNIA 95815
(916) 646-2020
(Address and telephone number of principal executive offices)
WITH A COPY TO:
ARIEL SHENHAR, CHIEF FINANCIAL OFFICER HENRY I. ROTHMAN
OPHTHALMIC IMAGING SYSTEMS JENKENS & GILCHRIST PARKER CHAPIN LLP
221 LATHROP WAY, SUITE I 405 LEXINGTON AVENUE
SACRAMENTO, CALIFORNIA 95815 NEW YORK, NEW YORK 10174
(916) 646-2020 (212) 704-6000
(Name, address, including zip code, and telephone number of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THIS REGISTRATION BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) SHARE PRICE REGISTRATION FEE
Common stock, no par value per 1,716,496 (2) $1.03 (3) $1,767,990.80 $162.66
share
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(1) In the event of a stock split, stock dividend or similar transaction
involving the Registrant's common stock, in order to prevent dilution, the
number of shares registered shall be automatically increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act of
1933.
(2) Includes 1,341,496 shares of common stock issuable upon conversion of the
principal and interest of a secured convertible term note and 375,000 shares of
common stock issuable upon exercise of a warrant.
(3) The proposed maximum offering price per share has been estimated solely for
the purpose of calculating the registration fee pursuant to Rule 457(c) of the
Securities Act of 1933 and is based upon the average of the high and low
reported prices of the Registrant's common stock on November 5, 2003.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING UNDER SECTION 8(a), MAY DETERMINE.
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Subject To Completion, dated August 25, 2004
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITY HOLDER MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
1,180,528 SHARES
OPHTHALMIC IMAGING SYSTEMS
COMMON STOCK
This prospectus relates to the resale by the selling security holder
for its own account of up to an aggregate of 1,180,528 shares of our
common stock, of which 805,528 shares are issuable upon conversion of
a convertible term note and 375,000 shares are issuable upon exercise
of a warrant.
Our common stock trades on the OTC Bulletin Board(R) under the symbol
"OISI." The last reported sale price of our common stock on August 18,
2004, was $1.05 per share.
The mailing address and the telephone number of our principal executive
offices are 221 Lathrop Way, Suite I, Sacramento, California 95815,
(916) 646-2020.
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Investing in our common stock involves a high degree of risk.
PLEASE SEE THE SECTION OF THIS PROSPECTUS
ENTITLED "RISK FACTORS" BEGINNING ON PAGE 2.
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We will not receive any proceeds from the sale of the shares by the
selling security holder. We may receive proceeds in connection with the
exercise of a warrant whose underlying shares may be sold in this
offering.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined
if this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus is August __, 2004.
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You should rely only on the information contained in this document. We
have not authorized anyone to provide you with information that is
different. This document may only be used where it is legal to sell
these securities.
TABLE OF CONTENTS
PAGE NO.
Prospectus Summary......................................................................................1
Risk Factors............................................................................................2
Special Note Regarding Forward Looking Statements.......................................................9
Use of Proceeds.........................................................................................9
Market for Common Equity and Related Stockholder Matters................................................9
Dilution...............................................................................................11
Description of Business................................................................................11
Description of Property................................................................................18
Management's Discussion and Analysis of Financial Condition and Results of Operations..................18
Selling Security Holder ...............................................................................25
Plan of Distribution...................................................................................26
Description of Securities..............................................................................28
Directors, Executive Officers, Promoters and Control Persons...........................................31
Security Ownership of Certain Beneficial Owners and Management.........................................33
Executive Compensation.................................................................................34
Certain Relationships and Related Transactions.........................................................37
Legal Proceedings......................................................................................38
Disclosure of Commission Position on Indemnification For Securities Act Liabilities....................38
Changes In and Disagreements with Accountants..........................................................39
Transfer Agent and Registrar...........................................................................39
Interest of Named Experts and Counsel..................................................................39
Where You Can Find More Information....................................................................39
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus and does
not contain all of the information necessary to your investment decision. To
understand this offering fully, you should read carefully the entire prospectus,
especially the risks of investing in our common stock discussed under "Risk
Factors."
In connection with a private placement transaction with Laurus Master
Fund, Ltd., or Laurus, this prospectus covers the resale of up to an aggregate
of 1,180,528 shares of our common stock, of which 621,250 shares are issuable
upon conversion of a three-year secured convertible term note in the initial
principal amount of $1,200,000 (of which $535,263.48 of principal and $38,222.28
of accrued interest has been converted into shares of our common stock as of
August 18, 2004), secured by a subordinated second priority lien on our assets,
184,278 shares issuable as interest payments under the note and up to 375,000
shares issuable upon the exercise by Laurus of a warrant. The note is
convertible into shares of our common stock at a fixed conversion price of $1.07
per share and the exercise prices of the warrant ranges between $1.23 and $1.61
per share.
OUR COMPANY
We are engaged in the business of designing, developing, manufacturing
and marketing digital imaging systems and image enhancement and analysis
software for use by practitioners in the ocular health field. Our products are
used for a variety of standard diagnostic test procedures performed in most eye
care practices. Since our inception, we have developed products that have
addressed primarily the needs of the ophthalmic angiography markets, both
fluorescein and indocyanine green. The current flagship products in our
angiography line are our WinStation digital imaging systems. These WinStation
products are targeted primarily at retinal specialists and general
ophthalmologists in the diagnosis and treatment of retinal diseases and other
ocular pathologies. See "Description of Business" for more information.
THE OFFERING
Common stock offered by selling Up to 1,180,528 shares of common stock
security holder may be offered under this prospectus, of
which shares are issuable upon
conversion of the principal and interest
of a note or upon exercise of a warrant.
Use of Proceeds All proceeds of this offering will be
received by the selling security holder
for its own account. We may receive
proceeds in connection with the exercise
of a warrant whose underlying shares may
in turn be sold by the selling security
holder.
Risk Factors You should read the "Risk Factors"
section beginning on page 2, as well as
other cautionary statements throughout
this prospectus, before investing in
shares of our common stock.
OTC Bulletin Board(R)symbol OISI
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, IT IS LIKELY THAT OUR BUSINESS,
FINANCIAL CONDITION AND OPERATING RESULTS WOULD BE HARMED. AS A RESULT, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE PART OR ALL
OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL, WE WOULD BE REQUIRED TO ELIMINATE
CERTAIN ACTIVITIES THAT WOULD ADVERSELY EFFECT OUR OPERATIONS.
We may require substantial funds for various purposes, including
continuing research and development, manufacturing and marketing our existing
products. We may need to seek additional capital, possibly through public or
private sales of our securities, in order to fund our activities on a long-term
basis. Adequate funds may not be available when needed or on terms acceptable to
us. Insufficient funds may require us to delay, scale back or eliminate certain
or all of our research and development programs or to license third parties to
commercialize products or technologies that we would otherwise seek to develop
ourselves, which may materially adversely affect our continued operations.
IF WE FAIL TO DEVELOP AND SUCCESSFULLY INTRODUCE NEW AND ENHANCED PRODUCTS THAT
MEET THE NEEDS OF OUR CUSTOMERS, OUR BUSINESS MAY BE HARMED.
Our future success depends on our ability to anticipate our customers'
needs and develop products that address those needs. This will require us to
design, develop, manufacture, assemble, test market and support new products and
enhancements on a timely and cost-effective basis. We cannot assure that we will
successfully identify new product opportunities and develop and bring new
products to market in a timely and cost effective manner. Our failure to do so
could lead to a reduction in net sales and our business may be harmed.
OUR MARKET IS UNPREDICTABLE AND CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND
EVOLVING STANDARDS, AND, IF WE FAIL TO KEEP UP WITH SUCH CHANGES, OUR BUSINESS
AND OPERATING RESULTS WILL BE HARMED.
Our industry is characterized by extensive research and development,
rapid technological change, frequent innovations and new product introductions,
changes in customer requirements and evolving industry standards. Demand for our
products could be significantly diminished by new technologies or products that
replace them or render them obsolete, which would have a material adverse effect
on our business, financial condition and results of operations.
THE MARKETS IN WHICH WE SELL OUR PRODUCTS ARE INTENSELY COMPETITIVE AND
INCREASED COMPETITION COULD CAUSE REDUCED SALES LEVELS, REDUCED GROSS MARGINS OR
THE LOSS OF MARKET SHARE.
Competition in the healthcare industry markets in which we provide
products is intense and is based upon price, product performance, quality,
reliability and customer service. Our WinStation products compete against
products offered by Topcon and Zeiss, among others. Our DFI products compete
against products offered by Topcon, Kowa, Zeiss, Canon and Nidek, among others.
We are aware of five primary competitors for the DSLI, namely Veatch, MVC, Kowa,
Helioasis and Lombard.
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Although we will continue to work to develop new and improved products,
many companies are engaged in research and development of new devices and
alternative methods to diagnose and evaluate eye disease. Introduction of such
devices and alternative methods could hinder our ability to compete effectively
and could have a material adverse effect on our business, financial condition
and results of operations. Many of our competitors and potential competitors
have substantially greater financial, manufacturing, marketing, distribution and
technical resources than we have.
Any business combinations or mergers among our competitors, forming
larger competitors with greater resources, or the acquisition of a competitor by
a major medical or technology corporation seeking to enter this business, could
result in increased competition.
WE MAY EXPERIENCE A DECLINE IN SELLING PRICES OF OUR PRODUCTS AS COMPETITION
INCREASES, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
As competing products become more widely available, the average selling
price of our products may decrease. Trends toward managed care, health care,
cost containment and other changes in government and private sector initiatives
in the United States and other countries in which we do business are placing
increased emphasis on the delivery of more cost-effective medical therapies
which could also adversely affect prices of our products. If we are unable to
offset the anticipated decrease in our average selling prices by increasing our
sales volumes, our net sales will decline. In addition, to maintain our gross
margins, we must continue to reduce the cost of our products. Further, as
average selling prices of our current products decline, we must develop and
introduce new products and product enhancements with higher margins. If we
cannot maintain our net sales and gross margins, our operating results could be
seriously harmed, particularly if the average selling prices of our products
decrease significantly.
IF WE DO NOT SPEND HEAVILY ON RESEARCH AND DEVELOPMENT AND WE FAIL TO ADDRESS
RAPID TECHNOLOGICAL CHANGES IN OUR MARKETS, IT COULD ADVERSELY AFFECT OUR
BUSINESS.
We have incurred substantial research and development expenditures in
the past, and plan to continue to do so in the future. Over the last three
fiscal years, our research and development expenses have been in the range of 7%
to 8% of our net revenues. We cannot assure that our expenditures for research
and development will result in the introduction of new products or, if such
products are introduced, that those products will achieve sufficient market
acceptance. Our failure to address rapid technological changes in our markets
could adversely affect our business and results of operations.
OUR PRODUCTS ARE SUBJECT TO U.S., E.U. AND INTERNATIONAL MEDICAL REGULATIONS AND
CONTROLS, WHICH IMPOSE SUBSTANTIAL FINANCIAL COSTS ON US AND WHICH CAN PREVENT
OR DELAY THE INTRODUCTION OF NEW PRODUCTS.
Our ability to sell our products is subject to various federal, state
and international rules and regulations. In the United States, we are subject to
inspection and market surveillance by the FDA, to determine compliance with
regulatory requirements. The regulatory process is costly, lengthy and
uncertain.
Pursuant to Section 510(k) of the Federal Food, Drug and Cosmetic Act
("FDCA"), we are required to file, and submit, a pre-marketing notification with
the FDA which provides certain safety and effectiveness information concerning
our diagnostic imaging systems, including our DFI and DSLI. The FDA has approved
our pre-marketing notification submittals, thereby granting us permission to
market our products, subject to the general controls and provisions of the FDCA.
The classification of our products require, among other things, annual
registration, listing of devices, good manufacturing practices, labeling and
prohibition against misbranding and adulteration. Further, because we are
engaged
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in international sales, our products must satisfy certain manufacturing
requirements and may subject us to various filing and other regulatory
requirements imposed by foreign governments as a condition to the sale of such
products.
We have registered our manufacturing facility with both the FDA and
certain California authorities as a medical device manufacturer and operate such
facility under FDA and California requirements concerning Quality System
Requirements ("QSR"). As a medical device manufacturer, we are required to
continuously maintain our QSR compliance status and to demonstrate such
compliance during periodic FDA and California inspections. If the facilities do
not meet applicable QSR regulatory requirements, we may be required to implement
changes necessary to comply with such regulations.
Although the FDA has made findings which permit us to sell our products
in the marketplace, such findings do not constitute FDA approval of these
devices and we can not predict the effect that future legislation or regulatory
developments may have on our operations. Additional regulations, reconsideration
of approvals granted under current regulations, or a change in the manner in
which existing statutes and regulations are interpreted or applied may have a
material adverse impact on our business, financial condition and results of
operations. Moreover, new products and services developed by us, if any, also
may be subject to the same or other various federal and state regulations, in
addition to those of the FDA.
Following clearance or approval, marketed products are subject to
continuing regulation. We are required to adhere to the FDA's Quality System
Regulation, or QSR, and similar regulations in other countries, which include
design, testing, quality control and documentation requirements. Ongoing
compliance with QSR, labeling and other applicable regulatory requirements is
monitored through periodic inspections and market surveillance by the FDA and by
comparable agencies in other countries.
THE VALUE ADDED RESELLER (VAR) AGREEMENT SIGNED WITH NEXTGEN HEALTHCARE
INFORMATION SYSTEMS, INC. MAY NOT GENERATE ANY SIGNIFICANT FUTURE REVENUE FOR US
AND MAY REDUCE GROSS MARGINS.
The NextGen software products platforms of EPM Enterprise Practice
Management and EMR (Electronic Medical Records) allows us to broaden our product
offerings to the ocular health care industry. Despite this new VAR agreement,
there is no guarantee that our sales efforts in this new endeavor will be
successful in the future. Long sales cycles, new sales training requirements and
potential resistance to the initial high cost of the software may be among those
factors contributing to us not being successful in reselling these products.
If we do experience any degree of success in reselling these products,
our gross margin could be negatively impacted. Our gross margin on the reselling
of these products is lower than the majority of the products that we currently
market.
WE DEPEND ON SKILLED PERSONNEL TO OPERATE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN EXISTING OR HIRE ADDITIONAL
PERSONNEL, OUR ABILITY TO DEVELOP AND SELL OUR PRODUCTS COULD BE HARMED.
Our success depends to a significant extent upon the continued service
of our key senior management, sales and technical personnel, any of whom could
be difficult to replace. Competition for qualified employees is intense, and our
business could be adversely affected by the loss of the services of any of our
existing key personnel. We cannot assure that we will continue to be successful
in hiring and retaining properly trained personnel. Our inability to attract,
retain, motivate and train qualified new personnel could have a material adverse
effect on our business.
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WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WHICH COULD ADVERSELY
AFFECT OUR COMPETITIVE ADVANTAGE.
We rely on a combination of patent, copyright, trademark and trade
secret laws, non-disclosure and confidentiality agreements and other
restrictions on disclosure to protect our intellectual property rights. We
cannot assure that our patent applications will be approved, that any patents
that may be issued will protect our intellectual property, that any issued
patents will not be challenged by third parties or that any patents held by us
will not be found by a judicial authority to be invalid or unenforceable. Other
parties may independently develop similar or competing technology or design
around any patents that may be issued to or held by us. We cannot be certain
that the steps we have taken will prevent the misappropriation of our
intellectual property, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the United States. Moreover, if we
lose any key personnel, we may not be able to prevent the unauthorized
disclosure or use of our technical knowledge or other trade secrets by those
former employees.
THE LONG SALES CYCLES FOR OUR PRODUCTS MAY CAUSE US TO INCUR SIGNIFICANT
EXPENSES WITHOUT OFFSETTING REVENUES.
Customers typically expend significant effort in evaluating, testing
and qualifying our products before making a decision to purchase them, resulting
in a lengthy initial sales cycle. While our customers are evaluating our
products we may incur substantial sales and marketing and research and
development expenses to customize our products to the customer's needs. We may
also expend significant management efforts, increase manufacturing capacity and
order long-lead-time components or materials. Even after this evaluation
process, a potential customer may not purchase our products. As a result, these
long sales cycles may cause us to incur significant expenses without ever
receiving revenue to offset those expenses.
IF WE FAIL TO ACCURATELY FORECAST COMPONENT AND MATERIAL REQUIREMENTS FOR OUR
PRODUCTS, WE COULD INCUR ADDITIONAL COSTS AND SIGNIFICANT DELAYS IN SHIPMENTS,
WHICH COULD RESULT IN LOSS OF CUSTOMERS.
We must accurately predict both the demand for our products and the
lead times required to obtain the necessary components and materials. Lead times
for components and materials that we order vary significantly and depend on
factors including the specific supplier requirements, the size of the order,
contract terms and current market demand for components. If we overestimate our
component and material requirements, we may have excess inventory, which would
increase our costs, impair our available liquidity and could have a material
adverse effect on our business, operating results and financial condition. If we
underestimate our component and material requirements, we may have inadequate
inventory, which could interrupt and delay delivery of our products to our
customers. Any of these occurrences would negatively impact our net sales,
business and operating results and could have a material adverse effect on our
business, operating results and financial condition.
OUR DEPENDENCE ON SOLE SOURCE SUPPLIERS EXPOSES US TO POSSIBLE SUPPLY
INTERRUPTIONS THAT COULD DELAY OR PREVENT THE MANUFACTURE OF OUR SYSTEMS.
Certain of the components used in our products are purchased from
single sources. While we believe that most of these components are available
from alternate sources, an interruption of these or other supplies could have a
material adverse effect on our ability to manufacture some of our systems.
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SOME OF OUR MEDICAL CUSTOMERS' WILLINGNESS TO PURCHASE OUR PRODUCTS DEPENDS ON
THEIR ABILITY TO OBTAIN REIMBURSEMENT FOR MEDICAL PROCEDURES USING OUR PRODUCTS
AND OUR REVENUES COULD SUFFER FROM CHANGES IN THIRD-PARTY COVERAGE AND
REIMBURSEMENT POLICIES.
Our medical segment customers include doctors, clinics, hospitals and
other health care providers whose willingness and ability to purchase our
products depends in part upon their ability to obtain reimbursement for medical
procedures using our products from third-party payers, including private
insurance companies, and in the U.S. from health maintenance organizations, and
federal, state and local government programs, including Medicare and Medicaid.
Third-party payers are increasingly scrutinizing health care costs submitted for
reimbursement and may deny coverage and reimbursement for the medical procedures
made possible by our products. Failure by our customers to obtain adequate
reimbursement from third-party payers for medical procedures that use our
products or changes in third-party coverage and reimbursement policies could
have a material adverse effect on our sales, results of operations and financial
condition.
WE HAVE LIMITED PRODUCT LIABILITY INSURANCE AND IF WE ARE HELD LIABLE IN A
PRODUCTS LIABILITY LAWSUIT FOR AMOUNTS IN EXCESS OF OUR INSURANCE COVERAGE, WE
COULD BE RENDERED INSOLVENT.
There can be no assurance that we will not be named as a defendant in
any litigation arising from the use of our products. Although we have our own
product liability insurance policy with a limit of $1 million, should such
litigation ensue and we are held liable for amounts in excess of such insurance
coverage, we could be rendered insolvent. In addition, there can be no assurance
that product liability insurance will continue to be available to us or that the
premiums therefor will not become prohibitively expensive.
