-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H0zpkGPmE5pw8TfHz9KVBxoJURKI94vVsjuhHUijF4HoqN+jwNR1BxPcyQ3s8d/t kHFOfmlT4q3EKyW+zwWqDA== 0000950136-05-001593.txt : 20050325 0000950136-05-001593.hdr.sgml : 20050325 20050325112044 ACCESSION NUMBER: 0000950136-05-001593 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050325 DATE AS OF CHANGE: 20050325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORTHOMETRIX INC CENTRAL INDEX KEY: 0000946428 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 061387931 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26206 FILM NUMBER: 05703829 BUSINESS ADDRESS: STREET 1: 106 CORPORATE PARK DRIVE STREET 2: SUITE 106 CITY: WHITE PLAINS STATE: NY ZIP: 10604 BUSINESS PHONE: 9146942285 MAIL ADDRESS: STREET 1: 106 CORPORATE PARK DRIVE STREET 2: SUITE 106 CITY: WHITE PLAINS STATE: NY ZIP: 10604 FORMER COMPANY: FORMER CONFORMED NAME: NORLAND MEDICAL SYSTEMS INC DATE OF NAME CHANGE: 19951115 FORMER COMPANY: FORMER CONFORMED NAME: OSTECH INC DATE OF NAME CHANGE: 19950608 10KSB 1 file001.htm FORM 10KSB

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004 Commission file No. 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 102, White Plains, NY 10604
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code (914) 694-2285

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $0.0005 PER SHARE

Indicate by check mark whether the 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 [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ]

Registrant's revenues for its most recent year were $1,179,877.

The aggregate market value of the registrant's Common Stock, par value $0.0005
per share, held by non-affiliates of the registrant as of March 15, 2005 was
$5,888,254.50 based on the price of the last reported sale on the OTC Bulletin
Board.

As of March 15, 2005 there were 42,902,368 shares of the registrant's Common
Stock, par value $0.0005 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Orthometrix, Inc. Proxy Statement for the 2005 Annual Meeting of
Stockholders are incorporated by reference in Items 9, 10, 11 and 12 of Part III
of this Form 10-KSB. A definitive proxy statement will be filed with the
Securities and Exchange Commission within 120 days after the close of the fiscal
year covered by this Form 10-KSB.

TABLE OF CONTENTS

Page
----

INTRODUCTION 3

ITEM 1. BUSINESS 3

ITEM 2. PROPERTIES 15

ITEM 3. LEGAL PROCEEDINGS 15

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 16

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 16

ITEM 7. FINANCIAL STATEMENTS 20

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 41

ITEM 8a CONTROLS AND PROCEDURES 41

ITEMS 9, 10, 11 and 12 DOCUMENTS INCORPORATED BY REFERENCE 42

ITEM 13. EXHIBITS 42

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 45

INTRODUCTION

The statements included in this Report regarding future financial
performance and results and other statements that are not historical facts
constitute forward-looking statements. The words "believes," "intends,"
"expects," "anticipates," "projects," "estimates," "predicts," and similar
expressions are also intended to identify forward-looking statements. These
forward-looking statements are based on current expectations and are subject to
risks and uncertainties. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, Orthometrix, Inc.,
("Orthometrix" or the "Company" or "OMRX"), cautions the reader that actual
results or events could differ materially from those set forth or implied by
such forward-looking statements and related assumptions due to certain important
factors, including, without limitation, the following: (i) the effect of product
diversification efforts on future financial results; (ii) the availability of
new products and product enhancements that can be marketed by the Company; (iii)
the importance to the Company's sales growth and that regulatory approval of
products be granted, particularly in the United States; (iv) the acceptance and
adoption by primary care providers of new products and the Company's ability to
expand sales of its products to these physicians; (v) adverse affect resulting
from changes in the reimbursement policies of governmental programs (e.g.,
Medicare and Medicaid) and private third party payors, including private
insurance plans and managed care plans; (vi) the high level of competition in
the rehabilitation and physical therapy markets; (vii) the high level of
competition in the pain management market; (viii) changes in technology; (ix)
the Company's ability to continue to maintain and expand acceptable
relationships with third party dealers and distributors; (x) the Company's
ability to provide attractive financing options to its customers and to provide
customers with fast and efficient service for the Company's products; (xi)
changes that may result from health care reform in the United States may
adversely affect the Company; (xii) the Company's cash flow and the results of
its ongoing financing efforts; (xiii) the effect of regulation by the United
States Food and Drug Administration ("FDA") and other government agencies; (xiv)
the Company's ability to secure FDA approval to market its products; (xv) the
effect of the Company's accounting policies; (xvi) the outcome of pending
litigation; and (xvii) other risks described elsewhere in this Report and in
other documents filed by the Company with the Securities and Exchange
Commission. The Company is also subject to general business risks, including
adverse state, federal or foreign legislation and regulation, adverse publicity
or news coverage, changes in general economic factors and the Company's ability
to retain and attract key employees. Any forward-looking statements included in
this Report are made as of the date hereof, based on information available to
the Company as of the date hereof, and, subject to applicable law, the Company
assumes no obligation to update any forward-looking statements.

PART I

ITEM 1. BUSINESS.

Orthometrix, Inc. markets, sells and services several musculoskeletal
product lines used in pharmaceutical research, diagnosis and monitoring of bone
and muscle disorders, sports medicine, rehabilitative medicine, physical therapy
and pain management. Prior to April 11, 2002, the Company also developed,
manufactured, sold and serviced a broad line of traditional bone densitometers
used to assess bone mineral content and density, one of several factors used by
physicians to aid in the diagnosis and monitoring of bone disorders,
particularly osteoporosis. This line of products, which was the Company's
primary business, was sold on April 11, 2002 to CooperSurgical Acquisition Corp.
("Cooper"), a wholly-owned subsidiary of the Cooper Companies, Inc. (NYSE:COO)
(the "Asset Sale"). As of April 11, 2002, the Company changed its name from
Norland Medical Systems, Inc. to Orthometrix, Inc. As a result of the Asset
Sale, the Company's subsidiaries became inactive and were subsequently dissolved
in 2003.

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During the past two years, the Company has experienced aggregate
losses from operations of $3,293,341 and has incurred a total negative cash flow
from operations of $2,180,729 for the same two-year period. 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 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 has recently completed a $1,740,000 share issuance that will
significantly improve the Company's liquidity for the near future. 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.

On April 11, 2002, the Company sold its bone measurement business to
Cooper, the Company's exclusive distributor to U.S. physicians and group
practices specializing in Obstetrics and Gynecology. The Company was entitled to
receive up to a maximum of $12.0 million for the sale of substantially all its
assets and the assumption of certain liabilities. The Company received $3.5
million of the purchase price at the closing of the Asset Sale. An additional
$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. 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 engaged an independent accounting
firm to provide a binding resolution of such disagreement. During June 2003 the
arbitrator settled the disagreement in favor of the Company for $268,569.
Accordingly, the Company received a total of $673,569 out of the potential
$1,000,000 installment payable in connection with the Asset Sale to Cooper. The
settlement from Cooper was received in July 2003. The full amount of the
remaining $500,000 installment of the purchase price was released by Cooper to
the Company on January 30, 2004, without any adjustment. The Company recorded a
gain from the Asset Sale of $4.3 million during the year ending December 31,
2002.

In addition, the Company was eligible to receive up to an additional
$7.0 million in earn-out payments based on the net sales of certain products
over a three-year period from May 1, 2002 to April 30, 2005. No amounts have
been earned through March 15, 2005 and the Company does not anticipate receiving
any proceeds from the earn-out.

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(R) (peripheral Quantitative Computed
Tomography) bone and muscle measurement systems used for musculoskeletal
research and clinical applications (including for bone disorders and human
performance)- the XCT(TM) product line; and (2) patented exercise systems used
for physical therapy, sports medicine and rehabilitative medicine - the
Galileo(TM) and Leonardo(TM) product lines, as well as the Mini VibraFlex. The
healthcare division is continuing to work towards completion of the premarket
approval ("PMA") process for its Orbasone(TM) pain management system (ESWT or
Extracorporal Shock Wave Therapy), 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 VibraFlex(R)
product line. The sports & fitness division's product line includes the Mini
VibraFlex(R), the Mini VibraFlex(R) Plus and the

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VibraFlex(R) 500. The Company also intends to introduce the VibraFlex Rx in the
near future to replace the Galileo 2000 in the physical therapy, sports medicine
and rehabilitation markets. The VibraFlex products are based on the same
patented technology as the Galileo products and offer a novel approach to muscle
strength development given that such products are based on short and intense
stimulations of the muscles.

The Company is in the process of assembling a sales organization to
market the VibraFlex equipment in the U.S. and Canada.

RECENT DEVELOPMENTS

In February 2004, the Company introduced the VibraFlex(R) 500, the
Mini VibraFlex(R) and the Mini VibraFlex(R) Plus. Assembled in the U.S., the
VibraFlex 500 is based on the same patented technology as the Galileo 2000 and
offer a novel approach to muscle strength development given that such products
are based on short and intense stimulations of the muscles. The VibraFlex 500
and the Mini VibraFlex Plus have been designed for the fitness clubs and the
home exercise markets. Delivery of the first VibraFlex 500 units to fitness
clubs occurred in December 2004. The products are being tested by a variety of
potential users but no significant orders have been received.

MARKETS AND PRODUCTS

The Company currently offers 5 product types comprised of a total of
16 models: 6 models of pQCT systems for bone & muscle research application (XCT
Research SA, XCT Research SA+, XCT Research M, XCT Research M+, XCT Microscope,
and XCT 3000 Research); 2 models of pOCT systems for clinical application
related to bone & muscle disorders (XCT 2000L and XCT 3000); 5 models of
patented powered exercise systems for rehabilitation and physical therapy (Mini
VibraFlex(R), Galileo XS, Galileo Home Plus, Galileo "Kipptisch" and Galileo
2000); 1 model of human performance measurement system (Leonardo); and 2 models
of VibraFlex for sports and fitness (Mini VibraFlex(R) Plus and VibraFlex(R)
500). In addition, the Company has several products under development, such as
the VibraFlex Rx for sports medicine, rehabilitation and physical therapy.

The following is a description of each of the Company's product types and
primary models.

1. BONE & MUSCLE DISORDERS / PHARMACEUTICAL RESEARCH

We believe that over the past decade, peripheral Quantitative Computed
Tomography (pQCT(R)) has replaced Dual Energy Bone Absorptiometry (DEXA or DXA)
as the technology of choice for pharmaceutical research laboratories
specializing in bone disorders such as osteoporosis. Unlike DXA, pQCT allows
true volumetric measurement of both bones and muscles. We believe that it allows
not only faster assessment of new therapeutic agents but also their impact on
the entire musculoskeletal system.

The Company directly markets, sells and services in the US and Canada
the following pQCT systems for in vivo and in vitro research:

XCT Research SA/SA+ (bone/muscle measurement for small laboratory animals such
as rats);

XCT Research M/M+ (bone/muscle measurement for transgenic mice);

XCT Microscope - (bone measurement for in vitro research);

XCT 3000 Research - (bone/muscle measurement for large laboratory animals such
as primates).

-5-

Stratec Medizintechnik GmbH ("Stratec"), a worldwide leader in pQCT
technology, manufactures these systems in Germany and markets them in the rest
of the world. North America accounts for about 80% of the worldwide research
market.

2. BONE DISORDERS / DIAGNOSTIC AND MONITORING

The clinical market is usually lagging several years behind the
research market. Therefore, DXA still is the "gold standard" in the diagnostic
and monitoring of bone disorders, in spite of its shortcomings. However, the
two-dimensional nature of DXA technology makes it of little value in situations
when parameters such as bone thickness or bone cross section area need to be
measured (orthopedics) or when long bones continue to grow (pediatrics).

The Company directly markets, sells and services in the US and Canada
the following pQCT systems for clinical assessment and monitoring of bone
density and architecture:

XCT2000L (bone/muscle measurement at the forearm and foot/tibia);
XCT 3000 (bone/muscle measurement at the tibia and femur).

All systems are principally marketed to the pediatrics and orthopedics
specialties. Stratec, a worldwide leader in pQCT technology, manufactures these
systems in Germany and markets them in the rest of the world.

Sales, rental, and service of all pQCT systems for in vivo and in
vitro research, clinical assessment and monitoring of bone density and
architecture represented approximately 70% of the Company systems sales from
operations during fiscal year 2004.

3. PATIENTS WITH INCONTINENCE THAT BENEFIT FROM EXERCISE

Our target is the large incontinence market. It is well
recognized that exercise of the perineal muscles can improve their strength and
reduce incontinence. The Galileo(TM) 2000 is a patented powered exercise system
that allows patients with incontinence to stimulate such muscles at a rapid
(25/30 Hz) rate, providing them with the exercise that can reduce incontinence.
The Galileo systems are made by Novotec Medical GmbH ("Novotec"). The Company
intends to introduce the VibraFlex Rx in the near future to replace the Galileo
2000. Unlike the Galileo 2000, the VibraFlex Rx will be manufactured for the
Company in the US by Kimchuk, Inc ("Kimchuk")

4. PATIENTS WITH DIABETES THAT BENEFIT FROM EXERCISE

It is well known that individuals with diabetes benefit from exercise.
In particular, exercise can improve blood circulation in legs of diabetics.
Unfortunately, diabetics usually are not capable of long exercise sessions, and
their exercise efforts must be predictable so proper insulin levels can be
maintained. The Galileo(TM) rapid (25/30 Hz) stimulation rate, which does not
tax the cardiopulmonary system, is well suited to the needs of these
individuals. The Galileo allows people with diabetes to enjoy the benefits of
exercise. Galileo sales accounted for approximately 25% of total systems sales
from operations during fiscal year 2004. The Company intends to introduce the
VibraFlex Rx in the near future to replace the Galileo 2000. Unlike the Galileo
2000, the VibraFlex Rx will be manufactured for the Company in the U.S. by
Kimchuk.

5. REHABILITATION / PHYSICAL THERAPY

The patented Galileo powered exercise system has already penetrated
the European rehabilitation and physical therapy market. The Galileo 2000 model
targets the leg and lower back. The Mini VibraFlex model targets the arm and
shoulder muscles. The system now is marketed in the U.S. for the rehabilitation
of muscle, tendons and ligaments, and to improve muscle strength and
coordination. Like the Galileo 2000, the Mini VibraFlex system is

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also made by Novotec. The Company intends to introduce the VibraFlex Rx in the
near future to replace the Galileo 2000. Unlike the Galileo 2000, the VibraFlex
Rx will be manufactured for the Company in the U.S. by Kimchuk.

These systems are specifically used to:

o Exercise postural muscles, joints and reflexes;

o Improve muscle strength, reflexes and joint motions;

o Redevelop postural muscles, joints and reflexes after injury/disease;

o Reduce the pain and disability associated with Osteoarthritis; and

o Allow patients with Parkinson's disease to benefit from exercise that
can slow the progress of the disease.

The Leonardo(TM) measures various key parameters of human performance,
such as force and power. It has been designed to help the rehabilitation
specialist and the physical therapist measure the progress made by his/her
patients. The Leonardo system is made by Novotec. Leonardo sales accounted for
less than 2% of total systems sales from operations during fiscal year 2004.

6. SPORTS AND FITNESS

The VibraFlex is a revolutionary exercise system based on the same new
and patented concept as the Galileo systems. Many European athletes and
professional teams already use the Galileo as an inherent part of their training
to increase muscle power (ski, soccer, volley ball, basket ball, tennis). One of
the first U.S. athletes to use the Galileo system was Lance Armstrong, several
times winner of the Tour de France. The Chicago White Sox baseball team was the
first U.S. professional sports team to use the Galileo. The patented Galileo
technology was developed for Rehabilitative Medicine and Physical Therapy to
improve various conditions affecting muscle, tendons and ligaments, improve
muscle strength/coordination, and blood circulation. The VibraFlex system has
been developed by the Company to make the powerful Galileo technology affordable
to the sports & fitness industry and to the home exercise market. The VibraFlex
500 model targets the leg and lower back while the Mini VibraFlex Plus model
targets the arm and shoulder muscles. The VibraFlex 500 model is manufactured
for the Company in the U.S. by Kimchuk, and the Mini VibraFlex Plus model is
manufactured for the Company by Novotec.

7. PRODUCTS AND APPLICATIONS UNDER DEVELOPMENT

o PAIN MANAGEMENT: Manufactured for MIP GmbH, a Swiss Corporation
("MIP"), under a contractual arrangement by Nippon Infrared Industries
Co., Ltd. (Japan), the Orbasone(TM)was classified in August 1998 by
the FDA as a Class I therapeutic vibrator (21 CFR Section 890.5975)
exempt from the 510(k) requirements of the Federal Food, Drug and
Cosmetic Act. The Company distributed the Orbasone and began
generating modest sales in fiscal year 2000. The Orbasone delivers
energy waves (Extracorporeal Shock Wave Treatment or ESWT) that
provide relief to patients from minor pain in soft tissues at the
treatment site, which is typically, the foot, ankle, elbow or
shoulder. The 30 to 40 minute treatment sessions are delivered to
patients under the supervision and care of a physician such as an
orthopedic surgeon or podiatrist. On June 21, 2000, the FDA informed
MIP that the FDA erred in its 1998 decision and rescinded its
determination that the Orbasone was an exempt product. As a result,
the Company suspended sales of the Orbasone pending FDA review of the
product in June 2000. The FDA determined that the Orbasone was a Class
III device requiring pre-market approval ("PMA"). During 2002, the
Company acquired the rights to manufacture the Orbasone under license
from MIP and initiated a clinical study as part of the PMA process.
The Company is continuing to work towards completion of the PMA
process for its Orbasone pain management system, which will be added
to the U.S. product line upon successful completion of the process and
approval by the FDA. The Orbasone is marketed by MIP in Europe and
Asia, but not yet available for sale in the U.S.

-7-

o DIABETES: The Company intends to conduct clinical studies to quantify
the benefits of exercising with the VibraFlex for patients at various
stages of the disease (neuropathy).

o SPINAL CORD INJURIES: The first major U.S. rehabilitation center to
use the Galileo was the Rusk Institute for Rehabilitative Medicine of
New York University Medical Center. In addition to routine motor and
cardiac rehabilitation situations, our Galileo system is being studied
in various patient populations, including those with Parkinson's
disease and spinal cord injuries. The Company intends to introduce the
VibraFlex Rx when available, to be utilized in these situations.

SALES, MARKETING AND CUSTOMER SERVICE

The Company currently employs one Sales Manager for Rehabilitation /
Fitness, one Sales Administration Manager, one full-time pQCT Sales Applications
Consultant, one Marketing Manager and two Service Engineers.

The Company sells pQCT Research systems and pQCT Clinical systems
directly to its customers, whether they are research or clinical institutions.
For Galileo, VibraFlex and Leonardo sales, the Company typically uses an
exclusive independent sales representative to cover one or more states. The
Company also sells directly to its customers in those markets where the Company
does not have third party sales representatives. The Company's sales staff is
responsible for the support and supervision of independent sales representatives
within their geographic region. Support includes participation in trade shows,
symposiums, customer visits, product demonstrations, ongoing distribution of
literature and publications, sales training and presentations of financing
programs. The Company is in the process of expanding its network of independent
sales representatives to make use of the country's large market of
rehabilitation centers, physical therapists and fitness facilities. The Company
has also started an effort to recruit a network of international distributors.

Marketing efforts are focused primarily on supporting the Sales
Manager for Rehabilitation / Fitness and the pQCT Sales Applications Consultant
in their direct sales and management of sales representatives, managing sales
requests received on the Company's websites, managing sales lead generation
programs, managing product introductions and new product financing programs,
designing and maintaining media support such as brochures, manuals, and trade
show material, and developing and maintaining the Company Web sites.

The Company offers one-year warranties on both the hardware and
software included in its systems (except for computer systems, if any, which are
covered under their respective manufacturers' warranty), as well as extended
warranty contracts. The Company provides warranty services to its customers. Any
costs incurred by the Company in connection with a warranty of a system not
manufactured by the Company are borne by such manufacturer pursuant to the
applicable distribution agreement.

The Company has no obligation to provide any other services to its
third party independent sales representatives or other customers. However, the
Company does offer non-warranty services and a range of other product support
services in cooperation with its third-party independent sales representatives.
The Company also offers training at customer locations and the Company's
facilities to end-user customers, independent sales representatives and service
technicians.

MANUFACTURING

Following the sale of its bone measurement business, the Company
relied exclusively on third parties for the manufacturing of its products.

-8-

Manufacturing processes for the products marketed by the Company are
subject to stringent federal, state and local laws and regulations governing the
use, generation, manufacture, storage, handling and disposal of certain
materials and wastes. In the United States, such laws and regulations include
the Occupational Safety and Health Act, the Environmental Protection Act, the
Toxic Substances Control Act, and the Resource Conservation and Recovery Act.
The Company believes that it has complied in all material respects with such
laws and regulations. There can be no assurance that the Company will not be
required to incur significant costs in the future with respect to compliance
with such laws and regulations.

BONE & MUSCLE DISORDERS PRODUCTS

The pQCT products marketed by the Company were developed and are
manufactured by Stratec at its facilities located in Pforzheim, Germany.
Manufacturing consists primarily of testing of components, final assembly and
systems testing. All establishments, whether foreign or domestic, manufacturing
medical devices for sale in the United States are subject to periodic
inspections by or under the authority of the FDA to determine whether the
manufacturing establishment is operating in compliance with FDA Quality System
Regulation ("QSR") requirements. The Company is dependent on Stratec to
manufacture the pQCT products that the Company and others market in amounts and
at levels of quality necessary to meet demand. The Company has no ownership
interest in Stratec.

Some components are manufactured in accordance with custom
specifications and require substantial lead times. While efforts are made to
purchase components from more than one source and to use generally available
parts, certain components are available from only one or a limited number of
sources. In the past, there have been delays in the receipt of certain
components, although to date no such delays have had a material adverse effect
on the Company. The Company believes that Stratec has sufficient manufacturing
capacity to supply the Company's product needs for at least the next twelve
months.

MUSCULOSKELETAL DEVELOPMENT PRODUCTS

The Galileo, Leonardo and the Mini VibraFlex products marketed by the
Company were developed and are manufactured by Novotec at its facilities located
in Pforzheim, Germany. Manufacturing consists primarily of testing components,
forming and painting of plastic covers, final assembly and quality assurance
testing. The Company is dependent on Novotec to manufacture the Galileo and Mini
VibraFlex products that the Company and others market in amounts and at levels
of quality necessary to meet demand. The Company has no ownership interest in
Novotec.

Some components are manufactured in accordance with specifications
that are specific to the Galileo, Leonardo and Mini VibraFlex products and
require substantial lead times. Until such time as production quantities
increase to a level that provides for opportunities to realize economies of
scale and dual sourcing of components, each component is generally purchased
from a limited number of sources and is subject to the risk that its
availability could become delayed. To date there have been no delays in
production which have had a material adverse effect on the Company. The Company
believes that Novotec has sufficient capacity to supply the Company's need for
Galileo, Leonardo and Mini VibraFlex products for at least the next 12 months.

The VibraFlex 500 product marketed by the Company was developed by the
Company and is manufactured for the Company by Kimchuk, Inc. at its facilities
located in Connecticut. Manufacturing consists primarily of testing components,
forming and painting of plastic covers, final assembly and quality assurance
testing. The Company is dependent on Kimchuk to manufacture the VibraFlex 500
product that the Company and others market in amounts and at levels of quality
necessary to meet demand. The Company has no ownership interest in Kimchuk.

