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 March 31, 1999 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
1127 West 2320 South, Suite A, 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.
Common Stock, $.001 par value 5,950,627
- ------------------------------- ----------
Title of Class Number of Shares
Outstanding as of
March 31, 1999
Series A Preferred, $.001 par value 8,077
- ------------------------------------ ----------
Title of Class Number of Shares
Outstanding as of
March 31, 1999
Series B Preferred, $.001 par value 31,236
- ------------------------------------- ----------
Title of Class Number of Shares
Outstanding as of
March 31, 1999
Series C Preferred, $.001 par value 1,400
- ------------------------------------- ----------
Title of Class Number of Shares
Outstanding as of
March 31, 1999
Transitional Small Business Disclosure Format
YES NO X
----- -----
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PARADIGM MEDICAL INDUSTRIES, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
No.
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Item 1. Financial Statements
Balance Sheets (unaudited) - March, 1999 and
December 31, 1998....................................................................................... 3
Statements of Operations (unaudited) for the three months and the nine months
ended March 31, 1999 and March 31, 1998 ................................................................ 5
Statements of Cash Flows (unaudited) for the nine months
ended March 31, 1999 and March 31, 1998................................................................. 6
Notes to Financial Statements (unaudited)................................................................7
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..............................................................................................9
PART II - OTHER INFORMATION
Other Information...................................................................................... 12
Signature Page......................................................................................... 15
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PARADIGM MEDICAL INDUSTRIES, INC.
BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1999 1998
---- ----
(Unaudited) (Audited)
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ASSETS
Current assets:
Cash and cash equivalents $ 1,247,000 $ 114,000
Trade accounts receivable 446,000 580,000
Less: Allowance for Doubtful Accounts (30,000) (30,000)
Inventories 768,000 720,000
Current portion of note receivable 16,000 16,000
Prepaid expenses 27,000 14,000
------------- -------------
Total current assets 2,474,000 1,414,000
Prepaid financing costs - -
Capitalized engineering and design charges 217,000 235,000
Notes receivable 44,000 44,000
Ultrasound production rights and engineering 374,000 374,000
Property and equipment, net 169,000 173,000
------------- -------------
Total assets $ 3,278,000 $ 2,240,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 47,000 $ 209,000
Accounts payable - related parties 107,000 107,000
Accrued expenses 153,000 135,000
Note payable to bank - current 14,000 13,000
Purchase Deposits 44,000 28,000
------------- -------------
Total current liabilities 365,000 492,000
------------- -------------
Note payable, less current portion 7,000 8,000
Promissory note 100,000 -
Capital lease 22,000 25,000
------------- -------------
Total liabilities 494,000 525,000
------------- -------------
Stockholders' equity:
Preferred stock, authorized:
5,000,000 shares, $.001 par value
Series A
Authorized: 500,000 shares; issued and
outstanding: 8,077 shares at March 31, 1999 and
34,619 shares at December 31, 1998 - -
Series B
Authorized: 500,000 shares; issued and
outstanding: 31,236 shares at March 31, 1999
and 31,236 shares at December 31, 1998 - -
Series C
Authorized: 30,000 shares; issued and
outstanding: 1,400 shares at March 31, 1999
and 6,900 shares at December 31, 1998 - -
Series D
Authorized: 1,140,000 shares;
3
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Issued and outstanding: 1,140,000 shares at
March 31, 1999. 1,000 -
Common stock, authorized: 20,000,000 shares, $.001 per value;
issued and outstanding: 5,950,627 shares at March 31, 1999
and 5,500,306 shares at December 31, 1998 6,000 5,000
Additional paid-in-capital 20,284,000 17,704,000
Treasury stock, 2,600 shares, at cost (4,000) (4,000)
Stock subscription receivable (8,000) (8,000)
Unearned Compensation (12,000) (94,000)
Accumulated deficit (17,483,000) (15,888,000)
------------- -------------
Total stockholders' equity 2,784,000 1,715,000
------------- -------------
Total liabilities and stockholders' equity $ 3,278,000 $ 2,240,000
============= =============
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PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three months ended
March 31,
---------
1999 1998
---- ----
(Unaudited) (Unaudited)
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Sales $ 102,000 $ 351,000
------------ ----------
Cost of sales 31,000 177,000
Amortization of capitalized engineering and
and design charges 19,000 19,000
------------ ----------
Net cost of sales 50,000 196,000
------------ ----------
Gross profit (loss) 52,000 155,000
