SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): August 3, 2000
PARADIGM MEDICAL INDUSTRIES, INC.
(Exact name of registrant as specified in this Charter)
Delaware 0-28498 87-0459536
----------------- -------------------------- -------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
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
--------------
Does Not Apply
--------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. Acquisition of Vismed, Inc., d/b/a Dicon
On June 5, 2000, Paradigm Medical Industries, Inc., a Delaware
corporation (the "Company") completed the acquisition of Vismed, Inc., a
California corporation which does business under the trade name of Dicon
("Dicon") pursuant to the terms of the Agreement and Plan of Reorganization (the
"Agreement") which the Company entered into on May 16, 2000, with Dicon and
Paradigm Subsidiary, Inc., a newly formed Utah corporation and wholly owned
subsidiary of the Company ("Paradigm Subsidiary") for the purchase of all the
outstanding shares of common stock of Dicon. Dicon is a California domiciled
corporation which manufactures and sells innovative, proprietary medical
diagnostic instrumentation for chronic eye diseases.
As consideration for the purchase of all of the outstanding shares of
Dicon, the Company issued to the holders of Dicon common stock an aggregate of
921,500 shares of the Company's common stock. As of December 31, 1999, Dicon's
total assets were approximately $3,094,000. These assets included but were not
limited to the following: $1,147,000 in accounts receivable, $1,142,000 in
inventories (consisting of $646,000 in raw materials, $40,000 in work-in-process
and $779,000 in finished goods, less a $323,000 allowance for obsolete and scrap
inventory), $336,000 in intangible assets, and $131,115 in net property
(consisting of $226,000 in machinery and equipment, $258,000 in computer and
office equipment, $86,000 in furniture and fixtures, and $68,000 in leasehold
improvements, less $507,000 in accumulated depreciation and amortization).
The Company also granted demand registration rights to the holders of
Dicon common stock pursuant to a Registration Rights Agreement to register the
shares of the Company's common stock that they received in connection with the
transaction. The Registration Rights Agreement provides that for a period of
five years beginning five months from the date of the Agreement, any holder of
Dicon shares who shall receive restricted shares of the Company's common stock
in exchange for Dicon shares may make written request for registration of such
shares of restricted stock for resale under the Securities Act of 1933, as
amended. However, the Company need effect only one demand registration on behalf
of the holders of restricted stock. If the Company at any time proposes to
register any such holder's restricted stock for resale pursuant to a demand
registration, at such time it will give written notice to all other holders of
outstanding restricted stock of its intention to register such shares. Upon the
written request of any such holders, received by the Company within 10 days
following the date of the Company's registration notice to register such
holders' restricted stock, the Company will cause such restricted stock to be
included in the registration statement to be filed with the Securities and
Exchange Commission.
Following the closing of the transaction, Paradigm Subsidiary was
merged into Dicon, with the results that the Company now owns all of the
outstanding shares of common stock of Dicon. The Company intends to continue to
operate the business of Dicon in California.
ITEM 7. Financial Statements.
