UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2005
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ___ to _____
Commission File Number: 0-28498
PARADIGM MEDICAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0459536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 South 1070 West, Salt Lake City, Utah 84119
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 977-8970
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for 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 [ ]
Indicate by check mark whether the small business issuer is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.001 par value 52,960,074
Title of Class ------------------
Number of Shares
Outstanding as of
September 30, 2005
Class A Warrant to Purchase
One Share of Common Stock 1,000,000
------------------------- ------------------
Title of Class Number of Warrants
Outstanding as of
September 30, 2005
PARADIGM MEDICAL INDUSTRIES, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2005
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . .1
Condensed Balance Sheet (unaudited) September 30, 2005 . . . . . .1
Condensed Statements of Operations (unaudited) for the nine months
ended September 30, 2005 and September 30, 2004. . . . . . . . . .3
Condensed Statements of Cash Flows (unaudited) for the nine months
ended September 30, 2005 and September 30, 2004. . . . . . . . . .4
Notes to Condensed Financial Statements (unaudited). . . . . . . .5
Item 2. Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. . . 22
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 22
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 23
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 26
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
September 30, 2005
------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 249,000
Receivables, Net 822,000
Inventory 1,309,000
Prepaid Expenses 84,000
------------------
Total Current Assets 2,464,000
Intangibles, Net 679,000
Property and Equipment, Net 48,000
------------------
Total Assets $ 3,191,000
==================
The accompanying notes are an integral part to these
condensed financial statements
1
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
September 30, 2005
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade Accounts Payable $ 530,000
Accrued Expenses 691,000
Current Portion of Long-term Debt 22,000
------------------
Total Current Liabilities 1,243,000
Long-term Debt 2,164,000
------------------
Total Liabilities (Commitment) 3,407,000
------------------
Stockholders' Equity:
Preferred Stock, Authorized:
5,000,000 shares, $.001 par value
Series A
Authorized: 500,000 shares; issued and
outstanding: 5,627 shares at September 30, 2005 -
Series B
Authorized: 500,000 shares; issued and
outstanding: 8,986 shares at September 30, 2005 -
Series C
Authorized: 30,000 shares; issued and
outstanding: zero shares at September 30, 2005 -
Series D
Authorized: 1,140,000 shares; issued and
outstanding: 5,000 shares at September 30, 2005 -
Series E
Authorized: 50,000 shares; issued and
outstanding: 1,000 shares at September 30, 2005 -
Series F
Authorized: 50,000 shares; issued and
outstanding: 4,598.75 shares at September 30, 2005 -
Series G
Authorized: 2,000,000 shares; issued and
outstanding: 1,726,560 shares at September 30, 2005 2,000
Common Stock, Authorized:
250,000,000 shares, $.001 par value; issued and
outstanding: 52,960,074 at September 30, 2005 53,000
Common Stock Warrants 1,046,000
Additional Paid-in-capital 59,455,000
Accumulated Deficit (60,772,000)
------------------
Total Stockholders' Equity (216,000)
------------------
Total Liabilities and Stockholders' Equity $ 3,191,000
==================
The accompanying notes are an integral part to these
condensed financial statements
2
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30
2005 2004 2005 2004
----------- ----------- ----------- -----------
Sales $ 550,000 $ 899,000 $ 1,963,000 $ 2,288,000
Cost of Sales 242,000 358,000 935,000 859,000
----------- ----------- ----------- -----------
Gross Profit 308,000 541,000 1,028,000 1,429,000
Operating Expenses:
Marketing and Selling 143,000 198,000 509,000 547,000
General and Administrative 312,000 276,000 964,000 1,011,000
Research, development and service 211,000 163,000 671,000 543,000
----------- ----------- ----------- -----------
Total Operating Expenses 666,000 637,000 2,144,000 2,101,000
----------- ----------- ----------- -----------
Operating Income (Loss) (358,000) (96,000) (1,116,000) (672,000)
Other Income and (Expense):
Interest Expense (3,000) (11,000) (23,000) (40,000)
Other (Expense) (1,000) 588,000 (2,855,000) 899,000
Other Income - - 28,000 -
----------- ----------- ----------- -----------
Total Other Income (Expense) (4,000) 577,000 (2,850,000) (859,000)
----------- ----------- ----------- -----------
Net Income (Loss) Before Provision
for Income Taxes (362,000) 481,000 (3,966,000) 187,000
Income Taxes - - - -
----------- ----------- ----------- -----------
Net Income (Loss) $ (362,000) $ 481,000$(3,966,000) $ 187,000
=========== =========== =========== ===========
Net Loss Per Common Share
- Basic and Diluted $ (.01) $ .02 $ (.13) $ .01
=========== =========== =========== ===========
Weighted Average Outstanding
Shares - Basic and Diluted 38,884,000 25,373,000 31,472,000 25,373,000
=========== =========== =========== ===========
The accompanying notes are an integral part to these
condensed financial statements
3
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
2005 2004
------------ ------------
Cash Flows from Operating Activities:
-------------------------------------
Net Loss $(3,966,000) $ (187,000)
Adjustment to Reconcile Net Loss to Net
Cash Used In Operating Activities:
Depreciation and Amortization 61,000 112,000
Issuance of Common Stock for Satisfaction of Penalty 51,000 -
Issuance of Common Stock for Services 20,000 -
Beneficial Conversion Interest 2,009,000 -
Issuance of Stock Options and Warrants for Services 491,000 -
Increase/decrease in Inventory Reserve (47,000) (226,000)
Provision for Losses on Receivables (81,000) (46,000)
Gain on Settlement of Obligations - (21,000)
Loss on Disposal of Assets - 6,000
------------ ------------
(Increase) Decrease from Changes in:
Trade Accounts Receivable (84,000) 28,000
Inventories (542,000) 459,000
Prepaid Expenses (19,000) 53,000
Increase (Decrease) from Changes in:
Trade Accounts Payable (222,000) (32,000)
Accrued Expenses and Deposits (164,000) (429,000)
------------ ------------
Net Cash Used in Operating Activities (2,493,000) 92,000
------------ ------------
Cash Flow from Investing Activities:
------------------------------------
Proceeds from Sale of Assets - 6,000
------------ ------------
Net Cash Used in Investing Activities - 6,000
Cash Flows from Financing Activities:
-------------------------------------
Principal Payments on Notes Payable (39,000) (42,000)
Proceeds from Issuance of Common Stock 150,000 -
Proceeds from Issuances of Convertible Notes 2,500,000 -
------------ ------------
Net Cash (Used) Provided by Financing Activities 2,609,000 (42,000)
------------ ------------
Net Increase in Cash and Cash Equivalents 118,000 56,000
Cash and Cash Equivalents at Beginning of Period 131,000 132,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 249,000 $ 188,000
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 9,000 $ 9,000
============ ============
Cash Paid for Income Taxes $ - $ -
============ ============
The accompanying notes are an integral part to these
condensed financial statements
4
PARADIGM MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Significant Accounting Policies
-------------------------------
The accompanying condensed financial statements of the Company have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to such rules and
regulations. These condensed financial statements reflect all adjustments
(consisting only of normal recurring adjustments) that, in the opinion of
management, are necessary to present fairly the results of operations of
the Company for the periods presented. These condensed financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Company's Form 10-KSB for the year ended December
31, 2004. The results of operations for the nine months ended September 30,
2005, are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 2005.
Going Concern
-------------
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Historically, the Company has not demonstrated the ability to generate
sufficient cash flows from operations to satisfy its liabilities and
sustain operations, and the Company has incurred significant losses. These
factors raise substantial doubt about the Company's ability to continue as
a going concern.
The Company's continuation as a going concern is dependent on its
ability to generate sufficient income and cash flow to meet its obligations
on a timely basis and/or obtain additional financing as may be required.
The Company is actively seeking options to obtain additional capital and
financing.
In addition, the Company has taken significant steps to reduce costs
and increase operating efficiencies. Specifically, the Company has
significantly reduced the use of consultants, which has resulted in a large
decrease in expenses. In addition, the Company has reduced the number of
its direct sales representatives, which has resulted in less payroll,
travel and other expenses. Although these cost savings have significantly
reduced the Company's losses and ongoing cash flow needs, if the Company is
unable to obtain equity or debt financing, it may be unable to continue
development of its products and may be required to substantially curtail or
cease operations.
5
Net Loss Per Share
------------------
Net loss per common share is computed on the weighted average number
of common and common equivalent shares outstanding during each period.
Common stock equivalents consist of convertible preferred stock, common
stock options and warrants. Common equivalent shares are excluded from the
computation when their effect is anti-dilutive. Other common stock
equivalents consisting of options and warrants to purchase 25,295,000 and
5,879,000 shares of common stock and preferred stock convertible into
2,047,000 and 2,302,000 shares of common stock at September 30, 2005 and
2004, respectively, have not been included in loss periods because they are
anti-dilutive.
For the nine months ended September 30, 2005, the options and warrants
to purchase 25,295,000 shares of common stock were excluded because of the
treasury stock method.
