UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2003
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
2355 South 1070 West, 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 24,855,906
----------------------------- ----------
Title of Class Number of Shares
Outstanding as of
June 30, 2003
Class A Warrants to Purchase
One Share of Common Stock 1,000,000
----------------------------- ----------
Title of Class Number of Warrants
Outstanding as of
June 30, 2003
1
Transitional Small Business Disclosure Format
YES NO X
PARADIGM MEDICAL INDUSTRIES, INC.
FORM 10-QSB/A
QUARTER ENDED June 30, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
-------
Balance Sheet (unaudited) - June 30, 2003 ...................... 3
Statements of Operations (unaudited) for the three and six months
ended June 30, 2003 and June 30, 2002 ........................... 4
Statements of Cash Flows (unaudited) for the six months
ended June 30, 2003 and June 30, 2002............................ 5
Notes to Financial Statements (unaudited).................. ..... 6
Item 2.
-------
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 10
PART II - OTHER INFORMATION
Other Information................................................ 14
Signature Page................................................... 19
--------------------------------------------------------------------------------
2
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30,
2003
---------------
(Unaudited)
ASSETS
Current Assets
Cash & Cash Equivalents $ 584,000
Receivables, Net 512,000
Inventory 1,968,000
Prepaid Expenses 62,000
---------------
Total Current Assets 3,126,000
Intangibles, Net 686,000
Property and Equipment, Net 307,000
Deposits and Other Assets, Net 56,000
---------------
Total Assets 4,175,000
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade Accounts Payable 898,000
Accrued Expenses 2,033,000
Current Portion of Long-term Debt 18,000
---------------
Total Current Liabilities 2,949,000
Long-term Debt 80,000
---------------
Total Liabilities 3,029,000
Stockholders' Equity:
Preferred Stock, Authorized:
5,000,000 Shares, $.001 par value
Series A
Authorized: 500,000 shares; issued and
outstanding: 5,627 shares at June 30, 2003 -
Series B
Authorized: 500,000 shares; issued and
outstanding: 8,986 shares at June 30, 2003 -
Series C
Authorized: 30,000 shares; issued and
outstanding: zero shares at June 30, 2003 -
Series D
Authorized: 1,140,000 shares; issued and
outstanding: 5,000 shares at June 30, 2003 -
Series E
Authorized: 50,000; issued and
outstanding: 1,500 at June 30, 2003 -
Series F
Authorized: 50,000; issued and
outstanding: 5,623.75 at June 30, 2003 -
Common Stock, Authorized:
80,000,000 Shares, $.001 par value; issued and
outstanding: 24,855,906 at June 30, 2003 25,000
Additional paid-in-capital 57,413,000
Stock subscription receivable (294,000)
Accumulated Deficit (55,998,000)
---------------
Total Stockholders' Equity 1,146,000
---------------
Total Liabilities and Stockholders' Equity $ 4,175,000
===============
See accompanying notes to financial statements
3
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $ 645,000 $ 1,279,000 $ 1,372,000 $ 2,816,000
Cost of Sales 538,000 781,000 881,000 1,622,000
------------- ------------- ------------- -------------
Gross Profit 107,000 498,000 491,000 1,194,000
------------- ------------- ------------- -------------
Operating Expenses:
Marketing and Selling 229,000 747,000 552,000 1,762,000
General and Administrative 1,060,000 1,000,000 1,536,000 1,998,000
Research, development and service 294,000 614,000 574,000 1,364,000
Impairment of assets 159,000 - 159,000 -
------------- ------------- ------------- -------------
Total Operating Expenses 1,742,000 2,361,000 2,821,000 5,124,000
------------- ------------- ------------- -------------
Operating Income (Loss) (1,635,000) (1,863,000) (2,330,000) (3,930,000)
Other Income and (Expense):
Interest Income - 1,000 3,000 5,000
Interest Expense (5,000) (9,000) (13,000) (19,000)
------------- ------------- ------------- -------------
Total Other Income and
(Expense) (5,000) (8,000) (10,000) (14,000)
------------- ------------- ------------- -------------
Net loss before provision
for income taxes (1,640,000) (1,871,000) (2,340,000) (3,944,000)
Income taxes - - - -
------------- ------------- ------------- -------------
Net Loss $ (1,640,000) $ (1,871,000) $ (2,340,000) $ (3,944,000)
============= ============= ============= =============
Net Loss Per Common Share - Basic
and Diluted $ (.07) $ (.11) $ (.10) $ (.24)
============= ============= ============= =============
Weighted Average Outstanding
Shares - Basic and Diluted 23,983,000 16,654,000 22,985,000 16,221,000
============= ============= ============= =============
See accompanying notes to financial statements
4
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2003 2002
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net Loss $ (2,340,000) $ (3,944,000)
Adjustment to Reconcile Net Loss to Net
Cash Used In Operating Activities:
Depreciation and Amortization 214,000 264,000
Issuance of Common Stock and Warrants
for Services 35,000 48,000
Issuance of Common Stock for Settlement
of Potential Litigation 190,000 -
Increase in Inventory Reserve 382,000 -
Provision for (Recovery Of) Losses
on Receivables 83,000 (125,000)
Impairment of Intangible and Other Assets 159,000 -
(Increase) Decrease from Changes in:
Trade Accounts Receivable 350,000 1,368,000
Inventories 299,000 451,000
Prepaid Expenses 19,000 (58,000)
Increase (Decrease) from Changes in:
Trade Accounts Payable (10,000) 34,000
Accrued Expenses and Deposits 619,000 94,000
------------- -------------
Net Cash Used in Operating Activities - (1,868,000)
------------- -------------
Cash Flow from Investing Activities:
Purchase of Property and Equipment (1) (134,000)
Net Cash Paid in Acquisition - (100,000)
------------- -------------
Net Cash Used in Investing Activities (1) (234,000)
------------- -------------
Cash Flows from Financing Activities:
Principal Payments on Notes Payable (26,000) (42,000)
Net proceeds from sale of common stock 417,000 -
------------- -------------
Net Cash Provided (Used) by
Financing Activities 391,000 (42,000)
------------- -------------
Net Increase (Decrease) in Cash and Cash
Equivalents 390,000 (2,144,000)
Cash and Cash Equivalents at Beginning of Period 194,000 2,702,000
------------- -------------
Cash and Cash Equivalents at End of Period $ 584,000 $ 558,000
============= =============
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 13,000 $ 19,000
============= =============
Cash Paid for Income Taxes $ - $ -
============= =============
See accompanying notes to financial statements
5
PARADIGM MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 2003 and the results of its operations for the three
months and six months ended June 30, 2003 and 2002, and its cash flows for the
six months ended June 30, 2003 and 2002. The results of operations for the
periods presented are not necessarily indicative of the results to be expected
for the full year period.
