AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 2001
REGISTRATION NO. 333-54408
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2 TO
FORM S-3
ON FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EYE DYNAMICS, INC.
(Name of Small Business Issuer as Specified in Its Charter)
Nevada 3841 88-0249812
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
2301 205th Street, Suite 106, Torrance, CA 90501
(Address and Telephone Number of Principal Executive Offices and Principal Place
of Business)
Charles E. Phillips
2301 205th Street, Suite 106, Torrance, CA 90501
(310) 328-0477
(Name, Address And Telephone Number of Agent For Service)
Copy To:
Robert J. Zepfel, Esq.
Haddan & Zepfel LLP
4685 MacArthur Court, Suite 220
Newport Beach, California 92660
(949) 752-6100
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this Amendment to Registration Statement is declared effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Unit (2) Price Fee
----------------------------------------------------------------------------------------------
Common Stock 3,000,000(1) $ .36 $1,080,000 $270.00
(1) Pursuant to Rule 416 under the Securities Act of 1933, there are also being
registered such indeterminate number of additional shares of common stock as may
be issuable upon the exercise of the common stock purchase warrants described
herein pursuant to the provisions thereof designed to prevent dilution resulting
from stock splits, stock dividends or similar transactions. The proposed maximum
offering price per share and maximum aggregate offering price for the shares
being registered hereby is calculated in accordance with Rule 457(c) under the
Securities Act.
(2) Based on the closing price of the Common Stock on the OTC Bulletin Board on
January 23, 2001.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of l933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
PROSPECTUS
3,000,000 SHARES
EYE DYNAMICS, INC.
COMMON STOCK
These shares of common stock are being offered by certain of our
current shareholders. We issued the shares, or reserved the shares for issuance,
to the shareholders in connection with a private placement made in the Company
during the year 2000.
The selling shareholders may sell the shares in ordinary brokerage
transactions, in negotiated transactions or otherwise, and may engage brokers or
dealers to sell the shares. For additional information on the selling
shareholders' possible methods of sale, you should refer to the section of this
prospectus entitled "Plan of Distribution." The selling shareholders may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with the sale of their shares. We will not receive any proceeds from
the sale of the shares, but will bear the costs relating to the registration of
the shares.
Our common stock is traded on the OTC Bulletin Board under the symbol
"EYDY."
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 2 IN
DETERMINING WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS _______, 2001.
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PROSPECTUS SUMMARY
The following is a brief summary of the contents of this Prospectus,
and should be read along with the other information presented.
THE COMPANY. We design, manufacture and sell equipment used to detect
impaired performance in individuals, by evaluation of eye movements. The
impairment may be due to drug or alcohol use or to fatigue or stress. We also
market similar equipment used by health care professionals to diagnose balance
problems in individuals. To date virtually all sales have been of equipment to
diagnose balance problems in individuals, and sales of impairment detection
devices have been negligible.
THE OFFERING. The shares are being offered by certain of our
shareholders, who purchased the shares from us in a private transaction in the
autumn of 2000. The shares will be offered principally through regular brokerage
transactions.
RISK FACTORS. This offering entails a variety of risk factors, all of
which should be carefully considered by prospective investors.
Our address is 2301 205th Street, Suite 106, Torrance, CA 90501, and
our telephone number is (310) 328-0477. Our website is at www.eyedynamics.com.
RISK FACTORS
You should carefully consider the following factors and other
information in this prospectus before deciding to invest in the shares. You
should not purchase any of the shares unless you can afford a complete loss of
your investment. Some of the terms used in this section, including the names of
our products, are described in detail in the "Business" section.
OUR FINANCIAL STATEMENTS ARE SUBJECT TO A GOING CONCERN QUALIFICATION
There is substantial uncertainty about our ability to continue as a
going concern. The report of our independent accountants with respect to our
December 31, 2000 and December 31, 1999 financial statements contains an
explanatory paragraph regarding this uncertainty and expresses substantial doubt
about such ability resulting from our recurring losses, as well as cash flow and
working capital problems. The low levels of sales, the declines in sales, and
the lack of any significant financing commitments raise substantial doubt about
our ability to continue as a going concern, to operate our business on a
full-scale basis, or to satisfy the possible claims of our creditors. We can't
be sure that we will ever receive the funds necessary for us to continue as a
going concern or to operate our business. Also, the existence of the going
concern language is a matter of public information, and makes it more difficult
to raise capital, to attract high quality employees, and to receive credit from
suppliers and vendors.
WE ARE IN DEFAULT UNDER CERTAIN OBLIGATIONS.
We are in default under a substantial obligation to a former
distributor, totaling $686,202 as of June 30, 2001. The obligation consists of a
promissory note that became due and payable on December 31, 1999, as well as
obligations to share revenues from the resale of certain inventory returned by
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the distributor. The promissory note is secured by all of our assets, so the
distributor could commence foreclosure proceedings at any time and seize our
assets. The note holder has not declared a default or demanded payment, but
could do so at any time. We are engaged in negotiations with the former
distributor concerning possible restructuring of the obligations, which could
include conversion of the obligations into common stock or a revised payment
schedule based on revenues from the SafetyScope commercialization project.
However, we cannot be assured that we will be able to restructure the
obligations, or that the note holder will not commence foreclosure proceedings.
Also, any conversion of the obligations into stock would dilute the percentage
interest of current shareholders.
WE HAVE OPERATED AT A LOSS EACH YEAR SINCE INCEPTION.
We have incurred operating losses in each of the last two fiscal years,
and have a significant accumulated deficit. Our operating losses have resulted
from a number of factors, including the fact that our principal product,
SafetyScope, is relatively new to the market, and our existing medical product
line, the Infrared/Video ENG System, an electronystagmograph, appeals to a niche
market with limited growth potential. Thus, a purchase of the shares is highly
speculative and we cannot assure you that you will realize any return on your
investment or that you will not lose your entire investment.
IN ORDER TO ACHIEVE OUR GOALS, WE WILL NEED ADDITIONAL FINANCING.
All of the proceeds of this offering will be received by the selling
shareholders. Achievement of our business goals will require significant
additional capital, as internally generated funds are insufficient to fund
expansion of our business. Since impairment detection is a relatively new
business, and our products reflect a new approach to that business, we will need
significant funds for marketing, advertising and education to create demand for
our products. Also, since there are significant regulatory issues in the use of
our products by government agencies or as specified by government agencies, we
will need funds to finance lobbying of government officials and participation in
conferences, seminars and other industry activities to facilitate acceptance of
our products. If we are unable to attract additional capital, we may be unable
to establish and maintain a market for our impairment detection devices.
OUR QUARTERLY REVENUES HAVE BEEN DECREASING, AND QUARTERLY FINANCIAL RESULTS MAY
FLUCTUATE SIGNIFICANTLY.
Our quarterly revenues for the each of the past three quarters declined
when compared to the corresponding periods in the preceding year, and we can't
be sure that revenues will increase. In the past, our quarterly operating
results have fluctuated significantly due to a variety of factors, including the
introduction of new products, the timing of our marketing efforts, pricing
pressures, the availability and cost of materials and components, health care
reimbursement issues, and general economic conditions that affect customer
demand.
MANY OF OUR CUSTOMERS RELY ON MEDICARE REIMBURSEMENT FOR THEIR REVENUES
Physicians and clinics utilizing vestibular testing typically rely on
reimbursements from Medicare for a substantial portion of their patient
revenues. Accordingly, the status of medical reimbursement for the procedures is
often an important factor in their decision whether to acquire new or additional
equipment. Ordinarily, the federal government reviews reimbursement levels on an
annual basis and publishes new reimbursement schedules. In early 2001 there was
a delay in the issuance of the schedules, due to the change in the
administration, which caused some prospective purchasers to delay purchase
decisions. Accordingly, our business can be adversely affected by developments
in the Medicare reimbursement area.
OUR FUTURE GROWTH DEPENDS UPON AN INCREASE IN THE USE OF IMPAIRMENT DETECTION
DEVICES.
The market for impairment detection devices is in its early stage.
While we anticipate growth in the market, there can be no assurance that the
market will develop in the near future, if ever. Since we view impairment
detection devices as our source of future growth, the failure of this market to
develop would severely harm our business and growth prospects.
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THE BUSINESS OF PERFORMANCE IMPAIRMENT DETECTION IS HIGHLY COMPETITIVE
The business of performance impairment detection is extremely
competitive. Our competitors include drug testing firms as well as companies
that have developed tests and devices that evaluate motor and cognitive skills.
These have taken the form of hand-eye coordination tests, divided attention
tests and other behavioral tests or series of tests administered either in
series or selectively. The Company knows of only one other company, Pulse
Medical Instruments of Rockville, Maryland, that is currently marketing a device
that is directly competitive with the product manufactured by the Company.
THERE ARE RAPID TECHNOLOGICAL CHANGES IN THE IMPAIRMENT DETECTION INDUSTRY.
The field of performance impairment detection is relatively new and may
be marked by rapid changes in technology, which can cause products to become
obsolete over very short time frames. Thus, our financial performance will
depend on our ability to develop and market new hardware products and services
to meet changing technology, pricing considerations and other market factors.
The business could be severely impacted if we were to experience delays in
developing new hardware products and services or enhancements.
IT IS POSSIBLE THAT SIGNIFICANT PRICE COMPETITION WILL DEVELOP IN OUR BUSINESS,
WHICH WOULD RESULT IN PRICING PRESSURE.
Because the impairment detection equipment market is a relatively new
one, it has not yet been subject to significant price competition. As additional
competitors enter the impairment detection market, however, it is likely that we
will face pricing pressures on these products. However, we believe that our
product differentiation and our relatively early entry into the market segments
focused on employers affords us an opportunity to establish pricing levels for
products and services with sufficient gross profit to meet competitive pricing
pressure.
The market for electronystagmograph systems is relatively mature,
without major product differentiation. As a result, price is one of the most
important factors considered by customers in choosing a product. Accordingly,
price competition has always been a major factor in this market. If competitors
in this market were to reduce prices significantly, we would have no alternative
but to reduce our prices, which could reduce or eliminate our gross margin on
these products.
WE RELY HEAVILY ON A PRIVATE LABEL DISTRIBUTOR FOR A SUBSTANTIAL PORTION OF OUR
SALES.
During 1999 sales through a single private label distributor
constituted 47% of our revenues, and sales through the same distributor
constituted 30% of sales in 2000. The arrangement with this distributor was
terminated in March, 2001, due to a lack of sales in the fourth quarter of 2000,
management changes within the distributor, and the fact that the distributor
announced its plan to purchase products from one of our competitors. In March
2001 we entered into an agreement with a new private label distributor under
which it is granted exclusive distribution rights for a private label version of
our electronystagmograph systems within the United States, and it in turn
commits to purchase at least six systems per quarter. It is likely that sales
through this private label distributor will continue to represent a substantial
portion of our revenues. Reliance on a single distributor for a substantial
portion of our sales poses significant risks, as the loss of that distributor
would seriously impact sales.
WE SELL PRODUCTS IN MARKETS WITH LAX INTELLECTUAL PROPERTY ENFORCEMENT, WHICH
COULD ENDANGER THE VALUE OF OUR PROPRIETARY TECHNOLOGY.
Our success will depend in part on protecting our proprietary
technology. While we have patents covering certain of our products, we rely
principally on copyright law for protection of our hardware and software
designs, as well as trade secret law, confidentiality agreements and our
technical abilities and responsiveness to the demands of customers to protect
our proprietary rights. If competitors or others were to copy or otherwise use
our technology, we may be required to go to court to prevent it, and any such
proceeding is likely to be time-consuming and costly. Also, because we market
our products in many parts of the world, it may be more difficult for us to
protect our technology against copying or infringement in countries with
undeveloped or lax intellectual property protection, including Egypt, Thailand
and Taiwan.
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SINCE WE ARE A SMALL COMPANY, WE MAY HAVE DIFFICULTIES IN MANAGING GROWTH.
Potential growth could place a significant strain on our personnel and
systems. To accommodate our current size and manage growth, we must improve our
operational, financial and information systems, and expand, train and manage our
employee base. This problem may be more serious if we acquire additional
businesses, as each such business must then be integrated into our operations
and systems.
If we expand our customer base, we will experience greater demands on
our corporate infrastructure, technical staff and resources. If such demand
results in difficulties satisfying the needs of our customers, it could
negatively affect us by causing customers or potential customers to utilize
competitive products or technologies.
SINCE OUR STOCK IS CLASSIFIED AS A "PENNY STOCK", SHAREHOLDERS MAY FACE
SIGNIFICANT RESTRICTIONS ON THE RESALE OF THE SHARES.
