UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
AMENDMENT TO FORM 10QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1996 Commission File
Number: 0-28498
PARADIGM MEDICAL INDUSTRIES, INC.
---------------------------------
Exact Name of Registrant.
DELAWARE 87-0459536
- --------------------------------- ------------------
(State or other jurisdiction IRS Identification
of incorporation or organization) Number
1772 West 2300 South, Salt Lake City, Utah 84119
- ------------------------------------------ ---------
(Address of principal executive offices) (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 XX NO
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, net of treasury stock, as of the close
of the period covered by this report.
Class A Common Stock, $.001 par value 3,194,061
- ------------------------------------- ------------------
Title of Class Number of Shares
Outstanding as of
December 31, 1996
Series A Preferred, $.001 par value 121,704
- ----------------------------------- -------------------
Title of Class Number of Shares
Outstanding as of
December 31, 1996
Series B Preferred, $.001 par value 448,398
- ------------------------------------ ------------------
Title of Class Number of Shares
Outstanding as of
December 31, 1996
PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
AMENDMENT TO FORM 10QSB
QUARTER ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
No. Page
- ----- ----
Item 1. Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . 3
Statement of Operations . . . . . . . . . . . . . 4
Statements of Cash Flows. . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . 7 to 8
PART II - OTHER INFORMATION
Other Information . . . . . . . . . . . . . . 8
Signature Page . . . . . . . . . . . . . . . . 9
<PAGE>
<TABLE>
<CAPTION>
PARADIGM MEDICAL INDUSTRIES, INC.
BALANCE SHEETS
<S> <C> <C>
September 30, December 31,
1996 1996
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,040,152 $ 2,468,988
Marketable debt securities,
available for sale 486,039 509,411
Trade accounts receivable 55,454 18,228
Inventories 369,045 241,746
Prepaid expenses 18,361 14,093
----------- -----------
Total current assets 3,969,051 3,252,466
Deferred charges 100,000 10,000
Property and equipment, net 123,544 129,494
----------- -----------
Total Assets $ 4,192,595 $ 3,391,960
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,656 $ 35,767
Accounts payable - related party 200,000
Accrued expenses 118,359 277,473
Note payable to bank - current 3,198 3,278
----------- -----------
Total current liabilities 160,213 516,518
Note payable, less current portion 16,455 15,605
----------- -----------
Total Liabilities 176,668 532,123
----------- -----------
Contingencies (Note 2)
Stockholders' equity:
Preferred stock, Authorized:
5,000,000 $.001 par value
shares.
Series A, Authorized:
500,000 shares; issued
and outstanding: 122,764
$.001 par value shares at
September 30, 1996 and
121,704 $.001 par value
shares at December 31, 1996
(aggregate liquidation
preference of $486,816 at
December 31, 1996) 123 122
Series B, Authorized: 500,000
shares; issued and outstanding:
466,055 $.001 par value shares
at September 30, 1996 and
448,398 $.001 par value shares
at December 31, 1996 (aggregate
liquidation preference of
$1,793,592 at December 31, 1996) 466 448
Additional paid-in capital,
preferred stock 1,975,487 1,900,637
Common stock, Authorized:
20,000,000 shares; issued and
outstanding: 3,171,598 $.001
par value shares at September 30,
1996 and 3,194,061 $.001 par
value shares at December 31, 1996 3,172 3,194
Additional paid-in capital,
common stock 6,186,251 6,261,097
Treasury stock, 2,600 shares,
at cost (3,777) (3,777)
Unearned compensation (82,083) (63,141)
Accumulated deficit (4,050,009) (5,248,412)
Unrealized gain (loss) on
marketable debt securities,
available-for-sale (13,703) 9,669
Total stockholders' equity 4,015,927 2,859,837
---------- ----------
Total liabilities and
stockholders' equity $ 4,192,595 $ 3,391,960
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements
<PAGE>
PARADIGM MEDICAL NDUSTRIES, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C>
Three months ended
December 31,
--------------------
1995 1996
----- ------
(Unaudited) (Unaudited)
Sales $ 65,405 $ 35,651
Cost of sales 45,286 21,061
---------- ---------
Gross profit 20,119 14,590
--------- ---------
Operating expenses:
Marketing and selling 92,748 168,880
General and administrative 169,479 594,520
Research and development 50,664 480,584
--------- ----------
Total operating expenses 312,891 1,243,984
--------- ----------
Operating loss (292,772) (1,229,394)
-------- ----------
Other income (expense):
Cost associated with relinquishment
of anti-dilution rights (179,000) -0-
Interest income 2,720 31,475
Interest expense
(2,204) (483)
--------- ---------
(178,484) 30,992
--------- ---------
Net loss (471,256) (1,198,402)
Net loss attributable to common
shareholders $(471,256) $(1,198,402)
========= ===========
Net loss per common share $(.20) $(.38)
========= ===========
Shares used in computing net loss
per common share 2,352,031 3,182,830
========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited)
<S> <C> <C>
Three months ended
December 31,
--------------------------
1995 1996
------ ------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(471,256) $(1,198,402)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 3,642 6,204
Issuance of common stock for
services and relinquishment
of anti-dilution rights 179,000 -0-
Amortization of unearned
compensation 9,471 18,942
Increase (decrease) from
changes in:
Accounts receivable 52,656 37,226
Inventories 12,372 127,299
Prepaid expenses 11,396 4,268
Deferred Charge -0- 90,000
Accounts payable (4,788) (2,889)