Liquidity and Going Concern
---------------------------
Due to the declining sales, significant recurring losses and cash used
to fund operating activities, the auditors' report for the year ended December
31, 2002 included an explanatory paragraph that expressed substantial doubt
about our ability to continue as a going concern. The Company has taken
significant steps to reduce costs and increase operating efficiencies. In
addition, the Company is attempting to obtain additional funding through the
sale of its common stock. Traditionally the Company has relied on financing from
the sale of its common and preferred stock to fund operations. If the Company is
unable to obtain such financing in the near future it may be required to reduce
or cease its operations.
Reclassifications
-----------------
Certain amounts in the financial statements for the three months and
six months ended June 30, 2002 have been reclassified to conform with the
presentation of the current period financial statements.
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 consisting of options
and warrants to purchase 6,502,361 and 6,426,319 shares of common stock and
preferred stock convertible into 402,138 and 2,564,838 shares of common stock at
June 30, 2003 and 2002, respectively, have not been included in loss years
because they are anti-dilutive.
Equity Line of Credit
---------------------
The Company sold approximately 696,000 shares of common stock for
approximately $84,000 during the 6 months ended June 30, 2003 under the
$20,000,000 equity line of credit with Triton West Group, Inc.
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 six months ended June 30, 2003, no
shares of Series A Preferred Stock and no shares of Series B Preferred Stock
were converted to the Company's Common Stock.
Holders of Series D Preferred have the right to convert such stock into
shares of the Company's common stock at the rate of 1 share of common stock for
each share of preferred stock. During the six months ended June 30, 2003, no
shares of Series D Preferred Stock were converted to the Company's Common stock.
6
Holders of Series E Preferred have the right to convert such stock into
shares of the Company's common stock at the rate of 53.3 shares of common stock
for each share of preferred stock. During the six months ended June 30, 2003, no
shares of Series E Preferred Stock were converted to the Company's Common stock.
Holders of Series F Preferred have the right to convert such stock into
shares of the Company's common stock at the rate of 53.3 shares of common stock
for each share of preferred stock. During the six months ended June 30, 2003,
650 shares of Series F Preferred Stock were converted to shares of the Company's
Common stock.
Warrants:
---------
The fair value of warrants granted as described herein is estimated at
the date of grant using the Black-Scholes option pricing model. The exercise
price per share is reflective of the then current market value of the stock. No
grant exercise price was established at a discount to market. All warrants are
fully vested, exercisable and nonforfeitable as of the grant date. The Company
granted 623,000 warrants to purchase the Company's common stock during the
period ended June 30, 2003. 423,000 of the warrants were issued in connection
with a private placement of the Company's common stock and 200,000 warrants were
issued for consulting services. The 200,000 warrants issued for consulting
services were valued at $35,000 using the Black-Scholes option pricing model.
During the period ended June 30, 2002, the purchase agreement between the
Company and Innovative Optics included warrants to purchase 250,000 shares of
the Company's common stock at $5.00 per share, exercisable over a period of
three years from the closing date. The Company valued the warrants at
approximately $295,000, which amount was included in the purchase price.
Stock - Based Compensation
--------------------------
For stock options and warrants granted to employees, the Company
employs the footnote disclosure provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. SFAS No. 123
encourages entities to adopt a fair-value based method of accounting for stock
options or similar equity instruments. However, it also allows an entity to
continue measuring compensation cost for stock-based compensation using the
intrinsic-value method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). The
Company has elected to continue to apply the provisions of APB 25 and provide
pro forma footnote disclosures required by SFAS No. 123. No stock-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to or greater than the market value of the
underlying common stock on the date of grant.
Stock options and warrants granted to non-employees for services are
accounted for in accordance with SFAS 123 which requires expense recognition
based on the fair value of the options/warrants granted. The Company calculates
the fair value of options and warrants granted by use of the Black-Scholes
pricing model. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
to stock-based employee compensation.
7
Six Months Ended June 30, Three Months Ended June 30,
2003 2002 2003 2002
----------------------------- -----------------------------
Net loss - as reported $ (2,340,000) $ (3,944,000) $ (1,640,000) $ (1,871,000)
Deduct: total stock-based employee
compensation determined under fair value
based method for all awards, net of
related tax effects (311,000) - (37,000) -
----------------------------- -----------------------------
Net loss - pro forma $ (2,651,000) $ (3,944,000) $ (1,677,000) $ (1,871,000)
----------------------------- -----------------------------
Earnings per share:
Basic and diluted - as reported $ (.10) $ (.24) $ (.07) $ (.11)
Basic and diluted - pro forma $ (.12) $ (.24) $ (.07) $ (.11)
The fair value of each option grant was estimated at the date of grant
using the Black-Scholes option pricing model with the following assumptions:
Six Months Ended June 30,
2003 2002
-----------------------------
Expected dividend yield $ - $ -
Expected stock price volatility 113% - 117% -
Risk-free interest rate 4% -
Expected life of options 3-5 years -
The weighted average fair value of options granted to employees during
the three and six months ended June 30, 2003 was $.25.
Related Party Transactions:
---------------------------
Payments for legal services to the firm of which the chairman of the
board of directors is a partner were approximately $24,000 and $67,000 for the
three months ended June 30, 2003 and 2002, respectively.
8
Supplemental Cash Flow Information
----------------------------------
During the six months ended June 30, 2003, the Company granted 200,000
options for consulting services, which were recorded as an expense of $35,000,
which is recorded as an increase to general and administrative expense and
additional paid-in capital.
During the six months ended June 30, 2003, the Company issued 1,262,000
shares of common stock, valued at $190,000 based on the trading price on the
date of issuance, as settlement of potential litigation. This amount is included
in general and administrative expenses.
