UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(X) Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended MARCH 31, 2002.
EYE DYNAMICS, INC.
(Name of small business issuer in its charter)
Nevada 88-0249812
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
2301 W. 205th Street, #106, Torrance, CA 90501
(Address of principal executive offices) (City, state and ZIP)
Issuer's telephone number 310-328-0477
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No []
The number of shares outstanding of the issuer's common stock as of March 31,
2002 was 14,550,313.
Transitional Small Business Disclosure Format (check one) ( ) Yes; (X) No.
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 2002
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ASSETS
Current Assets
Cash $ 16,408
Accounts receivable 61,752
Employee loans and advances 63,584
Inventory 115,784
------------
Total current assets 257,528
Property and equipment, net of accumulated
depreciation of $13,258 1,506
Other assets 911
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TOTAL ASSETS $ 259,945
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable & accrued expenses $ 62,560
Accrued interest 310,210
Line of credit 39,303
Notes payable, current portion 416,971
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Total current liabilities 829,044
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Contingent Liability 41,000
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Stockholders' Deficit
Common stock, $0.001 par value; 50,000,000
shares authorized; 14,550,313 shares
issued and outstanding 14,550
Paid-in capital 3,355,736
Accumulated deficit (3,873,385)
Unamortized expenses (contra-equity) (107,000)
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(610,099)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 259,945
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See Notes to Interim Unaudited Consolidated Financial Statements
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THREE MONTHS ENDED MARCH 31, 2002 AND 2001
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2002 2001
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Sales $ 217,687 $ 112,168
Cost of sales 94,072 44,569
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Gross profit 123,615 67,599
Selling, general and administrative expenses 164,624 256,353
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Operating (loss) (41,009) (188,754)
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Other income(expenses):
Interest and other income 1,485 329
Interest expense (3,524) (9,711)
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(2,039) (9,382)
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Net (loss) before taxes (43,048) (198,136)
Provision for income taxes 1,600 1,600
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Net (loss) $ (44,648) $ (199,736)
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Loss per share-Basic and Diluted $ (0.00) $ (0.02)
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Weighted average number of shares 14,483,646 11,691,313
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See Notes to Interim Unaudited Consolidated Financial Statements
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THREE MONTHS ENDED MARCH 31, 2002 AND 2001
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2002 2001
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Cash Flow From Operating Activities:
Net (loss) $ (44,648) $(199,736)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation 369 652
Stock issued for services - 8,000
Noncash expenses 59,057 64,833
(Increase) decrease in:
Accounts receivable 20,826 82,454
Inventory (266) (37,419)
Prepaids and other assets 1,627 361
Increase (decrease) in:
Accounts payable and accrued expenses 8,584 22,499
Contingent and other liabilities (34,000) -
Accrued interest 2,108 (4,678)
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Cash flows provided by (used in) operating activities 13,657 (63,034)
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Cash Flows From Investing Activities:
Employee loans and advances - (46,965)
---------- ----------
Cash flows (used in) investing activities - (46,965)
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Cash Flows From Financing Activities:
Proceeds from issuing of common stock - 50,000
Advance from (payment on) line of credit (5,872) 9,931
(Repayments) on notes payable to shareholder (15,000) -
---------- ----------
Cash flows provided by (used in) financing activities (20,872) 59,931
---------- ----------
Net (decrease) in cash (7,215) (50,068)
Cash balance at beginning of period 23,623 85,688
---------- ----------
Cash balance at end of period $ 16,408 $ 35,620
========== ==========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 1,416 $ 810
Taxes Paid - -
Supplemental Schedules of Noncash Investing and Financing Activities
Issuance of common stock for a reduction of liability $ 10,000 $ -
See Notes to Interim Unaudited Consolidated Financial Statements
EYE DYNAMICS, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Eye Dynamics, Inc. and subsidiary (the "Company") markets
and distributes diagnostic equipment that utilize the Company's proprietary
technology and computer software to test individuals for impaired eye and pupil
performance. The Company also markets a medical diagnostic product that tracks
and measures eye movements during a series of standardized tests.
