SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-13966
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Premier Laser Systems, Inc.
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(Exact name of registrant as specified in its charter)
California 33-0476284
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3 Morgan, Irvine, California, 92618
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(Address of principal executive offices)
(949) 859-0656
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(Registrant's telephone number, including area code)
------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
-*APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (February 9, 2000):
Class A Common Stock: 18,008,104 Shares
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Class E-1 Common Stock: 1,257,461 Shares
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Class E-2 Common Stock: 1,257,461 Shares
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
PREMIER LASER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dec. 31, 1999 March 31, 1999
(Unaudited)
----------------- -----------------
ASSETS Restated
------
Current assets:
Cash & cash equivalents $ 413,928 $ 888,767
Restricted cash _ 50,000
Accounts receivable - net of allowance for doubtful accounts and
sales returns of $1,081,473 and $1,997,158, respectively 1,459,597 1,342,917
Prepaid expenses and other current assets 1,264,935 531,459
Inventories, net 6,212,655 6,977,104
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Total current assets 9,351,115 9,790,247
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Property & equipment, net 1,189,650 1,473,420
Intangibles assets, net 10,310,965 11,278,560
Other assets 11,265 21,953
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Total assets $ 20,862,995 $ 22,564,180
================= =================
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current liabilities:
Accounts payable $ 3,788,049 $ 3,802,606
Line of credit 24,844 70,470
Bridge loans payable 1,000,000 -
Convertible debentures 1,389,916 -
Accrued severance expenses 747,500 -
Accrued compensation and related costs 877,933 968,969
Accrued restructure costs _ 410,980
Accrued integration costs 663,088 663,087
Accrued warranty 682,317 739,298
Due to joint venture partner 549,194 549,194
Accrued purchase commitments 719,058 1,180,050
Unearned revenue 747,633 678,086
Other accrued liabilities 2,178,517 2,090,306
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Total current liabilities 13,368,050 11,153,046
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Shareholders' equity:
Preferred stock, no par value: Authorized Shares -- 8,850,000
Issued and Outstanding shares - none
Common stock - Class A , no par value -- Authorized Shares -- 35,600,000 93,404,697 89,354,340
Issued and Outstanding shares - 19,568,445 including
2,250,000 subject to issuance for shareholder litigation settlement
at December 31, 1999 and 16,859,355 including 2,250,000
subject to issuance for shareholder litigation settlement as of
March 31, 1999
Common stock - Class E-1, no par value: Authorized Shares -- 2,200,000 4,769,878 4,769,878
Issued and Outstanding shares - 1,257,461 at December 31, 1999 and
March 31, 1999
Common stock - Class E-2, no par value: Authorized Shares -- 2,200,000 4,769,878 4,769,878
Issued and Outstanding shares - 1,257,461 at December 31, 1999 and
March 31, 1999
Warrants and options 1,723,842 1,723,842
Additional paid-in-capital 400,000 -
Accumulated deficit (97,573,350) (89,206,804)
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Total shareholders' equity 7,494,945 11,411,134
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Total liabilities & shareholders' equity $ 20,862,995 $ 22,564,180
================= =================
PREMIER LASER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
Three months ended Dec 31, Nine months ended Dec 31,
----------------------------------- -----------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
Restated Restated
Net sales $ 2,405,870 $ 3,467,974 $ 9,091,011 $ 10,274,645
Cost of sales 2,637,880 3,343,549 6,810,735 10,314,851
---------------- ---------------- ---------------- ----------------
Gross (loss) profit (232,011) 124,425 2,280,275 (40,206)
---------------- ---------------- ---------------- ----------------
Operating expenses:
Selling and marketing expenses 1,393,353 2,446,185 3,987,524 6,516,347
Research and development expenses 944,580 1,205,208 3,395,846 3,853,120
General and administrative expenses 534,868 1,172,269 2,928,803 5,003,187
Reduction in previously recorded professional fees - - (350,000) -
Shareholder litigation settlement expense - 7,831,770 - 7,831,770
---------------- ---------------- ---------------- ----------------
Total operating expenses 2,872,801 12,655,432 9,962,173 23,204,424
---------------- ---------------- ---------------- ----------------
Loss from operations (3,104,812) (12,531,007) (7,681,897) (23,244,630)
Interest expense (income) 166,545 (237,079) 687,140 (293,783)
