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 September 30, 2005
Commission File No. 0-27857
EYE DYNAMICS, INC.
------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0249812
------ ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2301 W. 205th Street, #102, Torrance, CA 90501
----------------------------------------------
(Address of principal executive offices)
310-328-0477
------------
(Issuer's telephone number)
Check whether the issuer: (1) 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 for such shorter period that the registrant was required to file for
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of September 30, 2005, the issuer had 21,674,880 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (check one) ( ) Yes; (X) No.
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
We desire to take advantage of the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995. This Report on Form 10-QSB
contains a number of forward-looking statements that reflect management's
current views and expectations with respect to our business, strategies,
products, future results and events and financial performance. All statements
made in this Report other than statements of historical fact, including
statements that address operating performance, events or developments that
management expects or anticipates will or may occur in the future, including
statements related to distributor channels, volume growth, revenues,
profitability, new products, acquisitions, adequacy of funds from operations,
statements expressing general optimism about future operating results and
non-historical information, are forward-looking statements. In particular, the
words "believe," "expect," "intend," "anticipate," "estimate," "may," "will,"
variations of such words, and similar expressions identify forward-looking
statements, but are not the exclusive means of identifying such statements and
their absence does not mean that the statement is not forward-looking. These
forward-looking statements are subject to certain risks and uncertainties,
including those discussed below. Our actual results, performance or achievements
could differ materially from historical results as well as those expressed in,
anticipated or implied by these forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
Readers should not place undue reliance on these forward-looking
statements, which are based on management's current expectations and projections
about future events, are not guarantees of future performance, are subject to
risks, uncertainties and assumptions (including those described below) and apply
only as of the date of this Report. Our actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed below
"Management's Discussion and Analysis and Plan of Operation," as well as those
discussed elsewhere in this Report, and the risks discussed in our most recently
filed Annual Report on Form 10-KSB and in the press releases and other
communications to shareholders issued by us from time to time which attempt to
advise interested parties of the risks and factors that may affect our business.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EYE DYNAMICS, INC.
BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2005
ASSETS
Current Assets
Cash $ 154,786
Certificate of deposits 402,977
Accounts receivable, net of allowance for bad debt of $899 101,458
Note receivable, net of allowance for loan loss of $67,334 7,615
Inventory 297,975
Prepaid expenses 24,691
------------
TOTAL CURRENT ASSETS 989,502
Property and equipment, net of accumulated depreciation
of $13,888 7,746
Other assets 223,085
------------
TOTAL ASSETS $ 1,220,333
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 81,615
Accrued expenses 9,466
TOTAL CURRENT LIABILITIES 91,081
Stockholders' Equity
Common stock, $0.001 par value; 50,000,000 shares
authorized; 21,674,880 shares issued and outstanding 21,675
Paid-in capital 3,607,617
Accumulated deficit (2,500,040)
------------
TOTAL STOCKHOLDERS' EQUITY 1,129,252
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,220,333
============
See Notes to Interim Unaudited Financial Statements
3
EYE DYNAMICS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For Three Months For Nine Months
ended September 30, ended September 30,
-------------------------------- ----------------------------------
2005 2004 2005 2004
--------------------------------------------------------------------------------------------------------------------------
Sales - Products $ 283,005 $ 437,421 $ 1,002,699 $ 1,502,878
Cost of Products 122,340 206,037 459,674 712,470
----------------------------------------------------------------------
Gross profit 160,665 231,384 543,025 790,408
Selling, general and administrative expenses 383,377 180,190 798,732 528,343
Operating income (loss) (222,712) 51,194 (255,707) 262,065
----------------------------------------------------------------------
Other income (expenses)
Interest and other income 3,753 9,240 4,031 9,300
Interest and other expenses (194) (789) (1,282) (2,819)
----------------------------------------------------------------------
Total other income (expenses) 3,559 8,451 2,749 6,481
----------------------------------------------------------------------
Net income (loss) before taxes (219,153) 59,645 (252,958) 268,546
Provision for income taxes (benefits) (3,565) -- (1,489) 800
----------------------------------------------------------------------
Net income (loss) $ (215,588) $ 59,645 $ (251,469) $ 267,746
======================================================================
Net income (loss) per share-basic $ (0.01) $ 0.00 $ (0.01) $ 0.01
======================================================================
Net income (loss) per share-diluted $ (0.01) $ 0.00 $ (0.01) $ 0.01