The following table is a reconciliation of the net loss numerator of
basic and diluted net loss per common share for the three and nine month
periods ended September 30, 2005 and September 30, 2004:
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Basic weighted average shares
outstanding 38,884,000 25,373,000 31,472,000 25,373,000
Common stock equivalents -
convertible preferred stock 2,047,000 2,302,000 - -
----------- ----------- ----------- -----------
Diluted weighted average shares
outstanding 40,931,000 27,675,000 31,472,000 25,373,000
=========== =========== =========== ===========
Convertible Notes
-----------------
To obtain funding for the Company's ongoing operations, the Company
entered into a securities purchase agreement with four accredited investors
on April 27, 2005 for the sale of (i) $2,500,000 in callable secured
convertible notes and (ii) warrants to purchase 16,534,392 shares of its
common stock. The sale of the callable secured convertible notes and
warrants is to occur in three traunches and the investors are obligated to
provide the Company with an aggregate of $2,500,000 as follows:
- $850,000 was disbursed on April 27, 2005;
- $800,000 was disbursed on June 23, 2005 after filing a
registration statement on June 22, 2005, which covered the shares
of common stock underlying the callable secured convertible notes
and the warrants; and
- $850,000 was disbursed on June 30, 2005, upon the effectiveness
of the registration statement on June 29, 2005, which covered the
shares of common stock underlying the callable secured
convertible notes and the warrants.
6
Each closing under the securities purchase agreement was subject to
the following conditions:
- The Company delivered to the investors duly executed callable
secured convertible notes and warrants;
- No litigation, statute, regulation or order had been commenced,
enacted or entered by or in any court, governmental authority or
any self-regulatory organization that prohibits consummation of
the transactions contemplated by the securities purchase
agreement; and
- No event occurred that could reasonably be expected to have a
material adverse effect on the Company's business.
The Company also agreed not, without the prior written consent of a
majority-in-interest of the investors, to negotiate or contract with any
party to obtain additional equity financing (including debt financing with
an equity component) that involves (i) the issuance of common stock at a
discount to the market price of the common stock on the date of issuance
(taking into account the value of any warrants or options to acquire common
stock in connection therewith), (ii) the issuance of convertible securities
that are convertible into an indeterminate number of shares of common
stock, or (iii) the issuance of warrants during the lock-up period
beginning April 27, 2005 and ending on the later of (a) 270 days from April
27, 2005, or (b) 180 days from the date the registration statement is
declared effective.
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period
beginning April 27, 2005 and ending two years after the end of the above
lock-up period unless it first provided each investor an option to purchase
its pro-rata share (based on the ratio of each investor's purchase under
the Securities Purchase Agreement) of the securities being offered in any
proposed equity financing. Each investor must be provided written notice
describing any proposed equity financing at least 20 business days prior to
the closing of such proposed equity financing and the option must be
extended to each investor during the 15-day period following delivery of
such notice.
The callable secured convertible notes bear interest at 8% per annum
from the date of issuance. Interest is computed on the basis of a 365-day
year and is payable quarterly in cash, with six months of interest payable
up front. The interest rate resets to zero percent for any month in which
the stock price is greater than 125% of the initial market price, or
$.0945, for each trading day during that month. Any amount of principal or
interest on the callable secured convertible notes that is not paid when
due will bear interest at the rate of 15% per annum from the date due
thereof until such amount is paid. The callable secured convertible notes
mature in three years from the date of issuance, and are convertible into
our common stock at the selling stockholders' option, at the lower of (i)
$.09 or (ii) 60% of the average of the three lowest intraday trading prices
for the common stock on the OTC Bulletin Board for the 20 trading days
before but not including the conversion date. Accordingly, there is no
limit on the number of shares into which the notes may be converted.
7
The callable secured convertible notes are secured by the Company's
assets, including the Company's inventory, accounts receivable and
intellectual property. Moreover, the Company has a call option under the
terms of the notes. The call option provides the Company with the right to
prepay all of the outstanding callable secured convertible notes at any
time, provided there is no event of default by the Company and the
Company's stock is trading at or below $.09 per share. An event of default
includes the failure by the Company to pay the principal or interest on the
callable secured convertible notes when due or to timely file a
registration statement as required by the Company or obtain effectiveness
with the Securities and Exchange Commission of the registration statement.
Prepayment of the callable secured convertible notes is to be made in cash
equal to either (a) 125% of the outstanding principal and accrued interest
for prepayments occurring within 30 days following the issue date of the
notes; (b) 130% of the outstanding principal and accrued interest for
prepayments occurring between 31 and 60 days following the issue date of
the notes; or (c) 145% of the outstanding principal and accrued interest
for prepayments occurring after the 60th day following the issue date of
the notes.
The warrants are exercisable until five years from the date of
issuance at a purchase price of $.20 per share. The investors may exercise
the warrants on a cashless basis if the shares of common stock underlying
the warrants are not then registered pursuant to an effective registration
statement. In the event the investors exercise the warrants on a cashless
basis, then the Company will not receive any proceeds therefrom. In
addition, the exercise price of the warrants will be adjusted in the event
the Company issues common stock at a price below market, with the exception
of any securities issued as of the date of the warrants or issued in
connection with the callable secured convertible notes issued pursuant to
the Securities Purchase Agreement.
The selling stockholders have agreed to restrict their ability to
convert their callable secured convertible notes or exercise their warrants
and receive shares of our common stock such that the number of shares of
common stock held by them in the aggregate and their affiliates after such
conversion or exercise does not exceed 4.99% of the then issued and
outstanding shares of common stock. However, the selling stockholders may
repeatedly sell shares of common stock in order to reduce their ownership
percentage, and subsequently convert additional callable secured
convertible notes.
The Company is required to register the shares of its common stock
issuable upon the conversion of the callable secured convertible notes and
the exercise of the warrants. The registration statement must be filed
with the Securities and Exchange Commission within 60 days of the April 27,
2005 closing date and the effectiveness of the registration is to be within
135 days of such closing date. Penalties of 2% of the outstanding
principal balance of the callable secured convertible notes plus accrued
interest are to be applied for each month the registration is not effective
within the required time. The penalty may be paid in cash or stock at our
option. The Company filed a registration statement with the Securities and
Exchange Commission on June 22, 2005 to register the shares of common stock
issuable upon the conversion of the callable secured convertible notes and
the exercise of the warrants. The registration statement was declared
effective on June 29, 2005.
As of June 30, 2005, the average of the three lowest intraday trading
prices of the Company's common stock during the preceding 20 trading days
as reported on the OTC Bulletin Board was $.05 and, therefore, the
conversion price for the callable secured convertible notes was $.03.
Based on this conversion price, the $2,500,000 callable secured convertible
notes, excluding interest, were convertible into 83,333,333 shares of the
Company's common stock. As of June 30, 2005, none of the callable secured
convertible notes had been converted.
Since June 30, 2005, a total of $401,509 in callable secured
convertible notes have been converted into 45,320,000 shares of the
Company's common stock pursuant to notices of conversion from The NIR
Group. The dates of these notices of conversion, the amount of the notes
converted, the conversion price of the notes converted, and the shares
issued to the noteholders upon conversion were as follows:
8
Shares Issued
Date of Notice Amount of Notes Conversion Price to Noteholders
of Conversion Converted of Notes Upon Conversion
-------------- --------------- ---------------- ---------------
July 7, 2005 $ 39,900 $ .0285 1,400,000
July 14, 2005 40,460 .0289 1,400,000
July 20, 2005 32,110 .0247 1,300,000
July 26, 2005 29,682 .0194 1,530,000
July 29, 2005 28,458 .0186 1,530,000
August 8, 2005 22,032 .0144 1,530,000
August 16, 2005 25,480 .014 1,820,000
August 22, 2005 22,386 .0123 1,820,000
August 26, 2005 16,898 .0119 1,420,000
August 27, 2005 4,760 .0119 400,000
September 2, 2005 20,600 .0103 2,000,000
September 12, 2005 16,380 .00819 2,000,000
September 16, 2005 13,800 .0069 2,000,000
September 22, 2005 11,580 .00579 2,000,000
September 28, 2005 11,628 .0051 2,280,000
October 3, 2005 7,157 .003139 2,280,000
October 10, 2005 7,157 .003139 2,280,000
October 12, 2005 6,840 .003 2,280,000
October 19, 2005 8,430 .003 2,810,000
October 25, 2005 8,430 .003 2,810,000
October 31, 2005 8,795 .00313 2,810,000
November 3, 2005 8,599 .00306 2,810,000
November 11, 2005 9,947 .00354 2,810,000
--------------- ---------------
Total $ 401,509 45,320,000
=============== ===============
Preferred Stock Conversions
---------------------------
Under the Company's Certificate of Incorporation, holders of the
Company's Class A and Class B preferred stock have the right to convert
such stock into shares of the Company's common stock at the rate of 1.2
shares of common stock for each share of preferred stock. During the nine
months ended September 30, 2005, no shares of Series A preferred stock and
no shares of Series B preferred stock were converted to the Company's
common stock.
