<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
--------------------------------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------------------- ----------------------
Commission file number 0-15324
---------------------------------------------------------
Eye Technology, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 52-1402131
- -------------------------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
16 South Market Street, Petersburg, Virginia 23803
- -------------------------------------------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(804) 861-0681
- -------------------------------------------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
</TABLE>
Check whether the issuer: (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 9,669,740 shares of Common
Stock, $.01 par value, 250 shares of Class A Convertible Preferred Stock
(convertible into 20,000 shares of Common Stock), 13,756 shares of Series B
Convertible Preferred Stock (convertible into 45,118,720 shares of Common
Stock), outstanding as of June 30, 1998
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ ]
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
An index to the financial statements of the Company filed as a part of
this report appears at Page F-1. The financial statements of the Company appear
at Pages F-2 through F-8 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1997
The results of operations for the first six months of 1998 includes the
results of operations of Star for the entire period, consolidated with those of
ETI and its subsidiaries since the beginning of February, 1998, while results of
operations for the first six months of 1997 include only those of Star.
Net sales declined by 42.3%, or slightly more than $5 million, from the
first six months of 1997 to the first six months of 1998, which includes sales
of $390,000 of ETI. The decline in sales is attributed to: (i) the decision by
the new owners of Swisher International, Inc. to bring in-house the manufacture
of small cigars and, consequently, the loss of contract manufacturing sales to
Swisher which declined from $2.67 million in the 1997 period to less than
$20,000 in the 1998 period; (ii) lower sales of Star brand cigarettes due to
price competition from premium brand cigarette manufacturers; and (iii) a
decision by the Company's management to emphasize the development of its
proprietary tobacco processing technology as well as to bring to market a less
hazardous smoking product using its proprietary tobacco processing technology..
Costs of goods sold ("COGS") declined as a percentage of sales from
47.9% in the first half of 1997 to 44.7% in the first half of 1998. The
percentage decline reflects improvements in manufacturing efficiencies and
product configurations, as well as an increase in average profit margins per
sale due to higher average selling prices in the 1998 period compared to the
1997 period. These improvements were slightly offset by COGS of 76% in the
Company's ETI operations.
Excise taxes, as a percentage of sales, increased from 36.4% in the
first half of 1997 to 43.2% in the first half of 1998. The increase is
attributable primarily to the fact that no federal tobacco excise taxes were
payable by Star on its sales of little cigars to Swisher International, Inc. The
1997 period also included a one-time export transaction on which no excise taxes
were payable.
As a result of the above-described factors, gross profit margins of the
Company declined from 15.7% in the 1997 period to 12.1% in the 1998 period.
Marketing and distribution expenses remained essentially the same in
the two fiscal periods being compared, but, as a percentage of sales, this
category of expense increased from 4.7% in 1997 to 8.3% in 1998. The percentage
increase is attributable to three factors: (1) the effect of relatively fixed
overhead costs, which become a larger percentage of sales as sales volume
declines; (2) expenses incurred in the introduction in January 1998 of a new
product; and (3) a revised method of compensating sales persons which resulted
in higher selling expense, i.e., a shift from salary-based compensation to
commission-based compensation in order to provide greater incentive to sales
persons.
General and administrative expenses increased significantly from the
first half of 1997 to the first half of 1998--from $780,399, or 6.6% of sales,
in 1997 to $1,364,953, or 19.9% of sales in 1998. The 1998 figure includes
$398,231 incurred at ETI, of which $180,000 represents a write-off in the second
quarter of 1998 of the entire balance of the carrying value of ETI's investment
in microlamellar keratomileusis ("MKM")/laser assisted in-situ keratomileusis
("LASIK") technology resulting from the Company's decision not to invest further
in this asset. The increases are also due to the following factors: (1)
substantially higher legal and accounting expenses due primarily to the
Company's need to bring itself into compliance with Securities and Exchange
Commission reporting requirements following the "reverse acquisition" of ETI by
Star in February, 1998; (2) increased management compensation expense related to
the hiring of a new Chief Executive Officer, and (3) goodwill expense in 1998 of
$58,000 resulting from the "reverse acquisition" transaction. Moreover, the
percentage increase may be attributed in part to the fact that relatively fixed
expenses constitute a higher proportion of a lesser sales figure.
