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 March 31, 1997 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 X NO
------- -------
State the number of shares outstanding of each of the issuer's
classes of common equity as of the close of the period covered by
this report.
Class A Common Stock, $.001 par value 3,601,111
- ------------------------------------- -----------------
Title of Class Number of Shares
Outstanding as of
March 31, 1997
Series A Preferred, $.001 par value 114,284
- ------------------------------------ ----------------
Title of Class Number of Shares
Outstanding as of
March 31, 1997
Series B Preferred, $.001 par value 132,108
- ------------------------------------ ----------------
Title of Class Number of Shares
Outstanding as of
March 31, 1997
Transitional Small Business Disclosure Format
YES NO X
------- -------
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
AMENDMENT TO FORM 10QSB
QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
No.
-----
Item 1. Financial Statements
Balance Sheets (unaudited) - March 31, 1997 and
December 31, 1996. . . . . . . . . . . . . . . . . 3
Statements of Operations (unaudited) for the three months
ended March 31, 1997 and March 31, 1996. . . . . . 4
Statements of Cash Flows (unaudited) for the three months
ended March 31, 1997 and March 31, 1996. . . . . . 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. . . . . . . . . . . . . . . . 10
Signature Page . . . . . . . . . . . . . . . . . . 11
<PAGE>
<TABLE>
<CAPTION>
PARADIGM MEDICAL INDUSTRIES, INC.
BALANCE SHEETS
(UNAUDITED)
<S> <C> <C>
March 31, December 31,
1997 1996
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,669,992 $2,468,988
Marketable debt securities,
available for sale 512,763 509,411
Trade accounts receivable 181,454 18,228
Inventories 607,104 241,746
Prepaid expenses 21,757 14,093
---------- ----------
Total current assets 2,993,070 3,252,466
Deferred charges, net 339,105 10,000
Property and equipment, net 132,001 129,494
----------- ----------
Total assets $3,464,176 $3,391,960
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 99,431 $ 35,767
Accounts payable -
related parties 972,190 -0-
Accrued expenses 231,010 477,473
Note payable to bank - current 3,360 3,278
---------- ----------
Total current liabilities 1,305,991 516,518
Note payable, less current portion 14,733 15,605
---------- ----------
Total liabilities 1,320,724 532,123
---------- ----------
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 December 31,
1996 and 114,284 $.001
par value shares at March
31, 1997 (aggregate
liquidation preference of
$457,136 at March 31,
1997) 114 122
Series B, Authorized:
500,000 shares; issued
and outstanding: 448,398
$.001 par value shares
at December 31, 1996 and
132,108 $.001 par value
shares at March 31, 1997
(aggregate liquidation
preference of $528,432
at March 31, 1997) 132 448
Additional paid-in capital,
preferred stock 606,121 1,900,637
Common stock, Authorized:
20,000,000 shares; issued
and outstanding: 3,194,061
$.001 par value shares at
December 31, 1996 and
3,601,111 $.001 par value
shares at March 31, 1997 3,601 3,194
Additional paid-in capital,
common stock 7,620,023 6,261,097
Treasury stock, 2,600
shares, at cost (3,777) (3,777)
Unearned compensation (44,199) (63,141)
Accumulated deficit (6,051,326) (5,248,412)
Unrealized gain on
marketable debt
securities, available-
for-sale 12,763 9,669
---------- ----------
Total stockholders' equity 2,143,452 2,859,837
---------- ----------
Total liabilities and
stockholders' equity $3,464,176 $3,391,960
========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<S> <C> <C>
Three months ended
March 31,
------------------
1997 1996
(Unaudited) (Unaudited)
Sales 256,415 23,171
Cost of sales 117,768 18,348
------- -------
Gross profit 138,647 4,823
------- -------
Operating expenses:
Marketing and selling 112,152 34,037
General and administrative 458,788 140,614
Research and development 394,633 23,835
-------- -------
Total operating expenses 965,573 198,486
-------- -------
Operating loss (826,926) (193,663)
-------- --------
Other income (expense):
Interest income 24,475 2,738
Interest expense (463) (17,277)
------- -------
24,012 (14,539)
------- -------
Net loss (802,914) (208,202)
-------- --------
Net loss attributable to common
shareholders $(802,914) $(208,202)
========= =========
Net loss per common share $(.24) $(.09)
========= =========
Shares used in computing net loss
per common share 3,386,356 2,352,031
========= =========
</TABLE>
The accompanying notes are an integral
part of the financial statement
<PAGE>
<TABLE>
<CAPTION>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<S> <C> <C>
Three months ended
March 31,
-----------------------
1997 1996
---- ----
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(802,914) $(208,202)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation 6,804 3,392
Common stock issued
for compensation 41,810 17,758
Amortization of deferred
charge 5,748 -0-
Amortization of debt
offering costs -0- 5,166
Issuance of bridge notes and
warrants for services -0- 25,000
Increase (decrease) from
changes in:
Trade accounts receivable (163,166) 34,993
Inventories (365,358) 12,678
Prepaid expenses (7,664) 5,567
Accounts payable -
related parties 966,382 -0-
Trade accounts payable 63,664 (203,305)
Accrued expenses (246,463) 14,660
-------- ---------
Net cash used in operating
activities (501,157) (292,293)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (9,311) ( 11,047)
Purchase of marketable debt
securities - available for sale (258) -0-
Purchase of engineering services (329,105) -0-
-------- --------
Net cash used in investing
activities (338,674) (11,047)
-------- --------
Cash flows from financing
activities:
Proceeds from issuance of
promissory notes
and warrants -0- 500,000
Proceeds from exercise of
warrants 41,625 -0-
Principal payments on notes
payable (790) (5,800)
-------- -------
Net cash provided by
financing activities 40,835 494,200
-------- --------
Net (decrease) increase in
cash and cash equivalents (798,996) 190,860
Cash and cash equivalents at
beginning of period 2,468,988 192,454
--------- --------
Cash and cash equivalents at
end of period $ 1,669,992 $383,314
=========== ========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 463 $ 2,107
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
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
March 31, 1997, and the results of its operations for the three
months ended March 31, 1996 and 1997, and its cash flows for the
three months ended March 31, 1996 and 1997. 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. Shortly after the filing of the complaint, the
principal officer of the investment banking company passed away.
