UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ___ to
Commission File Number: 0-28498
PARADIGM MEDICAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0459536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 South 1070 West, Salt Lake City, Utah 84119
(Address of principal executive office) (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 : NO 9
Indicate by check mark whether the small business issuer is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock, $.001 par value 28,280,074
----------------------------- ----------------
Title of Class Number of Shares
Outstanding as of
March 31, 2005
Class A Warrant to Purchase
One Share of Common Stock 1,000,000
--------------------------- ------------------
Title of Class Number of Warrants
Outstanding as of
March 31, 2005
PARADIGM MEDICAL INDUSTRIES, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2005
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.............................................................. 1
Condensed Balance Sheet (unaudited) - March 31, 2005.............................. 1
Condensed Statements of Operations (unaudited) for the three months ended
March 31, 2005 and March 31, 2004................................................. 2
Condensed Statements of Cash Flows (unaudited) for the three months ended
March 31, 2005 and March 31, 2004 ........................................... 3
Notes to Condensed Financial Statements (unaudited)............................... 4
Item 2. Management's Discussion and Analysis or
Plan of Operation ........................................................... 7
Item 3. Controls and Procedures ........................................................ 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...................... 18
Item 3. Defaults Upon Senior Securities.................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders.............................. 18
Item 5. Other Information................................................................ 19
Item 6. Exhibits and Reports on Form 8-K................................................. 19
Signature Page ........................................................................... 22
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
March 31, 2005
-----------------
ASSETS
Current Assets
Cash & Cash Equivalents $ 70,000
Receivables, Net 535,000
Inventory 745,000
Prepaid Expenses 43,000
-----------------
Total Current Assets 1,393,000
Intangibles, Net 679,000
Property and Equipment, Net 86,000
-----------------
Total Assets $ 2,158,000
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade Accounts Payable $ 745,000
Accrued Expenses 797,000
Current Portion of Long-term Debt 42,000
-----------------
Total Current Liabilities 1,584,000
Long-term Debt 5,000
-----------------
Total Liabilities (Commitment) 1,589,000
-----------------
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 March 31, 2005 -
Series B
Authorized: 500,000 shares; issued and
outstanding: 8,986 shares at March 31, 2005 -
Series C
Authorized: 30,000 shares; issued and
outstanding: zero shares at March 31, 2005 -
Series D
Authorized: 1,140,000 shares; issued and
outstanding: 5,000 shares at March 31, 2005 -
Series E
Authorized: 50,000 shares; issued and
outstanding: 1,000 shares at March 31, 2005 -
Series F
Authorized: 50,000 shares; issued and
outstanding: 4,598.75 shares at March 31, 2005 -
Series G
Authorized: 2,000,000 shares; issued and
outstanding: 1,726,560 shares at March 31, 2005 2,000
Common Stock, Authorized:
80,000,000 shares, $.001 par value; issued and
outstanding: 28,280,074 at March 31, 2005 28,000
Additional paid-in-capital 57,669,000
Accumulated Deficit (57,130,000)
-----------------
Total Stockholders' Equity 569,000
-----------------
Total Liabilities and Stockholders' Equity $ 2,158,000
=================
See accompanying notes to condensed financial statements
1
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2005 2004
------------ ------------
Sales $ 528,000 $ 583,000
Cost of Sales 214,000 227,000
------------ ------------
Gross Profit 314,000 356,000
------------ ------------
Operating Expenses:
Marketing and Selling 180,000 185,000
General and Administrative 258,000 304,000
Research, Development and Service 210,000 227,000
------------ ------------
Total Operating Expenses 648,000 716,000
------------ ------------
Operating Income (Loss) (334,000) (360,000)
Other Income and (Expense):
Interest Income - 2,000
Interest Expense (4,000) (6,000)
Other Income (Expense) 15,000 -
------------ ------------
Total Other Income and (Expense) 11,000 (4,000)
Net Income (Loss) Before Provision
for Income Taxes (323,000) (364,000)
Income Taxes - -
------------ ------------
Net Income (Loss) $ (323,000) $ (364,000)
============ ============
Net Loss Per Common Share
- Basic and Diluted $ (0.01) $ (0.01)
============ ============
Weighted Average Outstanding
Shares - Basic and Diluted 27,121,000 25,373,000
============ ============
See accompanying notes to condensed financial statements.
2
PARADIGM MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2005 2004
-----------------------------
Cash Flows from Operating Activities:
-------------------------------------
Net Loss $ (323,000) $ (364,000)
Adjustment to Reconcile Net Loss to Net
Cash Used In Operating Activities:
Depreciation and Amortization 23,000 41,000
Issuance of Common Stock for Satisfaction of Penalty 52,000 -
Issuance of Stock Option/Warrant for Services - -
Increase/Decrease in Inventory Reserve - -
Provision for Losses on Receivables (7,000) -
(Increase) Decrease from Changes in:
Trade Accounts Receivable 129,000 218,000
Inventories (25,000) 135,000
Prepaid Expenses 22,000 (102,000)
Increase (Decrease) from Changes in:
Trade Accounts Payable (7,000) (20,000)
Accrued Expenses and Deposits (61,000) 73,000
----------- -----------
Net Cash Used in Operating Activities (197,000) (19,000)
----------- -----------
Cash Flow from Investing Activities:
------------------------------------
Net Cash Paid in Acquisition - -
----------- -----------
Net Cash (Used) Provided By Investing Activities - -
----------- -----------
Cash Flows from Financing Activities:
-------------------------------------
Principal Payments on Notes Payable (14,000) (13,000)
Proceeds from Issuance of Common Stocks 150,000 -
----------- -----------
Net Cash (Used) Provided by Financing Activities 136,000 (13,000)
----------- -----------
Net Decrease in Cash and Cash Equivalents (61,000) (32,000)
Cash and Cash Equivalents at Beginning of Period 131,000 132,000
----------- -----------
Cash and Cash Equivalents at End of Period $ 70,000 $ 100,000
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 4,000 $ 6,000
=========== ===========
Cash Paid for Income Taxes $ - $ -
=========== ===========
See accompanying notes to financial statements
3
PARADIGM MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Significant Accounting Policies
-------------------------------
The accompanying condensed financial statements of the Company have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. These condensed
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) that, in the opinion of management, are necessary to
present fairly the results of operations of the Company for the periods
presented. These condensed financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Form 10-KSB for the year ended December 31, 2004. The results of operations for
the three months ended March 31, 2005, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2005.
Going Concern
-------------
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Historically, the Company has
not demonstrated the ability to generate sufficient cash flows from operations
to satisfy its liabilities and sustain operations, and the Company has incurred
significant losses. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
The Company's continuation as a going concern is dependent on its
ability to generate sufficient income and cash flow to meet its obligations on a
timely basis and/or obtain additional financing as may be required. The Company
is actively seeking options to obtain additional capital and financing.
In addition, the Company has taken significant steps to reduce costs
and increase operating efficiencies. Specifically, the Company has significantly
reduced the use of consultants, which has resulted in a large decrease in
expenses. In addition, the Company has reduced the number of its direct sales
representatives, which has resulted in less payroll, travel and other expenses.
Although these cost savings have significantly reduced the Company's losses and
ongoing cash flow needs, if the Company is unable to obtain equity or debt
financing, it may be unable to continue development of its products and may be
required to substantially curtail or cease operations.
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 8,760,000 and 5,879,000 shares of common stock and
preferred stock convertible into 2,047,000 and 2,302,000 shares of common stock
at March 31, 2005 and 2004, respectively, have not been included in loss periods
because they are anti-dilutive.