Accrued Expenses
----------------
Accrued expenses consist of the following at June 30, 2003:
Accrued consulting and litigation reserve $ 691,000
Warranty and return allowance 688,000
Accrued royalties 208,000
Deferred revenue 182,000
Customer deposits 140,000
Accrued payroll and employee benefits 124,000
-----------
$ 2,033,000
===========
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITON AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis contains
forward-looking statements, which address matters that are subject to a number
of 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.
The Company is engaged in the design, development, manufacture and sale
of high technology diagnostic and surgical eye care products. Given the "going
concern" status of the Company, management has focused efforts on those products
and activities that will, in its opinion, achieve the most resource efficient
short-term cash flow to the Company. As seen in the results for the quarter
ended June 30, 2003, diagnostic products have been the major focus and the
Photon(TM) and other extensive research and development projects have been put
on hold pending future evaluation when the financial position of the Company
improves. The new management team has reviewed the financial position of the
Company including the financial statements. In the course of this review,
management made certain adjustments that are included in the quarter ended June
30, 2003, including an increase in the reserve of obsolete inventory of
$332,000, an increase in the allowance for doubtful accounts receivable of
$160,000, impairment of fixed assets and intangibles of $159,000, and increases
in accruals to settle outstanding disputes in the amount of $443,000. Although
management believes these adjustments are sufficient, it will continue to
monitor and evaluate the Company's financial position and the recoverability of
the Company's assets.
Its ultrasound diagnostic products technology was acquired from
Humphrey Systems in 1998. In October 1999, the Company purchased the inventory
and design and production rights of another line of surgical equipment, also
designed to perform minimally invasive cataract surgery. The line includes the
Mentor SIStem (TM), the Odyssey (TM), and the Surgitrol (TM). In November 1999,
the Company entered into a Mutual Release and Settlement Agreement with the
manufacturer of the Precisionist Thirty Thousand (TM) in which the Company
purchased the raw material and finished goods inventory to bring manufacture of
this product in-house. The Dicon (TM) perimeter and the Dicon (TM) topographer
were added to product line when the Company acquired Vismed, Inc. d/b/a Dicon in
June 2000. The Blood Flow Analyzer(TM) was acquired when Ocular Blood Flow, Ltd.
("OBF") was purchased in June 2000. The Company received approval for ISO 9000
and CE Mark certifications in June 2000, enabling the Company to market its
diagnostic and surgical products in the European community. The Company has
successfully maintained its ISO approval and CE Mark certifications to date.
Activities for the six months ended June 30, 2003, included sales of
the Company's products and related accessories and disposable products. In March
2003, the Company named a new president and chief executive officer, Dr. Jeffrey
F. Poore. The Company named a new vice president of sales and marketing, Ray
Cannefax, during the first quarter of 2003 and a new vice president of finance
and chief financial officer, Gregory C. Hill, during the second quarter of 2003.
Results of Operations
Three Months Ended June 30, 2003, Compared to Three Months Ended June 30, 2002
Net sales for the three months ended June 30, 2003 decreased by
$634,000, or 50%, to $645,000 as compared to $1,279,000 for the same period of
2002 due primarily to the decrease in sales of the Ultrasonic Biomicroscope
although lower sales were also generated by most of the Company's other
products. In addition, we have reduced our sales people in an effort to reduce
costs. We had 4 sales people as of June 30, 2003 compared to 8 in 2002. For the
three months ended June 30, 2003, sales from the diagnostic product line totaled
$577,000, or 89% of total revenues, compared to $769,000, or 60% of total
revenues for the same period of 2002. Sales from the surgical line totaled
$68,000, or 11% of total revenues for the three months ended June 30, 2003,
compared to $294,000, or 23% of total revenues for the corresponding period of
2002. Sales of the Ultrasonic Biomicroscope were $167,000 during the second
quarter 2003, or 26% of total quarterly revenues, compared to $459,000, or 36%
of total revenues for the same period last year. Sales of the Blood Flow
Analyzer(TM) increased by $80,000 to $80,000, or 12% of total revenues for the
three months ended June 30, 2003, compared to net sales of zero during the same
period in 2002. Sales from the other ultrasonic products were $36,000, or 6% of
total revenues for the quarter ended June 30, 2003, compared to $132,000, or 10%
of total quarterly revenues for the same period last year. Combined sales of the
perimeter and corneal topographer were $294,000, or 46% of the total revenues
for the current quarter, compared to $312,000, or 24% of the total revenues for
the same quarter of 2002. Sales have been lower both for the Company and, in the
Company's opinion, for the industry due to the slowdown in the economy. Our
objective is to focus our sales efforts on the products with the highest
potential for sales and strong margins.
10
Gross profit for the three months ended June 30, 2003 was 17% of total
revenues compared with 39% of total revenues for the comparable period of 2002.
Cost of goods sold for the three months ended June 30, 2003 included an increase
in the reserve for obsolete inventory of $332,000, whereas cost of goods sold
for the three months ended June 30, 2002, did not include significant write
downs of inventory. During the quarter management reviewed the Company's
financial position, including an analysis of inventory. Based on management's
analysis of inventory, it determined that the reserve for obsolete inventory
needed to be increased by $332,000.
Marketing and selling expenses decreased by approximately $518,000, or
69%, to $229,000, for the three months ended June 30, 2003, from $747,000 for
the comparable period in 2002 due mainly to less personnel related expenses and
travel reimbursements. The Company had fewer sales persons during the second
quarter of 2003, compared to the number of sales persons employed during the
second quarter of 2002. As a result, payroll related expenses and travel
reimbursements were lower in the second quarter of 2003 compared with the same
period in 2002.
General and administrative expenses increased by $60,000, or 6%, to
$1,060,000 for the three months ended June 30, 2003, from $1,000,000 for the
comparable period in 2002 due principally to $160,000 for additions to the
allowance for doubtful accounts and increases in accruals of $443,000 to settle
outstanding disputes. In addition, general and administrative expenses for the
quarter ended June 30, 2003 included $190,000 for 1,262,000 shares of common
stock issued to settle potential litigation. The Company has implemented cost
reductions in general and administrative expenses, however such reductions were
more than offset by increases due to the above mentioned items during the
quarter ended June 30, 2003.