The Securities and Exchange Commission has adopted a number of rules to
regulate "penny stocks." Because of the price of our shares, our shares
currently constitute "penny stock" within the meaning of the rules, and the
rules would apply to us and our shares. Generally, penny stocks are securities
with a price of less than $5.00. If shares continue to trade for less than $5.00
per share, the shares will be subject to the SEC's penny stock rules, unless (i)
our net tangible assets exceed $2,000,000, or (ii) we have average revenue of at
least $6,000,000 for three years.
The penny stock rules generally require a broker-dealer, prior to a
Transaction in a penny stock, to deliver a standardized risk disclosure document
that provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. As long as our common stock is subject to the penny stock
rules, the holders of the common stock may find it difficult to sell our common
stock.
WE HAVE NOT HELD A SHAREHOLDERS' MEETING SINCE 1998.
Our last shareholders' meeting was held in 1998; we have not held
shareholders' meeting since then, due to cost considerations. Under Nevada law,
if we fail to elect directors within 18 months after the last election of
directors, shareholders with at least fifteen percent of our shares can petition
a Nevada court to compel us to hold a shareholders meeting for the election of
directors. Since our last election of shareholders took place more than eighteen
months ago, we might be subject to such a proceeding. Any such proceeding would
likely be expensive and time-consuming, and there is no provision in the law for
a petitioning shareholder to recover the legal fees and costs incurred.
THE BUSINESS
We design, develop, produce and market diagnostic equipment that
measures, tracks and records human eye movements, utilizing our proprietary
technology and computer software. The products perform separate, but related,
functions and target two separate markets. First, we market 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, our 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.
We were formed in 1989 in Nevada.
INTRODUCTION
The human eye is a very sensitive organ. Eye movements or pupil
reactions are excellent indicators of the presence of disease, drugs or other
conditions which may impair the human ocular motor system. In particular, our
technology deals with the central nervous system condition of nystagmus, a
rapid, involuntary oscillation of the eyeball. Nystagmus occurs in different
forms and has a number of causes, ranging from the serious (e.g., a tumor in the
brain or ear) to the benign (such as positional dizziness). The consumption of
certain drugs and alcohol also causes nystagmus, and there is a direct and
5
quantifiable correlation between blood alcohol concentration in the body and the
angle of onset of nystagmus. Medical research conducted over the past fifty
years has furnished evidence demonstrating a relationship between irregular eye
movement and abnormal central nervous system physiology. The causes of these
conditions are numerous, and include the influences of alcohol, drugs, illness,
stress, extreme fatigue and other neurological conditions.
The basic technology used in all of our products is similar, yet
differs in its application and use. The products utilize infrared sensitive
video cameras to monitor, videotape and analyze eye performance and movement.
All the products share in a modular concept for efficiency in manufacturing. Our
products are PC computer based with specialized and proprietary hardware and
embedded firmware. A common element of the products is the Ocular Motor Module,
where the subject being tested peers into a dark environment. The products
include an infrared sensitive Charge Coupled Device video camera that provide a
bright video image, even though the person being tested sees nothing but a small
stimulus or tracking light amid complete darkness.
Virtually all revenues have been derived from sales of the medical
diagnostic products. To date during 2001, only one impairment detection device
has been sold.
PRODUCTS
MEDICAL PRODUCTS. Eletronystagmographic (ENG) testing is a standard
medical procedure used in assessing problems of the balance system of patients.
This method provides enhanced diagnostic information for the medical
practitioner to use for the final diagnosis of the patient's problem. Testing of
patients for irregular eye movements has been a standard medical procedure for
several decades. For this market segment, we offer the House InfraRed/Video ENG
System. The ENG System is the first major technological improvement in this
standard medical testing method in the past forty years. Our products have
gained a share of this highly specialized market. The FDA granted us approval to
market this product in 1994.
Irregular eye movements and conditions are analyzed by medical
specialists as an aid in diagnosing problems with the human balance system and
other neurological conditions. In the past, diagnostic products have used
electrodes that are taped to the skin around the periphery of the patient's eyes
and a very small electrical signal from the corneoretinal potential of the eyes
drives a pen recorder. The pen recorder provides a graphical depiction of the
eye movements under different test conditions. These graphs then are interpreted
by the medical diagnostician.
We brought the use of infrared illumination of the eyes into clinical
use in 1994 when the U.S. Food and Drug Administration approved marketing of our
House InfraRed/Video ENG System. This device was the first to replace the
electrodes with infrared sensitive video cameras and with computer digital
processing that follow the movement of the eyes and graphically portrays the
movements much like the pen recorder. The test subject wears a lightweight
goggle assembly which uses microminiature video cameras. The goggle is an
essential instrument because certain of the ENG tests require the patient to
move his head and often to recline on an examining table. We believe the
accuracy and display of the Infrared/Video ENG System is much improved over
other existing testing methods. In addition, the use of video by the
Infrared/Video ENG System allows the test administrator or medical practitioner
to observe the eye movements directly and provides a videotape record of the
test for later playback and additional analysis. We believe that this is a
significant improvement over prior technology. This product was first marketed
in 1994, after gaining FDA approval to market. Since then most competitors have
changed from electrodes and are embracing video data acquisition as a superior
technology. Results from the tests are used by physicians and clinicians.
6
The computer-based system, with proprietary eye position interface
controller boards, locks onto the pupils and independently tracks the horizontal
and vertical movements of each eye. The nystagmus is displayed in real time,
saved, analyzed and printed. The four channel system comes with a 12" Quad/Video
monitor that displays both eyes on a single video screen.
We developed the product in conjunction with the House Ear Clinic and
House Ear Institute, Los Angeles, California. The "House" name is used with the
permission of the House Ear Institute.
We believe sales of our electronystagmograph systems represent
approximately 15% of the market for such products.
IMPAIRMENT DETECTION PRODUCTS. Our impairment detection product,
SafetyScope, previously known as the "EPS-100", allows employers and others to
screen individuals for physiological signs of impairment. The system evaluates
involuntary changes in eye movements and/or pupil reactions, which may result
from drug or alcohol abuse, reactions to medication, medical conditions, stress
or fatigue. Occupations in the medical, aviation, emergency response,
manufacturing and transportation businesses are key markets for this technology.
Unlike most drug and alcohol test methods, the SafetyScope functions without the
need for body fluids. Also, due to its less invasive nature, SafetyScope only
reveals if a person is impaired at the time of the test and does not test for
past use. Also, unlike blood and urine tests which only measure the presence of
a substance in the body, the SafetyScope takes into account only the
physiological effects of the substance.
While substance abuse receives the most attention, worker impairment
caused by other factors, such as prescription and over-the-counter medications,
stress, extreme fatigue and illness, is a significant expense to employers.
Workers suffering from such impairments are characterized by low productivity,
more accidents, higher workers' compensation and insurance costs, and equipment
and merchandise damage. Different types of performance tests have evolved based
on extensive scientific studies validating the relationship between test results
and the impaired performance of an individual. They assess an individual's motor
and cognitive skills at the time of the test.
The SafetyScope is based on methods developed by the federal government
and used by law enforcement over the past 25 years. The SafetyScope is a simple
computer system that evaluates the ability of an individual's eyes to follow a
moving light and react to a dim and bright light stimulus. The SafetyScope is
non-diagnostic and non-judgmental; it evaluates performance of the individual
solely for safety and productivity purposes. The initial price for the product
was $15,000, but with redesign and improved components and modest sales volume
the product will be repriced to $8,000, which the we believe is competitive with
the price of professional desktop breath testing analyzers commonly used by law
enforcement for assessment of blood alcohol content levels in individuals.
However, the preferred pricing model is to place the units with the user at no
initial cost, except for a modest deposit, and to charge the user a fee for each
test administered. It is anticipated that the fees for such tests will range
from $1 to $5 per test, depending on the monthly quantity of tests, with an
average of approximately $3 per test.
An employee looks into SafetyScope and focuses on a moving beam of
light. A video camera records the action, and software analyzes eye movement,
smooth or jerky, and pupil reaction, dilation or constriction, and renders a
determination on whether there is impairment. In just ninety seconds, the
SafetyScope tests the human eye for the purpose of evaluating an individual for
impairment, by measuring twenty parameters of eye movement and pupil change,
relating to the position and reaction time of the eye and the size of pupil. The
SafetyScope reports the result of the test instantly with a pass or fail result.
The system does not require bodily fluids such as blood or urine. SafetyScope
offers users major advantages over traditional drug tests, in that the system
can detect on-the-spot impairment and results are immediate. Designed for
workplace testing, whether in a random testing or regular scheduled testing
environment. Traditional drug tests can take days to complete, too late for
detecting a problem the day it occurs.
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SafetyScope can be an important component for evaluating an employee
for job safety, particularly those jobs in life-dependent occupations, such as
airline pilots, bus drivers, train engineers, firefighters, medical personnel,
construction workers and law enforcement personnel, among others. Companies and
government agencies around the world are evaluating this cost- effective
technology to replace traditional drug tests, that require body fluids and are
much more expensive to conduct.
Even in healthy subjects the eyeball exhibits rapid, involuntary,
oscillatory movements, a phenomenon called nystagmus. But as the subject's brain
function becomes increasingly impaired these movements become more and more
erratic. The SafetyScope uses an algorithm developed through thousands of trials
with hundreds of people under the influence of alcohol, heroin, marijuana, and
cocaine. The trials compared their current reading with a baseline reading taken
prior to being dosed with the substance.
We believe that the SafetyScope will be especially useful for
applications where fatigue in the workplace has an impairing effect on workers,
and we have contracted with a major human alertness technology consulting and
research organization to optimize the SafetyScope for fatigueness testing. The
SafetyScope should appeal to employers with round-the-clock workforces who
desire to reduce industrial accidents caused by employee fatigue and to improve
worker alertness and safety. It is estimated that in our society more than 20
million Americans, or over 10% of the workforce, work outside of normal daylight
working hours.
Our second model, the EM/1, is designed for use by law enforcement
agencies for forensic purposes and for the evaluation of individuals suspected
of driving or being under the influence of intoxicants. The EM/1 functions in a
manner similar to the SafetyScope, but without the pass/fail result. Instead,
the EM/1 delivers the videotaped data for interpretation by the law enforcement
agency.
In most states, law enforcement agencies use a six point evaluation of
people thought to be intoxicated. This is referred to as the Standardized Field
Sobriety Test. The Standardized Field Sobriety Test includes three tests for
balance and three tests involving eye performance. Thus, we believe there is a
need for a product that can be utilized, not only in the jail or precinct house,
but in the field by traffic patrol cars. Ultimately, in order to be successful,
this product must be in a handheld configuration.
Hardware for the EM/1 is similar to the SafetyScope, but different
operating software requires that a person trained and certified in SFST and drug
recognition and evaluation operate the equipment and evaluate eye performance.
>From the EM/1 test results and other test information, the evaluator draws an
opinion as to whether the individual is impaired and under the influence of
intoxicants or not, or whether medical treatment is indicated. The video tape
made of the test is then available as evidence to support the conclusion of the
law enforcement officer and, depending on the jurisdiction, may be admissible as
evidence in court proceedings. The EM/1 is currently priced at $14,000 per unit.
We plan to develop a handheld unit, which is still in the concept stage, but
which should sell for less than $5,000.
During the period between 1990 and 1994, we sold a total of 15 units,12
of which were EPS-100 units and three of which were combined EPS-100/EM-1 units.
During 1995 and 1996 we received rental and service income from two units.
During 2000 we sold one EPS-100 (now SafetyScope) unit.
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MARKETING
MEDICAL PRODUCTS. Marketing of the Infrared/Video ENG System is
conducted through a network of independently owned special instrument dealers
("SID's"). These independently owned businesses are distributors of not only the
Infrared/Video ENG System, but of a variety of allied and related products for
the audiometric and otolaryngology markets. These distributors are across the
United States and operate in territories that are assigned exclusively to them.
In addition, there are several foreign distributors that are merchandising the
product in countries such as Egypt, Hungary, Turkey, Thailand, Taiwan and Korea.
We are not yet selling in the European Community countries due to lack of the
"CE" mark of approval that must be obtained prior to marketing in those
countries; however, we are negotiating with potential distributors in the
European Community, who would add locally available computers, monitors and
other peripheral devices to the our proprietary equipment, and then apply for
the "CE" mark, to be awarded to the complete product.
We have also supplied a modified version of the Infrared/Video ENG
System to a distributor on a private label basis. These private label sales
represented approximately 30% of sales of the product during the year 2000. In
March 2001 that distributor terminated its relationship with us; it had not
Completed any purchases since November of 2000. However, shortly thereafter we
entered into an agreement with a new private label distributor under which it is
granted exclusive distribution rights for a private label version of our
electronystagmograph systems within the United States, and it in turn commits to
purchase at least six systems per quarter.
The market for the electronystagmograph products is relatively mature
and represents only annual growth estimated at 5%, but because of the
advancement of technology spurred by our introduction of video data acquisition
methods in 1994, the market for replacement products has been strong and will
continue to be so for the foreseeable future.