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Some components are manufactured in accordance with specifications
that are specific to the VibraFlex 500 product and require substantial lead
times. Until such time as production quantities increase to a level that
provides for opportunities to realize economies of scale and dual sourcing of
components, each component is generally purchased from a limited number of
sources and is subject to the risk that its availability could become delayed.
To date there have been no delays in production which have had a material
adverse effect on the Company. The Company believes that Kimchuk has sufficient
capacity to supply the Company's need for the VibraFlex 500 product for at least
the next 12 months.

PAIN MANAGEMENT SYSTEMS

In 2002, the Company acquired rights to manufacture the Orbasone under
a license from MIP and has since retained Kimchuk to manufacture the Orbasone in
the U.S. for the U.S. and Canadian markets. The manufacturing of the Orbasone
consists primarily of procuring and testing components, final assembly and
quality assurance testing. If and when the Orbasone receives market clearance,
the Company will be dependent on several component manufacturers to supply
sufficient components for the Orbasone systems, and on Kimchuk to assemble such
components, in amounts and at levels of quality necessary to meet demand and be
competitive. The Company has no ownership interest in MIP or Kimchuk.

Some components are produced in accordance with specifications that
are specific to the Orbasone and require substantial lead times. Until such time
as production quantities increase to a level that provides for opportunities to
realize economies of scale and dual sourcing of components, each component is
generally purchased from a limited number of sources and is subject to the risk
that its availability could become delayed. The Orbasone has not yet been
approved by the FDA for sale in the U.S. market.

DISTRIBUTION AGREEMENTS

Following the sale of its bone measurement business, the Company
focused exclusively on its musculoskeletal products. The following parties have
provided to the Company rights to market, sell and service certain products:

STRATEC

The Company and Stratec are parties to an exclusive agreement dated
October 1, 1999 with respect to the marketing, sales and service of pQCT systems
in North America. Under the terms of the four-year distribution agreement, the
Company may purchase products from Stratec at a fixed price to be adjusted from
time to time by mutual consent. On October 1, 2004, the agreement with Stratec
was renewed for one year, and will be renewed automatically on every October 1st
for a one-year term until the Company elects to terminate the agreement.

NOVOTEC

The Company and Novotec are parties to an exclusive agreement dated
October 1, 1999 with respect to the marketing, sales and service of Galileo and
Leonardo systems in North America. Under the terms of the four-year distribution
agreement, the Company may purchase products from Novotec at a fixed price to be
adjusted from time to time by mutual consent. On October 1, 2004, the agreement
with Novotec was renewed for one year, and will be renewed automatically on
every October 1st for a one-year term until the Company elects to terminate the
agreement.

-10-

MIP

The Company and MIP are parties to a product approval and licensing
agreement dated February 12, 2002 with respect to the Orbasone system. Under the
terms of the agreement, MIP granted the Company the exclusive and perpetual
authority, right and license in North America to seek PMA approval for the
Orbasone, and to manufacture, market, sell and service the Orbasone. The
Orbasone has not yet been approved by the FDA for sale in the U.S. market.

COMPETITION

BONE DENSITOMETRY PRODUCTS

The Company believes that the pQCT-based products it markets provide
measurement capabilities, such as three-dimensional measurements and separate
measurement of cortical and trabecular bone, not available with traditional
DXA-based technology, at prices competitive with systems using that technology.
In the research market, the range, accuracy and precision of measurements are
the principal competitive factors. Despite the absence of directly similar
products, there are a number of competing approaches and products that compete
with the pQCT products. Many of the Company's existing competitors and potential
competitors have substantially greater financial, marketing and technological
resources, as well as established reputations for success in developing, selling
and servicing products. The Company expects existing and new competitors will
continue to introduce products that are directly or indirectly competitive with
the pQCT products. Such competitors may be more successful in marketing such
products. There can be no assurance that the Company will be able to continue to
compete successfully in this market. The Company sold its traditional DXA-based
technology to CooperSurgical on April 11, 2002 and can receive earn-out payments
based on the net sales of certain products over a three-year period from May 1,
2002 to April 30, 2005. No amounts have been earned through March 15, 2005 and
the Company does not anticipate that it will receive any sales proceeds from the
earn-out.

MUSCULOSKELETAL DEVELOPMENT PRODUCTS

The Galileo and VibraFlex products offer a novel approach to muscle
strength development. The owner of Novotec has applied for patents regarding the
Galileo products and has already received certain patents, namely in Germany and
in the U.S. Despite the absence of directly similar products, there are a number
of competing approaches and products that develop muscle strength. Many of the
Company's existing competitors and potential competitors have substantially
greater financial, marketing and technological resources, as well as established
reputations for success in developing, selling and servicing products. The
Company expects existing and new competitors will continue to introduce products
that are directly or indirectly competitive with the Galileo and VibraFlex
products. Such competitors may be more successful in marketing such products.
There can be no assurance that the Company will be able to compete successfully
in this market.

The Company's primary competitors for the sale of musculoskeletal
development products are marketers of exercise equipment such as OMNI Fitness
and Stairmaster. These companies have products that compete directly with the
products marketed by the Company in certain segments of the market. Other
smaller companies, such as Power Plate are marketing products that compete
directly with the Galileo 2000 and the VibraFlex 500. There can be no assurance
that the Company's competitors will fail to develop and market products that
make use of the Galileo's and VibraFlex's novel approach or that are lower
priced or better performing as compared to the Galileo or VibraFlex products.

-11-

The Company believes that the products it markets compete primarily on
the basis of price/performance characteristics, perceived efficacy of results,
ease, convenience and safeness of use, quality of service and price. The Company
is using its initial product marketing efforts to assess the competitiveness of
the Galileo and VibraFlex products, which the Company recently introduced to the
U.S. market.

PAIN MANAGEMENT SYSTEMS

The pain management systems market is highly competitive. Several
companies have developed or are developing devices that compete or will compete
with the Orbasone. Many of the Company's competitors existing and potential
competitors have substantially greater financial, marketing and technological
resources, as well as established reputations for success in developing, selling
and servicing products. The Company expects existing and new competitors will
continue to introduce products that are directly or indirectly competitive with
the Orbasone. Such competitors may be more successful in marketing such
products. There can be no assurance that the Company will be able to compete
successfully in this market.

The Company's primary competitors for the sales of pain management
systems are HealthTronics, Inc., Donier MedTech and Siemens AG, which have
products that have already obtained premarket approval, as well as Storz
Medical, MTS Medical Technologies & Services GmbH, and other companies that have
or potentially plan to have products that are in various stages of the FDA
review process for the purpose of obtaining premarket approval. The Orbasone was
classified in August 1998 as a Class I therapeutic vibrator (21CFR Section
890.5975) exempt from the 510 (k) requirements of the Federal Food, Drug and
Cosmetic Act. However, on June 21, 2000, the FDA informed MIP that it erred in
its 1998 decision and rescinded its determination that the Orbasone was an
exempt product. As a result the Company suspended sales of the Orbasone pending
FDA review of the product. The FDA determined that the Orbasone is a Class III
device requiring premarket approval. Following such determination MIP granted
the Company the exclusive and perpetual authority, right and license in North
America to seek PMA approval for the Orbasone, and to manufacture, market, sell
and service the Orbasone. The Orbasone has not yet been approved by the FDA for
sale in the U.S. market, but the Company continues to seek approval.

THIRD PARTY REIMBURSEMENT

Bone densitometry products and pain management systems

Outside of the research market, the pQCT bone densitometry products
marketed by the Company are purchased principally by hospitals, managed care
organizations, including independent practice associations and physician
practice organizations or independent physicians or physician groups, who are
regulated in the United States by federal and state authorities and who
typically bill and are dependent upon various third party payers, such as
federal and state governmental programs (e.g., Medicare and Medicaid), private
insurance plans and managed care plans, for reimbursement for use of the
Company's products. The Health Care Financing Administration ("HCFA")
establishes new reimbursement codes and recommended reimbursement rates
effective January 1 of each calendar year. On several occasions, HCFA has
affected increases and decreases in its recommended reimbursement rates for bone
densitometry examinations and has made changes in the types of examinations
eligible for reimbursement. There can be no assurance that HCFA will not
continue to make changes from time to time. However, the current sales volume of
pQCT equipment subject to reimbursement are no longer significant to our
Company.

Postoperative pain management is reimbursed under limited
circumstances. There can be no assurance that HCFA or other third party payers
will reimburse patients for pain management systems and pain treatment sessions
involving the Orbasone system.

-12-

Musculoskeletal development products

As with general exercise equipment which requires no professional
supervision, the Galileo and VibraFlex series of musculoskeletal development
products are not covered under federal or state health care insurance programs
or by third party health insurance payers. However, as with other exercise
equipment used during an exercise session provided by a licensed physical
therapy provider, sessions using the Galileo and VibraFlex series may be
reimbursed under various reimbursement codes for which HCFA establishes
recommended reimbursement rates effective January 1 of each calendar year. On
several occasions, HCFA has affected increases and decreases in its recommended
reimbursement rates and has made changes in the types of sessions eligible for
reimbursement. There can be no assurance that HCFA will not continue to make
changes from time to time. The Company could be materially and adversely
affected by such changes.

GOVERNMENT REGULATION

The development, testing, manufacturing and marketing of the bone
densitometry and pain management products marketed by the Company are regulated
by the FDA in the United States and by various foreign regulatory agencies. The
testing for, preparation of, and subsequent FDA review of required applications
is expensive, lengthy and uncertain. Moreover, regulatory approval or clearance,
if granted, can include significant limitations on the indicated uses for which
a product may be marketed. Failure to comply with applicable regulations can
result in warning letters, civil penalties, refusal to approve or clear new
applications or notifications, withdrawal of existing product approvals or
clearances, product seizures, injunctions, recalls, operating restrictions, and
criminal prosecutions. Delays in receipt of or failure to receive clearances or
approvals for new products would adversely affect the marketing of such products
and the results of future operations.

Medical devices are classified as either Class I, II, or III based on
the risk presented by the device. Class I devices generally do not require
review and approval or clearance by the FDA prior to marketing in the U.S. Class
II devices generally require premarket clearance through the Section 510(k)
premarket notification process, and Class III devices generally require
premarket approval through the lengthier premarket approval application ("PMA")
process. Orthometrix markets Class I, II, and III devices. Section 510(k)
submissions may be filed only for those devices that are "substantially
equivalent" to a legally marketed Class I or Class II device or to a Class III
device for which the FDA has not called for PMAs. A Section 510(k) submission
generally requires less data than a PMA. The FDA must determine whether or not
to clear a Section 510(k) submission within 90 days of its receipt. The FDA may
extend this time period, however, if additional data or information is needed to
demonstrate substantial equivalence. If a device is not "substantially
equivalent" to a legally marketed Class I or Class II device or to a Class III
device for which the FDA has not previously called for PMAs, a PMA is required.
The premarket approval procedure involves a more complex and lengthy testing and
FDA review process than the Section 510(k) premarket notification process. There
can be no assurances that clearances or approvals will be obtained on a timely
basis, if at all. Modifications or enhancements to products that are either
cleared through the Section 510(k) process or approved through the PMA process
that could effect a major change in the intended use, or affect the safety or
effectiveness, of the device may require further FDA review and clearance or
approval through new Section 510(k) or PMA submissions.

The Company has received Section 510(k) clearance for all its bone
densitometers marketed in the U.S. for use in humans. The pain management
devices (Orbasone) marketed by the Company in the U.S. were classified by the
FDA in August 1998 as Class I devices exempt from Section 510(k) premarket
notification requirements. On June 21, 2000, the FDA informed MIP that it erred
in its classification of the Orbasone and the Company suspended marketing of the
Orbasone. The FDA determined that the Orbasone is a Class III device requiring
premarket approval. Following such determination MIP granted the Company the
exclusive and perpetual authority, right and license in North America to seek
PMA for the Orbasone, and to manufacture, market, sell and service the Orbasone.

-13-

The Company is currently seeking PMA for the Orbasone. The Galileo and VibraFlex
musculoskeletal development products are not medical devices subject to FDA
regulation but are consumer products subject to regulation under the Consumer
Product Safety Act. However, the Company requested and received on July 25, 2002
a written opinion from the FDA regarding the classification of the Galileo for
uses in connection with certain medical conditions as a Class I device exempt
from Section 510(k) premarket notification requirements.

All entities, whether foreign or domestic, manufacturing medical
devices for sale in the United States are subject to periodic inspections by or
under authority of the FDA to determine whether the manufacturing establishment
is operating in compliance with QSR requirements. Manufacturers must continue to
expend time, money and effort to ensure compliance with QSR requirements. The
FDA also requires that medical device manufacturers undertake post-market
reporting for serious injuries, deaths, or malfunctions associated with their
products. If safety or efficacy problems occur after the product reaches the
market, the FDA may take steps to prevent or limit further marketing of the
product. Additionally, the FDA actively enforces regulations concerning
marketing of devices for indications or uses that have not been cleared or
approved by the FDA.

The Company's products also are subject to regulatory requirements for
electronic products under the Radiation Control for Health and Safety Act of
1968. The FDA requires that manufacturers of diagnostic x-ray systems comply
with certain performance standards, and record keeping, reporting, and labeling
requirements.

The Company may export a medical device not approved in the United
States to any country without obtaining FDA approval, provided that the device
(i) complies with the laws of that country and (ii) has valid marketing
authorization or the equivalent from the appropriate authority in a "listed
country." The listed countries are Australia, Canada, Israel, Japan, New
Zealand, Switzerland, South Africa and countries in the European Union and the
European Economic Area. Export of unapproved devices that would be subject to
PMA requirements if marketed in the United States and that do not have marketing
authorization in a listed country generally continue to require prior FDA export
approval.

PROPRIETARY RIGHTS

The Company believes that its sales are dependent in part on certain
proprietary features of the products it manufactures and/or markets. The Company
relies primarily on know-how, trade secrets and trademarks to protect those
intellectual property rights and has not sought patent protection for such
products. There can be no assurance that these measures will be adequate to
protect the rights of the Company. To the extent that intellectual property
rights are not adequately protected, the Company may be vulnerable to
competitors who attempt to copy the Company's products or gain access to the
trade secrets and know-how related to such products. Further, there can be no
assurance that the Company's competitors will not independently develop
substantially equivalent or superior technology. The Company is not the subject
of any litigation regarding proprietary rights, and the Company believes that
the technologies used in its products were developed independently. In addition,
the Company's business depends on proprietary information regarding customers
and marketing, and there can be no assurance that the Company will be able to
protect such information.

BACKLOG

Backlog consists of signed purchase orders received by the Company
from its customers. The Company has no current backlog orders as of December 31,
2004. The Company's ability to ship products depends on manufacturers whose
products are distributed by the Company. Purchase orders are generally
cancelable. The Company believes that its backlog as of any date is not a
meaningful indicator of future operations or net revenues for any future period.

-14-

PRODUCT LIABILITY INSURANCE

The Company's business involves the inherent risk of product liability
claims. If such claims arise in the future they could have a material adverse
impact on the Company. The Company maintains product liability insurance on a
"claims made" basis with respect to its products in the aggregate amount of $4.0
million, subject to certain deductibles and exclusions. The Company's agreements
with the manufacturers of other products distributed by the Company require that
such manufacturers maintain product liability insurance that covers the Company
as an additional named insured. There is no assurance that existing coverage
will be sufficient to protect the Company from risks to which it may be subject,
including product liability claims, or that product liability insurance will be
available to the Company at a reasonable cost, if at all, in the future or that
insurance maintained by the other manufacturers will cover the Company.

EMPLOYEES

At March 15, 2005, the Company had 7 employees and 3 consultants, of
whom 4 were engaged in direct sales and marketing activities. The remaining
employees and consultants are in finance, administration, product development
and customer service. No employees of the Company are covered by any collective
bargaining agreements, and management considers its employee relations generally
to be good.

ITEM 2. PROPERTIES

The Company leases its principal executive offices, which are located
at 106 Corporate Park Drive, Suite 102, White Plains, New York 10604. Effective
August 1, 2003, the Company amended its lease for office space expiring on July
31, 2008. Minimum future rental commitments with regard to the original and
amended lease are payable as follows:

2005 29,500
2006 30,816
2007 31,584
Thereafter 18,424
--------
$110,324
========

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, the Company is named as defendant in
lawsuits in which claims are asserted against the Company. In the opinion of
management, the liabilities if any, which may ultimately result from such
lawsuits, are not expected to have a material adverse effect on the financial
position, results of operations or cash flows of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote to the Company's security holders
during the fourth quarter of the fiscal year ended December 31, 2004.

-15-

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the Over-The-Counter Bulletin
Board under the symbol "OMRX.OB". Prior to September 23, 1998, the Company's
Common Stock was traded on the NASDAQ National Market. The following table sets
forth, for the periods indicated, the high and low sales prices per share of
Common Stock, as reported by the Over-The-Counter Bulletin Board for the
respective periods. The following prices reflect inter-dollar prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.

PERIOD FROM JANUARY 1, 2003 THROUGH DECEMBER 31, 2003:

High Low
----- -----
First Quarter $0.06 $0.04
Second Quarter 0.05 0.04
Third Quarter 0.06 0.03
Fourth Quarter 0.05 0.03

PERIOD FROM JANUARY 1, 2004 THROUGH DECEMBER 31, 2004:

High Low
----- -----
First Quarter $0.13 $0.05
Second Quarter 0.20 0.10
Third Quarter 0.19 0.10
Fourth Quarter 0.53 0.18

As of March 15, 2005, the sales price per share of Common Stock, as
reported by the Over-The-Counter Bulletin Board, was $.50.

As of February 17, 2005 there were approximately 89 outstanding
stockholders of record of the Company's Common Stock. This number excludes
persons whose shares were held of record by a bank, broker or clearing agency.

The Company has not paid any cash dividends on its shares of Common
Stock and does not expect to pay any cash dividends in the foreseeable future.
The Company's policy has been to reinvest any earnings in the continued
development and operations of its business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Financial Statements and the
related Notes thereto included in Item 7 of this Report. The following
discussion contains forward-looking statements which involve risks and
uncertainties, some of which are described in the Introduction to this Report.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those
discussed in the Introduction.

-16-

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 uncollectible 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 eliminate 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. An adjustment to income could be required if the Company
were to determine it could realize its deferred tax assets.

Liquidity and Capital Resources

During the past two years, the Company has experienced aggregate
losses from operations of $3,293,341 and has incurred total negative cash flow
from operations of $2,180,729 for the same two-year period. 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 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. In February and March 2005, the Company completed a $1,740,000 share
issuance that will improve the Company's liquidity for the near future. 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 $44,121 decrease at
December 31, 2004, as compared to December 31, 2003. The Company's $1,120,123 of
net cash used in operating activities and $3,204 of cash used in investing
activities was offset by the $1,079,206 of cash provided by financing
activities. Investing activities consisted of $3,204 of purchases of property
and equipment. Financing activities consisted of $995,000 of proceeds of
borrowings from directors and officers of the Company, $405,000 of proceeds of
borrowings from unaffiliated individuals and $29,206 from the exercise of stock
options partially offset by $350,000 of repayments of the borrowings.

Interest on the borrowings is payable at prime plus one (6.00% at
December 31, 2004.) The notes are due one year after the date of issuance. In
February 2004, $350,000 of borrowings were repaid from the $500,000 post closing
installment of sale proceeds received from Cooper. Effective December 31, 2004,
$1,545,000 of borrowings were converted into 5,492,995 shares of common stock,
eliminating the need of the Company to pay interest expense. Of the remaining
$600,000 loan balance, $500,000 was repaid and $100,000 due to an officer was
used to purchase him 400,000 shares, par value $.0005 per share. The remaining
$600,000 balance was satisfied by a portion of the proceeds received from the
March 2005 share issuance.

-17-

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(R) (peripheral Quantitative
Computed Tomography) bone and muscle measurement systems used for
musculoskeletal research and clinical applications (including for bone disorders
and human performance)- the XCT(TM) product line; and (2) patented exercise
systems used for physical therapy, sports medicine and rehabilitative medicine -
the Galileo(TM) and Leonardo(TM) product lines, as well as the Mini
VibraFlex(R). The healthcare division is continuing to work towards completion
of the premarket approval application ("PMA") process for its Orbasone(TM) pain
management system (ESWT or Extracorporal Shock Wave Therapy), 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 VibraFlex(R) product line. The sports & fitness division's product
line includes the Mini VibraFlex(R), the Mini VibraFlex(R) Plus and the
VibraFlex(R) 500. The Company also intends to introduce the VibraFlex Rx in the
near future to replace the Galileo 2000 in the physical therapy, sports medicine
and rehabilitation markets. The VibraFlex products are based on the same
patented technology as the Galileo products and offer a novel approach to muscle
strength development given that such products are based on short and intense
stimulations of the muscles.

The Company has no current backlog of orders as of December 31, 2004.
There are no material commitments for capital expenditures as of December 31,
2004.

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 $1,944,185 ($0.06 per share based on
31,235,286 weighted average shares) for the year ended December 31, 2004
compared to net loss of $1,349,156 ($0.05 per share based on 29,544,621 weighted
average shares) for the year ended December 31, 2003.

Revenue for the year ended December 31, 2004 decreased $392,876 (or
24.9%) to $1,179,877 from $1,572,753 from the comparable period of fiscal 2003.
The decrease in revenue was primarily due to a decrease in XCT sales during
2004.

Cost of revenue as a percentage of revenue was 44.8% and 32.4% for the
year ended December 31, 2004 and 2003, respectively, resulting in a gross margin
of 55.2% for the year ended December 31, 2004 compared to 67.6% for the
comparable period of 2003. The decrease in gross margin was due to a decrease in
XCT sales in 2004.

Sales and marketing expense for the year ended December 31, 2004
increased $8,682 (or 1.2%) to $727,982 from $719,300 for the year ended December
31, 2003. The increase is due to the Company's efforts to continue to market its
product lines in 2004.

General and administrative expense for the year ended December 31,
2004 decreased $188,930 (or 13.7%) to $1,193,740 from $1,382,670 for the year
ended December 31, 2003. The decrease was primarily due to a decrease in
professional fees and rent.

-18-

Research and development expense for the year ended December 31, 2004
increased $122,570 (or 46.6%) to $385,697 from $263,127 for the year ended
December 31, 2003. The increase was primarily due to increased expenses incurred
as a result of the Orbasone PMA process.

Interest expense increased $237,475 (or 463.6%) to $288,705 for the
year ended December 31, 2004 from $51,230 for the year ended December 31, 2003.
Interest expense increased as a result of the difference in the conversion price
and fair value of the stock issued upon conversion of the notes payable and due
to an increase in the outstanding principal balances of the loans payable the
Company maintained during the twelve months ended December 31, 2004 as compared
to the twelve months ended December 31, 2003.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No.
123R"). The revised accounting standard eliminates the ability to account for
share-based compensation transactions using the intrinsic value method in
accordance with APB Opinion No. 25 and requires instead that such transactions
be accounted for using a fair-value-based method. SFAS No. 123R requires public
entities to record noncash compensation expense related to payment for employee
services by an equity award, such as stock options, in their financial
statements over the requisite service period. SFAS No. 123R is effective as of
the beginning of the first interim or annual period that begins after December
15, 2005 for small business issuers. The Company does not plan to adopt SFAS No.
123R prior to its first quarter of fiscal 2006. The Company expects that the
adoption of SFAS No. 123R will have a negative impact on the Company's
consolidated results of operations. The company has historically provided pro
forma disclosures pursuant to SFAS No. 123 and SFAS No. 148 as if the fair value
method of accounting for stock options had been applied, assuming use of the
Black-Scholes options-pricing model. Although not currently anticipated, other
assumptions may be utilized when SFAS No. 123R is adopted.

