10QSB 1 file001.txt FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 --------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-26206 Orthometrix, Inc. ----------------- (Exact name of small business issuer as specified in its charter) Delaware 06-1387931 ----------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 106 Corporate Park Drive, Suite 106, White Plains, NY 10604 ----------------------------------------------------- --------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (914) 694-2285 -------------- Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] There were 29,544,621 shares of common stock outstanding as of May 15, 2003. 1 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS. CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2003 --------------------------- ASSETS Current assets: Accounts receivable-trade $ 326,296 Receivable due from purchaser 1,094,992 Inventories 99,418 Prepaid expenses and other current assets 27,154 --------------------------- Total current assets 1,547,860 Property and equipment, net 21,453 Other 11,658 --------------------------- Total Assets $ 1,580,971 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable, net of discount and accrued interest payable - related parties $ 291,744 Accounts payable - trade 710,973 Accrued expenses 84,574 Unearned service revenue 16,391 Other liabilities 268,387 --------------------------- Total current liabilities 1,372,069 --------------------------- Stockholders' equity: Common stock - par value $.0005 per share, 45,000,000 shares authorized, and 29,544,621 shares issued and outstanding 14,771 Additional paid-in capital 38,687,138 Accumulated deficit (38,493,007) --------------------------- Total stockholders' equity 208,902 --------------------------- Total Liabilities and Stockholders' Equity $ 1,580,971 ===========================
See notes to consolidated financial statements. 2 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, MARCH 31, 2003 2002 --------------------- --------------------- Revenue $ 500,160 $ 64,347 Cost of revenue 154,289 43,831 -------------------- -------------------- Gross profit 345,871 20,516 Sales and Marketing 177,335 109,906 General and administrative expense 401,054 256,507 Research and development expense 73,668 - --------------------- --------------------- Operating loss (306,186) (345,897) --------------------- --------------------- Interest expense (6,054) (38,302) Interest income 142 - --------------------- --------------------- Net loss from continuing operations (312,098) (384,199) Net (loss) from discontinued operations - (323,691) --------------------- --------------------- Net loss $ (312,098) $ (707,890) ===================== ===================== Basic and diluted weighted average shares 29,544,621 29,969,312 ===================== ===================== Basic and diluted loss per share: Net loss from continuing operations $ (0.01) $ (0.01) Net (loss) income from discontinued operations - (0.01) --------------------- --------------------- Net loss $ (0.01) $ (0.02) ===================== =====================
See notes to consolidated financial statements. 3 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For The Three Months Ended March 31, March 31, 2003 2002 ---------------------- --------------------- Cash Flows From Operating Activities: Net loss $ (312,098) $ (707,890) Adjustments to reconcile net loss to net cash used in operating activities: Net loss from discontinued operations - 323,691 Amortization expense 2,882 13,281 Depreciation expense 1,906 1,499 Changes in assets and liabilities: Increase in accounts receivable (81,186) (32,881) (Increase) decrease in inventories (41,270) 19,871 Decrease (increase) in prepaid expenses and other current assets 1,501 (12,552) Increase in accounts payable 177,607 153,578 (Decrease) increase in accrued expenses (65,744) 41,987 ---------------------- --------------------- Net cash used in continuing operations (316,402) (199,416) Net cash provided by discontinued operations - 327 ---------------------- --------------------- Net cash used in operating activities (316,402) (199,089) ---------------------- --------------------- Cash Flows From Investing Activities: Purchases of Property and Equipment (9,642) - ---------------------- --------------------- Cash Flows From Financing Activities: Proceeds of borrowings from related parties 300,000 200,000 ---------------------- --------------------- Net (decrease) increase in cash (26,044) 911 Cash at beginning of period 26,044 16,202 ---------------------- --------------------- Cash at end of period $ - $ 17,113 ====================== =====================