IF OUR FACILITIES WERE TO EXPERIENCE CATASTROPHIC LOSS, OUR OPERATIONS WOULD BE
SERIOUSLY HARMED.
Our facilities could be subject to a catastrophic loss such as fire,
flood or earthquake. A substantial portion of our manufacturing activities and
many other critical business operations are located near major earthquake faults
in California, an area with a history of seismic events. Any such loss at our
facility could disrupt our operations, delay production, shipments and revenue
and result in large expenses to repair or replace the facility. Any such loss
could have a material adverse effect on our sales, results of operations and
financial condition.
Since a significant portion of our research and development is done in
Israel, we are also exposed to terrorism, which could also have a material
adverse effect on our business operations.
RISKS RELATED TO THIS OFFERING
WE MAY EXPERIENCE VOLATILITY IN OUR STOCK PRICE, WHICH COULD NEGATIVELY AFFECT
YOUR INVESTMENT, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE
OFFERING PRICE.
The offering price of our common stock may vary from the market price
of our common stock after the offering. If you purchase shares of common stock,
you may not be able to resell those shares at or above the offering price. The
market price of our common stock may fluctuate significantly in response to a
number of factors, some of which are beyond our control, including:
o a quarterly variations in operating results;
o changes in financial estimates by securities analysts;
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o changes in market valuations of other similar companies;
o announcements by us or our competitors of new products or of
significant technical innovations, contracts, acquisitions,
strategic partnerships or joint ventures;
o additions or departures of key personnel;
o any deviations in net sales or in losses from levels expected
by securities analysts; and
o future sales of common stock.
In addition, the stock market has recently experienced extreme
volatility that has often been unrelated to the performance of particular
companies. These market fluctuations may cause our stock price to fall
regardless of our performance.
BECAUSE OUR SECURITIES TRADE ON THE OTC BULLETIN BOARD, YOUR ABILITY TO SELL
YOUR SHARES IN THE SECONDARY MARKET MAY BE LIMITED.
The shares of our common stock have been listed and principally quoted
on the Nasdaq OTC Bulletin Board under the trading symbol "OISI" since May 28,
1998 and prior thereto on the Nasdaq Small-Cap Market. In May 1998, the NASD
notified us that we no longer satisfied Nasdaq Small-Cap Market listing
requirements and, in accordance with the terms of the Nasdaq Listing
Qualifications Panel decision, our common stock was delisted therefrom on May
27, 1998. Further, due to our inability to comply with the Boston Stock Exchange
listing requirements, our common stock was delisted therefrom on March 3, 1998.
As a result, it may be more difficult for an investor to dispose of our
securities, or to obtain accurate quotations on their market value. Furthermore,
the prices for our securities may be lower than might otherwise be obtained.
Moreover, because our securities currently trade on the OTC Bulletin
Board, they are subject to the rules promulgated under the Securities Exchange
Act of 1934, as amended, which impose additional sales practice requirements on
broker-dealers that sell securities governed by these rules to persons other
than established customers and "accredited investors" (generally, individuals
with a net worth in excess of $1,000,000 or annual individual income exceeding
$200,000 or $300,000 jointly with their spouses). For such transactions, the
broker-dealer must determine whether persons that are not established customers
or accredited investors qualify under the rule for purchasing such securities
and must receive that person's written consent to the transaction prior to sale.
Consequently, these rules may adversely affect the ability of purchasers to sell
our securities and otherwise affect the trading market in our securities.
BECAUSE OUR SHARES ARE DEEMED "PENNY STOCKS," YOU MAY HAVE DIFFICULTY SELLING
THEM IN THE SECONDARY TRADING MARKET.
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as therein defined) less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. Additionally, if
the equity security is not registered or authorized on a national securities
exchange or Nasdaq, the equity security also would constitute a "penny stock."
As our common stock falls within the definition of penny stock, these
regulations require the delivery, prior to any transaction involving our common
stock, of a risk disclosure schedule explaining the penny stock market and the
risks associated with it. Disclosure is also required to be made about
compensation payable to both the broker-dealer and the registered representative
and current quotations for the securities. In addition, monthly statements are
required to be sent disclosing recent price information for the penny stocks.
The ability of broker/dealers to sell our
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common stock and the ability of shareholders to sell our common stock in the
secondary market would be limited. As a result, the market liquidity for our
common stock would be severely and adversely affected. We can provide no
assurance that trading in our common stock will not be subject to these or other
regulations in the future, which would negatively affect the market for our
common stock.
IF AN EVENT OF DEFAULT OCCURS UNDER THE CONVERTIBLE NOTES ISSUED TO LAURUS, ON
SEPTEMBER 25, 2003 OR APRIL 27, 2004 IT COULD RESULT IN A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS, OPERATING RESULTS, OR FINANCIAL CONDITION.
On September 25, 2003 we issued a $1,200,000 convertible note to
Laurus. On April 27, 2004 we issued a $1,000,000 convertible note to Laurus.
Events of default under the note include:
o failure to pay interest and principal payments when due;
o a breach by us of any material covenant or term or condition
of the notes or in any agreement made in connection therewith;
o a breach by us of any material representation or warranty made
in the note or in any agreement made in connection therewith;
o we make an assignment for the benefit of our creditors, or a
receiver or trustee is appointed for us;
o any form of bankruptcy or insolvency proceeding is instituted
by or against us;
o any money judgment shall be entered or filed against us for
more than $125,000;
o our failure to timely deliver shares of common stock when due
upon conversions of the note; and
o our common stock is suspended for 5 consecutive days or 5 days
during any 10 consecutive days from a principal market.
If we default on the notes and the holder demands all payments due and
payable, we will be required to pay 112% of the outstanding principal amount of
each note and any interest accrued thereon. The cash required to pay such
amounts will most likely come out of our working capital. Since we rely on our
working capital for our day to day operations, such a default on the note could
have a material adverse effect on our business, operating results, or financial
condition to such extent that we are forced to restructure, file for bankruptcy,
sell assets or cease operations, any of which could put your investment dollars
at significant risk.
WE HAVE ADDITIONAL SECURITIES AVAILABLE FOR ISSUANCE, INCLUDING PREFERRED STOCK,
WHICH IF ISSUED COULD ADVERSELY AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON
STOCK.
Our articles of incorporation authorize the issuance of 35,000,000
shares of common stock and 20,000,000 shares of preferred stock. The common
stock and the preferred stock can be issued by, and the terms of the preferred
stock, including dividend rights, voting rights, liquidation preference and
conversion rights can generally be determined by, our board of directors without
shareholder approval. Any issuance of preferred stock could adversely affect the
rights of the holders of common stock by, among other things, establishing
preferential dividends, liquidation rights or voting powers. Accordingly,
shareholders, including those purchasing the securities offered hereby, will be
dependent upon the judgment of our management in connection with the future
issuance and sale of shares of our common
8
stock and preferred stock, in the event that buyers can be found therefor. Any
future issuances of common stock or preferred stock would further dilute the
percentage ownership of our company held by the public shareholders.
Furthermore, the issuance of preferred stock could be used to discourage or
prevent efforts to acquire control of our company through acquisition of shares
of common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which generally
include the plans and objectives of management for future operations, including
plans and objectives relating to our future economic performance and our current
beliefs regarding revenues we might earn if we are successful in implementing
our business strategies. The forward-looking statements and associated risks may
include, relate to or be qualified by other important factors. You can identify
forward-looking statements generally by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "intends," "plans," "should,"
"could," "seeks," "pro forma," "anticipates," "estimates," "continues," or other
variations of those terms, including their use in the negative, or by
discussions of strategies, opportunities, plans or intentions. You may find
these forward-looking statements under the captions "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Description of Business," as well as captions
elsewhere in this prospectus. A number of factors could cause results to differ
materially from those anticipated by forward-looking statements, including those
discussed under "Risk Factors" and "Description of Business."
These forward-looking statements necessarily depend upon assumptions
and estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the
forward-looking statements.
Any of the factors described above or in the "Risk Factors" section
above could cause our financial results, including our net income (loss) or
growth in net income (loss) to differ materially from prior results, which in
turn could, among other things, cause the price of our common stock to fluctuate
substantially.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock offered under this prospectus. Rather, the selling security holder
will receive those proceeds directly. We may receive proceeds in connection with
the exercise of warrants whose underlying shares may in turn be sold by selling
security holder. Although the amount and timing of our receipt of any such
proceeds are uncertain, such proceeds if received will be used for general
corporate purposes.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of our common stock have been listed and principally quoted
on the Nasdaq OTC Bulletin Board under the trading symbol "OISI" since May 28,
1998 and prior thereto on the Nasdaq Small-Cap Market. In May 1998, the NASD
notified us that we no longer satisfied Nasdaq Small-Cap Market listing
requirements and, in accordance with the terms of the Nasdaq Listing
Qualifications Panel decision, our common stock was delisted therefrom on May
27, 1998. Further, due to our inability to comply with the Boston Stock Exchange
listing requirements, our common stock was delisted therefrom on March 3, 1998.
9
The following table sets forth the high and low prices for our common
stock as reported on the Nasdaq OTC Bulletin Board. These prices reflect
inter-dealer prices, without retail markup, markdown or commissions, and may not
necessarily represent actual transactions.
Year Ending Year Ended Year Ended
December 31, 2004 December 31, 2003 December 31, 2002
------------------------- ----------------------------- ------------------------------
High Low High Low High Low
Ask Bid Ask Bid Ask Bid
------------ ------------ --------------- ------------- -------------- ---------------
First Quarter 1.35 0.75 0.33 0.20 0.22 0.03
Second Quarter 1.55 0.86 0.91 0.30 0.20 0.12
Third Quarter 1.40 0.95 1.25 0.61 0.24 0.11
Fourth Quarter -- -- 1.50 0.92 0.45 0.11
* July 1, 2004 through August 18, 2004.
On August 18, 2004, the closing price for our common stock, as reported
by the Nasdaq OTC Bulletin Board, was $1.05 per share and there were
approximately 136 shareholders of record.
Dividend Policy
We have not paid any cash dividends since our inception and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. We expect to retain our earnings, if any, to provide funds for the
expansion of our business. Future dividend policy will be determined
periodically by the Board of Directors based upon conditions then existing,
including our earnings and financial condition, capital requirements and other
relevant factors.
Equity Compensation Plans
The following table sets forth certain information, as at August 18,
2004, with respect to our equity compensation plans:
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
ISSUED UPON EXERCISE OF EXERCISE PRICE OF FUTURE ISSUANCE
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY COMPENSATION
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS PLANS
------------- ------------------- ------------------- -------------------------
Equity compensation plans
approved by security holders. 92,319(1) $.91 750,000(2)
Equity compensation plans
not approved by security
holders...................... 1,623,633(3) $.44 1,009,999(4)
------------- ----- ------------
Total...................... 1,715,952 $.46 1,759,999
=============== ===== =========
(1) Represents options granted under our 1992 Stock Option Plan under which
no further options may be granted.
10
(2) Represents shares available for grant under our 2003 Stock Option Plan
to our employees, directors, consultants and non-employee directors.
Upon the expiration, cancellation or termination of unexercised
options, shares subject to options under the plan will again be
available for the grant of options under the applicable plan.
(3) Includes 60,000 shares subject to options granted under our 1997 Stock
Option Plan under which no further options may be granted. Also
includes 75,000 and 1,383,333 shares subject to options granted under
the 1995 Stock Option Plan (the "1995 Plan") and the 2000 Stock Option
Plan (the "2000 Plan"), respectively. Also includes 105,300 options
granted under individual stock option plans.
(4) Includes 920,000 and 89,999 shares available for future grant under the
1995 Plan and the 2000 Plan respectively, to our employees, directors,
consultants and non-employee directors. Upon the expiration,
cancellation or termination of unexercised options, shares subject to
options under the 1995 Plan and the 2000 Plan will again be available
for the grant of options under the applicable plan.
DILUTION
Sales of the shares of common stock by the selling security holder in
this offering will not result in any substantial change to the net tangible book
value per share before and after the distribution of shares by the selling
security holder. There will be no change in the net tangible book value per
share attributable to cash payments made by purchasers of the shares being
offered by the selling security holder. Prospective investors in the shares held
by the selling security holder should be aware, however, that the price of
shares being offered by the selling security holder may not bear any rational
relationship to our net tangible book value per share.
DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
We were 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 and image enhancement and analysis software 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.
Since our inception, we have developed products that have addressed
primarily the needs of the ophthalmic angiography markets, both fluorescein and
indocyanine green. The current flagship products in our angiography line are our
WinStation digital imaging systems. These WinStation products are targeted
primarily at retinal specialists and general ophthalmologists in the diagnosis
and treatment of retinal diseases and other ocular pathologies.
We believe, however, that as the U.S. healthcare system moves toward
managed care, the needs of managed care providers are changing the nature of
demand for medical imaging equipment and services. New opportunities in
telemedicine (the electronic delivery and provision of health care and
consultative services to patients through integrated health information systems
and telecommunications technologies) combined with lower cost imaging devices
and systems, are emerging to allow physicians and managed care organizations to
deliver a high quality of patient care while reducing costs. We are applying our
technology in the ophthalmic imaging field to the development of new ocular
imaging
11
devices and exploring telemedicine/managed care applications targeted at the
mass markets of general ophthalmology and optometry.
Our objective is to become a leading provider of a diverse range of
complimentary ophthalmic products and services for the ocular health care
industry. We are currently focusing our development efforts on related products
for the ocular healthcare market, as well as features and enhancements to our
existing products. We have also entered into the EPM Enterprise Practice
Management and the EMR (Electronic Medical Records) markets. To that end, we
have signed an agreement on June 30, 2003 with NextGen Healthcare Information
Systems, Inc., a leading provider of such software platforms to the
practitioners market and sale of their products to the ophthalmic market.
(b) BUSINESS OF ISSUER
PRODUCTS
WinStation Systems
Our WinStation systems and products, delineated by resolution, are
primarily used by retina specialists and general ophthalmologists to perform a
diagnostic test procedure known as fluorescein angiography. This procedure is
used to diagnose and monitor pathology and provide important information in
making treatment decisions. Fluorescein angiography is performed by injecting a
fluorescent dye into the bloodstream. As the dye circulates through the blood
vessels of the eye, the WinStation system connected to a medical image capture
device called a fundus camera, takes detailed images of the patient's retina.
These digital images can provide a "road map" for laser treatment.
Over the past 35 years, fluorescein angiography has been performed
using photographic film, which requires special processing and printing. Our
WinStation systems allow for immediate diagnosis and treatment of the patient.
Images are automatically transferred to a database and permanently stored on
CD-ROM or DVD-ROM. We offer a variety of networking and printer options.
Our WinStation systems also are used by ophthalmologists to perform
indocyanine green ("ICG") angiography. ICG angiography is a diagnostic test
procedure used in the treatment of patients with macular degeneration (a leading
cause of blindness afflicting over 5 million people in the United States). ICG
angiography, used for approximately 5% of patient angiography, is a dye
procedure that can only be performed using a digital imaging system.
Digital Fundus Imager
The DFI is intended for use by a majority of eye care practitioners,
including most ophthalmologists and optometrists. The DFI is a significantly
lower cost alternative to currently available fundus cameras for use in color
fundus imaging and fluorescein angiography, with the emphasis on imaging the
back of the eye. The system is unique in that it is the first "digital only"
fundus camera which utilizes a proprietary optical design allowing patients to
be imaged through a small pupil. The DFI is also capable of real-time video
capture, database management and archiving. These features can benefit
practitioners, particularly in the areas of patient screening, tracking and
monitoring relative to certain ocular pathologies, primarily retina, as well as
patient record retention.
Digital Slit Lamp Imager
The DSLI is targeted at a market similar to that of the DFI with an
emphasis on imaging the front of the eye. Slit lamps are imaging devices used in
virtually all ophthalmic and optometric practices. The
12
DSLI adapts to most slit lamp models and, similar to the DFI, is capable of
real-time video capture, database management and archiving. Similar to the DFI,
the DSLI is intended for use by a majority of eye care practitioners, including
optometrists practicing in retail optometry chain outlets in the United States,
teaching institutions and military hospitals.
Markets
Having reviewed a broad selection of third party sources, including
reports by American Medical Information, we believe there are approximately
16,000 ophthalmologists in the United States and 28,000 ophthalmologists
practicing medicine in countries outside the United States. This group has been
traditionally divided into two major groups: anterior segment (front of the eye)
and posterior segment (back of the eye). Within these groups there are several
sub-specialties including medical retina, retina and vitreous, glaucoma,
neurology, plastics, pediatric, cataract, cornea and refractive surgery. There
are approximately 29,000 practicing optometrists (OD) in the United States, with
the preponderance of practicing optometrists worldwide located in the United
States.
The WinStation market consists of current fundus camera owners and
anticipated purchasers of fundus cameras suitable for interfacing with our
digital imaging system products. We believe there are now over 8,500 fundus
cameras in clinical use in the United States with an equal number in the
international market. It is estimated that new fundus camera sales fluctuate
between 800 and 1,200 units per year at an average per unit selling price of
approximately $24,000. Of total cameras worldwide, including new and previously
owned, a significant number are suitable to be interfaced in our digital imaging
systems.
Currently we know of five manufacturers of fundus cameras. These
manufacturers produce a total of 22 models, 9 current and 13 legacy models for
which we have designed optical and electronic interfaces for each of them.
The primary target market for digital angiography systems are retinal
specialists who number approximately 2,000 in the United States. Our digital
imaging system sales have been driven in this segment by both fluorescein and
ICG angiography. We expect the demand for digital angiography to continue, as it
is becoming a standard of care. The primary target markets for the DFI and DSLI
products are optometrists, the majority of whom are among the approximately
29,000 practicing in the United States, which number includes those employed by
or affiliated with retail optometry organizations; retinal specialists and
general ophthalmologists who, combined, number approximately 16,000 in the
United States; 5,000 retail optometry chain outlets in the United States; and
teaching institutions and military hospitals. The DFI is a significantly lower
cost alternative to currently available fundus cameras for use in posterior
segment color fundus imaging and fluorescein angiography. In addition, both the
DFI and DSLI provide the features, capabilities and benefits of digital imaging.
Sales, Marketing and Distribution
We utilize a direct sales force in marketing our products throughout
the United States and Canada. At August 18, 2004, our sales and marketing
organization consisted of a national sales manager as well as 8 territory sales
representatives and 7 product specialists located throughout the United States.
These regional representatives and product specialists provide marketing, sales,
maintenance, installation and training services. We also utilize our own-trained
contractors to provide certain installation and training services. Additionally,
we subcontract service maintenance in several cities in the United States and
Canada for routine component replacement.
13
Internationally, we utilize ophthalmic distributors that sell our
products in various foreign countries. Each country has trained sales and
technical service staff for their respective territories. MediVision Medical
Imaging Ltd., an Israeli company, and principal shareholder of our company,
serves as the principal distributor of our products in Europe and certain other
international markets.
To promote sales, we prepare brochures, data sheets and application
notes on our products, participate in industry trade shows and workshops, and
advertise in trade journals, press releases, direct mail solicitations, journal
articles, and scientific papers and presentations.
Manufacturing and Production
We are primarily a systems integrator with proprietary software,
optical interfaces and electronic fundus camera interfaces. We also manufacture
our DFI optical head. Certain components are subcontracted to outside vendors
and assembled at our facility. We inventory and assemble components in a 10,200
square foot facility located in Sacramento, California. For production of
certain components of our products, our manufacturing strategy is to use
subcontractors to minimize time and reduce capital requirements.