Quantitative and Qualitative Disclosures of Market Risk

The Company does not have any financial instruments that would expose
it to market risk associated with the risk of loss arising from adverse changes
in market rates and prices.

All of the Company's notes payable outstanding at December 31, 2004
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 $6,000 change
in annual interest expense.

-19-

ITEM 7. FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

INDEX

Page
----

Report of Independent Registered Public Accounting Firm 21

Financial Statements:

Balance Sheet as of December 31, 2004 22

Statements of Operations for the years ended
December 31, 2004 and 2003 23

Statements of Changes in Stockholders' Deficit
for the years ended December 31, 2004 and 2003 24

Statements of Cash Flows for the years ended
December 31, 2004 and 2003 25

Notes to Financial Statements 26

-20-

Report of Independent Registered
Public Accounting Firm

Stockholders and Board of Directors of
Orthometrix, Inc.:

We have audited the accompanying balance sheet of Orthometrix, Inc. (the
"Company") as of December 31, 2004 and the related statements of operations,
changes in stockholders' deficit, and cash flows for each of the two years ended
December 31,2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the 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. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orthometrix, Inc. as of
December 31, 2004, and the results of their operations and their cash flows for
each of the two years ended December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements for the year ended December 31, 2004 have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has suffered
recurring operating losses and has a net capital deficiency that raise
substantial doubt about its ability to continue as going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

/s/ Radin, Glass & Co., LLP

New York, New York
February 3, 2005

- ----------

-21-

ORTHOMETRIX, INC.
BALANCE SHEET
AS OF DECEMBER 31, 2004

ASSETS
Current assets:
Accounts receivable - trade $ 149,775
Inventories 120,460
Prepaid expenses and other current assets 107,796
------------
Total current assets 378,031
Property and equipment, net 17,756
Other 11,658
------------
Total Assets $ 407,445
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable - trade $ 527,826
Accrued expenses 143,729
Unearned service revenue 7,510
Related party loans 566,403
------------
Total current liabilities 1,245,468
------------
Stockholders' deficit:
Common stock - 35,710,939 shares issued and outstanding and
45,000,000 shares authorized 17,854
Additional paid-in capital 40,618,373
Accumulated deficit (41,474,250)
------------
Total stockholders' deficit (838,023)
------------
Total Liabilities and Stockholders' Deficit $ 407,445
============

See notes to the financial statements.

-22-

ORTHOMETRIX, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

2004 2003
----------- -----------
Revenue $ 1,179,877 $ 1,572,753
Cost of revenue 528,809 508,969
----------- -----------
Gross profit 651,068 1,063,784
Sales and marketing expense 727,982 719,300
General and administrative expense 1,193,740 1,382,670
Research and development expense 385,697 263,127
----------- -----------
Operating loss (1,656,351) (1,301,313)
Interest expense (288,705) (51,230)
Interest income 334 528
Other income 537 2,859
----------- -----------
Net loss $(1,944,185) $(1,349,156)
=========== ===========
Basic and diluted weighted average shares 31,235,286 29,544,621
=========== ===========
Basic and diluted loss per share $ (0.06) $ (0.05)
=========== ===========

See notes to the financial statements.

-23-

ORTHOMETRIX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

Additional
Common Paid-In Accumulated
Shares Total Stock Capital Deficit
---------- ----------- ------- ----------- ------------

Balance as of December 31, 2002 29,544,621 $ 506,690 $14,771 $38,672,828 $(38,180,909)
Warrants issued as compensation
to non-employees in connection
with notes payable -- 57,348 -- 57,348 --
Net Loss -- (1,349,156) -- -- (1,349,156)
---------- ----------- ------- ----------- ------------
Balance as of December 31, 2003 29,544,621 (785,118) 14,771 38,730,176 (39,530,065)
Warrants issued as compensation to
non-employees in connection with
notes payable -- 332,622 -- 332,622 --
Stock options and warrants issued as
compensation to non-employees -- 31,650 -- 31,650 --
Stock options and warrants exercised 356,323 29,206 178 29,028 --
Stock issued as compensation to
employees 317,000 65,937 159 65,778 --
Notes converted to stock 5,492,995 1,431,865 2,746 1,429,119 --
Net Loss -- (1,944,185) -- -- (1,944,185)
---------- ----------- ------- ----------- ------------
Balance as of December 31, 2004 35,710,939 $ (838,023) $17,854 $40,618,373 $(41,474,250)
========== =========== ======= =========== ============

See notes to the financial statements.

-24-

ORTHOMETRIX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

2004 2003
----------- -----------

Cash Flows From Operating Activities:
Net loss $(1,944,185) $(1,349,156)
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock issued as compensation to non-employees 65,937 --
Stock options and warrants issued as compensation
to non-employees 31,650 --
Amortization expense 160,197 23,096
Depreciation expense 5,611 9,871
Fair value of stock at conversion 47,789 --
Changes in assets and liabilities:
Decrease in accounts receivable 350,273 840,102
Decrease in inventories 6,838 (69,150)
Increase in prepaid expenses and other current assets (56,749) (22,440)
Increase (decrease) in accounts payable 165,495 (171,034)
Increase (decrease) in accrued expenses 57,359 (58,371)
Decrease in unearned service revenue (4,693) (782)
Decrease in other liabilities (5,645) (262,742)
----------- -----------
Net cash used in operating activities (1,120,123) (1,060,606)
----------- -----------
Cash Flows From Investing Activities:
Purchase of property and equipment (3,204) (16,317)
----------- -----------
Net cash used in investing activities (3,204) (16,317)
----------- -----------
Cash Flows From Financing Activities:
Proceeds of borrowings from unrelated parties 405,000 --
Proceeds of borrowings from related parties 995,000 1,095,000
Repayment of borrowings from related parties (350,000) --
Exercise of stock options 29,206 --
----------- -----------
Net cash provided by financing activities 1,079,206 1,095,000
----------- -----------
Net (decrease) increase in cash (44,121) 18,077
Cash at beginning of year 44,121 26,044
----------- -----------
Cash at end of year $ -- $ 44,121
=========== ===========
Supplemental disclosure of cash flow information
Cash paid for interest $ 50,398 $ 15,479
=========== ===========
Cash paid for income taxes $ 2,574 $ 9,175
=========== ===========

See notes to the financial statements.

-25-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

1. THE COMPANY AND GOING CONCERN CONSIDERATION:

Orthometrix, Inc. ("OMRX" or the "Company") markets, sells, and services
several musculoskeletal product lines used in pharmaceutical research,
diagnostic and monitoring of bone and muscle disorders in sports medicine,
rehabilitative medicine, physical therapy and pain management. Prior to
April 11, 2002 the Company also developed, manufactured, sold and serviced
a wide range of traditional bone densitometers used to assess bone mineral
content and density, one of several factors used by physicians to aid in
the diagnosis and monitoring of bone disorders, particularly osteoporosis.

The Company's continued existence is dependent upon several factors
including increased sales volume 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 has recently
completed a $1,740,000 share issuance that will significantly improve the
Company's liquidity for the near future. 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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Fair Value of Financial Statements

Statement of Financial Accounting Standards (SFAS) No. 107, as amended by
SFAS No. 119, "Disclosures about Fair Value of Financial Instruments",
requires that the Company disclose estimated fair values for its financial
instruments. Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair values are based on judgments
regarding future expected loss experience, current economic conditions,
risk characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision.

Management of the Company estimates that all financial instruments of OMRX,
due to their short-term nature, have a fair value equal to their carrying
value.

-26-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Revenue and Cost Recognition

The Company primarily sells its products directly to customers and through
third party dealers and distributors. Revenue is generally recognized at
the time products are shipped and title passes to the customer. The Company
estimates and records provisions for product installation and user training
in the period that the sale is recorded.

The Company offers one-year warranties on both hardware and software
components of its bone densitometry systems (except for computer systems,
if any, which are covered under their respective manufacturers' warranty).
The provision for product warranties represents an estimate for future
claims arising under the terms of the Company's various product warranties.
The estimated future claims are accrued at the time of sale. To the extent
that the Company provides warranty services for products that it does not
manufacture the Company invoices the manufacturer for the costs of
performing such warranty services.

The Company has no obligations to provide any other services to any of its
third party dealers or distributors or their customers.

Stock-based Compensation

Stock-based compensation related to employees and directors is accounted
for in accordance with Accounting Principles Board Opinion Number 25
"Accounting for Stock Issued to Employees". Stock-based compensation
related to non-employees is accounted for in accordance with SFAS No. 123
and SFAS No. 148 "Accounting for Stock-Based Compensation".

Inventory

Inventories are stated at the lower of cost or market; cost is determined
principally by the first-in, first-out method.

Property and Equipment

Furniture and fixtures are recorded at cost and are depreciated using the
straight-line method over three to seven years.

The Company's demonstration systems used for marketing and customer service
purposes are carried at the lower of cost or net realizable value until the
time of sale. From time to time, the Company may judge it desirable for
marketing purposes to provide a device to an appropriate entity. In such
cases, the Company will carry the device at cost less amortization, with
amortization calculated on a straight-line basis over thirty-six months or
expense the device if appropriate.

-27-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Long-lived Assets

Management evaluates on an ongoing basis whether events or changes in
circumstances exist that would indicate that the carrying value of the
Company's long-lived assets may not be recoverable. Should there be an
indication of impairment in the value of its long-lived assets, management
would estimate the future cash flows expected to result from the use of the
assets and their eventual disposition and recognize a specific provision
against such assets if the aggregate nominal estimated future undiscounted
cash flows are less than the carrying value of the assets. In considering
whether events or changes in circumstances exist, management assesses
several factors, including a significant change in the extent or manner in
which the assets are used, a significant adverse change in legal factors or
in the business climate that could affect the value of the assets, an
adverse action or assessment of a regulator, and a current period operating
or cash flow loss combined with a history of operating or cash flow losses
or a projection or forecast that demonstrates continuing losses associated
with such assets.

Income Taxes

The Company accounts for deferred income taxes by recognizing the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. The effect of a change in tax rates on deferred taxes is
recognized in income in the period that includes the enactment date. The
Company realizes an income tax benefit from the exercise of certain stock
options or the early disposition of stock acquired upon exercise of certain
options. This benefit results in an increase in additional paid in capital.

Advertising

The Company expenses the cost of advertising as incurred. Advertising
expenses of approximately $31,100 and $300 were incurred for the years 2004
and 2003, respectively, and are included in sales and marketing expense.

Research and Development

Research and development costs are charged to operations as incurred.

-28-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Income (Loss) per Share

Basic per share amounts are computed using the weighted average number of
common shares outstanding. Diluted per share amounts are computed using the
weighted average number of common shares outstanding, after giving effect
to dilutive options, using the treasury stock method.

Options to purchase 3,432,500 and 3,150,000, shares of common stock were
outstanding at December 31, 2004, and 2003, respectively, but were not
included in the computation of diluted income (loss) per share because
their effect was anti-dilutive.

Concentration of Credit Risk

During 2004, approximately 48% of total sales was derived from the
Company's four largest customers. During 2003, there were no significant
customers. The Company generally sells on credit terms ranging from thirty
to ninety days or against irrevocable letters of credit. Any financing of
the end user is the decision of, and dependent on, the distributor in each
territory. The Company sells to customers in various geographic territories
worldwide.

Management 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 at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Estimates are
used when accounting for the allowance for uncollectible receivables,
potentially excess and obsolete inventory, depreciation and amortization,
warranty reserves, income tax valuation allowances and contingencies, among
others. Actual results could differ significantly from those estimates.

Foreign Exchange Exposure

The Company's purchases and sales of products and services are made
primarily in U.S. dollars. As a result, the Company has minimal exposure to
foreign exchange risk in the short-term. However, a portion of the
Company's products are supplied by Stratec and sold along with the
Company's products into foreign markets. Any significant and lasting change
in the exchange rates between the U.S. dollar and the currencies of those
countries could have a material effect on both the costs and sales of those
products and services.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with original
maturities of three months or less at the time of purchase to be cash and
cash equivalents.

-29-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Segment Reporting

The Company has one reportable segment. The Company evaluates performance
based on operating income, which is income before interest and
non-operating items.

Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R"). The
revised accounting standard eliminates the ability to account for
share-based compensation transactions using the intrinsic value method in
accordance with APB Opinion No. 25 and requires instead that such
transactions be accounted for using a fair-value-based method. SFAS No.
123R requires public entities to record noncash compensation expense
related to payment for employee services by an equity award, such as stock
options, in their financial statements over the requisite service period.
SFAS No. 123R is effective as of the beginning of the first interim or
annual period that begins after December 15, 2005 for small business
issuers. The Company does not plan to adopt SFAS No. 123R prior to its
first quarter of fiscal 2006. The Company expects that the adoption of SFAS
No. 123R will have a negative impact on the Company's consolidated results
of operations. The company has historically provided pro forma disclosures
pursuant to SFAS No. 123 and SFAS No. 148 as if the fair value method of
accounting for stock options had been applied, assuming use of the
Black-Scholes options-pricing model. Although not currently anticipated,
other assumptions may be utilized when SFAS No. 123R is adopted.

3. 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 was 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. An additional $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. 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. During June 2003 the
arbitrator settled the disagreement in favor of the Company for $268,569.
Accordingly, the Company received a total of $673,569 out of the potential
$1,000,000 installment payable in connection with the Asset Sale to Cooper.
The settlement from Cooper was received in July 2003. The remaining
$500,000 installment of the purchase price was received on January 30,
2004.

-30-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

3. DISCONTINUED OPERATIONS AND CONTINGENCY (CONTINUED)

In addition, the Company was eligible to receive up to an additional $7.0
million in earn-out payments based on the net sales of certain products
over a three-year period from May 1, 2002 to April 30, 2005. No amounts
have been earned through December 31, 2004 and the Company does not
anticipate that it will receive any sales proceeds from the earn-out.

4. DISTRIBUTION AGREEMENTS:

STRATEC

The Company and Stratec are parties to an exclusive agreement dated October
1, 1999 with respect to the marketing, sales and service of pQCT systems in
North America. Under the terms of the four-year distribution agreement, the
Company may purchase products from Stratec at a fixed price to be adjusted
from time to time by mutual consent. On October 1, 2004, the agreement with
Stratec was renewed for one year, and will be renewed automatically on
every October 1st for a one-year term until the Company elects to terminate
the agreement.

NOVOTEC

The Company and Novotec are parties to an exclusive agreement dated October
1, 1999 with respect to the marketing, sales and service of Galileo and
Leonardo systems in North America. Under the terms of the four-year
distribution agreement, the Company may purchase products from Novotec at a
fixed price to be adjusted from time to time by mutual consent. On October
1, 2004, the agreement with Novotec was renewed for one year, and will be
renewed automatically on every October 1st for a one-year term until the
Company elects to terminate the agreement.

MIP

The Company and MIP are parties to a product approval and licensing
agreement dated February 12, 2002 with respect to the Orbasone system.
Under the terms of the agreement, MIP granted the Company the exclusive and
perpetual authority, right and license in North America to seek PMA
approval for the Orbasone, and to assemble, manufacture, market, sell and
service the Orbasone. The Orbasone has not yet been approved by the FDA for
sale in the U.S. market.

5. INVENTORIES:

Inventories at December 31, 2004 consist of products kits, spare parts and
sub-assemblies.

-31-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

6. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following as of December 31, 2004:

Furniture and fixtures $ 139,208
Accumulated depreciation (121,452)
---------
$ 17,756
=========

7. STOCKHOLDERS' EQUITY (DEFICIT):

Effective with stockholder approval received on June 2, 1999, the Company
amended its Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 20,000,000 to 45,000,000. The
Company has authorized 1,000,000 shares of preferred stock, par value
$0.0005 per share, issuable in series with such rights, powers and
preferences as may be fixed by the Board of Directors. At December 31, 2004
and 2003, there was no preferred stock outstanding.

8. COMPENSATION PROGRAMS:

Stock Option Plan

The Company has a stock-based compensation plan whereby stock options may
be granted to officers, employees and non-employee consultants to purchase
a specified number of shares of Common Stock. All outstanding options
granted have an exercise price not less than 100% of the market value of
the Company's Common Stock at the date of grant, are for a term not to
exceed 10 years, and vest over a four year period at 25% per year.

-32-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

8. COMPENSATION PROGRAMS (CONTINUED):

Stock Option Plan (Continued)

The amended and restated 1994 Stock Option Plan includes 3,000,000 shares
of Common Stock reserved for issuance. Options are issued to employees and
non-employees at the discretion of the Board of Directors. During 2004,
795,000 options were issued as compensation to employees. The Company has
elected to follow APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its employee stock options. Accordingly, no
compensation expense is recognized in the Company's financial statements
because the exercise price of the Company's employee stock options equals
the market price of the Company's Common Stock on the date of grant.

Under the 2000 Non-Employee Directors' Stock Option Plan (the "Board
Plan"), which has 1,000,000 shares of common stock reserved for issuance to
non-employee directors and consultants, each non-employee director receives
options to acquire shares of Common Stock, vesting in four equal annual
installments, commencing on the first anniversary of the date of grant, at
an exercise price per share not lower than the market value on the date of
grant. A grant to acquire 50,000 shares is effective on the date of the
director's first election to the Board of Directors and a grant to acquire
5,000 shares is effective on the date of the director's reelection to the
Board of Directors. During 2004, 295,000 options were issued to
non-employee directors and consultants.

On October 6, 1998 and December 14, 1998, the Board of Directors approved
the repricing of certain employee stock options. Approximately 673,750
shares were repriced to $0.67 per share on October 6, 1998 and December 14,
1998, representing a price that was not less than the market value at such
dates. On December 14, 2000 the Board of Directors approved the repricing
of certain options and accordingly, 1,524,500 shares were repriced to $.15
per share. Subsequent to the option repricing on December 14, 2000, the
company measured compensation expense using variable plan accounting.
Compensation cost continues to be adjusted for increases or decreases in
the intrinsic value over the term of the options or until they are
exercised or forfeited, or expire. The effect of this change was not
material in fiscal year 2004 or 2003.

-33-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

8. COMPENSATION PROGRAMS (CONTINUED):

Stock Option Plan (Continued)

The following is a summary of options related to the 1994 Stock Option Plan
and the Board Plan as of December 31:

Range of Range of
Option Option
Prices Prices
2004 Per Share 2003 Per Share
--------- ------------- --------- ------------

Options outstanding at beginning of year 3,150,000 $ 0.02 - 0.67 2,958,500 $0.02 - 0.05
Cancellations (620,000) $ 0.02 - 0.17 (198,000) $0.02 - .531
Granted 1,090,000 $0.055 - 0.30 389,500 $0.02 - 0.05
Exercised (187,500) $0.02 - 0.531 -- --
--------- ------------- --------- ------------
Options outstanding at end of year 3,432,500 3,150,000
========= =========
Options exercisable at end of year 2,195,438 1,591,688
========= =========
Options available for grant at end of year 380,000 850,000
========= =========

-34-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

8. COMPENSATION PROGRAMS (CONTINUED):

Stock Option Plan (Continued)

The following table summarizes information about significant groups of
stock options outstanding at December 31, 2004:

Options Outstanding Options Exercisable
----------------------------------------- -----------------------------------------
Weighted Weighted
Weighted Average Weighted Average
Average Remaining Average Remaining
Exercisable Options Exercise Contractual Life Options Exercise Contractual Life
Prices Outstanding Price in Years Exercisable Price in Years
- ----------- ----------- -------- ---------------- ----------- -------- ----------------

$.02 -.05 1,121,250 $.048 8 467,000 $.048 8
.055 495,000 .055 4 495,000 .055 4
.06 -.13 620,000 .082 7 330,000 .078 7
.15 856,250 .150 6 855,938 .150 6
.17 175,000 .17 9 -- .17 9
.20 60,000 .20 9 -- .20 9
.30 45,000 .30 10 -- .30 10
.531 10,000 .531 5 10,000 .531 5
.67 50,000 .670 7 37,500 .670 7

Had compensation expense for the Company's 2004 and 2003 grants for the
stock-based compensation plan been determined based on the fair value of
the options at their grant dates consistent with SFAS 123 "Accounting for
Stock-Based Compensation", the Company's net loss and loss per common share
for 2004 and 2003 would approximate the pro forma amounts below:

2004 2003
----------- -----------
Net loss:
As reported $(1,944,185) $(1,349,156)
Stock-based employee compensation (65,752) (41,396)
----------- -----------
Pro forma $(2,009,937) $(1,390,552)
=========== ===========
Loss per share:
As reported - Basic and diluted (0.06) (0.05)
Pro forma - Basic and diluted (0.06) (0.05)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used
for grants during each of the years ended December 31, 2004 and 2003:
dividend yield of 0%, risk-free weighted average interest rate of 5%,
expected volatility factor of 132% and an expected option term of 10 years.
The weighted average fair value at date of grant for options granted during
2004 and 2003 was $.17 and $0.05 per option, respectively.

-35-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

8. COMPENSATION PROGRAMS (CONTINUED):

401(k) Plan

Pursuant to the Orthometrix, Inc. Retirement Savings Plans, eligible
employees may elect to contribute a portion of their salary on a pre-tax
basis. With respect to employee contributions of up to 7% of salary, the
Company makes a contribution at the rate of 25 cents on the dollar.
Contributions are subject to applicable limitations contained in the
Internal Revenue Code. Employees are at all times vested in their own
contributions; Company matching contributions vest gradually over six years
of service. The Company's policy is to fund plan contributions as they
accrue. Contribution expense was $13,623 and $5,428 for the years ended
December 31, 2004 and 2003, respectively.

9. INCOME TAXES:

The Company did not record a provision for income tax expense for the years
ended December 31, 2004 and 2003 since any provision would be offset by the
Company's NOL carryforwards.

Income tax expense (benefit) differs from the statutory federal income
tax rate of 34% for the years ended December 31 as follows:

2004 2003
---- -----
Statutory income tax rate (34%) (34.0%)
Valuation allowance 42.0 42.0
State income taxes, net of
Federal benefit (8.0) (8.0)
---- ----
0.0% 0.0%
==== ====

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. Significant components of the Company's
deferred tax assets and liabilities as of December 31 are summarized below:

2004
-----------
Deferred tax assets and liabilities:
Accrued liabilities $ 3,581
Valuation allowance (3,581)
-----------
Net current deferred tax assets --
-----------
Net operating loss carryforwards (7,100,094)
Valuation allowance (7,100,094)
-----------
Net noncurrent deferred tax assets --
-----------
Total deferred tax assets $ --
-----------

-36-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

9. INCOME TAXES (CONTINUED):

Realization of the deferred tax asset is dependent on the Company's ability
to generate sufficient taxable income in future periods. Based on the
historical operating losses and the Company's existing financial condition,
in 2004 and 2003, 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.

The Company has utilizable federal and state net operating loss
carryforwards of approximately $16,904,985 at December 31, 2004 for income
tax purposes, which expire in 2008 through 2023.

10. COMMITMENTS AND CONTINGENCIES:

Legal Proceedings

In the normal course of business, the Company is named as defendant in
lawsuits in which claims are asserted against the Company. In the opinion
of management, the liabilities if any, which may ultimately result from
such lawsuits, are not expected to have a material adverse effect on the
financial position, result of operations or cash flows of the Company.