See notes to consolidated financial statements. 4 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. BASIS OF PRESENTATION AND GOING CONCERN ---------------------------------------- The consolidated financial statements of Orthometrix, Inc. (formerly Norland Medical Systems, Inc.) and Subsidiaries (the "Company") presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-QSB and do not include all of the information and footnote disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2002, and included in the Company's Report on Form 10-KSB as filed with the Securities and Exchange Commission on March 31, 2003. In the opinion of management, the accompanying interim unaudited consolidated financial statements contain all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for these interim periods. During the past two fiscal years ended December 31, 2002 and 2001, the Company has experienced aggregate losses from continuing operations of $3,687,445 and has incurred total negative cash flow from continuing operations of $4,114,307 for the same two-year period. During the three months ended March 31, 2003 the Company experienced a net loss from continuing operations of $312,098 and negative cash flow from operating activities of $316,402. The Company does not currently have an operating line of credit. These matters raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's continued existence is dependent upon several factors including increased sales volume, collecting the remainder of the purchase price for the sale of the Company's bone densitometry business and the ability to achieve profitability on the sale of some of the Company's remaining product lines. The Company is pursuing initiatives to increase liquidity, including external investments and obtaining a line of credit. The Company does not have a commitment for such financing, and there can be no guarantee that the Company will be able to attain such financing. In order to increase its cash flow, the Company is continuing its efforts to stimulate sales. The Company has implemented high credit standards for its customers and is emphasizing the receipt of down payments from customers at the time their purchase orders are received and attempting to more closely coordinate the timing of purchases. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2003. 5 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 2. INVENTORIES ----------- As of March 31, 2003, inventories consisted of the following: March 31, 2003 -------------- Product kits, spare parts and sub-assemblies $ 3,360 Finished goods 96,058 -------------- $ 99,418 ============== 3. CASH FLOWS ---------- During February 2002, the Company exchanged inventory with a net book value of $40,000 for 888,888 shares of the Company's common stock, with a market value of $35,556 on the date of exchange. The difference between the net book value of the inventory exchanged and the market value of the stock received was recorded in cost of revenue during the three months ended March 31, 2002. The Company paid no cash for interest or income taxes during the three months ended March 31, 2003 or 2002. 4. INCOME TAXES ------------ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes and net operating loss carryforwards. Realization of the deferred tax asset is dependent on the Company's ability to generate sufficient taxable income in future periods. Based on the Company's existing financial condition, the Company determined that it was more likely than not that the deferred tax assets would not be realized. Accordingly, the Company recorded a valuation allowance to reduce the deferred tax assets to zero. 5. DISCONTINUED OPERATIONS AND CONTINGENCY --------------------------------------- On April 11, 2002, the Company sold its bone measurement business to CooperSurgical Acquisition Corp., ("Cooper") a wholly-owned subsidiary of the Cooper Companies, Inc. The Company is entitled to receive up to a maximum of $12.0 million for the sale (the "Asset Sale"). The Company received $3.5 million of the purchase price at the closing of the Asset Sale. $1.0 million of the remaining purchase price (plus or minus any required purchase price adjustment) was to be released to the Company by Cooper during August 2002 upon submission to the Company by Cooper of a closing statement setting forth the value of the net assets and liabilities of the transferred business in the Asset Sale as of the closing date of the Asset Sale. In August 2002, Cooper submitted a closing statement to the Company and notified the Company of a downward adjustment to the purchase price based on Cooper's purported valuation of the net assets and liabilities of the transferred business. Based on its downward adjustment, Cooper paid approximately $405,000 to the Company on August 16, 2002. 6 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 5. DISCONTINUED OPERATIONS AND CONTINGENCY (CONTINUED) --------------------------------------------------- The Company did not agree with Cooper's valuation of the applicable net assets and liabilities and, accordingly, did not agree with Cooper's downward purchase price adjustment. The Company and Cooper were unable to settle the disagreement and have engaged an independent accounting firm to provide a binding resolution of such disagreement. The Company is claiming aggregate adjustments in the amount of at least $584,000 in its favor. In the event the Company does not receive substantial funds upon resolution of the dispute it will create further demand on the Company to increase sales volume and to obtain alternate sources of financing. The remaining $500,000 of the purchase price (less any indemnification obligations owing by the Company to Cooper) is to be released by Cooper to the Company on or before January 31, 2004. In addition, the Company is eligible to receive earn-out payments (up to a maximum purchase price of $12.0 million for the Asset Sale) based on Cooper's net sales over three twelve-month periods of (i) the products sold by the Company to Cooper in the Asset Sale, (ii) the McCue C.U.B.A. product and (iii) each bone measurement product (other than the Sahara