Accounts payable -
related parties -0- 200,000
Accrued expenses 108 159,114
------- ---------
Net cash used in
operating activities (207,399) (558,238)
Cash flows from investing activities:
Purchase of property and equipment (10,600) ( 12,155)
-------- --------
Net cash used in
investing activities (10,600) (12,155)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of promissory
notes and warrants 75,000 -0-
Principal payments on long-term debt (2,765) (771)
-------- -------
Net cash provided by
financing activities 72,235 (771)
-------- -------
Net decrease in cash and cash
equivalents (145,764) (571,164)
Cash and cash equivalents at
beginning of period 338,218 3,040,152
--------- ---------
Cash and cash equivalents
at end of period $ 192,454 $ 2,468,988
========= ===========
Supplemental disclosure
of cash flow information:
Cash paid for interest $ 2,107 $ 483
Supplemental disclosure of noncash
investing and financing activities
Issuance of common stock for
services rendered in connection
with preferred stock offering 10,251
Common stock issued for future
services 151,538
Equipment purchased with accounts
payable 44,000
Issuance costs for bridge notes
and warrants included in
accounts payable 43,500
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Significant Accounting Policies:
-------------------------------
In the opinion of management, the accompanying
financial statements contain all adjustments (consisting only of
normal recurring items) necessary to present fairly the financial
position of Paradigm Medical Industries, Inc. (the Company) as of
September 30, 1996 and December 31, 1996, and the results of its
operations for the three months ended December 31, 1996 and 1995
and its cash flows for the three months ended December 31, 1996
and 1995. The results of operations for the periods presented
are not necessarily indicative of the results to be expected for
the full year period.
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
have not been included in loss years because they are
anti-dilutive.
2. Legal Proceedings:
-----------------
On March 31, 1995, the Company entered into an
agreement with an investment banking company to obtain
capitalization through a public offering. The agreement was
deemed terminated if the required capitalization was not obtained
by December 31, 1995. In a complaint filed in November 1996, the
investment banking company and its principal officer
requested 356,780 shares of the Company's common stock, along
with monthly payments of $3,000 for three years, as compensation
under the agreement. The Company believes the complaint is
without merit and intends to vigorously defend the action.
Nevertheless, in the event the Company does not prevail in its
defenses, the lawsuit could have a material adverse impact on the
Company's financial condition and could result in dilution to the
Company's shareholders.
3. Preferred Stock Conversions
---------------------------
During the three month period ended December 31,
1996, 1,060 shares of Series A Preferred Stock and 17,657 shares
of Series B Preferred Stock were converted into 1,272 and 21,191
shares, respectively, of the Company's common stock.
4. Related Party
-------------
On January 8, 1997, the Company Subcontracted the
subassembly of the Laser Module piece of the Photon LaserPhaco
system. The President of (the "Manufacturer") sits on the
Company's Board of Directors. The company is not committed to
purchase any units until production begins in March 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements which involve risks and uncertainties.
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.
General
The Company is engaged in the development, manufacture and
sale of ophthalmic surgical devices designed to perform minimally
invasive cataract removal surgery. Paradigm's activities for the
three months ended December 31, 1995 and 1996 include
international and domestic sales of the Precisionist Phaco
system, research and development for the Photon(trademark)
LaserPhaco(trademark) System and primary research for other new
products and businesses.
Results of Operations
Three months Ended December 31, 1996 Compared to Three
months Ended December 31, 1995.
Sales decreased by $29,754, or 45%, to $35,651 for the
three months ended December 31, 1996 from $65,405 for the
comparable period in 1995. This decrease was a result of
decreased sales of the Precisionist Phaco System resulting from
the Company focusing its limited resources on the development of
the Photon Ocular Surgery System and the Precisionist
ThirtyThousand, the next generation of Paradigm products
scheduled for launch in March, 1997. Cost of sales decreased
$24,225, or 53%, to $21,061 for the three months ended December
31, 1996 from $45,286 for the comparable period in 1995, as a
result of the decreased sales. The gross margin for the three
months ended December 31, 1996 of 41% is up from the gross margin
for the comparable period in 1995 of 31% because sales in 1995
included more parts and accessories which have a lower gross
margin.
Marketing and selling expenses increased by $76,132, or
82%, to $168,880 for the three months ended December 31, 1996
from $92,748 for the comparable period in 1995. The increase was
a result of the Company adding two additional sales
representatives and increasing promotional activities in
anticipation of launching the Photon Ocular Surgery System and
the Precisionist ThirtyThousand.
General and administrative expenses increased by $425,041,
or 251%, to $594,520 for the three months ended December 31, 1996
from $169,479 for the comparable period in 1995. This was the
result of an increase in personnel and costs associated with
pre-production activities.