Research, development and service expenses were $294,000 for the three
months ended June 30, 2003, compared to $614,000 recorded in the same period of
2002, a decrease of $320,000 or 52%. Service department expenses, production
development and support expenses, which include indirect manufacturing costs of
purchasing, shipping and supervisory personnel, all decreased in the second
quarter of 2003 compared to the same period a year ago.
Impairment of assets was $159,000 for the three months ended June 30,
2003, compared to $0 recorded in the same period of 2002, an increase of
$159,000. The impairment expense was due to a reserve established for
anticipated asset disposals and a reduction in the value of certain intangible
assets.
Other income and (expense) decreased by $3,000 for the three months
ended June 30, 2003 to $(5,000), from $(8,000) for the same period in 2002 as a
result of a decrease in interest expense from capital leases.
Six Months Ended June 30, 2003, Compared to Six Months Ended June 30, 2002
Net sales decreased by $1,444,000, or 51%, to $1,372,000 for the six
months ended June 30, 2003, from $2,816,000 for the comparable period in 2002.
Sales of the Company's diagnostic products were $1,135,000, or 83% of total
revenues, during the first six months of 2003 compared with $1,965,000, or 70%
of total revenues, for the comparable period of 2002. Sales of surgical products
totaled $152,000, or 11% of total revenues, for the first six months of the
current year in comparison with $470,000, or 17%, of total revenues in the
comparable period of 2002. In the first six months of 2003 sales of the
Ultrasonic Biomicroscope were $210,000, or 15% of total revenues, compared to
$889,000, or 32% of total revenues, in the same period of 2002. Sales from the
Blood Flow Analyzer (TM) increased by $108,000 to $243,000, or 18% of total
revenues, during the first two quarters of 2003 compared with $135,000, or 5% of
total revenues, in the same period of last year. During the first half of 2003
sales from other ultrasonic products totaled $129,000, or 9% of total revenues,
compared with $346,000, or 12% of total revenues, in the same period last year.
Sales of the perimeter and corneal topographer generated $552,000, or 40% of
total revenues, in the first two quarters of 2003 compared with $595,000, or 21%
of total revenues, during the same period of 2002. The Company believes that its
sales have been adversely affected by the slowdown in the economy. In addition,
we have reduced our sales force in an effort to reduce costs. Our objective is
to focus our sales efforts on the products with the highest potential for sales
and strong margins. As of June 30, 2003, we had 4 sales people as compared to 8
at June 30, 2002.
Gross profit for the six months ended June 30, 2003 was 36% of total
revenues, compared to 42% for the same period in 2002. Cost of goods sold for
the six months ended June 30, 2003 included an increase in the reserve for
obsolete inventory of $382,000 whereas cost of goods sold for the six months
ended June 30, 2002, did not include significant write downs of inventory.
11
Marketing and selling expenses decreased by $1,210,000, or 69%, to
$552,000 for the six months ended June 30, 2003, from $1,762,000 for the
comparable period in 2002 due primarily to the lower headcounts of sales persons
and travel related and associated sales expenses.
General and administrative expenses decreased by $462,000, or 23%, to
$1,536,000 for the six months ended June 30, 2003, from $1,998,000 for the same
period in 2002, reflecting the results of the Company's cost reduction program.
Depreciation and amortization expense, which includes amortization of leasehold
improvements, decreased by approximately $40,000, or 15%, to $214,000 during the
first two quarters of 2003 compared to the same period of last year. General and
administrative expenses for the six months ended June 30, 2003, included $83,000
for additions to the allowance for doubtful accounts and increases in accruals
of $443,000 to settle outstanding disputes. In addition, general and
administrative expense for the six months ended June 30, 2003, included $190,000
for 1,262,000 shares of common stock issued to settle potential litigation.
Research, development and service expenses decreased by $790,000, or
58%, to $574,000 for the six months ended June 30, 2003, from $1,364,000 for the
same period in 2002. Expenses associated with the development of new products
during the first six months of 2003 decreased compared to the same period in
2002 as a consequence of the Company's cost reduction program.
Impairment of assets was $159,000 for the six months ended June 30,
2003, compared to $0 recorded in the same period of 2002, an increase of
$159,000. The impairment expense was due to a reserve established for
anticipated asset disposals and a reduction in the value of certain intangible
assets.
Other income and (expense) decreased by $4,000 to $(10,000) for the six
months ended June 30, 2003 from $(14,000) for the same period in 2002. The
Company had a decrease in interest income due to lower cash balances and
interest rates and a decrease in interest expense from a decrease in interest
expense related to capital leases.
Liquidity and Capital Resources
The Company used no cash in operating activities for the six months
ended June 30, 2003, compared to $1,868,000 for the six months ended June 30,
2002. The reduction in cash used by operating activities for the first six
months of 2003 was primarily attributable to reduced operating costs, including
the closure of the San Diego facility, as well as other savings resulting from
the Company's cost reduction program and management of the Company's current
assets and current liabilities. The Company used $1,000 in investing activities
for the six months ended June 30, 2003, compared to $234,000 in the same period
in 2002. Cash used in investing activities in the first six months of 2002 was
primarily due to the cash paid in the acquisition of certain assets of
Innovative Optics and capital equipment. Net cash generated in financing
activities was $391,000 for the six months ended June 30, 2003 versus cash used
of $42,000 in the same period in 2002. As of June 30, 2003, the Company has
raised approximately $84,000 through a $20,000,000 equity line of credit under
an investment banking arrangement and $333,000 through a private placement from
the sale of the Company's common stock. In the past, the Company has relied
heavily upon sales of its common and preferred stock to fund operations. There
can be no assurance that such equity funding will be available on terms
acceptable to the Company in the future. The Company will continue to 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. The Company is uncertain
whether or not the combination of existing working capital, benefits from sales
of the Company's products and the private equity line of credit will be
sufficient to assure the Company's operations through December 31, 2003.