Clinical Bone Sonometer of Hologic, Inc.) that may be acquired or introduced by Cooper during the earn-out periods. No amounts have been earned through March 31, 2003 and there is no assurance that the Company will receive any sales proceeds from the earn-out. After paying transaction-related expenses, the Company recorded a gain of approximately $4.3 million during the year ending December 31, 2002. Any income tax liability incurred on the gain was fully offset by the Company's net operating loss carryforwards. The results of operations have been restated for the discontinued operations. For the Three Months Ended March 31, 2002 -------------------------- Summary of Operating Results of Discontinued Operations: Revenue $ 1,603,280 Cost of revenue 989,111 Sales and marketing 650,074 General and administrative 215,736 Research and development expense 72,050 ---------------- Net (loss) from discontinued operations $ (323,691) ================= In connection with the Asset Sale, Cooper assumed the lease commitment for the Company's facility located in Fort Atkinson, Wisconsin. The Company leases its corporate office space located in White Plains, New York at a monthly rate of $5,672. The corporate office lease expires in July 2003. 7 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 6. RELATED PARTY TRANSACTIONS -------------------------- During January 2003, the Company borrowed $300,000 from certain officers and directors of the Company. Interest on the notes is payable at prime plus one (5.25% at March 31, 2003.) The notes are due in January 2004. The Company is obligated to prepay the principal amount within 10 days upon the occurrence of two events; if it (i) receives at least $1,000,000 from an equity financing or (ii) sells substantially all of its assets. As additional compensation, the Company granted the note holders five-year warrants to purchase up to 300,000 shares of common stock at $0.05 per share (market price at the time of the grant.) $14,310 of the proceeds received were allocated to the warrants based on the application of the Black-Scholes option pricing model, with the remaining proceeds of $285,690 allocated to the notes payable. The value allocated to the warrants is being amortized to interest expense over the term of the notes. At March 31 2003, the unamortized discount on the notes payable is $11,428. 7. STOCK-BASED COMPENSATION ------------------------ The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Options Issued to Employees." The Company accounts for stock-based compensation to employees using the intrinsic value method, whereby compensation cost is recognized when the exercise price at the date of grant is less than the fair market value of the Company's common stock. The Company discloses the proforma effect of compensation cost based on the fair value method for determining compensation cost. The value of stock-based compensation awarded to non-employees is determined using the fair value method. Compensation cost is recognized over the service or vesting period. Had the compensation cost for stock options granted to employees been determined using the fair value method, the proforma net loss per share would have been as follows:
For the Three Months Ended -------------------------------------- March 31, 2003 March 31, 2002 ---------------- ---------------- Net loss, as reported $ (312,098) $ (707,890) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect (14,292) (12,789) ---------------- ---------------- Proforma net income $ (326,390) $ (720,679) ================ ================ Basic and diluted loss per share As reported $ (0.01) $ (0.02) ================ ================ Pro forma $ (0.01) $ (0.02) ================ ================
8 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS ---------------------------------------------------------- The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosure contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Company from time to time. The discussion of the Company's liquidity, capital resources and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the financial statements and other items contained elsewhere in the report. Critical Accounting Policies And Estimates ------------------------------------------ The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. The Company believes the following critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset and liability amounts. The Company recognizes revenues in accordance with invoice terms, typically when products are shipped. Products are covered by warranties provided by the Company's vendors. Therefore, no warranty reserve is required on products sold by the Company. The Company provides estimated inventory allowances for slow-moving and obsolete inventory based on current assessments about future demands, market conditions and related management initiatives. If market conditions are less favorable than those projected by management, additional inventory allowances may be required. The Company provides allowances for uncollectable receivable amounts based on current assessment of collectability. If collectability is less favorable than those projected by management, additional allowances for uncollectability may be required. The Company has recorded a valuation allowance to reduce its deferred tax assets. The Company limited the amount of tax benefits recognizable from these assets based on an evaluation of the amount of the assets that are expected to be ultimately realized. Liquidity and Capital Resources ------------------------------- During the past two fiscal years ended December 31, 2002 and 2001, the Company has experienced aggregate losses from continuing operations of $3,687,445 and has incurred total negative cash flow from continuing operations of $4,114,307 for the same two-year period. During the three months ended March 31, 2003 the Company experienced a net loss from continuing operations of $315,448 and negative cash flow from operating activity of $316,402. The Company does not currently have an operating line of credit. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company's continued existence is dependent upon several factors including increased sales volume, collecting the remainder of the purchase price for the sale of its bone measurement business from Cooper and the ability to achieve profitability on the sale of some of the Company's remaining product lines. The Company is pursuing initiatives to increase liquidity, including external investments and obtaining a line of credit. The Company does not have a commitment for such financing, and there can be no guarantee that the Company will be able to attain such financing. 9 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CONTINUED) ---------------------------------------------------------------------- Liquidity and Capital Resources (Continued) ------------------------------------------- In order to increase its cash flow, the Company is continuing its efforts to stimulate sales. The Company has implemented high credit standards for its customers and is emphasizing the receipt of down payments from customers at the time their purchase orders are received and attempting to more closely coordinate the timing of purchases. The level of liquidity based on cash experienced a $26,044 decrease at March 31, 2003, as compared to December 31, 2002. The Company's $316,402 of net cash used in operating activities and $9,642 of cash used in investing activities was partially offset by $300,000 of cash provided by financing activities. Investing activities consisted of $9,642 of purchases of property and equipment. Financing activities consisted of $300,000 of proceeds of borrowings from directors and officers of the Company. During January 2003, the Company borrowed $300,000 from certain officers and directors of the Company. Interest on the notes is payable at prime plus one (5.25% at March 31, 2003.) The notes are due in January 2004. The Company is obligated to prepay the principal amount within 10 days upon the occurrence of two events; if it (i) receives at least $1,000,000 from an equity financing or (ii) sells substantially all of its assets. As additional compensation, the Company granted the note holders five-year warrants to purchase up to 300,000 shares of common stock at $0.05 per share (market price at the time of the grant.) $14,310 of the proceeds received were allocated to the warrants based on the application of the Black-Scholes option pricing model, with the remaining proceeds of $285,690 allocated to the notes payable. The value allocated to the warrants is being amortized to interest expense over the term of the notes. At March 31, 2003, the unamortized discount on the notes payable is $11,428. The Company markets, sells and services a wide range of proprietary non-invasive musculoskeletal and other devices through two divisions, a healthcare division and a sports & fitness division. The healthcare division markets, sells and services (1) pQCT (peripheral Quantitative Computed Tomography) bone and muscle measurement systems used for musculoskeletal research and clinical applications (including for bone disorders and human performance), (2) ESWT (Extracorporal Shock Wave Therapy) systems used for urology (lithotripsy) and (3) patented exercise systems used for physical therapy, sports medicine and rehabilitative medicine. The healthcare division is currently initiating a study of the Orbasone pain management system (ESWT), which will be added to its product line, upon successful completion of the study and approval of the system by the United States Food and Drug Administration (the "FDA"). The sports & fitness division markets, sells and services patented exercise systems to fitness centers, gyms, sports clubs and associations and to the general public. The sports & fitness division's product line includes the Galileo systems. Galileo products offer a novel approach to muscle strength development given that such products are based on short and intense stimulations of the muscles rather than on longer repetitive movements on conventional exercise systems. The systems mechanically stimulate targeted muscles at a specific frequency, typically 25 to 30 impulses per second, causing the muscles to respond by contracting and relaxing by natural reflex 20 to 30 times per second. The Galileo systems target the leg and lower back (Galileo 2000), the arm and shoulder muscles (Galileo 100). There can be no assurance that these efforts will be successful. 