We have been audited by the Food and Drug Administration (the "FDA")
and were deemed to conform to Good Manufacturing Practices. We have 510(k)'s on
file for our digital angiography products, including our DFI and DSLI.
Components, Raw Materials and Suppliers
As a systems integrator, a significant number of the major hardware
components in our products are procured from sole source vendors. Whenever
possible, however, we seek multiple vendor sources from which to procure our
components. Moreover, we work closely with our principal component suppliers and
the rest of our vendors to maintain dependable working relationships and to
continually integrate into the manufacturing of our products, whenever possible,
the most current, proven, pertinent technologies. But, as with any manufacturing
concern dependent on subcontractors and component suppliers, significant delays
in receiving products or unexpected vendor price increases could adversely
affect us.
Warranties
We generally provide a 12-month limited warranty for parts, labor and
shipping charges in connection with the initial sale of our products. Peripheral
products such as monitors, printers and computers also carry the original
manufacturer's warranty.
In the North American market, in order to ensure quality control and
the proper functioning of our products on-site at a doctor's office, we
generally install the system and train the doctor and the doctor's staff. We
also offer service plans for sale to our customers as a supplement to the
original manufacturer's warranties carried on certain of our component parts
used in our products.
Competition
The healthcare industry is characterized by extensive research and
development efforts and rapid technological change. Competition for products
that can diagnose and evaluate eye disease is intense and is expected to
increase. With respect to our WinStation products, we are aware of two primary
competitors in the United States, which produce and are delivering digital
fundus imaging systems in
14
volume, Topcon and Zeiss. Both Topcon and Zeiss, however, manufacture fundus
cameras and produce angiography products that interface mostly with their own
fundus cameras. In contrast, our products interface with different models of
fundus cameras from a wide variety of manufacturers. Three other companies are
known to have systems in primarily the international market, and the U.S. market
to a limited extent, each with small market penetration.
The primary competition for the DFI comes from traditional fundus
cameras manufactured by Topcon, Kowa, Zeiss, Canon and Nidek. None of the
current digital fundus cameras include a digital imaging system or certain other
DFI features, including live motion imaging. These fundus cameras, when combined
with an imaging system comparable to the DFI, are significantly more expensive
than the DFI. We are aware of two companies that currently have prototype units
that could be similar in function to the DFI. One of these companies (Zeiss) has
started to sell such a product recently.
We are aware of five primary competitors for the DSLI, namely Veatch,
MVC, Kowa, Helioasis and Lombard. Additionally, there are approximately four
other companies which manufacture similar systems, but these systems currently
have little market presence.
Although we will continue to work to develop new and improved products,
many companies are engaged in research and development of new devices and
alternative methods to diagnose and evaluate eye disease. Introduction of such
devices and alternative methods could hinder our ability to compete effectively
and could have a material adverse effect on our business, financial condition
and results of operations. Many of our competitors and potential competitors
have substantially greater financial, manufacturing, marketing, distribution and
technical resources than we have.
Research and Development
Our net research and development expenditures in the period ended June
30, 2004 and the years ended December 31, 2003 and 2002 were approximately
$477,000, $702,000 and $559,000, respectively. We have focused our recent
research and development efforts on new digital image capture products. We
expect our research and development expenditures to grow as a result of our
company paying for research and development conducted by MediVision and other
outsourced consulting on our behalf.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
On June 15, 1993, we were issued United States Letters Patent No.
5,220,360 for "Apparatus and Method for Topographical Analysis of the Retina."
This patent relates to the Glaucoma-Scope(R) apparatus, and methods used by the
apparatus for topographically mapping the retina and comparing the mapping to
previous mappings.
Further, although we believe that our products do not and will not
infringe on patents or violate proprietary rights of others, it is possible that
our existing rights may not be valid or that infringement of existing or future
patents, trademarks or proprietary rights may occur or be claimed to occur by
third parties.
In the event that any of our products, infringe patents, trademarks or
proprietary rights of others, we may be required to modify the design of such
products, change the names under which the products or services are provided or
obtain licenses. There can be no assurance that we will be able to do so in a
timely manner, upon acceptable terms and conditions, or at all. The failure to
do any of the foregoing could have a material adverse effect on our business.
There can be no assurance that our patents or trademarks, if granted, would be
upheld if challenged or that competitors might not develop similar or superior
processes or products outside the protection of any patents issued to us. In
addition, there can be
15
no assurance that we will have the financial or other resources necessary to
enforce or defend a patent or trademark infringement or proprietary rights
violation action. Moreover, if our products infringe patents, trademarks or
proprietary rights of others, we could, under certain circumstances, become
liable for damages, which also could have a material adverse effect on our
business.
We also rely on trade secrets, know-how, continuing technological
innovation and other unpatented proprietary technology to maintain our
competitive position. Certain of the proprietary software, optical interfaces
and synchronization modules of our digital imaging systems are largely
proprietary and constitute trade secrets, but the basic computer hardware,
software, digital cameras and video components are purchased from third parties.
No patent applications have been filed with respect thereto. We anticipate
aggressively defending our unpatented proprietary technology, although there is
no assurance that others will not independently develop substantially equivalent
proprietary information or techniques, or otherwise gain access to our trade
secrets or disclose such technology, or that we can meaningfully protect our
rights to our unpatented trade secrets and other proprietary technology.
We seek to protect our unpatented proprietary technology, in part,
through proprietary confidentiality and nondisclosure agreements with employees,
consultants and other parties. Our confidentiality agreements with our employees
and consultants generally contain industry standard provisions requiring such
individuals to assign to us without additional consideration any inventions
conceived or reduced to practice by them while employed or retained by us,
subject to customary exceptions. There can be no assurance that proprietary
information agreements with employees, consultants and others will not be
breached, that we would have adequate remedies for any breach or that our trade
secrets will not otherwise become known to or independently developed by
competitors.
GOVERNMENT REGULATION
The marketing and sale of our products are subject to certain domestic
and foreign governmental regulations and approvals. Pursuant to Section 510(k)
of the Federal Food, Drug and Cosmetic Act ("FDCA"), we are required to file,
and have submitted, a pre-marketing notification with the FDA which provides
certain safety and effectiveness information concerning our diagnostic imaging
systems, including our DFI and DSLI. The FDA has approved our pre-marketing
notification submittals, thereby granting us permission to market our products,
subject to the general controls and provisions of the FDCA. The classification
of our products require, among other things, annual registration, listing of
devices, good manufacturing practices, labeling and prohibition against
misbranding and adulteration. Further, because we are engaged in international
sales, our products must satisfy certain manufacturing requirements and may
subject us to various filing and other regulatory requirements imposed by
foreign governments as a condition to the sale of such products.
We have registered our manufacturing facility with both the FDA and
certain California authorities as a medical device manufacturer and operate such
facility under FDA and California requirements concerning Quality System
Requirements ("QSR"). As a medical device manufacturer, we are required to
continuously maintain our QSR compliance status and to demonstrate such
compliance during periodic FDA and California inspections. If the facilities do
not meet applicable QSR regulatory requirements, we may be required to implement
changes necessary to comply with such regulations.
Although the FDA has made findings which permit us to sell our products
in the marketplace, such findings do not constitute FDA approval of these
devices and we can not predict the effect that future legislation or regulatory
developments may have on our operations. Additional regulations, reconsideration
of approvals granted under current regulations, or a change in the manner in
which existing statutes and regulations are interpreted or applied may have a
material adverse impact on our business, financial condition and results of
operations. Moreover, new products and services developed
16
by us, if any, also may be subject to the same or other various federal and
state regulations, in addition to those of the FDA.
INSURANCE
We maintain general commercial casualty and property insurance coverage
for our business operations, as well as product liability insurance. As of
August 18, 2004, we have not received any product liability claims and are
unaware of any threatened or pending claims. To the extent that product
liability claims are made against us in the future, such claims may have a
material adverse impact on our business.
EMPLOYEES
As of August 18, 2004, we had 41 full-time employees. We also engage
the services of consultants from time to time to assist us on specific projects
in the areas of research and development, software development, regulatory
affairs and product services, as well as general corporate administration.
Certain of these consultants periodically engage contract engineers as
independent consultants for specific projects.
We have no collective bargaining agreements covering any of our
employees, have never experienced any material labor disruption, and are unaware
of any current efforts or plans to organize our employees. We consider our
relationship with our employees to be good.
TRANSACTIONS WITH LAURUS MASTER FUND, LTD.
On September 25, 2003, we entered into a securities purchase agreement
with Laurus. Pursuant to this agreement, we sold to Laurus a secured convertible
term note in the principal amount of $1,200,000 bearing interest at the rate of
six and one-half percent (6.5%) per annum, due September 25, 2006, convertible
into shares of its common stock at a conversion price of $1.07 per share.
Interest is payable at our option in cash or shares of common stock. We granted
to Laurus a subordinated second priority security interest in our assets to
secure the obligations under the note pursuant to a security agreement dated
September 25, 2003 between us and Laurus.
Additionally, we issued a warrant to Laurus to purchase 375,000 shares
of our common stock at exercise prices ranging between $1.23 and $1.61 per
share. Laurus may exercise the warrant through September 25, 2010.
On November 26, 2003 we registered for resale the shares of common
stock issuable upon conversion of the note and upon exercise of the warrant
pursuant to a registration rights agreement dated September 25, 2003 between the
registrant and the purchaser.
As of August 18, 2004 we had approximately $652,000 of principal
outstanding and payable to Laurus under this secured convertible term note.
On April 27, 2004, we entered into a securities purchase agreement with
Laurus. Pursuant to this agreement, we sold to Laurus a secured convertible term
note in the principal amount of $1,000,000 bearing interest at the rate of six
and one-half percent (6.5%) per annum, due April 27, 2007, convertible into
shares of our common stock at a conversion price of $1.22 per share. Interest is
payable at our option in cash or shares of common stock. We granted to Laurus a
subordinated second priority security interest in our assets to secure the
obligations under the note pursuant to a security agreement dated April 27, 2004
between us and Laurus.
17
Additionally, we issued a warrant to Laurus to purchase 313,000 shares
of our common stock at exercise prices ranging between $1.40 and $1.83 per
share. Laurus may exercise the warrant through April 27, 2009.
On July 21, 2004 we registered for resale the shares of common stock
issuable upon conversion of the note and upon exercise of the warrant pursuant
to a registration rights agreement dated April 27, 2004 between the registrant
and the purchaser.
As of August 18, 2004 we had $1,000,000 of principal outstanding and
payable to Laurus under this secured convertible term note.
DESCRIPTION OF PROPERTY
We lease under a noncancelable triple net lease expiring in May 2005,
approximately 10,200 square feet of office, manufacturing and warehouse space in
Sacramento, California. We also lease an approximately 200 square foot sales
office in Simsbury, Connecticut on a month-to-month basis. We believe that our
existing facilities are suitable and adequate to meet our current needs. We pay
minimum monthly lease payments, with respect to these properties, in the
aggregate of approximately $8,900. We believe our existing leased facilities are
adequately covered by insurance. We have no current plans to significantly
renovate, improve or develop any of our leased facilities. We do not have, and
do not foresee acquiring, any real estate or investments in real estate, and are
not engaged in any real estate activities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
To date, we have designed, developed, manufactured and marketed
ophthalmic digital imaging systems and have derived substantially all of our
revenues from the sale of such products. The primary target market for our
digital angiography systems and related products has traditionally been retinal
specialists.
In October 2001, MediVision, our parent company, signed an agreement
for the acquisition of a minority interest by Agfa Gevaert N.V. creating an
alliance for joint development and marketing of an integrated, digital
Ophthalmology PACS solution. The marketing efforts under this agreement are
anticipated to be implemented beginning in the US market, and are to include
efforts by us. The extent and focus of future research and development efforts
will depend, in large measure, on direction from MediVision, including potential
collaborative projects between MediVision and us.
In June 2003, we signed a licensing agreement with NextGen Healthcare
Information Systems, Inc., a subsidiary of Quality Systems, Inc. Under the terms
of the agreement, we will become a value added reseller of two computer-based
practice management and medical records products: NextGen(R) Electronic Medical
Records (EMR) and NextGen(R) Enterprise Practice Management (EPM).
This strategic business alliance diversifies our product portfolio,
enabling us to offer a wider variety of products and comprehensive solutions to
our customer base of ophthalmology departments and practices. The NextGen(R) EMR
system creates and maintains complete medical records with minimal effort while
it streamlines workflow, controls utilization, and manages critical data related
to patient care outcomes. The NextGen(R) EPM system is a complete physician
management system that provides a common registration system, enterprise-wide
appointment scheduling, referral tracking, clinical support, a custom report
writer, and patient financial management based on a managed care model.
18
In September 2003, we entered into a $1,200,000 debt agreement with
Laurus in the form of a three-year convertible note with a fixed coupon price of
6.5% per annum. The convertible note may be converted by Laurus into shares of
our common stock at a fixed conversion price of $1.07. We also issued seven-year
warrants to Laurus to purchase 375,000 shares of our common stock at exercise
prices ranging between $1.23 and $1.61 per share.
In April 2004, we entered into a $1,000,000 debt agreement with Laurus
in the form of a three-year convertible note with a fixed coupon price of 6.5%
per annum. The convertible note may be converted by Laurus into shares of our
common stock at a fixed conversion price of $1.22. We also issued five-year
warrants to Laurus to purchase 313,000 shares of our common stock at exercise
prices ranging between $1.40 and $1.83 per share.
At June 30, 2004, we had a stockholders' equity of approximately
$897,000 and our current assets exceeded our current liabilities by
approximately $1,551,000. The convertible note transactions that we entered into
with Laurus during September 2003 and April 2004 have had a favorable impact on
our current ratio. There can be no assurance that we will be able to achieve or
sustain significant positive cash flows, revenues or profitability in the
future.
Critical Accounting Policies, Disclosure and Internal Controls
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
financial information contained within our statements is, to a significant
extent, financial information that is based on measures of the financial effects
of transactions and events that have already occurred. A variety of factors
could affect the ultimate value that is obtained either when earning income,
recognizing an expense, recovering an asset or relieving a liability. We
recognize revenue when products are shipped. Estimates are used relative to the
expected useful lives of depreciable assets. In addition, GAAP itself may change
from one previously acceptable method to another method. Although the economics
of our transactions would be the same, the timing of events that would impact
transactions could change.
Our Chief Executive Officer and Chief Financial Officer, based on their
evaluation within 90 days prior to the date of this report of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a--14(c)), have
concluded that our disclosure controls and procedures are adequate and effective
for purposes of Rule 13a--14(c) in timely alerting them to material information
relating to us required to be included in our filings with the SEC under the
Securities Exchange Act of 1934.
There were no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.
19
Selected Financial Data
SIX MONTHS ENDED JUNE 30,
UNAUDITED YEARS ENDED DECEMBER 31,
----------------- ----------------- ------------------ -----------------
2004 2003 2003 2002
----------------- ----------------- ------------------ -----------------
STATEMENT OF OPERATIONS DATA:
- -----------------------------
Net revenues $ 4,800,109 $ 4,786,437 $ 9,944,827 $ 8,465,707
Cost of sales 1,871,945 1,937,083 3,955,680 3,535,316
----------------- ----------------- ------------------ -----------------
Gross profit 2,928,164 2,849,354 5,989,147 4,930,391
Operating expenses:
Sales, marketing, general and
administrative 1,861,812 1,871,886 3,984,482 3,426,616
Research and development 477,186 261,230 702,020 558,999
----------------- ----------------- ------------------ -----------------
Total operating expenses 2,338,998 2,133,116 4,686,502 3,985,615
----------------- ----------------- ------------------ -----------------
Income from operations 589,166 716,238 1,302,645 944,776
Interest and other expense, net (104,667) (118,470) (269,451) (360,953)
----------------- ----------------- ------------------ -----------------
Net income before taxes 484,499 597,768 1,033,194 583,823
Income tax benefit (expense) - (3,000) 405,000 (19,000)
----------------- ----------------- ------------------ -----------------
Net income $ 484,499 $ 594,768 $ 1,438,194 $ 564,823
================= ================= ================== =================
Basic earnings per share $ .03 $ .07 $ .13 $ .07
Shares used in the calculation of basic
earnings per share 14,537,924 8,172,460 11,267,493 8,138,305
Diluted earnings per share $ .03 $ .07 $ .12 $ .07
================= ================= ================== =================
Shares used in the calculation of 15,583,163 8,400,620 11,877,205 8,138,305
diluted earnings per share
================= ================= ================== =================
STATEMENT OF CASH FLOWS DATA:
- -----------------------------
Net cash (used in) provided by
operating activities $ (135,396) $ 286,132 $ 367,129 $ 725,846
Net cash used in investing activities (7,675) (166,903) (175,360) (72,331)
Net cash provided by (used in)
financing activities 719,317 (155,995) 697,031 (342,207)
----------------- ----------------- ------------------ -----------------
Net increase (decrease) in cash and $ 576,246 $ (36,766) $ 888,800 $ 311,308
cash equivalents ================= ================= ================== =================
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2004 TO SIX MONTHS ENDED JUNE 30, 2003
Revenues
Our revenues for the six months ended June 30, 2004 were $4,800,109,
representing an insignificant change from revenues of $4,786,437 for the six
months ended June 30, 2003. Digital angiography systems and peripherals
accounted for approximately 89% and 93% of our revenue for the six-month periods
of 2004 and 2003, respectively. Service revenues accounted for approximately 11%
and 7% of our revenue for the first six months of 2004 and 2003, respectively.
Revenues from sales of our products to MediVision were approximately $280,000
during the six-month period ended June 30, 2004 and $290,000 for the comparable
six-month period ending June 30, 2003.
Gross Margins
Gross margins were approximately 61% for the six-month period ended
June 30, 2004 as compared to 60% for the comparable six-month period of 2003. We
continue to monitor our expenses in
20
this area in contemplation of current and future business conditions. It is
anticipated that our gross margins will decrease as our sales of the NextGen
Healthcare Information Systems, Inc. software products become more significant,
since the gross margins associated with such sales are less than the majority of
the products that we currently market.
Sales and Marketing Expenses
Sales and marketing accounted for approximately 28% of total revenues
during the first six months of fiscal 2004 and fiscal 2003. Actual expense
levels increased to $1,356,007 during the six-month period of 2004 versus
$1,330,555 during the comparable period of 2003.
General and Administrative Expenses
General and administrative expenses were $505,905 for the six-month
period of fiscal 2004 as compared to $541,331 for the six-month period of 2003.
Such expenses accounted for approximately 11% of total revenues for the
respective six-month periods.
Research and Development Expenses
Research and development expenses were $477,186 in the first six months
of fiscal 2004 and $261,230 in the first six months of fiscal 2003. Such
expenses accounted for approximately 10% and 6% of revenues during the first six
months of 2004 and 2003, respectively. We have focused our recent research and
development efforts on new digital image capture products. We expect our
research and development expenditures to grow as a result of us paying for
research and development conducted by MediVision and other outsourced consulting
on our behalf. Research and development expenses incurred by MediVision on our
behalf for the first six months of 2004 amounted to approximately $330,000
compared to approximately $66,000 for the first six months of 2003.
Interest and Other Expense, net
Interest and other expense was $104,667 during the first six-month
period of fiscal 2004 versus $118,470 during the first six-month period of
fiscal 2003. These amounts were comprised principally of interest expense,
mainly associated with the convertible loans from Laurus and with financing
arrangements provided to certain of our customers in connection with sales of
our products.