(a) The following financial statements of Vismed, Inc., d/b/a
Dicon are included herein:
Independent Auditors' Report of Lavine, Lofgren, Morris & Engelberg,
LLP
Balance Sheets as of December 31, 1998 and 1999
Statements of Operations for the years ended December 31, 1998 and 1999
Statement of Stockholder's Equity for the years ended December 31, 1998
and 1999
Statements of Cash Flows for the years ended December 31, 1998 and 1999
Notes to Financial Statements
(b) The following pro forma statements of the Company are included
herein:
Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1999
(unaudited)
G:\8k-803m.pmi.wpd
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations for the years
ended December 31, 1998 and 1999 (unaudited)
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited)
VISMED, INC. dba DICON
--------------------------------------
Financial Statements
For the Years Ended December 31, 1999 and 1998
<PAGE>
VISMED, INC. dba DICON
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998:
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
VISMED, INC. dba DICON
San Diego, California
We have audited the accompanying balance sheet of VISMED, INC. dba DICON as of
December 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of VISMED, INC. dba DICON as of December 31, 1998, were audited by
other auditors whose report dated February 26, 1999, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VISMED, INC. dba DICON as of
December 31, 1999, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
March 15, 2000
<PAGE>
VISMED, INC. dba DICON
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 115,936 $ 46,768
Accounts receivable (net of $25,000 allowance for
doubtful accounts at 1999 and 1998) 1,147,343 1,203,263
Inventories 1,142,109 1,749,371
Prepaid expenses and other current assets 69,504 278,854
------------ -------------
Total current assets 2,474,892 3,278,256
INVENTORY - noncurrent 62,242 83,065
PROPERTY - net 131,115 187,326
INTANGIBLE ASSETS - net 336,000 394,678
DEPOSITS AND OTHER ASSETS 89,836 144,723
------------ -------------
TOTAL ASSETS $ 3,094,085 $ 4,088,048
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 247,513 $ 271,743
Accrued expenses 832,651 764,377
Bank line of credit 92,000 -
Current portion of long-term debt 12,176 21,228
------------ -------------
Total current liabilities 1,184,340 1,057,348
------------ -------------
LONG-TERM DEBT, net of current portion 2,852 15,028
------------ -------------
COMMITMENTS (Notes 3 and 9)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 10,000,000 share authorized
5,964,710 shares issued and outstanding 4,578,598 4,578,598
Accumulated deficit (2,671,705) (1,562,926)
------------ -------------
Total stockholders' equity 1,906,893 3,015,672
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,094,085 $ 4,088,048
============ =============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
VISMED, INC. dba DICON
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
SALES $ 5,666,096 $ 5,464,150
COST OF SALES 3,138,801 2,729,673
------------ -------------
Gross profit 2,527,295 2,734,477
------------ -------------
OPERATING EXPENSES:
Sales and marketing 1,813,290 2,041,941
General and administrative 671,564 621,676
Research and development 542,547 472,853
------------ -------------
Total operating expenses 3,027,401 3,136,470
------------ -------------
INCOME (LOSS) FROM OPERATIONS (500,106) (401,993)
OTHER INCOME (EXPENSE):
Loss from discontinued product (575,691) -
Interest expense (26,797) (3,064)
Interest income 137 18,450
Other (6,322) (4,134)
------------ -------------
Other income (expense) - net (608,673) 11,252
------------ -------------
INCOME (LOSS) BEFORE INCOME TAXES (1,108,779) (390,741)
INCOME TAX EXPENSE - 603,383
------------ -------------
NET INCOME (LOSS) $ (1,108,779) $ (994,124)
============ =============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
VISMED, INC. dba DICON
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------------------- Accumulated
Shares Amount Deficit Total
------ ------ ----------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1998 5,964,710 $ 4,578,598 (568,802) 4,009,796
Net loss (994,124) (994,124)
--------- ----------- ---------- ----------
Balance at December 31, 1998 5,964,710 4,578,598 (1,562,926) 3,015,672
Net loss (1,108,779) (1,108,779)
--------- ----------- ---------- ----------
Balance at December 31, 1999 5,964,710 $ 4,578,598 (2,671,705) 1,906,893
========= =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
VISMED, INC. dba DICON
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (1,108,779) $ (994,124)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 169,201 151,855
Inventory write down 280,703 -
Prepaid product advances write off 50,000 -
Loss on equipment disposition 5,446 -
(Increase) decrease in operating assets:
Accounts receivable 55,920 412,311
Inventories 347,382 (186,617)
Deferred income taxes - 603,383
Prepaid expenses, deposits and other assets 166,237 (199,582)
Increase (decrease) in operating liabilities:
Accounts payable (24,230) (25,207)
Accrued expenses 68,274 (82,061)
------------ -------------
Net cash provided by (used in) operating activities 10,154 (320,042)
------------ -------------
INVESTING ACTIVITIES:
Purchase of long-term investment - (48,000)
Sale of long-term investment 48,000 -
Capital expenditures (33,572) (82,631)
Product acquisition - (350,000)
Patent costs (26,186) (12,069)
------------ -------------
Net cash used in investing activities (11,758) (492,700)
------------ -------------
FINANCING ACTIVITIES:
Net proceeds from notes payable - 45,300
Payments on long-term debt (21,228) (17,169)
Proceeds from bank line of credit 92,000 -
------------ -------------
Net cash provided by financing activities 70,772 28,131
------------ -------------
NET INCREASE (DECREASE) IN CASH 69,168 (784,611)
CASH, BEGINNING OF YEAR 46,768 831,379
------------ -------------
CASH, END OF YEAR $ 115,936 $ 46,768
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 26,797 $ 3,064
============ =============
Cash paid for income taxes $ 1,659 $ 2,164
============ =============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
VISMED, INC. dba DICON
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Vismed, Inc. dba Dicon (the "Company")
manufactures and markets ophthalmic equipment. The Company is a 76% owned
subsidiary of Polycore Optical Pte., Ltd. (the "Parent"), a Singapore
corporation.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market. Quantities of inventory in excess of those expected
to be sold within one year are classified as noncurrent. Inventories
include products used as demos and clinical units. Such amounts totaled
$192,441 and $214,000 at December 31, 1999 and 1998, respectively.