------------ ----------
Operating expenses:
Marketing and selling 200,000 158,000
General and administrative 471,000 334,000
Research and development 106,000 63,000
------------ ----------
Total operating expenses 777,000 555,000
------------ ----------
Operating loss (725,000) (400,000)
------------ ----------
Other income (expense):
Interest income 8,000 11,000
Interest expense (5,000) (25,000)
Other income (expense) - -
------------ ----------
Total other income (expense) 3,000 (14,000)
------------ ----------
Net loss $ (722,000) $ (414,000)
------------ ----------
Net operating loss per common share $ (0.13) $ (0.11)
============ ==========
Shares used in computing net loss per common share 5,706,000 3,815,000
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PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31,
---------
1999 1998
---- ----
(Unaudited) (Unaudited)
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Cash flows from operating activities:
Net loss $ (722,000) $ (413,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 28,000 26,000
Issuance of common stock for compensation, services and
payables 142,000 -
(Increase) decrease from changes in:
Trade accounts receivable 134,000 (199,000)
Inventories (49,000) (60,000)
Prepaid expenses (12,000) (5,000)
Deferred charges - -
Debt financing cost - 165,000
Increase (decrease) from changes in:
Trade accounts payable (162,000) (171,000)
Accrued expenses 34,000 (130,000)
----------- -----------
Net cash used in operating activities (607,000) (787,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (6,000) (2,000)
Notes receivable - -
----------- -----------
Net cash used in investing activities (6,000) (2,000)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants - -
Proceeds from 12% CV promissory note 100,000 -
Principle payments on notes payable (3,000) (1,000)
Interest payable, 12% CV promissory note - 22,000
Net proceeds for series "C" stock issue 1,747,000
Net proceeds for series "D" stock issue 1,649,000 -
----------- -----------
Net cash provided by financing activities 1,746,000 1,768,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,133,000 979,000
Cash and cash equivalents at beginning of period 114,000 886,000
----------- -----------
Cash and cash equivalents at end of period $ 1,247,000 $ 1,865,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,000 $ 1,000
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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, 1999 and the results
of its operations for the three months ended March, 1998 and 1999, and
its cash flows for the three months ended March 31, 1998 and 1999. 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:
------------------
The company is not a party to any legal proceedings.
3. Preferred Stock Conversions:
----------------------------
Under the Company's Articles 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
three month period ended March 31, 1999 26,542 shares of Series A
Preferred Stock and no Series B Preferred Stock were converted into
31,851 shares of common stock.
In January 1998, the Company's Board of Directors authorized the
issuance of a total of 30,000 shares of non-voting Series C Preferred
Stock, $.001 par value, $100 stated value. Each share is convertible
into approximately 57.14 shares of common stock at an initial
conversion price, subject to adjustments for stock splits, stock
dividends and certain combinations or recapitalizations of the Common
stock, equal to $1.75 per share of common stock. Holders of the shares
of Series C Preferred stock are entitled to 12% non-cumulative
dividends. However, the shares shall be entitled to dividends declared
on the Company's common stock on an as-converted basis.
In March 1998, the Company closed a private placement of Series C
Preferred Stock, selling 20,030 shares at a price of $100 per share.
The net proceeds to the Company from the private placement were
approximately $1.7 million.
In January 1998, the Company offered to the holders of the Notes,
through an exchange offer, the right to exchange their Notes for shares
of Series C Preferred Stock. In March 1998, Notes totaling $995,000
were exchanged for 9,950 shares of Series C Preferred Stock, at $100
per share, totaling $995,000. The exchange offer has now expired.
In September 1998, the Company filed a registration statement with the
Securities and Exchange Commission on Form SB-2 under the Securities
Act of 1933, registering for resale the common shares underlying the
Series C Preferred Stock issue.
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During the three months ended March 31, 1999, 5,500 shares of Series C
Preferred Stock were converted into 314,270 shares of the Company's
Common Stock.
In January 1999, the Company's Board of Directors authorized the
issuance of a total of 1,140,000 shares of non-voting Series D
Preferred Stock, $.001 par value per share, $1.75 stated value. Each
share initially is convertible into one share of Common Stock. Each
share which remains outstanding on January 1, 2002, shall be
automatically converted into one share of Common Stock. Holders of the
shares of Series D Preferred Stock are entitled to 10% non-cumulative
dividends.