Net Income
We recorded net income of $484,499, or $0.03 per share basic and
diluted earnings, for the six-month period ended June 30, 2004 as compared to
net income of $594,768 or $0.07 per share basic and diluted earnings for the
six-month period ended June 30, 2003. The decrease in earnings was the result of
our concentrated efforts associated with research and development expenditures.
The decrease in earnings per share is mainly attributable to a substantial
increase in the weighted number of shares of common stock outstanding between
both periods.
The results of operations do not include any amounts with respect to a
potential contingent liability in connection with the collection of taxes from
our customers, which amount has been estimated on the basis of numerous factors
and assumptions that might, in the least favorable combination, reach $569,000.
We believe that the probability of such an assessment is remote and accordingly,
have not recorded a liability in our financial statements. However, there can be
no assurance that the amount that might ultimately be assessed for prior periods
would not materially affect our results of operations or cash flows in any given
reporting period.
21
Liquidity and Capital Resources
The Company's operating activities used cash of $135,396 during the six
months ended June 30, 2004 as compared to generating cash of $286,132 in the six
months ended June 30, 2003. The cash used by operations during the first six
months of 2004 was principally from increased inventory and a reduction of
current liabilities offset partially by net income for the period. The cash
generated from operations during the first six months of 2003 was principally
from net income for the period which amounts were partially offset by increased
receivables.
Cash used in investing activities was $7,675 during the first six
months of 2004 as compared to $166,903 during the same period for 2003. The
Company's investing activities in 2004 consisted of minor purchases of
equipment. The primary investing activities in 2003 consisted of an investment
to secure the line of credit with its bank. The Company anticipates continued
certain near-term capital expenditures in connection with increasing its pool of
demonstration equipment, as well as its ongoing efforts to upgrade its existing
management information and corporate communication systems. The Company
anticipates that related expenditures, if any, will be financed from cash flow
from operations or other financing arrangements available to the Company, if
any.
The Company generated cash in financing activities of $719,317 during
the first six months of fiscal 2004 as compared to using cash of $155,995 during
the comparable six-month period of fiscal 2003. The cash generated in financing
activities during the first six months of 2004 was principally from proceeds
received from the signing of the $1,000,000 convertible debt instrument with
Laurus and the addition of a capital lease offset by repayments of borrowings
and advances under existing arrangements with MediVision. The cash used during
the same six-month period in 2003 was principally from repayments of borrowings
to MediVision offset by borrowings under the Company's line of credit.
In June 2003, MediVision exercised its option, as stipulated in the
Amendment No. 1, to convert $1,150,000 of principal and interest at a conversion
price of $0.185 per share into 6,216,216 common shares of stock.
At June 30, 2004 the Company had recorded a net amount due from
MediVision of approximately $115,000. This amount comprises approximately
$462,000 due from MediVision for products and services offset by approximately
$347,000 owed to MediVision for interest on the loans.
On June 30, 2004 the Company's cash and cash equivalents were
$1,848,280. Management anticipates that additional sources of capital beyond
those currently available to the Company may be required to continue funding of
research and development for new products and selling and marketing related
expenses for existing products.
The Company will continue to evaluate alternative sources of capital to
meet its growth requirements, including other asset or debt financing, issuing
equity securities and entering into other financing arrangements and is hopeful
that it will be successful in this regard. There can be no assurance, however,
that any of the contemplated financing arrangements described herein will be
available and, if available, can be obtained on terms favorable to the Company.
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002
Revenues
Our revenues for the year ended December 31, 2003 were $9,944,827
representing an increase of approximately 17% from revenues of $8,465,707 for
the year ended December 31, 2002. The increased
22
revenue levels for 2003 include revenues from initial deliveries of our newest
digital angiography system, the WinStation 4000. Digital angiography systems and
peripherals, including upgrades, accounted for approximately 92% and 93% of our
total revenues during 2003 and 2002, respectively. Service revenue for the years
ended 2003 and 2002 accounted for approximately 8% and 7% of our total revenue,
respectively. The increased revenue levels during the 2003 period reflect the
impact of a number of factors discussed in further detail below.
Gross Margins
Gross margins were approximately 60% during fiscal 2003 versus
approximately 58% for fiscal 2002. The fiscal 2003 gross margin percentage
reflects the continued impact of sales of higher margin products as well as
economies of scale associated with the fixed and semi-variable overhead cost
absorption over increased revenue levels. It is anticipated that our gross
margins will decrease as our sales of the NextGen software products become more
significant, since the gross margins associated with such sales are below the
majority of the products that we currently market.
Sales, Marketing, General and Administrative Expenses
Sales, marketing, general and administrative expenses accounted for
approximately 40% of total revenues during both fiscal 2003 and fiscal 2002.
Expense levels increased to $3,984,482 during fiscal 2003, representing an
increase of approximately 16% compared to expenses of $3,426,616 in 2002.
Primary contributing factors to the increased expenses were salaries and support
costs related to direct sales and other support personnel added during and
subsequent to the third quarter of 2002, as well as other costs in connection
with the increased sales levels in 2003.
Research and Development Expenses
Research and development expenses increased by approximately 26% to
$702,020 during 2003 from $558,999 during 2002. Such expenses accounted for
approximately 7% of total revenues during fiscal 2003 and fiscal 2002. We have
focused our recent research and development efforts on new digital image capture
products. We expect our research and development expenditures to grow as a
result of us paying for research and development conducted by MediVision on our
behalf. In addition, we anticipate an increase in reported expenses that were
previously reimbursed to us by the Israel-U.S. Binational Industrial Research
and Development Foundation in connection with the "Computer Guided Laser
Therapy" project, that has since been completed.
Interest and Other Expense, net
Interest and other expense were $269,451 during 2003 compared to
$360,953 during 2002. These amounts were comprised principally of interest
expense associated with net borrowings from MediVision during fiscal 2003 and
2002, respectively and interest expense associated with financing arrangements
provided to certain of our customers in connection with sales of our products.
Interest income in both periods was insignificant.
Income Taxes
At December 31, 2003 and 2002, we reviewed recent operating results and
projected future operating results. At the end of each of these years, we
determined that it was more likely than not that a portion of the deferred tax
assets attributable to net operating losses would likely be realized. Due to our
limited history of profitable operations, we have recorded a valuation allowance
of $4,734,000 and $5,053,000 at December 31, 2003 and 2002, respectively. The
amount of the valuation allowance will be
23
adjusted in the future when we determine that it is more likely than not the
deferred assets will be realized.
We had at December 31, 2003, a net operating loss carryover of
approximately $5,410,500 for federal income tax purposes which expires between
2007 and 2020, and a net operating loss carryforward of approximately $2,088,800
for California state income tax purposes which expires through 2010. The State
of California has suspended the application of net operating losses for the 2002
and 2003 fiscal years and extended the carry forward period two years. Federal
tax credit carryforwards of approximately $174,900 will begin to expire in 2007.
Due to changes in ownership which occurred in prior years, Section 382 of the
Internal Revenue Code provides for significant limitations on the utilization of
net operating loss carryforwards and tax credits. As a result of these
limitations, a portion of these loss and credit carryovers will expire without
being utilized.
Net Income
We reported net income of $1,438,194, or $0.13 per share basic and
$0.12 per share diluted, during 2003, compared to a net income of $564,823, or
$0.07 per share basic and diluted, during 2002. The per share figures are basic
amounts in accordance with Financial Accounting Standards No. 128 (see Note 1 of
Notes to Financial Statements included in Item 7 of this Form SB-2).
The results of operations for 2003 reflect the positive impact of our
ongoing attention and resources to core marketing, selling and corporate
operations issues. Growing sales of our digital angiography products reflect the
market acceptance of these products and the ongoing product quality improvements
made to meet customers' requirements. There can be no assurance, however, that
there will be continued market acceptance of our products or that any continued
market acceptance will result in significant future unit sales or revenue
contribution.
The results of operations do not include any amounts with respect to a
potential contingent liability in connection with the collection of taxes from
our customers, which amount has been estimated on the basis of numerous factors
and assumptions that might, in the least favorable combination, reach $570,000.
We believe that the probability of such an assessment is remote and accordingly
we have not recorded a liability in our financial statements. However, there can
be no assurance that the amount that might ultimately be assessed for prior
periods would not materially affect our results of operations or cash flows in
any given reporting period (see Note 11 of Notes to Financial Statements
included in Item 7 of this Form SB-2).
Export Sales
Revenues from sales to customers located outside of the United States
accounted for approximately 9% and 11% of our net sales for 2003 and 2002,
respectively. Sales to MediVision, included in these totals, accounted for
approximately $482,000 and $514,000 for 2003 and 2002, respectively.
Seasonality
Our most effective marketing tool is the demonstration and display of
our products at the annual meeting of the American Academy of Ophthalmology held
during the fall of each year, with a significant amount of our sales orders
generated during or shortly after this meeting. Accordingly, we expend a
considerable amount of time and resources during the fourth quarter of our
fiscal year preparing for this event.
24
SELLING SECURITY HOLDER
Laurus Master Fund, Ltd. may sell, from time to time under this
prospectus, up to an aggregate of 1,180,528 shares of our common stock,
representing 805,528 shares that may become issuable upon conversion of the
principal of and interest on a three-year $1,200,000 secured convertible term
note (of which $535,263.48 of principal and $38,222.28 of accrued interest has
been converted into shares of our common stock as of August 18, 2004) at a fixed
conversion price of $1.07 per share and up to 375,000 shares of our common stock
issuable upon the exercise of a warrant. The exercise prices of the warrant
ranges between $1.23 and $1.61 per share.
The following table sets forth, to our knowledge, certain information
about the selling security holder as of August 18, 2004. Beneficial ownership is
determined in accordance with Rule 13d-3 promulgated by the Securities and
Exchange Commission, and generally includes voting or investment power with
respect to securities. In computing the number of shares beneficially owned by
the holder and the percentage ownership of the holder, shares of common stock
issuable upon conversion of the note and upon exercise of the warrant held by
the holder that are currently convertible or are exercisable or convertible or
exercisable within 60 days after the date of the table are deemed outstanding.
To our knowledge, Laurus Master Fund, Ltd. has sole voting and
investment power with respect to all of the shares of common stock beneficially
owned by it, except that Laurus Capital Management, LLC, a Delaware limited
liability company, may be deemed a control person of the shares owned by Laurus.
David Grin and Eugene Grin are the principals of Laurus Capital Management, LLC.
The address for Messrs. David Grin and Eugene Grin is 825 Third Avenue, 14th
Floor, New York, New York 10022. The selling security holder has not held nor
had any material relationship with us within the past three years.
As of August 18, 2004, a total of 14,962,157 shares of our common stock
were outstanding. The following table sets forth information as of that date
regarding the beneficial ownership of our common stock both before and
immediately after the offering. Actual ownership of the shares is subject to
conversion of the convertible note and exercise of the warrant.
The terms of the convertible note and warrant issued to Laurus whose
underlying shares of common stock are included for resale under this prospectus
prohibit conversion of the note or exercise of the warrant to the extent that
conversion of the note and exercise of the warrant would result in the holder,
together with its affiliates, beneficially owning in excess of 4.99% of our
outstanding shares of common stock. A holder may waive the 4.99% limitation upon
75 days' prior written notice to us. Also, this limitation does not preclude the
holder from converting or exercising the note or warrant and selling shares
underlying the note or warrant in stages over time where each stage does not
cause the holder and its affiliates to beneficially own shares in excess of the
limitation amount.
The shares of common stock being offered under this prospectus may be
offered for sale from time to time during the period the registration statement
of which this prospectus is a part remains effective, by or for the account of
the selling security holder described below.
25
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES BENEFICIALLY OWNED SHARES BEING SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING OFFERED AFTER THE OFFERING (1)
--------------------------------- ------------------------- -----------------------------
NAME OF BENEFICIAL OWNER NUMBER % OF CLASS NUMBER % OF CLASS
Laurus Master Fund, Ltd. 2,473,201 (2) 14.2% (3) 1,180,528(4) 0(5) 0
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Assumes all shares being offered by the selling security holder are sold.
(2) Includes 621,250 shares issuable upon conversion of the principal of a
convertible note, 184,278 shares issuable upon conversion of accrued
interest under the convertible note and 375,000 shares issuable upon
exercise of a warrant. Also includes 979,673 shares of common stock
issuable upon conversion of the principal and interest of a secured
convertible term note issued to Laurus on April 27, 2004 and 313,000 shares
of common stock issuable upon exercise of a warrant issued to Laurus on
April 27, 2004. The notes and warrants contain 4.99% provisions which
restrict the selling security holder from beneficially owning in excess of
4.99% of our outstanding shares of common stock.
(3) Assumes conversion of all of the outstanding principal and interest of the
note and exercise of all of the warrant and assumes conversion of all of
the outstanding principal and interest of a $1,000,000 convertible note
issued to Laurus on April 27, 2004 and exercise of all of a warrant to
purchase 313,000 shares of our common stock issued to Laurus on April 27,
2004. The notes and warrants contain 4.99% provisions which restrict the
selling security holder from beneficially owning in excess of 4.99% of our
outstanding shares of common stock.
(4) Includes 621,250 shares issuable upon conversion of the principal of a
convertible note, 184,278 shares issuable upon conversion of accrued
interest under the convertible note and 375,000 shares issuable upon
exercise of a warrant.
(5) Assumes all of the shares issuable upon conversion of all of the
outstanding principal and interest of a $1,000,000 convertible note issued
to Laurus on April 27, 2004 and upon exercise of all of a warrant to
purchase 313,000 shares of our common stock issued to Laurus on April 27,
2004 have been sold.
PLAN OF DISTRIBUTION
The selling security holder and any of its donees, pledgees, assignees
and other successors-in-interest may, from time to time, sell any or all of
their shares of our common stock being offered under this prospectus on any
stock exchange, market or trading facility on which the shares are traded or in
private transactions. These sales, which may include block transactions, may be
at fixed or negotiated prices. The selling security holder may use any one or
more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
26
o purchases by a broker-dealer as principal and resales by the
broker-dealer for its own account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o broker-dealers may agree with the selling security holder to
sell a specified number of shares at a stipulated price per
share;
o a combination of any of these methods of sale; or
o any other method permitted by applicable law.
The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to the prevailing market price;
o at negotiated prices; or
o a price the selling security holder determines from time to
time.
Laurus has agreed, pursuant to the securities purchase agreement
between Laurus and us that Laurus or any of its affiliates and investment
partners will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of our common stock for as long as the
convertible note is outstanding. "Short sales" are contracts for the sale of
shares of stock that the seller does not own, or certificates which are not
within the seller's control, so as to be available for delivery at the time
when, under applicable rules, delivery must be made.
The shares may also be sold under Rule 144 under the Securities Act, if
available, rather than under this prospectus. The selling security holder has
the sole and absolute discretion not to accept any purchase offer or make any
sale of shares if it deems the purchase price to be unsatisfactory at any
particular time.
The selling security holder may pledge its shares to its broker under
the margin provisions of customer agreements. If the selling security holder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares. Broker-dealers engaged by the selling security holder may
arrange for other broker-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the selling security holder (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The selling security holder does not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.
The selling security holder and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with these sales. In that event, any
commissions received by these broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
27
The selling security holder, alternatively, may sell all or any part of
the shares offered in this prospectus through an underwriter. To our knowledge,
no selling security holder has entered into any agreement with a prospective
underwriter, and we cannot assure you as to whether any such agreement will be
entered into. If the selling security holder informs us that it has entered into
such an agreement or agreements, the relevant details will be set forth in a
supplement or revisions to this prospectus.
The selling security holder and any other persons participating in the
sale or distribution of the shares offered under this prospectus will be subject
to applicable provisions of the Exchange Act and the rules and regulations under
that act, including Regulation M. These provisions may restrict activities of,
and limit the timing of purchases and sales of any of the shares by, the selling
security holder or any other such person. Furthermore, under Regulation M,
persons engaged in a distribution of securities are prohibited from
simultaneously engaging in market making and other activities with respect to
those securities for a specified period of time prior to the commencement of
such distributions, subject to specified exceptions or exemptions. All of these
limitations may affect the marketability of the shares.
Ophthalmic Imaging Systems is required to pay all fees and expenses
incident to the registration of the shares and has agreed to indemnify the
selling security holder against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act of 1933.
Darma Plus, Inc. d/b/a Draper & Associates acted as placement agent in
connection with the transaction with Laurus and received a cash fee of $24,000.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 35,000,000 shares of common
stock, no par value per share, and 20,000,000 shares of preferred stock, no par
value per share. As of August 18, 2004, we had 14,962,157 shares of common stock
outstanding and no shares of preferred stock outstanding. The following is a
summary description of our capital stock.
COMMON STOCK
The holders of outstanding shares of our common stock are entitled to
receive dividends out of assets legally available at times and in amounts as the
board of directors may from time to time determine, subordinate to any
preferences that may be granted to the holders of preferred stock. Holders of
common stock are entitled to one vote per share on all matters on which the
holders of common stock are entitled to vote.
The common stock is not entitled to preemptive rights and may not be
redeemed or converted. Upon our liquidation, dissolution or winding up, the
assets legally available for distribution to our stockholders are divided among
the holders of the common stock in proportion to the number of shares of common
stock held by each of them, after payment of all of our debts and liabilities
and fulfillment of the rights of any outstanding class or series of preferred
stock that has priority to distributed assets. The rights of holders of common
stock are subordinate to those of holders of any series of preferred stock.
All of the issued and outstanding shares of common stock are duly
authorized, validly issued, fully paid, and non-assessable. To the extent that
additional shares of our common stock are issued, the relative interests of
existing stockholders may be diluted.
28
PREFERRED STOCK
Preferred stock may be issued from time to time in one or more series,
and our board of directors, without action by the holders of common stock, may
fix or alter the voting rights, redemption provisions, dividend rights, dividend
rates, claims to our assets superior to those of holders of our common stock,
conversion rights and any other rights, preferences, privileges and restrictions
of any wholly unissued series of preferred stock. The board of directors,
without shareholder approval, can issue shares of preferred stock with rights
that could adversely affect the rights of the holders of common stock. The
issuance of shares of preferred stock could adversely affect the voting power of
the holders of common stock and could have the effect of making it more
difficult for a third party to acquire, or could discourage or delay a third
party from acquiring, a majority of our outstanding common stock.
Preferred stock can be used as an anti-takeover measure. The board of
directors has exclusive discretion to issue preferred shares with rights that
may trump those of its common stock. The board of directors could use an
issuance of preferred stock with dilutive or voting preferences to delay, defer
or prevent common stock shareholders from initiating a change in control of our
company or reduce the rights of common shareholders to the net assets upon
dissolution. Preferred stock issuances may also discourage takeover attempts
that may offer premiums to holders of our common stock.
SECURED CONVERTIBLE TERM NOTE ISSUED ON SEPTEMBER 25, 2003
On September 25, 2003, we issued a secured convertible term note to
Laurus Master Fund, Ltd. in the principal amount of $1,200,000 pursuant to a
private placement transaction with Laurus. The secured convertible term note
matures on September 25, 2006 and bears interest at the rate of six and one-half
percent (6.5%) per annum. Interest is payable monthly at our option in cash or
shares of our common stock. If a registration statement covering the shares of
common stock issuable upon conversion of the note is effective and the volume
weighted average of the closing price of our common stock for the five trading
days immediately preceding the end of the calendar month is at least $1.34, the
interest rate shall be reduced by 25 basis points for each incremental increase.