Holders of Series D preferred have the right to convert such stock
into shares of the Company's common stock at the rate of one share of
common stock for each share of preferred stock. During the nine months
ended September 30, 2005, no shares of Series D preferred stock were
converted to the Company's common stock.
Holders of Series E preferred have the right to convert such stock
into shares of the Company's common stock at the rate of 53.3 shares of
common stock for each share of preferred stock. During the nine months
ended September 30, 2005, no shares of Series E preferred stock were
converted to the Company's common stock.
Holders of Series F preferred have the right to convert such stock
into shares of the Company's common stock at the rate of 53.3 shares of
common stock for each share of preferred stock. During the nine months
ended September 30, 2005, no shares of Series F preferred stock were
converted to shares of the Company's common stock.
9
Holders of Series G preferred have the right to convert such stock
into shares of the Company's common stock at the rate of one share of
common stock for each share of preferred stock. During the nine months
ended September 30, 2005, no shares of Series G preferred stock were
converted to shares of the Company's common stock.
Warrants
--------
The fair value of warrants granted as described herein is estimated at
the date of grant using the Black-Scholes option pricing model. The
exercise price per share is reflective of the then current market value of
the stock. No grant exercise price was established at a discount to market.
All warrants are fully vested, exercisable and nonforfeitable as of the
grant date. As a result of the financing the Company completed on April
27, 2005 involving the sale of 2,500,000 in callable secured convertible
notes, the Company granted warrants to purchase 16,534,392 shares of its
common stock. The warrants have an exercise price of $.20 per share and
expire on April 7, 2010.
Stock - Based Compensation
--------------------------
For stock options and warrants granted to employees, the Company
employs the footnote disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 encourages entities to adopt a fair-value based
method of accounting for stock options or similar equity instruments.
However, it also allows an entity to continue measuring compensation cost
for stock-based compensation using the intrinsic-value method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25). The Company has elected to continue
to apply the provisions of APB 25 and provide pro forma footnote
disclosures required by SFAS No. 123. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans
had an exercise price equal to or greater than the market value of the
underlying common stock on the date of grant.
Stock options and warrants granted to non-employees for services are
accounted for in accordance with SFAS 123 which requires expense
recognition based on the fair value of the options/warrants granted. The
Company calculates the fair value of options and warrants granted by use of
the Black-Scholes pricing model. The following table illustrates 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 employee compensation.
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net income (loss) - as reported $ (362,000) $ 481,000$(3,966,000) $ 187,000
Deduct: total stock-based employee
compensation determined under fair
value based method for all awards,
net of related tax effects (573,000) (109,000) (675,000) (210,000)
----------- ----------- ----------- -----------
Net loss - pro forma $ (971,000) $ 372,000$(4,641,000) $ (23,000)
=========== =========== =========== ===========
Earnings per share:
Basic and diluted - as reported $ (0.01) $ (0.02) $ (0.13) $ 0.01
Basic and diluted - pro forma $ (0.03) $ (0.00) $ (0.16) $ (0.00)
10
Related Party Transactions
--------------------------
Payments for legal services to the firm of which the Company's
chairman of the board of directors is a partner were approximately $10,000
and $55,000 for the three months ended September 30, 2005 and 2004,
respectively.
Accrued Expenses
----------------
Accrued expenses consist of the following at September 30, 2005:
Accrued consulting and litigation reserve $ 461,000
Accrued payroll and employee benefits 43,000
Sales taxes payable 11,000
Customer deposits 16,000
Deferred revenue 1,000
Warranty and return allowance 92,000
Other accrued expenses 67,000
-------------
Total $ 691,000
=============
Stockholders' Equity
--------------------
On January 14, 2005, the Company issued 2,000,000 shares of common
stock to an accredited investor through a private placement at a price of
$0.75 per share. The Company received a total of $150,000 in cash from the
private placement transaction and issued as a commission warrants to
purchase 200,000 shares of the Company's common stock at $.15 per share.
On February 1, 2005, the Company issued a total of 515,206 shares of
common stock to two accredited investors that had purchased shares of the
Company's Series G convertible preferred stock in a private placement
transaction. Under the terms of the private offering, the Company was
required to file a registration statement with the Securities and Exchange
Commission to register the common shares issuable to the Series G preferred
stockholders upon conversion of their Series G preferred shares and
exercise of their warrants. The 515,206 shares represented a penalty for
the Company not having a registration statement declared effective within
120 days of the initial closing of the offering. The value of these shares
was $52,000.
On April 7, 2005, the Company issued 250,000 registered shares of
common stock to the law firm of Mackey Price Thompson & Ostler in payment
of legal services that the law firm provided to the Company in the amount
of $22,500.
Amendment to Certificate of Incorporation
-----------------------------------------
At the annual meeting of shareholders held on August 12, 2005, the
shareholders approved an amendment to the Company's certificate of
incorporation to increase the number of authorized shares of common stock
from 80,000,000 shares to 250,000,000 shares.
11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report contains forward-looking statements and information
relating to the Company that is based on beliefs of management as well as
assumptions made by, and information currently available to management.
These statements reflect its current view respecting future events and are
subject to risks, uncertainties and assumptions, including the risks and
uncertainties noted throughout the document. Although the Company has
attempted to identify important factors that could cause the actual results
to differ materially, there may be other factors that cause the
forward-looking statements not to come true as anticipated, believed,
projected, expected or intended. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may differ materially from those described herein
as anticipated, believed, projected, estimated, expected or intended.
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION. The Company recognizes revenue in compliance
with Staff Accounting Bulletin 101, Revenue Recognition in Financial
Statements (SAB 101), as revised by Staff Accounting Bulletin No. 104,
Revenue Recognition (SAB 104). SAB 101 and SAB 104 detail four criteria
that must exist before revenue is recognized:
1. Persuasive evidence of an arrangement exits. Prior to shipment of
product, the Company required a signed purchase order and, depending upon
the customer, a down payment toward the final invoiced price or full
payment in advance with certain international product distributors.
2. Delivery and performance have occurred. Unless the purchase order
requires specific installation or customer acceptance, the Company
recognizes revenue when the product ships. If the purchase order requires
specific installation or customer acceptance, the Company recognizes
revenue when such installation or acceptance has occurred. Title to the
product passes to its customer upon shipment. This revenue recognition
policy does not differ among its various different product lines. The
Company guarantees the functionality of its product. If its product does
not function as marketed when received by the customer, the Company either
makes the necessary repairs on site or has the product shipped to the
Company for the repair work. Once the product has been repaired and
retested for functionality, it is re-shipped to the customer. The Company
provides warranties that generally extend for one year from the date of
sale. Such warranties cover the necessary parts and labor to repair the
product as well as any shipping costs that may be required. The Company
maintains a reserve for estimated warranty costs based on its historical
experience and management's current expectations.
3. The sales price is fixed or determinable. The purchase order
received from the customer includes the agreed-upon sales price. The
Company does not accept customer orders, and therefore does not recognize
revenue, until the sales price is fixed.
4. Collectibility is reasonably assured. With limited exceptions,
the Company requires down payments on product prior to shipment. In some
cases the Company requires payment in full prior to shipment. The Company
also performs credit checks on new customers and ongoing credit checks on
existing customers. The Company maintains an allowance for doubtful
accounts receivable based on historical experience and management's current
expectations.
12
RECOVERABILITY OF INVENTORY. Since its inception, the Company has
purchased several complete lines of inventory. In some circumstances the
Company has been able to utilize certain items acquired and others remain
unused. On a quarterly basis, the Company attempts to identify inventory
items that have shown relatively no movement or very slow movement.
Generally, if an item has shown little or no movement for over a year, it
is determined not to be recoverable and a reserve is established for that
item. In addition, if the Company identifies products that have become
obsolete due to product upgrades or enhancements, a reserve is established
for such products. The Company intends to make efforts to sell these items
at significantly discounted prices. If items are sold, the cash received
would be recorded as revenue, but there would be no cost of sales on such
items due to the reserve that has been recorded. At the time of sale, the
inventory would be reduced for the item sold and the corresponding
inventory reserve would also be reduced.
RECOVERABILITY OF GOODWILL AND OTHER INTANGIBLE ASSETS. The Company's
intangible assets consist of goodwill, product and technology rights,
engineering and design costs, and patent costs. Intangibles with a
determined life are amortized on a straight-line basis over their
determined useful life and are also evaluated for potential impairment if
events or circumstances indicate that the carrying amount may not be
recoverable. Intangibles with an indefinite life, such as goodwill, are
not amortized but are tested for impairment on an annual basis or when
events and circumstances indicate that the asset may be impaired.
Impairment tests include comparing the fair value of a reporting unit with
its carrying net book value, including goodwill. To date, the Company's
determination of the fair value of the reporting unit has been based on the
estimated future cash flows of that reporting unit.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company records an allowance for
doubtful accounts to offset estimated uncollectible accounts receivable.