Leases

Effective August 1, 2003, the Company amended its lease for office space
expiring on July 31, 2008. Minimum future rental commitments with regard to
the original and amended lease are payable as follows:

2005 29,500
2006 30,816
2007 31,584
2008 18,424
--------
$110,324
========

-37-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

11. RELATED PARTY TRANSACTIONS:

TRANSACTIONS WITH CERTAIN DIRECTORS AND OFFICERS

During 2004, the Company borrowed $995,000 from several directors and
officers of the Company and issued notes bearing interest at prime plus one
(6% as of December 31, 2004) which mature one year from date of issuance.
In addition, the Company borrowed $405,000 from unaffiliated individuals
under the same terms and conditions.

For all of the notes, the Company is obligated to prepay the principal
amount within 10 days upon the occurrence of either of two events; if it
(i) receives at least $1,000,000 to $5,000,000 from an equity financing or
(ii) sells substantially all of its assets. In addition, for the $500,000
of notes issued from August 2003 through November 2003, the Company was
obligated to prepay the principal amount within 10 days upon the Company
receiving the remaining $500,000 from the Asset Sale, which was released by
Cooper to the Company on January 30, 2004. In February 2004, $350,000 of
the borrowings were repaid from the $500,000 of sale proceeds received from
Cooper. As additional compensation, the Company granted the note holders
five-year warrants to purchase up to 1,360,000 shares of common stock at
$0.05 per share.

As of December 31, 2004, $376,910 of the remaining proceeds received were
allocated to the warrants based on the application of the Black-Scholes
option pricing model, with the remaining proceeds of $223,090 allocated to
the notes payable. The value allocated to the warrants is being amortized
to interest expense over the term of the notes. At December 31 2004, the
unamortized discount on the notes payable is $33,597. During 2004 and 2003,
the Company recorded interest expense of $288,705 and $51,230,
respectively.

In December 2004, the Board of Directors authorized the Company to offer to
the holders of certain promissory notes issued by the Company the right to
convert such notes into shares of the Company's common stock, par value
$.0005 per share. In a letter dated December 15, 2004, the Company offered
the holders of such notes the right to convert $2,145,000 of such notes
into shares of common stock at $0.2813 per share, which price is equal to
80% of the weighted average price of the common stock during the period
commencing November 15, 2004 and ending December 15, 2004. The promissory
notes would mature at various intervals through January 2006. Each of the
note holders were given the right to accept the Company's offer by
returning such holder's note (marked "cancelled") to the Company.

Holders of such notes elected to convert $1,545,000 of notes (the "Total
Conversion Amount") to Common Stock. Of the Total Conversion Amount,
$1,235,000 were notes held by either officers, directors or affiliates of
the Company. (Of the remaining $600,000 of outstanding notes, $455,000 are
held by officers and directors of the Company.) The notes that were
converted did not have a beneficial conversion feature.

Effective December 31, 2004, the Company converted the entire principal
amounts (i.e., $1,545,000) of the promissory notes described above into
5,492,995 shares of common stock. The difference between the fair value
price of the common stock on the date of conversion as compared to the
conversion price is $47,789 and is recorded as interest expense and paid in
capital.

-38-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

11. RELATED PARTY TRANSACTIONS (CONTINUED):

In December 2003, the Company granted an entity affiliated with an officer
of the Company warrants to purchase up to 240,000 shares of common stock at
$0.05 per share as compensation for consulting services rendered. The value
of the warrants were based on the application of the Black-Scholes option
pricing model and valued at $11,665. The value of the warrants was recorded
as consulting expense and as additional paid-in-capital.

In January 2004, the Company granted a Director of the Company a warrant to
purchase up to 50,000 shares of Common Stock at $0.05 per share in
connection with the renewal for one year of an expired note. The value of
the warrants were based on the application of the Black-Scholes option
pricing model and valued at $3,415. The value of the warrants was recorded
as interest expense and as additional paid-in capital.

In November 2004, the Company granted a consultant warrants to purchase up
to 75,000 shares of Common Stock at $0.36 per share for consulting services
in lieu of his monthly retainer. The value of the warrants were based on
the application of the Black-Scholes option pricing model valued at
$23,670. The value of the warrants was recorded as consulting expense and
as additional paid-in capital.

In December 2004, the Company granted an Officer 317,000 shares of common
stock at $0.26 per share for services rendered. The value of the stock was
based on a 20% discount valued at $65,937. The value of the stock was
recorded as consulting expense, common stock, and additional paid-in
capital.

TRANSACTIONS WITH BIONIX

The Company and Bionix, a company of which Reynald G. Bonmati, the
President and Chairman of the Board of the Company is President, were
parties to three exclusive four-year sub-distribution agreements pursuant
to which the Company has the right to purchase and sell certain systems and
products from Bionix at a fixed percentage discount from
contractually-stated selling prices. Under two separate sub-distribution
agreements, dated October 1, 1999, the Company had the right to purchase
and sell the pQCT and Galileo systems and products. Under the third
sub-distribution agreement, dated February 17, 2000, the Company had the
right to purchase and sell the Genestone 190 systems and products. During
fiscal year 2002, the Company purchased from Bionix systems and products
equal to approximately $4,500. Following the asset sale to Cooper, the
Company focused exclusively on its musculoskeletal products and all Bionix
rights from MIP were assigned to the Company for one dollar. Such rights
also include the exclusive and perpetual authority, right and license in
North America to seek PMA approval for the Orbasone, and to assemble,
manufacture, market, sell and service the Orbasone. The Orbasone systems
and products have not yet been approved by the U.S. Food and Drug
Administration for sale in the U.S.

-39-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

12. SUPPLEMENTAL SALES AND CUSTOMER INFORMATION:

During 2004, approximately 48% of total sales was derived from the
Company's four largest customers. During 2003, there were no significant
customers. The Company's largest customers are medical device distributors.

The Company's sales consisted of domestic sales to customers and export
sales to customers in the following geographic territories:

2004 2003
------------------ ------------------

Pacific Rim $ -- --% $ 175 .01%
Europe/Middle East 3,000 .26 -- --
Latin America 8,257 .70 -- --
Canada 13,597 1.15 238,000 15.14

Export Sales -- -- -- --
Domestic Sales 1,155,023 97.89 1,334,578 84.85
---------- ----- ---------- -----
$1,179,877 100.0% $1,572,753 100.0%
========== ===== ========== =====

13. QUARTERLY FINANCIAL DATA (UNAUDITED):

2004 Quarters
-------------------------------------------------------------------
First Second Third Fourth Total
----------- ----------- ----------- ----------- -----------

Revenue $ 168,387 $ 274,468 $ 391,226 $ 345,796 $ 1,179,877
Gross Profit 94,679 185,643 227,739 143,007 651,068
Operating loss (385,313) (272,248) (297,927) (700,863) (1,656,351)
Net loss (424,225) (309,028) (360,817) (802,326) (1,944,185)

Weighted average shares:
Basic and diluted 29,544,621 29,825,944 29,825,944 31,235,286 31,235,286
Basic and diluted per share $ (0.01) (0.01) (0.01) (0.03) (0.06)

2003 Quarters
-------------------------------------------------------------------
First Second Third Fourth Total
----------- ----------- ----------- ----------- -----------

Revenue $ 500,160 $ 361,319 $ 420,056 $ 291,218 $ 1,572,753
Gross Profit 345,871 240,305 282,537 195,071 1,063,784
Operating loss (306,186) (372,103) (309,971) (313,053) (1,301,313)
Net loss (312,098) (381,108) (320,838) (335,112) (1,349,156)

Weighted average shares:
Basic and diluted 29,544,621 29,544,621 29,544,621 29,544,621 29,544,621
Basic and diluted per share (0.02) (0.01) (0.01) (0.01) (0.05)

-40-

ORTHOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003

14. SUBSEQUENT EVENTS (UNAUDITED)

On February 25, 2005, the Company entered into a Securities Purchase
Agreement with Rock Creek Investment Partners, L.P. Pursuant to such
agreement, the Company sold 2,321,429 of the Company's common shares of
beneficial interest, par value $.0005 per share, for an aggregate purchase
price of $650,000, to Rock Creek Investment Partners, L.P.

On March 3, 2005 the Company entered into a Securities Purchase Agreement
with Psilos Group Partners II SBIC, L.P. Pursuant to such agreement, the
Company sold 4,000,000 of the Company's common shares of beneficial
interest, par value $.0005 per share, for an aggregate purchase price of
$1,000,000, to Psilos Group Partners II SBIC, L.P. Albert S. Waxman, a
director of Orthometrix, is a partner of Psilos Group Partners II SBIC,
L.P.

On March 4, 2005, of the remaining $600,000 loan balance, $500,000 was
repaid and $100,000 due to an officer was used to purchase him 400,000
shares, par value $.0005 per share.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

NONE

ITEM 8A: CONTROLS AND PROCEDURES

The Company's principal executive officer and principal financial officer have,
within 90 days of the filing date of this annual report, evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a - 14(c)) and have determined that such disclosure
controls and procedures are adequate. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect such internal controls since the date of evaluation. Accordingly, no
corrective actions have been taken with regard to significant deficiencies or
material weaknesses.

-41-

PART III

ITEMS 9, 10, 11, AND 12

The information required under these items is contained in the Company's Proxy
Statement relating to its 2005 Annual Meeting of Stockholders, which Proxy
Statement will enclose this Form 10-K and is being filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal year
end. This information is incorporated herein by reference.

ITEM 13. EXHIBITS

2.1 Asset Purchase Agreement with Cooper Surgical Acquisition Corp. and
Orthometrix, Inc. (D)

3.1 Restated Certificate of Incorporation of Orthometrix, Inc. (E)

3.2 By-laws of Orthometrix, Inc. as amended (F)

+10.1 Assignment and Assumption Agreement dated as of April 12, 2002
among Bionix, LLC, Orthometrix, Inc. and M.I.P. GmbH. (A)

+10.2 Assignment and Assumption Agreement dated as of April 12, 2002
among Bionix, LLC, Orthometrix, Inc. and Stratec Medizintechnik,
GmbH. (A)

+10.3 Assignment and Assumption Agreement dated as of April 12, 2002
among Bionix, LLC, Orthometrix, LLC and Novotec Maschinen GmbH. (A)

10.4 $405,000 Promissory Note, dated January 31, 2004, between
Orthometrix, Inc. and Reynald Bonmati. This note replaces notes
dated August 20, 2003; August 26, 2003; September 12, 2003;
September 26, 2003; November 7, 2003; January 16, 2004 and January
23, 2004 in the amounts of $25,000 ($20,000 of which has been paid
off); $10,000; $40,000; $25,000;$250,000; $50,000 and $25,000,
respectively. (B)

10.5 $50,000 Promissory Note, dated April 1, 2004, between Orthometrix,
Inc. and David E. Baines. (C)

10.6 $50,000 Promissory Note, dated April 28, 2004, between Orthometrix,
Inc. and First Global Services Corp. (C)

10.7 $25,000 Promissory Note, dated June 30, 2004, between Orthometrix,
Inc. and Ralph G. Theodore and Ellen H. Theodore JTWROS. (C)

-42-

ITEM 13. EXHIBITS
(Continued)

10.8 $50,000 Promissory Note, dated October 18, 2004, between
Orthometrix, Inc. and Farooq Kathwari.

10.9 $20,000 Promissory Note, dated November 8, 2004, between
Orthometrix, Inc. and John Utzinger.

10.10 $50,000 Promissory Note, dated December 6, 2004, between
Orthometrix, Inc. and Reynald Bonmati.

10.11 Securities Purchase Agreement, dated February 25, 2005, between
Orthometrix, Inc. and Rock Creek Investment Partners, L.P.

10.12 Securities Purchase Agreement, dated March 3, 2005, between
Orthometrix, Inc. and Psilos Group Partners II SBIC, L.P.

Exhibits required by Item 601 of Regulation S-B are filed herewith:

31.1 Chief Executive Officer's Certification, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

31.2 Chief Financial Officer's Certification, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

32 Certification of Chief Executive Officer and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

+ Confidentiality requested as to certain provisions.

(A) This Exhibit was previously filed as an Exhibit to the Company's
Report on Form 10-QSB dated May 15, 2003 and is incorporated herein by
reference

(B) This Exhibit was previously filed as an Exhibit to the Company's
Report on Form 10-QSB dated March 25, 2004 and is incorporated herein
by reference.

(C) This Exhibit was previously filed as an Exhibit to the Company's
Report on Form 10-QSB dated May 17, 2004, as is incorporated herein by
reference.

(D) This Exhibit was previously filed as an Exhibit to the Company's
Report on Form 8-K dated April 15, 2002, as is incorporated herein by
reference.

-43-

ITEM 13. EXHIBITS
(Continued)

(E) This Exhibit was previously filed as an Exhibit to the Company's
Report on Form 10-Q dated November 13, 1997, and is incorporated
herein by reference.

(F) This Exhibit was previously filed as an Exhibit to the Company's
Registration Statement on Form S-I (Registration No. 33-93220),
effective August 1, 1995, and is incorporated herein by reference.

-44-

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

1. Audit Fees - The aggregate fees for the years ended December 31, 2004
and 2003 for professional services rendered by Radin, Glass & Co., LLP
for the audit of annual financial statements and review of financial
statements included in any Form 10-QSB or services that are normally
provided by the accountant in connection with statutory and regulatory
filings or engagements are approximately $30,250 in 2003 and $28,500
in 2004.

2. Audit-Related Fees - The registrant did not pay any audit-related fees
during the years ended December 31, 2004 and 2003 that are not
reported under paragraph 1 above.

3. Tax Fees - The registrant did not pay any fees during the years ended
December 31, 2004 and 2003 for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning.

4. All Other Fees - The registrant did not pay any other fees during the
years ended December 31, 2004 and 2003 other than those reported in
paragraphs 1 through 3 above.

-45-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of White
Plains, New York, on the 24th day of March, 2005.

ORTHOMETRIX, INC.

By: /s/ Reynald Bonmati
-----------------------------------
Name: Reynald G. Bonmati
Title: President

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints
Reynald G. Bonmati as true and lawful attorney-in-fact and agent of the
undersigned, with full power of substitution and resubstitution, for and in the
name, place and stead of the undersigned, in any and all capacities, to sign any
and all amendments to this Annual Report and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Commission, and
hereby grants to such attorneys-in-fact and agents full power and authority to
do and perform each and every act and thing requisite or desirable to be done,
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant, Orthometrix, Inc., in the capacities and on the dates indicated.

Signature Capacity In Which Signed Date
- ---------------------------- -------------------------------- --------------

/s/ Reynald G. Bonmati Chairman of the Board and March 24, 2005
- ---------------------------- President (Principal Executive
Reynald G. Bonmati Officer); and Director

/s/ Neil H. Koenig Chief Financial Officer March 24, 2005
- ---------------------------- (Principal Financial Officer and
Neil H. Koenig Principal Accounting Officer)

-46-

Signature Capacity In Which Signed Date
- ---------------------------- -------------------------------- --------------

/s/ Michael W. Huber Director March 24, 2005
- ----------------------------
Michael W. Huber

/s/ William Orr Director March 24, 2005
- ----------------------------
William Orr

/s/ Albert S. Waxman Director March 24, 2005
- ----------------------------
Albert S. Waxman

-47-

EX-10.8 2 file002.htm PROMISSORY NOTE



                                                                    EXHIBIT 10.8

                   THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT
                      AND HAS NOT BEEN REGISTERED UNDER THE
                    SECURITIES ACT OF 1933 OR THE SECURITIES
                     LAWS OF ANY STATE. THIS NOTE MAY NOT BE
                   SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
                      REGISTRATION OR AN OPINION OF COUNSEL
                      SATISFACTORY TO THE ISSUER THAT SUCH
                    REGISTRATION IS NOT REQUIRED BY SAID ACT
                                 OR STATE LAWS,

                                ORTHOMETRIX, INC.

$50,000.00                                                White Plains, New York
                                                          October 18, 2004

               ORTHOMETRIX, INC., a Delaware corporation (the "Company"), for
value received, promises to pay to FAROOQ KATHWARI (the "Payee"), the principal
sum of Fifty Thousand U.S. Dollars ($50,000) on October 18, 2005 (the "Maturity
Date"), except as otherwise provided herein, together with interest on the
outstanding principal amount of this Note at the rate of prime (as published
from time to time by JP Morgan Chase) plus one per annum, except as otherwise
provided herein. Interest shall be payable quarterly on the last business day of
each March, June, September and December, commencing December 31, 2004.

               1. Payments and Prepayments.

               1.1 Payments and prepayments of principal and interest on this
Note shall be made to Payee at Premium Point, New Rochelle, NY 10801.

               1.2 Payments and prepayments of principal and interest on this
Note shall be made in lawful money of the United States of America.

               1.3 If any payment on this Note becomes due and payable on a
Saturday, Sunday or other day an which commercial banks in New York City are
authorized or required by law to close, the maturity thereof shall be extended
to the next succeeding business day, and, with respect to payments of principal,
interest thereon shall be payable during such extension at the then applicable
rate.

               1.4 The Company shall be obligated to prepay the outstanding
principal amount of this Note within ten (10) days after such time as (i) the
Company receives net proceeds



of at least $5,000,000 from an equity financing, or (ii) the Company sells
substantially all its assets. The Company shall have the right at any time and
from time to time to prepay this Note in whole or in part, together with
interest on the amount prepaid to the date of prepayment, without penalty or
premium. Upon payment of part of the principal amount of this Note, the Company
may require the holder to present this Note for notation of such payment and, if
this Note is paid in full, require the holder to surrender this Note.

               1.5 Upon payment in full of all outstanding principal and
interest due under this Note, the Company's obligations in respect of payment of
this Note shall terminate and the holder shall return it to the Company.

               2. Events of Default. In the event that:

                    (a) the Company defaults for more than five business days in
                    making any payment required to be made on this Note; or

                    (b) the Company hereafter makes an assignment for the
                    benefit of creditors, or files a petition in bankruptcy as
                    to itself, is adjudicated insolvent or bankrupt, petitions
                    or applies to any tribunal for the appointment of any
                    receiver of or any trustee for the Company or any
                    substantial part of its property under any bankruptcy,
                    reorganization, arrangement, readjustment of debt,
                    dissolution or liquidation law or statute of any
                    jurisdiction, whether now or hereafter in effect; or if
                    there is hereafter commenced against the Company any such
                    proceeding and an order approving the petition is entered or
                    such proceeding remains undismissed for a period of 60 day,
                    or the Company or its general partner by any act or omission
                    to act indicates its consent to or approval of or
                    acquiescence in any such proceeding or the appointment of
                    any receiver of, or trustee for, the Company or any
                    substantial part of its property, or suffers any such
                    receivership or trusteeship to continue undischarged for a
                    period of 60 days;

then, and in any such event, and at any time thereafter, if such event shall
then be continuing, the holder of this Note may, by written notice to the
Company, declare the Note due and payable, whereupon the same shall be due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived.

               3. Investment Representation.

               3.1 The Payee hereby acknowledges that the Note is not being
registered (i) under the Securities Act of 1933, as amended (the "Act"), on the
ground that the issuance of the Note is exempt from registration under Section
4(2) of the Act as not involving any public offering or (ii) under any
applicable state securities law because the issuance of the Note does not
involve any public offering; and that the Company's reliance on the Section 4(2)
exemption of the


                                       2



Act and under applicable state securities laws is predicated in part on the
representations hereby made to the Company by the Payee that it is acquiring the
Note for investment for its own account, with no present intention of dividing
its participation with others or reselling or otherwise distributing the same,
subject, nevertheless, to any requirement of law that the disposition of its
property shall at all times be within its control.

               3.2 The Payee hereby agrees that it will not sell or transfer all
or any part of this Note unless and until it shall first have given notice to
the Company describing such sale or transfer and furnished to the Company an
opinion, reasonably satisfactory to counsel for the Company, of counsel skilled
in securities matters (selected by the holder and reasonably satisfactory to the
Company) to the effect that the proposed sale or transfer may be made without
registration under the Act and without registration or qualification under any
state.

               3.3 The Company may refuse to recognize a transfer of this Note
on its books should a holder attempt to transfer this Note otherwise than in
compliance with this Section 3.

               4. Miscellaneous.

               4.1 Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and of a
letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of the Note, if mutilated, the Company will make
and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note.

               4.2 This Note and the rights and obligations of the Company and
each holder hereunder shall be construed in accordance with and be governed by
the laws of the State of New York.

               IN WITNESS WHEREOF, the Company has executed this Note as of the
day and year first above written.


                                            ORTHOMETRIX, INC,


                                            By: /s/ Reynald Bonmati
                                                --------------------------------
                                                Name: Reynald Bonmati
                                                Title: President


                                       3

EX-10.9 3 file003.htm PROMISSORY NOTE



                                                                    EXHIBIT 10.9

                   THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT
                      AND HAS NOT BEEN REGISTERED UNDER THE
                    SECURITIES ACT OF 1933 OR THE SECURITIES
                     LAWS OF ANY STATE. THIS NOTE MAY NOT BE
                   SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
                      REGISTRATION OR AN OPINION OF COUNSEL
                      SATISFACTORY TO THE ISSUER THAT SUCH
                    REGISTRATION IS NOT REQUIRED BY SAID ACT
                                 OR STATE LAWS,

                                ORTHOMETRIX, INC.

$20,000.00                                                White Plains, New York
                                                          November 8, 2004

               ORTHOMETRIX, INC., a Delaware corporation (the "Company"), for
value received, promises to pay to JOHN UTZINGER (the "Payee"), the principal
sum of Twenty thousand U.S. Dollars ($20,000) on November 8, 2005 (the "Maturity
Date"), except as otherwise provided herein, together with interest on the
outstanding principal amount of this Note at the rate of prime (as published
from time to time by JP Morgan Chase) plus one per annum, except as otherwise
provided herein. Interest shall be payable quarterly on the last business day of
each March, June, September and December, commencing December 31, 2004.

               1.   Payments and Prepayments.

               1.1 Payments and prepayments of principal and interest on this
Note shall be made to Payee at 1355 Ten Bar Trail, Southlake, TX 76092-5843.

               1.2 Payments and prepayments of principal and interest on this
Note shall be made in lawful money of the United States of America.

               1.3 If any payment on this Note becomes due and payable on a
Saturday, Sunday or other day an which commercial banks in New York City are
authorized or required by law to close, the maturity thereof shall be extended
to the next succeeding business day, and, with respect to payments of principal,
interest thereon shall be payable during such extension at the then applicable
rate.

               1.4 The Company shall be obligated to prepay the outstanding
principal amount of this Note within ten (10) days after such time as (i) the
Company receives net proceeds



of at least $5,000,000 from an equity financing, or (ii) the Company sells
substantially all its assets. The Company shall have the right at any time and
from time to time to prepay this Note in whole or in part, together with
interest on the amount prepaid to the date of prepayment, without penalty or
premium. Upon payment of part of the principal amount of this Note, the Company
may require the holder to present this Note for notation of such payment and, if
this Note is paid in full, require the holder to surrender this Note.

               1.5 Upon payment in full of all outstanding principal and
interest due under this Note, the Company's obligations in respect of payment of
this Note shall terminate and the holder shall return it to the Company.