Based on American Medical Association data and Company estimates, there
are approximately 3,000 otolaryngologists (specialists in hearing and balance
disorders) in the U.S. Also, based on Company estimates and industry data, there
are about 1500 ENG systems (of all manufacturers) in service (many
otolaryngologists are in groups or clinics that share a single ENG system).
Industry trends have seen gradual replacement of existing ENG systems with
video-based ENG systems, like those marketed by us. We believe, based on
customer information, that market growth is flat, and a high proportion of our
sales over the past few years have been through replacement of older ENG
systems. We gauge our success in this area by tracking the price quotations we
issue in response to requests and our success in capturing potential sales.
Based on this data, we believe that we control approximately 15% of the market.
Replacement sales should be good in general due to the perception among medical
professionals that the new video ENG systems represent a marked improvement over
existing systems, and that the older systems will be replaced over time as funds
become available to otolaryngologists and clinics.
IMPAIRMENT DETECTION PRODUCTS. We have been test marketing the
SafetyScope and have sold a few units in various locales. Currently, independent
sales representatives are being recruited to achieve geographic distribution
coverage over the United States. However, implementation of a full marketing
plan is contingent on receipt of additional working capital.
The market for impairment detection devices is limited somewhat due to
government regulation. In general, government drug testing regulations mandate
urine-based chemical drug testing for pre-employment screening. These
regulations (the Federal Government Mandatory Guidelines for Federal Workplace
Drug Testing Programs, promulgated in 1989)apply to all Federal employees,
federally regulated industries, such as railroads, truck drivers and other
transportation related businesses, and certain businesses that do a minimum
annual amount of business with the federal government. As a result, testing of
employees by governmental agencies, quasi-governmental agencies and certain
regulated industries comply with these regulations. Accordingly, some
modification of these regulations must be achieved in order for the SafetyScope
to gain broad acceptance in this sector. Also, industries that are regulated by
the Department of Transportation must comply with these regulations, as well as
certain other industries regulated by the federal government, such as the
nuclear power industry. These regulations, by specifying urine based drug
testing, effectively preclude the use of impairment detection methods and
devices, unless the individual employer decides to use impairment detection
devices in addition to urine based drug testing. This would place a financial
burden on the employer. This situation effectively limits the overall size of
the market for impairment detection devices to those businesses and industries
that are not considered federally regulated as to drug testing methods.
9
The market for impairment detection devices can be expanded if the
federal drug testing regulations can be modified, or changed to include, as an
option, the use of impairment detection devices in lieu of urine based drug
testing. We are actively involved with various government agencies to modify
applicable regulations and procedures so that they will encompass testing based
on eye movement and performance. While certain governmental agencies have
expressed an interest in the products, management believes that changing
governmental testing regulations will be a lengthy process and success is not
assured. The trend in this area has been to expand the available types of
testing; for example, some state government agencies have recently embraced
saliva testing as an alternative to urine testing.
COMPETITION
MEDICAL PRODUCTS. The principal competitors in the medical market
making ENG testing equipment are Micromedical Technologies, Inc., ICS Medical
Corporation and SensoMotorific Inc. Since the our ENG product was introduced in
1994, competitors have developed similar video-based ENG goggle products; as a
result, the market has become very competitive and subject to pricing pressures.
As a consequence, we have reduced prices, with an adverse effect on overall
gross margins. To combat this competitive pressure we reduced manufacturing
costs in an effort to offset the gross margin loss.
IMPAIRMENT DETECTION PRODUCTS. Competition for the SafetyScope is from
companies that have developed tests and devices that evaluate motor and
cognitive skills. These take the form of hand-eye coordination tests, divided
attention tests and other behavioral tests or series of tests administered
either in series or selectively. At least three competitors have marketed these
products in the past, including Performance Factors, Inc., Essex Corporation,
and Pulse Medical Instruments.
We believe only Pulse Medical Instruments is developing a product to be
directly competitive with our products. The Pulse Medical product does not use
video sensors and its results are displayed in graphic form on a computer
monitor for the qualified expert to interpret. We believe that such product will
be more expensive than the SafetyScope and is still being developed and
validated as a useful device.
The SafetyScope differs from its competitors' tests because the
SafetyScope test evaluates changes in eye performance which are involuntary
responses and not under the control of the individual. For this reason, these
responses cannot be changed, improved upon or learned. All the other competitive
forms of performance tests known of which we are aware can be learned and over
time the individual being tested can improve his skills. We believe that this
difference is an important competitive advantage over other forms of performance
tests.
The SafetyScope also competes with drug and alcohol abuse test kits and
devices, which principally rely on collection and testing of urine samples. In
addition, certain drug and alcohol abuse tests now being developed will test
saliva and/or hair for evidence of drug or alcohol abuse. The main advantage the
product has over many others tests is the immediacy of results and
non-invasiveness of the procedure. We believe that the potential for safety that
it will provide for life-dependent professions such as airline pilots, bus
drivers and train engineers will make the system a very important breakthrough.
MANUFACTURING
We have performed all our own design and engineering of products and
have developed all software and validation of software algorithms that are used
in the analysis portion of the proprietary software.
Manufacturing of both the electronystagmograph products and the
SafetyScope is primarily done through subcontracting with various suppliers, and
we do not rely on a single supplier for the major manufacturing of items.
Various companies build and test product modules on an OEM contract basis. Final
system integration and testing is completed inhouse prior to shipment of devices
to customers. All the products share in a modular concept for efficiency in
manufacturing. The products are PC Computer based with specialized and
proprietary hardware and embedded firmware. The common element of the three is
the viewport, where the individual being tested peers into a dark environment.
10
Manufactured or fabricated modules include the molded eye piece, the
goggle assembly, the viewport assembly and proprietary printed circuit boards.
As a majority of the components in the products are readily available, we do not
anticipate undertaking internal manufacturing of any components. Manufacturing
operations consist of only assembly, testing and packaging functions.
GOVERNMENT REGULATION
The electronystagmograph medical product is a Class 11 Medical Device,
subject to regulation by the U.S. Food and Drug Administration (FDA). As such,
preparation of a 510k submission and its acceptance is required to gain FDA
approval to market the device. Preparation of a 5lOk submission includes a
comprehensive description of the device and its comparison to other listed
devices that perform the same or similar functions, in order to support a claim
that the device is substantially equivalent to currently listed devices. In
addition, other clinical evidence that the proposed product can perform to the
standards of currently listed devices is necessary. Safety and effectiveness are
the primary standards that must be met prior to gaining FDA approval to market
the device. Our ENG products have been approved for marketing by the FDA. We are
also licensed by the State of California as a Medical Device Manufacturer.
Most other countries accept the FDA approval to market as the approval
to market in their country. Some countries, such as South Korea, require
submission by the importer/distributor of technical information in addition to a
copy of the FDA approval to market. We do not market our ENG systems in Japan
since Japan requires a special submission to Japan's equivalent to the FDA, and
we have concluded that it is not economically practicable to prepare and file
such a submission.
The SafetyScope and EM/1 are not subject to regulation by the FDA, as
they are not considered medical devices. However, as discussed above under the
caption "Marketing," governmental regulations on substance abuse testing for
government employees and certain private companies impact our ability to market
the SafetyScope in these areas.
PATENTS & PROPRIETARY PROTECTION
We license the technology used in the performance evaluation products
from Ronald A. Waldorf, Chairman of the Board of Directors, who holds a patent
covering claims relating to tracking eye movements in the dark, utilizing
infrared illumination and infrared sensitive video cameras, as well as the
related analysis methodology. The patent was issued in 1989 and expires in 2006.
The license is for the term of the underlying patent, and calls for nominal
annual royalties of $100. The license is exclusive to us, and can be terminated
only for material breach of the terms.
Within our company we own a patent issued in August 1992, covering
certain Technology underlying the SafetyScope, principally relating to the
apparatus for testing for impairment by tracking eye movements and pupil
reactions to presented stimuli. This patent expires in 2009.
The existence of patents may be important to our future operations but
there is no assurance that additional patents will be issued. For both of the
above named patents, eleven foreign patents have been issued and/or are pending
in several foreign countries.
We also rely on unpatented technology, know-how and trade secrets
covering a number of items, particularly the methods of obtaining data regarding
eye performance. We also rely on confidentiality agreements and internal
procedures to protect such information.
11
RESEARCH AND DEVELOPMENT
Our research and development activities consist principally of seeking
new applications for our technology and developing new features and capabilities
in response to customer input. Research and development expenditures were
$49,000 in 1999 and $45,286 in 2000. These expenditures were primarily
attributable to costs associated with development of the SafetyScope product
line and upgrading the medical product software and hardware to a Windows
configuration during 1999 and 2000.
EMPLOYEES
We employ three employees full time, including our President, a
development engineer and a marketing manager. Other part time consulting and
commissioned personnel are also utilized. The employees are not parties to any
collective bargaining agreement, and our employee relations are satisfactory.
FACILITIES
Our offices are in leased space in an industrial complex Torrance,
California. The offices are 960 square feet in size and the lease expires on
April 30, 2002.
USE OF PROCEEDS
We will not receive any of the proceeds from this offering. The
offering is made by the selling shareholders, who will retain any proceeds from
such sales.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with our Consolidated Financial Statements and Notes thereto included in this
Prospectus. Except for items of a purely historical nature, this discussion
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. Our actual results may differ significantly from the results
discussed in the forward-looking statements, as a result of factors including
those discussed in "Risk Factors."
We have invested over $1.3 million over ten years developing and
validating our products; most of these funds were spent at the outset of
development and include the costs for clinical and field trials of the products.
Later expenditures involved converting the medical products over to a Windows
operating system, which involved both hardware and software development and
redesign. We are successfully producing and marketing the Infrared/Video ENG
System; however, since this is a niche product in a relatively mature market,
potential revenue growth from this product line is limited. To date, sales of
this product have constituted virtually all of our revenues.
The SafetyScope product or its predecessor, the EPS-100 Performance
System, has been sold in a few locales and beta marketing has been successful.
For large scale sale of this product we need to have federal drug testing
regulations modified. This is a significant project requiring a coordinated
effort with potential users, government officials and the help of legislative
bodies. Therefore, additional investment capital is required to launch the
marketing of the SafetyScope. A large scale marketing and lobbying effort will
be necessary for this product to succeed.
12
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.
Revenues from sale of products decreased by 8% from $847,416 in 1999 to $779,996
in 2000. This decrease is due to reduced unit sales of the Infrared/Video ENG
System, which resulted from increased competition, particularly from foreign
manufacturers, and a generally flat market. Also, our private label customer
discontinued purchases in November of 2000. Unit prices remained stable. Cost of
sales decreased by 7%, due to a decrease in units sold. Operating expenses
increased by 30%, due principally to a change in the marketing of the ENG
products, as described below, as well as costs associated with the introduction
of the "SafetyScope" product line. Net loss increased by $256,863, or 562%, due
to the increase in operating expenses and $88,000 in consulting expense (which
was paid in stock).
The increase in operating expense is due in part to a change in the
method of distributing medical products, which started midway through 1998 and
into 1999; before that time we had sold principally to a single distributor,
which in turn sold through a dealer network and some direct salesmen. In July of
1999 we terminated the contract with the distributor and started selling
products directly to the dealer network or to the end customer, and paying a
commission to the dealer. One result of this change is an increase in the gross
profit, because of the simplified selling structure, and an increase in selling
and commission expense, since these items had previously been borne by the
distributor. Under the previous system the discount from retail price was
generally 50%, whereas in the current system discount is generally 25%, or when
invoiced directly to the end user, a commission of 25% is paid. The change also
requires us to assume the responsibilities and the expenses associated with
performing marketing functions, such as attendance at trade shows, travel
expenses for marketing activities, production and printing of collateral
materials, seminars and workshops, and internal technical support services. We
believe that the savings resulting from the changed structure exceed the costs,
since the increased gross profit more than offsets the additional expenses.
Inventory turnover ratio in 1999 was approximately 7:1 and in 2000 was
5.7:1. This reduced turnover was caused by the reduction in purchasing during
November and December by the private label customer. The reduction in purchasing
lowered revenues and left us with about $8000 of inventory that was acquired to
supply the customer in November and December, but was not sold.
The increase in accounts receivable at year end came from sales in
October that were almost double the average month for the year, principally due
to a medical convention and related promotions during the month. Average days
outstanding is approximately 60 days throughout the year. October was unusual by
its volume of revenues which caused the accounts receivable to spike at year
end.
Also, inventories increased because of component purchases in
anticipation of product purchases by the original private label customer;
however, we believe these excess inventory items will be utilized in the
assembly of products for the new private label customer.
Prepaid expense at December 31, 2000 included $68,833 of unamortized
expenses relating to the six month strategic planning and marketing program
commenced in September. The balance of prepaid expenses was $1,635 of prepaid
liability insurance premiums.