Bad debt expense associated with the increases in the allowance for
doubtful accounts is recorded as part of general and administrative
expense. The Company's accounting policy generally is to record an
allowance for receivables over 90 days past due unless there is significant
evidence to support that the receivable is collectible.
GENERAL
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements,
which involve risks and uncertainty. The Company's actual results could
differ materially from those anticipated in these forward-looking
statements as a result of certain factors discussed in this section. The
Company's fiscal year is from January 1 through December 31.
The Company is engaged in the design, development, manufacture and
sale of high technology diagnostic and surgical eye care products. Given
the "going concern" status of the Company, management has focused efforts
on those products and activities that will, in its opinion, achieve the
most resource efficient short-term cash flow. As seen in the results for
the three months ended September 30, 2005, diagnostic products have been
the major focus and the Photon and other extensive research and
development projects have been put on hold pending future evaluation when
the Company's financial position improves. The Company does not focus on a
specific diagnostic product or products but, instead, on the entire
diagnostic product group.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2005, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2004
Net sales for the three months ended September 30, 2005 decreased by
$349,000, or 39%, to $550,000 as compared to $899,000 for the same period
of 2004. This reduction in sales was primarily due to decreased sales of
the Blood Flow Analyzer and a softening of sales of the older A Scan and
A/B Scan units as well as Dicon perimeters and corneal topographers.
For the three months ended September 30, 2005, sales from the
Company's diagnostic products totaled $600,000, or 109% of total revenues,
compared to $832,000, or 93% of total revenues for the same period of 2004.
These sales were offset by credits that exceeded by $50,000 the combined
amount of revenues from parts, disposables, and service during the three
months ended September 30, 2005.
Sales of the P40, P45 and new P60 UBM Ultrasound Biomicroscopes
increased to $419,000 during the second quarter of 2005, or 76% of total
quarterly revenues for the period, compared to $373,000, or 41% of total
revenues, for the same period last year. Sales of the Blood Flow Analyzer
decreased by $170,000 to $14,000, or 3% of total revenues, for the three
months ended September 30, 2005, compared to net sales of $184,000, or 20%
of total revenues during the same period in 2004. Sales from the P37 A/B
Scan Ocular Ultrasound Diagnostic decreased to $48,000, or 9% of total
revenues, for the three month period ended September 30, 2005, down
compared to $98,000, or 11% of total revenues, for the same period last
year. Combined sales of the LD 400 and TKS 5000 Autoperimeters and the 200
Corneal Topographer were $119,000, or 22% of the total revenues, for the
three months ended September 30, 2005, compared to $178,000, or 20% of
total revenues, for the same period of 2004.
13
Sales have been lower for the Company due to an industry slow down.
Additionally, sales of the Blood Flow Analyzer decreased due in part from
the reorganization of the Company's sales force. The Company anticipates
reversing the downward trend in sales through the addition of independent
sales representatives, concentrated marketing of the new P60 UBM and other
product innovations.
For the three months ended September 30, 2005, gross profit decreased
slightly by 4%, to 56% of total revenues, compared to the 60% of total
revenues for the comparable period of 2004.
Marketing and selling expenses decreased by approximately $55,000, or
28%, to $143,000, for the three months ended September 30 2005, from
$198,000 for the comparable period in 2004. The reduction was due
primarily to a reduced number of sales representatives and lower travel
related and associated sales expenses and a shift to more independent
representatives.
General and administrative expenses increased by $36,000, or 13%, to
$312,000 for the three months ended September 30, 2005, from $276,000 for
the comparable period in 2004. The expense of the shareholders meeting
held on August 12, 2005 was largely responsible for the increase.
Research, development and service expenses increased $48,000, or 29%,
for the three months ended September 30, 2005 to $211,000, compared to
$163,000 recorded in the same period of 2004. Much of the increase was
from the additional development work associated with the P60 and other
product line improvements in process.
NINE MONTHS ENDED SEPTEMBER 30, 2005, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2004
Net sales for the nine months ended September 30, 2005 decreased by
$325,000, or 14%, to $1,963,000 as compared to $2,288,000 for the same
period of 2004. This reduction in sales was primarily due to reduced sales
of the Blood Flow Analyzer (trademark symbol) and a softening of sales of
the Dicon (trademark symbol) perimeters and corneal topographers.
For the nine months ended September 30, 2005, sales from the Company's
diagnostic products totaled $1,771,000, or 90% of total revenues, compared
to $2,084,000, or 91% of total revenues for the same period of 2004. The
remaining 10% of sales, or $186,000 during the nine months ended September
30, 2005 was from parts, disposables, and service revenue.
Sales of the P40, P45 and P60 UBM Ultrasound Biomicroscopes increased
to $1,096,000 during the nine months ended September 30, 2005, or 56% of
total quarterly revenues for the period, compared to $639,000, or 28% of
total revenues, for the same period last year. Sales of the Blood Flow
Analyzer (trademark symbol) decreased by $399,000 to $76,000, or 4% of
total revenues, for the nine months ended September 30, 2005, compared to
net sales of $475,000, or 21% of total revenues during the same period in
2004. Sales from the P37 A/B Scan Ocular Ultrasound Diagnostic decreased
to $128,000, or 7% of total revenues, for the nine month period ended
September 30, 2005, down compared to $229,000, or 10% of total revenues,
for the same period last year. Combined sales of the LD 400 and TKS 5000
Autoperimeters and the 200 Corneal Topographer were $471,000, or 24% of the
total revenues, for the nine months ended September 30, 2005, compared to
$741,000, or 32% of total revenues, for the same period of 2004.
Sales have been lower for the Company due to a variety of reasons.
Sales of the Blood Flow Analyzer (trademark symbol) decreased due in part
from the reorganization of the Company's sales force. The Company
anticipates reversing the downward trend in sales through additional
efforts by the Company to gain more widespread support for the Blood Flow
Analyzer (trademark symbol) though increased clinical awareness, product
development and improved marketing plans.
For the nine months ended September 30, 2005, gross profit decreased
by 10%, to 52% of total revenues, compared to the 62% of total revenues for
the comparable period of 2004.
Marketing and selling expenses decreased by $38,000, or 7%, to
$509,000, for the nine months ended September 30 2005, from $547,000 for
the comparable period in 2004. The reduction was due primarily to a
reduced number of sales representatives and lower travel related and
associated sales expenses.
14
General and administrative expenses decreased by $47,000, or 5%, to
$964,000 for the nine months ended September 30, 2005, from $1,011,000 for
the comparable period in 2004. The general and administrative expense
savings reflected the on-going results of the Company's cost reduction
program and more aggressive budget management procedures implemented in the
first nine months of 2005.
In addition, during the first quarter of 2005, the Company issued
515,206 shares of common stock to two shareholders that had purchased
shares of the Company's Series G convertible preferred stock in a private
offering. Under the terms of the private offering, the Company was
required to file a registration statement with the Securities and Exchange
Commission for the purpose of registering the common shares issuable to the
Series G preferred stockholders upon conversion of their Series G preferred
shares and exercise of their warrants. The shares were issued as a penalty
for the Company not having a registration statement declared effective
within 120 days of the initial closing of the private offering.
Research, development and service expenses increased by $128,000, or
24%, to $671,000 for the nine months ended September 30, 2005, compared to
$543,000 in the same period of 2004. Much of the increase was due to the
development and regulatory requirements in releasing the new P60 UBM.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $2,491,000 in cash in operating activities for the
nine months ended September 30, 2005, compared to $92,000 for the nine
months ended September 30, 2004. The increase in cash used for operating
activities for the nine months ended September 30, 2005 was primarily
attributable to the Company's net loss and decreases in accounts payable
and accrued liabilities and an increase in inventory, specifically for the
P60. Net cash provided in financing activities was $2,609,000 for the nine
months ended September 30, 2005, versus cash used of $42,000 in the same
period in 2004. The Company had working capital of $1,221,000 as of
September 30, 2005. In January 2005, the Company sold 2,000,000 shares of
its common stock to an accredited investor for $150,000 in cash. In the
past, the Company has relied heavily upon sales of the Company's common and
preferred stock to fund operations. There can be no assurance that such
equity funding will be available on terms acceptable to the Company in the
future.
As of September 30, 2005, the Company had net operating loss carry-
forwards (NOLs) of approximately $48 million. These loss carry-forwards are
available to offset future taxable income, if any, and have begun to expire
in 2001 and extend for twenty years. The Company's ability to use net
operating loss carryforwards (NOLs) to offset future income is dependant
upon certain limitations as a result of the pooling transaction with Vismed
and the tax laws in effect at the time of the NOLs can be utilized. The Tax
Reform Act of 1986 significantly limits the annual amount that can be
utilized for certain of these carryforwards as a result of change of
ownership.
