SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q/A
(Amendment No. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
(October 5, 1999):
Class A Common Stock: 15,634,897 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 I. FINANCIAL INFORMATION
Item 1. Financial Statements
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PREMIER LASER SYSTEMS, INC.
CONDENSED BALANCE SHEETS
June 30, March 31,
1999 1999
(Unaudited & restated) (Restated)
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ASSETS
------
Current assets:
Cash & cash equivalents $1,016,394 $888,767
Restricted cash 2,050,000 50,000
Accounts receivable-net of allowance for doubtful accounts & 1,135,851 1,342,917
sales returns of $1,956,116 & $1,997,158 , respectively
Prepaid expenses and other current assets 600,164 531,459
Inventories, net 6,424,914 6,977,104
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Total current assets 11,227,323 9,790,247
Property & equipment , net 1,357,941 1,473,420
Intangibles assets, net 10,924,300 11,278,560
Other assets, net 338,017 21,953
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Total assets $23,847,581 $22,564,180
====================== =====================
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,148,620 $3,802,606
Line of credit 16,157 70,470
Accrued compensation & related costs 972,094 968,969
Accrued acquisition costs 1,074,068 1,074,067
Accrued warranty 701,624 739,298
Due to joint venture partner 549,194 549,194
Accrued purchase commitments 1,180,050 1,180,050
Unearned revenue 747,633 678,085
Other accrued liabilities 1,898,649 2,090,307
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Total current liabilities 10,288,089 11,153,046
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Long term liabilities:
Convertible debentures, net (6% convertible debentures at $4,000,000 3,616,667 _
less $383,333 unamortized beneficial conversion discount)
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Total long term liabilities 3,616,667 _
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Total liabilities 13,904,756 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 89,581,899 89,354,340
Authorized Shares - 35,600,000
Issued & outstanding shares - 16,962,278 including
2,250,000 subject to issuance for shareholder litigation settlement
Common stock - Class E-1, no par value: 4,769,878 4,769,878
Authorized shares - 2,200,000
Issued and outstanding shares -- 1,257,461at
June 30, 1999 and March 31, 1999
Common stock - Class E-2, no par value: 4,769,878 4,769,878
Authorized shares - 2,200,000
Issued and outstanding shares-- 1,257,461 at
June 30, 1999 and March 31, 1999
Warrants and options 1,723,842 1,723,842
Additional paid- in-capital 400,000 _
Accumulated deficit (91,302,672) (89,206,804)
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Total shareholders' equity 9,942,825 11,411,134
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Total liabilities & shareholders' equity $23,847,581 $22,564,180
======================= =====================
PREMIER LASER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
Three months ended June 30,
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1999 1998
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Restated Restated
Net sales $3,658,332 $3,481,336
Cost of sales 2,268,533 3,457,424
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Gross profit 1,389,799 23,912
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Operating expenses:
Selling and marketing expenses 1,400,940 2,199,575
Research and development expenses 1,203,749 1,189,041
General and administrative expenses 1,120,842 1,784,082
Reduction of previously recorded prof. fees (350,000) _
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Total operating expenses 3,375,531 5,172,698
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Loss from operations (1,985,732) (5,148,786)
Interest (income) expense 110,136 (46,569)
------------------------- ---------------------
Net loss and comprehensive loss ($2,095,868) ($5,102,217)
========================= =====================
Loss per share ($0.14) ($0.35)
========================= =====================
Weighted average number of shares used
in computation of basic and diluted net loss
per share 14,609,355 14,597,754
========================= =====================
PREMIER LASER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended June 30,
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1999 1998
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Restated Restated
Operating activities
Net loss ($2,095,868) ($5,102,217)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 490,453 622,019
Amortization of beneficial conversion discount 16,667 _
Stock- based compensation 227,559 115,000
Changes in operating assets and liabilities:
Accounts receivable 207,066 1,950,154
Inventories (627,860) (2,835,135)
Prepaid expenses and other current assets (384,770) (457,858)
Accounts payable (596,982) (2,048,533)
Accrued liabilities 1,023,392 (1,315,916)
Other _ (173,867)
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Net cash used in operating activities (1,740,343) (9,246,354)
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Investing activities
Maturities of short term investments _ 2,918,002
Acquisition of intangibles assets (72,558) _
Purchase of property and equipment (5,158) (474,310)
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Net cash (used in) provided by investing activities (77,716) 2,443,692
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Financing activities
Proceeds from convertible debenture 4,000,000 _
Net (repayments) borrowings under line of credit (54,314) 19,597
(Increase) in restricted cash (2,000,000) _
Proceeds from exercise of stock options and warrants _ 31,886
----------------------- -----------------------
Net cash provided by financing activities 1,945,686 51,483
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Net increase (decrease) in cash and cash equivalents 127,627 (6,751,179)
Cash and cash equivalents at beginning of period 888,767 9,722,514
----------------------- -----------------------
Cash and cash equivalents at end of period $1,016,394 $2,971,335
======================= =======================
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 June 30, 1999 and the results of operations and cash flows for the
three months ended June 30, 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 10K-A for the fiscal year
ending 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
19998 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 cash flows. The consolidated financial statements
as of June 30, 1999 and for the three-month periods ended June 30, 1999 and 1998
have been revised from those originally presented for the cumulative and
corresponding effects of the restatements made in the consolidated financial
statements for the years ended March 31, 1999 and 1998.