               2.   Events of Default. In the event that:

                    (a) the Company defaults for more than five business days in
                    making any payment required to be made on this Note; or

                    (b) the Company hereafter makes an assignment for the
                    benefit of creditors, or files a petition in bankruptcy as
                    to itself, is adjudicated insolvent or bankrupt, petitions
                    or applies to any tribunal for the appointment of any
                    receiver of or any trustee for the Company or any
                    substantial part of its property under any bankruptcy,
                    reorganization, arrangement, readjustment of debt,
                    dissolution or liquidation law or statute of any
                    jurisdiction, whether now or hereafter in effect; or if
                    there is hereafter commenced against the Company any such
                    proceeding and an order approving the petition is entered or
                    such proceeding remains undismissed for a period of 60 day,
                    or the Company or its general partner by any act or omission
                    to act indicates its consent to or approval of or
                    acquiescence in any such proceeding or the appointment of
                    any receiver of, or trustee for, the Company or any
                    substantial part of its property, or suffers any such
                    receivership or trusteeship to continue undischarged for a
                    period of 60 days;

then, and in any such event, and at any time thereafter, if such event shall
then be continuing, the holder of this Note may, by written notice to the
Company, declare the Note due and payable, whereupon the same shall be due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived.

               3.   Investment Representation.

               3.1 The Payee hereby acknowledges that the Note is not being
registered (i) under the Securities Act of 1933, as amended (the "Act"), on the
ground that the issuance of the Note is exempt from registration under Section
4(2) of the Act as not involving any public offering or (ii) under any
applicable state securities law because the issuance of the Note does not
involve any public offering; and that the Company's reliance on the Section 4(2)
exemption of the


                                       4



Act and under applicable state securities laws is predicated in part on the
representations hereby made to the Company by the Payee that it is acquiring the
Note for investment for its own account, with no present intention of dividing
its participation with others or reselling or otherwise distributing the same,
subject, nevertheless, to any requirement of law that the disposition of its
property shall at all times be within its control.

               3.2 The Payee hereby agrees that it will not sell or transfer all
or any part of this Note unless and until it shall first have given notice to
the Company describing such sale or transfer and furnished to the Company an
opinion, reasonably satisfactory to counsel for the Company, of counsel skilled
in securities matters (selected by the holder and reasonably satisfactory to the
Company) to the effect that the proposed sale or transfer may be made without
registration under the Act and without registration or qualification under any
state.

               3.3 The Company may refuse to recognize a transfer of this Note
on its books should a holder attempt to transfer this Note otherwise than in
compliance with this Section 3.

               4.   Miscellaneous.

               4.1 Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and of a
letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of the Note, if mutilated, the Company will make
and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note.

               4.2 This Note and the rights and obligations of the Company and
each holder hereunder shall be construed in accordance with and be governed by
the laws of the State of New York.

               IN WITNESS WHEREOF, the Company has executed this Note as of the
day and year first above written.

                                        ORTHOMETRIX, INC,


                                        By: /s/ Reynald Bonmati
                                            ------------------------------------
                                            Name: Reynald Bonmati
                                            Title: President


                                       3

EX-10.10 4 file004.htm PROMISSORY NOTE



                                                                   EXHIBIT 10.10

                   THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT
                      AND HAS NOT BEEN REGISTERED UNDER THE
                    SECURITIES ACT OF 1933 OR THE SECURITIES
                     LAWS OF ANY STATE. THIS NOTE MAY NOT BE
                   SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
                      REGISTRATION OR AN OPINION OF COUNSEL
                      SATISFACTORY TO THE ISSUER THAT SUCH
                    REGISTRATION IS NOT REQUIRED BY SAID ACT
                                 OR STATE LAWS,

                                ORTHOMETRIX, INC.

$50,000.00                                                White Plains, New York
                                                          December 6, 2004

               ORTHOMETRIX, INC., a Delaware corporation (the "Company"), for
value received, promises to pay to REYNALD BONMATI (the "Payee"), the principal
sum of Fifty Thousand U.S. Dollars ($50,000) on December 6, 2005 (the "Maturity
Date"), except as otherwise provided herein, together with interest on the
outstanding principal amount of this Note at the rate of prime (as published
from time to time by JP Morgan Chase) plus one per annum, except as otherwise
provided herein. Interest shall be payable quarterly on the last business day of
each March, June, September and December, commencing December 31, 2004.

               1.   Payments and Prepayments.

               1.1 Payments and prepayments of principal and interest on this
Note shall be made to Payee at 106 Corporate Park Drive, Suite 102, White
Plains, N.Y. 10604.

               1.2 Payments and prepayments of principal and interest on this
Note shall be made in lawful money of the United States of America.

               1.3 If any payment on this Note becomes due and payable on a
Saturday, Sunday or other day an which commercial banks in New York City are
authorized or required by law to close, the maturity thereof shall be extended
to the next succeeding business day, and, with respect to payments of principal,
interest thereon shall be payable during such extension at the then applicable
rate.

               1.4 The Company shall be obligated to prepay the outstanding
principal amount of this Note within ten (10) days after such time as (i) the
Company receives net proceeds



of at least $5,000,000 from an equity financing, or (ii) the Company sells
substantially all its assets. The Company shall have the right at any time and
from time to time to prepay this Note in whole or in part, together with
interest on the amount prepaid to the date of prepayment, without penalty or
premium. Upon payment of part of the principal amount of this Note, the Company
may require the holder to present this Note for notation of such payment and, if
this Note is paid in full, require the holder to surrender this Note.

               1.5 Upon payment in full of all outstanding principal and
interest due under this Note, the Company's obligations in respect of payment of
this Note shall terminate and the holder shall return it to the Company.

               2.   Events of Default. In the event that:

                    (a) the Company defaults for more than ten business days in
                    making any payment required to be made on this Note; or

                    (b) the Company hereafter makes an assignment for the
                    benefit of creditors, or files a petition in bankruptcy as
                    to itself, is adjudicated insolvent or bankrupt, petitions
                    or applies to any tribunal for the appointment of any
                    receiver of or any trustee for the Company or any
                    substantial part of its property under any bankruptcy,
                    reorganization, arrangement, readjustment of debt,
                    dissolution or liquidation law or statute of any
                    jurisdiction, whether now or hereafter in effect; or if
                    there is hereafter commenced against the Company any such
                    proceeding and an order approving the petition is entered or
                    such proceeding remains undismissed for a period of 60 day,
                    or the Company or its general partner by any act or omission
                    to act indicates its consent to or approval of or
                    acquiescence in any such proceeding or the appointment of
                    any receiver of, or trustee for, the Company or any
                    substantial part of its property, or suffers any such
                    receivership or trusteeship to continue undischarged for a
                    period of 60 days;

then, and in any such event, and at any time thereafter, if such event shall
then be continuing, the holder of this Note may, by written notice to the
Company, declare the Note due and payable, whereupon the same shall be due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived.

               3.   Investment Representation.

               3.1 The Payee hereby acknowledges that the Note is not being
registered (i) under the Securities Act of 1933, as amended (the "Act"), on the
ground that the issuance of the Note is exempt from registration under Section
4(2) of the Act as not involving any public offering or (ii) under any
applicable state securities law because the issuance of the Note does not
involve any public offering; and that the Company's reliance on the Section 4(2)
exemption of the


                                       2



Act and under applicable state securities laws is predicated in part on the
representations hereby made to the Company by the Payee that it is acquiring the
Note for investment for its own account, with no present intention of dividing
its participation with others or reselling or otherwise distributing the same,
subject, nevertheless, to any requirement of law that the disposition of its
property shall at all times be within its control.

               3.2 The Payee hereby agrees that it will not sell or transfer all
or any part of this Note unless and until it shall first have given notice to
the Company describing such sale or transfer and furnished to the Company an
opinion, reasonably satisfactory to counsel for the Company, of counsel skilled
in securities matters (selected by the holder and reasonably satisfactory to the
Company) to the effect that the proposed sale or transfer may be made without
registration under the Act and without registration or qualification under any
state.

               3.3 The Company may refuse to recognize a transfer of this Note
on its books should a holder attempt to transfer this Note otherwise than in
compliance with this Section 3.

               4.   Miscellaneous.

               4.1 Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and of a
letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of the Note, if mutilated, the Company will make
and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note.

               4.2 This Note and the rights and obligations of the Company and
each holder hereunder shall be construed in accordance with and be governed by
the laws of the State of New York.

               IN WITNESS WHEREOF, the Company has executed this Note as of the
day and year first above written.

                                        ORTHOMETRIX, INC,


                                        By: /s/ Neil Koenig
                                            ------------------------------------
                                            Name: Neil Koenig
                                            Title: Chief Financial Officer


                                       3

EX-10.11 5 file005.htm ROCK CREEK STOCK PURCHASE AGREEMENT



                                                                   EXHIBIT 10.11

                                ORTHOMETRIX, INC.
                         COMMON STOCK PURCHASE AGREEMENT

February 25, 2005

John C. Sites, Jr.
Rock Creek Partners
1200 Riverplace Blvd., Suite 902
Jacksonville, Florida 32207

Dear Mr. Sites:

The undersigned, ORTHOMETRIX, INC., a Delaware corporation (the "Company"),
hereby agrees with Rock Creek Partners II, L.P. (the "Purchaser") as follows:

SECTION 1. SALE AND PURCHASE OF COMMON SHARES; CLOSING.

1.1. Sale of Common Shares

Subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Purchaser, and the Purchaser agrees to purchase from the
Company, on the Closing Date (as defined in Section 1.2 hereof), 2,321,429
shares of the Company's Common Stock, par value $.0005 per share (the "Common
Stock"), at a purchase price of $0.28 per share, for an aggregate amount of
$650,000. The shares of Common Stock to be purchased by the Purchaser on the
Closing Date are referred to herein collectively as the "Common Shares".

1.2. Closing

The "Closing Date" shall be February 25, 2005, or such other date as may be
mutually agreed upon by the Company and the Purchaser. The closing will take
place 10:00 a.m. on the Closing Date at the offices of Imowitz, Koenig & Co.
LLP, 622 Third Avenue, New York, NY 10017, or at such other time and place on
the Closing Date as the Purchaser and the Company shall agree. At such closing
the Company shall issue and deliver to the Purchaser one or more stock
certificates representing the Common Shares, as the Purchaser may instruct,
against receipt by the Company by wire transfer of immediately available funds
to an account designated by the Company in the amount of the aggregate purchase
price for the Common Shares.



SECTION 2. THE COMPANY'S REPRESENTATIONS, WARRANTIES AND COVENANTS

Except as disclosed or incorporated by reference in the Reports (as defined in
Section 2.7 hereof), the Company represents, warrants and covenants to the
Purchaser as follows as of the date hereof:

2.1. Organization and Standing

The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own and lease its properties and assets and to conduct
its business as presently conducted. The Company is qualified as a foreign
corporation in such other jurisdictions, if any, where the failure to so qualify
would have a material adverse effect on the Company. The Company has no
subsidiaries.

2.2. Capitalization

The authorized capital stock of the Company consists of 45,000,000 shares of
Common Stock, par value $.0005 per share, of which as of the date hereof
36,085,939 shares have been duly and validly issued and are presently
outstanding, fully paid and nonassessable. The Company agrees to solicit
stockholder approval at the 2005 Annual Meeting of the Company's stockholders in
order to ensure that the authorized capital stock of the Company covers all of
the Common Shares and the shares of Common Stock that are issuable upon the
exercise of outstanding options and warrants granted or issued by the Company.

2.3. Reserved Stock, Preemptive Rights, etc

Except for 3,000,000 shares reserved for issuance pursuant to the Company's
Amended and Restated 1994 Stock Option and Incentive Plan (the "1994 Plan"),
1,000,000 shares reserved for issuance pursuant to the Company's 2000
Non-Employee Director Stock Option Plan (the "Director Plan") and 3,335,000
shares reserved for issuance in connection with warrants granted by the Company,
no other shares of Common Stock have been reserved for issuance. There are no
preemptive or first refusal or similar rights binding on the Company to
subscribe for or purchase from the Company shares of capital stock of the
Company pursuant to any provision of law or the Certificate of Incorporation or
By-Laws of the Company or by agreement or otherwise. Except for (i) options to
purchase up to an aggregate of (a) 2,467,500 shares of Common Stock subject to
options issued pursuant to the 1994 Plan and (b) 995,000 shares of Common Stock
subject to options issued pursuant to the Director Plan, and (ii) warrants to
purchase 3,335,000 shares of Common Stock, there are no outstanding warrants or
options to subscribe for or purchase from the Company any shares of capital
stock of the Company or any securities convertible into or exchangeable for such
shares.


                                       -2-



2.4. Authority

The execution, delivery and performance by the Company of this Agreement have
been duly authorized by all requisite corporate action on the part of the
Company, and this Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The execution, delivery and
performance by the Company of this Agreement and compliance with the provisions
hereof and consummation of the transactions contemplated hereby by the Company
will not conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute a default under, or encumbrance upon any of the
properties, assets or outstanding stock of the Company under the Certificate of
Incorporation or the By-Laws of the Company or any indenture, mortgage, lease,
agreement or other instrument to which the Company is a party or by which the
Company or its property is bound or affected.

2.5. Issuance of Common Shares

The issuance, sale and delivery of the Common Shares in accordance with this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company. The Common Shares, when so issued, sold and delivered
against payment therefor in accordance with the provisions hereof, will be duly
and validly issued, fully paid and nonassessable, free of preemptive rights.

2.6. Consents

Assuming the accuracy of the representations and warranties of the Purchaser
contained herein, no material permit, consent, approval, authorization or
declaration to or filing with, any governmental or regulatory authority is
required of the Company in connection with (a) the execution, delivery or
performance by the Company of this Agreement or (b) the offer, issuance, sale
and delivery hereunder of the Common Shares, except for compliance with Federal
and state securities laws applicable to the offering and sale of the Common
Shares.

2.7. SEC Reports.

The Company has delivered to the Purchaser true and complete copies of (a) the
Company's annual report on Form 10-KSB for the year ended December 31, 2003, (b)
the Company's proxy statement for its 2004 Annual Meeting of Stockholders, (c)
the Company's quarterly reports on Form 10-QSB for the three-month periods ended
March 31, 2004, June 30, 2004 and September 30, 2004, and (d) the Company's Form
8-K dated December 31, 2004 (collectively, the "Reports") filed by the Company
with the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). None of the
Reports, as of the date of its filing with the Commission, contained any untrue
statement of material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading. Since the filing of the Form 8-K as of December
31, 2004, there has been no occurrence of any event


                                       -3-



that would necessitate the filing of any report pursuant to the requirements of
the Exchange Act and the rules and regulations promulgated thereunder, except
for such filings as may be necessary as a result of this Agreement.

2.8. No Material Adverse Change

Since the filing of the Form 10-QSB for the three-month period ended September
30, 2004, there has been no change in the condition of the Company, financial or
otherwise, as shown on its balance sheet as at such date other than changes
occurring in the ordinary course of business or changes that have not in the
aggregate materially adversely affected the business, properties or condition,
financial or otherwise, of the Company.

2.9. Issuance of Additional Securities by Company

The Company shall not without the prior consent of Purchaser, at any time
following the Closing Date and prior to the expiration of the thirty (30) day
period following the date that the Commission shall have declared effective any
registration statement filed by the Company covering the resale by Purchaser of
the Common Shares purchased hereunder, issue any shares of Common Stock,
preferred stock or securities convertible into or exchangeable for Common Stock
for a consideration per share less than $0.25 per share of Common Stock (subject
to adjustments for any stock splits, recapitalizations, stock dividends or
similar events); provided, however, that the foregoing restriction shall not
apply to any security (i) issued as a stock dividend, or in connection with a
recapitalization, stock split or similar event, (ii) issued pursuant to
subscriptions, warrants, options, convertible securities, convertible notes or
other rights that are outstanding on the date hereof, (iii) issued or reserved
for issuance under the Company's employee option and related plans as may be
approved by the Company's Board of Directors and the Company's stockholders from
time to time hereafter, (iv) issued under employment agreements executed with
persons who are not employees of the Company as of the date hereof or (v) issued
to financial institutions, lessors or vendors that are unrelated third parties
in connection with a bona fide provision of credit or services to the Company as
approved by the board of directors of the Company.

2.10. Intellectual Property

          (a) The Company has ownership, license or legal right to use all
material patent, copyright, trade secret and trademark rights necessary to the
conduct of the business of the Company as now conducted (collectively,
"Intellectual Property"), other than intellectual property generally available
on commercial terms from other sources.

          (b) As to all material licenses or other material agreements under
which (i) the Company is granted rights in Intellectual Property, other than
intellectual property generally available on commercial terms from other
sources, or (ii) the Company has granted rights to others in Intellectual
Property owned or licensed by the Company, there is no material default or
breach thereof by the Company or, to the knowledge of the Company, any other
party thereto.

          (c) The business, activities and products of the Company do not
materially infringe any material intellectual property of any other person. The
Company is not, to its


                                       -4-



knowledge, making unauthorized use of any confidential information or trade
secrets of any other person.

          (d) There is not pending or, to the Company's knowledge, threatened
any claim, suit or action against the Company contesting or challenging the
rights of the Company in or to any Intellectual Property or the validity of any
of the Intellectual Property.

          (e) To the Company's knowledge, there is no infringement upon or
unauthorized use by any third party of any of its Intellectual Property.

SECTION 3. REPRESENTATION, WARRANTIES AND COVENANTS OF THE PURCHASER

The Purchaser represents, warrants covenants to the Company that:

3.1. The Purchaser is acquiring the Common Shares for the Purchaser's own
account, for investment only and not with a view toward resale or other
distribution of any Common Shares within the meaning of the Securities Act.

3.2. The Purchaser understands that the Common Shares have not been registered
under the Securities Act, in reliance upon exemptions contained in the
Securities Act and applicable regulations promulgated thereunder or
interpretations thereof, and cannot be offered for sale, sold or otherwise
transferred unless such sale or transfer is so registered or qualifies for
exemption from registration under the Securities Act; and that the certificates
representing the Common Shares shall bear legends substantially in the form set
forth herein.

3.3. The Purchaser is an "accredited investor", as defined in Regulation D
promulgated by the Commission under the Securities Act. The Purchaser has such
knowledge and experience in financial and business matters that the Purchaser is
capable of evaluating the merits and risks of the Purchaser's investment in the
Common Shares; and the Purchaser understands and is able to bear any economic
risks associated with such investment (including the necessity of holding the
Common Shares for an indefinite period of time, inasmuch as such securities have
not been, and may not in the foreseeable future be, registered under the
Securities Act, and including the risk of the loss of the Purchaser's entire
investment).

3.4. The Purchaser has been given the opportunity to ask questions of, and
receive answers from, the principal officers of the Company concerning the
business and financial affairs of the Company, and the terms and conditions of
the Purchaser's purchase of the Common Shares; and the Purchaser has had further
opportunity to obtain any additional information necessary to verify the
accuracy of the foregoing information.


                                       -5-



3.5. The Purchaser understands that the Common Shares will be considered
"restricted securities" within the meaning of Rule 144 under the Securities Act;
that Rule 144 may not be available to exempt from the registration requirements
of the Securities Act sales of such "restricted securities"; that if Rule 144 is
available, sales may be made in reliance upon Rule 144 only in accordance with
the terms and conditions of Rule 144, which among other things generally
requires that the securities be held for at least one year and that sales be
made in limited amounts (which amounts are subject to certain exceptions
depending upon whether the seller is an "affiliate" within the meaning of Rule
144 and how long the securities have been held); and that, if an exemption for
such sales is not available, registration of the Shares may be required, but
that the Company is under no obligation to register the Shares or to facilitate
compliance or to comply with any exemption, except as provided in Section 5
hereof.

3.6. The Purchaser agrees to keep strictly confidential all information
concerning this Agreement and the transactions contemplated hereby. The
Purchaser hereby acknowledges that it is prohibited from reproducing and/or
distributing this Agreement and any other materials or other information
provided by the Company in connection with the Purchaser's consideration of its
investment in the Company, in whole or in part, or divulging or discussing any
of their contents to third parties. Further, the Purchaser understands that the
existence and nature of all conversations and presentations, if any, regarding
the Company and the transactions contemplated hereby must be kept strictly
confidential. The foregoing restrictions set forth in this Section 3.6 shall be
applicable in respect of any information concerning this Agreement and/or the
transactions contemplated hereby only until such time as the Company shall have
publicly disclosed such information. The Purchaser understands that Federal
securities laws impose restrictions on trading based on information regarding
the transactions contemplated hereby. In particular, the Purchaser hereby
acknowledges that disclosure of information regarding the transactions
contemplated hereby may cause the Company to violate Regulation FD and agrees
not to engage in any unauthorized or unlawful disclosure.

3.7. The Purchaser understands that its investment in the Common Shares involves
a significant degree of risk and uncertainty and that the market price of the
Common Stock has been and may continue to be volatile and that no representation
or warranty is being made as to the future value or trading volume of the Common
Stock. The Purchaser is not relying on the Company or any of its employees,
representatives or agents with respect to the legal, tax and/or related
considerations as to an investment in the Shares, and the Purchaser has relied
on the advice of, or has consulted with, its own advisors only.


                                       -6-



SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS

The obligation of the Purchaser to purchase and make payment for the Common
Shares on the Closing Date is subject, at the Purchaser's option, to the
following conditions:

4.1. Proceedings

All proceedings to be taken in connection with the transactions contemplated by
this Agreement to be consummated on or prior to the Closing Date, and all
documents to be executed incident thereto, shall have been taken and executed in
a manner reasonably satisfactory in form and substance to the Purchaser.

4.2. Representations and Warranties

On the Closing Date, the representations and warranties contained in Section 2
hereof shall be true and correct in all material respects with the same effect
as though made on and as of the Closing Date, and the Company shall have so
certified to the Purchaser in writing.

4.3. Compliance

All the covenants, agreements and conditions contained in this Agreement to be
performed or complied with by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects, and the Company
shall have so certified to such Purchaser in writing.

4.4. Other Documents

The Purchaser shall have received such certified copies or other copies of such
documents and certificates as the Purchaser may reasonably request.

SECTION 5. USE OF PROCEEDS

The Company shall use the proceeds from the sale of the Common Shares for
working capital and general corporate purposes and to retire existing debt to
insiders, including directors and officers of the Company, and to other
shareholders; provided, however, that the Company shall not, without the prior
approval of the Purchaser, use such proceeds to retire any existing debt in
excess of $150,000 in the aggregate prior to such time as the Company shall have
received proceeds from a future financing transaction.


                                       -7-



SECTION 6. RESTRICTIONS ON TRANSFERABILITY; COMPLIANCE WITH SECURITIES ACT OF
1933

6.1. Restrictions on Transferability.

Restricted Securities (as defined in Section 6.2 hereof) shall not be
transferable except upon the conditions specified in this Section 6, which
conditions are intended to ensure compliance with the provisions of the
Securities Act in respect of the transfer of any of the Common Shares.

6.2. Certain Definitions.

As used in this Section 6, the following terms shall have the following
respective meanings:

          "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

          "Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

          "Restricted Securities" shall mean shares of capital stock of the
Company, including the Common Shares and other securities of the Company
evidenced by a certificate required to bear the legend set forth in Section 6.3
hereof.

          "Registration Stock" shall mean (i) the Common Shares and (ii) any
shares of Common Stock issued in respect of the Common Shares upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event;
provided, however, that Registration Stock shall not include any such shares
disposed of pursuant to a registration statement under the Securities Act or
pursuant to Rule 144 promulgated under the Securities Act.