Minority interest in loss of consolidated subsidiaries - (150,752) - (318,897)
Income tax expense - - (2,488) -
---------------- ---------------- ---------------- ----------------
Net loss and comprehensive loss ($3,271,357) ($12,143,176) ($8,366,550) ($22,631,950)
================ ================ ================ ================
Loss per share ($0.20) ($0.81) ($0.54) ($1.52)
================ ================ ================ ================
Weighted average number of shares used in the
computation of basic and diluted net loss per share 16,494,851 14,927,547 15,547,902 14,904,017
================ ================ ================ ================
PREMIER LASER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended December 31,
-------------------------------------
1999 1998
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Restated
Operating activities:
Net loss ($8,366,550) ($22,631,950)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,556,076 1,686,082
Interest penalty on debenture 200,000 -
Amortization of beneficial conversion discount 400,000 -
Stock- based compensation 345,000 345,000
Shareholder litigation settlement, excluding legal fees - 7,447,500
Minority interest in loss of consolidated subsidiary - (318,897)
Changes in operating assets and liabilities:
Accounts receivable (116,680) 2,691,479
Inventories 764,449 (2,497,351)
Prepaid expenses and other assets (722,788) 1,220,954
Accounts payable (14,557) (2,938,650)
Unearned revenue 69,547 -
Other accrued liabilities 711,000 (1,713,939)
---------------- ----------------
Net cash used in operating activities (5,174,502) (16,709,772)
---------------- ----------------
Investing activities:
Maturities of short term investments - 8,507,492
Purchase of property and equipment (304,711) (904,030)
Purchase of intangible assets - (649,441)
---------------- ----------------
Net cash (used in) provided by investing activities (304,711) 6,954,021
---------------- ----------------
Financing activities:
Proceeds from convertible debentures and bridge loans 5,000,000 -
Net repayments under line of credit (45,626) (1,928,463)
Decrease in restricted cash 50,000 2,100,000
Proceeds from exercise of stock options and warrants - 210,722
---------------- ----------------
Net cash provided by financing activities 5,004,374 382,259
---------------- ----------------
Net decrease in cash and cash equivalents (474,839) (9,373,492)
Cash and cash equivalents at beginning of period 888,767 9,722,514
---------------- ----------------
Cash and cash equivalents at end of period $413,928 $349,022
================ ================
NOTE 1: General
In our opinion, the accompanying unaudited condensed consolidated
financial statements include all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of our financial
position at December 31, 1999 and the results of operations and cash flows for
the three and nine months ended December 31, 1999 and 1998. Although we believe
the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
Results of operations for interim periods are not necessarily indicative of
results of operations to be expected for the full year.
The accompanying unaudited condensed consolidated financial statements
include the accounts of Premier Laser Systems, Inc. and its wholly and majority
owned subsidiaries. All significant intercompany transactions and balances have
been eliminated.
The financial information in this quarterly report should be read in
conjunction with the March 31, 1999 consolidated financial statements and notes
thereto included in our Annual Report filed on Form 10-K/A for the fiscal year
ended March 31, 1999.
As a result of inquiries made by the staff of the United States
Securities and Exchange Commission, the Company, in October 1999, amended its
Annual Report on Form 10-K for the year ended March 31, 1999. In so doing, the
Company restated its financial statements for the years ended March 31, 1999 and
1998 to adjust its accounting for the September 1997 acquisition of 100% of
EyeSys Technologies, Inc. and the February 1998 acquisition of 51% of Ophthalmic
Imaging Systems. Further, the restatements reflected reclassifications to
eliminate the original separate reporting of the March 31, 1999 cessation of
Data.Site LLC's operations as "discontinued operations" in the consolidated
statements of operations and comprehensive loss and cash flows. The consolidated
financial statements were revised from those originally presented for the
cumulative and corresponding effects of the restatements made in the
consolidated financial statements for all periods through and including December
31, 1999.
NOTE 2: Litigation
Infrared Fiber Systems, Inc.
We entered into an agreement with Infrared Fiber Systems, Inc. (IFS),
as a supplier of certain fiber optics, that expires in the fiscal year ending
March 31, 2002. The agreement requires the supplier to sell exclusively to us
fiber optics for medical and dental applications as long as we purchased defined
minimum amounts.