12
At June 30, 2003, the Company had net operating loss carry-forwards
(NOLs) of approximately $42,000,000 and research and development tax credit
carry-forwards of approximately $34,000. These carry-forwards are available to
offset future taxable income, if any, and have begun to expire in 2001 and
extend for twenty years. The Company's ability to use Net Operating Loss
Carryforwards (NOLs) to offset future income is dependant upon certain
limitations as a result of the pooling transaction with Vismed and the tax laws
in effect at the time of the NOLs can be utilized. The Tax Reform Act of 1986
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
The Company has not realized a reduction in the selling price of its
products as a result of domestic inflation, nor has it experienced unfavorable
profit reductions due to currency exchange fluctuations or inflation with its
foreign customers.
Impact of New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Ethics (FIN No. 46),
which addresses consolidation by business enterprises of variable interest
entities. FIN No. 46 clarifies the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN No. 46
applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The Company does not expect to identify any variable interest entities that must
be consolidated. In the event a variable interest entity is identified, the
Company does not expect the requirements of FIN No. 46 to have a material impact
on its financial condition or results of operations.
In April 2003, the FAS issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivative) and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
Statement is effective for contracts entered into or modified after June 30,
2003. Management is currently evaluating the effect that the adoption of SFAS
No. 149 may have, but believes it will have no material effect on its results of
operations and financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 requires that certain financial instruments, which under provisions
guidance may have been accounted for as equity, must now be accounted for as
liabilities (or an asset in some circumstances.) The financial instruments
affected include mandatory redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares in exchange for
cash other assets and certain obligations that can be settled with shares of
stock. This Statement is effective for all such financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. SFAS No. 150 was
adopted in the quarter ended June 20, 2003 and did not have a material impact on
the Company's results of operations or financial position.
13
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Based on their evaluations as of June 30, 2003, the principal executive
officer and principal financial officer of the Company have concluded that the
Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act) are effective to ensure that
information required to be disclosed by the Company in reports that the Company
files or submits under the Securities Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC.
(b) Changes in internal controls
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these internal controls
subsequent to the date of their most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Part II: Other Information
Item 1. Legal Proceedings
An action was brought against the Company in March 2000 by George
Wiseman, a former employee, in the Third District Court of Salt Lake County,
State of Utah. The complaint alleges that the Company owes Mr. Wiseman 6,370
shares of its common stock plus costs, attorney's fees and a wage penalty (equal
to 1,960 additional shares of Paradigm common stock) pursuant to Utah law. The
action is based upon an extension of a written employment agreement. The Company
believes the complaint is without merit and intends to vigorously defend against
the action.
An action was brought against the Company on March 7, 2000 in the Third
District Court of Salt Lake County, State of Utah, by the Merrill Corporation
that alleges that we owe the Merrill Corporation approximately $20,000 together
with interest thereon at the rate of 10% per annum from August 30, 1999, plus
costs and attorney's fees. The complaint alleges a breach of contract relative
to printing services. The Company filed an answer to the complaint. On August
12, 2003, the court dismissed the action without prejudice.
An action was brought against the Company in September 2000 by PhotoMed
International, Inc. and Daniel M. Eichenbaum in the Third District Court of Salt
Lake County, State of Utah. The action involves an amount of royalties that are
allegedly due and owing to PhotoMed International, Inc. and Dr. Eichenbaum with
respect to the sales of certain equipment plus attorney's fees. Discovery has
taken place and the Company has paid royalties of $14,736 to bring all payments
up to date through June 30, 2001. The Company has been working with Photomed
International and Dr. Eichenbaum to ensure that the calculations have been
correctly made on the royalties paid as well as the proper method of calculation
for the future.
It is anticipated that once the parties can agree on the correct
calculations on the royalties, the legal action will be dismissed. The issue in
dispute concerning the method of calculating royalties is whether royalties
should be paid on returned equipment. Since July 1, 2001, only one Photon(TM)
laser system has been sold and no systems returned. Thus, the amount of
royalties due, according to calculations, is $600. The Company intends to make
payment of this amount to PhotoMed and Dr. Eichenbaum and, as a result, to have
the legal action dismissed. However, if the parties are unable to agree on a
method for calculating royalties, there is a risk that PhotoMed and Dr.
Eichenbaum might amend their complaint to request termination of the license
agreement and, if successful, the Company would lose right to manufacture and
sell the Photon(TM) laser system.
14
The Company received a demand letter dated December 9, 2002 from
counsel for Dan Blacklock, dba Danlin Corp. The letter demands payment in the
amount of $65,160 for manufacturing and supplying parts for microkeratome
blades. The Company's records show that it received approximately $34,824 in
parts from the Danlin Corp., but that the additional amounts that the Danlin
Corp contends are owed were from parts that were received but rejected by the
Company because they had never been ordered. On August 14, 2003, the Company
agreed with Danlin Corp. to a settlement of the dispute.
The Company received a demand letter dated December 30, 2002 from
counsel for Thomas F. Motter, the Company's former Chairman and Chief Executive
Officer. Mr. Motter claims in the letter that he was entitled to certain stock
options that had not been issued to him in a timely manner. By the time the
options were actually issued to him, however, they had expired. Mr. Motter
contends that if the options had been issued in a timely manner, he would have
exercised them in a manner that would have given him a substantial benefit. Mr.
Motter requests restitution for the loss of the financial opportunity. Mr.
Motter also claims that he was defrauded by us by not being given an extended
employment agreement when he terminated the change of control agreement that he
had entered into with the Company.
Mr. Motter is further claiming payment for accrued vacation time during
the 13 years he had been employed by the Company, asserting that he only had a
total of four weeks of vacation during that period. Finally, Mr. Motter is
threatening a shareholder derivative action against the Company because of the
Board of Directors' alleged failure to conduct an investigation into
conversations that took place in a chat room on Yahoo. Mr. Motter asserts that
certain individuals participating in the conversations were our officers or
directors whose interests were in conflict with the interest of the
shareholders. The Company believes that Mr. Motter's claims and assertions are
without merit and intends to vigorously defend against any legal action that Mr.
Motter may bring.
On January 24, 2003, an action was brought by Dr. John Charles Casebeer
against the Company in the Montana Second Judicial District Court, Silver Bow
County, State of Montana (Civil No. DU-0326). The complaint alleges that Dr.
