U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
Commission File Number: 1-11140
OPHTHALMIC IMAGING SYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3035367
(State of Incorporation) (IRS Employer Identification No.)
221 LATHROP WAY, SUITE I, SACRAMENTO, CA 95815
(Address of principal executive offices)
(916) 646-2020
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XX No
---------- -----------
As of May 11, 2005, 15,063,585 shares of common stock, no par value, were
outstanding.
Transitional Small Business Disclosure Format:
Yes No XX
---------- -----------
OPHTHALMIC IMAGING SYSTEMS
FORM 10-QSB
FOR THE QUARTER ENDED March 31, 2005
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet as of March 31, 2005 2
Condensed Statements of Operations for the Three Months
ended March 31, 2005 and March 31, 2004 3
Condensed Statements of Cash Flows for the Three Months
ended March 31, 2005 and March 31, 2004 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ophthalmic Imaging Systems
Condensed Balance Sheet
March 31, 2005
(Unaudited)
ASSETS
- ------
Current assets:
Cash and equivalents $ 2,091,446
Accounts receivable, net 1,634,702
Receivable from related party 214,862
Note receivable from related party 1,252,927
Inventories, net 464,082
Prepaid expenses and other current assets 227,000
Deferred tax asset 1,029,000
---------------------
Total current assets 6,914,019
Furniture and equipment, net of accumulated
depreciation and amortization of $270,708 140,004
Restricted cash 150,000
Other assets 122,121
---------------------
Total assets $ 7,326,144
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 536,944
Accrued liabilities 1,375,885
Deferred extended warranty revenue 825,080
Customer deposits 274,843
Income taxes payable 7,649
Notes payable- current portion 774,012
---------------------
Total current liabilities 3,794,413
---------------------
Notes payable, less current portion 768,214
---------------------
Total liabilities 4,562,627
---------------------
Stockholders' equity:
Common stock, no par value, 35,000,000 shares authorized;
15,063,585 issued and outstanding 14,534,420
Accumulated deficit (11,770,903)
---------------------
Total stockholders' equity 2,763,517
---------------------
Total liabilities and stockholders' equity $ 7,326,144
=====================
The accompanying notes are an integral part of these unaudited condensed
financial statements.
2
Ophthalmic Imaging Systems
Condensed Statements of Operations
(Unaudited)
Three months ended March 31,
2005 2004
------------------- --------------------
Net revenues $ 2,840,025 $ 2,397,069
Cost of sales 1,165,867 957,546
------------------- --------------------
Gross profit 1,674,158 1,439,523
Operating expenses:
Sales and marketing 728,004 659,682
General and administrative 312,996 247,465
Research and development 242,408 247,236
------------------- --------------------
Total operating expenses 1,283,408 1,154,383
------------------- --------------------
Income from operations 390,750 285,140
Interest and other expense, net (52,590) (45,325)
------------------- --------------------
Net income before income taxes 338,160 239,815
Income taxes (4,000)
------------------- --------------------
Net income $ 334,160 $ 239,815
=================== ====================
Shares used in the calculation of basic
net income per share 15,041,141 14,436,547
Basic net income per share $ 0.02 $ 0.02
=================== ====================
Shares used in the calculation of diluted
net income per share 16,318,728 15,465,852
Diluted net income per share $ 0.02 $ 0.02
=================== ====================
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
Ophthalmic Imaging Systems
Condensed Statements of Cash Flows
(Unaudited)
Three months ended March 31,
2005 2004
-------------- -------------
OPERATING ACTIVITIES:
Net income $ 334,160 $ 239,815
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 33,092 24,005
Non-cash payment of interest 2,818 17,024
Net decrease (increase) in current assets other
than cash and equivalents 19,146 (368,328)
Net (decrease) increase in current liabilities other
than short-term borrowings (40,673) 142,749
-------------- -------------
Net cash provided by operating activities 348,543 55,265
INVESTING ACTIVITIES:
Acquisition of furniture and equipment (6,800) (1,293)
-------------- -------------
(6,800) (1,293)
FINANCING ACTIVITIES:
Principal payments on notes payable (43,192)
Proceeds from sale of stock 13,468
Advances to related parties (197,415) (156,997)
Repayments of borrowings under notes
payable to related party, net (200,979)
-------------- -------------
Net cash used in financing activities (240,607) (344,508)
-------------- -------------
Net increase (decrease) in cash and equivalents 101,136 (290,536)
Cash and equivalents at beginning of period 1,990,310 1,272,034
-------------- -------------
Cash and equivalents at beginning of period $ 2,091,446 $ 981,498
============== =============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Repayment of notes payable with common stock $ 29,282 $ 105,913
Payment of interest with common stock $ 2,818 $ 17,024
Additions to (Reductions) in aggregate receivables
from significant shareholders in exchange for
inventory and other noncash transactions, net $ 114,113 $ (7,989)
============== =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid for taxes $ 10,000 $ 70,050
Cash paid for interest $ 20,988 $ 52,500
The accompanying notes are an integral part of these unaudited
condensed financial statements.