His estate is to be substituted as a plaintiff party. On May 9,
1997, the Company entered into an agreement with the principal
officer's estate to settle the action by the Company paying the
estate an initial payment of $5,000, plus $1,500 per month for 36
months in return for dismissal of the action with prejudice and
release of all claims. The settlement must be approved by the
United States District Court for the District of Utah. If the
settlement is not approved, the Company 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:
---------------------------
Under the Company's Articles of Incorporation, holders of
the Company's 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 three month period ended March 31, 1997, 7,420 shares
of Series A Preferred Stock and 316,290 shares of Series B
Preferred Stock were converted into 8,904 and 379,548 shares of
the Company's common stock, respectively.
4. Common Stock Issuances
----------------------
As of March 31, 1997, 12,500 shares of the Company's common
stock had been issued for the exercise of warrants. An
additional 6,098 shares of the Company's common stock was issued
to a former employee for past services rendered and recorded as
compensation expense.
5. Related Party Transactions:
--------------------------
On January 8, 1997, the Company subcontracted the
subassembly of the Laser Module piece of the Photon(trademark)
laser cataract system. During the period ended March 31, 1997,
the Company purchased 8 Laser Module subassemblies for a total
purchase price of $128,000, from a manufacturer whose President
sat on the Company's Board of Directors, and as of March 31, 1997
owed that company $80,000 which is included in accounts payable.
The Company has subcontracted the manufacturing of its
Precisionist and Photon laser cataract systems to a company that
is a shareholder. During the three month period ended March 31,
1997, the Company purchased design and manufacturing services
from that company in the amount of $890,000, and as of March 31,
1997 owed that company $892,190 which is included in accounts
payable.
In 1988, the Company signed an exclusive patent license
agreement with a company which owns the patent for the
laser-based Photon(trademark) laser system. This company is
owned by a shareholder of the Company. The agreement provides
for the payment of a 1% royalty on all sales proceeds related
directly or indirectly, to the Photon machine. The agreement
terminates on July 7, 2003. Through September 30, 1996, no
significant royalties have been earned under this agreement. The
Company has also entered into a consulting agreement with this
individual which provides for annual consulting fees of $25,000
through July 7, 2003.
A law firm, of which a director of the Company is a
partner, has rendered legal services to the Company. During the
three month period ended March 31, 1997, the Company paid this
firm $21,849 for legal services, and as of March 31, 1997, owed
this firm $21,350, which is included in accounts payable.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. The Company's fiscal
year runs from January 1 to and including December 31.
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 March 31, 1996 include international and
domestic sales of the Precisionist 3000 Plus(trademark) Phaco
system, research and development of the Precisionist
ThirtyThousand(trademark) and the Photon(trademark) laser
cataract system, and primary research for other new products and
businesses. Paradigm's activities for the three months ended
March 31, 1997 include international and domestic sales of the
Precisionist 3000 Plus(trademark) and Precisionist
ThirtyThousand(trademark) and Photon(trademark) laser cataract
systems, as well as primary research for other new products and
businesses.
Results of Operations
Sales increased by $233,244, or 1,006%, to $256,415 for the
three months ended March 31, 1997 from $23,171 for the comparable
period in 1996. The increase in sales was a result of the
Company launching the Photon Ocular Surgery System' and the
Precisionist ThirtyThousand(trademark), the latest generation of
Paradigm products on March 31, 1997. Cost of sales increased
$99,420, or 541%, to $117,768 for the three months ended March
31, 1997 from $18,348 for the comparable period in 1996, as a
result of the increased sales. The gross margin for the three
months ended March 31, 1997 of 54% is up from the gross margin
for the comparable period in 1996 of 21% because sales in 1997
were comprised of new products with a higher sophistication which
command a higher margin.