For the three months ended March 31, 2005, the options and warrants to
purchase 8,760,000 shares of common stock were excluded because of the treasury
stock method.
The following table is a reconciliation of the net loss numerator of
basic and diluted net loss per common share for the three and six month periods
ended March 31, 2005 and March 31, 2004:
4
Three Months Ended
March 31,
2005 2004
--------------------------
Basic weighted average shares outstanding 27,121,000 $25,373,000
Common stock equivalents - convertible preferred
stock 2,047,000 2,302,000
----------- ------------
Diluted weighted average shares outstanding 29,168,000 27,675,000
========== ==========
Preferred Stock Conversions
---------------------------
Under the Company's Articles of Incorporation, holders of the Company's
Class A and Class B preferred stock have the right to convert such stock into
shares of the Company's common stock at the rate of 1.2 shares of common stock
for each share of preferred stock. During the three months ended March 31, 2005,
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 one share of common stock
for each share of preferred stock. During the three months ended March 31, 2005,
no shares of Series D preferred stock were converted to the Company's common
stock.
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 three months ended March 31, 2005,
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 three months ended March 31, 2005,
no shares of Series F preferred stock were converted to shares of the Company's
common stock.
Holders of Series G preferred have the right to convert such stock into
shares of the Company's common stock at the rate of one share of common stock
for each share of preferred stock. During the three months ended March 31, 2005,
no shares of Series G 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. As a result
of the issuance of 2,000,000 shares of the Company's common stock for $150,000
cash, the Company granted 200,000 warrants to purchase the Company's common
stock during the period ended March 31, 2005. The warrants have an exercise
price of $.15 per share and expire on January 14, 2008.
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
5
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.
Three Months Ended June 30,
2005 2004
-----------------------------
Net income (loss) - as reported $ (322,000) $ (364,000)
Deduct: total stock-based employee
compensation determined under fair value
based method for all awards, net of
related tax effects (78,000) -
----------- ------------
Net loss - pro forma $ (401,000) $ (364,000)
=========== ============
Earnings per share:
Basic and diluted - as reported $ (0.01) $ (0.01)
Basic and diluted - pro forma $ (0.01) $ (0.01)
Related Party Transactions
--------------------------
Payments for legal services to the firm of which the chairman of the
board of directors is a partner were approximately $25,000 and $5,000 for the
three months ended March 31, 2005 and 2004, respectively.
Accrued Expenses
----------------
Accrued expenses consist of the following at March 31, 2005:
Accrued consulting and litigation reserve $ 457,000
Accrued payroll and employee benefits 127,000
Sales taxes payable 14,000
Customer deposits 29,000
Accrued royalties 14,000
Deferred revenue 4,000
Warranty and return allowance 123,000
Other accrued expenses 30,000
----------
Total $ 797,000
==========
Stockholders' Equity
--------------------
On January 14, 2005, the Company issued 2,000,000 shares of common
stock to an accredited investor through a private placement at a price of $.075
per share. The Company received a total of $150,000 in cash from the private
placement transaction and issued as a commission warrants to purchase 200,000
shares of the Company's common stock at $.15 per share.
On February 1, 2005, the Company issued a total of 515,206 shares of
common stock to two accredited investors that had purchased shares of the
Company's Series G convertible preferred stock in a private placement
transaction. Under the terms of the private offering, the Company was required
to file a registration statement with the Securities and Exchange Commission to
register the common shares issuable to the Series G preferred stockholders upon
conversion of their Series G preferred shares and exercise of their warrants.
The 515,206 shares represented a penalty for the Company not having a
registration statement declared effective within 120 days of the initial closing
of the offering. The value of these shares was $52,000.
6
Subsequent Event
----------------
On April 27, 2005, the Company completed financing involving the sale
of $2,500,000 in secured convertible notes. The notes are to be purchased in
three traunches: the first traunche is in the amount of $850,000, which the
Company received upon the signing of the definitive investment agreements on
April 27, 2005; the second traunche in the amount of $800,000 upon the filing of
a registration statement with the Securities and Exchange Commission; and the
third traunche in the amount of $850,000 upon the effectiveness of the
registration statement.
Under the terms of the notes, the unpaid principal balance of notes,
together with any accrued interest thereon, are due and payable three years
after the date of issuance. The unpaid principal balance on the notes that were
purchased on April 27, 2005 is due on April 27, 2008. Interest is payable on the
notes at 8% per annum, payable quarterly in cash, with six months of interest
payable up front. However, the interest rate resets to zero percent for any
month in which the stock price is greater than 125% of the initial market price,
or $.0945, for each trading date during that month.
The notes are secured by the Company's assets, including the Company's
inventory, accounts receivable and intellectual property. The notes are also
convertible. The Purchasers have the right to convert their notes at any time
into shares of the Company's common stock. The conversion price of the notes is
equal to the lesser of (i) $.09 and (ii) the average of the lowest intra-day
trading prices during the 20 trading days immediately prior to the conversion
date discounted by 40%.
Item 2: Management's Discussion and Analysis or Plan of Operation
This report contains forward-looking statements and information
relating to the Company that is based on beliefs of management as well as
assumptions made by, and information currently available to management. These
statements reflect its current view respecting future events and are subject to
risks, uncertainties and assumptions, including the risks and uncertainties
noted throughout the document. Although the Company has attempted to identify
important factors that could cause the actual results to differ materially,
there may be other factors that cause the forward-looking statements not to come
true as anticipated, believed, projected, expected or intended. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may differ materially from those
described herein as anticipated, believed, projected, estimated, expected or
intended.
Critical Accounting Policies
Revenue Recognition. The Company recognizes revenue in compliance with
Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB
101), as revised by Staff Accounting Bulletin No. 104, Revenue Recognition (SAB
104). SAB 101 and SAB 104 detail four criteria that must exist before revenue is
recognized:
1. Persuasive evidence of an arrangement exits. Prior to shipment of
product, the Company required a signed purchase order and, depending upon the
customer, a down payment toward the final invoiced price or full payment in
advance with certain international product distributors.
2. Delivery and performance have occurred. Unless the purchase order
requires specific installation or customer acceptance, the Company recognizes
revenue when the product ships. If the purchase order requires specific
installation or customer acceptance, the Company recognizes revenue when such
installation or acceptance has occurred. Title to the product passes to its
customer upon shipment. This revenue recognition policy does not differ among
its various different product lines. The Company guarantees the functionality of
its product. If its product does not function as marketed when received by the
customer, the Company either makes the necessary repairs on site or has the
product shipped to the Company for the repair work. Once the product has been
repaired and retested for functionality, it is re-shipped to the customer. The
Company provides warranties that generally extend for one year from the date of
sale. Such warranties cover the necessary parts and labor to repair the product
as well as any shipping costs that may be required. The Company maintains a
reserve for estimated warranty costs based on its historical experience and
management's current expectations.
3. The sales price is fixed or determinable. The purchase order
received from the customer includes the agreed-upon sales price. The Company
does not accept customer orders, and therefore does not recognize revenue, until
the sales price is fixed.
7
4. Collectibility is reasonably assured. With limited exceptions, the
Company requires down payments on product prior to shipment. In some cases the
Company requires payment in full prior to shipment. The Company also performs
credit checks on new customers and ongoing credit checks on existing customers.
The Company maintains an allowance for doubtful accounts receivable based on
historical experience and management's current expectations.