In March 1999, the Company closed a private placement of Series D
Preferred Stock, selling 1,140,000 shares at a price of $1.75 per
share. The net proceeds to the Company from the private placement were
approximately $1.6 million.
5. Warrants:
---------
In connection with the private placement of Series C Preferred Stock,
the Company issued to Win Capital a warrant to purchase 100,000 shares
of the Company's common stock at a price of $3.00 per share, expiring
March, 2001. The Company has recorded the fair value of the warrant at
$336,000, which is being recognized as a cost of raising the capital in
the private placement.
In March 1999, in connection with the private placement of Series D
Preferred Stock, the Company issued to KSH Investment Group warrants to
purchase 208,000 shares Common Stock at an average price of $2.41 per
share, expiring February, 2004. The Company recorded the fair value of
the warrant at $361,580, which is being recognized as a cost of raising
the capital in the private placement. Also in connection with the
private placement, the Company issued 105,000 warrants to CynDel & Co.
and 35,000 warrants to Win Capital Corp., exercisable at $2.30 per
share, expiring January, 2004. The Company has recorded the fair value
of these warrants at $229,600, which is being recognized as a cost of
raising the capital in the private placement.
In March, 1999, the Company issued a warrant to an officer of the
Company to purchase 120,000 shares of the Company's Common Stock at a
price of $2.68 per share, expiring March, 2004, in connection with his
retirement agreement.
6. Related Party Transactions:
----------------------------
A law firm of which a director of the Company is a partner, has
rendered legal services to the Company. During the three months ended
March 31, 1999, the Company paid this firm $59,765 for legal services,
and, as of March 31, 1999, had no balance outstanding.
The Company has subcontracted the manufacturing of its Precisionist
ThirtyThousand(TM) and Photon(TM) laser cataract systems to a
company that is a shareholder. During the three month period ended
March 31, 1999, the Company purchased design and manufacturing services
from that company of $9,900, and, as of March 31, 1999, owed that
company $106,878, which is included in accounts payable.
A director of the Company is a former director of Win Capital Corp.
("Win Capital"). In August, 1997, the Company entered into an
investment banking agreement with Win Capital Corp. (Win Capital) for a
two-year period that may be extended for an additional year. The
Company pays a retainer to Win Capital of $2,000 per month for the
first six months, $4,000 per month for the second six months, and
$6,000 per month for the remainder of the contract. The Company also
issued a warrant to Win Capital to purchase up to 191,000 shares of
common stock at a purchase price of $3.00 per share. The warrant
expires on August 19, 2000. On February 12, 1999, Win Capital agreed to
accept 24,200 shares Common Stock at $2.50 per share for the balance of
the contract. A new consulting agreement replaced the prior agreement
which provides for twelve months payments at $6,000 per month.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
General
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.
We are engaged in the design, development, manufacture and sale of high
technology eye care products. Our surgical equipment is designed to perform
minimally invasive cataract surgery and is comprised of surgical devices and
related instruments and accessories, including disposable products. Our
ultrasound diagnostic products include a pachymeter, an A-Scan, an A/B Scan and
a biomicroscope, the technology for which we acquired from Humphrey Systems in
1998. In addition, we market our Blood Flow Analyzer(TM). Our activities for
the twelve months ended December 31, 1998, included domestic and international
sales of the Precisionist ThirtyThousand(TM) Ocular Surgery Workstation(TM)
cataract surgery systems, the Blood Flow Analyzer(TM), the Humphrey Systems
Ultrasound diagnostic equipment, and research and development on the
Photon(TM) laser cataract removal system, which received FDA approval for
expansion to Phase II Clinical Trials on May 19, 1998.
We commenced delivery of the Pachymetric Analyzer, which measures corneal
thickness, in December 1998, and the Ultrasound A-Scan, which measures the axial
length of the eye, in March 1999. We expect to begin shipments of the Ultrasound
A/B Scan, which is used by retinal specialists to identify foreign bodies in the
posterior chamber of the eye and in evaluating the structural integrity of the
retina, in the second quarter of 1999. We should commence shipments of the
Ultrasonic Biomicroscope ("UBM"), which creates a high-resolution computer image
of the unseen parts of the eye providing a map for the glaucoma surgeon, in the
third quarter of 1999. In summary, we expect all four instruments to be in
production in the third quarter of 1999.