A summary of significant accounting policies follows:
PRESENTATION OF INTERIM INFORMATION: In the opinion of the management,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial condition and the results of operations of the
Company for the periods presented have been included. Interim results are not
necessarily indicative of results for a full year. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted unless significant changes have occurred since the
Form 10-KSB was filed. The accompanying financial statements and notes thereto
should be read in conjunction with the Company's Form 10-KSB.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION: The accompanying consolidated
financial statements include the accounts of Eye Dynamics, Inc. and its
wholly-owned subsidiary, Oculokinetics, Inc., after elimination of all material
intercompany accounts and transactions. Certain prior period balances have been
reclassified to conform to the current period presentation.
NEW ACCOUNTING STANDARDS: SFAS No. 143, "Accounting for Asset Retirement
Obligations," addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period it is
incurred if a reasonable estimate of fair value can be made. The associated
retirement costs are capitalized as a component of the carrying amount of the
long-lived asset and allocated to expense over the useful life of the asset. The
statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Management believes the adoption of the statement
will not have a material effect on the Company's financial statements.
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," was issued and establishes accounting and
reporting standards for the impairment or disposal of long-lived assets. This
statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed." SFAS No. 144 provides one
accounting model to be used for long-lived assets to be disposed of by sale,
whether previously held for use or newly acquired and broadens the presentation
of discontinued operations to include more disposal transactions. The provisions
of SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001. Accordingly, the statement was effective for
the Company for the fiscal quarter beginning January 1, 2002 and it did not have
an impact on its financial position.
EYE DYNAMICS, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 2 - LITIGATION SETTLEMENT
In 2001, the Company was involved in a lawsuit filed by 6800 Owensmouth, Inc.
("OWEN") alleging that the Company had aided and abetted an employee in avoiding
payment of a lawsuit judgment in favor of OWEN. On February 21, 2002, the Board
of Directors, in the interest of capital conservation and avoiding the time and
expense of a court trial, approved to reach a settlement through a mediation
conference. The settlement reached included payment of $10,000 and issuance of
200,000 shares of 144 restricted common stock of the Company at a fair market
value of $0.05 per share. The settlement loss, aggregate of $20,000, was accrued
and charged to operations in 2001. The liability was paid in full and the shares
were issued in February 2002.
NOTE 3 - NONCASH FINANCING ACTIVITIES
As discussed in Note 2, the Company issued 200,000 shares of restricted common
stock to reduce a contingent liability of $10,000 which was accrued in 2001.
NOTE 4 - NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Basic net loss per share for three
months ended March 31, 2002 and 2001 was $0.00 and $0.02, respectively. Net loss
per share does not include options and warrants as they would be anti-dilutive
in 2002 and 2001 due to the net loss in those periods.
Three Months ended March 31,
2002 2001
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Numerator:
Net Loss $ (44,648) $ (199,736)
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Denominator:
Weighted average of common shares 14,483,646 11,691,313
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Basic and diluted net loss per share $ (0.00) $ (0.02)
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NOTE 5 - SEGMENT INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that a publicly traded company must disclose information
about its operating segments when it presents a complete set of financial
statements. Since the subsidiary did not have any operations in 2002 or 2001,
and the Company has only one segment; accordingly, detailed information of the
reportable segment is not presented.
EYE DYNAMICS, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 6 - GOING CONCERN
The accompanying consolidated financial statements are presented on the basis
that the Company is a going concern. Going concern contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business
over a reasonable length of time. As shown in the accompanying consolidated
financial statements, the Company incurred a net loss of $44,648 and $199,736
for three months ended March, 2002 and 2001, respectively, and as of March 31,
2002, the Company's current liabilities exceeded its current assets by $571,576
and its total liabilities exceeded its total assets by $610,099.