          "Additional Registration Stock" shall mean my shares of Common Stock
of the Company (other than the Common Shares) which have rights to be included
in Company registrations under the Securities Act.

          "Registration Expenses" shall mean the expenses so described in
Section 6.6.

          "Selling Expenses" shall mean the expenses so described in Section
6.6.


                                       -8-



6.3. Restrictive Legend

Each certificate representing Registration Stock shall (unless otherwise
permitted by the provisions of Sections 6.4 or 6.9 below) be stamped or
otherwise imprinted with the following legend:

          THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
          AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
          AMENDED. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR TRANSFERRED
          ABSENT SUCH REGISTRATION OR UNLESS AN OPINION OF COUNSEL IN FORM,
          SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT AN
          EXEMPTION THEREFROM UNDER SAID ACT IS AVAILABLE. IN ADDITION, THE
          TRANSFERABILITY OF THESE SECURITIES IS SUBJECT TO THE PROVISIONS OF A
          COMMON STOCK PURCHASE AGREEMENT, DATED FEBRUARY 25, 2005, BETWEEN THE
          ISSUER AND ROCK CREEK PARTNERS II, L.P., A COPY OF WHICH MAY BE
          OBTAINED AT THE ISSUER'S PRINCIPAL EXECUTIVE OFFICE.

6.4. Restrictions on Transferability

The Restricted Securities shall not be transferred, and the Company shall not be
required to register any transfer of Restricted Securities on the books of the
Company, unless the Company shall have been provided with an opinion of counsel
reasonably satisfactory to it prior to such transfer that registration under the
Securities Act is not required in connection with the transaction resulting in
such transfer; provided, however, that no such opinion of counsel shall be
required for a transfer in accordance with the provisions of Securities Act Rule
144(k).

Each certificate issued upon any transfer of Restricted Securities transferred
as above provided shall bear the appropriate restrictive legend set forth above,
except that such certificate shall not bear such restrictive legend if (a) the
opinion of counsel referred to above is to the further effect that such legend
is not required in order to establish compliance with the provisions of the
Securities Act or (b) the transfer was made in accordance with the provisions of
Rule 144.


                                       -9-



6.5. Incidental Registration

If, at any time and from time to time, the Company proposes to register any of
its equity securities under the Securities Act on Forms S-1, S-2 or S-3 or any
other registration form at the time in effect on which Registration Stock could
be registered for sale by the holders thereof (other than a registration in
connection with an acquisition of or merger with another entity or the sale of
shares to employees of the Company pursuant to employee stock option or other
employee/director/consultant stock purchase plans), the Company shall on each
such occasion give written notice to all record holders of Registration Stock of
its intention so to do and, upon the written request of any such holders of at
least 500,000 shares of Registration Stock given within 30 days after receipt of
any such notice, the Company will use its diligent, good faith efforts to cause
the Registration Stock as to which the holders shall have so requested
registration to be registered under the Securities Act and under the same
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Registration Stock so registered; provided, however, that if the
offering to which the proposed registration statement relates is to be
distributed by or through an underwriter, each seller shall agree to sell his
Registration Stock through such underwriter on the same terms and conditions as
the underwriter agrees to sell securities on behalf of the Company; provided,
further, that if a greater number of shares of Registration Stock and Additional
Registration Stock is offered for participation in the proposed underwriting
than in the opinion of the managing underwriter proposing to underwrite
securities to be sold by the Company can be accommodated without adversely
affecting the proposed underwriting, the amount of securities (including shares
of Restricted Stock) to be included in such an underwriting may be reduced if
the managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, further, that the amount of Restricted Stock held by the
Purchaser shall not be reduced if any securities are to be included in such
underwriting for the account of any person other than the Company or the
Purchaser. The Company may withdraw any such registration statement before it
becomes effective or postpone the offering of securities contemplated by such
registration statement without any obligation to the Purchaser.

6.6. Registration Procedures and Expenses

          (a) If and whenever the Company is required pursuant to the provisions
of this Section 6 to use its diligent, good faith efforts to effect the
registration of any Registration Stock under the Securities Act, the Company
will, as expeditiously as possible:

               (i) prepare and file with the Commission a registration statement
     with respect to such securities and use its diligent, good faith efforts to
     cause such registration statement to become and remain effective for the
     period specified in clause (ii) below;


                                      -10-



               (ii) prepare and file with the Commission such amendments and
     supplements to such registration statement and the prospectus used in
     connection therewith as may be necessary to keep such registration
     statement effective, and to comply with the provisions of the Securities
     Act, for a period of not less than 120 days (or such lesser period in which
     all of the stock covered by such registration statement is in fact sold);

               (iii) furnish to each selling stockholder and underwriter such
     number of copies of a prospectus and preliminary prospectuses in conformity
     with the requirements of the Securities Act as may be reasonably requested,
     any other prospectus filed under Rule 424 under the Securities Act and such
     other documents as any seller may reasonably request;

               (iv) use its diligent, good faith efforts to register or qualify
     the Registration Stock covered by such registration statement under such
     other securities or blue sky laws of such jurisdictions as each such seller
     shall reasonably request (provided, however, that the Company shall not be
     required to consent to the general service of process for all purposes in
     any jurisdiction where it is not then qualified), and do any and all other
     acts and things which may be reasonably necessary to enable such seller to
     consummate the public sale or other disposition of such Registration Stock
     in such jurisdictions;

               (v) notify, on a timely basis, each seller of Registration Stock
     covered by such registration statement, at any time when a prospectus
     relating to the Registration Stock covered by such registration statement
     is required to be delivered under the Securities Act within the appropriate
     period mentioned in clause (a)(ii) of Section 6.6 of the happening of any
     event as a result of which the prospectus included in such registration
     statement, as then in effect, includes an untrue statement of a material
     fact or omits to state a material fact required to be stated therein or
     necessary to make the statements therein not misleading in the light of the
     circumstances then existing and, at the request of such seller, prepare and
     furnish to such seller a reasonable number of copies of a supplement to or
     an amendment of such prospectus as may be necessary so that, as thereafter
     delivered to the purchaser of such shares, such prospectus shall not
     include an untrue statement of a material fact or omit to state a material
     fact required to be stated therein or necessary to make the statements
     therein not misleading in the light of the circumstances then existing; and

               (vi) use its best efforts to list such Registration Stock on any
     securities exchange on which capital stock of the same class is then
     listed, if such Registration Stock is not already so listed and if such
     listing is then permitted under the rules of such exchange.

          (b) The Company will pay all Registration Expenses in connection with
each registration pursuant to this Section 6. All Selling Expenses in connection
with each registration


                                      -11-



pursuant to this Section 6 shall be borne by the seller or sellers pro-rata in
proportion to the securities covered thereby being sold or in such other
proportion as they may agree. All expenses incurred by the Company in complying
with Section 6 hereof, including, without limitation, all registration and
filing fees (including all expenses incident to filing with the National
Association of Securities Dealers, Inc.), printing expenses, reasonable fees and
disbursements of counsel for the Company, securities law and blue sky fees and
expenses and the expenses of any regular audits incident to or required by any
such registration are herein called Registration Expenses, except that all
underwriting discounts and selling commissions applicable to the sales, any
state or federal transfer taxes payable with respect to the sales, all expenses
of any special audits and all fees and disbursements of counsel for the selling
shareholders are herein called Selling Expenses.

          (c) The Purchaser acknowledges that there may be times when the
Company must suspend the use of the prospectus forming a part of either of a
registration statement (a "Suspension") until such time as an amendment to a
registration statement has been filed by the Company and declared effective by
the Commission, or until such time as the Company has filed an appropriate
report with the Commission pursuant to the Exchange Act or appropriately
supplemented the prospectus forming a part of such registration statement. The
Purchaser hereby covenants that it will not sell any Common Shares pursuant to
said prospectus during the period commencing at the time that the Company gives
the Purchaser written notice of the Suspension of the use of said prospectus and
ending at the time that the Company gives the Purchaser written notice that the
Purchaser may thereafter effect sales pursuant to said prospectus; provided,
however, that the Registration Statement shall be suspended for a total of no
more than sixty (60) days during any twelve (12) month period.

6.7. Indemnification

          (a) In the event of any registration under the Securities Act of any
Registration Stock pursuant to this Section 6 or registration or qualification
of any Registration Stock pursuant to Section 6.6(a)(iv) hereof, the Company
will indemnify and hold harmless each seller of such Registration Stock, each
underwriter of such Registration Stock, if any, and each other person, if any,
who controls such seller or underwriter within the meaning of the Securities Act
or the Exchange Act from and against any losses, claims, damages or liabilities,
joint or several, to which any such person may become subject under the
Securities Act, the Exchange Act, state securities and blue sky laws, or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registration Stock was registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, any amendment or
supplement thereto, or any document filed in connection therewith or in
connection with any registration or qualification pursuant to Section 6.6(a)(iv)
hereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
are made, not misleading; or any violation by the Company of the Securities Act,
the Exchange Act or state securities or blue sky laws applicable to the Company
and relating to action or inaction required of the Company in


                                      -12-



connection with such registration or qualification under such state securities
or blue sky laws; and will reimburse such person for any legal and any other
expenses reasonably incurred by such person, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to any such person to the
extent that any such loss, claim, damage or liability arises out of or is based
upon (i) an untrue statement or omission or alleged untrue statement or omission
made in such registration statement, said preliminary prospectus or said final
prospectus or said amendment or supplement or any document incident thereto or
incident to registration or qualification of any Registration Stock pursuant to
Section 6.6(a)(iv) hereof in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such person specifically
for use in the preparation thereof, (ii) the failure of the Purchaser to comply
with the covenants and agreements contained in this Agreement or to perform its
obligations under law or (iii) the inaccuracy of any representations or
warranties made by such Purchaser in this Agreement or the Purchase Agreement;
and provided, further, that if any losses, claims, damages or liabilities arise
out of or are based upon an untrue statement, alleged untrue statement, omission
or alleged omission contained in any preliminary prospectus which did not appear
in the final prospectus, the Company shall not have any liability with respect
thereto to (i) the seller or any person who controls such seller within the
meaning of the Securities Act or the Exchange Act, if the seller delivered or
was required to deliver a copy of the preliminary prospectus to the person
alleging such losses, claims, damages or liabilities and failed to deliver a
copy of the final prospectus, as amended or supplemented if it has been amended
or supplemented, to such person at or prior to the written confirmation of the
sale to such person or (ii) any underwriter or any person who controls such
underwriter within the meaning of the Securities Act or the Exchange Act, if
such underwriter delivered or was required to deliver a copy of the preliminary
prospectus to the person alleging such losses, claims, damages or liabilities
and failed to deliver a copy of the final prospectus, as amended or supplemented
if it has been amended or supplemented, to such person at or prior to the
written confirmation of the sale to such person.

          (b) In the event of any registration of any of the Registration Stock
under the Securities Act pursuant to this Section 6 or registration or
qualification of any Registration Stock pursuant to Section 6.6(a)(iv) hereof,
each seller of such Registration Stock, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act, each
officer of the Company who signs the registration statement and each director of
the Company from and against any and all losses, claims, damages or liabilities,
joint or several, to which any such person may become subject under the
Securities Act, the Exchange Act, state securities and blue sky laws, or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement, preliminary or final prospectus, amendment or supplement thereto or
any document filed in connection therewith or in connection with any
registration or qualification pursuant to Section 6.6(a)(iv) hereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they are made, not
misleading, if the statement or omission in respect of which such loss, claim,
damage or liability is asserted was made in reliance upon and in


                                      -13-



conformity with information furnished in writing to the Company by or on behalf
of such seller specifically for use in connection with the preparation of such
registration statement or prospectus or such amendment or supplement thereof;
provided, however, that if any losses, claims, damages or liabilities arise out
of or are based upon an untrue statement or omission contained in any
preliminary prospectus which did not appear in the final prospectus, such seller
shall not have any such liability with respect thereto to the Company, any
person who controls the Company within the meaning of the Securities Act or the
Exchange Act, any officers of the Company who signed the registration statement
or any director of the Company, if the Company delivered or was required to
deliver a copy of the preliminary prospectus to the person alleging such losses,
claims, damages or liabilities and failed to deliver a copy of the final
prospectus, as amended or supplemented if it has been amended or supplemented,
to such person at or prior to the written confirmation of the sale to such
person; and provided, further, that the liability of any seller of Registration
Stock to so indemnify shall be limited to an amount equal to the amount received
by such seller upon the sale of such Registration Stock pursuant to such
registration statement.

          (c) Any party which proposes to assert the right to be indemnified
under this Section 6.7 will, promptly after receipt of notice of commencement of
any action, suit or proceeding against such party in respect of which a claim is
to be made against an indemnified party under this Section 6.7, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than under this Section 6.7, unless such omission shall materially
prejudice the indemnifying party's ability to contest such claim. In case any
such action, suit or proceeding shall be brought against any indemnified party,
it shall notify the indemnifying party of the commencement thereof, and the
indemnifying party shall be entitled to participate in, and, to the extent that
it shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, other than
reasonable costs of investigation subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party, when
and as incurred, unless (i) the employment of counsel by such indemnified party
has been authorized by the indemnifying parties, (ii) a conflict of interest
exists between the indemnifying parties and the indemnified party in the conduct
of the defense of such action (in which case the indemnifying parties shall not
have the right to direct the defense of such action on behalf of the indemnified
party) or (iii) the indemnifying parties shall not in fact have employed counsel
to assume the defense of such action. An indemnifying party shall not be liable
for any settlement of any action or claim effected without its consent. No
indemnifying party will, except with the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation.


                                      -14-



          (d) If the indemnification provided for in subsection (a) or (b) of
this Section 6.7 is held by a court of competent jurisdiction to be unavailable
to an indemnified party, then each indemnifying party under any such subsection,
in lieu of indemnifying such indemnified party thereunder, hereby agrees to
contribute to the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other. Notwithstanding
the foregoing, the amount any seller of Registration Stock shall be obligated to
contribute pursuant to this subsection (d) shall be limited to the amount
received by such seller upon the sale of Registration Stock pursuant to the
registration statement.

          (e) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any holder exercising rights under this Agreement, any underwriter or
controlling person of any such holder or underwriter, or any holders' affiliate,
makes a claim for indemnification pursuant to this Section but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section provides for indemnification in such
case, or (ii) contribution under the Securities Act may be required on the part
of any such holder or of any such underwriter, controlling person or holders'
affiliate in circumstances for which indemnification is provided under this
Section 6, then, and in each such case, the Company and such holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion as it is
appropriate to reflect the relative fault of the Company, on the one hand, and
of the holder holding Registration Stock on the other, in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company, on the one hand, and of the holder holding
Registration Stock on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company, on the one hand, or by the holder holding Registration
Stock, on the other, and each party's relative intent, knowledge, access to
information on the other, and each party's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided that, in any such case, (A) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation and (B) no such holder will be required to
contribute any amount in excess of the proceeds received by such holder from the
sales of Registration Stock covered by the registration statement.

          (f) Other Indemnification. Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in an
underwriting agreement entered into in connection with an underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.


                                      -15-



6.8. Underwritten Offerings

          In consideration for the Company agreeing to its obligations under
this Section 6, the Purchaser agrees (which agreement shall be binding upon any
transferee of Registration Stock) in connection with any underwritten offering
of the Company's securities that, upon the request of the Company or the
underwriters managing such underwritten offering, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
Registration Stock (other than those shares included in the registration)
without the prior written consent of the Company of such underwriters, as the
case may be, for such period of time prior to and after registration (not to
exceed 180 days from the effective date of such registration) as the Company or
the underwriters may specify.

6.9. Termination of Conditions and Obligations

The conditions precedent imposed by this Section 6 upon the transferability of
Restricted Securities shall cease and terminate as to any Restricted Securities
when such Restricted Securities shall have been effectively registered under the
Securities Act and sold or otherwise disposed of in accordance with the intended
method of disposition by the seller or sellers thereof set forth in the
registration statement covering such securities or at such time as an opinion of
counsel shall have been rendered to the effect set forth in the second paragraph
of Section 6.4 hereof. Whenever the conditions imposed by this Section 6 shall
terminate as hereinabove provided, the holder of any Restricted Securities
bearing the legend set forth in this Section 6 as to which such conditions shall
have terminated shall be entitled to receive from the Company, without expense
and as expeditiously as possible, new certificates not bearing such legend.

SECTION 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES

All representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the execution and delivery of this Agreement and
the issuance and sale of the Common Shares hereunder for a period of one year
following the Closing Date.

SECTION 8. BROKERAGE

Each party hereto (a) represents and warrants to the other that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement, and (b) will indemnify and save the other party hereto harmless from
and against any and all claims, liabilities or obligations with respect to
brokerage or finders, fees or commissions, or consulting fees in connection with
the transactions contemplated by this Agreement, asserted by any person on the
basis of any statement or representation alleged to have been made by such
indemnifying party.


                                      -16-



SECTION 9. NOTICES

All notices, requests, consents and other communications hereunder shall be in
writing and shall be delivered by hand or shall be sent by telecopy (confirmed
by registered, certified, or overnight mail or courier, postage and delivery
charges prepaid), or by registered, certified or overnight mail or courier,
postage and delivery charges prepaid, and shall be deemed given when delivered
or received as follows:

               (a)  if to the Company, at:
                    Orthometrix, Inc.
                    106 Corporate Park Drive
                    Suite 102
                    White Plains, NY 10604
                    Attention: President
                    Fax No.: (914) 694-2286

               (b)  if to the Purchaser, at:
                    Rock Creek Capital
                    1200 Riverplace Blvd., Suite 902
                    Jacksonville, Florida 32207
                    Attention: General Counsel
                    Fax No: (904) 393-9003

or to such other address or addresses as may have been furnished by a party in
writing to the others.

SECTION 10. HEADINGS

The headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.

SECTION 11. GOVERNING LAW

This Agreement shall be governed by, enforced and construed in accordance with
the law of the State of New York (excluding the body of law relating to conflict
of laws).

SECTION 12. ENTIRE AGREEMENT; MODIFICATION; WAIVER

This Agreement and the other documents delivered in connection herewith
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and supersede all prior oral and
written commitments and understandings with respect to the matters provided for
herein and therein. No modification of this Agreement or consent to any
departure herefrom shall be effective unless in writing and approved by the
Company and the Purchaser. The parties agree that no other representations and
warranties, either written or oral, have been made except as expressly contained
herein.


                                      -17-



SECTION 13. SUCCESSORS AND ASSIGNS

All covenants and agreements of the parties contained in this Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns. Purchaser's rights are assignable to any assignee or
transferee of all or at least 50,000 shares of Registration Stock; provided;
however, that the Purchaser's rights under Section 2.9 hereof shall not be
assignable to any assignee or transferee without the prior written consent of
the Company. In addition, and whether or not any express assignment shall have
been made, the provisions of this Agreement which are for the benefit of the
parties hereto other than the Company shall also be for the benefit of and
enforceable by an subsequent holder of any Registration Stock, subject to the
provisions contained herein.

SECTION 14. COUNTERPARTS

This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument, and any party hereto may execute
this Agreement by signing any such counterpart.

SECTION 15. ENFORCEABILITY

It is the desire and intent of the parties hereto that the provisions of this
Agreement shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
to be invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made.

SECTION 16. CONSENT TO JURISDICTION.

The Company and the Seller hereby irrevocably and unconditionally submit to the
exclusive jurisdiction of the Federal and State Courts in New York for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby, and each of the Company and the Purchaser
agrees not to commence any legal proceeding related thereto except in such
courts. Each of the Company and the Purchaser irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such court has been brought in an inconvenient forum.

SECTION 17. WAIVER OF JURY TRIAL

The Company and Purchaser hereby waive trial by jury in any action to enforce,
or controversy arising under, this Agreement.


                                      -18-



SECTION 18. SPECIFIC ENFORCEMENT

All of the parties acknowledge that the parties will be irreparably damaged in
the event that this Agreement is not specifically enforced. Upon a breach or
threatened breach of the terms, covenants or conditions of this Agreement by any
of the parties hereto, the other parties shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, or a decree for specific performance, in accordance with the
provisions of this Agreement.

SECTION 19. PUBLIC ANNOUNCEMENTS

Neither the Company nor Purchaser shall, without the prior written consent of
the other, make any public announcement or statement with respect to the
transactions contemplated in the Agreement which names the parties hereto,
except as may be necessary to comply with applicable requirements of the federal
or state securities laws or any governmental order or regulation, and in such
event, any such public announcement or statement shall be delivered to the other
party hereto, prior to the release for consent and review.

                                        Very truly yours,

                                        ORTHOMETRIX, INC.


                                        By:
                                            ------------------------------------
                                            Reynald Bonmati
                                            President

Agreed to and accepted as of
the date first above written:

ROCK CREEK PARTNERS II, L.P.


By: /s/ Ashton Hudson
    --------------------------------
    Ashton Hudson, Vice President


                                      -19-

EX-10.12 6 file006.htm PSILOS PIPE STOCK PURCHASE AGREEMENT



                                                                   EXHIBIT 10.12

                                                                  EXECUTION COPY

                            STOCK PURCHASE AGREEMENT

          THIS STOCK PURCHASE AGREEMENT ("AGREEMENT"), dated as of March 3,
2005, by and among Orthometrix, Inc., a Delaware corporation (the "COMPANY"),
and the purchasers whose names and addresses are set forth on the signature
pages hereto (collectively, the "PURCHASERS" and individually, a "PURCHASER").

                                  WITNESSETH:

          WHEREAS, the Company wishes to issue and sell to each Purchaser and
such Purchaser wishes to purchase, severally and not jointly, from the Company,
the number of shares of the Company's common stock, $0.0005 par value per share
(the "COMMON STOCK"), set forth on such Purchaser's signature page hereto (the
"SHARES"), upon the terms and subject to the conditions hereinafter set forth.

          NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:

                                   ARTICLE 1

                         PURCHASE AND SALE OF THE SHARES

     1.1 PURCHASE AND SALE OF THE SHARES; PURCHASE PRICE. Subject to the terms
and conditions herein set forth, the Company agrees that it will issue and sell
to each Purchaser, and such Purchaser agrees that it will acquire from the
Company, the Shares on the Closing Date (as defined below). The aggregate
purchase price for each Purchaser's Shares shall be an amount equal to $0.25
multiplied by the number of such Shares purchased (the "PURCHASE PRICE").

     1.2 CLOSING. The purchase and sale of the Shares shall take place at a
closing (the "CLOSING") to be held at the offices of Imowitz, Koenig & Co. LLP,
622 Third Avenue, New York, NY 10017, at 10:00 a.m., local time, on the date
hereof (the "CLOSING DATE"). At the Closing, the Company shall deliver to each
Purchaser a stock certificate evidencing such Purchaser's Shares against
delivery by such Purchaser to the Company of the Purchase Price. Payment of the
Purchase Price shall be by wire transfer of immediately available funds.

                                   ARTICLE 2

                           COMPANY CLOSING DELIVERIES

          At the Closing, the Company shall deliver or cause to be delivered to
each Purchaser the following:

          (a) a stock certificate registered in the name of the Purchaser,
representing the number of Shares purchased;

          (b) (i) a good standing certificate from the Secretary of State of
Delaware, dated as of a date not more than five (5) days prior to the Closing
Date, and (ii) certified



resolutions of the Company's Board of Directors approving this Agreement and the
transactions and agreements contemplated hereby;

          (c) a duly executed Registration Rights Agreement in the form attached
hereto as Exhibit A (the "REGISTRATION RIGHTS AGREEMENT"); and

          (d) a signed opinion of counsel to the Company, dated as of the
Closing Date, in the form attached hereto as Exhibit B.