Casebeer entered into a personal services contract with the Company memorialized
by a letter dated April 20, 2002, with it being alleged that Dr. Casebeer fully
performed his obligations. Dr. Casebeer asserts that he is entitled to $43,750
per quarter for consultant time and as an incentive to be granted each quarter
$5,000 in options issued at the fair market value. An additional purported
incentive was $50,000 in shares of stock being issued at the time a formalized
contract was to be signed by the parties. In the letter it is provided that at
its election, the Company may pay the consideration in the form of stock or cash
and that stock would be issued within 30 days of the close of the quarter. Prior
to the litigation, the Company issued 43,684 shares to Dr. Casebeer. The
referenced letter provides that termination may be made by either party upon
giving 90 days written notice. Notice was given by the Company in early November
2002. The Company recently filed its answer in defense of the action. Issues
include whether or not Dr. Casebeer fully performed as asserted. The case has
been settled through the issuance of 300,000 additional shares of the Company's
common stock to Dr. Casebeer.
On May 14, 2003, a complaint was filed in the United States District
Court, District of Utah, captioned Richard Meyer, individually and on behalf of
all others similarly suited v. Paradigm Medical Industries, Inc., Thomas Motter,
Mark Miehle and John Hemmer, Case No. 2:03 CV00448TC. The complaint also
indicates that it is a "Class Action Complaint for Violations of Federal
Securities Law and Plaintiffs Demand a Trial by Jury." The Company has retained
legal counsel to review the complaint, which appears to be focused on alleged
false and misleading statements pertaining to the Blood Flow Analyzer(TM) and
concerning a purchase order from Valdespino Associates Enterprises and Westland
Financial Corporation.
More specifically, the complaint alleges that the Company falsely
stated in its Securities and Exchange Commission filings and press releases that
it had received authorization to use an insurance reimbursement CPT code from
the CPT Code Research and Development Division of the American Medical
Association in connection with the Blood Flow Analyzer(TM), adding that the CPT
code provides for a reimbursement to doctors of $57.00 per patient for use of
the Blood Flow Analyzer(TM). The complaint also alleges that on July 11, 2002,
the Company issued a press release falsely announcing that the Company had
received a purchase order from Valdespino Associates Enterprises and Westland
Financial Corporation for 200 sets of its entire portfolio of products, with $70
million in systems to be delivered over a two-year period, then another $34
million of orders to be completed in the third year. As a result of these
statements, the complaint contends that the price of the Company's shares of
common stock was artificially inflated during the period from April 25, 2001
through May 14, 2003, and the persons who purchased the Company's common shares
during that period suffered substantial damages. The complaint requests judgment
for unspecified damages, together with interest and attorney's fees.
15
The Company disputes having issued false and misleading statements
concerning the Blood Flow Analyzer(TM) and a purchase order from Valdespino
Associates Enterprises of Westland Financial Corporation. On April 25, 2001, the
Company issued a press release that stated the Company had received
authorization to use a common procedure terminology or a CPT code number 92120
for our Blood Flow Analyzer(TM). This press release was based on a letter the
Company received from the CPT Editorial Research and Development Department of
the American Medical Association authorizing the Company to use a common
procedure terminology or CPT code number 92120 for its Blood Flow Analyzer(TM),
which provides for a reimbursement to doctors. Currently, there is full
reimbursement by insurance payors to doctors using the Blood Flow Analyzer(TM)
in 22 states and partial reimbursement for other states. The Company believes it
has continued to correctly represent in its Securities and Exchange Commission
filings that it has have received authorization from the CPT Editorial Research
and Development Department of the American Medical Association to use CPT code
number 92120 for the Company's Blood Flow Analyzer(TM) that provides for a
reimbursement to doctors.
On July 11, 2002, the Company issued a press release that stated it
received a purchase order from Valdespino Associates Enterprises and Westland
Financial Corporation for 200 complete sets of its entire product portfolio of
diagnostic and surgical equipment for Mexican ophthalmic practitioners, followed
by a second order of 100 sets of equipment. The press release was based on a
purchase order dated July 10, 2002 that the Company entered into with Westland
Financial regarding the sale of 200 sets of surgical and diagnostic equipment to
Mexican ophthalmic practitioners. On September 13, 2002, the Board of Directors
issued another press release updating the status of its product sales to the
Mexican ophthalmic practitioners. In that press release the board stated that
the Company had been in discussions for the prior nine months with Westland
Financial aimed at supplying the Company's medical device products to the
Mexican market. Westland Financial is primarily involved in financing and
leasing activities and international sales transactions. In the past, the
Company has had a business relationship with Westland Financial. Upon
investigation, the Board of Directors determined that the purchase order
referenced in the July 11, 2002 press release was not of such a nature as to be
enforceable for the purpose of sales or revenue recognition. In addition, the
Company has not sent any shipment of medical products to Mexican ophthalmic
practitioners nor received payment for those products pursuant to those
discussions. The September 13, 2002 press release also stated that discussions
were continuing with Westland Financial regarding sales and marketing activities
for the Company's medical device products in Mexico, but the Company could not,
at the time, predict or provide any assurance that any transactions would
result.
16
On June 2, 2003, a complaint was filed in the United States District
Court captioned Michael Marrone v. Paradigm Medical Industries, Inc., Thomas
Motter, Mark Miehle and John Hemmer, Case No. 2:03 CV00513 PGC. On or about June
11, 2003, a complaint was filed in the same United States District Court
captioned Milian v. Paradigm Medical Industries, Inc., Thomas Motter, Mark
Miehle and John Hemmer, Case No. 2:03 CV00617PGC. Both seek class action status.
These cases are substantially similar in nature to the Meyer case, including the
contention that as a result of allegedly false statements regarding the Blood
Flow Analyzer(TM) and the purchase ordered from Valdespino Associates
Enterprises and Westland Financial Corporation, the price of the Company's
common stock was artificially inflated and the persons who purchased the
Company's common shares during the class period suffered substantial damages.
The cases request judgment for unspecified damages, together with interest and
attorneys' fees. These cases have been consolidated into a single action. The
Company believes the consolidated cases are without merit and intends to
vigorously defend and protect its interests in the said cases. If the Company is
are not successful in defending and protecting its interests in these cases and
a judgment is entered against it for substantial damages, the Company would not
be able to pay such liability and, as a result, would be forced to seek
bankruptcy protection.