As of September 30, 2005, the Company had accounts payable of
$530,000, a significant portion of which was over 90 days past due. The
Company has contacted many of the vendors or companies that have
significant amounts of payables past due in an effort to delay payment,
renegotiate a reduced settlement payment, or establish a longer-term
payment plan. While some companies have been willing to renegotiate the
outstanding amounts, others have demanded payment in full. Under certain
conditions, including but not limited to judgments rendered against the
Company in a court of law, a group of creditors could force the Company
into bankruptcy due to its inability to pay the liabilities arising out of
such judgments at that time. In addition to the accounts payable noted
above, the Company also has non-cancelable capital lease obligations and
operating lease obligations that require the payment of approximately
$194,000 in 2005, and $14,000 in 2006.
15
The Company has taken numerous steps to reduce costs and increase
operating efficiencies. These steps consist of the following:
1. The Company closed its San Diego facility. In so doing, numerous
manufacturing, accounting and management responsibilities were
consolidated. In addition, such closure resulted in significant headcount
reductions as well as savings in rent and other overhead costs.
2. The Company has significantly reduced the use of consultants,
which has resulted in a large decrease to these expenses.
3. The Company has reduced its direct sales force to five
representatives, which has resulted in less payroll, travel and other
selling expenses.
Because the Company has significantly fewer sales representatives, its
ability to generate sales has been reduced.
The Company has taken measures to reduce the amount of uncollectible
accounts receivable such as more thorough and stringent credit approval,
improved training and instruction by sales personnel, and frequent direct
communication with the customer subsequent to delivery of the system. The
allowance for doubtful accounts was 2% of total outstanding receivables as
of September 30, 2005 and 14% as of December 31, 2004. The allowance for
doubtful accounts has decreased from $101,000 at December 31, 2004 to
$20,000 at September 30, 2005. The reduction in the allowance for doubtful
accounts was the result of the collection of no receivables previously
allowed as part of the allowance for doubtful accounts and the write off of
$81,000 of receivables against the allowance. The downturn in the economy
worldwide has resulted in increased difficulty in collecting certain
accounts. Certain international dealers have some aged, unpaid invoices
that have not been resolved. The Company has addressed its credit
procedures and collection efforts and has instituted changes that require
more payments at the time of sale through letters of credit and not on a
credit term basis.
The Company intends to continue its efforts to reduce the allowance
for doubtful accounts as a percentage of accounts receivable. The Company
has ongoing efforts to collect a significant portion of the sales price in
advance of the sale or in a timely manner after delivery. During the nine
months ended September 30, 2005, the Company had a net recovery of no
receivables previously allowed, and during the nine months ended September
30, 2005, the Company did not add to the allowance for doubtful accounts.
The Company believes that by requiring a large portion of payment prior to
shipment, it has greatly improved the collectibility of its receivables.
The Company carried an allowance for obsolete or estimated non-
recoverable inventory of $1,371,000 at September 30, 2005 and $1,559,000 at
September 30, 2004, or approximately 51% and 69% of total inventory,
respectively. The Company's means of expansion and development of product
has been largely from acquisition of businesses, product lines, existing
inventory, and the rights to specific products. Through such acquisitions,
the Company has acquired substantial inventory, some of which the eventual
use and recoverability was uncertain. In addition, the Company has a
significant amount of inventory relating to the Photon laser system, which
does not yet have FDA approval in order to sell the product domestically.
Therefore, the allowance for inventory was established to reserve for these
potential eventualities.
16
On a quarterly basis, the Company attempts to identify inventory items
that have shown relatively no movement or very slow movement. Generally,
if an item has shown little or no movement for over a year, it is
determined not to be recoverable and a reserve is established for that
item. In addition, if the Company identifies products that have become
obsolete due to product upgrades or enhancements, a reserve is established
for such products. The Company intends to make efforts to sell these items
at significantly discounted prices. If items are sold, the cash received
would be recorded as revenue, but there would be no cost of sales on such
items due to the reserve that has been recorded. At the time of sale, the
inventory would be reduced for the item sold and the corresponding
inventory reserve would also be reduced.
At this time, the Company's Photon (trademark symbol) Laser Ocular
Surgery Workstation requires regulatory FDA approval in order to be sold in
the United States. Any possible future efforts to complete the clinical
trials on the Photon (trademark symbol) in order to file for FDA approval
would depend on the Company obtaining adequate funding. The Company
estimates that the funds needed to complete the clinical trials in order to
obtain the necessary regulatory approval on the Photon (trademark symbol)
to be approximately $225,000.
EFFECT OF INFLATION AND FOREIGN CURRENCY EXCHANGE
The Company has not realized a reduction in the selling price of its
products as a result of domestic inflation. Nor has it experienced
unfavorable profit reductions due to currency exchange fluctuations or
inflation with its foreign customers. All sales transactions to date have
been denominated in U.S. dollars.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued Interpretation No. 46 ("FIN 46R")
(revised December 2003), CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN
INTERPRETATION OF ACCOUNTING RESEARCH BULLETIN NO. 51 ("ARB 51"), which
addresses how a business enterprise should evaluate whether it has a
controlling interest in an entity through means other than voting rights
and, accordingly, should consolidate the entity. FIN 46R replaces FASB
Interpretation No. 46 (FIN 46), which was issued in January 2003. Before
concluding that it is appropriate to apply ARB 51 voting interest
consolidation model to an entity, an enterprise must first determine that
the entity is not a variable interest entity (VIE). As of the effective
date of FIN 46R, an enterprise must evaluate its involvement with all
entities or legal structures created before February 1, 2003, to determine
whether consolidation requirements of FIN 46R apply to those entities.
There is no grandfathering of existing entities. Public companies must
apply either FIN 46 or FIN 46R immediately to entities created after
January 31, 2003 and no later than the end of the first reporting period
that ends after December 15, 2004. The adoption of FIN 46 had no effect on
the Company's consolidated financial position, results of operations or
cash flows.
In November 2004, the FASB issued SFAS 151 "Inventory Costs an
amendment of ARB No. 43." This statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated
that "[u]nder some circumstances, items such as idle facility expense,
excessive spoilage, double freight, and re-handling costs may be so
abnormal as to require treatment as current period charges. . . ." This
statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In
addition, this statement requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. The provisions of this statement shall be effective
for inventory costs incurred during fiscal years beginning after June 15,
2005. The Company does not believe adoption of SFAS 151 will have any
impact on the Company's consolidated financial statements.
17
In December 2004, FASB issued SFAS 153 "Exchanges of Nonmonetary
Assets an amendment of APB Opinion No. 29." The guidance in APB Opinion
No. 29, Accounting for Nonmonetary Transactions, is based on the principle
that exchanges of nonmonetary assets should be measured based on the fair
value of the assets exchanged. The guidance in that opinion, however,
included certain exceptions to that principle. This statement amends
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. The
Company does not believe adoption of SFAS 153 will have any impact on the
Company's consolidated financial statements.
In December 2004, the FASB issued FASB Statement No. 123 (revised
2004), "Share-Based Payment." Statement No. 123 addresses the accounting
for share-based payment transactions in which an enterprise receives
employee services in exchange for (a) equity instruments of the enterprise
or (b) liabilities that are based on the fair value of the enterprise's
equity instruments or that may be settled by the issuance of such equity
instruments. Statement 123 (Registered symbol) requires an entity to
recognize the grant-date fair-value of stock options and other equity-based
compensation issued to employees in the income statement. The revised
statement generally requires that an entity account for those transactions
using the fair-value-based method, and eliminates the intrinsic value
method of accounting in APB Opinion No. 25, "Accounting for Stock Issued to
Employees", which was permitted under Statement 123, as originally issued.
The revised statement requires entities to disclose information about the
nature of the share-based payment transactions and the effects of those
transactions on the financial statements.
Statement No. 123 is effective for public companies that do not file
as small business issuers as of the beginning of the first interim or
annual reporting period that begins after June 15, 2005. For public
companies that file as small business issuers, Statement No. 123 is
effective as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005 (i.e., the first quarter of 2006
for the Company). All public companies must use either the modified
prospective or the modified retrospective transition method. Early
adoption of this statement for interim or annual periods for which
financial statements or interim reports have not been issued is encouraged.
The Company believes that the adoption of this pronouncement may have a
material impact on the Company's financial statements.
ITEM 3. CONTROLS AND PROCEDURES
a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of the Company's
management, including its principal executive officer and principal
financial officer, the Company evaluated the effectiveness of the design
and operation of its disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
of September 30, 2005. Based on this evaluation, the Company's principal
executive officer and principal financial officer concluded that, as of the
end of the period covered by this report, the Company's disclosure controls
and procedures were effective and adequately designed to ensure that the
information required to be disclosed by the Company in the reports it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
applicable rules and forms.
18
b) Changes in internal controls over financial reporting.
During the three months ended September 30, 2005, there has been no
change in the Company's internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
An action was brought against the Company in March 2000 by George
Wiseman, a former employee, in the Third District Court of Salt Lake
County, State of Utah. The complaint alleges that the Company owes Mr.