4
Ophthalmic Imaging Systems
Notes to Condensed Financial Statements
Three Month Periods ended March 31, 2005 and 2004
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed balance sheet as of March 31,
2005, condensed statements of operations for the three month periods
ended March 31, 2005 and 2004 and the condensed statements of cash
flows for the three month periods ended March 31, 2005 and 2004 have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do
not include all of the information and footnote disclosures required by
generally accepted accounting principles for complete financial
statements. It is suggested that these condensed financial statements
be read in conjunction with the audited financial statements and notes
thereto included in Ophthalmic Imaging Systems' (the "Company's")
Annual Report for the year ended December 31, 2004 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 March 31, 2005 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.
5
Unaudited
Three Months Ended
March 31,
2005 2004
------------------------------
Numerator for basic and diluted
net income per share $ 334,160 $ 239,815
==============================
Denominator for basic net
income per share:
Weighted average shares 15,041,141 14,436,547
Effect of dilutive securities:
Employee/director stock 1,277,587 1,029,305
options
Warrants and other -- --
------------------------------
Dilutive potential common shares 1,277,587 1,029,305
------------------------------
Denominator for diluted net
income per share 16,318,728 15,465,852
==============================
Basic net income per share $ 0.02 $ 0.02
==============================
Diluted net income per share $ 0.02 $ 0.02
==============================
As of March 31, 2005 and March 31, 2004 there were 714,500 and 401,500
options and warrants, respectively whose exercise price exceeded the
average market price of the stock and 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 $2,500,000. 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.
6
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 banks 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. The amount owed to the
financial institutions by MediVision and secured by the Company as of
March 31, 2005 was approximately $179,000.
In March 2004, the Company's Board of Directors approved a line of
credit to MediVision of $1,000,000 at 9.3% interest for two years. In
January 2005 the Company's Board of Directors approved an additional
loan advance of $150,000 for a thirty day term.
On February 28, 2005, the Company and MediVision entered into a Loan
and Security Agreement and Promissory Note whereby the Company agreed
to loan MediVision up to two million dollars ($2,000,000). The loan
agreement incorporates the $1,150,000 previously approved by the
Company's Board of Directors. Under the terms of the agreement,
interest is 7.25% per annum and is payable on February 28, 2006 along
with all outstanding principal due at that date. The note is secured by
2,409,000 of the 11,130,151 shares of the Company's common stock owned
by MediVision. The number of shares is based on the average closing
price of shares of stock of the Company during the period covering the
last ten (10) business days of February, 2005, which average closing
price was $1.11, discounted by 25%. In the event that MediVision sells
any shares it owns in the Company during the period of the agreement, a
minimum of 50% of the proceeds from such sales would be required to be
paid to the Company to reduce the outstanding amount owed.
At March 31, 2005 the Company had recorded a net amount due from
MediVision of approximately $1,253,000 on the promissory note and
approximately $215,000 net, due for products and services.
Sales to MediVision during the three months ended March 31, 2005 and
2004 totaled approximately $267,000 and $183,000, respectively. Sales
derived from product shipments to MediVision are made at transfer
pricing which is based on similar volume discounts that are available
to other resellers or distributors of the Company's products.
During the three-month periods ended March 31, 2005 and 2004, the
Company paid approximately $176,900 and $148,700 respectively, to
MediVision for research and development performed by MediVision on
behalf of the Company.
7
As of March 31, 2005, MediVision currently owns approximately 74% of
the Company's outstanding common stock.
Note 4. Stock Based Compensation
At March 31, 2005, the Company had five stock-based compensation plans
(the "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 or above 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
Three Months Ended
March 31,
----------------------------
2005 2004
-------------- -------------
Net Income, As Reported $ 334,160 $ 239,815
Deduct Total Stock-Based Employee
Compensation Expenses Determined
Under the Fair Value Based Method
For all Awards, Net of Related Tax
Effects (5,030) (1,087)
-------------- -------------
Pro Forma Net Income $ 329,130 $ 238,728
============== =============
Basic Earnings Per Share
As Reported $ 0.02 $ 0.02
Pro Forma $ 0.02 $ 0.02
Diluted Earnings Per Share:
As Reported $ 0.02 $ 0.02
Pro Forma $ 0.02 $ 0.02
8
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 the options granted during the periods indicated was
estimated on the date of grant using an option-pricing model.