NINE MONTHS ENDED SEPTEMBER 30,2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000. The first three quarters of the year saw the continuance of
our project to publicize and increase awareness of the SafetyScope product. We
are also starting pre-marketing discussions with potential customers and
distributors of the product. The business plan for full commercialization of the
SafetyScope has been circulated to several potential funding sources, but no
funding arrangements have yet been concluded. However, discussions with several
interested funding sources are ongoing.
Sales of $482,793 for the period of nine months were 7% lower than
sales of $520,131 (restated) for the preceding nine months. However, sales
during the third quarter of $207,977 were 25% higher than the sales of $165,711
during the corresponding quarter of the prior year.
13
Gross profit for the nine months ended September 30, 2001 of 58.4% is
improved somewhat from gross profit of 55.2% for the corresponding period of the
prior year.
Loss for the nine month period was $416,478, compared to a loss for the
preceding period (restated) of $183,118. The principal reason for the losses in
2001 is the cost associated with the pre-commercialization program for the new
product, SafetyScope, an impairment detection instrument. Expenses for the
SafetyScope project were $57,526 for the third quarter.
Sales spiked in September because of a large trade show held each year
for physicians that use our medical product. In 2000 the sales spike occurred
in October, because the trade show was held at the very end of September.
Even though September sales were over $100,000, we are experiencing a
softness in receipt of new orders. The events of September 11th occurred in the
middle of the annual trade show, and since then potential customers have been
hesitant to place new orders. Accordingly, the effect of a market slowdown will
be evident in the fourth quarter of the year.
To partially offset the slowdown we have taken on the task of doing
setup and training of operators for the equipment we sell to our private label
customer . This provides some additional revenue beyond that of equipment sales.
Orders from the private label customer continue strong with a peak of
five systems being shipped in September. It appears that the expected average of
three systems each month will be achieved.
Also, we added a new product, an air caloric irrigator, for stimulating
ears with external otitis or a perforated tympanic membrane, to our medical
product line. This augments the water caloric irrigator that has been offered
for the last two years. This product is sourced from Germany and enhances our
product offerings.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, we had an accumulated deficit of
approximately $3,698,810. As of the same date, we had only $20,546 in cash and
approximately $109,759 in accounts receivable. Also, we had $872,359 of current
liabilities, consisting principally of obligations to a former distributor under
a single promissory note and accrued interest on that note, as well as
obligations to the distributor in connection with the resale of certain
inventory returned by the distributor. The note payable became due on December
31, 1999. We are engaged in negotiations with the former distributor concerning
possible restructuring of the obligation, but the holder has not declared a
default or demanded payment. Settlement discussions include a possible
conversion of the obligations into common stock and a possible new payment
schedule based on revenues from the SafetyScope commercialization project.
We have no plans for significant capital equipment expenditures for the
foreseeable future.
Our available cash and other current assets may be insufficient to
continue operations for more than a few months. Accordingly, it is likely that
we will require an additional infusion of cash in the near future to continue
operations, and we can't be sure that financing will be available . If the
holder of the note described in "Risk Factors- We Are in Default Under Certain
Obligations" were to demand payment of the note and related obligations, we
would be unable to pay and might be subject to collection proceedings. Also, we
can't be sure that future events will not cause us to require additional capital
sooner, including, for example, if we are unable timely collect outstanding
accounts receivable. If we are unable to secure such financing, we may be unable
to continue as a going concern. If we raise additional funds by issuing equity
or convertible debt securities, options or warrants, further dilution to the
existing shareholders may result.
14
If adequate funds are not available, we may also be required to delay,
scale back or eliminate our product development efforts or to obtain funds
through arrangements with strategic partners or others that may require us to
relinquish rights to certain of our technologies or potential products or other
assets. Accordingly, the inability to obtain such financing could result in a
significant loss of ownership and/or control of our proprietary technology and
other important assets and could also adversely affect our ability to continue
product development efforts, which we believe contributes significantly to our
competitive advantage. If any of such circumstances were to arise, our business,
financial condition and results of operations could be materially and adversely
affected.
The report of our independent accountants with respect to our past two
fiscal years contains an explanatory paragraph regarding our ability to continue
as a going concern, and expresses substantial doubt about such ability, As a
result of our recurring losses, as well as cash flow and working capital
problems. We can't be sure that we will ever receive the funds necessary for us
to continue as a going concern or to operate our business. Also, the existence
of the going concern language is a matter of public information, and makes it
more difficult to raise capital, to attract high quality employees, and to
receive credit from suppliers and vendors.
EFFECT OF INFLATION
We believe that inflation has not had a material effect on our net
sales or profitability in recent years.
PRICE RANGE OF COMMON STOCK
The following table sets forth the quarterly high and low closing
prices for the Common Stock, as reported on the OTC Bulletin Board, during the
1999 and 2000 fiscal years, as well as the first three quarters of 2001 and the
fourth quarter of 2001 (through November 21, 2001). The prices represent
inter-dealer quotations, which do not include retail markups, markdowns or
commissions, and may not represent actual transactions.
LOW HIGH
2001
First Quarter .30 ..52
Second Quarter .22 ..48
Third Quarter .09 ..28
Fourth Quarter (through November 21, 2001) .08 ..17
2000
First Quarter .41 ..90
Second Quarter .09 ..53
Third Quarter .09 ..70
Fourth Quarter .25 ..53
1999
First Quarter .14 ..46
Second Quarter .13 1.30
Third Quarter .37 ..87
Fourth Quarter .02 ..37
Our common stock is traded on the OTC Bulletin Board under the symbol
"EYDY". As of October 8, 2001, it was held of record by approximately 115
holders. Registered ownership includes nominees who may hold securities on
behalf of multiple beneficial owners.
15
We have paid no cash dividends on our Common Stock and have no present
intention of paying cash dividends in the foreseeable future.
MANAGEMENT
The directors, executive officers and significant employees of the
Company are as follows:
NAME AGE POSITION
Charles E. Phillips 66 President, Treasurer & Director
Ronald A. Waldorf 52 Vice President, Secretary & Director
Arnold D. Kay 66 Director
Barbara J. Mauch 55 Chief Product Development Engineer
The directors are elected annually at the Annual Shareholders Meeting
and the term of office is one year.
CHARLES E. PHILLIPS has been President and a Director of the Company
and its predecessor, OculoKinetics, Inc. since its inception in 1988. Prior to
forming OculoKinetics, Inc., Mr. Phillips operated Charles E. Phillips, Inc., a
management and marketing consulting firm. His work has included assignments in
marketing, operations and the initiation of start-up ventures. From 1974 to
1985, Mr. Phillips was Executive Vice President and Director of Akai America,
Ltd., a consumer electronics company. His management background has encompassed
marketing, new product planning, sales, advertising, finance, accounting,
manufacturing, quality assurance and distribution.
Mr. Phillips received a B.A. from Pepperdine College, Los Angeles,
California with emphasis on Business and Speech Education, in 1956.
RONALD A. WALDORF has been Chairman of the Board of Directors of the
Company since 1991 and is active in overall policy formation and strategic
planning for the Company. He is the inventor of the IR/Video ENG System,
SafetyScope and EM/1 products. He also owns a patent covering closely related
technology that has been licensed exclusively to the Company. Since 1969 Waldorf
has been active in the field of otolaryngology, primarily in an academic
research environment at the University of Florida, College of Medicine and at
the University of California (Irvine), Department of Surgery. He has published
numerous articles on vestibular and optokinetic research in international
scientific and medical journals and was the principal investigator in a research
grant funded by the National Institute of Health/National Institute on Alcohol
Abuse and Alcoholism (NIH/NIAAA). Since 1981 he has acted as a consultant to
clinics and hospitals in the Los Angeles area, including the House Ear Clinic.
In the past he has also consulted with a Japanese company developing new
technologies for eye movement detection.
16
Waldorf earned an M.S. in from the Department of Physiology of the
College of Medicine, University of Florida, in 1972.
ARNOLD D. KAY was elected a Director in September 1999. He has more
than thirty years experience in finance, sales and administration. Mr. Kay was
an employee of the Company from 1991 to 1994. He currently is co-owner and
General Manager of Lomita Blueprint/CADWEST of Lomita, California, a software
and computer imaging business focusing in design, graphics and distribution of
CAD software and systems.
Mr. Kay received a B.S. in Business Administration/Finance from
California State University, Northridge, in 1961.
BARBARA J. MAUCH is the primary product development engineer for the
Company. She has been with the Company since 1989 and is responsible for product
engineering and software development. Her background encompasses computer
systems design and software development for access control of buildings and
other properties. She served as a Director of the Company from 1991 to 1996.
Ms. Mauch earned a B.S. in Mathematics from Northern Colorado
University, in 1971 and completed the Master's program in computer science at
UCLA.
DIRECTORS' COMPENSATION
The members of the Board of Directors do not receive any compensation
for their service as directors, but are eligible for reimbursement of their
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation we awarded or paid
to our President and Chief Executive Officer during the fiscal years ended
December 31, 2000 and December 31, 1999. No other executive officer's total
annual salary and bonus for services exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL
COMPENSATION AWARDS PAYOUTS
RESTRICTED
STOCK LTIP ALL OTHER
NAME AND SALARY BONUS OTHER AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR $ $ $ $ # $ $
Charles E. 2000 64,500 0 0 0 100,000 0 0
Phillips 1999 60,000 0 0 0 20,000 0 0
1998 48,000 0 0 280 (1) 0 0 0
--------------------------
(1) Consists of 280,000 shares issued during 1998. The shares were not subject
to any vesting requirements. The value of the shares at December 31, 2000 was
$86,800.
17
The following table sets forth information as to options granted during
2000:
NO. OF
SHARES
SUBJECT TO
OPTIONS %
GRANTED TO OF TOTAL EXERCISE EXPIRATION
OPTIONEE OPTIONEE OPTIONS PRICE DATE
Charles E. Phillips 100,000 67% .15 February 2003
No options were exercised during 2000. The following table sets forth
certain information concerning options outstanding at December 31, 2000:
Number of Value of Unexercised
Shares Unexercised In-the-money
Acquired on Value Options at Options at
Exercise Realized December 31, 2000* December 31, 2000*
Name
Charles E. Phillips 0 0 120,000 $15,000
Ronald Waldorf 0 0 120,000 $29,900
Arnold Kay 0 0 10,000 0
*All currently exercisable
Mr. Phillips is employed pursuant to an Employment Agreement entered
into in 1989. The initial five-year term of the Employment Agreement has
expired, but it is has been automatically renewed on an annual basis since that
date. The Employment Agreement calls for an annual salary of $90,000, as well as
discretionary bonuses. However, as noted in the foregoing table, the Company has
not paid the full amounts due, as a result of cash flow considerations. Mr.
Phillips has agreed to forgive the shortfall for these years. The Employment
Agreement also provides for a termination benefit; if Mr. Phillips is terminated
due to disability, we are to pay his full salary for six months thereafter and
50% of his salary for the following six months. Also, if we terminate his
employment without cause, or refuse to extend the agreement for any reason, we
must pay him al least one year's salary.
Barbara Mauch is employed as Chief Product Development Engineer
pursuant to an Agreement entered into in 1990. The Agreement currently calls for
annual compensation of $70,000 per year. However, as noted in the foregoing
table, the Company has not paid the full amounts due, as a result of cash flow
considerations. Ms. Mauch has agreed to forgive the shortfall for these years.
TRANSACTIONS WITH MANAGEMENT
Since our inception we have borrowed funds for working capital purposes
from Charles E. Phillips, our President and Chief Executive Officer, and Ms.
Barbara Mauch, an employee and shareholder, under various promissory notes. The
notes are unsecured and bear interest at 10% per annum. As of December 31, 1999,
the principal balance of loans from Charles E. Phillips was $14,491, all of
which was repaid in January 2000, and the principal balance of loans from
Barbara Mauch was $8,701, all of which was repaid in January 2000. No interest
has been paid on either loan, and accrued interest as of March 31, 2001 was
$40,266 owed to Mr. Phillips and $22,069 to Ms. Mauch. The accrued but unpaid
interest bears interest at the same rate as the underlying loan. During 2001 Mr.
Phillips has loaned us an additional $25,000, on the same terms.
We maintain a line of credit with a commercial bank, which line of
credit is guaranteed by Mr. Phillips. The maximum amount of the line of credit
is $65,000; at June 30, 2001 the outstanding balance was $54,883. The line of
credit bears interest at 2.75% over the bank's prime lending rate and is secured
by all of our assets.
18
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of October 15, 2001, by (i) each person known
to us to beneficially own 5% or more of our outstanding Common Stock; (ii) each
of our directors; (iii) the Named Executive Officers identified in the Summary
Compensation Table; and (iv) all directors and Named Executive Officers as a
group.