                                   ARTICLE 3

                          PURCHASER CLOSING DELIVERIES

          At the Closing, each Purchaser shall deliver or cause to be delivered
to the Company same-day funds in the full amount of the Purchase Price for the
Shares being purchased hereunder and the duly executed Registration Rights
Agreement.

                                   ARTICLE 4

                           REPRESENTATIONS, WARRANTIES
                          AND COVENANTS OF THE COMPANY

          Except as set forth on the Disclosure Schedule attached hereto as
Schedule A (the "DISCLOSURE SCHEDULE") or as disclosed or incorporated by
reference in the SEC Reports (as defined in Section 4.12 hereof), the Company
hereby represents, warrants and covenants to each Purchaser as follows:

     4.1 CORPORATE ORGANIZATION, EXISTENCE AND POWER. The Company (a) is a
corporation validly existing and in good standing under the laws of the State of
Delaware; (b) has all requisite corporate power and authority to own and operate
its property, to lease the property it operates as lessee and to conduct the
business in which it is engaged; (c) is qualified to do business as a foreign
corporation in each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except to
the extent that the failure to be so qualified could not reasonably be expected
to have a material adverse effect on the business, financial condition,
properties or operations of the Company, taken as a whole (a "MATERIAL ADVERSE
EFFECT"); and (d) has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and the Registration Rights
Agreement.

     4.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Shares: (a) has been
duly authorized; (b) do not or will not contravene the terms of the Certificate
of Incorporation or the By-Laws of the Company, or any amendment thereof or any
laws applicable to the Company; (c) do not or will not (i) create in any other
person or entity a right or claim of termination or amendment, or (ii) require
modification, acceleration or cancellation of any provision of any security
issued by such person or entity, pursuant to any material agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument or
arrangement (whether in writing or otherwise) to which such person or entity


                                      -2-



or its property is bound (collectively, "CONTRACTUAL OBLIGATIONS"); and (d) do
not or will not result in the creation of any mortgage, deed of trust, pledge,
hypothecation, assignment, lien (statutory or otherwise), charge, claim,
restriction or preference, security interest or preferential arrangement or any
other encumbrance (or obligation to create a lien) of any kind or nature
(collectively, "LIENS") against any property, asset or business of the Company
or the suspension, revocation, impairment, forfeiture or non-renewal of any
material permit, license, authorization or approval applicable to the Company,
or its business or operations or any of its assets or properties.

     4.3 GOVERNMENTAL AUTHORIZATION; THIRD-PARTY CONSENTS. No material approval,
consent, exemption, authorization, or other action by, or notice to, or filing
with, any governmental entity or authority or any other person or entity in
respect of any law or Contractual Obligation, and no lapse of a waiting period
under any law or Contractual Obligation, is required in connection with the
execution, delivery or performance by, the Company of this Agreement or the
Registration Rights Agreement or the consummation of the transactions
contemplated hereby or thereby, except for compliance with Federal and state
securities laws applicable to the offering and sale of the Shares.

     4.4 BINDING EFFECT; ENFORCEABILITY. This Agreement has been, and the
Registration Rights Agreement will be, duly executed and delivered by the
Company, and, assuming the valid execution and delivery by the Purchasers, this
Agreement constitutes, and the Registration Rights Agreement will constitute,
the legal, valid and binding obligations of the Company, enforceable against the
Company by such Purchaser in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally or by
general principles of equity.

     4.5 LITIGATION. There are no legal actions, suits or proceedings pending
or, to the knowledge of the Company, threatened, at law, in equity, in
arbitration or before any governmental entity or authority to which the Company
is a party or of which any property owned or leased by the Company is the
subject, which actions, suits or proceedings could reasonably be expected to
have a Material Adverse Effect. No injunction, writ, temporary restraining
order, decree or any order of any nature has been issued by any court or other
governmental entity or authority purporting to enjoin or restrain the execution,
delivery or performance of this Agreement or the Registration Rights Agreement.

     4.6 COMPLIANCE WITH LAWS. The Company is in compliance in all material
respects with all laws applicable to the Company's business.

     4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 2004, the
Company has not sustained or incurred any event or change that could reasonably
be expected to have a Material Adverse Effect or to materially and adversely
effect the transactions contemplated by this Agreement and the Registration
Rights Agreement.

     4.8 SUBSIDIARIES. The Company does not own of record or beneficially,
directly or indirectly, (i) any shares of capital stock or securities
convertible into capital stock of any other corporation, or (ii) any equity,
voting or participating interest in any limited liability company, partnership,
joint venture or other non-corporate business enterprise.


                                      -3-



     4.9  CAPITALIZATION; STOCKHOLDERS' LIST.

          (a) As of the Closing Date, the authorized capital stock of the
Company will consist of 45,000,000 shares of Common Stock. The Company has no
shares of capital stock held in treasury. As of the Closing Date, after giving
effect to the transactions contemplated hereby, there will be: (i) 42,807,368
shares of Common Stock issued and outstanding; and (ii) 6,732,500 shares of
Common Stock reserved for issuance pursuant to the exercise of stock options and
warrants. All outstanding shares of capital stock of the Company are, and the
Shares, when issued, will be, validly issued, fully paid and nonassessable, and
the issuance of the foregoing has not been or will not be, as the case may be,
subject to preemptive rights in favor of any person or entity under law or
through the Company and will not result in the issuance of any additional shares
of capital stock of the Company or the triggering of any anti-dilution or
similar rights contained in any outstanding options, warrants, debentures or
other securities or agreements of the Company. The Company agrees to solicit
stockholder approval at the 2005 Annual Meeting of the Company's stockholders in
order to ensure that the authorized capital stock of the Company covers all of
the Shares and the shares of Common Stock that are issuable upon the exercise of
outstanding options and warrants granted or issued by the Company.

          (b) On the Closing Date, except for the options and warrants referred
to in Section 4.9(a), there will be no outstanding securities convertible into
or exchangeable for capital stock of the Company, no options, warrants or other
rights to purchase or subscribe for capital stock of the Company or contracts,
commitments or agreements to which the Company is a party relating to the
issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights.

     4.10 PRIVATE OFFERING. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the transactions contemplated hereby. The Company has not taken and will not
take any action to sell, offer for sale or solicit offers to buy any securities
of the Company that would cause the offer, issuance or sale of the Shares, as
contemplated by this Agreement, to fail to qualify for the exemption of Section
4(2) of the Securities Act of 1933, as amended (the "SECURITIES ACT").

     4.11 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Company or any action taken by the Company.

     4.12 ADDITIONAL INFORMATION. The information contained in the documents
(the "SEC REPORTS") filed by the Company with the Securities and Exchange
Commission in 2003, 2004 and 2005, as such documents may have been amended or
supplemented, pursuant to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), does not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading, as of their respective
filing dates, or if amended, as so amended. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder applicable to


                                      -4-



the SEC Reports. The financial statements of the Company included in the SEC
Reports were prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments).

     4.13 INTELLECTUAL PROPERTY.

          (a) The Company has ownership, license or legal right to use all
material patent, copyright, trade secret and trademark rights necessary to the
conduct of the business of the Company as now conducted (collectively,
"INTELLECTUAL PROPERTY"), other than intellectual property generally available
on commercial terms from other sources.

          (b) As to all material licenses or other material agreements under
which (i) the Company is granted rights in Intellectual Property, other than
intellectual property generally available on commercial terms from other
sources, or (ii) the Company has granted rights to others in Intellectual
Property owned or licensed by the Company, there is no material default or
breach thereof by the Company or, to the knowledge of the Company, any other
party thereto.

          (c) The business, activities and products of the Company do not
materially infringe any material intellectual property of any other person. The
Company is not, to its knowledge, making unauthorized use of any confidential
information or trade secrets of any other person.

          (d) There is not pending or, to the Company's knowledge, threatened
any claim, suit or action against the Company contesting or challenging the
rights of the Company in or to any Intellectual Property or the validity of any
of the Intellectual Property.

          (e) To the Company's knowledge, there is no infringement upon or
unauthorized use by any third party of any of its Intellectual Property.

     4.14 FORM SB-2 ELIGIBILITY. The Company is currently eligible to register
the resale of the Common Stock on a registration statement on Form SB-2 under
the Securities Act.

     4.15 OTC BULLETIN BOARD. The Common Stock was quoted on the OTC Bulletin
Board on March 3, 2005.

     4.16 INVESTMENT COMPANY ACT. The Company is not an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.

     4.17 FORM 8-K. The Company agrees to file a Current Report on Form 8-K
under Section 13 or 15(d) of the Exchange Act within four (4) business days
following the Closing to report the transactions contemplated hereby.


                                      -5-



     4.18 SBIC COMPLIANCE. The Company shall furnish to a Purchaser all
information in respect of the Company that such Purchaser may reasonably request
from time to time in order to help it maintain its license by the U.S. Small
Business Administration as a small business investment company pursuant to the
Small Business Investment Act of 1958, as amended, and the regulations
promulgated thereunder, 13 C.F.R. Section 107 et seq.

     4.19 BOARD DESIGNEE. The Company acknowledges and agrees that Psilos Group
Partners II SBIC, L.P. ("Psilos") shall be entitled to designate one person for
election to the Company's board of directors in the event that Albert S. Waxman
resigns or is removed from the Company's board of directors.

     4.20 ISSUANCE OF ADDITIONAL SECURITIES BY COMPANY. The Company shall not
without the prior consent of Psilos, at any time following the Closing Date and
prior to the expiration of the one hundred and eighty (180) day period following
the date that the Commission shall have declared effective any registration
statement filed by the Company covering the resale by Psilos of the Shares
purchased hereunder, issue any shares of Common Stock or securities convertible
into, exercisable for, or exchangeable for Common Stock for a consideration per
share less than $0.25 per share of Common Stock (subject to adjustments for any
stock splits, recapitalizations, stock dividends or similar events); provided,
however, that the foregoing restriction shall not apply to any security (i)
issued as a stock dividend, or in connection with a recapitalization, stock
split or similar event, (ii) issued pursuant to subscriptions, warrants,
options, convertible securities, convertible notes or other rights that are
outstanding on the date hereof, (iii) issued or reserved for issuance under the
Company's employee option and related plans as may be approved by the Company's
Board of Directors and the Company's stockholders from time to time hereafter,
(iv) issued under employment or consulting agreements executed with persons who
are not employees of the Company as of the date hereof or (v) issued to
financial institutions, lessors or vendors that are unrelated third parties in
connection with a bona fide provision of credit or services to the Company as
approved by the board of directors of the Company.

                                   ARTICLE 5

                           REPRESENTATIONS, WARRANTIES
                         AND COVENANTS OF THE PURCHASERS

          Each Purchaser severally, and not jointly, hereby represents, warrants
and covenants to the Company as follows:

     5.1 AUTHORIZATION; NO CONTRAVENTION. The Purchaser: (i) if a natural
person, represents that the Purchaser has reached the age of 21 and has full
power and authority to execute and deliver this Agreement and the Registration
Rights Agreement and to carry out the provisions hereof and thereof; (ii) if a
corporation, partnership, limited liability company or partnership, association,
joint stock company, trust, unincorporated organization or other entity,
represents that such entity was not formed for the specific purpose of acquiring
the Shares, such entity is duly organized, validly existing and in good standing
under the laws of the state of its organization. The execution, delivery and
performance by it of this Agreement and the Registration Rights Agreement: (a)
is within its power and authority and has been duly


                                      -6-



authorized by all necessary action; (b) does not contravene the terms of its
organizational documents or any amendment thereof; and (c) will not violate,
conflict with or result in any breach or contravention of any material
agreement, or any order or decree directly relating to it.

     5.2 BINDING EFFECT. This Agreement has been, and the Registration Rights
Agreement will be, duly executed and delivered by such Purchaser and, assuming
the valid execution and delivery by the Company, this Agreement constitutes, and
the Registration Rights Agreement will constitute, the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser by the Company in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally or by general principles of equity.

     5.3 NO LEGAL BAR. The execution, delivery and performance of this Agreement
and the Registration Rights Agreement by it will not violate any law applicable
to it.

     5.4 ACCREDITED INVESTOR. It is an "accredited investor" as such term is
defined in Regulation D under the Securities Act. The Purchaser understands that
the Shares are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of the Securities Act, the rules and
regulations promulgated thereunder and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Purchaser's
compliance with, the representations, warranties, agreements and acknowledgments
of the Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to acquire the Shares.

     5.5 PURCHASE FOR OWN ACCOUNT. The Shares are being or will be acquired for
its own account and the Purchaser will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Shares, except in
compliance with each of the Securities Act and the rules and regulations
promulgated thereunder, the provisions hereof and all other applicable laws. If
the Purchaser should in the future decide to dispose of any of the Shares, the
Purchaser understands and agrees that it may do so only in compliance with the
Securities Act, applicable state securities laws and any other applicable law,
as then in effect.

     5.6 CONFIDENTIALITY. The Purchasers agree to keep strictly confidential all
information concerning this Agreement and the transactions contemplated hereby.
Such Purchaser hereby acknowledges that it is prohibited from reproducing and/or
distributing this Agreement, the Registration Rights Agreement and any other
materials or other information provided by the Company in connection with the
Purchaser's consideration of its investment in the Company, in whole or in part,
or divulging or discussing any of their contents to third parties. Further, the
Purchaser understands that the existence and nature of all conversations and
presentations, if any, regarding the Company and the transactions contemplated
hereby must be kept strictly confidential. The foregoing restrictions set forth
in this Section 5.6 shall be applicable in respect of any information concerning
this Agreement and/or the transactions contemplated hereby only until such time
as the Company shall have publicly disclosed such information. The Purchaser
understands that Federal securities laws impose restrictions on trading based on
information regarding the transactions contemplated hereby. In particular, the
Purchaser hereby acknowledges that disclosure of information regarding the
transactions


                                      -7-



contemplated hereby may cause the Company to violate Regulation FD and agrees
not to engage in any unauthorized or unlawful disclosure.

     5.7 RISKS OF INVESTMENT. The Purchaser understands that its investment in
the Shares involves a significant degree of risk and uncertainty and that the
market price of the Common Stock has been and may continue to be volatile and
that no representation or warranty is being made as to the future value or
trading volume of the Common Stock. The Purchaser has the knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Shares and has the ability to bear the
full economic risks of an investment in the Shares. The Purchaser is not relying
on the Company or any of its employees, representatives or agents with respect
to the legal, tax and/or related considerations as to an investment in the
Shares, and the Purchaser has relied on the advice of, or has consulted with,
its own advisors only.

     5.8 INVESTMENT DECISION. The Purchaser is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to
investments representing an investment decision like that involved in the
purchase of the Shares and has requested, received, reviewed and considered all
information it deems relevant in making an informed decision to purchase the
Shares. The Purchaser has, in connection with its decision to purchase the
Shares, relied solely upon the representations and warranties of the Company
contained herein and the Purchaser is unaware of, is in no way relying on, and
did not become aware of the transactions contemplated hereby through or as a
result of, any form of general solicitation or general advertising including,
without limitation, any article, notice, advertisement or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, in connection with the transactions contemplated hereby and
is not subscribing for Shares, and did not become aware of the transactions
contemplated hereby, through or as a result of any seminar or meeting to which
the Purchaser was invited by, or any solicitation of a subscription by, a person
not previously known to the Purchaser in connection with investments in
securities generally.

     5.9 RESTRICTIVE LEGEND. The Purchaser understands that, until such time as
a registration statement pursuant to the Securities Act has been declared
effective or the Shares may be sold pursuant to Rule 144(k) under the Securities
Act without any restriction as to the number of securities as of a particular
date that can then be immediately resold, the certificate(s) representing the
Shares shall bear a restrictive legend in substantially the following form (and
a stop-transfer order may be placed against transfer of the certificates for the
securities comprising the Shares):

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE
     SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
     STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN
     FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY, THAT
     REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
     144(K) UNDER SAID ACT.


                                      -8-



     5.10 TRANSFER RESTRICTIONS.

          (a) Each Purchaser hereby covenants with the Company not to effect any
resale or other disposition of any of the Shares without complying with the
provisions of this Agreement, and without effectively causing any prospectus
delivery requirement under the Securities Act to be satisfied, and the Purchaser
acknowledges and agrees that such Shares are not transferable on the books of
the Company unless (i) the Shares have been sold in accordance with an effective
registration statement or valid exemptions from registration under the
Securities Act and any applicable state securities or "blue sky" laws, (ii)
prior to such time that a registration statement shall have become effective
under the Securities Act, the Purchaser shall have furnished the Company with an
opinion of Counsel, reasonable satisfactory to the Company, that such
disposition will not require registration of the Shares under the Securities Act
and (iii) if applicable, the requirement of delivering a current prospectus has
been satisfied. The Purchaser acknowledges that there is no assurance that a
registration statement shall be declared effective by the Commission.

     5.11 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Purchaser or any action taken by it.

     5.12 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT. No approval, consent,
exemption, authorization or other action by, or notice to, or filing with, any
governmental entity or authority or any other person or entity in respect of any
law, and no lapse of a waiting period under any law, is required in connection
with the execution, delivery or performance by it or enforcement against it of
this Agreement, the Registration Rights Agreement or the transactions
contemplated hereby and thereby.

                                   ARTICLE 6

                                  MISCELLANEOUS

     6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties made herein (including in the Disclosure Schedule) shall survive
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby for a period of twelve (12) months.

     6.2 NOTICES. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier (with receipt
confirmed), courier service or personal delivery:

          (a) if to a Purchaser, at its address as set forth on its signature
          page hereto;


                                      -9-



          (b) if to the Company:

              Orthometrix, Inc.
              106 Corporate Park Drive, Suite 102
              White Plains, NY 10604
              Telecopier No.: 914-694-2286
              Attention: Reynald Bonmati, President

              with a copy to:

              Kirkpatrick & Lockhart Nicholson
              Graham LLP
              599 Lexington Avenue
              New York, NY 10022-6030
              Telecopier No.: 212-536-3901
              Attention: John D. Vaughan, Esq.

          All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if mailed, five
business days after being deposited in the mail, postage prepaid; or if
telecopied, when receipt is acknowledged.

     6.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties hereto.
This Agreement and rights of the Purchasers hereunder may be assigned by the
Purchasers only with the prior written consent of the Company and in accordance
with the terms hereof, including, without limitation, Section 5.10 hereof. No
person or entity other than the parties hereto and their successors and
permitted assigns is intended, or should be construed, to be a beneficiary of
this Agreement or the Registration Rights Agreement.

     6.4 AMENDMENT AND WAIVER.

          (a) No failure or delay on the part of any of the parties hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the parties
hereto at law, in equity or otherwise.

          (b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by any party from the terms of any provision of this
Agreement, shall be effective (i) only if it is made or given in writing and
signed by the Company and all of the Purchasers and (ii) only in the specific
instance and for the specific purpose for which made or given. No amendment,
supplement or modification of or to any provision of this Agreement or the
Registration Rights Agreement or any waiver of any such provision or consent to
any departure by any party from the terms of any such provision may be made
orally.


                                      -10-



     6.5 SIGNATURES; COUNTERPARTS. Telefacsimile transmissions of any executed
original document and/or retransmission of any executed telefacsimile
transmission shall be deemed to be the same as the delivery of an executed
original. At the request of any party hereto, the other parties hereto shall
confirm telefacsimile transmissions by executing duplicate original documents
and delivering the same to the requesting party or parties. This Agreement may
be executed in counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.

     6.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

     6.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN
ACCORDANCE WITH, AND ENFORCED UNDER, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY
WITHIN SUCH STATE.

     6.8 JURISDICTION, WAIVER OF JURY TRIAL, ETC.

          (a) EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT THE
ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
SHARES, OR ANY AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY SHALL
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN MANHATTAN OR OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND HEREBY
EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE
PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM
THAT SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 6.2,
SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING.

          (b) THE PARTIES HEREBY WAIVE THEIR RIGHTS TO A JURY TRIAL WITH RESPECT
TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS
AGREEMENT, THE SHARES OR THE REGISTRATION RIGHTS AGREEMENT, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS.

     6.9 SEVERABILITY. If any one or more of the provisions contained in this
Agreement, or the application thereof in any circumstance, is held by a court of
competent jurisdiction invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision(s) in
every other respect and of the remaining provisions hereof shall not be in any
way impaired, unless the provisions held invalid, illegal or unenforceable shall
substantially impair the benefits of the remaining provisions of this


                                      -11-



Agreement. The parties hereto further agree to replace such invalid, illegal or
unenforceable provision(s) of this Agreement with a valid, legal and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such invalid, illegal or unenforceable provision.

     6.10 ENTIRE AGREEMENT. This Agreement, including the exhibits and schedule
hereto, and the Registration Rights Agreement are intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or expressly
referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto, and the Registration Rights Agreement supersede all prior
agreements and understandings between the parties with respect to such subject
matter.

     6.11 FURTHER ASSURANCES. Each of the parties shall execute such documents
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations, or other actions by, or giving any notices
to, or making any filings with, any governmental entity or authority or any
other person or entity) as may be reasonably required to carry out or to perform
the provisions of this Agreement.

     6.12 NO STRICT CONSTRUCTION. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and the Registration Rights
Agreement. In the event an ambiguity or question of intent or interpretation
arises under any provision of this Agreement or the Registration Rights
Agreement, this Agreement or the Registration Rights Agreement shall be
construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of such agreements.


                                      -12-



          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers or other representatives
hereunto duly authorized as of the date first above written.

                              ORTHOMETRIX, INC.


                              By: /s/ Reynald Bonmati
                                  -------------------------------
                                  Name: Reynald Bonmati
                                  Title: President

Print or type:                Name of Purchaser
                              (Individual or Institution):

                              PSILOS GROUP PARTNERS II SBIC, L.P.

                              Number of Shares Purchaser Elects to Purchase at a
                              Price of $0.25 per Share:

                              4,000,000 Shares

                              Aggregate Purchase Price:

                              4,000,000 Shares x $0.25 Share Price = $1,000,000

                              Name of Individual Representing Purchaser
                              (IF AN INSTITUTION): Jeffrey Krauss

                              Title of Individual Representing Purchaser
                              (IF AN INSTITUTION): Partner


Signature by:                 Individual Purchaser, or Individual Representing
                              Purchaser: Jeffrey Krauss

                              Address:
                                       -----------------------------------------
                                       -----------------------------------------
                                       -----------------------------------------
                              Telephone:
                                         ---------------------------------------
                              Facsimile:
                                         ---------------------------------------

                  [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]



          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers hereunto duly authorized
as of the date first above written.

                              ORTHOMETRIX, INC.


                              By: /s/ Reynald Bonmati
                                  -------------------------------
                                  Name: Reynald Bonmati
                                  Title: President

Print or type:                Name of Purchaser
                              (Individual or Institution):

                              Reynald Bonmati

                              Number of Shares Purchaser Elects to Purchase at a
                              Price of $0.25 per Share:

                              400,000 Shares

                              Aggregate Purchase Price:

                              400,000 Shares x $0.25 Share Price = $100,000

                              Name of Individual Representing Purchaser
                              (IF AN INSTITUTION):

                              Title of Individual Representing Purchaser
                              (IF AN INSTITUTION):


Signature by:                 Individual Purchaser, or Individual Representing
                              Purchaser:

                              Address:
                                       -----------------------------------------
                                       -----------------------------------------
                                       -----------------------------------------
                              Telephone:
                                         ---------------------------------------
                              Facsimile:
                                         ---------------------------------------

                  [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]


                                   SCHEDULE A

                               DISCLOSURE SCHEDULE



                                    EXHIBIT A

                          REGISTRATION RIGHTS AGREEMENT

          AGREEMENT (this "AGREEMENT"), dated as of March 3, 2005, by and among
Orthometrix, Inc., a Delaware corporation (the "COMPANY"), and the purchasers
whose names and addresses are set forth on the signature pages hereto
(collectively, the "PURCHASERS" and individually, a "PURCHASER").