Research and development expenses increased by $429,920, or
849%, to $480,584 for the three months ended December 31, 1996
from $50,664 for the comparable period in 1995. This was the
result of hiring four additional employees and costs associated
with developing new products.
During the three months ended December 31, 1995, the
Company incurred $179,000 of expenses in connection with
obtaining the relinquishment of certain anti-dilution rights.
Liquidity and Capital Resources
The Company used cash in operating activities of $558,238
for the three months ended December 31, 1996 compared to $207,399
for the comparable period in 1995. The Company used cash in
investing activities of $12,155 for the three months ended
December 31, 1996 compared to $10,600 for the comparable period
in 1995. These operating and investing cash outflows were
financed primarily from the proceeds of the Company's public
offering.
During the three months ended December 31, 1996 the Company
made $771 in principal payments on long-term debt. The Company
generated $75,000 from the private placement of Promissory Notes
and Warrants during the three months ended December 31, 1995.
During the three months ended December 31, 1995, the Company made
$2,765 in principal payments on long-term debt.
In July, 1996, the Company generated $6,250,000 from the
public offering of its Common Stock before deducting expenses
totalling $1,509,569. The Company generated $575,000 from the
private placement of Bridge Notes in fiscal 1996. The Company
expects that the net proceeds of the public offering will enable
it to meet its liquidity and capital requirements for
approximately 12 months following the completion of the offering
in July 1996. There can be no assurance that the Company can
generate sufficient revenues from product sales to satisfy its
working capital requirements after such time. The Company's
working capital requirements will depend upon numerous factors,
including progress of the Company's research and development
program for the development of new products and new applications
for its present core product, the success of its regulatory
programs with domestic and foreign agencies for its new products,
the levels of resources devoted by the Company to the development
of manufacturing and marketing capabilities, technological
advances, the status of competitors and the success or lack
thereof of the Company's marketing efforts. To meet its
short-term and long-term requirements, including research and
development activities, the Company may be required to obtain
additional financing. The Company currently has a $600,000 line
of credit with Key Bank related to accounts receivable and
inventory financing. The Company may seek funding to meet its
working capital requirements through collaborative arrangements
and strategic alliances, additional public offerings and/or
private placements of its securities, or bank borrowings. There
can be no assurance, however, that additional funds, if required,
will be available from any of the foregoing or other sources on
favorable terms, if at all.
At December 31, 1996, the Company had net operating loss
carryforwards (NOLs) of approximately $4,000,000 and research and
development tax credit carryforwards of approximately $47,700.
These carryforwards are available to offset future taxable
income, if any, and expire in the years 2005 through 2011.
Because the Company has yet to recognize significant revenue from
the sale of its Photon(trademark) laser cataract System, a
valuation allowance has been provided in full for these deferred
tax assets. The Company's ability to use its NOLs to offset
future income may be subject to restrictions enacted in the
United States Internal Revenue Code of 1986, as amended. These
restrictions could limit the Company's future use of its NOLs if
there is a cumulative ownership change of more than 50%, which
would include the changes of ownership related to the offering.
Effect of Inflation and Foreign Currency Exchange
The Company has not realized a reduction in the selling
price of the Precisionist phaco system as a result of domestic
inflation. Nor has the Company experienced unfavorable profit
reductions due to currency exchange fluctuations or inflation
with its foreign customers.
Impact of New Accounting Pronouncements
The Company intends to adopt the disclosure approach
provided for in Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock Based Compensation, with
respect to options and warrants granted to employees. Because
the Company has only a minimal investment in long-lived assets,
the adoption of SFAS 121, Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of, and which will occur October
1, 1996, is not expected to have an impact on the Company.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit # Description
27 Restated Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
REGISTRANT
PARADIGM MEDICAL INDUSTRIES, INC.
---------------------------------
Registrant
DATED: October 29, 1996 By: Michael W. Stelzer
President and Chief Executive
Officer (Principal Executive
Officer)
DATED: October 29, 1996 By: John W. Hemmer
Treasurer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET OF PARADIGM MEDICAL INDUSTRIES, INC. AS OF
DECEMBER 31, 1996, AND THE RELATED STATEMENTS OF OPERATIONS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,468,988
<SECURITIES> 509,411
<RECEIVABLES> 18,228
<ALLOWANCES> 0
<INVENTORY> 241,746
<CURRENT-ASSETS> 3,252,466
<PP&E> 162,674
<DEPRECIATION> (33,180)
<TOTAL-ASSETS> 3,391,960
<CURRENT-LIABILITIES> 516,518
<BONDS> 0
0
570
<COMMON> 3,194
<OTHER-SE> (5,305,661)
<TOTAL-LIABILITY-AND-EQUITY> 3,391,960
<SALES> 35,651
<TOTAL-REVENUES> 67,126
<CGS> 21,061
<TOTAL-COSTS> 1,243,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (483)
<INCOME-PRETAX> (1,198,402)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,198,402)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,198,402)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