The note is convertible into shares of our common stock at a fixed
conversion price of $1.07 per share. We granted to Laurus a subordinated second
priority security interest in our assets to secure the obligations under the
note pursuant to a security agreement dated September 25, 2003 between us and
Laurus. We are required to make monthly amortization payments to Laurus
commencing on December 25, 2003 in the amount of $36,363.64 plus any accrued but
unpaid interest. Such amortization payments shall be payable monthly at our
option in cash or shares of common stock.
In the event that the closing price of our common stock is greater then
115% of the conversion price for a period of at least five consecutive trading
days, we may, at our sole option, require the conversion at the fixed conversion
price of all or a portion of the outstanding principal amount of the note,
together with accrued interest on the amount being prepaid, as of the date we
provide written notice of the call. The call date shall be at least eleven
trading days following the date of the call notice provided that a registration
statement covering the shares of common stock issuable upon conversion of the
note is effective. Our right to issue a call notice is subject to the limitation
that the number of shares of common stock issued in connection with any call
notice shall not exceed 25% of the aggregate dollar trading volume of our common
stock for the eleven trading days immediately preceding the call date. If the
price of our common stock falls below 115% of the fixed conversion price during
the eleven trading day period immediately preceding the call date, then Laurus
will then be required to convert only such amount of the note as shall equal 25%
of the aggregate dollar trading volume for each day that our common stock has
exceeded 115% of the fixed conversion price.
29
If such prepayment is made on or before September 25, 2004, we will
have the option of prepaying the note in full by paying to Laurus a sum of money
equal to 112% of the principal amount of the note plus all accrued and unpaid
interest thereon. If such prepayment is made after September 25, 2004 and on or
before September 25, 2005, we will have the option of prepaying the note in full
by paying to Laurus a sum of money equal to 107% of the principal amount of the
note plus all accrued and unpaid interest thereon. If such prepayment is made
after September 25, 2005 and on or before September 25, 2006, we will have the
option of prepaying the note in full by paying to Laurus a sum of money equal to
103% of the principal amount of the note plus all accrued and unpaid interest
thereon.
The terms of the convertible note prohibit conversion of the note to
the extent that conversion of the note would result in the holder, together with
its affiliates, beneficially owning in excess of 4.99% of our outstanding shares
of common stock. A holder may waive the 4.99% limitation upon 75 days' prior
written notice to us.
SECURED CONVERTIBLE TERM NOTE ISSUED ON APRIL 27, 2004
On April 27, 2004, we issued a secured convertible term note to Laurus
in the principal amount of $1,000,000 pursuant to a private placement
transaction with Laurus. The secured convertible term note matures on April 27,
2007 and bears interest at the rate of six and one-half percent (6.5%) per
annum. Interest is payable monthly at our option in cash or shares of our common
stock. If a registration statement covering the shares of common stock issuable
upon conversion of the note is effective and the volume weighted average of the
closing price of our common stock for the five trading days immediately
preceding the end of the calendar month is at least $1.53, the interest rate
shall be reduced by 25 basis points for each incremental increase.
The note is convertible into shares of our common stock at a fixed
conversion price of $1.22 per share. We granted to Laurus a subordinated second
priority security interest in our assets to secure the obligations under the
note pursuant to a security agreement dated April 27, 2004 between us and
Laurus. We are required to make monthly amortization payments to Laurus
commencing on August 1, 2004 in the amount of $30,303.03 plus any accrued but
unpaid interest. Such amortization payments shall be payable monthly at our
option in cash or shares of common stock.
In the event that the closing price of our common stock is greater then
115% of the conversion price for a period of at least five consecutive trading
days, we may, at our sole option, require the conversion at the fixed conversion
price of all or a portion of the outstanding principal amount of the note,
together with accrued interest on the amount being prepaid, as of the date we
provide written notice of the call. The call date shall be at least eleven
trading days following the date of the call notice provided that a registration
statement covering the shares of common stock issuable upon conversion of the
note is effective. Our right to issue a call notice is subject to the limitation
that the number of shares of common stock issued in connection with any call
notice shall not exceed 25% of the aggregate dollar trading volume of our common
stock for the eleven trading days immediately preceding the call date. If the
price of our common stock falls below 115% of the fixed conversion price during
the eleven trading day period immediately preceding the call date, then Laurus
will then be required to convert only such amount of the note as shall equal 25%
of the aggregate dollar trading volume for each day that our common stock has
exceeded 115% of the fixed conversion price.
If such prepayment is made on or before April 27, 2005, we will have
the option of prepaying the note in full by paying to Laurus a sum of money
equal to 112% of the principal amount of the note plus all accrued and unpaid
interest thereon. If such prepayment is made after April 27, 2005 and on or
before April 27, 2006, we will have the option of prepaying the note in full by
30
paying to Laurus a sum of money equal to 107% of the principal amount of the
note plus all accrued and unpaid interest thereon. If such prepayment is made
after April 27, 2006 and on or before April 27, 2007, we will have the option of
prepaying the note in full by paying to Laurus a sum of money equal to 103% of
the principal amount of the note plus all accrued and unpaid interest thereon.
The terms of the convertible note prohibit conversion of the note to
the extent that conversion of the note would result in the holder, together with
its affiliates, beneficially owning in excess of 4.99% of our outstanding shares
of common stock. A holder may waive the 4.99% limitation upon 75 days' prior
written notice to us.
WARRANT ISSUED ON SEPTEMBER 25, 2003
On September 25, 2003, we issued a warrant to Laurus Master Fund, Ltd.
to purchase up to 375,000 shares of our common stock pursuant to a private
placement transaction with Laurus. Laurus may exercise the warrant through
September 25, 2010. The exercise price under the warrant is as follows: a price
of $1.23 per share for the first 100,000 shares acquired upon exercise of the
warrant; a price of $1.39 per share for the next 125,000 shares acquired upon
exercise of the warrant; and a price of $1.61 per share for any additional
shares acquired upon exercise of the warrant. The terms of the warrant prohibit
exercise of the warrant to the extent that exercise of the warrant would result
in the holder, together with its affiliates, beneficially owning in excess of
4.99% of our outstanding shares of common stock. A holder may waive the 4.99%
limitation upon 75 days' prior written notice to us.
WARRANT ISSUED ON APRIL 27, 2004
On April 27, 2004, we issued a warrant to Laurus to purchase up to
313,000 shares of our common stock pursuant to a private placement transaction
with Laurus. Laurus may exercise the warrant through April 27, 2009. The
exercise price under the warrant is as follows: a price of $1.40 per share for
the first 83,000 shares acquired upon exercise of the warrant; a price of $1.59
per share for the next 105,000 shares acquired upon exercise of the warrant; and
a price of $1.83 per share for any additional shares acquired upon exercise of
the warrant. The terms of the warrant prohibit exercise of the warrant to the
extent that exercise of the warrant would result in the holder, together with
its affiliates, beneficially owning in excess of 4.99% of our outstanding shares
of common stock. A holder may waive the 4.99% limitation upon 75 days' prior
written notice to us.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) DIRECTORS AND EXECUTIVE OFFICERS.
The following is a list of the names and ages of our directors and
executive officers:
Name Age Position
- --------------------------------------------------------------------------------
Gil Allon 43 Chief Executive Officer and Director
Ariel Shenhar 38 Chief Financial Officer, Vice President,
Secretary, and Director
Jonathan Adereth 57 Director, Chairman of the Board
Noam Allon 45 Director
Alon Harris, Ph.D. 44 Director
Michael Benoff 50 Director
31
Gil Allon has served as a member of our Board of Directors since August
2000 and has served as our Chief Executive Officer since January 2002. Mr. Allon
has acted in the capacity of our Chief Executive Officer since August 2000. Mr.
Allon is also a member of the Compensation and Nomination Committees of our
Board of Directors. Mr. Allon has also served as the Vice President, Chief
Operating Officer and a member of the Board of Directors of MediVision since
MediVision's inception in June 1993. Mr. Allon received his B.A. and M.Sc. in
Computer Science, both with distinction, from the Technion Israel Institute of
Technology in Haifa, Israel in May 1987 and December 1989, respectively, and his
M.B.A. with distinction in Business Management from the University of Haifa in
September 1999.
Ariel Shenhar has served as a member of our Board of Directors since
August 2000, has served as our Vice President and Chief Financial Officer since
July 2002 and has served as our Secretary since August 2002. Mr. Shenhar has
also served as a member of the Board of Directors of MediVision since August
1994 and as its Vice President and Chief Financial Officer since January 1997.
Mr. Shenhar served as a member of the Board of Directors of Fidelity Gold Real
Estate Markets Ltd., an Israeli public company engaged in real estate, from 1994
to 1998, as an accountant at Nissan Caspi & Co. Certified Public Accountants in
Jerusalem, Israel in 1996, and at Witkowski &Co. Certified Public Accountants in
Tel Aviv, Israel from 1994 to 1995. Mr. Shenhar received his B.A. in Economics
and Accounting in June 1992 and his M.B.A. in Finance, with distinction, in June
1999 both from the Hebrew University in Jerusalem, Israel, and has been a
Certified Public Accountant since January 1997.
Jonathan Adereth has served as Chairman of our Board of Directors since
August 2000. Mr. Adereth is also Chairman of each of the Audit, Compensation and
Nomination Committees of our Board of Directors. Mr. Adereth has also served as
a member of the Board of Directors of MediVision since July 1, 1999. Mr. Adereth
currently serves also as Chairman of the Board of Directors of Barnev Ltd., an
Israeli corporation engaged in the business of labor monitoring systems. In
addition, Mr. Adereth is a director of UCGT Ltd., an Israeli corporation and of
Magnalab Inc., a US based corporation. Both companies are engaged in medical
imaging technology. From 1994 to 1998, Mr. Adereth served as President and CEO
and as a member of the Board of Directors of Elscint Ltd., one of Israel's
largest medical equipment companies engaged in the development, manufacturing
and marketing of medical imaging products such as CT scanners, MRI systems and
gamma cameras. Prior thereto Mr. Adereth served as a senior officer of Elscint
Ltd. in various positions and capacities, including as Senior Vice President of
Sales and Marketing in 1994 and as Vice President of Sales, from 1986 to 1993.
Mr. Adereth received his B.Sc. in Physics from the Technion Israel Institute of
Technology in Haifa, Israel in May 1973.
Noam Allon has served as a member of our Board of Directors since
August 2000. Mr. Allon has also served as the President, Chief Executive Officer
and a member of the Board of Directors of MediVision since MediVision's
inception in June 1993. Mr. Allon received his B.Sc. in Computer Science with
distinction from the Technion Israel Institute of Technology in Haifa, Israel in
May 1986.
Alon Harris has served as a member of our Board of Directors since
November 2001. Professor Harris has been Director of the Glaucoma Research and
Diagnostic Laboratories (the "Laboratory") in the Department of Ophthalmology at
the Indiana University School of Medicine ("Indiana") since 1993. The
Laboratory, founded by Professor Harris, specializes in investigation of ocular
blood flow and its relationship to eye diseases such as glaucoma, age-related
macular degeneration and diabetic retinopathy. He has been the Letzter Chair of
Ophthalmology at Indiana since 2000 and has been a Professor of Ophthalmology
and Physiology and Biophysics at Indiana since 1999. Professor Harris is the
1995 recipient of the Research to Prevent Blindness International Scholar Award
and holds the Letzter Endowed Chair of Ophthalmology.
32
Michael Benoff has served as a member of the Board of Directors since
July 2004. Mr. Benoff has been a private investor retired from active business
since 1999. From 1987 until 1999, he served in several senior financial
management positions, most recently as Executive Vice President and Chief
Financial Officer of the Money Store Inc. Prior to this he held a position of
Vice President of Investment Banking at Matthew & Wright, Inc. Mr. Benoff
graduated from Princeton University, Magna cum Laude, with a Bachelor of Arts in
Politics. He was also a member of the Phi Beta Kappa Society.
There are no family relationships among any of the persons listed above
except that Noam Allon and Gil Allon are brothers.
(b) AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Jonathan Adereth, the
Chairman of the Audit Committee, qualifies as an independent financial expert
serving on its audit committee. This qualification is based upon his experience,
more fully described above in his biography, in particular, in his capacity as
President and Chief Executive Officer and board member of Elscint Ltd.
(c) SECTION 16(a) COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors, executive officers and holders of more than 10% of our
common stock to file with the SEC initial reports of ownership and reports of
changes in ownership of our common stock and any other equity securities.
We believe that during the year ended December 31, 2003, our acting
officers, directors and holders of more than 10% of our outstanding common stock
complied with all Section 16(a) filing requirements, except that Noam Allon, Gil
Allon, Ariel Shenhar and Jonathan Adereth were late in filing reports concerning
the grant to them of options to purchase 30,000, 70,000, 50,000 and 30,000
shares of our common stock, respectively, and MediVision was late in filing
reports concerning its conversion of its Working Capital Note into 6,216,216
shares of our common stock.
(d) CODE OF ETHICS
We have adopted a Code of Ethics that applies to our principal
executive officer and principal financial officer. Our Code of Ethics is
attached as an exhibit to our Form 10-KSB for the year ended December 31, 2003.
We will provide to any person upon request, without charge, a copy of the Code
of Ethics. Such request is to be submitted in writing to us at: Ophthalmic
Imaging Systems, Attention: Ariel Shenhar, 221 Lathrop Way, Suite I, Sacramento,
Ca. 95815.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of August 18, 2004, by (i) each person who
"beneficially" owns more than 5% of all outstanding shares of common stock, (ii)
each director and the executive officer identified above, and (iii) all
directors and the executive officer as a group.
33
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Owner Percent of Class
------------------- -------------------- ----------------
MediVision Medical Imaging Ltd. 11,130,151 74.4%
P.O. Box 45, Industrial Park
Yokneam Elit
20692 Israel
Gil Allon 323,333(1) 2.0%
221 Lathrop Way, Suite I
Sacramento, CA 95815
Ariel Shenhar 183,333(1) 1.2%
221 Lathrop Way, Suite I
Sacramento, CA 95815
Jonathan Adereth 170,000(1) 1.1%
221 Lathrop Way, Suite I
Sacramento, CA 95815
Noam Allon 170,000(1) 1.1%
221 Lathrop Way, Suite I
Sacramento, CA 95815
Alon Harris, Ph.D. 16,667(1) *
221 Lathrop Way, Suite I
Sacramento, CA 95815
Michael Benoff 0 *
221 Lathrop Way, Suite I
Sacramento, CA 95815
Directors and Officers as a group 863,333(1) 5.5%
(total of 6 persons)
- ----------
* Represents less than 1%.
(1) Represents shares subject to stock options exercisable within 60 days
from August 18, 2004.
EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL FISCAL OTHER ANNUAL
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
------------------ ---- ---------- --------- ----------------
Gil Allon 2003 $132,000(1) $55,440(2) $34,860(3)
Chief Executive Officer 2002 122,769 39,892(4) 36,126(5)
2001 120,000 42,269(6) 40,639(7)
Ariel Shenhar 2003 $115,500 $38,000 $8,737(8)
Vice-President, Chief Financial Officer 2002 48,231(9) 38,000(10) 5,528(11)
34
- ----------
(1) Payments to and on behalf of Mr. Allon for his services to us in 2003
and 2002 were generally made directly by us to Mr. Allon. Payments to
and on behalf of Mr. Allon for his services to us in 2001 were
generally made directly by MediVision and charged to us.
(2) $44,921 of the estimated bonus was paid by us to Mr. Allon in 2003. The
balance was accrued in the financial statements and paid in 2004.
(3) Represents $26,123 in housing expenses paid by MediVision and charged
to us and approximately $8,737 in automobile expenses for Mr. Allon
paid by us.
(4) $10,000 of this amount was paid by us to Mr. Allon in 2002 and the
balance was paid in 2003.
(5) Represents $25,800 in housing expenses paid by MediVision and charged
to us and approximately $10,326 in automobile expenses for Mr. Allon
paid by us.
(6) Paid by us to Mr. Allon in June 2002.
(7) Represents $21,925 in housing expenses and $5,514 in medical insurance
premiums paid by MediVision and charged to us and approximately $13,200
in automobile expenses for Mr. Allon paid by us.
(8) Represents approximately $8,737 in automobile expenses for Mr. Shenhar
paid by us.
(9) Represents salary from July 22, 2002 through December 31, 2002.
(10) Represents bonus accrued in the financial statements and paid in 2003.
(11) Represents approximately $5,528 in automobile expenses for Mr. Shenhar
paid by us.
(b) SUMMARY OPTION GRANTS
During the year ended December 31, 2003, the following options were
granted to named executive officers:
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
% OF TOTAL OPTIONS/
NUMBER OF SECURITIES SARS GRANTED TO
UNDERLYING OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED (#) FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE
- ----------------------------- ------------------------ ------------------- ----------------- ---------------
Gil Allon 70,000 28% $.41 April 9, 2013
Chief Executive Officer
Ariel Shenhar 50,000 20% $.41 April 9, 2013
Vice President,
Chief Financial Officer
35
(c) AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUES
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY-End FY-End ($)
Acquired on Value (#)Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable (1) Unexercisable
- -------------------------------- ------------- -------------- ----------------------- ----------------------
Gil Allon -- -- 286,667/73,333(2) $228,014/58,226
Chief Executive Officer
Ariel Shenhar 166,667/33,333 $132,334/26,466
Vice President, Chief -- --
Financial Officer
- ----------
(1) All options had a market value of $1.20 per share at December 31, 2003.
The exercise price on all shares was $.406 per share.
(2) Includes 13,334 shares exercisable and 26,666 shares unexercisable by
indirect ownership through spouse.
(d) COMPENSATION OF DIRECTORS
We have entered into an employment agreement with Mr. Allon, dated
December 1, 2001, for his services as Chief Executive Officer, for a term of
approximately one year, which agreement may be renewed for successive one year
intervals upon mutual agreement of the parties. Under the terms of the
agreement, revised in May 2004, Mr. Allon is to receive an annual salary of
$140,000 effective April 1, 2004 and a bonus to be determined annually by our
Board of Directors based on us meeting certain performance goals. Mr. Allon will
also be eligible to participate in our health and welfare insurance plans and is
provided an automobile for business use. The agreement between the parties was
renewed on December 15, 2002, but was revised to provide for an indefinite term.
We also entered into an employment agreement with Mr. Shenhar for his
services as Chief Financial Officer, for a term of approximately one year,
commencing on July 22, 2002, and expiring on June 30, 2003. Under the terms of
the agreement, revised in December 2003 to provide for an indefinite term, Mr.
Shenhar's salary was increased from $114,000 to $120,000 annually effective
October 1, 2003, and he is to receive a bonus to be determined annually by our
Board of Directors based on us meeting certain performance goals. Mr. Shenhar
will also be eligible to participate in our health and welfare insurance plans
and is provided an automobile for business use.
In addition, Jonathan Adereth received $36,000 for his services as
Chairman of the Board and an additional $2,000 for meetings attended in 2003.
Pursuant to a letter agreement executed on October 24, 2001, between
Dr. Harris and us, and as subsequently modified by the parties, we agreed to the
following in connection with his service as a director: (i) to grant to Dr.
Harris options to purchase up to 20,000 shares of our common stock, at a per
share exercise price not less than fair market value on the date of the grant,
(ii) to pay to Dr. Harris, in four equal quarterly installments, an annual
retainer in the aggregate amount of $4,000, (iii) to pay to Dr.
