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, 2003.
EYE DYNAMICS, INC.
(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)
2301 W. 205th Street, #102, Torrance, CA 90501
(Address of principal executive offices) (City, state and ZIP)
Issuer's telephone number 310-328-0477
The number of shares outstanding of the issuer's common stock as of March 31,
2003 was 17,850,313.
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 SHEET (UNAUDITED)
MARCH 31, 2003
--------------
ASSETS
Current Assets
Cash $ 192,014
Accounts receivable 230,229
Employee advances and receivable, net of
allowance for loan losses of $58,218 0
Inventory 163,618
Prepaid expenses 11,648
------------
Total Current Assets 597,510
Property and equipment, net of accumulated depreciation
of $14,467 1,409
Other Assets 8,674
------------
TOTAL ASSETS $ 607,593
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable & accrued expenses $ 69,711
Accrued interest 52,672
Notes payable, current portion 71,284
------------
Total Current Liabilities 193,667
Long-term debt 420,183
------------
Total Liabilities 613,850
------------
Stockholders' Deficit
Common Stock, $0.001 par value; 50,000,000 shares authorized;
17,850,313 shares issued and outstanding 17,850
Paid-in Capital 3,497,103
Accumulated Deficit (3,521,210)
------------
(6,257)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 607,593
============
See Notes to Interim Unaudited Consolidated Financial Statements
2
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For Three Months ended March 31, 2003 2002
--------------------------------------------------------------------------------
Sales
Products $ 652,608 $ 192,937
Services -- 24,750
-----------------------------
652,608 217,687
Cost of Sales
Products 311,968 84,087
Services -- 9,985
-----------------------------
311,968 94,072
Gross Profit 340,640 123,615
-----------------------------
Selling, General and Administrative Expenses 181,002 164,624
-----------------------------
Operating income (loss) 159,638 (41,009)
-----------------------------
Other Income(Expense)
Interest and Other Income 503 1,485
Interest Expense (1,838) (3,524)
-----------------------------
(1,335) (2,039)
Net income(loss) before taxes 158,302 (43,048)
Provision for Income Taxes 1,600 1,600
-----------------------------
Net income (loss) $ 156,702 $ (44,648)
=============================
Net income (loss) per share-basic $ 0.01 $ (0.00)
=============================
Net income (loss) per share-diluted $ 0.01 $ (0.00)
=============================
Shares used in per share calculation-basic 17,850,313 14,483,646
Shares used in per share calculation-diluted 21,736,895 14,483,646
See Notes to Interim Unaudited Consolidated Financial Statements
3
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For Three Months ended March 31, 2003 2002
----------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 156,702 $ (44,648)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 102 369
Noncash expenses -- 59,057
(Increase) Decrease in:
Accounts Receivable (43,252) 20,826
Inventory (8,451) (266)
Interest Receivable on Employee Loan -- (1,437)
Prepaid and Others (5,363) 3,064
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (19,696) 8,584
Other Liabilities (13,271) (34,000)
Accrued Interest (24,218) 2,108
-----------------------
Net cash provided by operating activities 42,553 13,657
-----------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (1,113) --
-----------------------
Net cash (used in) investing activities (1,113) --
-----------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments on Line of Credit -- (5,872)
Repayments on Notes Payable (27,094) --
Repayments to Shareholders -- (15,000)
-----------------------
Net cash (used in) financing activities (27,094) (20,872)
-----------------------
NET INCREASE (DECREASE) IN CASH 14,346 (7,215)
CASH BALANCE AT BEGINNING OF PERIOD 177,668 23,623
-----------------------
CASH BALANCE AT END OF PERIOD $ 192,014 $ 16,408
=======================
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 26,052 $ 1,416
Taxes Paid $ -- $ --
Supplemental Schedules of Noncash Investing and Financing Activities
Issuance of common stock for reduction of a liability $ -- $ 10,000
See Notes to Interim Unaudited Consolidated Financial Statements
4
EYE DYNAMICS, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------
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: The financial information at March 31, 2003
and for the three months ended March 31, 2003 and 2002 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, 2002.
The results for the three months ended March 31, 2003 may not be indicative of
results for the year ending December 31, 2003 or any future periods.
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.
INCOME (LOSS) PER COMMON SHARE Basic earnings per share includes no dilution and
is computed by dividing net income (loss) available to common stockholders by
the weighted average number of common stock outstanding for the period. Diluted
earnings per share for the three months ended March 31, 2003 is computed by
dividing net income by the weighted average number of shares plus the dilutive
effect of shares issuable under certain debt that is convertible into 3,886,582
shares of Company common stock, using the treasury stock method. Approximately
200,000 shares issuable upon exercise of outstanding stock warrants were
excluded from the calculation of diluted earnings per share for 2003 because
they were anti-dilutive. However, these options and warrants could be dilutive
in the future. Diluted net loss per common share for the period of three months
ended March 31, 2002 does not differ from basic net loss per common share since
potential shares of common stock are anti-dilutive for the period. Shares
excluded from diluted loss per share for the three months ended March 31, 2002
totaled 400,000.