Property - Property is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of assets (3 to 7
years). Amortization of leasehold improvements is provided using the
straight-line method over the related lease term (5 years).
License Fees, Product Rights, Patents and Other Intangible Assets - The
cost of license fees, product rights, patents and other intangible assets
are capitalized and amortized on a straight-line basis over the periods
estimated to be benefited, typically five years. Amortization is included
in general and administrative expenses in the statements of operations
and totaled $84,864 and $50,000 in 1999 and 1998, respectively.
Evaluation of License Agreements, Product Rights, Patents and Other
Intangible Assets - The Company evaluates the carrying value of the
unamortized balances of license agreements, product rights patents and
other intangible assets to determine whether any impairment of these
assets has occurred or whether any revision to the related amortization
periods should be made. This evaluation is based on management's
projections of the undiscounted future cash flows associated with each
intangible asset. If management's evaluation were to indicate that the
carrying values of these intangible assets were impaired, such impairment
would be recognized by a write down of the applicable asset.
Revenue Recognition - Revenue is recognized as products are shipped or
service is rendered.
Income Taxes - Deferred income taxes are recorded based on current tax
rates applied to the differences between the financial statement and tax
basis of assets and liabilities, including net operating loss and credit
carryforwards.
Stock-Based Compensation - The Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related Interpretations in accounting for its stock
options. Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," is followed as appropriate for
disclosure of related information (Note 4).
Concentration of Credit Risk - The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally insured limits.
The Company has not experienced losses on its cash accounts. The Company
sells products to companies in approximately 30 foreign countries in
addition to the United States. Included in accounts receivable was
$619,000 due from foreign entities at December 31, 1999. The Company
maintains a reserve for potential credit losses. Historically, such
losses have been minimal.
6
<PAGE>
VISMED, INC. dba DICON
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Warranty - The Company's standard product warranty generally extends for
one year from the date of sale. Management evaluates the Company's
warranty experience and adjusts its warranty reserve accordingly.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications - Certain amounts included in the financial statements
for 1998 have been reclassified to conform to the 1999 presentation.
2. BALANCE SHEET DETAILS
Balance sheet details include the following as of December 31, 1999 and
1998:
1999 1998
---- ----
INVENTORIES:
Raw materials $ 645,969 $ 926,342
Work-in-process 39,786 67,121
Finished goods 779,765 798,616
---------- -----------
1,465,520 1,792,079
Less: allowance for obsolete/scrap inventory (323,411) (42,708)
---------- -----------
Total $1,142,109 $1,749,371
========== ===========
PROPERTY - at cost:
Machinery and equipment $ 226,044 $ 224,941
Computer and office equipment 257,877 257,348
Furniture and fixtures 86,076 86,076
Leasehold improvements 68,231 68,231
---------- -----------
638,228 636,596
Less accumulated depreciation and amortization (507,113) (449,270)
---------- -----------
Total $ 131,115 $ 187,326
========== ===========
7
<PAGE>
VISMED, INC. dba DICON
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
2. BALANCE SHEET DETAILS - Continued
1999 1998
---- ----
INTANGIBLE ASSETS - at cost:
Product rights $ 395,000 $ 395,000
Patents 121,862 95,677
---------- ----------
516,862 490,677
Less accumulated amortization (180,862) (95,999)
---------- ----------
Total $ 336,000 $ 394,678
========== ==========
LONG-TERM DEBT:
Notes payable $ 15,028 $ 36,256
Less current portion (12,176) (21,228)
---------- -----------
Total $ 2,852 $ 15,028
========== ===========
3. LINE OF CREDIT
The Company has a revolving line of credit with a bank which provides for
borrowings of up to $500,000 at an interest rate of 1% over the bank's
reference rate (totaling 9.5% at December 31, 1999). Interest on
borrowings is due monthly. The line of credit matures in June 2000. The
line is secured by the Company's assets. There were no outstanding
borrowings on the line as of December 31, 1998. The outstanding balance
at December 31, 1999, was $92,000. The line of credit agreement contains
certain covenants related to financial ratios and net worth. Compliance
with the covenants affects the discretion with which the bank extends
credit. The Company was not in compliance with all of the covenants at
December 31, 1999.