Recoverability of Inventory. Since its inception, the Company has
purchased several complete lines of inventory. In some circumstances the Company
has been able to utilize certain items acquired and others remain unused. On a
quarterly basis, the Company attempts to identify inventory items that have
shown relatively no movement or very slow movement. Generally, if an item has
shown little or no movement for over a year, it is determined not to be
recoverable and a reserve is established for that item. In addition, if the
Company identifies products that have become obsolete due to product upgrades or
enhancements, a reserve is established for such products. The Company intends to
make efforts to sell these items at significantly discounted prices. If items
are sold, the cash received would be recorded as revenue, but there would be no
cost of sales on such items due to the reserve that has been recorded. At the
time of sale, the inventory would be reduced for the item sold and the
corresponding inventory reserve would also be reduced.
Recoverability of Goodwill and Other Intangible Assets. The Company's
intangible assets consist of goodwill, product and technology rights,
engineering and design costs, and patent costs. Intangibles with a determined
life are amortized on a straight-line basis over their determined useful life
and are also evaluated for potential impairment if events or circumstances
indicate that the carrying amount may not be recoverable. Intangibles with an
indefinite life, such as goodwill, are not amortized but are tested for
impairment on an annual basis or when events and circumstances indicate that the
asset may be impaired. Impairment tests include comparing the fair value of a
reporting unit with its carrying net book value, including goodwill. To date,
the Company's determination of the fair value of the reporting unit has been
based on the estimated future cash flows of that reporting unit.
Allowance for Doubtful Accounts. The Company records an allowance for
doubtful accounts to offset estimated uncollectible accounts receivable. Bad
debt expense associated with the increases in the allowance for doubtful
accounts is recorded as part of general and administrative expense. The
Company's accounting policy generally is to record an allowance for receivables
over 90 days past due unless there is significant evidence to support that the
receivable is collectible.
General
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements, which
involve risks and uncertainty. 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
is from January 1 through 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. As seen in the results for the three months ended March
31, 2005, 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 Company's financial position improves. The Company
does not focus on a specific diagnostic product or products but, instead, on the
entire diagnostic product group.
Results of Operations
Three Months Ended March 31, 2005, Compared to Three Months Ended March 31, 2004
Net sales for the three months ended March 31, 2005 decreased by
$55,000, or 9%, to $528,000 as compared to $583,000 for the same period of 2004.
This decrease was primarily due to decreased sales of the Blood Flow
Analyzer(TM) and a softening of sales of the Dicon(TM) perimeters and corneal
topographers.
For the three months ended March 31, 2005, sales from the Company's
diagnostic products totaled $384,000, or 73% of total revenues, compared to
$553,000, or 95% of total revenues for the same period of 2004. The remaining
27% of sales, or $146,000, during the three months ended March 31, 2005 was from
parts, disposables, and service revenue.
8
Sales of the P40 and P45 UBM Ultrasound Biomicroscopes were stable at
$142,000 during the first quarter 2005, or 27% of total quarterly revenues,
compared to $142,000, or 21% of total revenues, for the same period last year.
Sales of the Blood Flow Analyzer(TM) decreased by $89,000 to $34,000, or 6% of
total revenues, for the three months ended March 31, 2005, compared to net sales
of $123,000, or 21% of total revenues during the same period in 2004. Sales from
the P37 A/B Scan Ocular Ultrasound Diagnostic decreased to $11,000, or 4% of
total revenues, for the quarter ended March 31, 2005, down slightly compared to
$36,000, or 6% of total revenues, for the same period last year. Combined sales
of the LD 400 and TKS 5000 Autoperimeters and the 200 Corneal Topographer were
$186,000, or 35% of the total revenues, for the three months ended March 31,
2005, compared to $252,000, or 43% of total revenues, for the same quarter of
2004. Sales have been lower for the Company due to an industry slow down.
Additionally, sales of the Blood Flow Analyzer(TM) decreased due in part from
the reorganization of the Company's sales force. The Company anticipates
reversing the downward trend in sales through additional efforts by the Company
to gain more widespread support for the Blood Flow Aalyzer(TM).
For the three months ended March 31, 2005, gross profit decreased by
2%, to 59% of total revenues, compared to the 61% of total revenues for the
comparable period of 2004.
Marketing and selling expenses decreased by approximately $5,000, or
3%, to $180,000, for the three months ended March 31, 2005, from $185,000 for
the comparable period in 2004. The reduction was due primarily to a reduced
number of sales representatives and lower travel related and associated sales
expenses.
General and administrative expenses decreased by $46,000, or 17%, to
$258,000 for the three months ended March 31, 2005, from $304,000 for the
comparable period in 2004. The general and administrative expense savings
reflected the on-going results of the Company's cost reduction program and more
aggressive budget management procedures implemented in the first quarter of
2005.
In addition, during the first quarter of 2005, the Company issued
515,206 shares of common stock to two shareholders that had purchased shares of
the Company's Series G convertible preferred stock in a private offering. Under
the terms of the private offering, the Company was required to file a
registration statement with the Securities and Exchange Commission for the
purpose of registering the common shares issuable to the Series G preferred
stockholders upon conversion of their Series G preferred shares and exercise of
their warrants. The shares were issued as a penalty for the Company not having a
registration statement declared effective within 120 days of the initial closing
of the private offering.
Research, development and service expenses decreased $17,000, or 8%,
for the three months ended March 31, 2005 to $210,000, compared to $227,000
recorded in the same period of 2004. Much of the improvement was from the
continued benefit of the reorganization of the service department initiated in
the second quarter of 2004, which is yielding not only cost improvement but
dramatically lower response times and enabled clean up of the service unit
backlogs.
Liquidity and Capital Resources
The Company used $197,000 cash in operating activities for the three
months ended March 31, 2005, compared to $19,000 for the three months ended
March 31, 2004. The increase in cash used for operating activities for the three
months ended March 31, 2005 was primarily attributable to the Company's net loss
and decreases in accounts payable and accrued liabilities. Net cash provided in
financing activities was $136,000 for the three months ended March 31, 2005,
versus cash used of $13,000 in the same period in 2004. The Company had working
capital deficit of $191,000 as of March 31, 2005. In January 2005, the Company
sold 2,000,000 shares of its common stock to an accredited investor for $150,000
cash. In the past, the Company has relied heavily upon sales of the Company's
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.
As of March 31, 2005, the Company had net operating loss carry-forwards
(NOLs) of approximately $48 million. These loss 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.
9
As of March 31, 2005, the Company had accounts payable of $745,000, a
significant portion of which was over 90 days past due. The Company has
contacted many of the vendors or companies that have significant amounts of
payables past due in an effort to delay payment, renegotiate a reduced
settlement payment, or establish a longer-term payment plan. While some
companies have been willing to renegotiate the outstanding amounts, others have
demanded payment in full. Under certain conditions, including but not limited to
judgments rendered against the Company in a court of law, a group of creditors
could force the Company into bankruptcy due to its inability to pay the
liabilities arising out of such judgments at that time. In addition to the
accounts payable noted above, the Company also has non-cancelable capital lease
obligations and operating lease obligations that require the payment of
approximately $194,000 in 2005, and $14,000 in 2006.
The Company has taken numerous steps to reduce costs and increase
operating efficiencies. These steps consist of the following:
1. The Company closed its San Diego facility. In so doing, numerous
manufacturing, accounting and management responsibilities were consolidated. In
addition, such closure resulted in significant headcount reductions as well as
savings in rent and other overhead costs.
2. The Company has significantly reduced the use of consultants, which
has resulted in a large decrease to these expenses.
3. The Company has reduced its direct sales force to five
representatives, which has resulted in less payroll, travel and other selling
expenses.
Because the Company has significantly fewer sales representatives, its
ability to generate sales has been reduced.