Wiseman 6,370 shares of its common stock plus costs, attorney's fees and a
wage penalty (equal to 1,960 additional shares of its common stock)
pursuant to Utah law. The action is based upon an extension of a written
employment agreement. The Company disputes the amount allegedly owed and
intends to vigorously defend against the action.
An action was brought against the Company on September 11, 2000 by
PhotoMed International, Inc. and Daniel M. Eichenbaum, M.D. in the Third
District Court of Salt Lake County, State of Utah. The action involves an
amount of royalties that are allegedly due and owing to PhotoMed
International, Inc. and Dr. Eichenbaum under a license agreement dated July
7, 1993, with respect to the sale of certain equipment, plus costs and
attorneys' fees. Certain discovery has taken place and the Company has paid
royalties of $15,717, which the Company believes brings all payments
current as of the date of last payment on January 7, 2005. The Company has
been working with PhotoMed and Dr. Eichenbaum to ensure that the
calculations have been correctly made on the royalties paid as well as the
proper method of calculation for the future.
It is anticipated that once the parties can agree on the correct
calculations on the royalties, the legal action will be dismissed. An
issue in dispute concerning the method of calculating royalties is whether
royalties should be paid on returned equipment. Since July 1, 2001, only
one Photon laser system has been sold and no systems returned. Thus, the
amount of royalties due, according to the Company's calculations, is $981.
The Company intends to make payment of this amount to Photomed and Dr.
Eichenbaum and, as a result, to have the legal action dismissed. However,
if the parties are unable to agree on a method for calculating royalties,
there is a risk that PhotoMed and Dr. Eichenbaum might amend their
complaint to request termination of the license agreement and, if
successful, the Company would lose its right to manufacture and sell the
Photon laser system.
An action was filed on June 20, 2003, in the Third Judicial District
Court, Salt Lake County, State of Utah (Civil No. 030914195) by CitiCorp
Vendor Finance, Inc., formerly known as Copelco Capital, Inc. The
complaint claims that $49,626 plus interest is due for the leasing of three
copy machines that were delivered to the Company's Salt Lake City
facilities on or about April of 2000. The action also seeks an award of
attorney's fees and costs incurred in the collection. The Company filed an
answer to the complaint disputing the amounts allegedly owed due to machine
problems and a claimed understanding with the vendor. The Company returned
two of the machines. The Company was engaged in settlement discussions
with CitiCorp until counsel for CitiCorp withdrew from the case. New
counsel for CitiCorp has been appointed and initial settlement discussions
have taken place with the new counsel.
19
On August 3, 2003, a complaint was filed against the Company by
Corinne Powell, a former employee, in the Third Judicial District Court,
Salt Lake County, State of Utah (Civil No. 030918364). Defendants consist
of the Company and Randall A. Mackey, Dr. David M. Silver and Keith D.
Ignotz, directors of the Company. The complaint alleges that at the time
the Company laid off Ms. Powell on March 25, 2003, she was owed $2,030 for
business expenses, $11,063 for accrued vacation days, $12,818 for unpaid
commissions, the fair market value of 50,000 stock options exercisable at
$5.00 per share that she claims she was prevented from exercising,
attorney's fees and a continuing wage penalty under Utah law. On March 29,
2005, the Company agreed to a settlement with Ms. Powell of her claims for
unpaid business expenses, accrued vacation days, and unpaid commissions by
agreeing to pay her the sum of $13,000. The Company made payment to Ms.
Powell for the agreed upon settlement amount.
On September 10, 2003, an action was filed against the Company by
Larry Hicks in the Third Judicial District Court, Salt Lake County, State
of Utah, (Civil No. 030922220), for payments due under a consulting
agreement with us. The complaint claims that monthly payments of $3,083
are due for the months of October 2002 to October 2003 under a consulting
agreement and, if the agreement is terminated, for the sum of $110,000
minus whatever the Company has paid Mr. Hicks prior to such termination,
plus costs, attorney's fees and a wage penalty pursuant to Utah law. The
Company has filed an answer in which it denies any liability to Mr. Hicks.
Formal discovery in the matter has commenced. The Company disputes the
amount allegedly owed and intends to vigorously defend against such action.
On November 7, 2003, a complaint was filed against the Company by Todd
Smith, a former employee, in the Third Judicial District Court, Salt Lake
County, State of Utah (Civil No. 030924951 CN). Defendants consist of the
Company and Randall Mackey, a director of the Company. The complaint
alleges that while an employee of the Company, Mr. Smith was granted stock
options to purchase 16,800 shares of common stock exercisable at $5.00 per
share. Mr. Smith claims unpaid wages in the amount of the fair market
value of the stock options he claims he was prevented from exercising,
attorney's fees, and a continuing wage penalty under Utah law. The Company
believes the claims are without merit and intends to vigorously defend
against such action.
On May 25, 2004, an action was brought against the Company by Jeffrey
F. Poore, former President and Chief Executive Officer of the Company, in
the Third Judicial District Court of Salt Lake County, State of Utah (Civil
No. 040910875). The complaint alleges that the Company unlawfully
terminated the written employment agreement between Mr. Poore and the
Company. As a result, Mr. Poore demanded judgment against the Company for
$350,000, representing his annual salary for the two remaining years under
the employment agreement, for money judgment based on the value of his
benefits for the two remaining years under the employment agreement,
including profit sharing plans, 401(k) and cafeteria plans, health,
hospitalization, dental, disability and other insurance plans canceled by
the Company, and for money judgment equal to the value of the stock options
granted to him under the employment agreement. The Company disputes the
amounts allegedly owed in the complaint and believes that there was a
sufficient basis to terminate Mr. Poore's employment for cause under the
terms of the employment agreement. Formal discovery is in process. A
trial has been scheduled to begin on January 17, 2006. The Company intends
to vigorously defend against the action.
On August 9, 2004, a third party complaint was brought against the
Company by Wakefield Eye Center and Dr. Kenneth C. Westfield (collectively
"Westfield"). The original action was brought by American Express Business
Finance Corporation against Westfield on May 27, 2004 in the District
Court, Clark County, State of Nevada (Civil No. A486307, Dept. No. XXI)
concerning the financing of the purchase of a Blood Flow Analyzer
involving Westfield Eye Center. The transaction took place during the
latter half of 2001. Westfield takes the position that if there is
liability of Westfield to American Express this liability is ultimately the
Company's and the other third-party defendants. The amount being sought
against Westfield by American Express in the original action includes the
sum of $29,766, together with interest and attorney's fees. The case was
referred to arbitration and subsequently settled. Under the terms of
settlement, the Company agreed to pay American Express Business Finance
Corporation the sum of $6,000 in order to be dismissed from the lawsuit.
20
On March 31, 2005, an action was filed against the Company by Joseph
W. Spadafora in the United States District Court, District of Utah (Civil
No. 2:05CV00278 TS). The complaint alleges that Dr. Spadafora was a
clinical investigator in the study for the FDA involving the Company's
Photon laser system where he performed numerous surgeries using the
Photon . Dr. Spadafora contends that in meetings with Company personnel he
suggested ways in which the handpiece on the Photon could be improved.
Dr. Spadafora further contends that on August 5, 1999, the Company filed a
patent application for an improved handpiece with the United States Patent
and Trademark Office but he was not named as one of the inventors or a co-
inventor on the patent application.
On September 24, 2004, the Company was issued a patent entitled,
"Laser Surgical Handpiece with Photon Trap." Because the Company did not
list Dr. Spadafora as one of the inventors or a co-inventor on the patent,
Dr. Spadafora is requesting in his complaint that a court order be entered
declaring that he is the inventor or co-inventor of the patent and, as a
result, is entitled to all or part of the royalties and profits that the
Company earned or will earn from the sale of any product incorporating or
using the improved handpiece, plus interest and attorney's fees. Formal
discovery has commenced. The Company disputes the claims made by Dr.
Spadafora and intends to vigorously defend against such action.
On August 23, 2005, the Third Judicial District Court for Salt Lake
County, State of Utah entered a final judgment and order of dismissal with
prejudice granting final approval of the settlement agreement that was
executed on February 23, 2005 in the state court class action lawsuit,
dismissing the lawsuit and all claims contained therein against the Company
and its former executive officers, and enjoining the class members in the
lawsuit from prosecuting the settled claims against the Company and its
former executive officers. Following the entry of the final judgment and
order of dismissal with prejudice in the lawsuit, there was a 30 day period
to appeal the final judgment and order. The 30 day period is now lapsed
and no appeal was made of the final judgment and order. Consequently, the
final judgment and order is now non-appealable.
Under the terms of settlement of the state court class action lawsuit,
U.S. Fire Insurance Company, which issued a Directors and Officers
Liability and Company Reimbursement Policy to the Company for the period
from July 10, 2002 to July 10, 2003, agreed to pay the sum of $625,000 in
cash to the class members that purchased shares of Series E convertible
preferred stock on or about July 11, 2001. U.S. Fire paid the agreed upon
sum of $625,000 to the class members that purchased the Series E preferred
shares as a condition of the settlement. The state court class action
lawsuit was initially filed on October 14, 2003 by Albert Kinzinger, Jr.,
individually and on behalf of all others similarly situated, against the
Company and its former executive officers in the Third District Court for
Salt Lake County, State of Utah.