Results of Operations
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Sales decreased by $249,172, or 71%, to $102,210 for the three months ended
March 31, 1999, from $351,382 for the comparable period in 1998. This decrease
in sales was primarily due to a reallocation of resources to meet the ultrasound
diagnostic production demands and additional delays in the introduction of the
new fluidic system for the Precisionist ThirtyThousand(TM) Ocular Surgery
Workstation(TM). Net cost of sales decreased $146,343, or 75%, to $49,691 for
the three months ended March 31, 1999, from $196,034 for the comparable period
in 1998, roughly in line with the decrease in sales.
The gross margin for the three months ended March 31, 1999 of 51% was higher
than the gross margin of 44% for the comparable period in 1998. The increase in
the gross margin in the first quarter of 1999 over the first quarter of 1998 is
primarily attributable to a higher percentage of the sales mix attributable to
disposable products. If the amortization of capitalized engineering and design
charges, a non-cash expense, is excluded for the three months ended March 31,
1999 and the same period in 1998, the gross margin was 70% compared with 49% for
the like period in 1998.
Marketing and selling expenses increased by $42,413, or 27%, to $200,575 for the
three months ended March 31, 1999, from $158,162 for the comparable period in
1998. The increase was a result of the Company adding a national sales manager
and a restructuring of its sales force.
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General and administrative expenses increased $138,434, or 41%, to $472,502 for
the three months ended March 31, 1999, from $334,068 for the comparable period
in 1998. The increase was primarily the result of the 1) the return to the
contractual compensation level for officers from the voluntary reduction
experienced in first quarter of last year, 2) higher directors' and officers'
compensation, 3) the necessity to add additional space to support the new line
of diagnostic products and 4) higher investment banking fees.
Research and development expenses increased $42,842, or 68%, to $106,074 for the
three months ended March 31, 1999, from $63,232 for the same period in 1998.
This increase was primarily the result of the addition of new personnel.
Other income increased $16,737, or 123%, for the quarter ended March 31, 1999
compared with the same period in 1998. This was primarily due to the reduction
of interest expense associated with the conversion of notes into convertible
preferred stock.
Upgrades
To garner sales, we offer the ultrasonic Precisionist(TM) system with an
unconditional arrangement under which the customer may trade in its
Precisionist(TM) system to upgrade to a Precisionist ThirtyThousand(TM)
Ocular Surgery System(TM). Under this arrangement, the customer receives full
credit for the trade-in purchase price of the Precisionist(TM) system against
the price of the new Precisionist ThirtyThousand(TM) Ocular Surgery
System(TM). As of March 31, 1999, we had distributed approximately 51
Precisionist(TM) 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 priviledge, we would exchange the Precisionist(TM)
system for our new Precisionist ThirtyThousand(TM) Ocular Surgery System(TM)
and refurbish the ultrasonic Precisionist(TM) system and sell them in the
international market. Any losses on the sale of the refurbished
Precisionist(TM) systems, which are not expected to be significant, would
reduce the gross margin on the Precisionist ThirtyThousand(TM) Ocular Surgery
System(TM) sales. The total gross margin on the upgrade sales is estimated to
be $1,677,000, or 41%. During the quarters ended March 31, 1999 and March 31,
1998 there were no trade-in sales.
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Liquidity and Capital Resources
The Company used cash in operating activities of $607,101 for the three months
ended March 31, 1999, compared to $787,047 for the three months ended March 31,
1998. The modest decrease of cash used by operating activities in the first
quarter of 1999 is primarily attributable to the issuance of common stock valued
at $141,750 for compensation and services. The Company used cash from investing
activities of $6,174 for the three months ended March 31, 1999, compared to cash
used from investing activities of $2,298 in the same quarter in 1998. The net
cash provided by financing activities for the three months ended March 31, 1999
was 1,746,000, compared with $1,768,000 for the similar period in 1998. In March
1998, the Company completed the private placement of 20,030 shares of Series C
Preferred Stock at $100 per share resulting in net proceeds of $1,746,640. In
addition, the Company exchanged $995,000 of promissory notes for 9,950 shares of
Series C Preferred Stock at $100 per share and converted a $75,000 note into
Common Stock.