The Company has taken measures to reduce the amount of uncollectible
accounts receivable such as more thorough and stringent credit approval,
improved training and instruction by sales personnel, and frequent direct
communication with the customer subsequent to delivery of the system. The
allowance for doubtful accounts was 14% of total outstanding receivables as of
March 31, 2005 and 14% as of December 31, 2004. The allowance for doubtful
accounts has decreased from $101,000 at December 31, 2004 to $94,000 at March
31, 2005. The deduction in the allowance for doubtful accounts was the result of
the collection of no receivables previously allowed as part of the allowance for
doubtful accounts and the write off of $7,000 of receivables against the
allowance. The downturn in the economy worldwide has resulted in increased
difficulty in collecting certain accounts. Certain international dealers have
some aged unpaid invoices that have not been resolved. The Company has addressed
its credit procedures and collection efforts and has instituted changes that
require more payments at the time of sale through letters of credit and not on a
credit term basis.
The Company intends to continue its efforts to reduce the allowance for
doubtful accounts as a percentage of accounts receivable. The Company has
ongoing efforts to collect a significant portion of the sales price in advance
of the sale or in a timely manner after delivery. During the three months ended
March 31, 2005, the Company had a net recovery of no receivables previously
allowed, and during the three months ended March 31, 2005, the Company did not
add to the allowance for doubtful accounts. The Company believes that by
requiring a large portion of payment prior to shipment, it has greatly improved
the collectibility of its receivables.
The Company carried an allowance for obsolete or estimated
non-recoverable inventory of $1,418,000 at March 31, 2005 and $1,642,000 at
March 31, 2004, or approximately 65% and 65% of total inventory, respectively.
The Company's means of expansion and development of product has been largely
from acquisition of businesses, product lines, existing inventory, and the
rights to specific products. Through such acquisitions, the Company has acquired
substantial inventory, some of which the eventual use and recoverability was
uncertain. In addition, the Company has a significant amount of inventory
relating to the Photon(TM) laser system, which does not yet have FDA approval in
order to sell the product domestically. Therefore, the allowance for inventory
was established to reserve for these potential eventualities.
On a quarterly basis, the Company attempts to identify inventory items
that have shown relatively no movement or very slow movement. Generally, if an
item has shown little or no movement for over a year, it is determined not to be
recoverable and a reserve is established for that item. In addition, if the
Company identifies products that have become obsolete due to product upgrades or
enhancements, a reserve is established for such products. The Company intends to
make efforts to sell these items at significantly discounted prices. If items
are sold, the cash received would be recorded as revenue, but there would be no
cost of sales on such items due to the reserve that has been recorded. At the
time of sale, the inventory would be reduced for the item sold and the
corresponding inventory reserve would also be reduced.
10
At this time, the Company's Photon(TM) Laser Ocular Surgery Workstation
requires regulatory FDA approval in order to be sold in the United States. Any
possible future efforts to complete the clinical trials on the Photon(TM) in
order to file for FDA approval would depend on the Company obtaining adequate
funding. The Company estimates that the funds needed to complete the clinical
trials in order to obtain the necessary regulatory approval on the Photon(TM) to
be approximately $225,000.
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. All sales transactions to date have been denominated in U.S.
dollars.
Impact of New Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46 ("FIN 46R")
(revised December 2003), Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51 ("ARB 51"), which
addresses how a business enterprise should evaluate whether it has a controlling
interest in an entity through means other than voting rights and, accordingly,
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46 (FIN
46), which was issued in January 2003. Before concluding that it is appropriate
to apply ARB 51 voting interest consolidation model to an entity, an enterprise
must first determine that the entity is not a variable interest entity (VIE). As
of the effective date of FIN 46R, an enterprise must evaluate its involvement
with all entities or legal structures created before February 1, 2003, to
determine whether consolidation requirements of FIN 46R apply to those entities.
There is no grandfathering of existing entities. Public companies must apply
either FIN 46 or FIN 46R immediately to entities created after January 31, 2003
and no later than the end of the first reporting period that ends after December
15, 2004. The adoption of FIN 46 had no effect on the Company's consolidated
financial position, results of operations or cash flows.
In November 2004, the FASB issued SFAS 151 "Inventory Costs--an
amendment of ARB No. 43." This statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "[u]nder
some circumstances, items such as idle facility expense, excessive spoilage,
double freight, and re-handling costs may be so abnormal as to require treatment
as current period charges. . . ." This statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this statement shall be
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company does not believe adoption of SFAS 151 will have any impact
on the Company's consolidated financial statements.
In December 2004, FASB issued SFAS 153 "Exchanges of Nonmonetary
Assets--an amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29,
Accounting for Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that opinion, however, included certain
exceptions to that principle. This statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The Company does not believe adoption of SFAS 153 will have any
impact on the Company's consolidated financial statements.
In December 2004, the FASB issued FASB Statement No. 123 (revised
2004), "Shared-Based Payment." Statement 123(R) addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
Statement 123(R) requires an entity to recognize the grant-date fair-value of
stock options and other equity-based compensation issued to employees in the
income statement. The revised statement generally requires that an entity
11
account for those transactions using the fair-value-based method, and eliminates
the intrinsic value method of accounting in APB Opinion No. 25, "Accounting for
Stock Issued to Employees", which was permitted under Statement 123, as
originally issued. The revised statement requires entities to disclose
information about the nature of the share-based payment transactions and the
effects of those transactions on the financial statements.
Statement 123(R) is effective for public companies that do not file as
small business issuers as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. For public companies that file
as small business issuers, Statement 123(R) is effective as of the beginning of
the first interim or annual reporting period that begins after December 15, 2005
(i.e., first quarter 2006 for the Company). All public companies must use either
the modified prospective or the modified retrospective transition method. Early
adoption of this statement for interim or annual periods for which financial
statements or interim reports have not been issued is encouraged. The Company
believes that the adoption of this pronouncement may have a material impact on
the Company's financial statements.
Item 3. Controls and Procedures
a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of the Company's
management, including its principal executive officer and principal financial
officer, the Company evaluated the effectiveness of the design and operation of
its disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of March 31, 2005. Based
on this evaluation, the Company's principal executive officer and principal
financial officer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective and
adequately designed to ensure that the information required to be disclosed by
the Company in the reports it files or submits under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported within the time periods
specified in applicable rules and forms.
b) Changes in internal controls over financial reporting.
During the quarter ended March 31, 2005, there has been no change in
the Company's internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
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 its common stock) pursuant to Utah law. The action
is based upon an extension of a written employment agreement. The Company
disputes the amount allegedly owed and intends to vigorously defend against the
action.
An action was brought against the Company on September 11, 2000 by
PhotoMed International, Inc. and Daniel M. Eichenbaum, M.D. 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 under a license agreement dated July 7, 1993, with respect to
the sale of certain equipment, plus costs and attorneys' fees. Certain discovery
has taken place and the Company has paid royalties of $15,717, which the Company
believes brings all payments current as of the date of last payment on January
7, 2005. The Company has been working with PhotoMed 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. An 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. 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 its right to
manufacture and sell the Photon(TM) laser system.
12
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 for reimbursement to doctors 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). According to the
complaint, the CPT code was critical. Without a reimbursement code, physicians
would not purchase the Blood Flow Analyzer(TM) because they could not receive
compensation for performance of medical procedures using the medical device. The
complaint further contends that the Company never received the CPT code from the
American Medical Association at any time. Nevertheless, it is alleged that the
Company continued to misrepresent in its SEC filings and press releases that it
had received the CPT code. It is also alleged that the Company have never made a
full, corrective disclosure with respect to this alleged misstatement.