2
<PAGE> 3
Research and development expenses increased from $521,396 in the first
half of 1997 to $702,058. All of these expenses, 100% of which were incurred by
Star and not ETI, are related to the development of the Company's proprietary
technology for the elimination of nitrosamines from tobacco, and were not
related to the Company's revenue-producing operations in the two periods of 1997
and 1998 being compared.
The expense of $298,536 included under "Other" in the six-month period
of 1998 reflects primarily a non-recurring loss resulting from a sale of surplus
cigarette manufacturing equipment in the second quarter of 1998.
The extraordinary gain in 1998 of $293,606 reflects settlements with
various creditors of ETI entered into at the time of the "reverse acquisition"
transaction between Star and ETI in February, 1998.
As a result of all of the above factors, the Company's net loss
increased from $104,110 in the first half of 1997 to $1,969,260 in the first
half of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet at June 30, 1998, reflects an illiquid
position with a current asset-to-liability ratio of 1 - 2.45. Operations at Star
have been financed over the past several years primarily through borrowed funds
from institutional and private lenders and increases in accounts payable and
accrued expenses. In the first six months of 1998, borrowings were reduced
(partially through an equipment sale described above) and the Company's
dependence on trade debt and other short-term indebtedness increased. The
Company's liquidity has significantly improved, however, by the receipt of 2.5
million dollars from an equity private placement in July, 1998, described below.
Throughout 1998 until early July, the Company maintained with a bank a
revolving line-of-credit pursuant to which borrowings of up to $1.5 million were
available to the Company with advances limited by formula to specified levels of
accounts receivable and inventory of the Company's tobacco products business.
This credit facility was due to expire on June 30, 1998. The Company was in
default of certain financial covenants but not in any of the loan's repayment
terms. In early July, 1998, the bank loan was assigned to a different bank, the
loan terms were modified with the term being extended to January 1, 1999, and
existing defaults being waived.
"Intangibles" reflects primarily the recording of $764,000 of goodwill
incurred in the Company's February, 1998 "reverse acquisition" transaction. This
item is being amortized over a five-year period at the rate of $153,000 per
year, or $38,250 per quarter.
In March 1998, 2,320 shares of Class A Preferred Stock (listed as
"Redeemable preferred stock" on the balance sheet) were converted into 232,000
shares of Common Stock of the Company. Under the terms of the Class A Preferred
Stock, outstanding shares of the stock are redeemable at the option of the
holder in the event that more than $500,000 in cash in consideration for the
issuance of capital stock had been received by Eye Technology, Inc. since the
issuance date of the preferred stock. That condition was satisfied in March,
1998. Because the Company wished to conserve its cash resources, it offered to
the holders of Class A Preferred Stock (five persons) that it could convert its
shares into Common Shares at a ratio of 100-to-1 instead of the ratio of 80-to-1
as was set forth in the terms of the preferred stock. Holders of 2,320 out of
2,570 shares of Class A Preferred Stock accepted the Company's proposal. If such
holders had exercised their right to redeem such shares, rather than to convert
them, the Company would have been obligated to expend $378,624 in redemption
distributions.
As of February 9, 1998, the Company sold an additional 2,900,000 shares
of Common Stock in a private placement for $1,450,000. The proceeds were used
primarily to reduce indebtedness originally incurred for working capital
purposes, including research and development. A portion of the funds received by
the Company from this private placement, together with issuance of Common Stock
in satisfaction of accrued indebtedness, resulted in a reduction of outstanding
indebtedness of the Company of approximately $700,000.
In July, 1998, the Company sold to a single institutional investor
2,500,000 shares of Common Stock, 763 shares of Series B Preferred Stock
convertible into 2,502,640 shares of Common Stock, and a one-year warrant to
purchase 500,000 shares of Common Stock of the Company at a price of $2.00 per
share for a total price of $2,500,000. Simultaneously with that transaction,
certain controlling stockholders of the Company contributed to the Company 1,144
shares of Series B Preferred Stock convertible into 3,752,320 shares. The net
effect of these capital stock transactions was the receipt by the Company of
$2,500,000 and the increase of outstanding capital stock of 1,250,330 shares of
Common Stock on a fully-diluted basis. The Company will use the proceeds of this
equity financing primarily for continued research and development of Star's
technology for the removal from tobacco of tobacco-specific nitrosamines and for
the acquisition of tobacco-processing equipment. See "Business of Star."