In March 1999, we completed a private placement of 1,140,000 shares of Series D
Convertible Preferred Stock at $1.75 per share with the net proceeds
approximating $1.6 million. On a pro-forma basis to reflect the March 1999
equity financing as of December 31, 1998, total stockholders equity would be
about $3.3 million with cash and cash equivalents of $1.7 million. Based on our
1999 budget and the net proceeds from the 1999 Preferred Stock offering, we
believe that funds are sufficient to continue operations through December 31,
1999. However, no assurances can be given that our plan will be successful in
achieving positive cash flow or profitability.
We will seek funding to meet our working capital requirements through
collaborative arrangements and strategic alliances, additional public offerings
and/or private placements of our securities or bank borrowings. There can be no
assurance, however, that additional funds, if required, will be available from
any of these or other sources on favorable terms, if at all.
Our ratio of inventory to sales for the three month period ended March 31, 1999
was 6.9, compared with 1.9 for a simialr period in 1998. With the launching of
two new products within the past eighteen months, we have had to build inventory
in anticipation of sales. In addition, delays in receiving the new fluidic
system for the Precisionist ThiryThousand Workstation(TM) have limited
shipments of this product from inventory and the collection of outstanding
receivables.
At March 31, 1999, we had net operating loss carryforwards (NOLs) of
approximately $10,200,000 and research and development tax credit carry forwards
of approximately $34,000. These carryforwards are available to offset future
taxable income, if any, and begin to expire in the year 2006. Our ability to use
NOLs to offset future income is dependant upon the tax laws in effect at the
time the NOLs can be utilized. The tax Reform Act of 1996 significantly limits
the annual amount that can be utilized for certain of these carryforwards as a
result of change of ownership.
Effect of Inflation and Foreign Currency Exchange
We have not realized a reduction in the selling price of the Precisionist phaco
system as a result of domestic inflation. Nor have we experienced unfavorable
profit reductions due to currency exchange fluctuations or inflation with its
foreign customers.
Impact of New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement is effective for
fiscal years beginning after June 15, 1999. We believe that the adoption of SFAS
133 will not have any material effect on our financial statements.
We have reviewed all other recently issued accounting standards in order to
determine their effects, if any, on the results of operations or financial
position. Based on that review, we believe that none of these pronouncements
will have a significant effect on current or future earnings or operations.
11
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Year 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Management of the Company
does not anticipate that any significant modification or replacement of the
Company's software will be necessary for its computer systems to properly
utilize dates beyond December 31, 1999 or that the Company will incur
significant operating expenses to make any such computer system improvements.
The Company is not able to determine, however, whether any of its suppliers,
lenders, or service providers will need to make any such software modifications
or replacements or whether the failure to make such software corrections will
have an effect on the Company's operations or financial condition.
Part II: Other Information
Item 5. Other Information
On June 26, 1998, the Company entered into a Co-Distribution Agreement (the
"Co-Distribution Agreement") with Pharmacia & Upjohn Company ("Pharmacia &
Upjohn") and National Healthcare Manufacturing Corporation ("National
Healthcare") which provides for the marketing and sale of a range of ophthalmic
products. Under the terms of the Co-Distribution Agreement, the Company,
Pharmacia & Upjohn, and National Healthcare, will offer a comprehensive package
of products to cataract surgeons, including cataract surgical equipment,
intraocular lens implants, intraocular pharmaceuticals, surgical instruments and
sterile procedural packs. The Company will provide the Precisionist Thirty
Thousand(TM) for distribution and sale under the Co-Distribution Agreement.
The Pharmacia & Upjohn products to be distributed as part of the Co-Distribution
Agreement include the Healon(R) and Healongv(R) viscoelastic solution and the
CeeOn line of foldable, small intraocular lens implants, designed to replace the
natural lens removed during cataract surgery.
On July 23, 1998, the Company entered into an Agreement for Purchase and Sale of
Assets (the "Agreement") with the Humphrey Systems Division of Carl Zeiss, Inc.