The complaint also alleges that on July 11, 2002, the Company issued a
press release falsely announcing that it 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 $35 million of orders to be
completed in the third year. The complaint further alleges that the Company had
never received a true purchase order for its products. As a result of these
alleged misstatements, 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 or retained 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.
The Company disputes having issued false and misleading statements
concerning the Blood Flow Analyzer(TM) and a purchase order from Westland
Financial Corporation and Valdespino Associates Enterprises. On April 25, 2001,
the Company issued a press release that stated it had received authorization to
use common procedure terminology or CPT code number 92120 for the 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 stating that CPT code number 92120 was the appropriate common
procedure terminology or CPT code number for doctors to use when reporting
certain procedures performed with the Blood Flow Analyzer(TM).
Currently, there is reimbursement by insurance payors to doctors using
the Blood Flow Analyzer(TM) in 22 states and partial reimbursement in four other
states. The amount of reimbursement to doctors using the Blood Flow Analyzer(TM)
generally ranges from $56.00 to $76.00 per patient, depending upon the insurance
payor. Insurance payors providing reimbursement for the Blood Flow Analyzer(TM)
have the discretion to increase or reduce the amount of reimbursement. The
Company is endeavoring to obtain reimbursement by insurance payors in other
states where there is currently no reimbursement being made. The Company
believes it has continued to correctly represent in its Securities and Exchange
Commission filings that the CPT Editorial Research and Development Department of
the American Medical Association has informed the Company that CPT code number
92120 is the appropriate code for doctors to use when reporting certain
procedures performed with the Blood Flow Analyzer(TM).
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 the Company's entire product
portfolio of diagnostic and surgical equipment for Mexican ophthalmic
practitioners, to be 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 Corporation for the sale of 200 complete
sets of the Company's surgical and diagnostic equipment to Mexican ophthalmic
practitioners. The press release also stated that the initial order was for $70
million of the Company's equipment to be filled over a two-year period followed
by the second order of $35 million in equipment to be completed in the third
year. The press release further stated that delivery would be made in traunches
of 25 complete sets of the Company's equipment, beginning in 30 days from the
date of the purchase order.
13
On September 13, 2002, the board of directors issued a 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 Corporation,
aimed at supplying its medical device products to the Mexican market. In the
past, the Company has had a business relationship with Westland Financial. Upon
investigation, the board of directors had 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 had 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 Corporation 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.
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 July 11,
2003, a complaint was filed in the same United States District Court, captioned
Lidia Milian v. Paradigm Medical Industries, Inc., Thomas Motter, Mark Miehle
and John Hemmer, Case No. 2:03 CV00617PGC. Both complaints 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 order from Westland
Financial Corporation and Valdespino Associates Enterprises, 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. In a press release dated July 11, 2003, captioned "Milberg Weiss
announces the filing of a class action suit against Paradigm Medical Industries,
Inc. on behalf of investors," the law firm of Milberg Weiss Bershad Hynen &
Levach LLP, which represents purchasers of the Company's securities in the class
action suit filed on July 11, 2003, stated that the Company alleged
misrepresentations caused the market price of the stock to be artificially
inflated during the class period. As a result, it is alleged that investors
suffered millions of dollars in damages from the Company's alleged
misstatements.
The cases request judgment for unspecified damages, together with
interest and attorney's fees. These cases have now been consolidated with the
Meyer case into a single action, captioned In re: Paradigm Medical Industries
Securities Litigation, Case No. 03-CV-448TC. The law firm of Milberg Weiss
Bershad & Schulman LLP is representing purchasers of the Company's securities in
the consolidated class action. On June 28, 2004, a consolidated amended class
action complaint was filed on behalf of purchasers of the Company's securities.
The consolidated complaint is similar to the three class action complaints and
alleges that the Company made false representations regarding the CPT code for
the Blood Flow Analyzer(TM), but it includes additional allegations that the
Company failed to disclose in a timely manner that doctors were being denied
reimbursement for procedures performed with the Blood Flow Analyzer(TM). The
consolidated complaint also alleges that the Company made false statements
regarding the purchase order from Westland Financial Corporation and Valdespino
Associates Enterprises. The Company believes the consolidated complaint is
without merit and intends to vigorously defend and protect its interests in the
case.
The Company was issued a Directors and Officers Liability and Company
Reimbursement Policy by United States Fire Insurance Company for the period from
July 10, 2002 to July 10, 2003 that contains a $5,000,000 limit of liability,
which is excess of a $250,000 retention. The officers and directors named in the
consolidated cases have requested coverage under the policy. U.S. Fire is
currently investigating whether it may have a right to deny coverage for the
consolidated cases based upon policy terms, conditions and exclusions or to
rescind the policy based upon misrepresentations contained in its application
for insurance.
The Company has paid $30,000 to U.S. Fire toward satisfaction of the
$250,000 retention that is applicable to the consolidated cases. The Company has
advised U.S. Fire that it cannot pay the $250,000 retention due to its current
financial circumstances. As a consequence, on January 8, 2004, the Company
entered into a non-waiver agreement with U.S. Fire in which U.S. Fire agreed to
fund and advance the Company's retention obligation in consideration for which
the Company has agreed to reimburse U.S. Fire the sum of $5,000 a month, for a
period of six months, with the first of such payments due on February 15, 2004.
Thereafter, commencing on August 15, 2004, the Company is currently required to
reimburse U.S. Fire the sum of $10,000 per month until the entire amount of
$250,000 has been reimbursed to U.S. Fire. The Company has made payments to U.S.
Fire in the aggregate amount of $30,000 of which its last payment of $10,000 was
made on October 11, 2004. These payments were for the $5,000 monthly payments
due during the six month period from February 15 to July 15, 2004, leaving a
remaining retention obligation to U.S. Fire of $220,000.
14
In the event U.S. Fire determines that the Company or the former
officers and directors named in the consolidated cases are not entitled to
coverage under the policy, or that it is entitled to rescind the policy, or
should the Company be declared in default under the non-waiver agreement on
account of its failure to make the monthly payments owed to U.S. Fire for
funding the Company's retention obligation, then the Company agrees to pay U.S.
Fire, on demand, the full amount of all costs advanced by U.S. Fire, except for
those amounts that the Company may have reimbursed to U.S. Fire pursuant to the
monthly payments due under the non-waiver agreement. Moreover, if U.S. Fire
denies coverage for the consolidated cases under the policy, the Company would
owe its litigation counsel in the class action lawsuits, for any legal fees not
paid by U.S. Fire. However, U.S. Fire has currently agreed to pay the legal fees
relating to the class action lawsuits.
The Company will be in default under the non-waiver agreement if it
fails to make any payment due to U.S. Fire thereunder when such payment is due,
or institute proceedings to be adjudicated as bankrupt or insolvent. U.S. Fire's
obligation to advance defense costs under the agreement will terminate in the
event that the $5,000,000 policy limit of liability is exhausted. If U.S. Fire
denies coverage for the consolidated cases under the policy and the Company is
not successful in defending and protecting its interests in the cases, resulting
in a judgment against the Company for substantial damages, the Company would not
be able to pay such liability and, as a result, would be forced to seek
bankruptcy protection.
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 us, 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 claims the Company breached the asset purchase
agreement. 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 had Innovative and Barton
known the truth they would not have sold Innovative to us, would not have
purchased the Company's stock for the assets of Innovative, or would not have
purchased the stock at the inflated prices that were paid. The complaint further
contends that as a result of the allegedly false statements, Innovative and
Barton suffered substantial damages in an amount to be proven at trial.