======================================================================
Shares used in per share calculation-Basic 21,674,880 17,883,081 20,433,169 17,883,081
Shares used in per share calculation-Diluted 21,674,880 21,710,174 20,433,169 21,710,174
See Notes to Interim Unaudited Financial Statements
4
EYE DYNAMICS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR NINE MONTHS ENDED SEPTEMBER 30, 2005 2004
----------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $(251,469) $ 267,746
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 319 171
Provision for loan loss 9,116 --
Issuance stock for services 68,000 --
(Increase) Decrease in:
Accounts receivable (56,966) (42,093)
Inventory (117,267) (30,184)
Prepaids and other assets 21,549 6,587
Deferred tax assets (2,289) --
Increase (decrease) in:
Accounts payable and accrued expenses 43,725 (70,495)
--------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (285,282) 131,732
--------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (7,190) --
Purchase of certificate of deposit (402,977) --
Repayment from notes receivable 3,000 --
Employee loans and advances -- (500)
--------------------------
NET CASH USED IN INVESTING ACTIVITIES (407,167) (500)
--------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net repayments on notes payable -- (71,284)
--------------------------
NET CASH USED IN FINANCING ACTIVITIES -- (71,284)
--------------------------
NET INCREASE (DECREASE) IN CASH (692,449) 59,948
Cash balance at beginning of period 847,235 700,344
--------------------------
CASH BALANCE AT END OF PERIOD $ 154,786 $ 760,292
==========================
Supplemental Disclosures of Cash Flow Information:
Taxes Paid $ 800 $ 58,555
Taxes Refund 4,560 9,118
Schedule of noncash investing and financing activities:
Issuance of common stock for:
Notes Payable $ 40,000 $ --
Accrued Interest 6,339 --
--------------------------
$ 46,339 $ --
==========================
See Notes to Interim Unaudited Financial Statements
5
EYE DYNAMICS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Eye Dynamics, Inc. (the "Company') designs,
develops, produces and markets diagnostic equipment that measures, tracks and
records human eye movements, utilizing the Company's proprietary technology and
computer software. The products perform separate, but related, functions and
target two separate markets. First, the Company markets a neurological
diagnostic product that tracks and measures eye movements during a series of
standardized tests, as an aid in diagnosing problems of the vestibular (balance)
system and other balance disorders. Second, the Company's impairment detection
devices target the corporate and criminal justice markets and are designed to
test individuals for impaired performance resulting from the influences of
alcohol, drugs, illness, stress and other factors that affect eye and pupil
performance. The Company is a Nevada corporation formed in 1989.
A summary of significant accounting policies follows:
PRESENTATION OF INTERIM INFORMATION: The financial information at
September 30, 2005 and for the three and nine months ended September 30, 2005
and 2004 is unaudited but includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of the financial information set forth herein, in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") for interim financial information, and with the instructions to Form
10-QSB. Accordingly, such information does not include all of the information
and footnotes required by U.S. GAAP for annual financial statements. For further
information refer to the Consolidated Financial Statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2004.
The results for the three and nine months ended September 30, 2005 may
not be indicative of results for the year ending December 31, 2005 or any future
periods.
RECLASSIFICATION: Certain prior period balances have been reclassified
to conform to the current period presentation.
NOTE 2 - BALANCE SHEET DETAILS
The following tables provide details of selected balance sheet items:
At September 30, 2005
===============================================================================
Property and equipment, net
Furniture and Fixtures $ 1,113
Equipment 20,521
--------------------------------------------------------------------------------
21,634
Less: accumulated depreciation (13,888)
--------------------------------------------------------------------------------
Total $ 7,746
===============================================================================
Other Assets
Deferred tax assets $ 221,522
Deposits 1,563
--------------------------------------------------------------------------------
Total $ 223,085
===============================================================================
Accrued Liabilities
Accrued insurance $ 1,708
Warranty reserve 7,458
Other 301
--------------------------------------------------------------------------------
Total $ 9,467
===============================================================================
6
EYE DYNAMICS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - RETIREMENT OF DEBT
In April 2005, the Company converted notes payable of $40,000 and
accrued interest of $6,339 into 3,591,799 shares of common stock pursuant to the
conversion privileges stated in the original note agreements. As a result, the
Company did not recognize any gain or loss from these conversions.
NOTE 4 - INCOME TAXES
The Company accounts for income taxes using a balance sheet approach
whereby deferred tax assets and liabilities are determined based on the
differences in financial reporting and income tax basis of assets and
liabilities. The differences are measured using the income tax rate in effect
during the year of measurement.