4. STOCKHOLDERS' EQUITY
Stock Option Plan - The Company has a Stock Option Plan which provides
additional incentive for selected employees, directors and consultants to
further the success of the Company via the issuance of shares or the
granting of incentive stock options and nonstatutory stock options. The
Plan provides for the exercise of options totaling 1,000,000 shares of
common stock at an exercise price not less than 100% - 110% of the fair
market value per share of the Company's common stock on the date of
grant.
Incentive stock options vest ratably over a three-year period and
nonstatutory options generally vest in one to three years from the date
of granting. All options granted under the Plan expire six years from the
date of grant. The Plan shall terminate on June 30, 2004.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation cost been calculated consistent with the provisions of
SFAS No. 123, net loss would have increased by approximately $39,500 for
year ended December 31, 1999. There would not be a material effect on net
income reported in the statement of operations for the year ended
December 31, 1998.
8
<PAGE>
VISMED, INC. dba DICON
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
4. STOCKHOLDERS' EQUITY - Continued
The following is a summary of option activity during the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Weighted Weighted
Number of Average Number of Average
Options Exercise Price Options Exercise Price
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 724,690 $ 0.76 804,290 $ 0.76
Granted 180,650 0.75 70,400 0.75
Forfeited - - 150,000 0.76
Expired - - - -
------- --------- ------- ---------
Outstanding, end of year 905,340 $ 0.76 724,690 $ 0.76
======= ========= ======= =========
Exercisable, end of year 628,577 $ 0.76 479,013 $ 0.75
======= ========= ======= =========
</TABLE>
Exercise prices range from $0.70 to $0.78 for options outstanding at
December 31, 1999, and the weighted average remaining contractual life
for these options is 3 years. There are 94,660 options available for
grant under the Plan at December 31, 1999.
Warrants - As of December 31, 1999, the Company also has 543,000 fully
vested outstanding warrants for the purchase of its common stock.
Warrants for 168,000 shares were issued in January 1991 at an exercise
prices of $2.00 per share. There is no expiration date for the exercise
of these warrants. Warrants for 375,000 shares were issued in March 1994
at an exercise price of $1.00 per share and expire in January 2000. All
543,000 warrants were issued to a stockholder of the Company.
5. INCOME TAXES
1999 1998
---- ----
Federal:
Current $ - $ 394,029
Deferred 133,409
---------- ---------
- 527,438
---------- ---------
State:
Current - 17,765
Deferred - 58,180
---------- ---------
- 75,945
---------- ---------
Income tax expense $ - $ 603,383
========== =========
9
<PAGE>
VISMED, INC. dba DICON
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
5. INCOME TAXES - Continued
The effective rate of income tax expense differs from the federal
statutory rate for the years ended December 31, 1999 and 1998 due to the
following:
1999 1998
---- ----
Expected income tax at statutory rate of 34% $ (376,986) $ (132,852)
State income taxes, net of federal benefit (78,206) (23,920)
Tax credits (49,057) (38,277)
Non-deductible business expenses 8,502 9,052
Other 13,234 (5,592)
Change in valuation allowance 482,513 794,972
------------ ------------
Income tax expense $ - $ 603,383
============ ============
The Company's deferred income tax assets and liabilities at December 31,
1999 and 1998 are approximately as follows:
1999 1998
---- ----
Deferred income tax assets:
Net operating loss carryforwards $ 633,946 $ 310,431
Research and development credit
carryforwards 312,575 247,090
Accrued employee compensation 78,046 80,595
Warranty reserve 39,820 44,549
Inventory valuation differences 138,549 18,296
Allowance for doubtful accounts 10,710 10,710
Depreciation and amortization 28,826 30,013
Return allowance 61,837 44,543
Other 35,331 54,503
------------ ------------
Total deferred income tax assets $ 1,339,640 $ 840,730
------------ ------------
Deferred income tax liabilities:
State income taxes 55,345 45,405
Prepaid assets 6,810 353
------------ ------------
Total deferred income tax liabilities 62,155 45,758
------------ ------------
Net deferred income tax asset 1,277,485 794,972
Less valuation allowance (1,277,485) (794,972)
------------ ------------
Total $ - $ -
============ ============
10
<PAGE>
VISMED, INC. dba DICON
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
5. INCOME TAXES - Continued
As of December 31, 1999, the Company has available net operating loss
carryforwards of approximately $1,628,600 to offset future federal
taxable income. These federal carryforwards expire in various amounts
during the years 2008 through 2014. The Company has available net
operating loss carryforwards of approximately $952,900 to offset future
California taxable income. These California carryforwards expire in 2004.