36
Harris a per meeting fee of $500 for attending non-telephonic meetings of the
Board, (iv) to pay to Dr. Harris an hourly fee of $100 for attending telephonic
meetings of the Board, and (v) to reimburse Dr. Harris for reasonable expenses
incurred in connection with his services as a director. Dr. Harris's agreement
was revised in September 2002 to provide for a quarterly payment of $1,500 for
his services as a director, eliminating the payments to him for his individual
attendance at telephonic and non-telephonic meetings of the Board. For his
services as a director during the year, Dr. Harris earned approximately $6,000,
of which approximately $1,500 remained accrued but unpaid as of December 31,
2003. This amount was paid in 2004. The above referenced options were granted in
January 2002 at a per share exercise price of $.10, which price exceeded the
closing price of shares of our common stock on the date of grant.
Pursuant to a letter agreement executed on June 25, 2004 between Mr.
Benoff and us, we agreed to the following in connection with his service as a
director: (i) to grant Mr. Benoff options to purchase up to 40,000 shares of our
common stock, at a per share price not less than fair market value on the date
of the grant, (ii) to pay Mr. Benoff, in four equal quarterly installments, an
annual retainer in the aggregate amount of $6,000, (iii) to pay Mr. Benoff for
services unrelated to Board matters, when requested by the Company, a fee of
$500 per day for each day of services provided and reimbursement for related
expenses. The above referenced options have not yet been granted by the Board.
No standard arrangement regarding compensation of the directors has
been adopted by the Board, and, except as noted above, we have not paid any
compensation to any director.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
In January 2004, we entered into a service agreement, effective January
1, 2003 with MediStrategy Ltd. ("MS"), an Israeli company owned by Noam Allon, a
member of our Board of Directors. Under the terms of the agreement, MS will
provide services to us primarily in the business development field in
ophthalmology including business cooperation, mergers and acquisitions
allocating new lines of business and analyzing of such, defining new product
lines or business opportunities to be developed. All services provided by MS
shall be performed solely by Noam Allon.
In consideration for the services to be provided, we agree to pay MS a
monthly sum of $3,300 paid quarterly. In addition, MS is to be paid a yearly
performance bonus of up to $20,000 upon achievement of goals under the terms of
the agreement determined by MS, Noam Allon and our Chairman of the Board. As of
December 31, 2003, MS has earned fees in the amount of $39,600 and a bonus,
which has not been finalized. These amounts were accrued but unpaid as of
December 31, 2003. The amount earned for fees was paid in 2004 and the bonus
remains unpaid.
(b) TRANSACTIONS WITH SECURITY HOLDERS
As discussed in greater detail in the Business Development section of
this Form SB-2 and in Management's Discussion and Analysis or Plan of Operation
section of this Form SB-2, we have entered into a series of transactions with
MediVision which resulted in MediVision owning approximately 85% of our
outstanding shares of common stock at fiscal year end 2003.
37
LEGAL PROCEEDINGS
On March 9, 2004, we filed a civil action in the United States District
Court for the Eastern District of California against several of our former
employees, led by former vice-president Mark Fukuhara, who have been doing
business for the last two years as Imaging Service Group (ISG) and Zeta
Development Laboratories in El Dorado Hills, California, and several affiliated
persons and companies, including Dale Brodsky, Eyepictures, Inc., Johnny Justice
Jr., and two of his ophthalmic equipment businesses, Zeta Development Labs, Inc.
(doing business as Justice Diagnostic Imaging) and Justice Ophthalmic, Inc. The
complaint alleges claims for misappropriation of trade secrets, violations of
the federal computer fraud and abuse act, copyright infringement, breach of
contract, interference with contract, and false advertising. The complaint seeks
monetary damages and injunctive relief against the defendants.
On August 20, 2004, the United States District Court for the Eastern
District of California granted our application for a preliminary injunction
against certain of the defendants. Our motion for an injunction was denied with
respect to defendants Dale Brodsky and Eyepictures, Inc. and was granted with
respect to defendants Fukhara, Burland, Gerkovich, Leach, Peterson, Salomon,
Silva, Justice Ophthalmics, Zeta Development Labs and Justice (the "Fukhara
Defendants"). Pursuant to the order, the Fukhara Defendants are enjoined from
making any copies of any computer software created or licensed by us; selling,
distributing or transferring any copies of any version of our WinStation
computer software; and transferring or disclosing to any third party any
documents containing a copy of our customer database. The Fukhara Defendants
shall resell any of our imaging systems or devices already in their possession
"as is" and shall not modify those systems or devices in any way before resale,
except that they may do so if they advise the customer in writing that the
systems or devices have been modified and are not original Ophthalmic Imaging
Systems' systems or devices.
Other than the action referred to above and immaterial claims in the
ordinary course, to our knowledge, there are no material legal proceedings
presently pending or threatened to which we (or any of our directors or officers
in their capacity as such) are, or may be, a party or to which our property is,
or may be, subject.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our bylaws provide that we will indemnify our officers and directors
for costs and expenses incurred in connection with the defense of actions,
suits, or proceedings against them on account of their being or having been our
directors or officers in accordance with Section 317 of the California
Corporations Code. Our bylaws also permit us to maintain insurance on behalf of
our officers, directors, employees and agents against any liability asserted
against and incurred by that person whether or not we have the power to
indemnify such person against liability for any of those acts.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
38
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None of the principal accountant's reports on the financial statements
for either of the past two years contains an adverse opinion or disclaimer of
opinion, and none was modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with Perry-Smith LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Computershare
Trust Company, Inc., 350 Indiana Street, Sute 800, Golden, Colorado 80401. Its
telephone number is (303) 262-0600.
INTEREST OF EXPERTS AND COUNSEL
Our consolidated financial statements as of the years ended December
31, 2003 and 2002 included in this prospectus and in the registration statement
of which this prospectus is a part have been audited by Perry-Smith LLP,
independent registered public accountants, to the extent and for the periods set
forth in their report and are incorporated in this prospectus in reliance upon
the report given upon the authority of Perry-Smith LLP as experts in auditing
and accounting.
The validity of the shares of common stock offered under this
prospectus will be passed upon by Jenkens & Gilchrist Parker Chapin LLP, The
Chrysler Building, 405 Lexington Avenue, New York, New York 10174.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act, and the rules and
regulations promulgated under the Securities Act, with respect to the common
stock offered under this prospectus. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information contained
in the registration statement and the exhibits and schedules to the registration
statement. While material elements of the contracts and documents referenced in
this prospectus are contained in this prospectus, statements contained in this
prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the full
text of the contract or other document which is filed as an exhibit to the
registration statement.
For further information with respect to us and the common stock offered
under this prospectus, reference is made to the registration statement and its
exhibits and schedules. The registration statement, including its exhibits and
schedules, may be inspected without charge at the Public Reference Room
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such documents may be obtained from the
Securities and Exchange Commission upon the payment of the charges prescribed by
the Securities and Exchange Commission. The public may obtain information on the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330.
The Securities and Exchange Commission maintains an Internet web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's web site address is
http://www.sec.gov. Our web site address is www.oisi.com.
39
OPHTHALMIC IMAGING SYSTEMS
FINANCIAL STATEMENTS
Ophthalmic Imaging Systems
Condensed Balance Sheet
June 30, 2004
(Unaudited)
ASSETS
Current assets:
Cash and equivalents $ 1,848,280
Accounts receivable, net 1,493,144
Inventories, net 758,667
Prepaid expenses and other current assets 238,823
Deferred tax asset 500,000
---------------
Total current assets 4,838,914
Furniture and equipment, net of accumulated
depreciation and amortization of $1,139,101 170,228
Restricted cash 150,000
Receivable from related party 114,644
Other assets 197,797
---------------
$ 5,471,583
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 535,737
Current maturities of long-term debt 748,973
Accrued liabilities 1,246,859
Deferred extended warranty revenue 564,647
Customer deposits 159,460
Income taxes payable 32,600
---------------
Total current liabilities 3,288,276
Noncurrent liabilities:
Line of credit 150,000
Notes payable, less current portion 1,135,873
---------------
Total noncurrent liabilities 1,285,873
---------------
Stockholders' equity
Common stock, no par value, 35,000,000 shares authorized;
14,772,157 issued and outstanding 14,222,593
Accumulated deficit (13,325,159)
---------------
Total stockholders' equity 897,434
---------------
$ 5,471,583
===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED FINANCIAL STATEMENTS.
F-1
OPHTHALMIC IMAGING SYSTEMS
Condensed Statements of Operations
(Unaudited)
SIX MONTHS ENDED JUNE 30,
2004 2003
----------------- -----------------
Net revenues $ 4,800,109 $ 4,786,437
Cost of sales 1,871,945 1,937,083
----------------- -----------------
Gross profit 2,928,164 2,849,354
Operating expenses:
Sales and marketing 1,356,007 1,330,555
General and administrative 505,805 541,331
Research and development 477,186 261,230
----------------- -----------------
Total operating expenses 2,338,998 2,133,116
----------------- -----------------
Income from operations 589,166 716,238
Interest and other expense, net (104,667) (118,470)
----------------- -----------------
Net income before income taxes 484,499 597,768
Income taxes (3,000)
----------------- -----------------
Net income $ 484,499 $ 594,768
================= =================
Shares used in the calculation of basic net income per share 14,537,924 8,172,460
Basic net income per share $ 0.03 $ 0.07
================= =================
Shares used in the calculation of diluted net income per share 15,583,163 8,400,620
Diluted net income per share $ 0.03 $ 0.07
================= =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED FINANCIAL STATEMENTS.
F-2
OPHTHALMIC IMAGING SYSTEMS
Condensed Statements of Cash Flows
(Unaudited)
SIX MONTHS ENDED JUNE 30,
2004 2003
------------------- -------------------
OPERATING ACTIVITIES:
Net income $ 484,499 $ 594,768
Adjustment to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 50,918 24,914
Non-cash payment of interest 21,802
Loss on disposition of equipment 457
Net increase in current assets other than cash
and equivalents (322,950) (350,270)
Net Increase in other assets (136,734)
Net (decrease) increase in current liabilities other
than short-term borrowings (233,388) 16,720
------------------- -------------------
Net cash (used in) provided by operating activities (135,396) 286,132
INVESTING ACTIVITIES:
Purchases of furniture and equipment (8,565) (16,903)
Proceeds from disposition of equipment 890
Increase in restricted cash (150,000)
------------------- -------------------
Net cash used in investing activities (7,675) (166,903)
FINANCING ACTIVITIES:
Principal payments on notes payable (14,528) (1,409)
Proceeds from notes payable, other 1,000,000
Proceeds from sale of stock 49,468
Proceeds from borrowings under line of credit 150,000
Advances to related parties (114,644)
Repayments of borrowings under notes
payable to related party, net (200,979) (304,586)
------------------- -------------------
Net cash provided by (used in) financing activities 719,317 (155,995)
------------------- -------------------
Net increase (decrease) in cash and equivalents 576,246 (36,766)
Cash and equivalents at beginning of period 1,272,034 383,234
------------------- -------------------
Cash and equivalents at end of period $ 1,848,280 $ 346,468
=================== ===================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Repayment of notes payable with common stock $ 315,135
Payment of interest with common stock $ 21,802
Addition to capital lease obligations $ 41,258
Addition to (reduction in) aggregate debt payable to
significant shareholders in exchange for inventory and
other noncash transactions, net $ 92,366 $ (104,586)
=================== ===================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Conversion of related party notes payable to common stock $ 1,150,000
Cash paid for taxes $ 70,050 $ 45,000
THE ACCOMPANYING NOTES ARE IN INTEGRAL PART
OF THESE CONDENSED FINANCIAL STATEMENTS
F-3
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed balance sheet as of June
30, 2004, condensed statements of operations for the six month periods
ended June 30, 2004 and 2003 and the condensed statements of cash flows
for the six month periods ended June 30, 2004 and 2003 have been
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all
of the information and footnote disclosures required by generally
accepted accounting principles for complete financial statements. It is
suggested that these condensed financial statements be read in
conjunction with the audited financial statements and notes thereto
included in Ophthalmic Imaging Systems' (the "Company's") Annual Report
for the year Ended December 31, 2003 on Form 10-KSB. In the opinion of
management, the accompanying condensed financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the Company's financial position and results
of operations for the periods presented. The results of operations for
the period ended June 30, 2004 are not necessarily indicative of the
operating results for the full year.
NOTE 2. NET INCOME PER SHARE
Basic earnings per share ("EPS"), which excludes dilution, is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock, such as stock
options, result in the issuance of common stock which shares in the
earnings of the Company. The treasury stock method is applied to
determine the dilutive effect of stock options in computing diluted
EPS.
Unaudited
Six Months Ended
June 30,
-------------------------------------
2004 2003
--------------- ---------------
Numerator for basic and diluted net
income per share $ 484,499 $ 594,768
=============== ===============
Denominator for basic net income per share:
Weighted average shares 14,537,924 8,172,460
Effect of dilutive securities:
Employee/director stock options 1,045,239 228,160
Warrants and other -- --
--------------- ---------------
Dilutive potential common shares 1,045,239 228,160
--------------- ---------------
Denominator for diluted net income per share 15,583,163 8,400,620
=============== ===============
Basic net income per share $ 0.03 $ 0.07
=============== ===============
Diluted net income per share $ 0.03 $ 0.07
=============== ===============
F-4
Options and warrants whose exercise price exceeds the average
market price of the stock have been excluded from this computation.
NOTE 3. RELATED PARTIES TRANSACTIONS
During the period of August 2000 through July 1, 2001, the
Company executed several promissory notes in favor of MediVision
Medical Imaging LTD. ("MediVision"), an Israeli corporation and
majority shareholder in the Company. The "Short-Term Note" had a
maximum principal balance of $260,000 available, while the "Working
Capital Funding Agreement and Amendment No. 1" to this agreement
provided an additional funding of $2.5 million. Both Notes and the
Amendment bear interest at the rate of 9.3% per annum and are secured
by all of the Company's assets. The principal amount outstanding,
together with any and all accrued interest on the Working Capital Note
and Amendment, was payable by August 31, 2003, except that MediVision
may, at its option, at any time convert any amount of principal and
interest then outstanding into shares of the Company's common stock at
a conversion price of $.80 per share on the Working Capital Note and
$0.185 per share on the Amendment No. 1 to the Working Capital Note.
In May 2003, the Company and MediVision entered in Amendment
No. 2 to the Working Capital Funding Agreement and the Short Term Note
whereby the repayment terms on the debt were extended on all principal
and interest due until January 1, 2005.
In June 2003, MediVision exercised its option, as stipulated
in the Working Capital Funding Agreement, Amendment No. 1, to convert
$1,150,000 of principal and interest at a conversion price of $0.185
per share into 6,216,216 common shares of stock.
Pursuant to a Common Stock Purchase Agreement dated as of June
1, 2004 between MediVision and S2 Partners LP, MediVision agreed to
sell 550,000 of the Company's common stock to S2 Partners LP at a price
of $1.35 per share. On June 23, 2004, MediVision, through Nollenberger
Capital Partners Inc. acting as its agent, sold an additional 500,000
shares of the Company's common stock at a price of $1.38 per share. As
a result of the foregoing transactions, MediVision currently owns
approximately 75% of the Company's outstanding common stock.
At June 30, 2004 the Company had recorded a net amount due
from MediVision of approximately $115,000. This amount comprises
approximately $462,000 due from MediVision for products and services
offset by approximately $347,000 owed to MediVision for interest on the
loans.
In August 2002, the Company's Board of Directors, at
MediVision's request, authorized the Company to guarantee and/or
provide security interests in its assets for certain of MediVision's
loans with financial institutions, in the maximum aggregate amount of
approximately $1.9 million. In August 2002, MediVision subordinated to
the financial institutions its security position in the Company's
assets, which had been granted in consideration of loans to the Company
from MediVision. In December 2002, the Company's Board of Directors
approved that the Company enter into and issue a debenture in favor of
the bank to act as security for the debt of MediVision. Such debenture
is secured by a first lien on all of the Company's assets. The
debenture and lien were signed in December 2002. The amount owed to
these financial institutions by MediVision as of June 30, 2004 was
approximately $984,000.
F-5
NOTE 4. STOCK BASED COMPENSATION
At June 30, 2004, the Company had five stock-based
compensation plans. The Company accounts for the Plans under the
recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based compensation cost is reflected in net
income, as all options granted under the Plans had an exercise price
equal to the market value of the underlying common stock on the date of
grant.
For purposes of pro forma disclosures, the estimated fair
value of stock-based compensation plans and other options are amortized
to expense primarily over the vesting period. The following tables
illustrate the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation," to
stock-based compensation.
UNAUDITED SIX MONTHS ENDED
JUNE 30,
--------------------------------------
2004 2003
---------------- ---------------
Net Income, As Reported $484,499 $594,768
Deduct Total Stock-Based Employee Compensation Expenses
Determined Under the Fair Value Based Method For all
Awards, Net of Related Tax Effects (2,165) (28,662)
---------------- ---------------
Pro Forma Net Income $482,334 $566,106
================ ===============
Basic Earnings Per Share
As Reported $0.03 $0.07
Pro Forma $0.03 $0.07
Diluted Earnings Per Share:
As Reported $0.03 $0.07
Pro Forma $0.03 $0.07
As required, the pro forma disclosures above include options granted
since January 1, 1995. Consequently, the effects of applying FASB
Statement No. 123 for providing pro forma disclosures may not be
representative of the effects on reported net income for future years
until all options outstanding are included in the pro forma
disclosures.
The fair value of each option granted during the periods indicated was
estimated on the date of grant using an option-pricing model.
F-6
OPHTHALMIC IMAGING SYSTEMS
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
AND
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
The Board of Directors and Stockholders
Ophthalmic Imaging Systems
We have audited the accompanying balance sheets of Ophthalmic Imaging
Systems as of December 31, 2003 and 2002, and the related statements of income,
stockholders' equity (deficit), 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ophthalmic Imaging
Systems as of December 31, 2003 and 2002, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ Perry-Smith LLP
February 20, 2004
F-8
OPHTHALMIC IMAGING SYSTEMS
BALANCE SHEET
DECEMBER 31, 2003 AND 2002
2003 2002
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,272,034 $ 383,234
Accounts receivable, net of allowance for
doubtful accounts of approximately
$361,175 and $192,979 1,536,610 902,678
Inventories (Note 2) 416,420 463,971
Prepaid expenses and other current assets 214,653 51,474
Deferred tax asset (Note 9) 500,000 51,000
------------------ ------------------
Total current assets 3,939,717 1,852,357
------------------ ------------------
Restricted cash (Note 7) 150,000
Furniture and equipment, at cost, net (Note 3) 150,912 178,552
Other assets 82,821 12,890
------------------ ------------------
Total assets $ 4,323,450 $ 2,043,799
================== ==================
(Continued)
F-9
OPHTHALMIC IMAGING SYSTEMS
BALANCE SHEET
(Continued)
DECEMBER 31, 2003 AND 2002
2003 2002
------------------ ------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 523,539 $ 590,974
Accrued liabilities (Note 4) 1,387,563 1,471,077
Deferred extended warranty revenue (Note 4) 557,143 267,888
Customer deposits 201,797 343,652
Income taxes payable (Note 9) 102,650 70,000
Notes payable - short term portion (Note 5) 409,613
Notes payable to related party (Note 6) 200,979 1,913,290
Capitalized lease obligation 4,167
------------------ ------------------
Total current liabilities 3,383,284 4,661,048
------------------ ------------------
Line of credit (Note 7) 150,000
Notes payable, less current portion (Note 5) 763,637
------------------ ------------------
Total noncurrent liabilities 913,637
------------------ ------------------
Total liabilities 4,296,921 4,661,048
------------------ ------------------
Commitments and contingencies (Note 10)
Stockholders' equity (deficit):
Common stock, no par value, 35,000,000 shares
authorized; 14,403,929 and 8,138,305
shares issued and outstanding, respectively 13,836,188 12,630,604
Accumulated deficit (13,809,659) (15,247,853)
------------------ ------------------
Total stockholders' equity (deficit) 26,529 (2,617,249)
------------------ ------------------
Total liabilities and stockholders' equity (deficit) $ 4,323,450 $ 2,043,799
================== ==================
The accompanying notes are an integral
part of these financial statements.