The Company experienced significant net losses in prior fiscal years
resulting in a net operating loss carryforward ("NOLC") for federal income tax
purposes of approximately $1.2 million at December 31, 2004. The Company's NOLC
will expire through 2021. The Company also has state NOLC approximately of
$530,000. The state NOLC will expire through 2013.
NOTE 5 - NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
Three Months ended Nine Months ended
September 30, September 30,
2005 2004 2005 2004
--------------------------------- --------------------------------
Basic net income (loss) per share:
Net income (loss) $ (215,588) $ 59,645 $ (251,469) $ 267,746
------------- ------------- ------------- -------------
Weighted average number of common shares 21,674,880 17,883,081 20,433,169 17,883,081
------------- ------------- ------------- -------------
Basic net income (loss) per common share $ (0.01) $ 0.00 $ (0.01) $ 0.01
============= ============= ============= =============
Diluted net income (loss) per share:
Net income (loss) $ (215,588) $ 59,645 $ (251,469) $ 208,801
Addback: Debenture interest -- 700 -- 2,100
------------- ------------- ------------- -------------
Adjusted net income (loss) $ (215,588) $ 60,345 $ (251,469) $ 210,901
------------- ------------- ------------- -------------
Weighted average number of common shares 21,674,880 17,883,081 20,433,169 17,883,081
Incremental shares from assumed conversion:
Convertible debt -- 3,591,799 -- 3,591,799
Stock options and warrants -- 235,294 -- 235,294
------------- ------------- ------------- -------------
Adjusted weighted average number of common shares 21,674,880 21,710,174 20,433,169 21,710,174
------------- ------------- ------------- -------------
Diluted net income (loss) per common share $ (0.01) $ 0.00 $ (0.01) $ 0.01
============= ============= ============= =============
As the Company incurred net loss for the three and nine months ended
September 30, 2005, the effect of dilutive securities totaling 475,384 and
2,101,182 equivalent common shares, respectively, have been excluded from the
calculation of diluted net loss per share because their effect was
anti-dilutive.
7
EYE DYNAMICS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 6 - STOCK OPTIONS
On January 3, 2005, the Board of Directors approved to issue stock
options to current directors for their services rendered in the amount of 20,000
shares for each of the years from 1999 through 2004, pursuant to approval
granted in 1998 at the annual shareholders' meeting. The total options for each
of directors shall be 120,000 shares. The options are vesting immediately and
exercisable at $0.15 per share through January 3, 2007.
The Company accounts for these options under the recognition and
measurement principles of APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, AND RELATED INTERPRETATIONS. No stock-based employee compensation
cost is reflected in net loss, as all options granted had an exercise price
equal to the market value of the underlying common stock on the grant date. The
following table illustrates the effect on net loss and net loss per share if the
Company had applied the fair value provisions of FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, to stock-based employee compensation.
Three Months Nine Months
ended ended
September 30, 2005 September 30, 2005
------------------ ---------------------
Net loss, as reported $ (215,588) $(251,469)
Deduct: Total stock-based employee compensation
expense determined under the fair value of awards,
net of tax related effects -- 39,600
----------- ----------
Pro forma net loss $ (215,588) $(291,069)
=========== ==========
Reported net income (loss) per share-basic and diluted $ (0.01) $ (0.01)
=========== ==========
Pro forma net income (loss) per share-basic and diluted $ (0.01) $ (0.01)
=========== ==========
NOTE 7 - MAJOR CUSTOMERS
During the three and nine months ended September 30, 2005, the private
label distributor accounted for $244,230 and $861,180 or 86.31% and 85.89% of
total revenues, respectively.
During the three months ended September 30, 2004, the private label
distributor accounted for $271,592 or 62.1% of total revenues.
During the nine months ended September 30, 2004, two customers
accounted for $1,063,303 or 70.8% of total revenues.
Special Instrument Dealer 15.1%
Private label distributor 55.7%
NOTE 8 - 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 Company has only one segment; accordingly, detailed
information of the reportable segment is not presented.
8
EYE DYNAMICS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - CHANGE OF OFFICERS
On January 11, 2005, the Board of Directors elected the Chairman of the
Board to be the Company's new Chief Executive Officer (CEO). The former CEO
remains as the Company's chief financial officer and president.
NOTE 10 - GUARANTEES AND PRODUCT WARRANTIES
The Company from time to time enters into certain types of contracts
that contingently require the Company to indemnify parties against third party
claims. These contracts primarily relate to: (i) divestiture agreements, under
which the Company may provide customary indemnifications to purchasers of the
Company's businesses or assets; (ii) certain real estate leases, under which the
Company may be required to indemnify property owners for environmental and other
liabilities, and other claims arising from the Company's use of the applicable
premises; and (iii) certain agreements with the Company's officers, directors
and employees, under which the Company may be required to indemnify such persons
for liabilities arising out of their employment relationship.