("Humphrey Systems") to acquire the ownership and manufacturing rights to
certain assets of Humphrey Systems that are diagnostic instruments, including
the Ultrasonic Biometer Model 820, the A/B Scan System Model 837, the Ultrasound
Pachymeter Model 855, and the Ultrasound Biomicroscope Model 840, and all
accessories, packaging, and end-user collateral materials for each of the
product lines for the sum of $500,000, payable in the form of 78,947 shares of
Common Stock which were issued to Humphrey Systems, and 26,316 shares of Common
Stock which were issued to Douglas Adams. However, if the net proceeds received
by Humphrey Systems from the sale of the shares issued pursuant to the Agreement
is less than $375,000 (after payment of commissions, transfer taxes and other
expenses relating to the sale of such shares), then the Company is required to
issue additional shares of Common Stock, or pay additional funds to Humphrey
Systems as is necessary to increase Humphrey Systems' net proceeds from the sale
of the assets to $375,000. Since Humphrey Systems realized only $162,818 from
the sale of 78,947 shares of Paradigm's common stock, Paradigm issued 80,000
additional shares in January 1999, to enable Humphrey Systems to receive its
guaranteed amount.
The rights to the ophthalmic diagnostic instruments that have been purchased
from Humphrey Systems under the Agreement complement both the Company's cataract
surgical equipment and its ocular Blood Flow Analyze(TM). The Ultrasonic
Biometer calculates the prescription for the intraocular lens to be implanted
during cataract surgery. The Ultrasound Pachymeter measures corneal thickness
for the new refractive surgical applications that eliminate the need for
eyeglasses and for the optometric applications including contact lense fitting.
The A/B Scan System combines the Ultrasonic Biometer and ultrasound imaging for
advanced diagnostic testing throughout the eye, and is a viable tool for retinal
specialists. The Ultrasound Biomicroscope utilizes microscopic digital
ultrasound resolution for detection of tumors and improved glaucoma management.
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.
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Table No. Document
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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 Bylaws(1)
4.1 Warrant Agency Agreement with Continental Stock Transfer & Trust Company(3)
4.2 Specimen Common Stock Certificate (2)
4.3 Specimen Class A Warrant Certificate(2)
4.4 Form of Class A Warrant Agreement(2)
4.5 Underwriter's Warrant with Kenneth Jerome & Co., Inc.(3)
4.6 Warrant to Purchase Common Stock with Note Holders re bridge financing(1)
4.7 Warrant to purchase Common Stock with Mackey Price & Williams(1)
4.8 Warrant to Purchase Common Stock with Win Capital Corp.(6)
4.9 Specimen Series C Convertible Preferred Stock Certificate
4.10 Certificate of the Designations, Powers, Preferences and Rights of the Series C Convertible Preferred
Stock
4.11 Specimen Series D Convertible Preferred Stock Certificate(10)
4.12 Certificate of the Designations, Powers, Preferences and Rights of the Series D Convertible Preferred
Stock(10)
4.13 Warrant to Purchase Common Stock with Win Capital Corp.(10)
4.14 Warrant to Purchase Common Stock with Cyn Del & Co.(10)
4.15 Warrant Agreement with KSH Investment Group, Inc.(10)
4.16 Warrant to Purchase Common Stock with John W. Hemmer(11)
5. Opinion of Mackey Price & Williams(10)
10.1 Exclusive Patent License Agreement with Photomed(1)
10.2 Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
10.3 Confidential Disclosure Agreement with Zevex, Inc.(1)
10.4 Indemnity Agreement with Zevex International, Inc.(1)
10.5 Manufacturing Agreement with Sunrise Technologies, Inc.(1)
10.6 Royalty Agreement dated January 30, 1992, with Dennis L. Oberkamp Design Services(1)
10.7 Indemnity Agreement dated January 30, 1992, with Dennis L. Oberkamp Design Services(1)
10.8 Royalty Agreement (for Ultrasonic Phaco Handpiece) with Dennis L. Oberkamp Design Services(1)
10.9 Lease Agreement with Eden Roc(6)
10.10 Settlement and Release Agreement with Douglas A. MacLeod(1)
10.11 Form of Indemnification Agreement(1)
10.12 1995 Stock Option Plan and forms of Stock Option Grant Agreements(1)
10.13 Form of Promissory Note with Note Holders re bridge financing(1)