There were 46,000 options granted for the three-month period ended
March 31, 2005, of which 26,000 were qualified options and 20,000 were
non-qualified. The estimated fair market value of the qualified and
non-qualified options granted was $1.10 and $0.68, respectively.
In December 2004 the FASB issued Statement Number 123 (revised 2004)
(FAS 23 (R)), Share-Based Payments. FAS 123 (R) requires all entities
to recognize compensation expense in an amount equal to the fair value
of share-based payments such as stock options granted to employees. The
Company is required to apply FAS 23 (R) on a modified prospective
method. Under this method, the Company is required to record
compensation expense (as previous awards continue to vest) for the
unvested portion of previously granted awards that remain outstanding
at the date of adoption. In addition, the Company may elect to adopt
FAS 123 (R) by restating previously issued financial statements, basing
the expense on that previously reported in their pro forma disclosures
required by FAS 123. FAS 123 (R) is effective for the first reporting
period beginning after June 15, 2005. For companies filing under
Regulation S-B, FAS 123 (R) is effective the beginning of the first
interim or annual reporting period that begins after December 15, 2005,
which for the Company will be the first quarter of the year ending
December 31, 2006. The Company anticipates adopting SFAS No. 123(R)
beginning in the quarter ending March 31, 2006. Management has not
completed its evaluation of the effect that FAS 123 (R) will have, but
believes that the effect will be consistent with its previous pro forma
disclosures.
Note 5. Warranty Obligations
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 amount of warranty liability accrued
reflects the Company's best estimate of the expected future cost of
honoring its obligations under the warranty plans. The Company
periodically assesses the adequacy of its recorded warranty liability
and adjusts the balance as necessary.
9
The following provides a reconciliation of changes in the Company's
warranty reserve.
Unaudited
Three Months Ended
March 31,
-----------------------------
2005 2004
Warranty balance at beginning of period $ 505,851 $ 438,449
Net provision (reduction) for current period 13,250 (5,771)
Warranty costs incurred (125,119) (26,313)
-------------- --------------
Warranty balance at end of period $ 393,982 $ 406,365
============== ==============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of the
federal securities laws. The Company intends such forward-looking statements to
be covered by the safe harbor provisions contained in Section 27A of the
Securities Act of 1933, as amended, and in Section 21E of the Exchange Act of
1934, as amended. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
effect on its operations and future prospects include, but are not limited to,
changes in: economic conditions generally and the medical instruments market
specifically, legislative or regulatory changes affecting the Company, including
changes in healthcare regulation, the availability of working capital, the
introduction of competing products, and other risk factors described herein.
These risks and uncertainties, together with the other risks described from time
to time in reports and documents filed by the Company with the Securities and
Exchange Commission should be considered in evaluating forward-looking
statements, and undue reliance should not be placed on such statements. Indeed,
it is likely that some of the Company's assumptions will prove to be incorrect.
The Company's actual results and financial position will vary from those
projected or implied in the forward-looking statements, and the variances may be
material.
Overview
- --------
To date, the Company has designed, developed, manufactured and marketed
ophthalmic digital imaging systems and has derived substantially all of its
revenues from the sale of such products. The primary target market for the
Company's digital angiography systems and related products has traditionally
been retinal specialists. The Company made a strategic decision to expand its
product offering to include the ophthalmic informatics field. Over the last year
the Company introduced its Ophthalmology Office line composed of Electronic
Medical Records (EMR) and Enterprise Practice Management (EPM) software products
by NextGen Healthcare Information Systems, Inc. and the Company's import
modules. This decision enables the Company to offer a wider variety of products
and comprehensive solutions to its customer base of ophthalmology departments
and practices.
10
On December 28, 2004, the Company entered into an investment agreement with
Dutchess Private Equities Fund II, LP ("Dutchess") providing for an equity line
of credit. Pursuant to the investment agreement, Dutchess has agreed to provide
the Company with up to $9,000,000 of funding during the thirty month period
beginning on the date that the registration statement the Company agreed to file
providing for the resale of the shares of common stock issuable under the
investment agreement is declared effective by the Securities and Exchange
Commission. During this thirty month period, the Company may request a drawdown
under the investment agreement by selling shares of its common stock to
Dutchess, and Dutchess will be obligated to purchase the shares. The Company is
under no obligation to request any drawdowns under the investment agreement.