NEW ACCOUNTING STANDARDS: In January 2003, the Financial Accounting Standards
Board issued Interpretation No. 46, "Consolidation of Variable Interest
Entities, an interpretation of Accounting Research Bulletin No. 51."
Interpretation 46 establishes accounting guidance for consolidation of variable
interest entities that function to support the activities of the primary
beneficiary. Interpretation 46 applies to any business enterprise, both public
and private, that has a controlling interest, contractual relationship or other
business relationship with a variable interest entity. The Company currently has
no contractual relationship or other business relationship with a variable
interest entity and therefore the adoption did not have an effect on its
consolidated financial position or results of operations.
5
EYE DYNAMICS, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------
NOTE 2 - NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income
(loss) per share for three months ended March 31st:
2003 2002
----------------------------
Numerator:
Net income (loss) $ 156,702 $ (44,648)
------------- -------------
Denominator:
Weighted average of common shares 17,850,313 14,483,646
Diluted effect of convertible debt and stock warrants 3,886,582 --
------------- -------------
Diluted weighted average common shares outstanding 21,736,895 14,483,646
------------- -------------
Basic net income (loss) per share $ 0.01 $ (0.00)
Diluted net income (loss) per share $ 0.01 $ (0.00)
NOTE 3 - MAJOR CUSTOMER
During the three months ended March 31, 2003 and 2002, the Company's private
label distributor accounted for $410,764 and $170,208, or 62.9% and 78.2%, of
total revenues, respectively.
NOTE 4 - 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. The subsidiary did not have any operations in 2003 or 2002, and the
Company has only one segment; accordingly, detailed information of the
reportable segment is not presented.
6
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations for the Three Months Ended March 31, 2003 Compared to
Three Months Ended March 31, 2002.
Revenues from the sale of medical products during the first quarter were
$653,000, representing an increase of 300% over the first quarter of 2002. This
is the third quarter in succession where the sales are a minimum of 2.5 times
the quarter of the prior year and is a reflection of the steady growth of the
company. This increase is attributed to the success of our private label
customer opening up and developing new markets and applications for our video
ENG products. As reported previously, the market increase in the ENT segment of
the medical market is not substantial, but the neurology segment of that market,
which is being targeted by our private label customer, continues to be
successful and growing. We continue to receive additional interest from the
export markets, with shipments made to Egypt and Iran in the first quarter.
Gross profit for the quarter was 52%. This is 4% less than the gross profit for
the same period of 2002. However, the total volume is triple the prior year and
is a reflection of the increase in private label orders, which have a lower
gross profit structure. The private label customer accounts for 63% of our
revenue, which is about the same ratio for the last three quarters.
As a result of the sales increase of 300% for the quarter, the gross profit
dollars are substantial and a profit of $158,302 was achieved, compared to a
loss of $44,648 in the first quarter of 2002. This is a substantial improvement
and turnaround to profitability for the company for three successive quarters.
We have been able to increase our overhead fixed expenses only minimally and
this is a contributing factor to the increase in earnings.
In February we moved into larger quarters in the same industrial park. These
larger quarters provide for increased warehouse and equipment testing space,
which was needed to accommodate the increase in sales revenues.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of March 31, 2003 totaled $192,014. Inventory of
$163,000 at March 31, 2003 includes $25,000 of SafetyScope Impairment Detection
Device items, which are not being actively marketed but are being used as
production samples and demonstrators for the fund raising activity related to
the SafetyScope impairment detection device. The inventory balance of $138,000
represents only 30 days inventory for the medical products production and is
balanced.
Accounts receivable of $230,000 reflects slightly more than 30 days A/R
outstanding, which is positive as our private label customer continues to make
its payments within the net 15 days term of sale. Other customers are utilizing
leasing and credit cards more, which provide very quick collection of our
receivables.
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.
7
We continue to search out and evaluate other products and alliances to enhance
the company and 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.
ITEM 3. Controls and Procedures.
Under the supervision and with the participation of our Chief Executive and
Financial Officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-14(c) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days
of the filing date of this report. Based on this evaluation, our Chief Executive
and Financial Officer concluded that the Company's disclosure controls and
procedures are effective. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in reports under the Exchange
Act are processed and reported within the time periods specified by law. The
design of any such system of controls is based in part on assumptions about the
likelihood of future events, and there can be no assurance that any such system
of controls will succeed in all circumstances.
Since the date of the evaluation described above, there have been no significant
changes in our internal controls or in other factors that could significantly
affect these controls.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (?)
(A) The following exhibit is included herein or incorporated by reference:
99.1 Certification of Chief Executive and Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(B) No reports on Form 8-K were filed during the period
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 14, 2003 By /s/Charles E. Phillips
------------------------------
Charles E. Phillips, President
8
CERTIFICATION
I, Charles E. Phillips, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Eye Dynamics,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Charles E. Phillips
-------------------------------------
Charles E. Phillips,
President and Chief Executive Officer