Name & Address Number of Shares Percentage Owned
Charles E. Phillips 2,242,489 (1) 18.8
2301 W. 205th St., #106
Torrance, CA 90501
Ronald A. Waldorf 1,815,315 (2) 15.3
2301 W. 205th St., #106
Torrance, CA 90501
Barbara J. Mauch 1,432,544 (3) 12.0
2301 W. 205th St., #106
Torrance, CA 90501
Arnold D. Kay 316,316 (4) 2.7
2301 W. 205th St., #106
Torrance, CA 90501
All directors, executive 5,806,664 48.8
officers and key employees
as a group (4 persons)
-----------------------
(1) Includes 120,000 shares covered by options exercisable within 60 days
(2) Includes 120,000 shares covered by options exercisable within 60 days
(3) Includes 50,000 shares covered by options exercisable within 60 days
(4) Includes 10,000 shares covered by options exercisable within 60 days
19
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Shares of Common Stock subject to
securities currently convertible, or convertible within 60 days after March 15,
2001, are deemed to be outstanding in calculating the percentage ownership of a
person or group but are not deemed to be outstanding as to any other person or
group.
THE SELLING SHAREHOLDERS
In the fall of 2000 we completed a private placement with a group of
four investors. We sold a total of 1,000,000 units, with each Unit consisting of
one share, one warrant to purchase a Common Share at an exercise price of $.35
per share, and one warrant to purchase a share of Common Stock at an exercise
price of $.75 per share. The price per unit was $.20. Each warrant is
exercisable for one year from issuance. No commissions were paid in connection
with the transaction. The Company is required to register the resale of all of
the shares issued in the private placement, including the shares issuable upon
exercise of the Warrants.
The following table sets forth certain information as of March 31, 2001
regarding the ownership of the common stock by the selling shareholders and as
adjusted to give effect to the sale of the shares offered in this prospectus.
Shares Owned Prior Shares Owned
Selling To Offering(1) Shares After Offering
Shareholder Number Percentage Offered Number Percentage
William Stanimir 750,000 6.4% 750,000 0 0
Jim Pratt 750,000 6.4% 750,000 0 0
John D. Gunther 750,000 6.4% 750,000 0 0
Joseph Terek 750,000 6.4% 750,000 0 0
-------------------
(1) Includes shares issuable upon exercise of warrants.
Neither the selling shareholders nor any of their officers or directors
have held any positions or office or had any other material relationship with
the Company or any of its affiliates within the past three years.
20
PLAN OF DISTRIBUTION
The shares are being offered on behalf of the selling shareholders, and
we will not receive any proceeds from the offering. The selling shareholders, or
persons to whom they transfer their shares, may sell their shares directly to
one or more purchasers or through brokers or dealers, who may act as agent or
principal. Sales may be at market prices, at negotiated prices, or at fixed
prices, which may be subject to change. Sales may be effected through ordinary
brokers' transactions, through transactions involving cross or block trades, and
through purchases by brokers or dealers as principal. Shares may also be sold to
or through market makers, including direct sales to purchasers or sales through
agents. The selling shareholders also may enter into option or other
transactions with broker-dealers that require the delivery of the shares, which
shares may then be resold pursuant to this prospectus. We cannot be certain that
all or any of the shares of common stock will be sold by the selling
shareholders.
Brokers or dealers participating in sales of the shares as agents may
receive compensation in the form of commissions, discounts or concessions from
the selling shareholders and/or purchasers of the shares. The selling
shareholders and any broker-dealers or other persons involved in the sale may be
treated as "underwriters" within the meaning of the Securities Act, and any
commissions they receive and proceeds of any sale of the shares may constitute
underwriting compensation. Neither the Company nor the selling shareholders can
presently estimate the amount of such compensation. The Company knows of no
existing arrangements between the selling shareholders and any other
shareholders, brokers, or dealers relating to the sale of the shares.
The selling shareholders and any other persons involved in the sales
will be subject to the Securities Exchange Act, which may limit the timing of
purchases and sales of the shares by the selling shareholders or any other such
persons. The foregoing may affect the marketability of the common stock.
We will pay substantially all of the expenses incidental to the
registration, offering and sale of the shares to the public, other than any
commissions or discounts of underwriters, broker- dealers or agents. We and the
selling shareholders have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
DESCRIPTION OF COMMON STOCK
We are authorized to issue 50,000,000 shares of common stock, par value
$.001 per share. The holders of common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. If
dividends are declared, whether payable in cash, property or securities, holders
of our common stock are entitled to share equally in such dividends. In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company, each holder of common stock will be entitled to share equally in
the assets available for distribution. Holders of shares of common stock have no
preemptive rights to acquire any additional shares of the common stock and have
no cumulative voting rights.
21
EXPERTS
Harold Y. Spector, CPA, independent accountant, has audited our
consolidated financial statements at December 31, 2000 and 1999, and for the
years then ended, as set forth in his report (which report contains an
explanatory paragraph describing conditions that raise substantial doubt about
our ability to continue as a going concern as described in Note 16 to the
consolidated financial statements). We have included our consolidated financial
statements in this prospectus and registration statement in reliance on Harold
Y. Spector's report given on his authority as an expert in accounting and
auditing.
LEGAL MATTERS
Certain legal matters with respect to the legality of the shares of
Common Stock offered hereby will be passed upon for the Company by Haddan &
Zepfel LLP, Newport Beach, California.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the Securities
and Exchange Commission, or the SEC, for the stock offered by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement for
additional information about us, our common stock and this offering, including
the full texts of the exhibits, some of which have been summarized in this
prospectus.
We are subject to the reporting requirements of the Securities Exchange
Act of 1934 and, in accordance with that Act, we file reports, proxy statements
and other information with the SEC. We intend to furnish our stockholders with
annual reports containing financial statements audited by independent
accountants, quarterly reports containing unaudited financial statement for the
first three quarters of each fiscal year, and other periodic reports as we may
deem appropriate or as we may be required by law. You may inspect and copy our
registration statement, reports and other information at the SEC's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information about the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains our registration statement, reports and
other information that was filed electronically, at www.sec.gov.
22
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
AUDITED FINANCIAL STATEMENTS
Independent Auditor's Report F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the years ended F-4
December 31, 2000 and 1999
Consolidated Statements of Stockholders' Deficit for the F-5
years ended December 31, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended F-6
December 31, 2000 and 1999
Notes to Consolidated Financial Statements F-7
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of September 30, 2001 (unaudited) F-18
Consolidated Statements of Operations for the nine months F-19
Ended September 30, 2001 and 2000 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended F-20
September 30, 2001 and 2000 (unaudited)
Notes to Consolidated Financial Statements F-21
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
of Eye Dynamics, Inc.
I have audited the accompanying consolidated balance sheet of Eye Dynamics, Inc.
(a Nevada corporation) and its subsidiary, Oculokinetics, Inc. (a California
corporation), as of December 31, 2000 and 1999, and the related consolidated
statements of operations, changes in stockholders' deficit, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these consolidated financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Eye
Dynamics, Inc. and its subsidiary as of December 31, 2000, and the results of
their consolidated operations and their consolidated cash flows for the years
ended December 31, 2000 and 1999, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 16 to
the consolidated financial statements, the Company's deficit in stockholders'
equity and working capital raise substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters are also
described in Note 16. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Harold Y Spector, CPA
Pasadena, California
February 16, 2001
(Except for Note 8, the date is
June 19, 2001 and for Note 2,
the date is November 1, 2001)
F-1
EYE DYNAMICS, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
---------- ----------
Current Assets
Cash and Cash Equivalents $ 85,688 $ 50,580
Accounts Receivable 158,474 119,228
Employee Advances 2,524 0
Inventories 59,732 50,083
Prepaid and Unamortized Expenses 70,469 4,952
---------- ----------
Total Current Assets 376,887 224,843
---------- ----------
Property and Equipment
Furniture and Fixtures 1,432 1,432
Equipment 13,331 13,331
---------- ----------
14,763 14,763
Less: Accumulated Depreciation (10,279) (7,612)
---------- ----------
Total Property and Equipment 4,484 7,151
---------- ----------
Other Assets
Deposits 11,964 15,992
---------- ----------
Total Other Assets 11,964 15,992
---------- ----------
TOTAL ASSETS $ 393,335 $ 247,986
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
F-2
EYE DYNAMICS, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT
2000 1999
------------ ------------
Current Liabilities
Accounts Payable $ 27,271 $ 46,491
Accrued Interest 270,729 235,100
Other Accrued Expenses 20,458 40,046
Deposit from Shareholders 0 7,758
Notes Payable, current Portion 417,249 430,191
------------ ------------
Total Current Liabilities 735,707 759,586
------------ ------------
Stockholders' Deficit
Common Stock, $.001 par value,
50,000,000 shares authorized;
11,416,313 shares issued and
outstanding at December 31, 2000;
9,139,460 shares at December 31, 1999 11,416 9,139
Paid-in Capital 2,928,544 2,459,063
Accumulated Deficit (3,282,332) (2,979,802)
------------ ------------
Total Stockholders' Deficit (342,372) (511,600)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 393,335 $ 247,986
============ ============
The accompanying notes are an integral part of these
consolidated financial statements
F-3
EYE DYNAMICS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000 and 1999
2000 1999
------------- -------------
SALES $ 779,996 $ 847,416
COST OF SALES 342,958 370,143
------------- -------------
GROSS PROFIT 437,038 477,273
OPERATING EXPENSES 630,366 483,137
------------- -------------
LOSS FROM OPERATIONS (193,328) (5,864)
------------- -------------
NONOPERATING INCOME (EXPENSES)
Other and Interest Income 16,121 190
Consulting Expense - Nonoperating (88,000) 0
Interest Expenses (35,723) (38,393)
------------- -------------
Total Other Income (Expenses) (107,602) (38,203)
------------- -------------
LOSS BEFORE TAXES (300,930) (44,067)
PROVISION FOR INCOME TAXES 1,600 1,600
------------- -------------
NET LOSS $ (302,530) $ (45,667)
============= =============
Net Loss per share - Basic and Diluted $ (0.03) $ (0.01)
============= =============
Weighted Average shares outstanding 10,180,433 8,948,383
============= =============
The accompanying notes are an integral part of these
consolidated financial statements
F-4
EYE DYNAMICS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Years ended December 31, 2000 and 1999
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
---------------------------------------------------------------------
Balance at December 31, 1998 8,300,627 $ 8,300 $ 2,333,027 $(2,934,135) $ (592,808)
Issuance of stock for consulting 88,833 89 33,036 33,125
Exercise of stock options 750,000 750 93,000 93,750
Net Loss (45,667) (45,667)
---------------------------------------------------------------------
Balance at December 31, 1999 9,139,460 $ 9,139 $ 2,459,063 $(2,979,802) $ (511,600)
Issuance of stock to financial advisor 400,000 400 87,600 88,000
Issuance of stock for consulting
fees payable 76,853 77 19,423 19,500
Issuance stock for strategic
planning and marketing 1,000,000 1,000 199,000 200,000
Private placement sales 750,000 750 149,250 150,000
Issuance of stock for public relations 50,000 50 6,450 6,500
Shareholder's contribution 7,758 7,758
Net Loss (302,530) (302,530)
---------------------------------------------------------------------
Balance at December 31, 2000 11,416,313 $ 11,416 $ 2,928,544 $(3,282,332) $ (342,372)
=====================================================================
The accompanying notes are an integral part of these
consolidated financial statements
F-5
EYE DYNAMICS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000 and 1999
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(302,530) $ (45,667)
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation 2,667 2,597
Issuance of stock for Consulting Fees 88,000 33,125
Issuance of stock for Public Relations 6,500 0
Issuance of stock for Strategic Planning 200,000 0
(Increase) Decrease in:
Accounts Receivable (39,246) (608)
Employee Advances (2,524) 0
Inventories (9,649) 10,180
Prepaid Expenses 3,316 (4,952)
Unamortized Expenses (68,833) 0
Deposits 4,028 (9,851)
Increase (Decrease) in:
Accounts Payable (19,220) (46,037)
Accrued Interest 35,629 36,834
Accrued Expenses (88) (17,289)
---------- ----------
NET CASH (USED) BY OPERATING ACTIVITIES (101,950) (41,668)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment 0 (699)
---------- ----------
NET CASH (USED) BY INVESTING ACTIVITIES 0 (699)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposit from shareholders 0 7,758
Proceeds from exercise of options 0 93,750
Proceeds from sales of stock 150,000 0
Proceeds from notes payable 10,250 0
Payments to line of credit 0 (45,013)
Payments to officers' loans (23,192) 0
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 137,058 56,495
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 35,108 14,128
BEGINNING OF YEAR 50,580 36,452
---------- ----------
END OF YEAR $ 85,688 $ 50,580
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash Paid During the Year for:
Interest $ 94 $ 1,559
========== ==========
Income Tax $ 1,600 $ 1,600
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
F-6
EYE DYNAMICS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2000 and 1999
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for:
Consulting Fee Payable $ 19,500
Public Relation Expense 6,500
Consulting Expense 88,000
Strategic Planning and Marketing 200,000
---------
$314,000
=========
Conversion of Deposit from Shareholder of $7,758 into Paid-in Capital.