The amount that the Company can request in any drawdown notice is, at the
Company's election, the greater of (A) up to 200% of the average daily volume of
the Company's common stock for the ten trading days prior to the date of the
drawdown notice multiplied by the average of the three daily closing bid prices
for the common stock immediately preceding the date of the drawdown notice or
(B) $100,000; provided that the Company may not request more than $1,000,000 in
any single drawdown. As of March 31, 2005, the Company's registration statement
had not been deemed effective; accordingly no drawdowns have been made.
At March 31, 2005, the Company had a stockholders' equity of approximately
$2,763,500 and its current assets exceeded its current liabilities by
approximately $3,119,600. The convertible loan agreements with Laurus Master
Fund. Ltd. ("Laurus") that were entered into during the third quarter of 2003
and the second quarter of 2004, have had a favorable impact on the Company's
current ratio. As of March 31, 2005, under the terms of the 2003 convertible
loan agreement, Laurus has converted $682,013 of principal and interest into
637,396 shares of the Company's common stock at a conversion price of $1.07 per
share. As of March 31, 2004, Laurus had converted $156,186 of principal and
interest into 145,968 shares of the Company's common stock. There can be no
assurance that the Company will be able to achieve or sustain significant
positive cash flows, revenues or profitability in the future.
The following discussion should be read in conjunction with the unaudited
interim financial statements and the notes thereto which are set forth elsewhere
in this Report on Form 10-QSB. In the opinion of management, the unaudited
interim period financial statements include all adjustments, all of which are of
a normal recurring nature, that are necessary for a fair presentation of the
results of the periods.
Critical Accounting Policies
- ----------------------------
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). The financial information contained within its 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. The Company's revenue recognition policies are in compliance with
applicable accounting regulations, including Staff Accounting Bulletin No. 104
("SAB 104"), Revenue Recognition in Financial Statements, American Institute of
Certified Public accountants ("AICPA"), Statement of Position ("SOP") 97-2,
Software Revenue Recognition, SOP 98-9, Modification of SOP 97-2, with Respect
to Certain Transactions and Emerging Issues Task
11
Force Issue 00-21, Revenue Arrangements with Multiple Deliverables. As such,
revenue is recorded when there is evidence of an arrangement, delivery has
occurred, the price is fixed and determinable and collectability is reasonably
assured. Revenue from installation and training services are recognized when
such services are performed. Revenue generated from service contracts are
recognized ratably over the term of the contracts. Estimates are used relative
to the expected useful lives of depreciable assets. Management is also required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates. In addition, GAAP
itself may change from one previously acceptable method to another method.
Although the economics of the Company's transactions would be the same, the
timing of events that would impact transactions could change.
Results of Operations
- ---------------------
Revenues
The Company's revenues for the first quarter ended March 31, 2005 were
$2,840,025, representing an 18% increase from revenues of $2,397,069 for the
first quarter ended March 31, 2004. The increase in revenues is due primarily to
higher revenues generated from the informatics products and increased service
revenues. Digital angiography systems, Informatics and peripherals accounted for
approximately 84% and 89% of the Company's revenue for the first quarters of
2005 and 2004, respectively. Service revenues accounted for approximately 15%
and 11% of the Company's revenue for the first quarters of 2005 and 2004,
respectively. Revenues from sales of the Company's products to MediVision were
approximately $267,000 during the three-month period ended March 31, 2005 and
$183,000 for the comparable three-month period ending March 31, 2004.
Gross Margins
Gross margins were approximately 59% during the first quarter ended March
31, 2005 as compared to 60% for the first quarter ended March 31, 2004. The
decrease in margins is a result of an increase in sales of the NextGen
Healthcare Information Systems, Inc. software products, which have lower gross
margins than the majority of the Company's other products. It is anticipated
that the Company's gross margins will decrease as its sales of the NextGen
software products become more significant.
Sales and Marketing Expenses
Sales and marketing expenses accounted for approximately 26% of total
revenues during the first quarter of fiscal 2005 as compared to approximately
28% during the first quarter of fiscal 2004. Actual expense levels increased to
$728,004 during the first quarter of 2005 versus $659,682 during the first
quarter of 2004. Primary contributing factors to the increased expenses were new
hires to the sales organization and higher commissions associated with higher
revenue levels.