NOTE 2: Litigation
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 employee, 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.
We are involved in various other disputes and lawsuits arising from our
normal operations. The litigation process in 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: Potential Merger
We currently own 51% of OIS. We are in discussions to acquire the
balance of the OIS shares that we do not presently own. No agreements have yet
been reached. 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, or
other intangible assets of OIS. The impact of the potential acquisition on our
financial position and operations is not presently determinable as the
acquisition purchase price has not determined and we have not yet analyzed the
fair market value of OIS' in process research and development projects and
intangible assets.
NOTE 4: Convertible Debentures
In May 1999, we filed a registration statement to register 4,278,146
shares of our Company's Class A common stock underlying convertible debentures
issued in a private placement. To date, we have received $2.5 million in gross
proceeds in the private transaction. The remaining $1.5 million in gross
proceeds from this transaction is held in escrow, and will be released to us
upon satisfaction of certain conditions, including the effectiveness of a
registration statement we have filed with the SEC relating to these securities.
NOTE 5: Subsequent Events
In September 1999, $1,000,000 of the Company's convertible debentures,
and the accrued interest thereon, was converted into 673,461 shares of the
Company's Class A common stock (unaudited).
NOTE 6: Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market, and are comprised of the following:
June 30, March 31,
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1999 1999
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Raw materials............................... $ 8,200,994 $ 8,980,306
Work-in-process............................. 1,092,823 756,122
Finished goods.............................. 7,114,637 7,048,239
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16,408,454 16,784,667
Less reserve for slow moving and excess
inventories.............................. (9,983,540) (9,807,563)
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$ 6,424,914 $ 6,977,104
============ ============
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 June 30, 1999 (the
"1999 Quarter") increased by 5% to $3,658,332 from $3,481,336 for the quarter
ended June 30, 1998 (the "1998 Quarter"). Sales for OIS decreased to $1,539,060
in the 1999 Quarter from $1,839,484 in the 1998 Quarter. The net sales increase
is a result of increased sales of dental laser and EyeSys diagnostic products.
Our international sales represented 12% of total sales in the 1999 Quarter.
Cost of sales decreased 34% to $2,268,533 in the 1999 Quarter from
$3,457,424 in the 1998 Quarter. Cost of sales decreased as a percentage of sales
from 99.3% in the 1998 Quarter to 62.0% in the 1999 Quarter. These decreases
were due to better manufacturing capacity planning and utilization.
Selling and marketing expenses decreased 36% to $1,400,940 in the 1999
Quarter from $2,199,575 for the 1998 Quarter. These decreases were accomplished
by reducing funds spent on advertising and promotional marketing, trade show
expenses, travel expenses and salaries. These 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 increased 1% in the 1999 Quarter as
compared to the 1998 Quarter. This increase was the result of increased
expenditures at our Ophthalmic Imaging Systems subsidiary as it continued the
development of its Digital Fundus Imager and Digital Slit Lamp products in
preparation for marketing. At Premier, outside professional services increased
significantly in the 1999 Quarter compared to the 1998 Quarter. This increase
was partially offset by decreased salary expense as we had more of our research
efforts conducted by third parties. There has been no significant change in the
status of our acquired in process reserach and development projects since that
reported in our 10K-A for the year ended March 31, 1999.
General and administrative expenses decreased by 37% in the 1999
Quarter to $1,120,842 from $1,784,082 in the 1998 Quarter. The decrease occurred
at both OIS and at Premier where salary expenses were reduced significantly due
to staff reductions. Premier's legal expenses also decreased substantially as we
had previously reached agreement in principle to settle the shareholder lawsuits
originally filed in the 1998 Quarter. In addition, we scaled back our public
relations efforts in the 1999 Quarter due to cash constraints.