F-10
OPHTHALMIC IMAGING SYSTEMS
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------ ------------
Revenues:
Net sales $ 9,944,827 $ 8,465,707
Cost of sales 3,955,680 3,535,316
------------ ------------
Gross profit 5,989,147 4,930,391
------------ ------------
Operating expenses:
Sales and marketing 2,915,848 2,235,969
General and administrative 1,068,634 1,190,647
Research and development (Note 6) 702,020 558,999
------------ ------------
Total operating expenses 4,686,502 3,985,615
------------ ------------
Income from operations 1,302,645 944,776
Other income (expense):
Interest expense (295,353) (361,932)
Other income (expense) 20,722 (2,479)
Interest income 5,180 3,458
------------ ------------
Total other income (expense) (269,451) (360,953)
------------ ------------
Net income before income
taxes 1,033,194 583,823
------------ ------------
Income tax benefit (expense) (Note 9) 405,000 (19,000)
------------ ------------
Net income $ 1,438,194 $ 564,823
============ ============
Basic earnings per share $ 0.13 $ 0.07
============ ============
Diluted earnings per share $ 0.12 $ 0.07
============ ============
Shares used in the calculation of basic
earnings per share 11,267,493 8,138,305
============ ============
Shares used in the calculation of diluted
earnings per share 11,887,205 8,138,305
============ ============
The accompanying notes are an integral
part of these financial statements.
F-11
OPHTHALMIC IMAGING SYSTEMS
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
TOTAL
COMMON STOCK STOCKHOLDERS
------------------------ ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
------ ------ ----------- ------------
Balance, January 1, 2002 8,138,305 $ 12,630,604 $(15,812,676) $ (3,182,072)
Net income 564,823 564,823
------------ ------------ ------------ ------------
Balance, December 31, 2002 8,138,305 12,630,604 (15,247,853) (2,617,249)
Issuance of common stock (Note 6) 6,216,216 1,150,000 1,150,000
Conversion of principal and interest
to common stock 31,074 33,250 33,250
Exercise of non-qualified stock
options 18,334 22,334 22,334
Net income 1,438,194 1,438,194
------------ ------------ ------------ ------------
Balance, December 31, 2003 14,403,929 $ 13,836,188 $(13,809,659) $ 26,529
============ ============ ============ ============
The accompanying notes are an integral
part of these financial statements.
F-12
OPHTHALMIC IMAGING SYSTEMS
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
Cash flows from operating activities:
Net income $ 1,438,194 $ 564,823
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 53,000 78,457
Non-cash payment of interest 6,500
Net changes in operating assets and liabilities:
Accounts receivable (633,932) 120,163
Inventories 47,551 (128,478)
Prepaid expenses and other current
assets (123,615) (6,441)
Deferred tax asset (449,000) (51,000)
Net increase in other assets (670)
Accounts payable (67,435) (36,455)
Accrued liabilities (83,514) (93,138)
Deferred extended warranty revenue 289,255 82,107
Customer deposits (141,855) 125,808
Income taxes payable 32,650 70,000
----------- -----------
Net cash provided by operating activities 367,129 725,846
----------- -----------
Cash flows used in investing activities:
Acquisition of furniture and equipment (25,360) (74,527)
Increase in restricted cash (150,000) 2,196
----------- -----------
Net cash used in investing activities (175,360) (72,331)
----------- -----------
Cash flows used in financing activities:
Repayment of notes payable to related
parties, net (562,311) (334,266)
Principal payments on notes payable (4,167) (7,941)
Increase in prepaid financing expenses (108,825)
Proceeds from borrowings under line of credit, net 150,000
Proceeds from notes payable, other 1,200,000
Proceeds from sale of stock 22,334
----------- -----------
Net cash provided by (used in) financing
activities 697,031 (342,207)
----------- -----------
Net increase in cash and cash equivalents 888,800 311,308
Cash and cash equivalents, beginning of the year 383,234 71,926
----------- -----------
Cash and cash equivalents, end of the year $ 1,272,034 $ 383,234
=========== ===========
(Continued)
F-13
OPHTHALMIC IMAGING SYSTEMS
STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
Supplemental schedule of non cash financing activities:
Conversion of related party notes payable to
common stock $ 1,150,000
Repayment of notes payable with common
stock $ 26,750
Payment of interest with common stock $ 6,500
Addition to aggregate debt payable
to significant shareholders in exchange for
inventory and other noncash transactions, net $ 6,689
Supplemental schedule of cash flow information:
Cash paid for taxes $ 10,500
Cash paid for interest $ 9,545 $ 950
The accompanying notes are an integral
part of these financial statements.
F-14
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
-------------------------
Ophthalmic Imaging Systems (the "Company"), was incorporated in
California in July 1986. The Company is primarily engaged in the
business of designing, developing, manufacturing, and marketing digital
imaging systems, image enhancements and analysis software, and related
products and services for use by practitioners in the ocular healthcare
field.
Use of Estimates
----------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which require management
to make estimates and assumptions that 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 reported period.
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.
Cash and cash equivalents as of December 31, 2003 includes $200,000
insured and $1,235,353 which is not federally insured.
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 credit 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 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 year ended
December 31, 2003 or 2002.
Revenues from sales to customers located outside of the United States
accounted for approximately 9% and 11% of net sales during the years
ended December 31, 2003 and 2002, 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.
F-15
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Revenue Recognition and Warranties
----------------------------------
The Company generally recognizes revenue from the sale of its products
when the goods are shipped to its customers. The Company generally
recognizes revenue from installation and training services when such
services are performed. The Company generally provides a one-year
warranty covering materials and workmanship and accruals are provided
for anticipated warranty expenses.
Customers may purchase extended warranty coverage for additional one or
two year periods. Revenues from the sale of these extended warranties
are deferred and recognized on a straight-line basis over the term of
the extended warranty contract.
Shipping and Handling Costs
---------------------------
Shipping and handling costs are included with cost of sales.
Advertising Costs
-----------------
Advertising expenditures totaled approximately $50,864 and $56,900, for
the years ended December 31, 2003 and 2002, respectively.
Income Taxes
------------
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards 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 relate
primarily to estimated warranty claims, and deferred tax liabilities
relate primarily to property and equipment. 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.
General business credits are accounted for as a reduction of federal
income taxes payable under the flow-through method.
F-16
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
-----------------------------------
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
O The carrying amount approximates fair value because of the
short maturity of those instruments.
O The carrying amount approximates fair value because of the
short maturity of the instrument.
O The carrying amount of the long-term debt approximates fair
value because the debt was recently issued at an interest rate
consistent with prevailing interest rates with other lending
institutions.
Earnings Per Share
------------------
Basic earnings per share (EPS), which excludes dilution, is computed by
dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock, such as stock
options, result in the issuance of common stock which shares in the
earnings of the Company. The treasury stock method is applied to
determine the dilutive effect of stock options in computing diluted
EPS. For the year ended December 31, 2002, basic and diluted earnings
per share are equal due to the fact that there were no stock options
with a dilutive effect which would share in the earnings of the
Company.
Stock Based Compensation
------------------------
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its stock option plans (the intrinsic
value method). Under APB 25, if the exercise price of the Company's
employee stock options equals or exceeds the fair value of the
underlying stock on the date of grant as determined by the Company's
Board of Directors, no compensation expense is recognized. See Note 8
for additional disclosures regarding the Company's stock option plans.
F-17
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Based Compensation (Continued)
------------------------------------
Pro forma disclosures of stock-based employee compensation expense
disclosures are as follows:
Year Ended December 31,
---------------------------------------
2003 2002
------------ -----------
Net income as reported $ 1,438,194 $ 564,823
Deduct: total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effect (40,445) (31,689)
------------ -----------
Pro forma net income $ 1,397,749 $ 533,134
============ ===========
Basic earnings per share - as reported $ 0.13 $ 0.07
============ ===========
Basic earnings per share - pro forma $ 0.12 $ 0.07
============ ===========
Diluted earnings per share - as reported $ 0.12 $ 0.07
============ ===========
Diluted earnings per share - pro forma $ 0.12 $ 0.06
============ ===========
Reclassifications
-----------------
Certain accounts have been reclassified to conform to the current
year's presentation.
2. INVENTORIES
Inventories consist of the following as of December 31, 2003 and 2002:
2003 2002
-------- --------
Raw materials $230,880 $228,653
Work-in-process 59,145 54,624
Finished goods 126,395 180,694
-------- --------
$416,420 $463,971
======== ========
F-18
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following as of December 31,
2003 and 2002:
2003 2002
----------- -----------
Research and manufacturing equipment $ 679,506 $ 677,419
Office furniture and equipment 657,847 635,576
Demonstration equipment 197,104 196,101
----------- -----------
1,534,457 1,509,096
Less accumulated depreciation
and amortization (1,383,545) (1,330,544)
----------- -----------
$ 150,912 $ 178,552
=========== ===========
4. ACCRUED LIABILITIES AND PRODUCT WARRANTY
Accrued liabilities consist of the following as of December 31, 2003
and 2002:
2003 2002
---------- ----------
Accrued compensation $ 555,817 $ 491,784
Accrued warranty expenses 438,450 370,680
Other accrued liabilities 393,296 608,613
---------- ----------
$1,387,563 $ 1,471,077
========== ==========
Product Warranty and Deferred Warranty Revenue
----------------------------------------------
The Company generally offers a one year warranty to its customers. The
Company's warranty requires it to repair or replace defective products
during the warranty period. At the time product revenue is recognized,
the Company records a liability for estimated costs that may be
incurred under its warranties. The costs are estimated based on
historical experience and any specific warranty issues that have been
identified. (Although historical warranty costs have been within
expectations, there can be no assurance that future warranty costs will
not exceed historical amounts.) The Company periodically assesses the
adequacy of its recorded warranty liability and adjusts the balance as
necessary.
In addition to the Company's one-year warranty, the Company offers an
extended warranty for an additional charge to the customer. 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
two years. At December 31, 2003 and 2002, deferred extended warranty
revenue was $557,143 and $267,888, respectively.
F-19
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. NOTES PAYABLE
On September 25, 2003, the Company entered into a securities purchase
agreement with Laurus Master Fund, Ltd. ("Laurus"). Pursuant to this
agreement, the Company sold to Laurus, a secured convertible term note
in the principal amount of $1,200,000 bearing interest at the rate of
six and one-half percent (6.5%) per annum, due September 25, 2006,
convertible into shares of its common stock at a conversion price of
$1.07 per share, at the Company's option. Loan costs of $118,718 have
been capitalized and are being amortized over the three-year life of
the note. The effective annual interest rate on the note is 8.32%.
Interest is payable at the Company's option in cash or shares of common
stock. The Company granted to Laurus a subordinated second priority
security interest in its assets to secure the obligations under the
note pursuant to a security agreement dated September 25, 2003 between
it and Laurus.
Additionally, the Company issued a warrant to Laurus to purchase
375,000 shares of its common stock at exercise prices ranging between
$1.23 and $1.61 per share (Note 8).
On December 2, 2003, the Company opted to pay $26,750 of principal and
$6,500 of interest in 31,074 shares of common stock at a conversion
price of $1.07 per share.
6. NOTES PAYABLE TO RELATED PARTY
During the period of August 2000 through July 1, 2001, the Company
executed several promissory notes in favor of MediVision Medical
Imaging LTD. ("MediVision"), an Israeli corporation and majority
shareholder in the Company. The "Short-Term Note" had a maximum
principal balance of $260,000 available, while the "Working Capital
Funding Agreement and Amendment No. 1" to this agreement provided an
additional funding of $2,500,000. Both Notes and the Amendment bear
interest at the rate of 9.3% per annum and are secured by all of the
Company's assets. The principal amount outstanding, together with any
and all accrued interest on the Working Capital Note and Amendment, was
payable by August 31, 2003, except that MediVision may, at its option,
at any time convert any amount of principal and interest then
outstanding into shares of the Company's common stock at a conversion
price of $.80 per share on the Working Capital Note and $0.185 per
share on the Amendment No. 1 to the Working Capital Note.
In May 2003, the Company and MediVision entered in Amendment No. 2 to
the Working Capital Funding Agreement and the Short Term Note whereby
the repayment terms on the debt were extended on all principal and
interest due until January 1, 2005.
In June 2003, MediVision exercised its option, as stipulated in the
Working Capital Funding Agreement, Amendment No. 1, to convert
$1,150,000 of principal and interest at a conversion price of $0.185
per share into 6,216,216 common shares of stock. As a result of the
foregoing transactions, MediVision currently owns approximately 85% of
the Company's outstanding common stock.
F-20
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. NOTES PAYABLE TO RELATED PARTY (Continued)
In August 2002, the Company's Board of Directors, at MediVision's
request, authorized the Company to guarantee and/or provide security
interests in its assets for certain of MediVision's loans with
financial institutions, on the maximum aggregate amount of
approximately $1,900,000. In August 2002, MediVision subordinated to
the financial institutions its security position in the Company's
assets, which had been granted in consideration of loans to the Company
from MediVision. In December 2002, the Company's Board of Directors
approved that the Company enter into and issue a debenture in favor of
the bank to act as security for the debt of MediVision, such debenture
shall be secured by a first lien on all of the Company's assets. Such
debenture and lien were signed in December 2002.
At December 31, 2003 and 2002, the Company had recorded approximately
$200,979 and $1,913,290, respectively, in aggregate debt and accrued
interest owed to MediVision. This amount includes the net effect of
other intercompany revenue and expense transactions.
During the year ended December 31, 2003, the Company paid $263,200 to
MediVision for research and development performed on behalf of the
Company.
7. LINE OF CREDIT
In May 2003, the Company entered into a $150,000 line of credit
agreement with its bank. The line is secured by a pledged investment
with the bank equal to the amount of the line of credit. Advances on
the line bear interest at prime (4% at December 31, 2003) with interest
due monthly. The line matures on September 10, 2008.
8. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
------------
Of the shares of common stock authorized but unissued as of December
31, 2003, 1,758,333 shares are reserved for issuance under stock option
plans.
Stock Option Plans
------------------
The Company applies APB 25 and related Interpretations in accounting
for its stock options because, as discussed below, the alternative fair
value accounting provided for under SFAS 123 requires use of option
valuation models that were not developed for use in valuing stock
options. Under APB 25, because the exercise price of the Company's
stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
F-21
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Stock Option Plans (Continued)
------------------------------
In 1992 and 1993, the Board of Directors and Shareholders,
respectively, approved a Stock Option Plan (the "Option Plan") under
which all officers, employees, directors and consultants may
participate. The Plan expired December 2002. Options granted under the
Option Plan may be either incentive stock options or non-qualified
stock options and generally had a term of ten years from the date of
grant, unless otherwise specified in the option agreement. The exercise
prices of incentive stock options granted under the Option Plan were at
100% of the fair market value of the Company's common stock on the date
of grant. The exercise prices of non-qualified stock options granted
under the Option Plan cannot be less than 85% of the fair market value
of the Company's common stock on the date of grant. The maximum number
of shares of the Company's common stock which may be optioned and sold
under the Option Plan was 150,000. No shares remained available for
granting of options as of December 31, 2003. As of December 31, 2003,
stock options to purchase 92,319 shares at exercise prices ranging from
$.48 to $4.25 were granted and outstanding under the Option Plan. None
of the options granted under the Option Plan were exercised during the
year ended December 31, 2003.
In 1995, the Board of Directors approved a Nonstatutory Stock Option
Plan (the "Nonstatutory Plan") under which all officers, employees,
directors and consultants may participate. The Nonstatutory Plan
expires November 2005. Options granted under the Nonstatutory Plan are
non-qualified stock options and will generally have a term of five
years from the date of grant, unless otherwise specified in the option
agreement. The exercise prices under the Nonstatutory Plan will be at
100% of the fair market value of the Company's common stock on the date
of grant. The maximum number of shares of the Company's common stock
which may be optioned and sold under the Nonstatutory Plan is
1,035,000, of which 920,000 options remained available for granting as
of December 31, 2003. As of December 31, 2003, stock options to
purchase 115,000 shares at exercise prices ranging from $.48 to $.50
were granted and outstanding under the Nonstatutory Plan and none of
the granted options were exercised during the year ended December 31,
2003.
In 1997, the Board of Directors approved a Nonstatutory Stock Option
Plan (the "1997 Nonstatutory Plan") under which all officers,
employees, directors and consultants may participate. The 1997
Nonstatutory Plan expired October 2002. Options granted under the 1997
Nonstatutory Plan are non-qualified stock options and had a term of not
longer than ten years from the date of grant. The exercise prices under
the 1997 Nonstatutory Plan was at 100% of the fair market value of the
Company's common stock on the date of grant, unless otherwise specified
in the option agreement. The maximum number of shares of the Company's
common stock which may be optioned and sold under the Plan was
1,000,000. There were no options available for granting as of December
31, 2003. As of December 31, 2003, stock options to purchase 60,000
shares at exercise prices ranging from $.63 to $1.38 were granted and
outstanding under the 1997 Nonstatutory Plan. During the year ended
December 31, 2003, options to purchase 5,000 shares were exercised.
F-22
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Stock Option Plans (Continued)
------------------------------
In 2000, the Board of Directors approved a Stock Option Plan (the "2000
Plan") under which all officers, employees, directors and consultants
may participate. The 2000 Plan expires in September 2010. Options
granted under the 2000 Plan are non-qualified stock options and will
generally have a term of ten years from the date of grant, unless
otherwise specified in the option agreement. The exercise prices of
non-qualified stock options granted under the 2000 Plan cannot be less
than 85% of the fair market value of the Company's common stock on the
date of grant. The maximum number of shares of the Company's common
stock which may be optioned and sold under the 2000 Plan is 1,500,000,
of which 88,333 remained available for granting of options as of
December 31, 2003. As of December 31, 2003, stock options to purchase
1,398,333 shares at an exercise price of $0.41 were granted and
outstanding under the 2000 Plan. During the year ended December 31,
2003, 13,334 options were exercised.
In 2003, the Board of Directors and stockholders approved a Stock
Option Plan (the "2003 Plan") under which all officers, employees,
directors and consultants may participate. The 2003 Plan expires in
October 2013. Options granted under the 2003 Plan are qualified stock
options and will generally have a term of ten years from the date of
grant, unless otherwise specified in the option agreement. The exercise
prices of non-qualified stock options granted under the 2003 Plan
cannot be less than the fair market value of the Company's common stock
on the date of grant. The maximum number of shares of the Company's
common stock which may be optioned and sold under the 2003 Plan is
750,000, all of which remained available for granting of options as of
December 31, 2003.