In March 1994, we initiated litigation against IFS. Our complaint
alleges that IFS and two of its officers misrepresented IFS' ability to supply
optical fibers, and that IFS breached its supply agreement and certain
warranties. In April 1994, IFS filed a cross-complaint alleging breach of
contract and intentional interference with prospective economic advantage,
seeking declaratory relief that the contract has been terminated and that IFS is
free to market its fiber optics to others. In July 1994, Coherent, Inc. a major
shareholder of IFS and a manufacturer of medical lasers which employ IFS optical
fibers, joined the lawsuit for the express purpose of defending its rights to
the IFS optical fibers. In May 1995, we instituted litigation concerning this
dispute in Orange County, California Superior Court against Coherent,
Westinghouse Electric Corporation ("Westinghouse") and an individual employee of
Westinghouse who was an officer of IFS from 1986 to 1993, when the events
involved in the federal action against IFS took place and while Westinghouse
owned a substantial minority interest in IFS. The complaint charges that
Coherent conspired with IFS in the wrongful conduct which is the subject of the
federal lawsuit and interfered with our contracts and relations with IFS and
with prospective contracts and advantageous economic relations with third
parties. The complaint asserts that Westinghouse is liable for its employee's
wrongful acts as an IFS executive while acting within the scope of his
employment at Westinghouse. The lawsuit seeks injunctive relief and compensatory
damages. In October 1995, the federal action was stayed by order of the court in
favor of the California state court action, in which the pleadings have been
amended to include all claims asserted by us in the federal action.
In July 1996, the court in the California state court action granted
demurrers by Westinghouse and the employee of Westinghouse to all causes of
action against them, as well as all but one of our claims against Coherent. As a
result, the claims that were the subject of the granted demurrers have been
dismissed, subject to our right to appeal. We appealed these decisions as they
related to Westinghouse and Westinghouse employees, however the court of Appeals
affirmed the state court's decision. No trial date has been set as to the
remaining outstanding causes of action.
Shareholders Litigation
We and certain of our officers and directors have been named in a
number of securities class action lawsuits which allege violations of the
Securities Exchange Act or the California Corporations Code. The plaintiffs seek
damages on behalf of classes of investors who purchased our stock between May 7,
1997 and April 15, 1998. The complaints allege that we misled investors by
failing to disclose material information and making material misrepresentations
regarding our business operations and projections. We have also been named in a
shareholder derivative action purportedly filed on our behalf against certain of
our officers and directors arising out of the same alleged acts. We have reached
an agreement in principal with lead plaintiffs and their counsel to settle the
class and derivative actions. Under the terms of the agreement in principle, in
exchange for a release of all claims against Premier and its officers and
directors, this agreement would require Premier to issue to the defendants an
aggregate of 2,250,000 shares of its common stock and requires Premier's
insurance carrier to pay $4.6 million in cash. This agreement is not final,
however, and is subject to several conditions, including the approval by the
court and execution of a final settlement agreement. If for any reason, the
proposed settlement is not consummated, and the plaintiffs obtain a judgment,
our business may be adversely affected.
In accordance with the terms of the agreement in principle to settle
class and derivative actions, we established a reserve during the quarter ended
December 31, 1998 for the issuance of 2,250,000 shares of common stock. These
shares were valued at a price of $3.31 per share, which was the closing price of
our stock on November 18, 1998, the effective date of the proposed settlement
agreement. We have also included approximately $884,000 of associated legal and
professional fees in this reserve, but have not included in the reserve
approximately $4,600,000 in cash that would be paid by our insurers, as the
Company's insurers have deposited the cash portion of the settlement into an
escrow account for direct payment to the plaintiffs upon final completion and
approval of the settlement agreement.
Former Management Litigation
On January 14, 2000, Colette Cozean, Ph.D., most recently our Chairman
and Chief Technology Officer, and Jeffrey Anderson, our former Vice President
Regulatory Affairs and Quality Assurance, filed an action against Premier in the
Superior Court of the State of California, for the County of Orange. Dr. Cozean
alleges that Premier has failed to pay her certain salary and benefits and to
reimburse her for certain business expenses. Mr. Anderson alleges that he did
not receive severance pay under an employment agreement. Dr. Cozean seeks
damages in excess of $340,000 and Mr. Anderson seeks to recover in excess of
$120,000. Premier intends to vigorously defend the action.
Other Matters
We are involved in various other disputes and lawsuits arising from our
normal operations. The litigation process is inherently uncertain and it is
possible that the resolution of these disputes and other lawsuits may adversely
affect us. However, in our opinion, the outcome of these matters will not have a
material adverse impact on our financial position, results of operations or cash
flows.