10.14 Employee's Lock-Up Agreement(1)
10.15 Registering Shareholders Lock-Up Agreement(3)
10.16 Amendment of Settlement and Release Agreement with Douglas A. MacLeod(3)
10.17 Design, Engineering and Manufacturing Agreement with Zevex, Inc.(5)
10.18 License and Manufacturing Agreement with O.B.F. Labs, Ltd.(6)
10.19 Settlement Agreement with Estate of H.L. Federman(6)
10.20 Agreement with Win Capital Corp.(6)
10.21 12% Convertible, Redeemable Promissory Note(6)
10.22 Securities Exchange Agreement(6)
10.23 Stock Exchange for Satisfaction of Debt Agreement with Zevex International, Inc. (7)
10.24 Co-Distribution Agreement with Pharmacia & Upjohn Company and National Healthcare
Manufacturing Corporation (7)
10.25 Agreement for Purchase and Sale of Assets with Humphrey Systems Division of Carl Zeiss, Inc. (7)
10.26 Employment Agreement with Thomas F. Motter(9)
10.27 Employment Agreement with Robert W. Millar(9)
10.28 Employment Agreement with John W. Hemmer(9)
10.29 Employment Agreement with Michael W. Stelzer(9)
10.30 Change of Control Termination Agreement with Thomas F. Motter(9)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Table No. Document
- --------- --------
<S> <C>
10.31 Change of Control Termination Agreement with Robert W. Millar(9)
10.32 Change of Control Termination Agreement with John W. Hemmer(9)
10.33 Change of Control Termination Agreement with Michael W. Stelzer(9)
10.34 Promissory Note with Win Capital Corp.(10)
10.35 Promissory Note with Cyn Del & Co.(10)
10.36 Consulting Agreement with Win Capital Corp.(10)
10.37 Agreement with Win Capital Corp.(11)
10.38 Agreement with Cyn Del & Co.(11)
23.1 Consent of Medical Laser Insight(3)
23.2 Consent of Frost & Sullivan(3)
23.3 Consent of Ophthalmologists Times(3)
23.4 Consent of Mackey Price & Williams(10)
23.5 Consent of Tanner & Co.(11)
27. Financial Data Schedule
- -------
(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 Amendment No. 2 to Registration Statement on Form SB-2, as filed
on June 13, 1996.
(4) Incorporated by reference from Amendment No. 3 to Registration Statement on Form SB-2, as filed
on June 28, 1996.
(5) Incorporated by reference from Annual Report on Form 10-KSB, as filed on December 30, 1996.
(6) Incorporated by reference from Annual Report on Form 10-KSB, as filed on April 16, 1998.
(7) Incorporated by reference from Quarterly Report on Form 10-QSB, as filed on August 19, 1998.
(8) Incorporated by reference from Registration Statement on Form SB-2, as filed on June 15, 1998.
(9) Incorporated by reference from Quarterly Report on Form 10-QSB, as filed on November 12, 1998.
(10) Incorporated by reference from Registration Statement on Form SB-2, as filed on April 29, 1999.
(11) Incorporated by reference from Amendment No. 1 to Registration Statement on Form SB-2, as filed
on May 7, 1999.
</TABLE>
(b) Reports on Form 8-K
-------------------
On January 7, 1998, the Company filed a report on Form 8-K regarding
pro forma financial statements as of November 30, 1997.
On February 18, 1998, the Company filed a report on Form 8-K regarding
pro forma financial statements as of December 31, 1997.
On February 27, 1998, the Company filed a report on Form 8-K regarding
pro forma financial statements as of January 31, 1998.
14
<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: May 17, 1999 By: /s/ Michael W. Stelzer
---------------------------------
Michael W. Stelzer
Vice President of Operations, Secretary and
Chief Operating Officer
DATED: May 17, 1999 By: /s/ John W. Hemmer
---------------------------------
John W. Hemmer
Vice President of Finance, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PARADIGM
MEDICAL INDUSTRIES, INC. MARCH 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,247,000
<SECURITIES> 0
<RECEIVABLES> 490,000
<ALLOWANCES> 30,000
<INVENTORY> 768,000
<CURRENT-ASSETS> 2,474,000
<PP&E> 272,000
<DEPRECIATION> 103,000
<TOTAL-ASSETS> 3,278,000
<CURRENT-LIABILITIES> 365,000
<BONDS> 121,000
0
1,000
<COMMON> 6,000
<OTHER-SE> 2,777,000
<TOTAL-LIABILITY-AND-EQUITY> 3,278,000
<SALES> 102,000
<TOTAL-REVENUES> 110,000
<CGS> 50,000
<TOTAL-COSTS> 827,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (722,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (722,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (722,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