                                   WITNESSETH:

          WHEREAS, pursuant to the terms of the Stock Purchase Agreement, dated
as of the date hereof, by and between the Company and the Purchasers (the
"PURCHASE AGREEMENT"), each Purchaser will purchase from the Company the number
of shares of Common Stock (as such term is defined herein) set forth on its
signature page of the Purchase Agreement (the "SHARES"); and

          WHEREAS, the Company and the Purchasers desire to provide for the
circumstances under which the Company will register the Shares on behalf of the
Purchaser.

          NOW, THEREFORE, as an inducement to each Purchaser to consummate the
transactions contemplated by the Purchase Agreement and in consideration of the
premises and of the mutual covenants and obligations hereinafter set forth, the
Company hereby covenants and agrees with the Purchasers, and with each
subsequent holder of Restricted Securities (as such term is defined herein), as
follows:

     SECTION 1. DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:

               "COMMISSION" shall mean the Securities and Exchange Commission.

               "COMMON STOCK" shall mean the shares of common stock, $0.0005 par
     value per share, of the Company, and any class or series of common stock of
     the Company authorized after the date hereof, or any other class or series
     of stock resulting from successive changes or reclassifications of any
     class or series of common stock of the Company.

               "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
     amended.

               "REGISTRATION EXPENSES" shall mean the expenses so described in
     Section 5 hereof.

               "RESTRICTED STOCK" shall mean the Shares and any capital stock or
     other securities issued or issuable with respect to such Shares by way of a
     stock dividend or stock split or in connection with a combination of
     shares, recapitalization, merger, share


                                      A-1



     exchange, consolidation or other reorganization.

               "SECURITIES ACT" shall mean the Securities Act of 1933, as
     amended.

               "SELLING EXPENSES" shall mean the expenses so described in
     Section 5 hereof.

               "SHARES" shall have the meaning ascribed to such term in the
     first Whereas clause.

     SECTION 2. REGISTRATION COVENANT

          (a) Subject to the receipt by the Company of information reasonably
requested from the Purchasers, on or before the nine (9) month anniversary of
the date of this Agreement (the "9 MONTH ANNIVERSARY"), the Company shall file
with the Commission a registration statement pursuant to Rule 415 under the
Securities Act covering the resale by the Purchasers of the Restricted Stock.

          (b) The Company shall provide any registration statement to be filed
pursuant to Section 2 hereof (the "SECTION 2 REGISTRATION STATEMENT"), each
amendment or supplement thereto, any comment letter of the Commission thereto
and each request for acceleration of effectiveness thereof to the Purchasers and
their counsel for their review at least two (2) business days prior to the
filing or other submission of such registration statement.

          (c) The Company shall use its reasonable best efforts, subject to
receipt of any information reasonably requested from the Purchasers, to respond
to the Commission within two (2) weeks of the receipt of any comment letter of
the Commission to any Section 2 Registration Statement filed by the Company.

          (d) The Company shall use its reasonable best efforts, subject to
receipt of any information reasonably requested from the Purchasers, to cause
the Commission to declare the Section 2 Registration Statement effective as soon
as practicable and in any event within one hundred and twenty (120) days of the
Closing Date (the "REGISTRATION DEADLINE"). Within five (5) business days after
the Company learns that no review of such registration statement will be made by
the staff of the Commission or that the staff of the Commission has no further
comments on the Section 2 Registration Statement, as the case may be, the
Company shall use its reasonable best efforts to a submit to the Commission a
request for acceleration of effectiveness of the registration statement to a
time and date not later than two (2) business days after the submission of such
request.

          (e) If the Section 2 Registration Statement is not filed by the
Company with the Commission by the 9 Month Anniversary substantially due to
action or inaction on the part of the Company in violation of Section 2(a)
hereof and/or if the Section 2 Registration Statement is not declared effective
by the Commission on or before the Registration Deadline substantially due to
action or inaction on the part of the Company in violation of Section 2(d)
hereof, the Company shall make payments to the Purchasers in such amounts and at
such times as shall be determined as follows as relief for the damages to the
Purchasers by reason of any such delay in or reduction of their ability to sell
the Shares: the Company shall pay to each Purchaser an


                                      A-2



amount equal to (i) the Purchase Price paid by the Purchaser for its purchase of
Shares, multiplied by (ii) one percent (1%), multiplied by (iii) the sum of (x)
the quotient calculated by dividing (A) the number of days after the 9 Month
Anniversary the Section 2 Registration Statement is filed with the Commission by
(B) fifteen (15), plus (y) the quotient calculated by dividing (A) the number of
days after the Registration Deadline and prior to the date the Section 2
Registration Statement is declared effective by the Commission by (B) fifteen
(15); provided, however, that the Company shall not be obligated to make any
such payments where the Company shall not be obligated to file a Section 2
Registration Statement in accordance with the provisions of Section 2(f) hereof;
provided, further, that any such payments shall be made in full compensation to
the Purchasers and shall constitute each Purchaser's exclusive remedy for any
losses that such Purchaser may sustain as a result of the Company's failure to
file the Section 2 Registration Statement in accordance with Section 2(a) hereof
and/or as a result of the Company's failure to cause the Section 2 Registration
Statement to be declared effective by the Commission in accordance with Section
2(d) hereof; provided, further, that the Company shall not be obligated under
any circumstances to make any payments under this Section 2(e) in an aggregate
amount in excess of one hundred thousand dollars ($100,000). Any payments to be
made by the Company under this Section 2(e) shall be paid on the last business
day of each month in which such amount is due.

          (f) The Company shall not be obligated to file or effect a Section 2
Registration Statement:

               (i) If the Company shall have at any time after the date hereof
and prior to the 9 Month Anniversary filed a registration pursuant to Section
3(a) hereof which shall have covered all of the shares of the Restricted Stock
held by such Purchaser; or

               (ii) If (x) the Board of Directors of the Company (the "Board")
determines, in its reasonable business judgment, that it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be effected in the near future or (y) the Company shall have, after the date
hereof and prior to the 9 Month Anniversary, commenced or proposed a
registration that is an underwritten public offering; provided that, the
Company's obligation to use its best efforts to register under Section 2(a)
above shall be deferred for a period not to exceed forty-five (45) days from the
date of receipt of written request from any Purchaser.

     SECTION 3. PIGGYBACK REGISTRATION.

          (a) If the Company at any time proposes to register any of its
securities under the Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Form S-8 or another form, which is not
available for registering Restricted Stock for sale to the public), each such
time it will give prompt written notice to each Purchaser of its intention to do
so. Upon the written request of any Purchaser, given within twenty (20) days
after the date of any such notice, to register any of its Restricted Stock
(which request shall state the intended method of disposition thereof), the
Company will use its best efforts to cause the Restricted Stock as to which
registration shall have been so requested to be included in the securities to be
covered by the registration statement proposed to be filed by the Company, all
to the extent requisite to permit the sale or other disposition by such
Purchaser (in accordance with its written request) of


                                      A-3



such Restricted Stock so registered. The Company may withdraw any such
registration statement before it becomes effective or postpone the offering of
securities contemplated by such registration statement without any obligation to
any Purchaser.

          (b) In the event that any registration pursuant to this Section 3
shall be, in whole or in part, an underwritten public offering of Common Stock,
the right of the Purchasers to registration pursuant to this Section 3 shall be
conditioned upon the Purchasers' participation in such underwriting and the
inclusion of Restricted Stock in the underwriting shall be limited to the extent
provided herein. If any Purchaser proposes to distribute its securities through
such underwriting, it shall (together with the Company) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. The number of shares of Common Stock,
including, without limitation Restricted Stock, to be included in such an
underwriting may be reduced if the managing underwriter shall be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the amount of Restricted
Stock shall not be reduced if any shares of Common Stock are to be included in
such underwriting for the account of any person other than the Company or the
Purchasers.

          (c) Notwithstanding anything to the contrary contained in this Section
3, in the event that there is an underwritten offering of securities of the
Company pursuant to a registration statement covering Restricted Stock and a
Purchaser does not elect to sell its Restricted Stock to the underwriters of the
Company's securities in connection with such offering, such Purchaser shall
refrain from selling such Restricted Stock not registered pursuant to this
Section 3 during the period of distribution of the Company's securities by such
underwriters and the period in which the underwriting syndicate participates in
the after market; provided, however, that such holder shall, in any event, be
entitled to sell its Restricted Stock commencing on the 120th day after the
effective date of such registration statement.

     SECTION 4. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions hereof to use its best efforts to effect a registration
statement covering any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:

          (a) use its best efforts to cause such registration statement to
remain effective for the period of distribution contemplated thereby (determined
as hereinafter provided);

          (b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 4(a) above and as to comply with the provisions
of the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the Purchasers'
intended method of disposition set forth in such registration statement for such
period;

          (c) furnish to each Purchaser and to each underwriter such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus and any amendment or supplement thereto)
and such other documents as such persons may reasonably request in order to
facilitate the public sale or other disposition of the Restricted Stock covered
by such registration statement;


                                      A-4



          (d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as the Purchasers, or, in the case of an underwritten public
offering, the managing underwriter shall reasonably request and do any and all
other acts and things which are reasonably necessary or advisable to enable each
Purchaser to consummate the disposition in such jurisdictions of the Restricted
Stock owned by such Purchaser (provided that the Company will not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection or (ii) consent to
general service of process (i.e., service of process which is not limited solely
to securities law violations) in any such jurisdiction);

          (e) immediately notify the Purchasers under such registration
statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing and, at the request of a Purchaser, the Company will promptly
prepare a supplement or amendment to such registration statement so that, as
thereafter delivered to the Purchasers, such registration statement will not
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading.

          For purposes of Sections 4(a) and 4(b) above, the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the date (x) as of which all shares of Restricted Stock owned by
the Purchasers shall have been resold and (y) on which the shares of Restricted
Stock may be resold without registration by reason of Rule 144(k) under the
Securities Act.

          Each Purchaser acknowledges that there may be times when the Company
must suspend the use of the prospectus forming a part of either of a
registration statement (a "SUSPENSION") until such time as an amendment to a
registration statement has been filed by the Company and declared effective by
the Commission, or until such time as the Company has filed an appropriate
report with the Commission pursuant to the Exchange Act or appropriately
supplemented the prospectus forming a part of such registration statement. The
Purchaser hereby covenants that it will not sell any Shares pursuant to said
prospectus during the period commencing at the time that the Company gives the
Purchaser written notice of the Suspension of the use of said prospectus and
ending at the time that the Company gives the Purchaser written notice that the
Purchaser may thereafter effect sales pursuant to said prospectus; provided,
however, that the Registration Statement shall be suspended for a total of no
more than three (3) fifteen (15) day periods during any twelve (12) month
period.

          In connection with each registration hereunder, each Purchaser will
furnish to the Company such information with respect to itself and the proposed
distribution by it as shall be necessary in order to assure compliance with
Federal and applicable state securities laws.


                                      A-5



          In connection with each registration pursuant to Section 4 hereof
covering an underwritten public offering, the Company agrees to enter into such
customary agreements (including underwriting agreements) as the managing
underwriter selected in the manner herein provided may request in such form and
containing such provisions as are customary in the securities business for such
an arrangement between major underwriters and companies of the Company's size
and investment stature, provided that such agreement shall not contain any such
provision applicable to the Company which is inconsistent with the provisions
hereof.

          Each Purchaser and its permitted transferees, receiving any written
notice from the Company regarding the Company's plans to file a registration
statement shall treat such notice confidentially and shall not disclose such
information to any person other than as necessary to exercise its rights under
this Agreement.

     SECTION 5. EXPENSES. All expenses incurred by the Company in complying with
Sections 2 and 3 hereof, including, without limitation, all registration and
filing fees, fees and expenses of compliance with securities and blue sky laws,
fees and expenses in connection with any listing of the Common Stock on a
securities exchange or inter-dealer quotation system, printing expenses, fees
and disbursements of counsel and independent public accountants for the Company
and the fees and disbursements of the underwriters, fees of the National
Association of Securities Dealers, Inc., transfer taxes and fees of transfer
agents and registrars, but excluding any Selling Expenses (as defined below),
are herein called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Restricted Stock are herein called
"Selling Expenses." The Company will pay all Registration Expenses in connection
with any Section 2 Registration Statement filed by it. In addition, the Company
shall pay the reasonable legal fees of one counsel for the Purchasers (as
designated by a majority in interest of the Purchasers); provided, however, that
the Company shall not be obligated to pay for more than $35,000 in such legal
fees. All Selling Expenses incurred in connection with any sale of Restricted
Stock by a Purchaser shall be borne by it, or by such persons other than the
Company (except to the extent the Company shall be a seller) as they may agree.

     SECTION 6. INDEMNIFICATION.

          (a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to this Agreement, the Company will indemnify
and hold harmless each Purchaser and each underwriter of such Restricted Stock
thereunder and their respective officers, directors and employees and each other
person, if any, who controls such seller or underwriter within the meaning of
the Securities Act, against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which such person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Restricted Stock was registered
under the Securities Act pursuant hereto, any preliminary prospectus or final
prospectus contained therein, any amendment or supplement thereof, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each such person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, expense or action; provided,
however, that the


                                      A-6



Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such person in writing specifically for
use in such registration statement or prospectus, (ii) the failure of such
Purchaser to comply with the covenants and agreements contained in this
Agreement or the Purchase Agreement or to perform its obligations under law,
(iii) the inaccuracy of any representations or warranties made by such Purchaser
in this Agreement or the Purchase Agreement or (iv) any statement or omission in
any prospectus or any amendment or supplement thereto that is corrected in any
subsequent prospectus or any amendment or supplement thereto that was delivered
to the Purchaser reasonably prior to the pertinent sale or sales by the
Purchaser.

          (b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant hereto, each Purchaser will severally, but not
jointly, indemnify and hold harmless the Company and each person, if any, who
controls the Company within the meaning of the Securities Act, each officer of
the Company who signs the registration statement, each director of the Company,
each underwriter and each person who controls any underwriter within the meaning
of the Securities Act, against all losses, claims, damages, expenses or
liabilities, joint or several, to which the Company or such officer or director
or underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages, expenses or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
registration statement under which such Restricted Stock was registered under
the Securities Act pursuant hereto, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that such
Purchaser will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to the
Purchaser, as such, furnished in writing to the Company by the Purchaser
specifically for use in such registration statement or prospectus; provided,
further, that the liability of such Purchaser hereunder shall not exceed the
proceeds received by such Purchaser from the sale of Restricted Stock covered by
such registration statement.

          (c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party under this Section 6. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from the indemnifying party to such


                                      A-7



indemnified party of its election to assume and undertake the defense thereof,
the indemnifying party shall not be liable to such indemnified party under this
Section 6 for any legal expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected; provided, however, that,
if the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the other party or parties thereto or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of the
other party or parties thereto or if the action shall involve equitable claims,
criminal claims or administrative proceedings, the indemnified party shall have
the right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.

          (d) Notwithstanding the foregoing, any indemnified party shall have
the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified party as aforesaid, (ii) the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the other party or parties
thereto or that the interests of the indemnified party conflict with the
interests of the other party or parties thereto, or (iii) the indemnifying party
and such indemnified party shall have mutually agreed to the retention of such
counsel. It is understood that the indemnifying party shall not, in connection
with any action or related actions in the same jurisdiction, be liable for the
fees and disbursements of more than one separate firm qualified in such
jurisdiction to act as counsel for the indemnified party. The indemnifying party
shall not (i) without the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding,
or (ii) be liable for any settlement of any proceeding effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. If the
indemnification provided for in subsections (a) and (b) of this Section 6 is
unavailable to or insufficient to hold harmless an indemnified party under such
subsections in respect of any losses, claims, damages or liabilities or actions
referred to therein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
actions in such proportion as appropriate to reflect the relative fault of the
Company, on the one hand, and each Purchaser, on the other, in connection with
the statement or omissions which resulted in such losses, claims, damages,
liabilities or actions, as well as any other relevant equitable considerations
including, without limitation, the failure to give any notice under this Section
6. The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to


                                      A-8



information supplied by the Company, on the one hand, or by each Purchaser, on
the other hand, and to the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

          (e) The Company and the Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 6 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or action referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this and the immediately preceding paragraph,
neither Purchaser shall be required to contribute any amount in excess of the
amount, if any, by which the total price at which the Common Stock sold by it
was offered to the public exceeds the amount of any damages which it would have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The indemnification of underwriters provided for in this
Section 6 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters and the indemnification
of the Purchasers in such underwriting shall, at the Purchasers' request, be
modified to conform to such terms and conditions.

          The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of securities.

     SECTION 7. CHANGES IN COMMON STOCK. If, and as often as, there are any
changes in the Common Stock by way of stock split, stock dividend, combination
or reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted by this Agreement shall continue with respect to the Common Stock as so
changed.

     SECTION 8. RULE 144 REPORTING. The Company agrees with the Purchaser as
follows:

          (a) The Company shall make and keep current public information
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times after it has become subject to the Exchange Act.

          (b) The Company shall file with the Commission in a timely manner all
reports and other documents as the Commission may prescribe under Section 13(a)
or 15(d) of the Exchange Act, and the rules and regulations promulgated
thereunder at any time after the Company has become subject to such reporting
requirements of the Exchange Act.


                                      A-9



          (c) The Company shall furnish to the Purchaser forthwith upon request
(i) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 and of the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of the Company, and (iii) such other reports and
documents so filed as the Purchaser may reasonably request to avail itself of
any rule or regulation of the Commission allowing the Purchaser to sell any
shares of Restricted Stock without registration.

     SECTION 9. MISCELLANEOUS.

          (a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and "permitted assigns" of the parties hereto whether so
expressed or not. "Permitted assigns" shall mean the Purchaser's partners,
stockholders or members. Without limiting the generality of the foregoing, the
registration rights conferred herein on the Purchasers shall inure to the
benefit of any and all subsequent holders from time to time of the Restricted
Stock.

          (b) All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier (with receipt
confirmed), courier service or personal delivery:

               if to a Purchaser, at its address as set forth
               on its signature page to the Purchase
               Agreement;

               if to the Company:

               Orthometrix, Inc.
               106 Corporate Park Drive, Suite 102
               White Plains, NY 10604
               Telecopier No.: 914-694-2286
               Attention: Reynald Bonmati, President

               with a copy to:

               Kirkpatrick & Lockhart Nicholson
               Graham LLP
               599 Lexington Avenue
               New York, NY 10022-6030
               Telecopier No.: 212-536-3901
               Attention: John D. Vaughan, Esq.

or to such other address or addresses as shall have been furnished in writing to
the other parties hereto. Each party hereto agrees, at all times, to provide the
Company with an address for notices hereunder.

          All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered
bycourier, if delivered by


                                      A-10



commercial overnight courier service; if mailed, five business days after being
deposited in the mail, postage prepaid; or if telecopied, when receipt is
acknowledged.

          (c) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH,
AND ENFORCED UNDER, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE.

          (d) (I) EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT
ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK IN MANHATTAN OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION
AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM
OF IMPROPER VENUE AND ANY CLAIM THAT SUCH COURTS ARE AN INCONVENIENT FORUM. EACH
PARTY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS
SET FORTH IN SECTION 9(C), SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH
MAILING.

               (II) THE PARTIES WAIVE THEIR RIGHTS TO A JURY TRIAL WITH RESPECT
TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS
AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS
AND OBLIGATIONS.

          (e) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be modified or amended
except in writing.

          (f) Telefacsimile transmissions of any executed original document
and/or retransmission of any executed telefacsimile transmission shall be deemed
to be the same as the delivery of an executed original. At the request of any
party hereto, the other parties hereto shall confirm telefacsimile transmissions
by executing duplicate original documents and delivering the same to the
requesting party or parties. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

          (g) If any one or more of the provisions contained in this Agreement,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions of this Agreement. The parties hereto further agree to
replace such invalid, illegal or unenforceable provision of this Agreement with
a valid, legal and enforceable


                                      A-11



provision that will achieve, to the extent possible, the economic, business and
other purposes of such invalid, illegal or unenforceable provision.


                                      A-12



          IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.

                                        ORTHOMETRIX, INC.


                                        By: /s/ Reynald Bonmati
                                            ------------------------------------
                                            Name: Reynald Bonmati
                                            Title: President


                                        PSILOS GROUP PARTNERS II SBIC, L.P.
                                        By: Psilos Group Partners II GP, LLC


                                        By: /s/ Jeffrey Krauss
                                            ------------------------------------
                                            Name: Jeffrey Krauss
                                            Title: Partner


                                            /s/ Reynald Bonmati
                                            ------------------------------------
                                            Reynald Bonmati

                [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]


                                      A-13



                                    EXHIBIT B

                               OPINION OF COUNSEL


                                       C-1

EX-31.1 7 file007.htm CERTIFICATION



                                                                    EXHIBIT 31.1

                                 CERTIFICATIONS

I, Reynald Bonmati, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Orthometrix, Inc.;

2.   Based on my knowledge, this annual 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 annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual 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 annual report;

4.   The registrant's other certifying officers and I am 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 by others within those entities, particularly during the
               period in which this annual 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 annual report (the "Evaluation Date"); and

          c)   presented in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent 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

6.   The registrant's other certifying officers and I have indicated in this
     annual 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: March 24, 2005


                                         /s/ Reynald Bonmati
                                         ---------------------------------------
                                         Reynald Bonmati
                                         President / Chief Executive Officer

EX-31.2 8 file008.htm CERTIFICATION



                                                                    EXHIBIT 31.2

                                 CERTIFICATIONS

I, Neil Koenig, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Orthometrix, Inc.;

2.   Based on my knowledge, this annual 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 annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual 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 annual report;

4.   The registrant's other certifying officers and I am 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 by others within those entities, particularly during the
               period in which this annual 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 annual report (the "Evaluation Date"); and

          c)   presented in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent 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

6.   The registrant's other certifying officers and I have indicated in this
     annual 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: March 24, 2005


                                         /s/ Neil Koenig
                                         ---------------------------------------
                                         Neil Koenig
                                         Chief Financial Officer

EX-32 9 file009.htm CERTIFICATION



                                                                      EXHIBIT 32

                                ORTHOMETRIX, INC.
                          FORM 10-KSB DECEMBER 31, 2004

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Orthometrix, Inc., (the "Company"),
on Form 10-KSB for the year ended December 31, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned, in the capacities and on the date indicated below, hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to his knowledge: (1) the Report fully complies
with the requirements of Section 13(a) or 15(d) of the Securities and Exchange
Act of 1934; and (2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.


Date: March 24, 2005                     /s/ Reynald Bonmati
                                         ---------------------------------------
                                         Reynald Bonmati
                                         Chief Executive Officer


Date: March 24, 2005                     /s/ Neil H. Koenig
                                         ---------------------------------------
                                         Neil H. Koenig
                                         Chief Financial Officer

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