NOTE 3: Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market, and are comprised of the following:
December 31, 1999 March 31, 1999
------------- --------------
Raw materials $ 8,229,561 $ 8,980,306
Work-in-process 1,199,561 756,122
Finished goods 7,101,371 7,048,239
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16,530,493 16,784,667
Less reserve for slow moving and
excess inventories (10,317,838) (9,807,563)
------------- --------------
$ 6,212,655 $ 6,977,104
============= ==============
NOTE 4: Convertible Debentures
In May 1999, we filed a registration statement to register 4,278,146
shares of our Class A common stock underlying convertible debentures issued in a
private placement. As part of the private placement, as amended, we agreed to
pay liquidated damages of $100,000 per month if the registration statement
covering the shares of Class A common stock underlying the convertible
debentures was not declared effective by August 15, 1999. The registration
statement was declared effective on October 12,1999, resulting in liquidated
damages of $200,000, which is included in interest expense and has been added to
the original principal amount of the debentures. To date, we have received $4.0
million in gross proceeds in the private transaction. In September 1999,
$1,000,000 of our convertible debentures, and the accrued interest theron, was
converted into 673,461 shares of our Class A common stock. During the quarter
ended December 31, 1999, an additional $3,060,000 of our convertible debentures,
and the accrued interest thereon, was converted into 1,932,706 shares of our
Class A common stock. In January 2000, the remaining $140,000 of convertible
debentures was converted to Class A common stock.
In November 1999, the Company entered into settlement agreements with
certain vendors whereby $460,992 of accrued purchase commitments and $788,924 of
trade accounts payable owed to the respective vendors was converted to
convertible debentures aggregating $1,249,916.
In February 2000, we completed a private round of financing in which we
issued $2,000,000 of secured convertible debentures. Related proceeds were used
to refinance certain bridge loans and to provide additional working capital.
NOTE 5: Acquisition of the Minority Interest in OIS
We currently own 51% of OIS. On October 22, 1999, we entered into a
merger agreement with OIS, pursuant to which we will acquire the 49 percent of
the outstanding shares of OIS not presently owned by us. Under the terms of the
Merger Agreement, shareholders of OIS would receive 0.8 shares of our common
stock for each share of OIS common stock owned by the shareholder. The merger is
subject to approval by the shareholders of OIS (including approval of a majority
of the OIS stock not owned by us) and to other customary closing conditions as
specified in the Merger Agreement. OIS entered into a Series B Preferred Stock
Purchase Agreement with us (the "Stock Purchase Agreement") pursuant to which
OIS agreed to sell shares of OIS Series B Preferred Stock (the "Series B
Preferred Stock") at the price of $25.00 per share with each such share carrying
the voting power of 1,000 shares of OIS common stock. OIS becomes obligated to
sell 50 shares of the Series B Preferred Stock for every 50,000 shares of OIS
common stock issued under OIS common stock options. We intend to purchase any
such shares by canceling indebtedness of OIS to us. Given our present 51%
ownership interest in OIS, we consolidate the financial position and operations
of OIS. Therefore, if the acquisition is consummated, there will not be any
impact on our financial position or operations resulting from the consolidation
of OIS. However, there will likely be a material impact on our financial
position and operations resulting from recording the acquisition purchase price
and the related allocation of this purchase price to in-process research and
development projects, goodwill and other intangible assets. The impact of the
potential acquisition on our financial position and operations is not presently
determinable as the final acquisition purchase price has not yet been determined
and we have not finalized our analysis of the estimated fair market value of
OIS' in process research and development projects and intangible assets.
NOTE 6: Contingent Liability of Subsidiary
Consolidated results of operations do not include any charges related
to a contingent liability for sales taxes payable at the Company's OIS
subsidiary in an amount which will be calculated on the basis of numerous
probabilities that might, in the least favorable combination, reach $1.3
million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
------------------------------------------------------------------------
Results of Operations
Our consolidated net sales for the quarter ended December 31, 1999 (the
"1999 Quarter") and nine months ended December 31, 1999 (the "1999 Period")
decreased by 30.6% to $2,405,870 from $3,467,974 for the quarter ended December
31, 1998 (the "1998 Quarter") and by 11.5% to $9,091,011 from $10,274,645 for
the nine month period ended December 31, 1998 (the "1998 Period"). Sales at our
OIS subsidiary increased to $1,347,247 in the 1999 Quarter from $1,342,909 in
the 1998 Quarter. The overall decreases in our sales levels are primarily
related to delayed introductions of new dental products, difficulties in
transitioning manufacturing of OIS products to Premier, and difficulties
concerning manufacturing of OIS products that were brought to market in August
and September 1999.