On August 26, 2005, the United States District Court for the District
of Utah entered an order and final judgment granting final approval of the
settlement agreement executed on February 23, 2005 in the federal court
class action lawsuit and dismissing the complaint filed in the lawsuit with
prejudice as against the Company and its former executive officers. In
addition, the court permanently enjoined class members in the lawsuit and
their successors and assigns from instituting any other actions against the
Company and its former executive officers that had been or could have been
asserted by the class members against the Company and its former executive
officers in the federal court class action lawsuit. Following the entry of
the order and final judgment in the lawsuit, there was a 30 day period to
appeal the order and final judgment. The 30 day period is now lapsed and
no appeal was made of the order and final judgment. Consequently, the
order and final judgment is now non-appealable.
Under the terms of settlement of the federal court class action
lawsuit, U.S. Fire agreed to pay the sum of $1,507,500 in cash to the class
members that purchased securities of the Company during the period between
April 17, 2002 and November 4, 2002. U.S. Fire paid the agreed upon sum of
$1,507,500 to the class members that purchased the common shares as a
condition of the settlement. The federal court class action lawsuit was
initially filed on May 14, 2003 by Richard Meyer, individually and on
behalf of all others similarly situated, in the United States District
Court for the District of Utah. The lawsuit was consolidated into a single
action on June 28, 2004 with two other class action lawsuits -- the class
action lawsuit filed by Michael Marone on June 2, 2003 and the class action
lawsuit filed by Lidia Milian on July 11, 2003 against Paradigm Medical and
its former executive officers in the same court. The consolidated action
was captioned: In re: Paradigm Medical Industries Securities Litigation,
with lead plaintiffs Rock Solid Investments of Miami, Inc., Brito & Brito
Accounting, Inc. and Joseph Savanjo.
21
On October 12, 2005, the United States District Court of the District
of Utah entered an order of dismissal with prejudice dismissing the
complaint that Innovative Optics, Inc. and Barton Dietrich Investments,
L.P. brought against the Company and its former executive officers. The
lawsuit was initially filed on July 20, 2003 by Innovative Optics, Inc. and
Barton Dietrich Investors, L.P. against the Company and its former
executive officers. A written settlement agreement was executed on
February 23, 2005 among the parties to the lawsuit and U.S. Fire. Under
the terms of settlement, U.S. Fire agreed to pay the sum of $367,500 in
cash to Innovative Optics, Inc. and Barton Dietrich Investors, L.P.
Payment of this amount was contingent, however, upon the courts in the
federal and state class action lawsuits granting approval of the
settlements reached in those respective actions, and such orders becoming
final and non-appealable. The federal and state courts in the class action
lawsuits have granted orders approving the settlements in those actions and
such orders are now final and non-appealable. As a result, U.S. Fire paid
the agreed upon sum of $367,000 to Innovative Optics, Inc. and Barton
Dietrich Investors, L.P. as a condition of the settlement.
The Company is not a party to any other material legal proceedings
outside the ordinary course of its business or to any other legal
proceedings, which, if adversely determined, would have a material adverse
effect on its financial condition or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on August 12, 2005, the
following matters were acted upon: (i) four directors consisting of Randall
A. Mackey, Dr. David M. Silver, Keith D. Ignotz and John C. Pingree were
elected to serve until the next annual shareholders meeting and until their
respective successors are elected and qualified (for Randall A. Mackey,
18,949,242 votes were cast in favor of election, no votes were cast against
election, and 180,368 abstentions; for Dr. David M. Silver, 18,949,242
votes were cast in favor of election, no votes were cast against election,
and 180,368 abstentions; for Keith D. Ignotz, 18,949,242 votes were cast in
favor of election, no votes were cast against election, and 180,368
abstentions; and for John C. Pingree, 18,949,242 votes were cast in favor
of election, no votes were cast against election, and 180,368 abstentions);
(ii) the amendment to the Certificate of Incorporation to increase the
number of authorized shares of common stock from 80,000,000 shares to
250,000,000 shares was approved (with 18,437,186 votes cast for approval,
646,854 votes against approval, and 52,250 abstentions); (iii) the
amendment to the 1995 Stock Option Plan to authorize an additional
1,300,000 shares of common stock to be made available for issuance under
the plan was approved (with 1,064,265 votes cast for approval, 697,498
votes against approval, and 51,950 abstentions); and (iv) the appointment
of Chisholm, Bierwolf & Nilson as the Company's registered public
independent accountants for the fiscal year ended December 31, 2005 was
ratified (with 18,968,325 votes cast for appointment, 147,670 votes against
appointment, and 62,524 abstentions).
22
ITEM 5. OTHER INFORMATION
CALLABLE SECURED CONVERTIBLE NOTES AND WARRANTS
To obtain funding for the Company's ongoing operations, the
Company entered into a securities purchase agreement with four accredited
investors on April 27, 2005 for the sale of (i) $2,500,000 in callable
secured convertible notes and (ii) warrants to purchase 16,534,392 shares
of its common stock. The sale of the callable secured convertible notes
and warrants is to occur in three traunches and the investors are obligated
to provide the Company with an aggregate of $2,500,000 as follows:
- 850,000 was disbursed on April 27, 2005;
- $800,000 was disbursed on June 23, 2005 after filing a
registration statement on June 22, 2005, which covered the shares
of common stock underlying the callable secured convertible notes
and the warrants; and
- $850,000 was disbursed on June 30, 2005, upon the effectiveness
of the registration statement on June 29, 2005, which covered the
shares of common stock underlying the callable secured
convertible notes and the warrants.
Each closing under the securities purchase agreement was subject to
the following conditions:
- The Company delivered to the investors duly executed callable
secured convertible notes and warrants;
- No litigation, statute, regulation or order had been commenced,
enacted or entered by or in any court, governmental authority or
any self-regulatory organization that prohibits consummation of
the transactions contemplated by the securities purchase
agreement; and
- No event occurred that could reasonably be expected to have a
material adverse effect on the Company's business.
The Company also agreed not, without the prior written consent of a
majority-in-interest of the investors, to negotiate or contract with any
party to obtain additional equity financing (including debt financing with
an equity component) that involves (i) the issuance of common stock at a
discount to the market price of the common stock on the date of issuance
(taking into account the value of any warrants or options to acquire common
stock in connection therewith), (ii) the issuance of convertible securities
that are convertible into an indeterminate number of shares of common
stock, or (iii) the issuance of warrants during the lock-up period
beginning April 27, 2005 and ending on the later of (a) 270 days from April
27, 2005, or (b) 180 days from the date the registration statement is
declared effective.
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period
beginning April 27, 2005 and ending two years after the end of the above
lock-up period unless it first provided each investor an option to purchase
its pro-rata share (based on the ratio of each investor's purchase under
the Securities Purchase Agreement) of the securities being offered in any
proposed equity financing. Each investor must be provided written notice
describing any proposed equity financing at least 20 business days prior to
the closing of such proposed equity financing and the option must be
extended to each investor during the 15-day period following delivery of
such notice.
23
The callable secured convertible notes bear interest at 8% per annum
from the date of issuance. Interest is computed on the basis of a 365-day
year and is payable quarterly in cash, with six months of interest payable
up front. The interest rate resets to zero percent for any month in which
the stock price is greater than 125% of the initial market price, or
$.0945, for each trading day during that month. Any amount of principal or
interest on the callable secured convertible notes that is not paid when
due will bear interest at the rate of 15% per annum from the date due
thereof until such amount is paid. The callable secured convertible notes
mature in three years from the date of issuance, and are convertible into
our common stock at the selling stockholders' option, at the lower of (i)
$.09 or (ii) 60% of the average of the three lowest intraday trading prices
for the common stock on the OTC Bulletin Board for the 20 trading days
before but not including the conversion date. Accordingly, there is no
limit on the number of shares into which the notes may be converted.
The callable secured convertible notes are secured by the Company's
assets, including the Company's inventory, accounts receivable and
intellectual property. Moreover, the Company has a call option under the
terms of the notes. The call option provides the Company with the right to
prepay all of the outstanding callable secured convertible notes at any
time, provided there is no event of default by the Company and the
Company's stock is trading at or below $.09 per share. An event of default
includes the failure by the Company to pay the principal or interest on the
callable secured convertible notes when due or to timely file a
registration statement as required by the Company or obtain effectiveness
with the Securities and Exchange Commission of the registration statement.
Prepayment of the callable secured convertible notes is to be made in cash
equal to either (a) 125% of the outstanding principal and accrued interest
for prepayments occurring within 30 days following the issue date of the
notes; (b) 130% of the outstanding principal and accrued interest for
prepayments occurring between 31 and 60 days following the issue date of
the notes; or (c) 145% of the outstanding principal and accrued interest
for prepayments occurring after the 60th day following the issue date of
the notes.