The complaint also 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 and also filed
counterclaims against Innovative and Barton for breach of contract. 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, resulting in a judgment
against the Company for substantial damages, and U.S. Fire denies coverage in
the litigation under the Directors and Officers Liability and Company
Reimbursement Policy, the Company would not be able to pay such liability and,
as a result, would be forced to seek bankruptcy protection.
On October 14, 2003, an action was filed in the Third Judicial District
Court, Salt Lake County, State of Utah, captioned Albert Kinzinger, Jr.,
individually and on behalf of all others similarly situated vs. Paradigm Medical
Industries, Inc., Thomas Motter, Mark Miehle, Randall A. Mackey, and John
Hemmer, Case No. 030922608. The complaint also indicates that it is a "Class
Action Complaint for Violations of Utah Securities Laws 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 or misleading statements pertaining
to the Blood Flow Analyzer(TM). More specifically, the complaint alleges that
the Company falsely stated in 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 the Blood Flow Analyzer(TM).
The purpose of these statements, according to the complaint, was to
induce investors to purchase shares of the Company's Series E preferred stock in
a private placement transaction at artificially inflated prices. The complaint
contends that as a result of these statements, the investors that purchased
15
shares of its Series E preferred stock in the private offering suffered
substantial damages to be proven at trial. The complaint also alleges that the
Company sold Series E preferred shares without registering the sale of such
shares or obtaining an exemption from registration. The complaint requests
rescission, compensatory damages and treble damages, including interest and
attorneys' fees. The Company filed an answer to the complaint. The Company
believes the complaint is without merit and intends to vigorously defend its
interests in the action. If the Company is not successful in defending and
protecting its interests in the action, resulting in a judgment against it for
substantial damages, and U.S. Fire denies coverage in the litigation under the
Directors and Officers Liability and Company Reimbursement Policy, the Company
would not be able to pay such liability and, as a result, would be forced to
seek bankruptcy protection.
On January 26, 2005, the Company completed a written settlement
agreement to settle the lawsuit that Innovative Optics, Inc. and Barton Dietrich
Investments, L.P. brought against the Company and its former executive officers.
Under the terms of the settlement, U.S. Fire agreed to pay Innovative Optics,
Inc. and Barton Dietrich Investments, L.P. the sum of $367,500 in cash. Payment
of this amount is contingent, however, upon the courts in the federal and state
class action lawsuits granting final approval of the settlements reached in
those respective actions, and such orders becoming final and non-appealable.
On February 23, 2005, the Company executed written settlement
agreements to settle the federal and state court class action lawsuits that were
filed against the Company and its former executive officers. Under the terms of
settlement of the federal court class action lawsuit, U.S. Fire agreed to pay
the sum of $1,507,500 in cash to the class members that purchased the Company's
securities during the period between April 17, 2002 and November 4, 2002. Under
the terms of settlement of the state court class action lawsuit, U.S. Fire
agreed to pay the sum of $625,000 in cash to the class members that purchased
shares of Series E convertible preferred stock on or about July 11, 2001.
As a condition to the settlement agreements to settle the federal and
state court class action lawsuits, the courts in such lawsuits must have entered
orders granting final approval of the settlements reached in those respective
actions, and such orders must have become final and non-appealable. On March 3,
2005, the federal court entered an order granting preliminary approval of the
settlement in the federal court class action lawsuit and providing for notice to
be sent to potential class members. On April 18, 2005, a hearing was held in the
state court and the court entered a minute entry granting preliminary approval
of the settlement in the state court class action lawsuit.
As a further condition to the settlement agreements to settle the
federal and state court class action lawsuits, both settlement agreements
provide that U.S. Fire must not have exercised its option to terminate the
settlement agreements. U.S. Fire has the option to terminate the settlement
agreements if the cumulative dollar value of the claims held by individuals or
entities that "opt out" of the federal and state class action lawsuits exceeds
$250,000. If such "opt outs" exceed $250,000, however, plaintiffs in the federal
and state court class action lawsuits will have five days to cure by reducing
the amount of "opt outs" to less than $250,000.
If U.S. Fire exercises its option to terminate the settlement
agreements, then all parties to the settlement agreements will be restored to
their respective positions in the various actions as of the date of the
settlement agreements. In addition, the terms and provisions of the settlement
agreements will have no further force and effect on the various parties and will
be deemed null and void in their entirety.
Under the terms of the settlement agreements regarding the federal and
state court class action lawsuits and the lawsuit that Innovative Optics, Inc.
and Barton Dietrich Investors, L.P. brought against the Company and its former
executive officers, U.S. Fire has agreed to pay a total of $2,500,000 in cash to
the classes in the class action lawsuits and to Innovative Optics, Inc. and
Barton Dietrich Investments, L.P. in settlement of these lawsuits. Under the
terms of settlement, Paradigm Medical is to pay U.S. Fire the sum of $220,000
representing the remaining amount owing under the $250,000 retention obligation
in the insurance policy, and to execute a policy release in favor of U.S. Fire
as to coverage under the insurance policy.
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 three 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 two
of the machines were returned to the leasing company because they did not work
properly. A responsive pleading has been filed. The Company was engaged in
settlement discussions with CitiCorp until counsel for CitiCorp withdrew from
the case. New counsel for CitiCorp has been appointed and it is anticipated that
settlement discussions will resume.
16
The Company received demand letters dated July 18, 2003, September 26,
2003 and November 10, 2003 from counsel for Douglas A. MacLeod, M.D., a
shareholder of the company. In the July 18, 2003 letter, Dr. MacLeod demands
that he and certain entities with which he is involved or controls, namely the
Douglas A. MacLeod, M.D. Profit Sharing Trust, St. Marks' Eye Institute and
Milan Holdings, Ltd., be issued a total of 2,296,667 shares of the Company's
common stock and warrants to purchase 1,192,500 shares of its common stock at an
exercise price of $.25 per share. Dr. MacLeod claims that these common shares
and warrants are owing to him and the related entities under the terms of a
mutual release dated January 16, 2003, which he and the related entities entered
into with us. Dr. MacLeod renewed his request for these additional common shares
and warrants in the September 26, 2003 and November 10, 2003 demand letters. The
Company believes that Dr. MacLeod's claims and assertions are without merit and
that neither he nor the related entities are entitled to any additional shares
of its common stock or any additional warrants under the terms of the mutual
release. The Company intends to vigorously defend against any legal action that
Dr. MacLeod may bring.
On August 3, 2003, a complaint was filed against the Company by Corinne
Powell, a former employee, in the Third Judicial District Court, Salt Lake
County, State of Utah (Civil No. 030918364). Defendants consist of the Company
and Randall A. Mackey, Dr. David M. Silver and Keith D. Ignotz, directors of the
Company. The complaint alleges that at the time the Company laid off Ms. Powell
on March 25, 2003, she was owed $2,030 for business expenses, $11,063 for
accrued vacation days, $12,818 for unpaid commissions, the fair market value of
50,000 stock options exercisable at $5.00 per share that she claims she was
prevented from exercising, attorney's fees and a continuing wage penalty under
Utah law. On March 29, 2005, the Company agreed to a settlement with Ms. Powell
of her claims for unpaid business expenses, accrued vacation days, and unpaid
commissions by agreeing to pay her $13,000. The Company made payment to Ms.
Powell for the agreed upon settlement amount.
On September 10, 2003, an action was filed against the Company by Larry
Hicks in the Third Judicial District Court, Salt Lake County, State of Utah,
(Civil No. 030922220), for payments due under a consulting agreement with us.
The complaint claims that monthly payments of $3,083 are due for the months of
October 2002 to October 2003 under a consulting agreement and, if the agreement
is terminated, for the sum of $110,000 minus whatever the Company has paid Mr.