Cost of sales decreased 21.1% to $2,637,880 for the 1999 Quarter as
compared to $3,343,549 for the 1998 Quarter, and decreased 34.0% to $6,810,735
for the 1999 Period from $10,314,851 during the 1998 Period. These decreases
generally resulted from lower sales levels, however a gross loss occurred in the
1999 Quarter because of under-absorbed manufacturing overhead. Further, in the
1998 Quarter, we recognized reserves for additional excess inventory of $511,000
that were not recognized during the 1999 Quarter.
Selling and marketing expenses decreased 43.0% to $1,393,353 for the
1999 Quarter as compared to $2,446,185 for the 1998 Quarter, and decreased 38.8%
to $3,987,524 for the 1999 Period from $6,516,347 during the 1998 period. These
decreases were accomplished by reducing funds spent on advertising and
promotional marketing, professional services, trade show expenses, travel
expenses, education and seminars, and public relations. The reductions were made
in response to cash constraints and the need to focus our selling and marketing
efforts in the most productive areas.
Research and development expenses decreased 21.6% to $944,580 for the
1999 Quarter as compared to $1,205,208 for the 1998 Quarter, and decreased 11.9%
to $3,395,846 for the 1999 Period from $3,853,120 during the 1998 Period. This
decrease was accomplished by reducing travel expenses, grants, professional
services and product samples. There have been no significant changes relative to
the status of our acquired in process research and development projects since
that reported in our Annual Report on Form 10-K/A for the year ended March 31,
1999.
General and administrative expenses decreased 54.4% to $534,868 for the
1999 Quarter as compared to $1,172,269 for the 1998 Quarter, and decreased 48.5%
to $2,578,803 (including reduction of previously recorded professional fees of
$350,000) for the 1999 Period from $5,003,187 during the 1998 Period. These
significant decreases resulted primarily from a $875,000 reduction of our
allowance for doubtful accounts and a $410,980 reduction of our accrued
restructure costs during the 1999 Quarter. As a result of improved credit
monitoring procedures and increased cash collection efforts experienced in the
1999 Period, we made a change in accounting estimate and determined that our
allowance for doubtful accounts was overstated by $875,000. We also determined
that certain expenditures primarily relating to incentive bonus and legal fees
that we initially expected to pay in connection with our 51% acquisition of OIS
are no longer required. We also achieved reductions in outside services and
securities expenses during the 1999 Period. Our legal expenses also decreased,
as we had previously reached an agreement in principle to settle the
shareholders lawsuit that was filed in the 1998 Quarter. The above decreases
were somewhat offset by $747,500 of severance related liabilities that were
recognized in the 1999 Quarter in connection with the employment termination of
our former Chief Executive Officer, Executive Vice President of Operations and
Vice President of Regulatory Affairs/Quality Assurance. In addition, salaries
expense increased as we added key positions to our management team.
In connection with the acquisition of OIS by Premier, OIS previously
recorded approximately $400,000 in professional fees and expenses owing to a
financial advisor. In May 1999, OIS reached an agreement with a financial
advisor to reduce the aggregate amount of professional fees and expenses
previously recorded to $50,000. Accordingly, the reduction of $350,000 in fees
and expenses during the nine months ended December 31, 1999 is reflected in the
consolidated statements of operations and comprehensive loss as a separate
component of the loss from operations.
Total operating expenses decreased 77.3% to $2,872,801 for the 1999
Quarter as compared to $12,655,432 for the 1998 Quarter, and decreased 57.1% to
$9,962,173 for the 1999 Period from $23,204,424 during the 1998 Period. The
decrease was primarily due to the litigation settlement expense of $7,831,770
recognized in December 1998 and the factors described above.
Net interest expense increased to $166,545 for the 1999 Quarter as
compared to $237,079 net interest income for the 1998 Quarter. Net interest
expense increased to $687,140 for the 1999 Period from $293,783 net interest
income in the 1998 Period. The majority of the increase was due to interest
associated with the $4,000,000 convertible debt offering which we completed in
May 1999, together with amortization of the related conversion benefit and debt
issuance costs and liquidated damages. The balance of the increase was due to an
increase in interest expense at OIS which increased from $20,778 in the 1998
Quarter to $38,580 in the 1999 Quarter.