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 in connection with the acquisition to $50,000. Accordingly,
the reduction of $350,000 in fees and expenses during the quarter ended June 30,
1999 is reflected in the consolidated statements of operations and comprehensive
loss as a separate component of the loss from operations.
Total operating expense for the three months ended June 30, 1999
decreased 35% to $3,375,531 in the 1999 Quarter from $5,172,698 in the 1998
Quarter.
Net interest expense increased to $110,136 in the 1999 Quarter from
$46,569 net interest income in the 1998 Quarter. This increase was partially due
to an increase in interest expense at OIS which increased from $27,749 in the
1998 Quarter to $44,317 in the 1999 Quarter. The balance of the increase was due
to interest associated with the $4,000,000 convertible debt offering which we
completed in the 1999 Quarter, together with amortization of the related
conversion benefit and debt issuance costs.
We reported a net loss of $2,095,868 or $.13 per share in the 1999
Quarter, down from a net loss of $5,102,217 or $.35 per share in the 1998
Quarter.
Liquidity and Capital Resources
At June 30, 1999, we had unrestricted cash and short-term investments
of $1,016,000 and working capital of $939,000 as compared to $889,0000 of
unrestricted cash and short term investments and a working capital deficit of
$1,363,000 at March 31, 1999. The improvements in our cash and working capital
positions is primarily the result of the $2 million in funds received in May
1999 combined with our efforts to control costs and manage cash flow. Accounts
receivable (net ) totaled $1,135,851 on June 30,1999 as compared to $1,342,917
at March 31, 1999, a decrease of $207,066. Inventories aggregated at $6,424,914
at June 30,1999 as compared to $6,977,104 at March 31,1999 which represents a 8%
decrease or $552,190.
Other assets have increased to $338,017 at June 30, 1999 from $21,953
at March 31, 1999. This increase was attributed to transaction costs associated
with securing $4,000,000 in convertible debentures in a private transaction.
Accounts payable decreased $653,986 to $3,148,620 at June 30, 1999 as
compared to $3,802,606 at March 31,1999. Accounts payable decreased as a result
of decreased operating expenses for the 1999 Quarter and the application of a
portion of the proceeds from the sale of convertible debentures to accounts
payable. Accrued liabilities decreased $226,206 to $5,826,485 at June 30, 1999
from $6,052,691 at March 31, 1999. Long term debt increased to $4,000,000 at
June 30, 1999, exclusive of related beneficial conversion features. The increase
was due to issuing $4,000,000 of convertible debentures to private investors.
Our restricted cash increased by $2,000,000 in the 1999 Quarter. These funds,
which were received in connection with the issuance of the debentures, are being
held in escrow pending effectiveness of a registration statement registering
common stock issuable upon conversion of the debentures.
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 the 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, and are not
presently seeking a credit card facility to replace our former credit agreement
which expired in September 1998. Our ability to meet our working capital needs
will be dependent on our ability to achieve a positive cash flow from operations
and profitable operations. We have achieved increased cash collections during
the last three months and 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 are currently in the final phase of identifying and evaluating the
potential impacts of the Year 2000 on our systems. We are evaluating the
following issues:
* 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 either Year 2000 compliant or that these systems will be Year 2000
compliant by the end of the third quarter of 1999, with the exception of one
vendor that had assured us of its compliance by November 1999.
COST 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 are included in selling, general and administrative
expense in the consolidated statements of operations. All costs related to Year
2000 are paid from cash flows from operations.
We anticipate that future expenditures for necessary remediation of
which we are not yet aware and for implementation of additional contingency
plans will cost between $30,000-$200,000. These expenditures 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 have had difficulty estimating the impact of Year 2000 noncompliance
by outside parties with whom we transact business. We are currently in the
process of surveying our vendors and suppliers to ascertain their Year 2000
readiness. Because we have not yet completed this survey, we are not in a
position at this time to accurately ascertain the degree of compliance by
vendors and suppliers with whom we conduct business.
CONTINGENCY PLAN. Because we have not completed our testing and
assessment procedures, we have not developed any plans for likely scenarios
involving Year 2000 failures. If, when testing and assessment is complete, it
appears reasonably likely that such a Year 2000 failure may occur, management
intends to develop appropriate plans to deal with such contingencies. If we are
unsuccessful in developing or implementing a plan to correct possible Year 2000
failures, or if we fail properly to anticipate a Year 2000 failure in our
technology, we may experience disruptions in operations. Our projections of the
most significant disruption which could occur include:
* the loss of approximately two months net revenue of $4,000,000 if we
experience difficulties in obtaining components and products from our suppliers
who are experiencing disruptions due to Year 2000 risks, resulting in the loss
of sales because of failure to ship products on a timely basis. We would,
however, expect eventually to be able to recover a significant portion of this
revenue once measures were implemented to correct problems resulting from the
Year 2000 compliance problems.