Hicks prior to such termination, plus costs, attorney's fees and a wage penalty
pursuant to Utah law. The Company has filed an answer in which it denies any
liability to Mr. Hicks. Formal discovery in the matter has commenced. The
Company disputes the amount allegedly owed and intends to vigorously defend
against such action.
On November 7, 2003, a complaint was filed against the Company by Todd
Smith, a former employee, in the Third Judicial District Court, Salt Lake
County, State of Utah (Civil No. 030924951 CN). Defendants consist of the
Company and Randall Mackey, a director of the Company. The complaint alleges
that while an employee of the Company, Mr. Smith was granted stock options to
purchase 16,800 shares of common stock exercisable at $5.00 per share. Mr. Smith
claims unpaid wages in the amount of the fair market value of the stock options
he claims he was prevented from exercising, attorney's fees, and a continuing
wage penalty under Utah law. The Company believes the claims are without merit
and intends to vigorously defend against such action.
On May 25, 2004, an action was brought against the Company by Jeffrey
F. Poore, former President and Chief Executive Officer of the Company, in the
Third Judicial District Court of Salt Lake County, State of Utah (Civil No.
040910875). The complaint alleges that the Company unlawfully terminated the
written employment agreement between Mr. Poore and the Company. As a result, Mr.
Poore demands judgment against the Company for $350,000, representing his annual
salary for the two remaining years under the employment agreement, for money
judgment based on the value of his benefits for the two remaining years under
the employment agreement, including profit sharing plans, 401(k) and cafeteria
plans, health, hospitalization, dental, disability and other insurance plans
canceled by the Company, and for money judgment equal to the value of the stock
options granted to him under the employment agreement. The Company disputes the
amounts allegedly owed in the complaint and believes that there was a sufficient
basis to terminate Mr. Poore's employment for cause under the terms of the
employment agreement. Accordingly, the Company intends to vigorously defend
against the action.
On August 9, 2004, a third party complaint was brought against the
Company by Wakefield Eye Center and Dr. Kenneth C. Westfield (collectively
"Westfield"). The original action was brought by American Express Business
Finance Corporation against Westfield on May 27, 2004 in the District Court,
Clark County, State of Nevada (Civil No. A486307, Dept. No. XXI) concerning the
financing of the purchase of a Blood Flow Analyzer(TM) involving Westfield Eye
Center. The transaction took place during the latter half of 2001. Westfield
17
takes the position that if there is liability of Westfield to American Express
this liability is ultimately ours and the other third-party defendants. The
amount being sought against Westfield by American Express in the original action
includes the sum of $29,765.83, together with interest and attorney's fees.
Westfield's alleged claims against the Company include fraud, breach of
contract, promissory estoppel, declaratory relief, negligence, negligent
supervision, damages for injuries resulting from actions of employee/contractor,
wilful and wanton misconduct, conspiracy, and breach of fiduciary duty as well
as costs and attorney's fees. Westfield also seeks punitive damages. The Company
has filed an answer to the third party complaint in which the Company denies
liability. Formal discovery in the matter involving us has commenced. The case
has been referred to arbitration. The Company intends to vigorously defend the
action.
On March 31, 2005, an action was filed against the Company by Joseph W.
Spadafora in the United States District Court, District of Utah (Civil No.
2:05CV00278 TS). The complaint alleges that Dr. Spadafora was a clinical
investigator in the study for the FDA involving the Company's Photon(TM) laser
system where he performed numerous surgeries using the Photon(TM). Dr. Spadafora
contends that in meetings with Company personnel he suggested ways in which the
handpiece on the Photon(TM) could be improved. Dr. Spadafora further contends
that on August 5, 1999, the Company filed a patent application for an improved
handpiece with the United States Patent and Trademark Office but he was not
named as one of the inventors or a co-inventor on the patent application.
On September 24, 2004, the Company was issued a patent entitled, "Laser
Surgival Handpiece with Photon Trap." Because the Company did not list Dr.
Spadafora as one of the inventors or a co-inventor on the patent, Dr. Spadafora
is requesting in his complaint that a court order be entered declaring that he
is the inventor or co-inventor of the patent and, as a result, is entitled to
all or part of the royalties and profits that the Company earned or will earn
from the sale of any product incorporating or using the improved handpiece, plus
interest and attorney's fees. The Company disputes the claims made by Dr.
Spadafora and intends to vigorously defend against such action.
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 its
financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 14, 2005, the Company issued 2,000,000 shares of common
stock to Dr. Endre Bodnar, an accredited investor, 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 $.075 per share. The Company received a
total of $150,000 in cash from the private placement transaction and issued as a
commission to Valvidia Trading, Inc. warrants to purchase 200,000 shares of the
Company's common stock at $.15 per share, exercisable through January 14, 2008.
On February 1, 2005, the Company issued a total of 515,206 shares of
common stock to Crescent International, Ltd. and Otape Investments, Ltd. that
had purchased a total of 1,981,560 shares of the Company's Series G convertible
preferred stock in a private placement transaction which was initially closed on
September 29, 2003. Under the terms of the private offering, the Company was
required to file a registration statement with the Securities and Exchange
Commission to register the common shares issuable to the Series G preferred
stockholders upon conversion of their Series G preferred shares and exercise of
their warrants. The 515,206 shares represented a penalty for the Company not
having a registration statement declared effective within 120 days of the
initial closing of the offering.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
18
Item 5. Other Information
On April 27, 2005, the Company completed financing involving the sale
of $2,500,000 in secured convertible notes. The notes are to be purchased in
three traunches: the first traunche is in the amount of $850,000, which the
Company received upon the signing of the definitive investment agreements on
April 27, 2005; the second traunche in the amount of $800,000 upon the filing of
a registration statement with the Securities and Exchange Commission; and the
third traunche in the amount of $850,000 upon the effectiveness of the
registration statement.
Under the terms of the notes, the unpaid principal balance of notes,
together with any accrued interest thereon, are due and payable three years
after the date of issuance. The unpaid principal balance on the notes that were
purchased on April 27, 2005 is due on April 27, 2008. Interest is payable on the
notes at 8% per annum, payable quarterly in cash, with six months of interest
payable up front. However, the interest rate resets to zero percent for any
month in which the stock price is greater than 125% of the initial market price,
or $.0945, for each trading date during that month.
The notes are secured by the Company's assets, including the Company's
inventory, accounts receivable and intellectual property. The notes are also
convertible. The Purchasers have the right to convert their notes at any time
into shares of the Company's common stock. The conversion price of the notes is
equal to the lesser of (i) $.09 and (ii) the average of the lowest intra-day
trading prices during the 20 trading days immediately prior to the conversion
date discounted by 40%.
The Company has a call option under the terms of the notes. The call
option provides the Company with the right to prepay all of the outstanding
notes at any time, provided there is no event of default by the Company and the
Company's stock is trading at or below $.09 per share. An event of default
includes the failure by the Company to pay the principal or interest on the
notes when due or to timely file a registration statement as required by the
Company or obtain effectiveness with the Securities and Exchange Commission of
the registration statement. Prepayment of the notes is to be made in cash equal
to either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the notes; (ii)
130% of the outstanding principal and accrued interest for prepayments occurring
between 31 and 60 days following the issue date of the notes; and (iii) 145% of
the outstanding principal and accrued interest for prepayments occurring after
the 60th day following the issue date of the notes.
The Company also has a partial call option under the terms of the notes
in any month in which the current price of its common stock is below the initial
market price of $.0756. Under the terms of the partial call option, the Company
has the right to pay the outstanding principal amount of the notes plus
one-month's interest for that month, which will stay any conversions of the
notes by the Purchasers for that month. The principal amount of the notes to be
repaid is determined by dividing the then outstanding principal amount of the
notes by the maturity of the notes in months, or 36.