We reported a net loss of $3,271,357 or $.20 per share in the 1999
Quarter, down from a net loss of $12,143,176 or $.81 per share in the 1998
Quarter. We reported a net loss of $8,366,550 or $.54 in the 1999 Period, down
from a net loss of $22,631,950 or $1.52 per share in the 1998 Period.
Consolidated results of operations do not include any charges related
to a contingent liability for sales taxes payable at the Company's OIS
subsidiary in an amount which will be calculated the basis of numerous
probabilities that might, in the least favorable combination, reach $1.3
million.
Liquidity and Capital Resources
At December 31, 1999, we had unrestricted cash and cash equivalents of
$413,928 and a working capital deficit of $4,016,935 as compared to $888,767 of
unrestricted cash and cash equivalents and a working capital deficit of
$1,362,799 at March 31, 1999. The decrease in our cash can be primarily
attributed to lower sales.
Accounts payable decreased $14,557 to $3,788,049 at December 31, 1999
as compared to $3,802,606 at March 31, 1999, primarily as a result of cash flow
management, slower payments to vendors, and converting $788,924 of accounts
payable to convertible debentures in the 1999 Quarter. Other current liabilities
increased $2,229,561 to $9,580,001 at December 31, 1999 from $7,350,440 at March
31, 1999, a result of $1,000,000 in bridge loans and convertible debentures
aggregating $1,389,916. The convertible debentures balance resulted from issuing
convertible debentures of $5,249,916, a $200,000 addition to principal for
penalties, and the conversion of $4,060,000 of convertible debentures into
2,606,167 shares of our Class A common stock. Further, during the 1999 Quarter,
we accrued severance liabilities of $747,500 and relieved accrued restructure
costs of $410,980.
In February 2000, we completed a private round of financing in which
we issued $2,000,000 of secured convertible debentures. Related proceeds were
used to refinance certain bridge loans and to provide additional working
capital.
At March 31, 1999, we had net operating loss carry forwards for federal
income tax purposes totaling approximately $56 million which will begin to
expire in fiscal 2006. The Tax Reform Act of 1986 includes provisions which may
limit the net operating loss carry forwards available for use in any given year
if certain events occur, including significant changes in stock ownership.
Utilization of our net operating loss carry forwards to offset future income may
be limited.
Our future capital requirements will depend on many factors, including
the progress of our research and development activities, the scope and results
of preclinical studies and clinical trials, the costs and timing of regulatory
approvals, the rate of technology advances by us, competitive conditions within
the medical laser industry, the establishment of manufacturing capacity, the
outcome of the class action lawsuits and the establishment of collaborative
marketing and other relationships which may either involve cash infusions to us,
or require additional cash from us. We do not currently have a credit facility.
However, we are seeking additional sources of financing, which may include
short-term debt, long-term debt or equity. We will be unable to fund our current
operations unless we are successful in concluding such a financing in the near
term. If we are unsuccessful in obtaining such financing in the near term,
there is a risk that we will not have sufficient cash to fund our operations
and will be required to pursue restructuring alternatives, including a possible
restructuring through Chapter 11 of the Bankruptcy Code. Over the longer term,
our ability to meet our working capital needs will be dependent on our ability
to achieve a positive cash flow from operations and achieve and sustain
profitable operations. We have reduced cash used in operations through the
implementation of disciplined departmental budgets, reduced head count and
tighter monitoring of expenditures.
Government Grants
We have been awarded a SBIR grant for approximately $750,000 for the
study of laser cataract emulsification. Substantially all of this grant has been
drawn for such purposes. The remaining $50,000 of the grant can be drawn upon
the achievement of specified criteria.
Year 2000 Issues
We have, and are continuing to, evaluate the following issues with
respect to the Year 2000:
* State of readiness
* Costs to address Year 2000 issues
* Risk assessment
* Contingency plan
The following is a description of the process we have established and
which we intend to follow to minimize our Year 2000 risk exposure:
STATE OF READINESS. In September 1998, we upgraded our accounting
system to a release that is Year 2000 compliant. In addition, we have sent out
letters to substantially all of our suppliers requesting assurances of Year 2000
compliance. We have received from a majority of these suppliers written
assurances of compliance. In addition, we have received documentation in the
form of information published on websites stating that the systems of our major
vendors are Year 2000 compliant. To date, we have not experienced any issues
with respect to Year 2000 problems encountered by our accounting systems or
major suppliers.