The warrants are exercisable until five years from the date of
issuance at a purchase price of $.20 per share. The investors may exercise
the warrants on a cashless basis if the shares of common stock underlying
the warrants are not then registered pursuant to an effective registration
statement. In the event the investors exercise the warrants on a cashless
basis, then the Company will not receive any proceeds therefrom. In
addition, the exercise price of the warrants will be adjusted in the event
the Company issues common stock at a price below market, with the exception
of any securities issued as of the date of the warrants or issued in
connection with the callable secured convertible notes issued pursuant to
the Securities Purchase Agreement.
The selling stockholders have agreed to restrict their ability to
convert their callable secured convertible notes or exercise their warrants
and receive shares of our common stock such that the number of shares of
common stock held by them in the aggregate and their affiliates after such
conversion or exercise does not exceed 4.99% of the then issued and
outstanding shares of common stock. However, the selling stockholders may
repeatedly sell shares of common stock in order to reduce their ownership
percentage, and subsequently convert additional callable secured
convertible notes.
The Company is required to register the shares of its common stock
issuable upon the conversion of the callable secured convertible notes and
the exercise of the warrants. The registration statement must be filed
with the Securities and Exchange Commission within 60 days of the April 27,
2005 closing date and the effectiveness of the registration is to be within
135 days of such closing date. Penalties of 2% of the outstanding
principal balance of the callable secured convertible notes plus accrued
interest are to be applied for each month the registration is not effective
within the required time. The penalty may be paid in cash or stock at our
option. The Company filed a registration statement with the Securities and
Exchange Commission on June 22, 2005 to register the shares of common stock
issuable upon the conversion of the callable secured convertible notes and
the exercise of the warrants. The registration statement was declared
effective on June 29, 2005.
24
As of June 30, 2005, the average of the three lowest intraday trading
prices of the Company's common stock during the preceding 20 trading days
as reported on the OTC Bulletin Board was $.05 and, therefore, the
conversion price for the callable secured convertible notes was $.03.
Based on this conversion price, the $2,500,000 callable secured convertible
notes, excluding interest, were convertible into 83,333,333 shares of the
Company's common stock. As of June 30, 2005, none of the callable secured
convertible notes had been converted.
Since June 30, 2005, a total of $401,509 in callable secured
convertible notes have been converted into 45,320,000 shares of the
Company's common stock pursuant to notices of conversion from The NIR
Group. The dates of these notices of conversion, the amount of the notes
converted, the conversion price of the notes converted, and the shares
issued to the noteholders upon conversion were as follows:
Shares Issued
Date of Notice Amount of Notes Conversion Price to Noteholders
of Conversion Converted of Notes Upon Conversion
-------------- --------------- ---------------- ---------------
July 7, 2005 $ 39,900 $ .0285 1,400,000
July 14, 2005 40,460 .0289 1,400,000
July 20, 2005 32,110 .0247 1,300,000
July 26, 2005 29,682 .0194 1,530,000
July 29, 2005 28,458 .0186 1,530,000
August 8, 2005 22,032 .0144 1,530,000
August 16, 2005 25,480 .014 1,820,000
August 22, 2005 22,386 .0123 1,820,000
August 26, 2005 16,898 .0119 1,420,000
August 27, 2005 4,760 .0119 400,000
September 2, 2005 20,600 .0103 2,000,000
September 12, 2005 16,380 .00819 2,000,000
September 16, 2005 13,800 .0069 2,000,000
September 22, 2005 11,580 .00579 2,000,000
September 28, 2005 11,628 .0051 2,280,000
October 3, 2005 7,157 .003139 2,280,000
October 10, 2005 7,157 .003139 2,280,000
October 12, 2005 6,840 .003 2,280,000
October 19, 2005 8,430 .003 2,810,000
October 25, 2005 8,430 .003 2,810,000
October 31, 2005 8,795 .00313 2,810,000
November 3, 2005 8,599 .00306 2,810,000
November 11, 2005 9,947 .00354 2,810,000
--------------- ---------------
Total $ 401,509 45,320,000
=============== ===============
25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
--------
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.
Exhibit
No. Document Description
------- --------------------
2.1 Amended Agreement and Plan of Merger between Paradigm Medical
Industries, Inc., a California corporation and Paradigm Medical
Industries, Inc., a Delaware corporation(1)
3.1 Certificate of Incorporation(1)
3.2 Amended Certificate of Incorporation
3.3 Bylaws(1)
4.1 Specimen Common Stock Certificate (2)
4.2 Specimen Class A Warrant Certificate(2)
4.3 Form of Class A Warrant Agreement(2)
4.4 Specimen Series C Convertible Preferred Stock Certificate(3)
4.5 Certificate of the Designations, Powers, Preferences and
Rights of the Series C Convertible Preferred Stock(3)
4.6 Specimen Series D Convertible Preferred Stock Certificate (4)
4.7 Certificate of the Designations, Powers, Preferences and
Rights of the Series D Convertible Preferred Stock (5)
4.8 Warrant to Purchase Common Stock with Cyndel & Co. (4)
4.9 Warrant to Purchase Common Stock with Dr. Michael B. Limberg (5)
4.10 Certificate of Designations, Powers, Preferences and Rights of
the Series G Convertible Preferred Stock (7)
10.1 Exclusive Patent License Agreement with PhotoMed(1)
10.2 Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
10.3 1995 Stock Option Plan (1)
10.4 Employment Agreement with Jeffrey F. Poore (6)
10.5 License Agreement with Sunnybrook Health Science Center(8)
10.6 Mutual Release with Douglas A. MacLeod, M.D. and Others(8)
10.7 Non-Waiver Agreement with United States Fire Insurance Company(9)
10.8 Employment Agreement with John Y. Yoon(10)
10.9 Stock Purchase and Sale Agreement with William Ungar (11)
10.10 Employment Agreement with Aziz A. Mohabbat (12)
10.11 Investment Banking Agreement with Alpha Advisory Services, Inc.
(13)
10.12 Manufacturing and Distribution Agreement with E-Technologies,
Inc. (13)
10.13 Settlement Agreement with Innovative Optics, Inc., Barton
Dietrich Investments, L.P. and United States Fire Insurance
Company (14)
10.14 Securities Purchase Agreement with AJW Partners, LLC, AJW
Offshore, Ltd., AJW Qualified Partners, LLC and New Millennium
Capital Partners II, LLP (the "Purchasers")(15)
10.15 Form of Callable Secured Convertible Note with each purchaser(15)
10.16 Form of Stock Purchase Warrant with each purchaser(15)
10.17 Security Agreement with Purchasers(15)
10.18 Intellectual Property Security Agreement with Purchasers(15)
10.19 Registration Statement with the Purchasers(15)
26
10.20 Stock Purchase Agreement with Mackey Price Thompson & Ostler (16)
31.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
_____________________
(1) Incorporated by reference from Registration Statement on Form SB-
2, as filed on March 19, 1996.
(2) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form SB-2, as filed on May 14, 1996.
(3) Incorporated by reference from Annual Report on Form 10-KSB, as
filed on April 16, 1998.
(4) Incorporated by reference from Registration Statement on Form SB-
2, as filed on April 29, 1999.
(5) Incorporated by reference from Report on Form 10-QSB, as filed on
August 16, 2000.
(6) Incorporated by reference from Registration Statement on Form SB-
2, as filed on July 7, 2003.
(7) Incorporated by reference from Report on Form 10-QSB, as filed on
November 14, 2003.
(8) Incorporated by reference from Amendment No. 2 to Registration
Statement on Form SB-2, as filed on December 15, 2003.
(9) Incorporated by reference from Amendment No. 3 to Registration
Statement on Form SB-2, as filed on February 27, 2004.
(10) Incorporated by reference from Current Report on Form 8-K, as
filed on March 23, 2004.
(11) Incorporated by reference from Quarterly Report on Form 10-QSB,
as filed on August 16, 2004.
(12 ) Incorporated by reference from Amendment No. 6 to Registration
Statement on Form SB-2, as filed on October 20, 2004.
(13) Incorporated by reference from Report on Form 10-QSB, as filed on
November 15, 2004.
(14) Incorporated by reference from Current Report on Form 8-K, as
filed on January 26, 2005.
(15) Incorporated by reference from Current Report on Form 8-K, as
filed on May 18, 2005.
(16) Incorporated by reference from Registration Statement on Form SB-
2, as filed on June 22, 2005.
(b) Reports on Form 8-K
-------------------
Current Report on Form 8-K, as filed on September 28, 2005.
27
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PARADIGM MEDICAL INDUSTRIES, INC.
November 16, 2005 /s/ John Y. Yoon
------------------------------------------
John Y. Yoon
President and Chief Executive Officer
November 16, 2005 /s/ Cory N. Johnson
------------------------------------------
Cory N. Johnson, Controller, Treasurer
and Secretary
28