Because it is uncertain whether its future taxable income will be
sufficient for full realization of the deferred tax asset, a valuation
allowance in the same amount was recorded in the current year.
6. RELATED PARTY TRANSACTIONS
Employee Notes Receivable - Included in prepaid expenses and other assets
as of December 31, 1998 were notes receivable from employees of the
Company totaling $25,697. Such amounts were due on various dates through
December 1999.
Asset Purchase Agreement - During 1998, the Company entered into an
agreement with Eclipse Ventures to acquire for $395,000 certain assets
and technology to be used in the manufacture and marketing of a low-cost
corneal topography instrument. The agreement requires the Company to pay
a royalty fee per unit for the first 500 units sold. Included in
intangible assets is $395,000 in capitalized product rights related to
the Company's acquisition from Eclipse Ventures. Accumulated amortization
on the product rights was $125,083 and $46,083 at December 31, 1999 and
1998, respectively. The Company expensed $192,150 and $78,750 in royalty
fees to Eclipse Ventures during 1999 and 1998, respectively. A director
of the Company is a general partner of Eclipse Ventures.
11
<PAGE>
VISMED, INC. dba DICON
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
7. DISCONTINUED PRODUCT LINE
During 1998, the Company entered into a product distribution agreement
with a supplier of laser-based equipment and software for various
ophthalmic uses. Under the agreement, the Company advanced $200,000 for
future delivery of product and purchased common stock in the supplier
company for $48,000. The President of the Company became a board member
of the supplier company. Due to the long sales cycle and low demand for
the product, the Company made the decision in mid 1999 to terminate the
agreement and discontinue sales of the product. A loss of $575,691 from
the discontinuance is included in other expense in the statement of
operations. Included in the loss, is a reserve for obsolete inventory of
$254,000, a reserve for sales returns of $31,284, and a write off of the
remaining $50,000 of 1998 advances for future product delivery. As a
condition of the termination, the supplier company re-purchased its
common stock for $48,000. Details of the loss are as follows:
Sales - net $ 106,537
Cost of sales 404,036
------------
Gross profit (loss) (297,499)
Direct sales and marketing expenses 225,018
Write off of product cost advances 50,000
Other 3,174
------------
Net loss from discontinued product $ (575,691)
============
8. EMPLOYEE 401(k) PROFIT SHARING PLAN
Effective January 1, 1998, the Company adopted an employee 401(k) profit
sharing plan pursuant to Section 401(k) of the Internal Revenue Code.
Eligible employees may defer up to 15% of their annual compensation not
to exceed the maximum amount permitted by law. The Company may make a
discretionary contribution to this plan. The Company contributed $25,044
and $19,756 in 1999 and 1998, respectively.
9. COMMITMENTS
The Company leases office space under a noncancelable operating lease
which expires in February 2002. Rent expense was $186,786 and $186,854
for the years ended December 31, 1999 and 1998, respectively.