A summary of the status of the Company's stock option plans and changes
during the periods is presented below:
Weighted
Average
Exercise
Options Price
--------- ----------
Balance, January 1, 2002 1,967,648 $ 0.63
Options granted 180,000 $ 0.37
Options canceled (336,696) $ 0.57
Options lapsed (95,000) $ 3.40
---------
Balance, December 31, 2002 1,715,952 $ 0.46
---------
Options granted 650,000 $ 0.41
Options canceled (576,666) $ 0.41
Options exercised (18,334) $ 0.47
---------
Balance December 31, 2003 1,770,952 $ 0.46
=========
The weighted average fair value of options granted during the years
ended December 31, 2003 and 2002 were $.41 and $.40, respectively.
F-23
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Stock Option Plans (Continued)
The following table summarizes information about the stock options
outstanding at December 31, 2003:
Options Outstanding Options Exercisable
-------------------------------------------- -----------------------------
Weighted
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Number Life Price Number Price
---------------------- ---------- ----------- -------- ------ ----------
$ .31 - $ 1.37 1,744,452 4.7 years $ 0.46 1,491,123 $ 0.46
$ 1.38 - $ 3.00 25,000 3.6 years $ 1.37 25,000 1.37
$ 3.01 - $ 4.50 1,500 2.9 years $ 4.25 1,500 $ 4.25
--------- ---------
1,770,952 1,517,623
========= =========
Pro forma information regarding net income and net income per share is
required by SFAS 123, which also requires that the information be
determined as if the Company has accounted for its employee stock
options granted subsequent to August 31, 1995 under the fair value
method of that Statement. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions for the years
ended December 31, 2003 and 2002, respectively; dividend yield of zero;
volatility factors of the expected market price of the Company's common
stock ranged from 95% to 211% for the years ended December 31, 2003 and
2002, risk-free interest rate of 3.98% and 2.76%; and a
weighted-average expected life of 10 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
2003 2002
---- ----
Pro forma net income $ 1,397,749 $ 533,134
============= ============
Pro forma net income per share $ 0.12 $ 0.07
============= ============
F-24
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Warrants
--------
The Company issued a warrant in September 2003 pursuant to the issuance
of a note payable (Note 5). The warrant permits the holder to purchase
up to 375,000 shares of common stock at a price of $1.23 per share for
the first 100,000 shares; $1.39 per share for the next 125,000 shares
and $1.61 per share for the remaining 150,000 shares. The warrant is
exercisable through September 25, 2010.
9. INCOME TAXES
The income tax benefit (expense) for the years ended December 31, 2003
and 2002 consisted of the following:
Federal State Total
------- ----- -----
2003
----
Current $ 22,000 $ 22,000 $ 44,000
Deferred (109,000) (21,000) (130,000)
Change in valuation allowance (219,000) (100,000) (319,000)
--------- --------- ---------
Total income tax (benefit) $(306,000) $ (99,000) $(405,000)
========= ========= =========
2002
----
Current $ 260,000 $ 70,000 $ 330,000
Deferred (150,000) (150,000)
Change in valuation allowance (161,000) (161,000)
--------- --------- ---------
Total income tax (benefit) $ (51,000) $ 70,000 $ 19,000
========= ========= =========
The Company's effective tax rate for the years ended December 31, 2003
and 2002 was (39)% and 3%. The reconciliation of the statutory rate to
the effective rate is as follows:
2003 2002
---- ----
Statutory rate 34% 34%
State income taxes, net of Federal benefit 9 8
Other (32)
Utilization of net operating losses (19) (34)
Change in valuation allowance (31) (5)
---- ----
Total (39)% 3%
==== ====
F-25
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. INCOME TAXES (Continued)
The significant components of the Company's deferred tax assets and
liabilities are as follows:
December 31,
---------------------------------
2003 2002
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 3,087,000 $ 3,293,000
Inventory reserves 1,119,000 1,096,000
Payroll related accruals 171,000 83,000
Warranty accrual 188,000 159,000
Sales and accounts receivable reserves 186,000 260,000
Uniform capitalization 77,000 77,000
Deferred revenue 239,000 115,000
R&D credit carryover 175,000
Depreciation 21,000
----------- -----------
Total deferred tax assets 5,242,000 5,104,000
Valuation allowance (4,734,000) (5,053,000)
----------- -----------
Net deferred tax assets 508,000 51,000
Deferred tax liabilities:
Depreciation (8,000)
----------- -----------
Net deferred tax assets $ 500,000 $ 51,000
=========== ===========
At December 31, 2003 and 2002, management reviewed recent operating
results and projected future operating results. At the end of each of
these years, management determined that it was more likely than not
that a portion of the deferred tax assets attributable to net operating
losses would likely be realized. Due to the Company's limited history
of profitable operations, management has recorded a valuation allowance
of $4,734,000 and $5,053,000 at December 31, 2003 and 2002,
respectively. The amount of the valuation allowance will be adjusted in
the future when management determines that it is more likely than not
the deferred assets will be realized.
The Company has at December 31, 2003, a net operating loss carryover of
approximately $5,410,500 for Federal income tax purposes which expires
between 2007 and 2020, and a net operating loss carryforward of
approximately $2,088,800 for California state income tax purposes which
expires through 2010. The State of California has suspended the
application of net operating losses for the 2002 and 2003 fiscal years
and extended the carry forward period two years. Federal tax credit
carryforwards of approximately $174,900 will begin to expire in 2007.
Due to changes in ownership which occurred in prior years, Section 382
of the Internal Revenue Code provides for significant limitations on
the utilization of net operating loss carryforwards and tax credits. As
a result of these limitations, a portion of these loss and credit
carryovers will expire without being utilized.
F-26
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. COMMITMENTS AND CONTINGENCIES
Security Interest
-----------------
In December 2002, the Company granted a security interest in
substantially all assets of the Company to the United Mizrahi Bank Ltd.
(bank), as security for amounts borrowed by MediVision from the bank
and advanced to the Company under the note agreements (Note 6).
Operating Leases
----------------
The Company leases its corporate headquarters and manufacturing
facility under a noncancellable operating lease that expires in May
2005. The lease agreement provides for minimum lease payments of
approximately $102,768 and $42,820 for the years ended December 31,
2004 and 2005, respectively. The Company also leases a sales office
under a month-to-month lease requiring a minimum lease payment of
approximately $300 per month.
Rental expense charged to operations for all operating leases was
approximately $104,000 and $87,000, respectively during the years ended
December 31, 2003 and 2002.
Collection of Taxes from Customers
----------------------------------
In a prior year, a state taxing authority made inquires of the Company
regarding the collection of sales or use taxes from customers in that
state. The inquiry was favorably resolved without any adverse
consequences to the Company. The Company evaluates such inquiries on a
case-by-case basis and will vigorously contest any such claims for
payment of sales or use taxes which it believes are without merit.
However, Management has prepared an analysis of sales to customers in
those jurisdictions for which the Company does not collect sales or use
taxes. Certain assumptions were made in the preparation of this
analysis, including but not limited to:
O The Company's customers have not remitted any sales or use tax
to state or local taxing authorities.
O Potential interest and penalties have been included on sales
activity from the Company's inception.
O Sales or use taxes have been provided at the effective tax
rates for each taxing authority for which the Company may have
had a sale.
The analysis indicates maximum potential liability of approximately
$570,000. Management believes that the probability of such an
assessment is remote and accordingly, has not recorded a liability in
the accompanying financial statements.
However, there can be no assurance that the amount of any sales or use
taxes that might ultimately be assessed for prior periods would not
materially affect the Company's results of operation or cash flows in
any given reporting period.
F-27
- --------------------------------------------------------------------------------
OPHTHALMIC IMAGING SYSTEMS
1,180,528
Shares
Common Stock
PROSPECTUS
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different. This prospectus is not an offer to sell common
stock and is not soliciting an offer to buy common stock in any state where the
offer or sale is not permitted.
August __, 2004
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our bylaws, filed as Exhibit 3.4, provide that we will indemnify our
officers and directors for costs and expenses incurred in connection with the
defense of actions, suits, or proceedings against them on account of their being
or having been our directors or officers in accordance with Section 317 of the
California Corporations Code. Our bylaws also permit us to maintain insurance on
behalf of our officers, directors, employees and agents against any liability
asserted against and incurred by that person whether or not we have the power to
indemnify such person against liability for any of those acts.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Ophthalmic Imaging Systems pursuant to the foregoing provisions, or otherwise,
Ophthalmic Imaging Systems has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the offering described in this Registration Statement:
Item Amount ($)
----------------------------------------------------------------
SEC Registration Fee 162.66
----------------------------------------------------------------
EDGAR Filing Expenses 250.00
----------------------------------------------------------------
Transfer Agent Fees 500.00
----------------------------------------------------------------
Legal Fees 30,000.00
----------------------------------------------------------------
Accounting Fees 1,000.00
----------------------------------------------------------------
Miscellaneous 250.00
----------------------------------------------------------------
Total $ 32,162.66
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On September 25, 2003, we entered into a private placement transaction
with Laurus Master Fund, Ltd. which was exempt from registration under Section
4(2) of the Securities Act of 1933 and Regulation D and Rule 506 promulgated
thereunder. Pursuant to the securities purchase agreement between Laurus and us,
we issued to Laurus a secured convertible term note in the principal amount of
$1,200,000 bearing interest at the rate of six and one-half percent (6.5%) per
annum, due September 25, 2006, convertible into shares of our common stock at a
conversion price of $1.07 per share. Interest is payable at our option in cash
or shares of common stock. Additionally, we issued a warrant to Laurus to
purchase 375,000 shares of our common stock at exercise prices ranging between
$1.23 and $1.61 per share. Laurus may exercise the warrant through September 25,
2010. We are obligated to register for resale the shares of common stock
issuable upon conversion of the note and upon exercise of the warrant pursuant
to a registration rights agreement dated September 25, 2003 between the
registrant and the purchaser, of which this registration statement relates.
In June 2003, MediVision exercised its option, as stipulated in the
Amendment No. 1, to convert $1,150,000 of principal and interest at a conversion
price of $0.185 per share into 6,216,216 common
II-1
shares of stock. As a result of the foregoing transactions, MediVision currently
owns approximately 85% of our outstanding common stock.
On April 27, 2004, we entered into a private placement transaction with
Laurus Master Fund, Ltd. which was exempt from registration under Section 4(2)
of the Securities Act of 1933 and Regulation D and Rule 506 promulgated
thereunder. Pursuant to the securities purchase agreement between Laurus and us,
we issued to Laurus a secured convertible term note in the principal amount of
$1,000,000 bearing interest at the rate of six and one-half percent (6.5%) per
annum, due April 27, 2007, convertible into shares of our common stock at a
conversion price of $1.22 per share. Interest is payable at our option in cash
or shares of common stock. Additionally, we issued a warrant to Laurus to
purchase 313,000 shares of our common stock at exercise prices ranging between
$1.40 and $1.83 per share. Laurus may exercise the warrant through April 27,
2009. We are obligated to register for resale the shares of common stock
issuable upon conversion of the note and upon exercise of the warrant pursuant
to a registration rights agreement dated April 27, 2004 between the registrant
and the purchaser, of which this registration statement relates.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Footnote
Number Description of Exhibit Reference
- ------ ---------------------- ---------
2.1 Agreement dated as of October 21, 1999 by and among Ophthalmic Imaging (5)
Systems, Premier, Walt Williams, Daniel S. Durrie and Randall C. Fowler.
2.2 Securities Purchase Agreement dated as of July 13, 2000, by and among (6)
Ophthalmic Imaging Systems, Premier and MediVision.
3.1 Articles of Incorporation of Ophthalmic Imaging Systems, as amended. *
3.2 Amended Bylaws of Ophthalmic Imaging Systems. *
3.3 Amendment to Amended Bylaws of Ophthalmic Imaging Systems dated January 28, (4)
1998.
Specimen of Stock Certificate *
4.1
5.1 Opinion of Jenkens & Gilchrist Parker Chapin LLP (15)
10.1
Lease Agreement dated as of April 21, 2001 between Ophthalmic Imaging Systems (9)
and Jackson-Jahn, Inc.
10.2 Confidentiality Agreement dated March 27, 1992 between Ophthalmic Imaging *
Systems and Steven R. Verdooner.
10.3 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).
10.4 1992 Nonstatutory Stock Option Plan of Ophthalmic Imaging Systems and sample *+
form of Nonstatutory Stock Option Agreement.
10.5 Stock Option Plan (1)+
II-2
10.6 1995 Nonstatutory Stock Option Plan of Ophthalmic Imaging Systems and sample (2)+
form of Nonstatutory Stock Option Agreement.
10.7 1997 Nonstatutory Stock Option Plan of Ophthalmic Imaging Systems and sample (3)+
form of Nonstatutory Stock Option Agreement.
10.8 Form of Indemnification Agreement between Ophthalmic Imaging Systems and each (4)
of its directors, officers and certain key employees.
10.9 Working Capital Funding Agreement dated as of July 13, 2000 by and between (6)
MediVision and Ophthalmic Imaging Systems.
10.10 Amendment No. 1 to Working Capital Funding Agreement dated as of July 1, 2001 (8)
by and between MediVision and Ophthalmic Imaging Systems.
10.11 Loan and Security Agreement dated as of July 13, 2000 by and between (9)
MediVision and Ophthalmic Imaging Systems.
10.12 Registration Rights Agreement dated as of August 2000 by and between (6)
MediVision and Ophthalmic Imaging Systems.
10.13 Secured Convertible Working Capital Note dated August 2000 from Ophthalmic (6)
Imaging Systems to MediVision in the principal amount of $260,000.
10.14 Secured Promissory Note dated July 21, 2000 from Ophthalmic Imaging Systems (6)
to MediVision in the principal amount of $1,500,000.
10.15 Secured Convertible Working Capital Promissory Note dated July 1, 2001 by and (8)
between MediVision and Ophthalmic Imaging Systems in the principal amount of
$1,000,000
10.16 Amendment No. 2 to Working Capital Funding Agreement dated as of May 21, 2003 (10)
by and between MediVision and Ophthalmic Imaging Systems.
10.17 Cooperation and Project Funding Agreement dated January 21, 2001, among (7)
Israel- United States Binational Industrial Research and Development
Foundation, MediVision and Ophthalmic Imaging Systems.
10.18 2000 Stock Option Plan. (9)+
10.19 Secured Debenture Agreement by and between United Mizrahi Bank LTD and (11)
Ophthalmic Imaging Systems dated December 9, 2002.
10.20 Commercial Security Agreement by and among Bank Leumi, MediVision and (13)
Ophthalmic Imaging Systems dated April 30, 2003 and Commercial Guaranty of
Ophthalmic Imaging Systems.
10.21 Securities Purchase Agreement dated September 25, 2003 by and between (12)
Ophthalmic Imaging Systems and Laurus Master Fund, Ltd.
10.22 Secured Convertible Term Note dated September 25, 2003 issued to Laurus (12)
Master Fund, Ltd.
10.23 Common Stock Purchase Warrant dated September 25, 2003 issued to Laurus (12)
Master Fund, Ltd.
II-3
10.24 Registration Rights Agreement dated September 25, 2003 by and between (12)
Ophthalmic Imaging Systems and Laurus Master Fund, Ltd.
10.25 Security Agreement dated September 25, 2003 by and between Ophthalmic Imaging (12)
Systems and Laurus Master Fund, Ltd.
10.26 2003 Stock Option Plan (13)+
10.27 Securities Purchase Agreement dated April 27, 2004 by and between Ophthalmic (14)
Imaging Systems and Laurus Master Fund, Ltd.
10.28 Secured Convertible Term Note dated April 27, 2004 issued to Laurus Master (14)
Fund, Ltd.
10.29 Common Stock Purchase Warrant dated April 27, 2004 issued to Laurus Master (14)
Fund, Ltd.
10.30 Registration Rights Agreement dated April 27, 2004 by and between Ophthalmic (14)
Imaging Systems and Laurus Master Fund, Ltd.
10.31 Security Agreement dated April 27, 2004 by and between Ophthalmic Imaging (14)
Systems and Laurus Master Fund, Ltd.
23.1 Consent of Perry-Smith LLP, Independent Registered Public Accounting Firm. (16)
(1) Incorporated by reference to our Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1993, filed on November 26, 1993.
(2) Incorporated by reference to our Registration Statement on Form S-8,
filed on May 28, 1996, number 333-0461.
(3) Incorporated by reference to our Quarterly Report on Form 10-QSB for
the quarterly period ended November 30, 1997, filed on January 14,
1998.
(4) Incorporated by reference to our Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1998, filed on December 15, 1998.
(5) Incorporated by reference to Exhibit 4.3 of our Form 8-K, filed on
November 24, 1999.
(6) Incorporated by reference to our Annual Report on Form 10-KSB for the
fiscal year ended August 31, 2000, filed on December 13, 2000.
(7) Incorporated by reference to our Annual Report on Form 10-KSB for the
transition period from September 1, 2000 to December 31, 2000, filed on
March 29, 2001.
(8) Incorporated by reference to our Quarterly Report on Form 10-QSB for
the quarter ended September 30, 2001, filed on November 14, 2001.
(9) Incorporated by reference to our Annual Report on Form 10-KSB for the
fiscal year ended December 30, 2001, filed on March 26, 2002.
(10) Incorporated by reference to our Quarterly Report on Form 10-QSB for
the fiscal quarter ended June 30, 2003, filed on August 14, 2003.
II-4
(11) Incorporated by reference to our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002, filed on March 27, 2003.
(12) Incorporated by reference to our Current Report on Form 8-K, filed on
October 1, 2003.
(13) Incorporated by reference to our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2003, filed on March 25, 2004
(14) Incorporated by reference to our Current Report on Form 8-K, filed on
April 29, 2004.
(15) Incorporated by reference to our registration statement on Form SB-2
(File No. 333-110334) filed on June 21, 2004.
(16) Filed herewith.
+ Management contract or compensatory plan or arrangement.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
Registration Statement; and
(iii) include any additional or changed material information on the
plan of distribution.
(2) That, for determining liability under the Securities Act, each such
post-effective amendment shall be treated as a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To file a post-effective amendment to remove from registration any of the
securities being registered that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of
Sacramento, state of California, on August 24, 2004.
OPHTHALMIC IMAGING SYSTEMS
By: /s/ Gil Allon
-----------------------------------
Gil Allon
Chief Executive Officer
/s/ Ariel Shenhar
-----------------------------------
Ariel Shenhar
Chief Financial Officer, Vice
President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of Ophthalmic
Imaging Systems, a California corporation that is filing a registration
statement on Form SB-2 with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended, hereby constitute and
appoint Gil Allon and Ariel Shenhar, and each of them, their true and lawful
attorneys-in-fact and agents; with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign such amendment to registration statement and any or all
amendments to the registration statement, including a prospectus or an amended
prospectus therein, and all other documents in connection therewith to be filed
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all interests and purposes as they might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
*/s/ Ariel Shenhar Director August 24, 2004
- ------------------------
Noam Allon
/s/ Gil Allon Director August 24, 2004
- ------------------------
Gil Allon
/s/ Ariel Shenhar Director August 24, 2004
- ------------------------
Ariel Shenhar
*/s/ Ariel Shenhar Director August 24, 2004
- ------------------------
Jonathan Adereth
*/s/ Ariel Shenhar Director August 24, 2004
- ------------------------
Alon Harris
- ------------------------ Director August 24, 2004
Michael Benoff
* By power of attorney