The terms of such obligations vary. Generally, a maximum obligation is
not explicitly stated. Because the obligated amounts of these types of
agreements often are not explicitly stated, the overall maximum amount of the
obligations cannot be reasonably estimated. Historically, the Company has not
been obligated to make significant payments for these obligations, and no
liabilities have been recorded for these obligations on its balance sheet as of
September 30, 2005.
In general, the Company offers a one-year warranty for most of the
products it sold. To date, the Company has not incurred any material costs
associated with these warranties. The Company provides reserves for the
estimated costs of product warranties based on its historical experience of
known product failure rates, use of materials to repair or replace defective
products and service delivery costs incurred in correcting product failures. In
addition, from time to time, specific warranty accruals may be made if
unforeseen technical problems arise with specific products. The Company
periodically assesses the adequacy of its recorded warranty liabilities and
adjusts the amounts as necessary.
The following table presents the changes in the Company's warranty
reserve during the first nine months of 2005:
Balance as of January 1, 2005 $ 8,884
Provision for warranty 2,456
Utilization of reserve (3,882)
----------
Balance as of September 30, 2005 $ 7,458
==========
NOTE 11 - PENDING BUSINESS ACQUISITIONS
On September 1, 2005, the Company entered into an Agreement and Plan of
Merger to acquire all of the outstanding and issued shares of OrthoNetx, Inc., a
Colorado-based provider of medical devices for osteoplastic surgery. The
acquisition will be completed as a stock transaction in which OrthoNetx
shareholders will receive equal number of the Company's outstanding shares at
the closing date. The acquisition is subject to customary conditions, including
certain regulatory approvals. As part of the transaction, the President and CEO
of OrthoNetx will assume the position of CEO of the merged company. The
acquisition is expected to be closed in the fourth quarter of 2005.
NOTE 12- SALES INCENTIVE AGREEMENTS
In April 2005, the Company entered into two individual agreements with
the private label distributor and a special instrument dealer. The agreements
provide that the Company will issue restricted common stock to the distributor
and dealer as a sales incentive if certain conditions are reached pursuant to
the agreements. As of September 30, 2005, none of these conditions has been
satisfied and the Company has issued no shares.
9
EYE DYNAMICS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 13 - AUTHORIZED SHARES
In September 2005, the shareholders approved an increase in the number
of authorized shares of Common Stock to 100 million. The amendment to the
Articles of Incorporation effecting this increase was filed in November.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION
WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE
IN THIS REPORT. EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SEE "CAUTIONARY NOTICE REGARDING FORWARD LOOKING
STATEMENTS" ABOVE.
BUSINESS OVERVIEW
Eye Dynamics (the "Company") designs, develops, produces and markets
diagnostic equipment that measures, tracks and records human eye movements,
utilizing its proprietary technology and computer software. The products perform
separate, but related, functions and target two separate markets. First, the
Company markets a neurological diagnostic product that tracks and measures eye
movements during a series of standardized tests, as an aid in diagnosing
problems of the vestibular (balance) system and other balance disorders. Second,
the Company's impairment detection devices target the corporate and criminal
justice markets, and are designed to test individuals for impaired performance
resulting from the influence of alcohol, drugs, illness, stress and other
factors that affect eye and pupil performance. Eye Dynamics is a Nevada
corporation formed in 1989.
RESULTS OF OPERATIONS
Revenues from the sale of medical products during the third quarter
were $283,005, representing a 35% decrease in revenues compared to the same
quarter in 2004. The decline in revenues resulted in a loss for the quarter of
$215,588, or $.01 per share, compared with net income of $59,645 ($.01 per
share) in the corresponding quarter in 2004. In addition to the effect of the
decline in revenues, the loss stems largely from ongoing expenditures related to
the pending acquisition of OrthoNetx, Inc., increased marketing costs associated
with trade shows and sales related activities, and costs related to the
Company's international marketing efforts. In addition, there were two
extraordinary expenses arising out of the retirement of Charles E. Phillips, the
Company's Chief Financial Officer. The first was accrued vacation pay of
$29,423, and the second was a bonus payment of $60,000 arising out of the
Company's profitable activity in the 2003 fiscal year. Mr. Phillips and the
Company negotiated a payment equal to 50% of the amount to which he was entitled
under his employment agreement.
