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 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 Number
of incorporation or organization)
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.
FORM 10-QSB
QUARTER ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
No.
------
Item 1. Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . 3
Statements of Operations . . . . . . . . . . . . . . . 4
Statements of Cash Flows. . . . . . . . . . . . . . . 5
Notes to Financial Statements (unaudited). . . . . . 6 to 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . 8 to 10
PART II - OTHER INFORMATION
Other Information . . . . . . . . . . . . . 11
Signature Page . . . . . . . . . . . . . . . 12
-2-
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
<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 369,045 407,610
Prepaid expenses 18,361 14,093
------------ ------------
Total current assets 3,969,051 3,418,330
Deferred charges 100,000 120,000
Property and equipment, net 123,544 129,494
------------- -------------
Total assets $ 4,192,595 $ 3,667,824
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,656 $ 35,767
Accrued expenses 118,359 277,473
Note payable to bank - current 3,198 3,278
------------- -------------
Total current liabilities 160,213 316,518
Note payable, less current portion 16,455 15,605
------------- -------------
Total liabilities 176,668 332,123
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) (4,772,548)
Unrealized gain (loss) on
marketable debt securities,
available-for-sale (13,703) 9,669
----------- -------------
Total stockholders' equity 4,015,927 3,335,701
----------- -------------
Total liabilities and
stockholders' equity $ 4,192,595 $ 3,667,824
=========== =============
</TABLE>
The accompanying notes are an integral
part of the financial statements
-3-
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<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 169,479 463,588
Research and development 50,664 135,653
-------- ---------
Total operating expenses 312,891 768,121
Operating loss (292,772) (753,531)
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) (722,539)
Net loss attributable to common
shareholders $ (471,256) $ (722,539)
Net loss per common share $ (.20) $ (.23)
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
-4-
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended
December 31,
1995 1996
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(471,256) $(722,539)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 3,642 6,205
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:
Trade accounts receivable 52,656 37,226
Inventories 12,372 (38,565)
Prepaid expenses 11,396 4,268
Deferred Charges (20,000)
Accounts payable (4,788) (2,889)
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 bridge
notes and warrants 75,000 0
Principal payments on notes payable (2,765) (771)
--------- --------
Net cash provided by
(used in) 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 non-cash
investing and financing activities:
Issuance of common stock for
services rendered in connection
with preferred stock offering 10,251
Equipment purchased with accounts
payable 44,000
Common stock issued for future
services 151,538
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.
-5-
<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 antidilutive. 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.
Related Party Transactions
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.
-6-
<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
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 $294,109, or
174%, to $463,588 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 $84,989, or
168%, to $135,653 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.
-7-
<PAGE>
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 totaling
$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.
-8-
<PAGE>
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
-9-
<PAGE>
Part II Other Information
Item 1. 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
intents 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.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
-10-
<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: February 14, 1996 By: Thomas F. Motter
President and Chief
Executive Officer
(Principal Executive
Officer)
DATED: February 14, 1996 By: John W. Hemmer
Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
-11-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE 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> <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> 407,610
<CURRENT-ASSETS> 3,418,330
<PP&E> 162,674
<DEPRECIATION> (33,180)
<TOTAL-ASSETS> 3,667,824
<CURRENT-LIABILITIES> 316,518
<BONDS> 0
0
570
<COMMON> 3,194
<OTHER-SE> (4,829,797)
<TOTAL-LIABILITY-AND-EQUITY> 3,667,824
<SALES> 35,651
<TOTAL-REVENUES> 67,126
<CGS> 21,061
<TOTAL-COSTS> 768,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (483)
<INCOME-PRETAX> (722,539)
<INCOME-TAX> 0
<INCOME-CONTINUING> (722,539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (722,539)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