* the inability to collect receivables in a timely manner if any of the
accounting systems of our clients experience a Year 2000 failure.
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 purchasing of capital equipment for depreciation during the
fourth calendar quarter.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
No Disclosure Required.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Securities Class Action
On May 1, 1998, a class action suit (the "Valenti Litigation") was
commenced in the United States District of 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 the 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 and Other Matters
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.
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.
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's products are relatively
expensive medical devices sold in a narrow specialty market channel to highly
educated consumers, OIS does not believe there is any likelihood of confusion
between the products of the two companies. OIS also believes 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's 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.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
On May 17,1999, we issued $4 million of 6% Secured Convertible
Debentures, due 2002, to two private purchasers. No underwriters were involved
in this transaction. The purchasers were private investment funds.
The Company paid $309,400 in commissions and legal fees in connection
with this transaction, and also issued to the persons that facilitated the
transaction warrants to purchase 40,000 shares of our common stock. The
transaction was exempt from registration under the Securities Act of 1933,
pursuant to Section 4(2) of such Act, and Rule 506 promulgated thereunder. The
purchasers represented that they were "accredited investors," as defined under
Regulation D, and no general solicitation or advertising was made in connection
with the transaction.
The debentures are convertible into our common stock at a per share
rate equal to the lowest of (a) $3.135; (b) the lowest exercise price, after the
issuance of the debentures, of our publicly traded Class B Warrants; or ( c) 90%
of the average of the three lowest closing bid prices for our common stock
during the 20 trading days immediately preceding the conversion date. However,
the debentures may not be converted into common stock, nor may the holder
receive shares in payment of interest, if the debenture holder and any affiliate
would, as a result, beneficially own more than 4.999% of the Company's issued
and outstanding shares of common stock, except that this limitation could be
waived by the holder of the debenture by giving 75 days prior notice to the
Company. Further, as a separate restriction, a holder may not convert the
debentures into common stock, nor may the holder receive shares in payment of
interest, if as a result he together with his affiliates would beneficially own
in excess of 9.999% of the Company's issued and outstanding common stock, except
that this provision can also be waived by the holder by giving 75 days prior
notice to the Company. Finally, the Company may not issue upon conversion in
excess of 2,992,287 shares of common stock(subject to adjustment) if the common
stock is then listed for trading on the Nasdaq National Market of the Nasdaq
Small Cap Market, and the Company has not obtained shareholder approval for such
issuance .
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:
4.1 Secured Convertible Debenture Purchase Agreement dated May 17,1999 between
the Company and the investors signatory thereto. (Incorporated by reference to
Exhibit 10.28 to the Company's Annual Report on From 10-K for the fiscal year
ended March 31,1999).
4.2 Registration Rights Agreement dated May 17,1999 between the Company and the
investors signatory thereto. (Incorporated by reference to Exhibit 10.29 to the
Company's Report on Form 10-K for the fiscal year ended March 31,1999).
4.3 Warrant dated May 17,1999 issued by the Company to certain investors.
(Incorporated by reference to Exhibit 10.30 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31,1999).
4.4 Intellectual Property Security Agreement dated May 17,1999 between the
Company and the secured parties signatory thereto. (Incorporated by reference to
exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31,1999).
4.5 Security Agreement dated May 17,1999 between the Company and the secured
parties signatory thereto. (Incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,1999).
4.6 Form of 6% Secured convertible Debenture dated May 17,1999 issued by the
Company to certain investors. ( Incorporated by reference to Exhibit 10.33 to
the Company's Annual Report on Form 10-K for the fiscal year ended March
31,1999).
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K: During the quarter ended June 30, 1999, the
Company filed with the Securities and Exchange Commission the following Current
Report on Form 8-K:
Current Report on Form 8-K dated May 9, 1999 (reporting Item 5.,"Other
Events," in connection with issuance of convertible secured debentures due
2002.)
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: October 8, 1999 By: /s/ Colette Cozean
-----------------------------------------
Colette Cozean, Chief Executive Officer
(duly authorized officer)
Dated: October 8, 1999 By: /s/ Robert V. Mahoney
-----------------------------------------
Robert V. Mahoney, Chief Financial Officer
and Executive Vice-President, Finance
(Principal financial and accounting officer)
(duly authorized officer)