Revenues for the nine month period of 2005 were $1,002,699, compared to
$1,502,878 for the same period of 2004. After tax, the loss for the nine month
period was $251,469, compared to net income of $267,746 for the corresponding
period in 2004. Net loss per share was $0.01 for the nine month period of 2005,
compared to a net income of $0.01 per share in 2004.
The Company has launched a number of initiatives to increase revenues
and profitability. The first is a strengthening of the Company's network of
sales agents. During the period the Company recruited several new special
instrument dealers to represent its products and to increase market coverage.
These dealers will augment the dealer network utilized by MedTrak Technologies,
the Company's exclusive domestic marketing partner.
The second initiative is an expansion of the Company's international
marketing efforts. On September 15th the Company announced the execution of an
exclusive distribution agreement with MD International, the largest supplier of
medical equipment to Latin America and the Caribbean, to increase its market
penetration of these areas.
11
The Company expects an increase in revenue from efforts launched by
MedTrak in connection with a rental program (ScotTrak) now being rolled out
nationally. This rental program offers new opportunities for the Company's VNG
product line, which is incorporated into the package (i.e., ScotTrak Balance
Assessment and Fall Rehabilitation Program).
With October's revenue estimated to be $200,000, the Company believes
that its efforts to bolster domestic marketing are beginning to produce results
while, at the same time, taking advantage of international opportunities.
The Company continues to pursue commercialization of its
Safety Scope(TM) worker impairment screening product. In July of 2005 the
Company announced that it had retained the services of Circadian Technologies to
conduct market research on the demand for that product. Preliminary data
indicates that approximately 42% of the companies surveyed would be receptive to
impairment screening of their workers.
As announced on March 24, 2005, Eye Dynamics signed a Letter of Intent
to acquire OrthoNetx, Inc., of Superior, Colorado. The transaction is subject to
certain customary conditions, including regulatory approvals. OrthoNetx issued a
press release on August 1st related to receiving FDA approval for marketing of
its GenerOs SB small bone generator, which incorporates the same patented
technology as their FDA-approved GenerOs EX limb lengthener and GenerOs CF
craniofacial bone generator. On September 6th, the Company announced the signing
by both parties of a definitive Merger Agreement pursuant to the plan approved
by the Boards of Directors of both companies.
On September 20th the Company held its 2005 Annual Meeting of
Stockholders, at which certain matters relating to the proposed merger were
approved by the Company's shareholders.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of September 30, 2005 totaled $739,068,
which allows for payment of all outstanding invoices on a current basis.
Accounts payable are current and the Company has not borrowed against credit
lines. Inventory as of September 30, 2005 was $264,000, which is generally
comparable to prior quarters. Accounts receivable as of September 30, 2005 were
$101,458. The Company's aging amounts are a very favorable representation of its
cash flow, and its collection experience has been very favorable.
The Company has placed a significant portion of its cash reserves into
income producing products, such as money market funds and date-laddered
certificates of deposit, to maximize return while protecting capital.
ITEM 3. CONTROLS AND PROCEDURES.
As of the end of the period covered by this quarterly report, the
Company carried out an evaluation, under the supervision and participation of
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
12
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in periodic SEC filings.
There has been no change during the quarter in 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
The Company is not a party to any material pending legal proceedings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on September 20, 2005.
Stockholders holding 12,189,026 shares were present in person or by proxy,
constituting a quorum. The following are the results of the voting:
1. Election of Directors:
Nominee For Withheld
------- --- --------
Ronald A. Waldorf 11,911,012 245,014
Charles E. Phillips 11,911,012 245,014
2. Amendment of Articles of Incorporation to increase authorized
capital to 100,000,000 shares:
For Against Abstain
--- ------- -------
11,842,448 293,578 5,300
3. Change of corporate name to AcuNetx, Inc., conditional on
consummation of merger with OrthoNetx, Inc.:
For Against Abstain
--- ------- -------
12,094,076 39,800 55,150
4. Approval of new Bylaws:
For Against Abstain
--- ------- -------
11,983,326 12,500 143,200
ITEM 5. OTHER INFORMATION
None
13
ITEM 6. EXHIBITS
31.1 Certification of the Company's Chief Executive Officer Pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
31.2 Certification of the Company's Chief Financial Officer Pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
32.1 Certification of the Company's Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
32.2 Certification of the Company's Chief Financial Officer Pursuant to
18 U.S.C. Section 1350
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.
Date: November 14, 2005
By: /s/ Ronald A. Waldorf
------------------------------------------
Ronald A. Waldorf, Chief Executive Officer
14