10 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CONTINUED) ---------------------------------------------------------------------- Liquidity and Capital Resources (Continued) ------------------------------------------- The Company has no current backlog of orders as of March 31, 2003. There are no material commitments for capital expenditures as of March 31, 2003. The nature of the Company's business is such that it is subject to changes in technology, government approval and regulation, and changes in third-party reimbursement in the United States and numerous foreign markets. Significant changes in one or more of these factors in a major market for the Company's products could significantly affect the Company's cash needs. If the Company experiences significant demand for any of its products, additional third party debt or equity financing will be required. Results of Operations --------------------- The Company had a net loss of $312,098 ($0.01 per share based on 29,544,621 weighted average shares) for the three months ended March 31, 2003 compared to a net loss of $707,890 ($0.02 per share based on 29,969,312 weighted average shares) for the three months ended March 31, 2002. Net loss from continuing operations decreased from $384,199 for the three months ended March 31, 2002 to $312,098 for the three months ended March 31, 2003. Revenue for the three months ended March 31, 2003 increased $435,813 (or 677%) to $500,160 from $64,347 from the comparable period of fiscal 2002. The increase in sales was primarily due to the Company's liquidity problems in 2002, which forced management to focus its efforts and the Company's limited financial resources towards a sale of the Company in the first quarter of 2002 rather than attempting to develop markets for its remaining products. Cost of revenue as a percentage of revenue was 30.8% and 68.1% for the three months ended March 31, 2003 and 2002, respectively, resulting in a gross margin of 69.2% for the three months ended March 31, 2003 compared to 31.9% for the comparable period of 2002. The increase in gross margin was due to reduced manufacturing overhead expenses attributable to the products sold in 2003. Sales and marketing expense for the three months ended March 31, 2003 increased $67,429 or (61.4%) to $178,495 from $109,906 for the three months ended March 31, 2002. The increase is due to the Company's efforts to market its product lines in 2003 as compared to 2002, when management was forced to focus its efforts and the Company's limited financial resources towards the sale of the Company. In addition, the Company hired a national sales manager in the fourth quarter of 2002. General and administrative expense for the three months ended March 31, 2003 increased $144,547 (or 56.4%) to $401,054 from $256,507 for the three months ended March 31, 2002. The increase was primarily due to professional fees incurred in connection with the resolution of the dispute with CooperSurgical Acquisition Corp. ("Cooper") over the sales price of the Company's bone measurement business on April 11, 2002 to Cooper. Research and development expense for the three months ended March 31, 2003 increased $73,668 to $73,668 from $0 for the three months ended March 31, 2002. Spending on research and development commenced again during the second quarter of 2002. 11 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CONTINUED) ---------------------------------------------------------------------- Results of Operations (Continued) --------------------------------- Interest expense decreased $32,248 (or 84.2%) to $6,054 for the three months ended March 31, 2003 from $38,302 for the three months ended March 31, 2002. Interest expense decreased due to a decrease in the principal balance of loans payable during 2003 as compared to 2002. Recently Issued Accounting Standards ------------------------------------ In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections," which updates, clarifies and simplifies existing accounting pronouncements. In part, this statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt. FASB No. 145 will be effective for fiscal years beginning after May 15, 2002. Upon adoption, enterprises must reclassify prior period items that do not meet the extraordinary item classification criteria in Accounting Principles Bulletin ("APB") 30. The Company does not expect that this statement will have a material effect on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 is effective prospectively for exit and disposal activities initiated after December 31, 2002, with earlier adoption encouraged. The Company does not expect that this statement will have a material effect on the Company's consolidated financial statements. In November 2002, the FASB issued Interpretation No. 45, Guarantors' Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation does not prescribe a specific approach for subsequently measuring the guarantor's recognized liability over the term of the related guarantee. The disclosure provisions of this Interpretation are effective for the Company's December 31, 2002 financial statements. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. This Interpretation had no effect on the Company's consolidated financial statements. In January of 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This Interpretation clarifies the application of existing accounting pronouncements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of the Interpretation will be immediately effective for all variable interests in variable interest entities created after January 31, 2003, and the Company will need to apply its provisions to any existing variable interests in variable interest entities by no later than December 31, 2004. The Company does not anticipate that this will have an impact on the financial statements. 