12
<PAGE>
VISMED, INC. dba DICON
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
9. COMMITMENTS - Continued
Future minimum lease payments due under this lease as of December 31,
1999 are summarized as follows:
Year ending December 31,
2000 $ 194,925
2001 200,843
2002 206,889
2003 35,087
-----------
Total $ 637,744
===========
* * * * * *
13
<PAGE>
CONSOLIDATED PARADIGM MEDICAL INDUSTRIES, INC. PRO FORMA
CONDENSED BALANCE SHEET DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PARADIGM
MEDICAL
INDUSTRIES VISMED, INC.
INC. DBA. DICON COMBINED
------------------------------------------------------
<S> <C> <C> <C>
Current Assets 5,807,000 2,475,000 8,282,000
Inventory - Noncurrent - 62,000 62,000
Intangibles, Net 611,000 336,000 947,000
Property and Equipment, Net 204,000 131,000 335,000
Deposits and Other Assets - 90,000 90,000
------------------------------------------------------
Total Assets 6,622,000 3,094,000 9,716,000
======================================================
Current Liabilities 417,000 1,184,000 1,601,000
Long-term Debt 25,000 3,000 28,000
------------------------------------------------------
Total Liabilities 442,000 1,187,000 1,629,000
Common Stock 9,000 1,000 10,000
Additional paid-in-capital 26,564,000 1,906,000 28,470,000
Treasury Stock (4,000) - (4,000)
Stock Subscription Receivable (8,000) - (8,000)
Accumulated Deficit (20,381,000) - (20,381,000)
------------------------------------------------------
Total Stockholders' Equity 6,180,000 1,907,000 8,087,000
------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 6,622,000 $ 3,094,000 $ 9,716,000
======================================================
</TABLE>
<PAGE>
CONSOLIDATED PARADIGM MEDICAL INDUSTRIES, INC. PRO FORMA
CONDENSED STATEMENT OF OPERATIONS DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PARADIGM
MEDICAL
INDUSTRIES VISMED, INC.
INC. DBA. DICON COMBINED
------------------------------------------------------
<S> <C> <C> <C>
Sales 1,701,000 5,666,000 7,367,000
Cost of Sales 1,031,000 3,139,000 4,170,000
------------------------------------------------------
Gross Profit 670,000 2,527,000 3,197,000
------------------------------------------------------
Operating Expenses:
Marketing and Selling 915,000 1,813,000 2,728,000
General and Administrative 2,711,000 672,000 3,383,000
Research and Development 677,000 543,000 1,220,000
------------------------------------------------------
Total Operating Expenses 4,303,000 3,028,000 7,331,000
Operating Income (Loss) (3,633,000) (501,000) (4,134,000)
Other Income and (Expense):
Loss from Discontinued Product - (576,000) (576,000)
Interest Income 30,000 - 30,000
Interest Expense (15,000) (27,000) (42,000)
Other Income (Expense) (4,000) (6,000) (10,000)
------------------------------------------------------
Total Other Income and (Expense) 11,000 (609,000) (598,000)
------------------------------------------------------
Net Loss (3,622,000) (1,110,000) (4,732,000)
Net Loss Per Common Share - Basic and Diluted $ (0.54) $ (0.62)
------------------ ----------------
Weighted Average Outstanding Shares - Basic and Diluted 6,733,000 7,655,000
------------------ ----------------
</TABLE>
<PAGE>
CONSOLIDATED PARADIGM MEDICAL INDUSTRIES, INC. PRO FORMA
CONDENSED BALANCE SHEET DECEMBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PARADIGM
MEDICAL
INDUSTRIES VISMED, INC.
INC. DBA. DICON COMBINED
------------------------------------------------------
<S> <C> <C> <C>
Current Assets 1,415,000 3,278,000 4,693,000
Inventory - Noncurrent - 83,000 83,000
Intangibles, Net 235,000 395,000 630,000
Property and Equipment, Net 547,000 187,000 734,000
Deposits and Other Assets 44,000 145,000 189,000
---------------------------------------------------------
Total Assets 2,241,000 4,088,000 6,329,000
=========================================================
Current Liabilities 492,000 1,057,000 1,549,000
Long-term Debt 33,000 15,000 48,000
---------------------------------------------------------
Total Liabilities 525,000 1,072,000 1,597,000
Common Stock 5,000 1,000 6,000
Additional paid-in-capital 17,704,000 3,015,000 20,719,000
Treasury Stock, at cost (4,000) - (4,000)
Unearned Compensation (94,000) - (94,000)
Stock Subscription Receivable (8,000) - (8,000)
-
Accumulated Deficit (15,887,000) - (15,887,000)
---------------------------------------------------------
Total Stockholders' Equity 1,716,000 3,016,000 4,732,000
---------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,241,000 $ 4,088,000 $ 6,329,000
=========================================================
</TABLE>
<PAGE>
CONSOLIDATED PARADIGM MEDICAL INDUSTRIES, INC. PRO FORMA
CONDENSED STATEMENT OF OPERATIONS DECEMBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PARADIGM
MEDICAL
INDUSTRIES VISMED, INC.