Upon the completion of the research, the Company began to market and publicize
its second product line, Impairment Detection device. Management is also
actively increasing marketing efforts to increase revenues. The Company
continued existence depends on its ability to meet its financing requirements
and the success of its future operations. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
NOTE 7 - SUBSEQUENT EVENT
Following the close of the period, the Company restructured a debt of $396,721
plus accrued interest of $223,987 with a prior distributor in regards to the
Settlement Agreement and Mutual Release that was signed in 1993. The new
settlement includes a new note of $400,000 to replace the old debt. The new note
is compounded at 7% per annum and is amortized over 5 years commencing January
1, 2003. The Company also paid $60,000 in cash and agreed to issue 2,500,000
shares of restricted common stock to the prior distributor All accrued and
unpaid interest on the old debt, and all amounts due related to the consigned
inventory, has been forgiven.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH
31, 2001. Revenues from the sale of medical products totaled $218,000,
representing a 94% increase over such revenues in the first quarter of 2001. The
increase is principally attributable to a general recovery in the market for
medical products from the slump of 2001. In addition, the Company's private
label distributor opened new markets during the 2002 quarter. The market
increase in the ENT segment of markets is not substantial, but the neurology
segment is doing quite nicely. Also, the Company is receiving more interest from
foreign markets, with orders from Korea, Colombia, Egypt and Iran. We are also
increasing revenue by offering installation and operator training services on
the equipment we sell. This has met with some success and we will continue to
provide this support service for our customers.
Efforts continue to secure financing for the business plan to
commercialize the SafetyScope product, which is an Impairment Detection Device.
The plan requires substantial financial resources to fully implement the
commercialization of the product. Discussions and explorations of strategic
alliances are ongoing with the goal of securing the financing.
Gross profit on sales for the quarter was 57%, which is less than the
60% reported for the same period one year ago. This is a reflection of the
increasing sales of the private label products, which causes a model sold mix
change. However, with sales increase of 94% for the quarter, the gross profit
dollars are substantially higher. Even though gross profit was higher, an
operating loss of $44,648 was incurred. This loss includes $59,000 of expenses
incurred in the promotion of the business plan for commercialization of the
SafetyScope product. Without the SafetyScope commercialization expenses, the
medical product sales would have generated a profit for the quarter. Loss for
the quarter of $44,648 is compared to the loss of $199,736 for the same period
in 2001. This represents an improvement of $155,088 over the same quarter of
2001.
We are continuing to search out and evaluate other products to bring
into the company to augment our revenues. However, none are currently in the
offing that we have found suitable. The search for new products is an ongoing
project.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party
or to which the property interests of the Company are subject.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the period the Company issued 200,000 shares of common stock in
settlement of a law suit filed by 6800 Owensmouth, Inc. alleging that the
Company aided and abetted an employee in avoiding payment of a judgment in favor
of the plaintiff.
The Company believes the foregoing issuance of shares was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITES
The Company was the obligor on an outstanding $400,000 promissory note
payable to a former distributor, and has certain obligations to the former
distributor in connection with the resale of certain inventory returned by the
distributor. The note accrued interest at 7% per annum, and came due on December
31, 1999. As of March 31, 2002, the total amount due, including the principal of
the note, accrued interest, and the obligations with respect to the returned
inventory, totaled $630,958.
Following the close of the period the Company completed an agreement to
restructure the obligations. Under the agreement the Company paid the
distributor $60,000 in cash and is to issue the distributor 2,500,000 shares of
Common Stock. All other obligations were consolidated into a new $400,000 note,
bearing interest at 7% per annum. The note is for five years and calls for
monthly payments of principal and interest commencing in January 2003 on a fully
amortizing basis. Like the existing note, the new note is secured by the patents
and inventory relating solely to the Company's impairment detection product
line. Under the settlement, all accrued and unpaid interest and all amounts
related to the consigned inventory are forgiven.
In connection with the settlement the Company borrowed $60,000 from two
private investors. The notes to these investors are five year notes, bearing
interest at 7% per annum, with all principal and interest due in 2008. The notes
are convertible, at the option of the holders, into a maximum of 5,387,000
shares, although under certain circumstances the Company has the right to prepay
portions of the notes and issue warrants in lieu of the convertibility feature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 5 OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None
Reports on Form 8-K
None
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.
Eye Dynamics, Inc.
Date: May 20, 2002 By /s/Charles E. Phillips
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Charles E. Phillips, President and
Chief Financial Officer