COSTS TO ADDRESS YEAR 2000 ISSUES. To date we have expended
approximately $75,000 in connection with our evaluation and upgrades of systems
and approximately $5,000 in contacting our vendors and suppliers to ensure
compliance. These costs have been included in selling, general and
administrative expense in the consolidated statements of operations and
comprehensive loss. All costs related to Year 2000 have been paid from cash
flows from operations.
We anticipate that future expenditures for necessary remediation of
which we are not yet aware for implementation of additional contingency plans
will not be significant. These expenditures, if required, will be recorded as
selling, general and administrative expense as incurred.
RISK ASSESSMENT. Based on the findings of our engineers, we believe
that the impact of Year 2000 issues on our internal operations will be minimal.
Our laser products are not date sensitive. Some of our diagnostic products
contain date sensitive databases, however, the costs of software modification
are not expected to be material. We are not presently aware of any significant,
unexpected Year 2000 problems experienced by users of our products.
We have not yet experienced any significant problems resulting from
Year 2000 noncompliance by outside parties with whom we transact business.
Seasonality
To date, our revenues have typically been significantly higher in the
second and fourth calendar quarters. This seasonality reflects the timing of
major medical and dental industry trade shows in these quarters, significantly
reduced sales during the summer and the effect of year end tax planning
influencing the purchase of capital equipment for depreciation during the fourth
calendar quarter.
Item 3. Quantative and Qualitative Disclosures about Market Risk.
---------------------------------------------------------
No Disclosure Required.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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Securities Class Action
On May 1,1 998, a class action suit (the "Valenti Litigation") was
commenced in the United States District Court for the Central District of
California pursuant to federal securities laws on behalf of purchasers of our
securities during the period from February 12, 1998 through April 15, 1998. The
complaint alleges that we and certain of our officers and directors violated the
federal securities laws by issuing false and misleading statements and omitting
material facts regarding our financial results and operations during such
period. Among other things, the complaint alleges that the defendants materially
misstated our financial results for the fiscal quarter ended December 31, 1997
by overstating our revenues and profitability. The complaint also alleges that
we misstated the nature of our legal and business relationship with a
distributor, Henry Schein, Inc., and that as a result of such misstatements, the
plaintiff suffered damages as a result of a decrease in the market price of our
publicly traded securities.
After the filing of this complaint, a number of similar complaints have
also been filed in the United States District Court for the Central District of
California, seeking certification as class actions, and covering class periods
commencing as early as May 7, 1997. Such complaints alleged facts similar to
those described above with respect to the Valenti Litigation, as well as
allegations that we artificially inflated the price of our outstanding publicly
traded securities as a result of misrepresentations relating to the market and
prospects for sale of our Centauri Er:YAG laser. All of the above described
complaints seek monetary damages in unspecified amounts, together with
attorneys' fees, interest, costs and related remedies. All of these class action
lawsuits have now been consolidated into a single action.
We have also been named as a nominal defendant in a shareholder
derivative lawsuit filed in the Orange County, California Superior Court, in a
case captioned Eskeland vs. Cozean, et al. The complaint was filed by a
shareholder of ours, on behalf of Premier, against certain of our officers and
directors, including Colette Cozean, Michael Hiebert, Richard Roemer, Ronald
Higgins, Patrick Day, Grace Chin-Hsin Lin, G. Lynn Powell, and E. Donald
Shapiro. The complaint alleges, among other things, that such persons violated
their fiduciary duty to us by exposing us to liability under the securities
laws, failing to ensure that we maintained adequate accounting controls, and
related alleged actions and omissions. Although we are a named defendant, the
lawsuit seeks to recover damages from the individual defendants on behalf of us.
Accordingly, it is not clear whether we have any liability or will incur any
material loss as a result of being named as a defendant in this matter.
Premier has reached an agreement in principle with lead plaintiffs and
their counsel to settle lawsuits. In exchange for the release of all claims
against Premier and its officers and directors, this agreement would require
Premier to issue to the defendants an aggregate of 2,250,000 shares of its
common stock and requires Premier's insurance carrier to pay $4.6 million in
cash. This agreement is not final, however, and is subject to several
conditions, including the approval by the court and execution of a final
settlement agreement.