An action was filed on June 20, 2003, in the Third Judicial District
Court, Salt Lake County, State of Utah (Civil No. 030914195) by CitiCorp Vendor
Finance, Inc., formerly known as Copelco Capital, Inc. The complaint claims that
$49,626 plus interest is due for the leasing of two copy machines that were
delivered to the Company's Salt Lake City facilities on or about April of 2000.
The action also seeks an award of attorney's fees and costs incurred in the
collection. The Company disputes the amounts allegedly owed, asserting that
equipment the Company returned to the leasing company did not work properly. A
responsive pleading has not yet been filed.
An action was filed in June, 2003 in the Third Judicial District Court,
Salt Lake County, State of Utah (Civil No. 030914719) by Franklin Funding, Inc.
in which it alleges that the Company had entered into a lease agreement for the
lease of certain equipment for which payment is due. It is claimed that there is
due and owing approximately $89,988 after accruing late fees, interest,
repossession costs, collection costs and attorneys' fees. On August 29, 2003,
the Company agreed to a settlement of the case with Franklin Funding, Inc.
17
On July 10, 2003, an action was filed in the United States District
Court, District of Utah, by Innovative Optics, Inc. and Barton Dietrich
Investments, L.P. Defendants include the Company, and Thomas Motter, Mark Miehle
and John Hemmer, former officers of the Company. The complaint claims that
Innovative and Barton entered into an asset purchase agreement with the Company
on January 31, 2002, in which the Company agreed to purchase all the assets of
Innovative in consideration for the issuance of 1,310,000 shares of the
Company's common stock to Innovative. The complaint also claims that the Company
allegedly made false and misleading statements pertaining to the Blood Flow
Analyzer(TM) and concerning a purchase order from Valdespino Associates
Enterprises and Westland Financial Corporation. The purpose of these statements,
according to the complaint, was to induce Innovative to sell its assets and
purchase the shares of the Company's common stock at artificially inflated
prices while simultaneously deceiving Innovative and Barton into believing that
the Company's shares were worth more than they actually were. The complaint
contends that as a result of these statements, Innovative and Barton suffered
substantial damages in an amount to be proven at trial.
The complaint further claims that 491,250 of the shares to be issued to
Innovative in the asset purchase transaction were not issued on a timely basis
and the Company also did not file a registration statement with the Securities
and Exchange Commission within five months of the closing date of the asset
purchase transaction. As a result, the complaint alleges that the value of the
shares of the Company's common stock issued to Innovative in the transaction
declined, and Innovative and Barton suffered damages in an amount to be proven
at trial. The Company filed an answer to the complaint. The Company believes the
complaint is without merit and intends to vigorously defend and protect its
interests in the action. If the Company is not successful in defending and
protecting its interests in this action and a judgment is entered against it for
substantial damages, the Company would not be able to pay such liability and, as
a result, would be forced to seek bankruptcy protection.
The Company is not a party to any other material legal proceedings
outside the ordinary course of its business or to any other legal proceedings
which, if adversely determined, would have a material adverse effect on the
Company's financial condition or results of operations.
18
Item 2. Changes in Securities
On June 30, 2003, the Company completed the sale of 845,266 shares of
common stock to 14 accredited investors, as defined in Section 2(15) of the
Securities Act of 1933 and Rule 501 of Regulation D thereunder, through a
private placement under Section 4(2) of the Securities Act of 1933 and Rule 506
of Regulation D thereunder at a price of $.375 per share. The Company received a
total of $316,975 in cash in the private placement transaction and issued 84,526
shares of common stock in commissions and expenses. The accredited investors
also received warrants to purchase 422,634 shares of common stock at an exercise
price of $.75 per share.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the adjourned meeting of the annual shareholders meeting held on
June 13, 2003, the following matters were acted upon: (i) three directors
consisting of Randall A. Mackey, Dr. David M. Silver and Keith D. Ignotz were
elected to serve until the next annual shareholders meeting or until their
respective successors are elected and qualified (for Randall A. Mackey
13,566,083 votes were cast in favor of election, 146,013 votes were cast against
election and their were no abstentions; for Dr. David M. Silver, 13,555,083
votes were cast in favor of election, 147,013 votes were cast against election
and there were no abstentions; and for Keith D. Ignotz, 13,555,783 votes were
cast in favor of election, 146,313 votes were cast against election and there
were no abstentions); (ii) the amendment to the Company's certificate of
incorporation to increase the number of authorized shares of the Company's
common stock from 40,000,000 to 80,000,000 shares was approved (with 12,890,370
votes cast for approval, 783,170 votes against approval and 38,566 abstentions);
(iii) the amendment to the 1995 Stock Option Plan to authorize an additional
1,000,000 shares of common stock was approved (with 12,666,543 votes cast for
approval, 981,692 votes against approval and 53,861 abstentions); (iv) the
granting of stock options to the outside directors was ratified (with 12,772,441
votes cast for ratification, 877,375 votes against ratification and 52,280
abstentions); and (v) the appointment of Tanner & Co. as the Company's
independent accountants for fiscal year ended December 31, 2003, was ratified
(with 13,552,256 votes cast for ratification, 104,233 votes against ratification
and 45,607 abstentions).
19
Item 5. Other Information
As of June 26, 2003, the Company's shares trade on the OTC Bulletin
Board. As a result, it may be more difficult for shareholders to dispose of the
Company's securities, or to obtain accurate quotations on their market value.
Furthermore, the prices for the Company's securities may be lower than might
otherwise be obtained. On October 8, 2002, the Company received a notice from
Nasdaq's Listing Qualifications staff that for the previous 30 consecutive
trading days, the price of its common stock closed below the minimum $1.00 per
share requirement for continued inclusion on Nasdaq under Marketplace Rule
4310(c)(4). The notice further provided that if at anytime before April 7, 2003,
the bid price of the Company's common stock closed at $1.00 or more for a
minimum of 10 consecutive trading days, it would be notified by the staff that
it complies with such rule.