General and Administrative Expenses
General and administrative expenses were $312,996 in the first quarter of
fiscal 2005 and $247,465 in the first quarter of fiscal 2004. Such expenses
accounted for approximately 11% and 10% of revenues during the first quarter of
2005 and 2004, respectively. The increased expenses
12
were the result of increases in sales returns reserve requirements and increased
investor related expenses.
Research and Development Expenses
Research and development expenses were $242,408 in the first quarter of
fiscal 2005 and $247,236 in the first quarter of fiscal 2004. Such expenses
accounted for approximately 9% and 10% of revenues during the first quarter of
2005 and 2004, respectively. The Company has focused its recent research and
development efforts on new digital image capture products. The Company expects
its research and development expenditures to grow as a result of its projects
for research and development conducted by MediVision and other outsourced
consulting on the Company's behalf.
Interest and Other Expense, net
Interest and other expense was $52,590 during the first quarter of fiscal
2005 versus $45,325 during the first quarter of fiscal 2004. These amounts were
comprised principally of interest expense, mainly associated with the
convertible loans from Laurus and with financing arrangements provided to
certain of the Company's customers in connection with sales of its products.
Net Income
The Company recorded net income of $334,160, or $0.02 per share basic and
diluted earnings, for the first quarter ended March 31, 2005 as compared to net
income of $239,815 or $0.02 per share basic and diluted earnings for the first
quarter ended March 31, 2004.
Liquidity and Capital Resources
- -------------------------------
The Company's operating activities generated cash of $348,543 during the
three months ended March 31, 2005 as compared to generating cash of $55,265 in
the three months ended March 31, 2004. The cash generated from operations during
the first three months of 2005 was principally from net income for the period.
The cash generated from operations during the first three months of 2004 was
principally from net income for the period which amounts were principally offset
by increased receivables and inventory.
Cash used in investing activities was $6,800 during the first three months
of 2005 as compared to $1,293 during the first three months of 2004. The
Company's investing activities consisted of minor purchases of equipment. 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 used cash in financing activities of $240,607 during the first
three months of fiscal 2005 as compared to using cash of $344,508 during the
first three months of fiscal 2004. The cash used in financing activities during
the first three months of 2005 was principally from advances on the note
receivable from MediVision and repayments of the debt to Laurus. Cash used in
financing
13
activities during the first three months of 2004 was principally from repayments
of borrowings under existing arrangements with MediVision and advances to
MediVision.
At March 31, 2005 the Company had recorded a net amount due from MediVision
of approximately $1,253,000 on the promissory note and approximately $215,000
net amount due for products and services
On March 31, 2005 the Company's cash and cash equivalents were $2,091,446.
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. 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.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this Report, management of the
Company, with the participation of the Company's Chief Executive Officer
(principal executive officer) and the Company's Chief Financial Officer
(principal financial officer), evaluated the effectiveness of the Company's
"disclosure controls and procedures," as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934. Based on that evaluation, these officers
concluded that, as of March 31, 2005, the Company's disclosure controls and
procedures were effective to provide reasonable assurance that information
required to be disclosed in the Company's periodic filings under the Securities
Exchange Act of 1934 is accumulated and communicated to the Company's
management, including those officers, to allow timely decisions regarding
required disclosure.
During the quarter ended March 31, 2005, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 9, 2004, the Company filed a civil action in the United States
District Court for the Eastern District of California against several
of its 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 Ophthalmics, 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 as well as injunctive
relief against the defendants.
On August 20, 2004, the United States District Court for the Eastern
District of California granted in part the Company's application for a
preliminary injunction against certain of the defendants. In December
2004 the Court dismissed Johnny Justice, Jr. as an individual and
Justice Ophthalmics, Inc. from the case. Trial in the matter currently
is scheduled for April 2006.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 31.1 - Certification Required Under Section 302 of
Sarbanes-Oxley Act of 2002
31.2 - Certification Required Under Section 302 of
Sarbanes-Oxley Act of 2002
32 - Certification Required Under Section 906 of
Sarbanes-Oxley Act of 2002
(b) On February 28, 2005 the Company filed a Form 8-K
disclosing that the Company issued a press release
announcing its results of operations for the
Company's fiscal year ended December 31, 2004.
16
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
OPHTHALMIC IMAGING SYSTEMS
(Company)
By: /s/ Gil Allon
-------------------------------------
Gil Allon,
Chief Executive Officer
/s/ Ariel Shenhar
-------------------------------------
Ariel Shenhar,
Chief Financial Officer
Dated: May 11, 2005
17