The accompanying notes are an integral part of these
consolidated financial statements
F-7
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 1 - NATURE OF BUSINESS
Eye Dynamics, Inc. ("the Company") was formed under the laws of Nevada on August
7, 1989 under the name Petro Plex, Inc. and adopted later as Drug Detection
Systems, Inc. The Company changed its name to Eye Dynamics, Inc. and became
qualified as a foreign corporation in California on November 2, 1992.
The Company markets and distributes diagnostic equipment that utilizes 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Oculokinetics, Inc. (a California
corporation), after elimination of all material intercompany accounts and
transactions.
The subsidiary had no operations in both years of 2000 and 1999. All revenue is
derived from the Company.
Use of estimates
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that directly affect the results of
reported assets, liabilities, revenue, and expenses. Actual results may differ
from these estimates.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of the financial instruments have been estimated by
management to approximate fair value.
F-8
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company is subcontracting the manufacturing of the medical diagnostic
equipment and products. Manufacturing operations consist of assembly, test, and
packaging functions. Sales of product and equipment are recognized at the time
of delivery of the product to the customer or at the time of sale or
installation. No provisions were established for estimated product returns and
allowances based on the Company's historical experience.
Sales of repair and maintenance service is recognized when completion of the
service which basically is the setup of the equipment with twelve months
warranty.
The Company evaluated Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP 97-2"), but does not expect that SOP 97-2 will have a
material impact on the Company's financial position, results of operations, or
cash flows since the Company did not sell, license, lease or market any computer
software.
The Company adopted Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101") in the fourth quarter of 2000. The adoption of
SAB 101 did not have a material impact on the Company's operating results or
financial positions.
Accounts Receivable
Management of the Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made. Bad debt expense for years ended December 31, 2000 and 1999 was $708 and
$1,487, respectively.
Inventories
Costs incurred for materials, technology and shipping are capitalized as
inventories and charged to cost of sales when revenue is recognized.
Inventories consist of finished goods and are stated at the lower of cost or
market, using the first-in, first-out method.
F-9
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are valued at cost. Maintenance and repair costs are
charged to expenses as incurred. Depreciation is computed on the straight-line
method based on the estimated useful lives of the assets. Depreciation expense
was $2,667 and $2,597 for 2000 and 1999, respectively.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting For Income Taxes". SFAS No. 109 requires a company to recognize
deferred tax liabilities and assets for the expected future income tax
consequences of events that have been recognized in the Company's financial
statements. Under this method, deferred tax assets and liabilities are
determined based on temporary differences between the financial carrying amounts
and the tax bases of assets and liabilities using the enacted tax rates in
effect in the years in which the temporary differences are expected to reverse.
Advertising Costs
All advertising costs are expensed as incurred. Advertising expenses were $3,998
and $1,004 for 2000 and 1999, respectively.
Reclassification
Certain reclassifications have been made to the 1999 consolidated financial
statements to conform with the 2000 consolidated financial statement
presentation. Such reclassification had no effect on net loss as previously
reported.
Stock-Based Compensation
The Company accounts for stock issued to non-employees in accordance with the
provisions of Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation" and the Emerging Issues Task
Force (EITF) Consensus on Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
F-10
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138, which was
issued in June 2000. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments. The Company currently does not use derivative
financial products for hedging or speculative purposes and as a result, does not
anticipate any impact on the Company's consolidated financial statements.
In September 2000, the Emerging Issues Task Force (EITF) reached a final
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs." This consensus requires that all amounts billed to a customer in a sale
transaction related to shipping and handling, if any, represent revenue and
should be classified as revenue. The Company historically has classified
shipping charges to customers as revenue. With respect to the classification of
costs related to the shipping and handling incurred by the seller, the EITF
determined that the classification of such costs is an accounting policy
decision that should be disclosed. It also determined that if shipping costs or
handling costs are significant and are not included in cost of sales, a company
should disclose both the amount(s) of such costs and the line item(s) on the
income statement that include them. The Company historically has included
inbound shipping charges in cost of sales and classified outbound shipping
charges as operating expenses. For the years ended December 31, 2000 and 1999,
the outbound shipping charges included as operating expenses were $25,033 and
$23,112, respectively.
NOTE 3 - LINE OF CREDIT
The Company has an operating line of credit with Wells Fargo Bank of $65,000,
with interest payable at the bank's prime rate plus 2.75%. This line of credit
is payable on demand and is personally guaranteed by the Company's President.
There were no outstanding loan balances at December 31, 2000 or 1999.
NOTE 4 - NOTES PAYABLE
2000 1999
---------- ----------
a)Notes to Officers, compound interest
accrued at 10%; due 60 days after
dates of notes; unsecured $ 278 $ 23,470
F-11
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 4 - NOTES PAYABLE (Continued)
2000 1999
---------- ----------
b)Notes to Others, interest at 12% per
annum; due on demand, unsecured 10,000 10,000
c)Note to TESA Corporation, interest at
7% payable on maturity date, December
31, 1999; maturing 11% of gross
revenues, collateralized by accounts
receivable, inventories, patents
and a licensing agreement 406,971 396,721
---------- ----------
417,249 430,191
Less current maturities (417,249) (430,191)
---------- ----------
Long-term debt, net $ 0 $ 0
========== ==========
NOTE 5 - SETTLEMENT AGREEMENT AND MUTUAL RELEASE
On December 29, 1993, the Company entered into a settlement agreement and mutual
release with TESA Corporation, a former distributor. The agreement provided a
payment of $400,000 with simple interest at 7% per annum, payable on or before
December 31, 1999. The note principal is payable in monthly installments of 11%
of gross revenue on the sales (See Note 4c). As of December 31, 2000 and 1999,
interest of $195,987 and $167,987 was accrued and no principal payments were
made, respectively. The Company is currently negotiating the note.
In addition, the Company will repurchase from TESA up to nine product units,
which were previously sold by the Company to TESA for the sum of $10,250 each.
As of December 31, 2000 and 1999, the balance owed to TESA related to these
consigned inventories was $10,250 and $0, respectively. The amount was included
in Note Payable - TESA (See Note 4c).
NOTE 6 - INCOME TAXES
The Company files separate federal and state income tax returns with its
subsidiary.
Provision for income taxes in the consolidated statements of operations for
years ended December 31, 2000 and 1999 consist of $1,600 minimum state income
taxes in each year, $800 for each corporation.
F-12
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 6 - INCOME TAXES (Continued)
As of December 31, 2000, the Company has net operating loss carryforwards,
approximately, of $840,105 to reduce future taxable income. The subsidiary has
NOL carryforwards of $1,481,264. To the extent not utilized, both carryforwards
will begin to expire through 2019. The Company's ability to utilize its net
operating loss carryforwards is uncertain and thus a valuation reserve has been
provided against the Company's net deferred tax assets.
The deferred net tax assets consist of the following at December 31:
2000 1999
---------- ----------
Net Operating Loss Carryforwards $ 285,636 $ 182,936
Valuation Allowance (285,636) (182,936)
---------- ----------
Net deferred tax assets $ 0 $ 0
========== ==========
NOTE 7 - PRIVATE PLACEMENT OFFERING
In August 2000, the Company conducted a self-underwritten offering of 1,000,000
units, consisting of one share of common stock and two stock warrants at $0.20
per unit. One warrant to be for purchase of one share of common stock at $.35
per share and the second warrant to be for purchase of one share of common stock
at $.75 per share. The warrants expire in one year after purchase of the above
described unit. As of December 31, 2000, the Company sold 750,000 units and
received $150,000 in proceeds.
NOTE 8 - COMMON STOCK TRANSACTION
In September 2000, the Company issued 1,000,000 shares of common stock to a
consultant for strategic planning and marketing services for the period from
September 1, 2000 and extending for a minimum of six months and a maximum of 12
months. The fair value of the stock at the time of issue was $0.20 per share.
The total cost of $200,000 was capitalized and amortized over a six-month
period. For year ended December 31, 2000, $133,333 was charged to operations,
and as of that date, the balance of unamortized marketing expense was $66,667.
The Company also issued 50,000 shares of common stock at a fair value of $0.13
per share to a consultant as an incentive for development and execution of a
public relations program. The total cost of $6,500 was capitalized and amortized
over a six-month period. For year ended December 31, 2000, $4,333 was charged to
operations, and as of that date, the balance of unamortized public relation
expense was $2,167.
F-13
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 8 - COMMON STOCK TRANSACTION (Continued)
In April 2000, the Company issued 400,000 shares of common stock to a financial
advisor at a fair value of $0.22 per share, or total of $88,000. The Company
also converted a consulting fee payable of $19,500 into 76,853 shares of common
stock.
In 1999, the Company agreed to pay a consultant $5,250 per month; $2,000 in cash
and the balance of $3,250 will be converted into the Company's common stock at
85% of the average market price during the compensation period. Accordingly, the
Company had issued 88,833 shares of common stock at an average market price of
$0.44 per share, or an aggregate of $33,125, for his service rendered.
NOTE 9 - STOCK OPTIONS
In February 2000, the Company granted 150,000 non-qualified stock options to
officers at an exercise price of fifteen cents ($.15) per share through February
2003. The fair value of the stock when granted was $0.20 per share.
In September 1999, the Company granted 60,000 non-qualified stock options to
employees at an exercise price of fifty-four cents ($.54) per share through
September 2001.
There were 750,000 shares of options exercised at $.125 per share in 1999. None
were exercised in 2000.
A summary of the status of the Company's stock option as of December 31, 2000
and 1999, and changes during the years then ended is presented below:
2000 1999
----------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number of Price Number of Price
Shares Per Share Shares Per Share
----------------------------------------------
Outstanding at beginning of Year 2,560,000 $ 0.27 3,550,000 $ 0.23
Granted 150,000 0.15 60,000 0.54
Exercised 0 -- (750,000) 0.125
Expired and Cancelled (400,000) 0.10 (300,000) 0.20
----------- --------- ----------- ---------
Outstanding at end of Year 2,310,000 $ 0.29 2,560,000 $ 0.27
=========== ========= =========== =========
Exercisable at end of Year 2,310,000 $ 0.29 2,515,000 $ 0.26
=========== ========= =========== =========
The following table sets forth additional information about stock options
outstanding at December 31, 2000:
F-14
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 9 - STOCK OPTIONS (Continued)
Range of Number Weighted Weighted Number
Exercise Outstanding Average Average Exercisable
Prices as of Remaining Exercise as of
-------- Dec. 31,2000 Contractual Price Dec. 31,2000
------------ Life -------- ------------
-----------
$ 0.54 60,000 0.75 years $ 0.54 60,000
$ 0.25 1,000,000 0.92 years $ 0.25 1,000,000
$ 0.375 1,000,000 0.92 years $ 0.375 1,000,000
$ 0.001 100,000 0.92 years $ 0.001 100,000
$ 0.15 150,000 2.17 years $ 0.15 150,000
------------ ---- -------- ------------
2,310,000 0.99 years $ 0.29 2,310,000
============ ==== ======== ============
The Company accounts for equity-based instruments issued or granted to employees
using the intrinsic method as prescribed under APB No. 25 Accounting for Stock
Issued to Employees. During 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), which defines a fair value based method
of accounting for stock options or similar equity instruments. The Company has
elected to adopt the disclosure-only provisions of SFAS 123 in accounting for
employee stock options. Accordingly, the Company has elected to account for its
stock-based compensation plan under APB Opinion No. 25 an accounting standard
under which no related compensation was recognized in 2000 or 1999, the year of
the grant; however the Company has computed for pro forma disclosure purposes,
the value of all options granted during the year ended December 31, 2000 and
1999 using the Black-Scholes option pricing model as prescribed by SFAS No. 123
and the weighted average assumptions as follows:
December 31,
2000 1999
-------------------
Weighted average fair value per option granted $0.185 $0.19
Risk-free interest rate 5.00% 6.00%
Expected dividend yield 0.00% 0.00%
Expected Lives 3.00 3.00
Expected volatility 0.30 0.30
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:
December 31,
2000 1999
---------- ----------
Net Loss as reported $(302,530) $ (45,667)
========== ==========
Net Loss (pro forma) $(315,580) $ (49,467)
========== ==========
Basic net loss per share as reported $ (0.03) $ (0.01)
========== ==========
Basic net loss per share (pro forma) $ (0.03) $ (0.01)
========== ==========
F-15
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 10 - WARRANTS
As discussed in Note 7, the Company sold warrants in a private placement
offering to purchase up to 1,500,000 shares of common stock at exercise prices
of $.35 or $.75 per share. These warrants will expire in August 2001.