On April 15, 2003, the Company received notice of a determination by
Nasdaq's Listing Qualifications staff that it failed to comply with the minimum
bid price rules for continued listing set forth in Marketplace Rule 4310(c)(4)
and did not meet the Rule 4310(c)(2)(A) inclusion requirements. Specifically,
the notice stated that the Company has not regained compliance with the minimum
$1.00 closing bid price per share requirement (noting that pursuant to the
October 8, 2002, notice from the Nasdaq Listing Qualifications staff, the
Company provided 180 calendar days, or until April 7, 2003, to regain compliance
with this requirement) and the Company does not qualify with the $5,000,000
shareholders equity, $50,000,000 market value of listed securities or $750,000
net income from continuing operations requirement for an additional 180 calendar
day compliance period to comply with Marketplace Rule 4310(c)(4). The April 15,
2003, notice further stated that as of December 31, 2002, the Company reported
stockholders' equity of $2,847,000 and net losses from continuing operations of
approximately $11,155,000, and as of April 14, 2003, the market value of its
listed securities was $4,208,108. Accordingly, the Company's common stock would
be delisted from the Nasdaq SmallCap Market at the opening of business on April
24, 2003. Separately, Nasdaq informed the Company that listing fees of $22,500
and $18,000 under Rule 4310(c)(13) are owed to the Nasdaq SmallCap Market.
The Company requested an oral hearing before a Nasdaq Listing
Qualifications Panel to review the staff's determination. The request
automatically stayed the delisting of its common stock. On April 23, 2003, the
Company received formal notice from Nasdaq that a hearing to consider its appeal
would be held on May 29, 2003. On May 29, 2003, Dr. Jeffrey F. Poore, the
Company's President and Chief Executive Officer; Randall A. Mackey, the Chairman
of the Board; and Dr. David M. Silver, a director of the Company, attended an
oral hearing before a Nasdaq Listing Qualifications Panel in Washington, D.C. At
the hearing Dr. Poore presented to the panel a definitive plan both for
regaining compliance with the particular deficiencies cited in the April 15,
2003, letter from the Nasdaq Listing Qualifications staff and sustaining long
term compliance with the Nasdaq Marketplace Rules, including all applicable
maintenance criteria. On June 24, 2003, the Company received notification from
the Nasdaq Listing Qualifications Panel that it was to be delisted from the
Nasdaq Stock Market effective June 26, 2003. The Company's securities trade on
the OTC Bulletin Board effective June 26, 2003. Because the Company's securities
are delisted from the Nasdaq SmallCap Market and now trade on the OTC Bulletin
Board, additional sales requirements on broker-dealers would adversely effect
the ability of shareholders to sell their securities and the trading price of
the Company's securities could decline.
Item 6. Exhibits
(a) Exhibits
--------
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.
20
Exhibit
No. Document Description
------- --------------------
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 Amended Certificate of Incorporation(11)
3.3 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 Specimen Series C Convertible Preferred Stock Certificate(4)
4.9 Certificate of the Designations, Powers, Preferences and Rights
of the Series C Convertible Preferred Stock(4)
4.10 Specimen Series D Convertible Preferred Stock Certificate (5)
4.11 Certificate of the Designations, Powers, Preferences and Rights
of the Series D Convertible Preferred Stock (5)
4.12 Warrant to Purchase Common Stock with Cyndel & Co. (5)
4.13 Warrant Agreement with KSH Investment Group, Inc. (5)
4.14 Warrant to Purchase Common Stock with R.F. Lafferty & Co., Inc.
(5)
4.15 Warrant to Purchase Common Stock with Dr. Michael B. Limberg (5)
4.16 Warrant to Purchase Common Stock with John W. Hemmer (6)
4.17 Stock Purchase Warrant with Triton West Group, Inc.(8)
4.18 Warrant to Purchase Common Stock with KSH Investment Group,
Inc.(8)
4.19 Warrants to Purchase Common Stock with Consulting for Strategic
Growth, Ltd. (8)
10.1 Exclusive Patent License Agreement with Photomed(1)
10.2 Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
10.3 Lease with Eden Roc (4)
10.4 1995 Stock Option Plan and forms of Stock Option Grant Agreement
(1)
10.5 Private Equity Line of Credit Agreement with Triton West Group,
Inc. (7)
10.6 Renewed Consulting Agreement with Dr. Michael B. Limberg (8)
10.7 Asset Purchase Agreement with Innovative Optics, Inc. and Barton
Dietrich Investments, L.P.(9)
10.8 Escrow Agreement with Innovative Optics, Inc., Barton Dietrich
Investments, L.P. and Mackey Price & Williams (9)
10.9 Assignment and Assumption Agreement with Innovative Optics, Inc.
(9)
10.10 General Assignment and Bill of Sale with Innovative Optics, Inc.
(9)
10.11 Non-Competition and Confidentiality Agreement with Mario F.
Barton (9)
10.12 Termination of Employment Agreement with Mark R. Miehle(11)
10.13 Consulting Agreement with Mark R. Miehle(11)
10.14 Employment Agreement with Jeffrey F. Poore (12)
31.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-----------------
(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.
21
(4) Incorporated by reference from Annual Report on Form 10-KSB, as
filed on April 16, 1998.
(5) Incorporated by reference from Registration Statement on Form
SB-2, as filed on April 29, 1999.
(6) Incorporated by reference from Report on Form 10-QSB, as filed
on August 16, 2000.
(7) Incorporated by reference from Report on Form 10-QSB, as filed
on March 15, 2001.
(8) Incorporated by reference from Report on Form 10-QSB, as filed
on August 14, 2001.
(9) Incorporated by reference from Current Report on Form 8-K, as
filed on March 5, 2002.
(10) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form S-3, as filed on March 20, 2002.
(11) Incorporated by reference from Report on Form 10-QSB, as filed
on November 18, 2002.
(12) Incorporated by reference from Registration Statement on Form
SB-2, as filed on July 7, 2003.
(b) Reports on Form 8-K
Current Report on Form 8-K, as filed on April 29, 2003.
22
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: January 7, 2004 By:/s/ Jeffrey F. Poore
------------------------
Jeffrey F. Poore
President and Chief
Executive Officer (Principal Executive
Officer)
DATED: January 7, 2004 By:/s/ Luis A. Mostacero
------------------------
Luis A. Mostacero
Controller (Principal Financial and
Accounting Officer)
23