INC. DBA. DICON COMBINED
------------------------------------------------------
<S> <C> <C> <C>
Sales 1,258,000 5,464,000 6,722,000
Cost of Sales 739,000 2,730,000 3,469,000
Amorization of Capitalized Engineering and Design Charges 74,000 - 74,000
---------------------------------------------------------
Gross Profit 445,000 2,734,000 3,179,000
---------------------------------------------------------
Operating Expenses:
Marketing and Selling 1,021,000 2,041,000 3,062,000
General and Administrative 1,841,000 622,000 2,463,000
Research and Development 298,000 473,000 771,000
---------------------------------------------------------
Total Operating Expenses 3,160,000 3,136,000 6,296,000
---------------------------------------------------------
Operating Loss (2,715,000) (402,000) (3,117,000)
Other Income and (Expense):
Interest Income 49,000 18,000 67,000
Interest Expense (33,000) (3,000) (36,000)
Other Income (Expense) (60,000) (4,000) (64,000)
---------------------------------------------------------
Total Other Income and (Expense) (44,000) 11,000 (33,000)
---------------------------------------------------------
Income (Loss) Before Income Taxes (2,759,000) (391,000) (3,150,000)
Income Tax Expense (Provision) - 603,000 603,000
---------------------------------------------------------
Net Income (Loss) (2,759,000) (994,000) (3,753,000)
=========================================================
Net Loss Per Common Share - Basic and Diluted $ (0.69) $ (0.76)
------------------ -------------------
Weighted Average Outstanding Shares - Basic and Diluted 4,022,000 4,944,000
------------------ -------------------
</TABLE>
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited condensed pro forma combined balance sheet at
December 31, 1999 and 1998 and the pro forma combined statements of operations
for the years ended December 31, 1999 and 1998 assumes the acquisition of Dicon
by Paradigm. It combines the historical balance sheets of Paradigm and Dicon.
The business combination has been accounted for as pooling. The unaudited
condensed pro forma combined balance sheet should be read in conjunction with
the historical financial statements and related notes.
The following unaudited condensed pro forma condensed pro forma
combined statements of operations for the years ended December 31, 1999 and 1998
for Paradigm and Dicon assumes the acquisition of Dicon by Paradigm as of the
beginning of the years.
The pro forma results of operations are not necessarily indicative of
the results of operations that would actually have been obtained if the
transactions had occurred as of the beginning of the years. These statements
should be read in conjunction with the historical financial statements and
related notes.
<PAGE>
(c) Exhibits
10.1. Agreement and Plan of Reorganization among Paradigm
Medical Industries, Inc., Paradigm Subsidiary and
Vismed, Inc., d/b/a Dicon. Agreement and Plan of
Reorganization. Agreement and Plan of Reorganization
10.2 Escrow Agreement among the Company, Paradigm
Subsidiary, Dicon and Mackey Price & Williams.
10.3 Agreement and Plan of Merger among the Company,
Paradigm Subsidiary and Dicon.
10.4 Registration Rights Agreement among the Company,
Paradigm Subsidiary and the shareholders of Dicon.
10.5 Indemnification Agreement among the Company, Paradigm
Subsidiary and certain shareholders of Dicon.
10.6 Employment Agreement with Mark R. Miehle.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PARADIGM MEDICAL INDUSTRIES, INC.
(Registrant)
Date: August 3, 2000. By:/s/
------------------------------
Thomas F. Motter
Chairman, Chief Executive
Officer, Chief Financial
Officer and Treasurer
G:\8k-803m.pmi.wpd
<PAGE>