Investigations
We have been notified that the Securities and Exchange Commission
("SEC") has instituted an investigation concerning matters pertaining to our
revenue reporting practices, and related management issues. We are cooperating
with the SEC in connection with this investigation. This investigation, we
believe, generally relates to whether we, in SEC filings and press releases
issued prior to the end of the 1998 fiscal year, properly recognized revenues
for transactions occurring during fiscal 1997, and at interim periods in fiscal
1998. To date, the SEC has not indicated that it is seeking to impose any
penalties on us or that it has made any specific findings with respect to our
accounting practices.
In May 1998, the Nasdaq Stock Market suspended the trading of our
securities and notified us that they intended to delist our securities. We
appealed this proposed action, and in October 1998 our appeal was granted.
Trading of our securities on the Nasdaq Stock Market National Market recommenced
on October 22, 1998.
OIS Litigation
On or about September 18, 1998, OIS received from WSC a notice of an
alleged trademark infringement. WSC is the owner of a federal trademark
registration for WINSTATION and sells personal computers and related equipment
under that name. For several years, OIS has used the "OIS WinStation" trademark
for its ocular digital imaging systems. Because OIS' products are relatively
expensive medical devices sold in a narrow specialty market channel to highly
educated consumers, OIS does not believe that another word or words could be
substituted for its use of "WinStation", if necessary, without material adverse
impact on its marketing efforts. For these reasons, OIS believes the
infringement allegations can be resolved without a material adverse impact on
it. However, there can be no assurance that WSC will not take legal action, and
that such action, if taken, would not potentially have a material adverse affect
on OIS.
On or about August 17, 1997, OIS was advised that J.B. Oxford &
Company, one of several market makers in OIS' common shares which trade over the
counter on the Nasdaq Stock Market Small-Cap Market, was being investigated by
the SEC. OIS is cooperating with the Securities and Exchange Commission
investigation of J.B. Oxford & Company. OIS does not believe that it is a
subject of these Securities and Exchange Commission inquiries.
Former Management Litigation
On January 14, 2000, Colette Cozean, Ph.D., most recently our Chairman
and Chief Technology Officer and Jeffrey Anderson, our former Vice President
Regulatory Affairs and Quality Assurance, filed an action against Premier in the
Superior Court of the State of California, for the County of Orange. Dr. Cozean
alleges that Premier has failed to pay her certain salary and benefits and to
reimburse her for certain business expenses. Mr. Anderson alleges that he did
not receive severance pay under an employment agreement. Dr. Cozean seeks
damages in excess of $340,000 and Mr. Anderson seeks to recover in excess of
$120,000. Premier intends to vigorously defend the action.
Other Matters
We are also involved in various disputes and other lawsuits from time
to time arising from our normal operations. The litigation process is inherently
uncertain and it is possible that the resolution of any of such litigation, as
well as the matters described above, may adversely affect us.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
During the quarter ended December 31, 1999, we issued an aggregate of
1,932,706 shares of Class A Common Stock to investors upon conversion of
$3,060,000 principal amount of convertible debentures. The purchasers of our
convertible debentures are private investment funds. The Company previously paid
commissions in connection with the issuance of the debentures, but paid no new
commissions in connection with the conversion of the debentures. The issuance of
Class A Common Stock described above was exempt from registration under the
Securities Act of 1933 pursuant to Section 3(a)(9) of such act.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K:
On November 30, 1999, we filed with the Securities and Exchange
Commission a Current Report on Form 8-K regarding our extension of the
expiration date of our outstanding Class B Warrants to January 31, 2000
and our appointment of Michael J. Quinn as our new President and Chief
Executive Officer.
On November 5, 1999, we filed with the Securities and Exchange
Commission a Current Report on Form 8-K regarding our proposed
acquisition of the 49% minority interest of Ophthalmic Imaging Systems.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PREMIER LASER SYSTEMS, INC.
Dated: February 11, 2000
/S/ Michael J. Quinn
- -----------------------------------------
Michael J. Quinn, Chief Executive Officer
(duly authorized officer)
Dated: February 14, 2000
/S/ Robert V. Mahoney
- ------------------------------------------
Robert V. Mahoney, Chief Financial Officer
and Executive Vice-President, Finance
(Principal financial and accounting officer)
(duly authorized officer)