As further consideration to the Purchasers of the notes, the Company is
required to issue warrants to the Purchaser to acquire an aggregate of
16,534,392 shares of the Company's common stock at an exercise price of $.20 per
share. The warrants will have a five year term from the date of issuance, with
cashless exercise permitted in the event there is not an effective registration
statement registering the warrants.
The Company is required to register the shares of its common stock
issuable upon the conversion of the notes and the exercise of the warrants. The
registration statement must be filed with the SEC within 60 days of the April
27, 2005 closing date and the effectiveness of the registration is to be within
135 days of such closing date. Penalties of 2% of the outstanding principal
balance of the notes plus accrued interest are to be applied for each month the
registration is not effective within the required time. The penalty may be paid
in cash or stock at the option of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.
19
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(10)
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 Specimen Series C Convertible Preferred Stock Certificate(4)
4.8 Certificate of the Designations, Powers, Preferences and
Rights of the Series C Convertible Preferred Stock(4)
4.9 Specimen Series D Convertible Preferred Stock Certificate
(6)
4.10 Certificate of the Designations, Powers, Preferences and
Rights of the Series D Convertible Preferred Stock (7)
4.11 Warrant to Purchase Common Stock with Cyndel & Co. (6)
4.12 Warrant to Purchase Common Stock with R.F. Lafferty & Co.,
Inc. (6)
4.13 Warrant to Purchase Common Stock with Dr. Michael B. Limberg
(7)
4.14 Warrant to Purchase Common Stock with John W. Hemmer (7)
4.15 Stock Purchase Warrant with Triton West Group, Inc.(9)
4.16 Warrant to Purchase Common Stock with KSH Investment Group,
Inc.(9)
4.17 Warrant to Purchase Common Stock with Consulting for
Strategic Growth, Ltd.(9)
4.18 Certificate of Designations, Powers, Preferences and Rights
of the Series G Convertible Preferred Stock (14)
10.1 Exclusive Patent License Agreement with PhotoMed(1)
10.2 Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
10.3 1995 Stock Option Plan (1)
10.4 Employment Agreement with Thomas F. Motter (5)
10.5 Stock Purchase Agreement with Ocular Blood Flow, Ltd. and
Malcolm Redman (7)
10.6 Consulting Agreement with Malcolm Redman (7)
10.7 Royalty Agreement with Malcolm Redman (7)
10.8 Registration Rights with Malcolm Redman (7)
10.9 Employment Agreement with Mark R. Miehle (8)
10.10 Agreements with Steven J. Bayern and Patrick M. Kolenik (8)
10.11 Private Equity Line of Credit Agreement with Triton West
Group, Inc. (9)
10.12 Asset Purchase Agreement with Innovative Optics, Inc. and
Barton Dietrich Investments, L.P.(10)
10.13 Escrow Agreement with Innovative Optics, Inc., Barton
Dietrich Investments, L.P. (10)
10.14 Assignment and Assumption Agreement with Innovative Optics,
Inc.(10)
10.15 General Assignment and Bill of Sale with Innovative Optics,
Inc.(10)
10.16 Non-Competition and Confidentiality Agreement with Mario F.
Barton(10)
10.17 Termination of Employment Agreement with Mark R. Miehle(12)
10.18 Consulting Agreement with Mark R. Miehle(12)
10.19 Employment Agreement with Jeffrey F. Poore (13)
10.20 License Agreement with Sunnybrook Health Science Center(15)
10.21 Major Account Facilitator Contract(15)
10.22 Mutual Release with Douglas A. MacLeod, M.D. and Others(15)
10.23 Purchase Agreement with American Optisurgical, Inc.(15)
10.24 Purchase Order with Westland Financial Corporation(16)
10.25 Non-Waiver Agreement with United States Fire Insurance
Company(16)
10.26 Employment Agreement with John Y. Yoon(17)
10.27 Consulting Agreement with Dr. John Charles Casebeer(18)
10.28 Consulting Agreement with Kinexsys Corporation(18)
10.29 Stock Purchase and Sale Agreement with William Ungar (19)
10.30 Employment Agreement with Aziz A. Mohabbat (20)
10.31 Investment Banking Agreement with Alpha Advisory Services,
Inc. (21)
10.32 Manufacturing and Distribution Agreement with
E-Technologies, Inc. (21)
20
10.33 Settlement Agreement with Innovative Optics, Inc., Barton
Dietrich Investments, L.P. and United States Fire Insurance
Company (22)
10.34 Securities Purchase Agreement with AJW Partners, LLC, AJW
Offshore, Ltd., AJW Qualified Partners, LLC and New
Millennium Capital Partners II, LLP (the "Purchasers")(23)
10.35 Form of Callable Secured Convertible Note with each
purchaser (23)
10.36 Form of Stock Purchase Warrant with each purchaser (23)
10.37 Security Agreement with Purchasers (23)
10.38 Intellectual Property Security Agreement with Purchasers
(23)
10.39 Registration Statement with the Purchasers (23)
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.
(4) Incorporated by reference from Annual Report on Form 10-KSB,
as filed on April 16, 1998.
(5) Incorporated by reference from Report on Form 10-QSB, as
filed on November 12, 1998.
(6) Incorporated by reference from Registration Statement on
Form SB-2, as filed on April 29, 1999.
(7) Incorporated by reference from Report on Form 10-QSB, as
filed on August 16, 2000.
(8) Incorporated by reference from Report on Form 10-QSB, as
filed on November 1, 2000.
(9) Incorporated by reference from Report on Form 10-KSB, as
filed on April 16, 2001.
(10) Incorporated by reference from Current Report on Form 8-K,
as filed on March 5, 2002.
(11) Incorporated by reference from Amendment No. 1 to
Registration Statement on Form S-3, as filed on March 20,
2002.
(12) Incorporated by reference from Report on Form 10-QSB, as
filed on November 18, 2002.
(13) Incorporated by reference from Registration Statement on
Form SB-2, as filed on July 7, 2003.
(14) Incorporated by reference from Report on Form 10-QSB, as
filed on November 14, 2003.
(15) Incorporated by reference from Amendment No. 2 to
Registration Statement on Form SB-2, as filed on December
15, 2003.
(16) Incorporated by reference from Amendment No. 3 to
Registration Statement on Form SB-2, as filed on February
27, 2004.
(17) Incorporated by reference from Current Report on Form 8-K,
as filed on March 23, 2004.
(18) Incorporated by reference from Report in Form 10-KSB, as
filed on April 14, 2004.
(19) Incorporated by reference from Quarterly Report on Form
10-QSB, as filed on August 16, 2004.
(20) Incorporated by reference from Amendment No. 6 to
Registration Statement on Form SB-2, as filed on October 20,
2004.
(21) Incorporated by reference from Report on Form 10-QSB, as
filed on November 15, 2004.
(22) Incorporated by reference from Current Report on Form 8-K,
as filed on January 26, 2005.
(23) Incorporated by reference from Current Report on Form 8-K,
as filed on May 18, 2005.
(b) Reports on Form 8-K
-------------------
Current Report on Form 8-K, as filed on January 27, 2005.
Current Report on Form 8-K, as filed on February 24, 2005
21
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PARADIGM MEDICAL INDUSTRIES, INC.
May 20, 2005 /s/ John Y. Yoon
-------------------------------------
John Y. Yoon
President and Chief Executive Officer
May 20, 2005 /s/ Luis A. Mostacero
-------------------------------------
Luis A. Mostacero, Controller
22