12 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CONTINUED) ---------------------------------------------------------------------- Recently Issued Accounting Standards (Continued) ------------------------------------------------ In December 2002, the FASB issued the SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement amends FASB No. 123, "Accounting for Stock-Based Compensation." In particular, this statement (1) provides alternative methods of transition for entities that voluntarily change to the fair value based method of accounting for stock-based employee compensation, (2) amends the disclosure provision of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entity's accounting decisions with respect to stock-based employee compensation and (3) amends APB No.28," Interim Financial Reporting," to require disclosure about those effects in interim financial information. The transition provisions of this statement are effective for financial statements for fiscal years ending after December 15, 2002. The disclosure provisions of this statement are effective for financial reports containing condensed financial statements for interim periods beginning after December15, 2002. Early application is encouraged. The transition provisions of this statement had no effect on the Company's consolidated financial statements. The Company adopted the disclosure provisions of this statement at the beginning of fiscal 2003. The adoption of the disclosure provisions resulted in the presentation of the Company's interim financial statements to include proforma stock-based employee compensation costs. In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The changes in this statement improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, this statement (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FASB Interpretation No. 45, and (4) amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively. The provisions of this statement that relate to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. The Company does not expect that this statement will have an impact on the Company's financial statements. Quantitative and Qualitative Disclosures of Market Risk ------------------------------------------------------- All of the Company's notes payable outstanding at March 31, 2003 have variable interest rates and therefore are subject to interest rate risk. A one percent change in the variable interest rate would result in a $3,000 change in annual interest expense. 13 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- PART II - OTHER INFORMATION --------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. --------------------------------- (a) Exhibits: +10.1 Assignment and Assumption Agreement dated as of April 12, 2002 among Bionix, LLC, Orthometrix, Inc. and M.I.P. GmbH. +10.2 Assignment and Assumption Agreement dated as of April 12, 2002 among Bionix, LLC, Orthometrix, Inc. and Stratec Medizintechnik, GmbH. +10.3 Assignment and Assumption Agreement dated as of April 12, 2002 among Bionix, LLC, Orthometrix, LLC and Novotec Maschinen GmbH. +10.4 Assignment and Assumption Agreement dated as of April 12, 2002 among Bionix, LLC, Orthometrix, LLC and Genemed GmbH. +10.5 Software Distribution Agreement dated as of June 1, 2002 between Orthometrix, Inc. and BonAlyse Oy. 10.6 $150,000 Promissory Note, dated January 6, 2003, between Orthometrix, Inc. and Michael W. Huber. 10.7 $50,000 Promissory Note, dated January 22, 2003, between Orthometrix, Inc. and Yukon Associates. 10.8 $100,000 Promissory Note, dated January 31, 2003 between Orthometrix, Inc. and Reynald Bonmati. 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. + Confidentiality requested as to certain provisions. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the period ended March 31, 2003. 14 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORTHOMETRIX, INC. ----------------- BY: /s/ Reynald Bonmati --------------------------------------- Reynald Bonmati President BY: /s/ Neil H. Koenig --------------------------------------- Neil H. Koenig Chief Financial Officer (Principal Financial Officer) Dated: May 15, 2003 15 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- CERTIFICATIONS I, Reynald Bonmati, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Orthometrix, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us, particularly during the period in which this quarterly report is being prepared: b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 16 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Reynald Bonmati ------------------------------------- Reynald Bonmati President (Chief Executive Officer) 17 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- CERTIFICATIONS I, Neil H. Koenig, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Orthometrix, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us, particularly during the period in which this quarterly report is being prepared: b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 18 of 19 ORTHOMETRIX, INC. ----------------- FORM 10-QSB MARCH 31, 2003 -------------------------- 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Neil H. Koenig ------------------ Neil H. Koenig Chief Financial Officer 19 of 19