A summary of the status of the Company's warrants as of December 31, 2000, and
changes during the year then ended is presented below:
Weighted
Average
Exercise
Number of Price
Shares Per Share
---------- ---------
Outstanding at beginning of Year 0 $ -
Granted 1,500,000 0.55
Exercised 0 -
Expired and Cancelled 0 -
---------- ---------
Outstanding at end of Year 1,500,000 $ 0.55
========== =========
Exercisable at end of Year 1,500,000
==========
There were no outstanding warrants as of December 31, 1999.
NOTE 11 - 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 years
ended December 31, 2000 and 1999 was $0.02 and $0.01, respectively. Net loss per
share does not include options and warrants as they would be anti-dilutive in
2000 and 1999 due to the net loss in those years.
NOTE 12 - 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 2000 or 1999,
and the Company has only one segment; accordingly, detailed information of the
reportable segment is not presented.
F-16
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 13 - RELATED PARTY TRANSACTION
As disclosed in Note 4a, the Company had notes payable to the officers in the
amounts of $278 and $23,470 as of December 31, 2000 and 1999, respectively. As
of these dates, balance of accrued interest was $63,542 and $57,113,
respectively. Interest expense charged on these notes totaled $6,429 and $7,638
in those years, respectively.
The Company converted a deposit from shareholder in the amount of $7,758 into
equity.
NOTE 14 - MAJOR CUSTOMERS
During 2000 and 1999, the Company had one major customer, sales to which
exceeded 10% of the Company's total sales. Sales to this customer totaled
$234,958 and $403,247 for the years ended December 31, 2000 and 1999,
respectively.
NOTE 15 - CONTINGENCIES AND COMMITMENTS
Contingency
The Company agreed to pay a financial advisor in the sum of $15,000 on condition
that the Company obtains outside capital financing or sells to a third party an
equity interest in the Company.
Public Relation Agreement
In September 2000, the Company entered into an agreement providing that the
Company will pay $6,000 per month for a public relation through February 2001.
Lease Commitments
The Company leases its office facilities for $787 per month. The lease expires
April 2001. Rent expense totaled $9,368 and $9,216 for 2000 and 1999,
respectively.
The Company also leases office equipment at $197 per month on a month-to-month
basis.
As of December 31, 2000, the minimum commitment under these leases is $3,148.
F-17
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
NOTE 16 - GOING CONCERN
The accompanying consolidated financial statements are presented on the basis
that the Companies are going concerns. 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, as of December 31, 2000, the Company has
accumulated deficit of $3,282,332, a stockholders' deficit of $342,372 and its
current liabilities exceed current assets by $358,820.
As discussed in Note 7, the Company conducted a private placement offering in
2000, and had raised $150,000. The offering was completed in January 2001. With
funds from the private placement and 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 17 - SUBSEQUENT EVENT
The private placement offering was completed in January 2001. The Company sold
250,000 units and received $50,000.
F-18
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001
ASSETS
Current Assets
Cash $ 20,546
Accounts Receivable 109,759
Employee Advances and Receivable 60,581
Inventory 91,534
Unamortized Expenses 48,946
------------
Total Current Assets 331,366
Property and Equipment, net of
Accumulated depreciation of $12,236 2,527
Other Assets 6,842
------------
TOTAL ASSETS $ 340,735
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable & Accrued Expenses $ 79,376
Accrued Interest 298,544
Line of Credit 52,190
Notes Payable, current portion 442,249
------------
Total Current Liabilities 872,359
------------
Stockholders' Deficit
Common Stock, $0.001 par value;
50,000,000 shares authorized;
12,275,313 shares issued and
outstanding 12,275
Paid-in Capital 3,154,911
Accumulated Deficit (3,698,810)
------------
Total Stockholders' Deficit (531,624)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 340,735
============
The accompanying notes are an integral part of these
consolidated financial statements
F-19
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
For three Months For Nine Months
ended September 30, ended September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
(Restated) (Restated)
Sales $ 207,977 $ 165,711 $ 482,793 $ 520,131
Cost of Sales 84,768 65,460 201,609 232,814
------------- ------------- ------------- -------------
Gross Profit 123,209 100,251 281,184 287,317
Operating Expenses 179,267 140,781 667,380 353,980
------------- ------------- ------------- -------------
Loss from Operations (56,058) (40,530) (386,196) (66,663)
------------- ------------- ------------- -------------
Other Income(Expense)
Interest and Other Income 1,485 -- 3,299 --
Consulting Fees - Nonoperating -- -- -- (88,000)
Interest Expense (11,837) (8,831) (31,981) (26,855)
------------- ------------- ------------- -------------
Total Other Income(Expenses) (10,352) (8,831) (28,682) (114,855)
------------- ------------- ------------- -------------
Net Loss before Taxes (66,410) (49,361) (414,878) (181,518)
Provision for Income Taxes -- -- 1,600 1,600
------------- ------------- ------------- -------------
Net Loss $ (66,410) $ (49,361) $ (416,478) $ (183,118)
============= ============= ============= =============
Net Loss per share-Basic and Diluted $ (0.01) $ (0.00) $ (0.03) $ (0.02)
============= ============= ============= =============
Weighted average number of shares 12,275,313 10,549,646 11,997,313 9,768,473
============= ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements
F-20
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
For Nine Months ended
September 30,
2001 2000
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES: (Restated)
Net Loss $(416,478) $(183,118)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 1,957 2,001
Noncash Expenses 177,226 294,500
(Increase) Decrease in:
Accounts Receivable 48,715 24,075
Inventory (31,802) 5,360
Receivable from Employee (2,969) --
Prepaid and Unamortized Expenses 21,523 (167,772)
Other assets 5,122 (6,414)
Increase (Decrease) in:
Accounts Payable and accrued expenses 31,647 (28,545)
Accrued Interest 27,815 26,760
---------- ----------
Net cash used by operating activities (137,244) (33,153)
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Employee Advances and Receivable (55,088) (1,175)
---------- ----------
Net cash used by investing activities (55,088) (1,175)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuing of Common Stock 50,000 150,000
Net Advance from Line of Credit 52,190 --
Net Proceeds from Notes Payable -- 10,250
Net Proceeds from (Payments to) Shareholders 25,000 (23,192)
---------- ----------
Net cash provided by financing activities 127,190 137,058
---------- ----------
NET INCREASE (DECREASE) IN CASH (65,142) 102,730
CASH BALANCE AT BEGINNING OF PERIOD 85,688 50,580
---------- ----------
CASH BALANCE AT END OF PERIOD $ 20,546 $ 153,310
========== ==========
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 4,166 $ 95
========== ==========
Taxes Paid $ 1,600 $ 1,600
========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuing common stock for:
Public and Investor Relations $ 156,226 $ 6,500
Strategic Planning and Marketing 21,000 200,000
Consulting Expense - Nonoperating -- 88,000
Consulting Fee Payable -- 19,500
---------- ----------
$ 177,226 $ 314,000
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
F-21
EYE DYNAMICS, INC. & 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. (the Company) markets and distributes diagnostic equipment
that utilizes 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.
Presentation of Interim Information
In the Opinion of the management of the Company, the accompanying unaudited
consolidated financial statements include all normal adjustments considered
necessary to present fairly the financial position as of September 30, 2001, and
the results of operations for the three and nine months ended September 30, 2001
and 2000, and cash flows for the nine months ended September 30, 2001 and 2000.
Interim results are not necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted by
Form 10-QSB, and do not contain certain information included in the Company's
audited consolidated financial statements and notes for the fiscal year ended
December 31, 2000.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Oculokinetics, Inc. (a California
corporation), after elimination of all material intercompany accounts and
transactions.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 provides new guidance on the accounting for a business
combination at the date a business combination is completed. Specifically, it
requires use of the purchase method of accounting for all business combinations
initiated after June 30, 2001, thereby eliminating use of the
pooling-of-interests method. SFAS 142 establishes new guidance on how to account
for goodwill and intangible assets after a business combination is completed.
Among other things, it requires that goodwill and certain other intangible
assets will no longer be amortized and will be tested for impairment at least
annually and written down only when impaired. This statement will apply to
existing goodwill and intangible assets, beginning with fiscal years starting
after December 15, 2001. Early adoption of the statement will be permitted for
companies with a fiscal year beginning after March 15, 2001, for which first
quarter financial statements have not been issued. The Company is currently
evaluating these statements but does not expect that they will have a material
impact on the Company's financial position, results of operations, or cash
flows.
F-22
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Restatement and Reclassifications
The accompanying consolidated financial statements for nine months ended
September 30, 2000 were restated to reflect the following changes:
Net Loss as previously reported $(150,702)
Amortization of Strategic Planning and
Marketing Costs (A) (33,333)
Capitalized and Overstatement of expense
for Public Relation (B) 8,917
Understatement of expense for Nonoperating
Consulting fee (C) (8,000)
----------
Net Loss as restated $(183,118)
==========
Net Loss per share, restatedD $ (0.02)
==========
Subsequent to the original issuance of our September 30, 2000 consolidated
financial statements, management determined that the following restatements were
required.
(A) Initially, the Company charged the issuance of 1,000,000 shares to a
consultant to paid-in capital. At the year-end, with auditor's recommendation,
we capitalized the shares at fair value and amortized the expense over the
period of service. The result of this change increased the net loss by $33,333.
(See Note 5)
(B) Initially, the Company charged the issuance of 50,000 shares to a public
relation to operations. At the year-end, with auditor's recommendation, we
capitalized the shares at fair value and amortized the expense over the period
of service. The result of this change decreased the net loss by $8,917. (See
Note 5)
(C) Management determined that the fair value of shares issued to a consultant
for his non-operating consulting service was $0.22 per share at the time of
performance. The result of this change increased the net loss by $8,000. (See
Note 5)
D The net effect of the restatement has no material change in net loss per
share.
In addition, certain prior year amounts have been reclassified to conform to the
current year presentation.
F-23
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - EMPLOYEE LOAN AND ADVANCES
The Company has made advances to and on behalf of an employee and the employee
has made repayments to the Company. On April 2, 2001, the Company converted
$49,489 into a note receivable bearing interest at 12% per annum. The note is
collateralized by 2,660,000 shares of capital stock of Ingen Technologies, Inc.,
a privately held California corporation. In August 2001, the Company returned
all 2,660,000 shares of Ingen stock to Ingen's priority secured creditor. The
note becomes unsecured and is due on demand.
As of September 30, 2001, the net receivable from the employee amounted to
$60,581, including an interest receivable of $2,969.
NOTE 3 - LINE OF CREDIT
The Company maintained a $65,000 operating line of credit with a bank at the
bank's prime rate plus 2.75%. This line of credit is payable on demand and is
secured by all assets of the Company. As of September 30, 2001, the balance due
was $52,190.
NOTE 4 - CONSIGNED INVENTORY
On December 29, 1993, the Company entered into a settlement agreement and mutual
release with TESA Corporation ("TESA"), a former distributor. The Company agreed
to repurchase up to nine product units, which were previously sold to TESA
through its wholly owned subsidiary, Oculokinetics, Inc. For each unit resold to
the customer, the Company is obliged to repurchase the unit for $10,250. There
was no purchase commitment if the unit was not resold. During the nine months
ended September 30, 2001 and 2000, the Company sold one unit in each period, and
as of those dates, the Company had remitted $10,250 and $0, respectively, to
TESA. The balance owed to TESA related to these consigned inventories was
included in Note Payable - TESA.
NOTE 5 - COMMON STOCK TRANSACTIONS
On June 2001, the Company issued 150,000 shares of common stock based on an
agreement dated on June 14, 1996 for investor relation service. The fair value
at date of agreement was $0.10 per share. The total cost of $15,000 was charged
to operations.
On May 5, 2001, the Company entered into an Investment Banking Agreement
providing that the Company agreed to issue 150,000 shares of common stock at a
fair market value $0.40 per share to a consultant in exchange for investment
banking and advisory service. The total cost of $60,000 was capitalized and
amortized over a one-year period. For nine months ended September 30, 2001,
$25,000 was charged to operations.
F-24
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMON STOCK TRANSACTIONS (Continued)
The Company also entered into a Finder's Agreement with the consultant who acts
as a finder to locate prospective investors for the Company. The Company agreed
to pay the consultant finder's fees based on the following schedule:
5% on first $5,000,000 capital raised
4% on next $1,000,000
3% on next $1,000,000
2% on next $1,000,000
1% on balance
As of September 30, 2001, no capital was raised through the consultant.
In May 2001, the Company agreed to issue 25,000 shares of common stock to a
consultant for preparing a five-year financial projection, and issued 50,000
shares for their consulting service from May 2001 to October 2001. The fair
market value at the date of agreement was $0.28 per share. The financial
projection preparation of $7,000 was charged to operations as incurred, and the
total consulting fee of $21,000 was capitalized and amortized over a six-month
period. For nine months ended September 30, 2001, $18,667 was charged to
operations.