Marketing and selling expenses increased by $78,115, or
230%, to $112,152 for the three months ended March 31, 1997 from
$34,037 for the comparable period in 1996. 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 during the first quarter of 1997.
General and administrative expenses increased by $318,174,
or 226%, to $458,788 for the three months ended March 31, 1997
from $140,614 for the comparable period in 1996. This was the
result of an increase in personnel and costs associated with
pre-production activities, for possible bad debts and the cost of
defending a pending lawsuit.
Research and development expenses increased by $370,798, or
1,556%, to $394,633 for the three months ended March 31, 1997
from $23,835 for the comparable period in 1996. This was the
result of hiring four additional employees and costs associated
with developing the Company's new products.
Upgrades
To garner sales, the Company offers the ultrasonic
Precisionist(trademark) system with an unconditional arrangement under
which the customer may trade in their Precisionist(trademark)
system to upgrade to a Precisionist ThirtyThousand(trademark)
Ocular Surgery System(trademark) or, upon FDA clearance, a
Photon(trademark) laser cataract system when that system becomes
available. Under this arrangement, the customer receives full
credit for the trade in purchase price of the
Precisionist(trademark) system against the price of the new
Precisionist ThirtyThousand(trademark) Ocular Surgery
System(trademark) or Photon(trademark) laser cataract system As
of March 31, 1997, the Company has distributed approximately 51
Precisionist(trademark) systems under this provision. The gross
margin on these original sales was approximately $295,000 or 32%.
If all of these customers were to exercise their upgrade
privilege, the Company would exchange the Precisionist(trademark)
system for the Company's new Precisionist
ThirtyThousand(trademark) Ocular Surgery System(trademark) or
Photon(trademark) system and refurbish the ultrasonic
Precisionist(trademark) systems and sell them in the
international market. Any losses on the sale of the refurbished
Precisionist(trademark) systems, which is not expected to be
significant, would reduce the gross margin on the Precisionist
ThirtyThousand(trademark) Ocular Surgery System(trademark) or
Photon(trademark) system sales. The total gross margin on the
upgrade sales is estimated to be $1,677,000 or 41% of sales.
As of March 31, 1997, there have been 2 trade in sales in
which the customer has upgraded a Precisionist(trademark) system
to the Precisionist ThirtyThousand(trademark) Ocular Surgery
System(trademark).
Liquidity and Capital Resources
The Company used cash in operating activities of $501,157
for the three months ended March 31, 1997 compared to $292,293
for the comparable period in 1996. The Company used cash in
investing activities of $338,674 for the three months ended March
31, 1997 compared to $11,047 for the comparable period in 1996
primarily due to the purchase of $329,105 of engineering
services. The Company received cash from financing activities of
$40,835 for the three months ended March 31, 1997, compared to
$494,200 which the Company received from financing activities in
the comparable period in 1996.
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 March 31, 1997, the Company had net operating loss
carryforwards (NOLs) of approximately $6,051,326 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 100%
valuation allowance has been provided in full for these deferred
tax assets. The Company's ability to use its NOLs to offset
future income taxes 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.
In March 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share. This statement establishes standards for
computing and presenting earnings per share ("EPS") and applies
to entitles with publicly held common stock or potential common
stock. This statement simplifies the standards for computing EPS
and makes them comparable to international EPS standards. This
statement is effective for financial statements for both interim
and annual periods ending after December 15, 1997.
The Company has reviewed all other recently issued, but not
yet adopted, accounting standards in order to determine their
effects, if any, on the results of operations or financial
position of the Company. Based on that review, the Company
believes that none of these pronouncements will have a
significant effect on current or future earnings or operations.
<PAGE>
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, 1997 By: Michael W. Stelzer
President and Chief Executive
Officer (Principal Executive
Officer)
DATED: October 29, 1997 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
MARCH 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,669,992
<SECURITIES> 512,763
<RECEIVABLES> 181,454
<ALLOWANCES> 0
<INVENTORY> 607,104
<CURRENT-ASSETS> 2,993,070
<PP&E> 138,805
<DEPRECIATION> (6,804)
<TOTAL-ASSETS> 3,464,176
<CURRENT-LIABILITIES> 1,305,991
<BONDS> 0
0
246
<COMMON> 3,601
<OTHER-SE> (6,086,539)
<TOTAL-LIABILITY-AND-EQUITY> 3,464,176
<SALES> 256,415
<TOTAL-REVENUES> 280,890
<CGS> 117,768
<TOTAL-COSTS> 965,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (463)
<INCOME-PRETAX> (802,914)
<INCOME-TAX> 0
<INCOME-CONTINUING> (802,914)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (802,914)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