On March 27, 2001, the Company entered into a Promotion Agreement to promote
itself on a promoter's web site. The Company issued 131,580 shares of common
stock at a fair market value $0.38 per share to the promoter for the first six
months service. The total cost of $50,000 was charged to operations as incurred.
Upon mutual agreement, the Company will pay the promoter 105,263 shares of
restricted stock for the final six months of promotion.
On March 20, 2001, the Board of Directors approved to issue 77,420 shares of
common stock at $0.30 per share (fair market value of $0.38 per share less 20%
discount for restricted shares) to an individual for his investor relations
service commencing March 23, 2001. The total cost of $23,226 was capitalized and
amortized over one year. For nine months ended September 30, 2001, $11,613 was
charged to operations.
In January 2001, the Company completed a self-underwritten offering of 1,000,000
units, consisting of one share of common stock and two stock warrants at
exercise prices of $0.35 and $0.75 per share. The Company received $50,000 in
2001 and $150,000 in 2000 for an aggregate of $200,000 in proceeds.
The Company issued 25,000 shares of common stock to a consultant as an incentive
for development and execution of an investors relation program for the period
from January 2001 through June 2001. The fair value of the stock at the time of
issue was $0.32 per share. The total cost of $8,000 was charged to operations.
F-25
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMON STOCK TRANSACTIONS (Continued)
The Company also granted warrants to the consultant to purchase up to 200,000
shares of the Company's common stock. Exercised prices determined for the
warrants are 66,666 shares at $0.32 per share; 66,666 shares at $0.82 per share;
and 66,668 shares at $1.32 per share. The warrants will expire on January 3,
2004.
In September 2000, the Company issued 1,000,000 shares of common stock to a
consultant for strategic planning and marketing services for the period from
September 1, 2000 and extending for a minimum of six months and a maximum of 12
months. The fair value of the stock at the time of issue was $0.20 per share.
The total cost of $200,000 was capitalized and amortized over a six-month
period. For nine months ended September 30, 2000, $33,333 was charged to
operations.
The Company also issued 50,000 shares of common stock at a fair value of $0.13
per share to a consultant as an incentive for development and execution of a
public relations program. The total cost of $6,500 was capitalized and amortized
over a six-month period. For nine months ended September 30, 2000, $1,083 was
charged to operations.
In April 2000, the Company issued 400,000 shares common stock to a financial
advisor at a fair value of $0.22 per share. The total cost of $88,000 was
charged to operations as incurred. The Company also converted a consulting fee
payable into 76,853 shares of common stock.
NOTE 6 - 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 September 30, 2001 and 2000 was $0.01 and $0.00, respectively, and
for nine months ended September 30, 2001 and 2000 was $0.03 and $0.02,
respectively. Net loss per share does not include options and warrants as they
would be anti-dilutive in 2001 and 2000 due to the net loss in those periods.
NOTE 7 - 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 2001 or 2000,
and the Company has only one segment; accordingly, detailed information of the
reportable segment is not presented.
F-26
EYE DYNAMICS, INC. & SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTION
The Company had notes payable to the officers in the amount of $25,278 and $278
as of September 30, 2001 and 2000, respectively. As of those dates, balance of
accrued interest related to the notes was $69,457 and $61,973, respectively.
Interest expense charged on these notes totaled $5,915 and $4,860 for nine
months ended September 30, 2001 and 2000, respectively.
NOTE 9 - GOING CONCERN
The accompanying consolidated financial statements are presented on the basis
that the Companies are going concerns. 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 net losses of $416,478
and $183,118 for nine months ended September 30, 2001 and 2000, respectively,
and as of September 30, 2001, the Company had a working capital deficiency of
$540,993 and a deficit in net worth of $531,624.
A plan commenced in late 2000 to publicize the Company's SafetyScope product.
Funds for this program were secured through equity financing as discussed in
Note 5. Additional financing will be required to implement a business plan that
address the final engineering, tooling and marketing costs to fully
commercialize the SafetyScope product. Management is currently seeking such
financing and is in discussion with several potential funding sources.
Management is also currently involved in active negotiations to convert a note
payable of $396,721 into equity, and 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.
F-27
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
---------------------------
Page
Prospectus Summary.............................................................2
Risk Factors...................................................................2
The Business...................................................................5
Use of Proceeds...............................................................12
Management's Discussion and Analysis or Plan of Operation.....................12
Price Range of Common Stock...................................................15
Management....................................................................16
Executive Compensation........................................................17
Principal Shareholders........................................................19
The Selling Shareholders......................................................20
Plan of Distribution..........................................................21
Description of Common Stock...................................................21
Experts.......................................................................22
Legal Matters.................................................................22
Where You Can Find More Information...........................................22
Index to Consolidated Financial Statements....................................23
DEALER PROSPECTUS DELIVERY OBLIGATION. Until _____, 2001, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
3,000,000 SHARES
COMMON STOCK
EYE DYNAMICS, INC.
PROSPECTUS
_____________, 2001
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Company limit the personal
liability of its directors and officers for damages for breach of fiduciary duty
in a manner identical in scope to that permitted under Nevada Law. The Articles
of Incorporation of the Company also provide that any repeal or modification of
that provision shall apply prospectively only. The Company's Bylaws provide that
the Company may indemnify its officers and directors, and may indemnify its
employees and other agents, to the fullest extent permitted by Nevada law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to officers, directors or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Subsection 1 of Section 78.037 of the Nevada Revised Statutes (the
"Nevada Law") empowers a corporation to eliminate or limit the personal
liability of a director or officer to the corporation or its stockholders for
damages for breach of fiduciary duty as a director or officer, but such a
provision must not eliminate or limit the liability of a director or officer for
(a) acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law or (b) the payment of distributions in violation of Section
78.300 of the Nevada Law.
Subsection 1 of Section 78.7502 of the Nevada Law empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (an "Indemnified Party"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Indemnified Party in connection with such action, suit or
proceeding if the Indemnified Party acted in good faith and in a manner the
Indemnified Party reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe the Indemnified Party's conduct
was unlawful.
Subsection 2 of Section 78.7502 of the Nevada Law empowers a
corporation to indemnify any Indemnified Party who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in the capacity of an Indemnified
Party against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by the Indemnified Party in connection with the
defense or settlement of such action or suit if the Indemnified Party acted
under standards similar to those set forth above, except that no indemnification
may be made in respect of any claim, issue or matter as to which the Indemnified
Party shall have been adjudged to be liable to the corporation or for amounts
paid in settlement to the corporation unless and only to the extent that the
court in which such action or suit was brought determines upon application that
in view of all the circumstances the Indemnified Party is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 78.7502 of the Nevada Law further provides that to the extent
an Indemnified Party has been successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to in subsection (1) or (2)
described above or in the defense of any claim, issue or matter therein, the
corporation shall indemnify the Indemnified Party against expenses (including
attorneys' fees) actually and reasonably incurred by the Indemnified Party in
connection therewith.
Subsection 1 of Section 78.751 of the Nevada Law provides that any
discretionary indemnification under Section 78.7502 of the Nevada Law, unless
ordered by a court or advanced pursuant to Subsection 2 of Section 78.751, may
be made by a corporation only as authorized in the specific case upon a
determination that indemnification of the Indemnified Person is proper in the
circumstances. Such determination must be made (a) by the stockholders, (b) by
the board of directors of the corporation by majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding,
(c) if a majority vote of a quorum of such disinterested directors so orders, by
independent legal counsel in a written opinion, or (d) by independent legal
counsel in a written opinion if a quorum of such disinterested directors cannot
be obtained.
Subsection 2 of Section 78.751 of the Nevada Law provides that a
corporation's articles of incorporation or bylaws or an agreement made by the
corporation may require the corporation to pay as incurred and in advance of the
final disposition of a criminal or civil action, suit or proceeding, the
expenses of officers and directors in defending such action, suit or proceeding
upon receipt by the corporation of an undertaking by or on behalf of the officer
or director to repay the amount if it is ultimately determined by a court that
he is not entitled to be indemnified by the corporation. Subsection 2 further
provides that the provisions of that Subsection 2 do not affect any rights to
advancement of expenses to which corporate personnel other than officers and
directors may be entitled under contract or otherwise by law. Subsection 3 of
Section 78.751 of the Nevada Law provides that indemnification and advancement
of expenses authorized in or ordered by a court pursuant to Section 78.751 does
not exclude any other rights to which the Indemnified Party may be entitled
under the articles of incorporation or any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his official capacity or in another capacity while holding his office. However,
indemnification, unless ordered by a court pursuant to Section 78.7502 or for
the advancement of expenses under Subsection 2 of Section 78.751 of the Nevada
Law, may not be made to or on behalf of any director or officer of the
corporation if a final adjudication establishes that his or her acts or
omissions involved intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action. Additionally, the scope of such
indemnification and advancement of expenses shall continue as to an Indemnified
Party who has ceased to hold one of positions specified above, and shall inure
to the benefit of his or her heirs, executors and administrators.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses incurred or to be incurred by the Company in connection with
the preparation and filing of this Registration Statement are estimated to be as
follows:
Printing and duplication expenses........................... $ 1,000
Registration fee............................................ 222
Legal fees and expenses..................................... 15,000
Accounting fees and expenses................................ 4,000
Transfer Agent fees......................................... 300
Miscellaneous............................................... 478
Total............................................. $ 21,000
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In 1998 the Company issued 400,000 shares of Common Stock in payment of
unpaid salaries to employees. Also in 1998 the Company issued 321,433 shares to
a consultant in lieu of consulting fees. An additional 250,000 shares were
issued in 1998 upon exercise of employee stock options.
In 1999 the Company issued 88,833 shares to a consultant in lieu of
consulting Fees, and 750,000 shares were issued upon the exercise of employee
stock options.
During 2000 the Company issued 76,583 shares to a consultant in lieu of
consulting fees, and 50,000 shares to a public relations firm in lieu of fees.
In the fall of 2000 and January of 2001 the Company sold a total of
1,000,000 units to four private investors. Each Unit consisted of one share of
Common Stock, one warrant to purchase a share of Common Stock at an exercise
price of $.35 per share, and one warrant to purchase a share of Common Stock at
an exercise price of $.75 per share. The price per unit was $.20. Each warrant
is exercisable for one year from issuance. No commissions were paid in
connection with the transaction. The Company is required to register the resale
of all of the shares issued in the private placement, including the shares
issuable upon exercise of the Warrants.
The Company believes all of the foregoing transactions were exempt from
the registration requirements of the Securities Act of 1933, as amended, by
virtue of Section 4(2) thereof.
ITEM 27. EXHIBITS
The following exhibits are filed with this Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Articles of Incorporation of the
Company (1)
3.2 Amended and Restated Bylaws of the Company (1)
5.1 Opinion of Haddan & Zepfel LLP
=
10.1 Form of Warrant (previously filed)
10.2 Employment Agreement, dated April 1, 1989 with Charles E.
Phillips (1)
10.3 Employment Agreement, dated December 1, 1989 with Barbara J.
Mauch (1)
10.4 Exclusive Licensing Agreement, dated November 1, 1989 with
Ronald A. Waldorf (1)
10.5 Standard Multi-Tenant Commercial Industrial Lease-Gross, dated
January 25, 1996, between the Company and AmberJack, Ltd.,
and Amendments No. 1, No. 2 and No. 3.(2)
10.6 Agreement, dated March 19, 2001 between the Company and
Medtrak, Inc. (2)
10.7 Proposal Submitted to the Company by Circadian Technologies,
Inc., December 19, 2000
23.1 Consent of Harold Y. Spector, Certified Public Accountant
24.2 Consent of Haddan & Zepfel LLP (included in Exhibit 5.1)
----------------
(1) Incorporated by reference from Amendment No. 1 to the Company's Amended
Report on Form 10-SB, filed with the Commission on December 13, 1999.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2000.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information set forth in the Registration
Statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For the purpose of determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of such securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the successful
defense of any action, suit, or proceeding), is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this amendment to
registration statement to be signed on its behalf by the undersigned, in the
City of Torrance, State of California, on November 28, 2001.
Eye Dynamics, Inc.
By: /s/ Charles E. Phillips
-------------------------------
Charles E. Phillips, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
(1) Principal Executive, Financial and
Accounting Officer
/s/ Charles E. Phillips President, Chief Financial November 28, 2001
Charles E. Phillips Officer and a Director
(2) Directors
/s/ Ronald A. Waldorf * Chairman and a Director November 28, 2001
Ronald A. Waldorf
/s/ Arnold Kay * Director November 28, 2001
Arnold Kay
*By Charles E. Phillips, attorney-in-fact