3
<PAGE> 4
With the extension of the Company's bank loan and receipt of equity
funds described above, the Company believes that it has adequate working capital
for the remainder of 1998. The process of developing and commercializing the
Company's tobacco-processing technology and smoking cessation and reduced-risk
smoking products will require additional funds in 1999 and beyond. Although the
Company is unable at this time to precisely estimate its long-term funding
requirements, the Company believes that a minimum of several million dollars is
necessary, although the actual required amount of funds could be substantially
higher. The Company intends to seek such additional funding through public or
private financings, including additional bank financing arrangements, and/or
through collaboration or other arrangements with corporate partners. There can
be no assurances that such additional financing will be available from any
sources or, if available, will be available on acceptable terms or that the
Company will be able to establish corporate collaboration on acceptable terms,
or at all. Any shortfall in funding could result in the Company having to
curtail its operations including its development and commercialization
activities which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company does not intend to allocate any substantial part of its
foreseeable capital expenditures to either the conventional cigarette
manufacturing operations of Star or the operations of ETI, the latter of which
are currently cash flow negative and produce an operating loss. While the
Company believes that the deployment of capital funds by ETI, estimated at a
minimum of $250,000, may bring ETI's operations to a positive cash flow and
operating income basis, the Company has concluded that the potential return on
investment from an allocation of available funds to ETI's operations would be
less than the return from an allocation of such funds to the Company's
tobacco-processing technology. As a result of these decisions, the remaining
balance of ETI's investment in MKM/LASIK technology, that is, $187,000 at March
31, 1998, was reduced to zero at June 30, 1998.
The Company is exploring alternative strategies for the disposition or
liquidation of product lines and assets, including those of ETI, which do not
comport with and do not sufficiently contribute to the Company's emphasis on the
development and commercialization of its tobacco-processing technology, as
described above under "Overview."
PART II
OTHER INFORMATION
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K on July 10, 1998.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EYE TECHNOLOGY, INC.
Date: 11/12/98 /s/ Malcolm L. Bailey
---------------------------- ---------------------------------
President
4
<PAGE> 5
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
Condensed Consolidated Balance Sheets dated June 30, 1998 F-2
and December 31, 1997
Condensed Consolidated Statements of Operations F-3
for the Three and Six Month Periods Ended June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows F-4
for the Three and Six Month Periods Ended June 30, 1998 and 1997
Notes to Unaudited Condensed Consolidated Financial Statements F-6
</TABLE>
F-1
<PAGE> 6
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
Assets (Unaudited) 1997
------ ----------- ------------
<S> <C> <C>
Current assets:
Cash $ 13,367 $ 10,929
Accounts receivable 736,804 775,168
Inventories 1,654,248 605,392
Other current assets 143,239 89,989
----------- -----------
Total current assets 2,547,658 1,481,478
----------- -----------
Property and equipment, net 1,655,737 2,415,632
----------- -----------
Other assets:
Intangibles, net of amortization 837,504 157,557
Other assets 118,172 64,969
----------- -----------
Total other assets 955,676 222,526
----------- -----------
$ 5,159,071 $ 4,119,636
=========== ===========
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Notes payable - current $ 1,380,339 $ 1,942,085
Accounts payable 3,733,537 2,735,686
Accrued expenses 1,136,051 85,108
----------- -----------
Total current liabilities 6,249,927 4,762,879
Notes payable, less current maturities 809,086 1,099,242
----------- -----------
Total liabilities 7,059,013 5,862,121
----------- -----------
Commitments and contingencies
Redeemable preferred stock 40,800 --
----------- -----------
Stockholders' deficit:
Preferred stock 168 --
Common stock 71,698 383,557
Additional paid-in capital 3,087,301 1,004,607
Accumulated deficit (5,099,909) (130,649)
----------- -----------
Total stockholders' deficit (1,940,742) (1,742,485)
----------- -----------
$ 5,159,071 $ 4,119,636
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE> 7
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 3,768,129 $ 5,707,981 $ 6,837,765 $ 11,909,260
Cost of goods sold 1,548,962 2,598,989 3,053,965 5,710,139
Excise taxes on products 1,718,143 2,147,493 2,954,950 4,333,709
------------ ------------ ------------ ------------
Gross profit 501,024 961,499 828,850 1,865,412
------------ ------------ ------------ ------------
Operating expenses:
Marketing and distribution expenses 258,938 252,269 569,058 564,427
General and administrative expenses 980,814 344,757 1,364,953 780,399
Research and development 454,748 250,636 702,058 521,398
------------ ------------ ------------ ------------
Total operating expenses 1,694,500 847,662 2,636,069 1,866,224
------------ ------------ ------------ ------------
Operating income (loss) (1,193,476) 113,837 (1,807,219) (812)
Other income (expenses):
Other (284,967) 2,979 (298,536) 15,830
Interest expense (80,126) (63,808) (157,111) (119,128)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item (1,558,569) 53,008 (2,262,866) (104,110
Extraordinary gain from extinguishment of debt
(no applicable income taxes) -- -- 293,606 --
------------ ------------ ------------ ------------
Net income (loss) $ (1,558,569) $ 53,008 $ (1,969,260) $ (104,110)
============ ============ ============ ============
Basic and diluted earnings (loss) per common share:
Income (loss) before extraordinary item $ (.20) $ 265 $ (.39) $ (521)
Extraordinary item $ -- $ -- $ .05 $ --
Net income (loss) $ (.20) $ 265 $ (.34) $ (521)
Weighted average number of shares 8,013,696 200 5,850,000 200
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE> 8
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (1,969,260) $ (104,110)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and other non-cash charges 840,752 211,735
Extraordinary gain from extinguishment of debt (293,606) --
(Increase) decrease in current assets (116,305) 1,017,672
(Decrease) increase in current liabilities 1,055,531 (540,110)
------------ ------------
Net cash provided (used) by operating activities (482,888) 585,187
------------ ------------
Investing activities:
Purchases of property and equipment (98,500) (432)
Purchases of intangible assets (460) --
Proceeds from sale of property and equipment 175,000 --
------------ ------------
Net cash provided (used) by investing activities 76,040 (432)
------------ ------------
Financing activities:
Proceeds from notes payable 48,500 137,972
Proceeds from capital contribution 1,488,679 --
Payments on notes payable (1,127,893) (644,996)
Stockholder distributions -- (77,401)
------------ ------------
Net cash provided (used) by financing activities 409,286 (584,425)
------------ ------------
Increase in cash 2,438 330
Cash, beginning of period 10,929 10,584
------------ ------------
Cash, end of period $ 13,367 $ 10,914
============ ============
Cash paid for:
Interest $ 140,631 $ 126,887
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE> 9
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
For the Six Months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Non-cash investing and financing activities:
Repayment of related party note payable with
related party note receivable $ -- $ 759,439
Conversion of related party note payable to equity $ -- $ 923,499
Conversion of redeemable preferred stock to equity $ 232,000 $ --
Notes payable reduced by proceeds from equipment sale $ 255,000 $ --
Issuance of common stock as compensation $ 90,900 $ --
Acquisition:
Fair value of assets acquired $ 1,237,238 $ --
Liabilities assumed (2,001,688)
----------- -----------
Excess assigned to goodwill $ 764,450 $ --
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE> 10
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
A. Basis of presentation:
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three months and six months ended
June 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
B. Description of acquisition:
On February 6, 1998, Eye Technology, Inc. and Subsidiaries, a
publicly-owned company, entered into a stock exchange agreement with
Star Tobacco & Pharmaceuticals, Inc., a privately-owned company. Under
the agreement, Star's stockholders exchanged all of their common stock
for 13,831 shares of Series B Preferred Stock, par value $.01 per
share. When converted this stock would equal 45,365,680 shares of
common stock, approximately 90% of the outstanding common stock of Eye
Technology, Inc. and Subsidiaries as of the transaction date.
APB No. 16, paragraph 70 states that presumptive evidence of the
acquiring corporation in combinations effected by an exchange of stock
is obtained by identifying the former common stockholder interest of a
combining company which either retain or receive the larger portion of
the voting rights in the combined corporation. That corporation should
be treated as the acquirer unless other evidence clearly indicates that
another corporation is the acquirer. As the former stockholders of Star
Tobacco & Pharmaceuticals, Inc. hold the larger portion of the voting
rights of the combined corporation, the transaction has been recorded
as a reverse acquisition with Star Tobacco & Pharmaceuticals, Inc. as
the accounting acquirer. In a reverse acquisition, the accounting
acquirer is treated as the surviving entity, even though the
registrant's legal existence does not change. The accounting acquirer
treats the merger as a purchase acquisition. As a result, the merger
has been recorded using the historical cost basis for the assets and
liabilities of Star Tobacco & Pharmaceuticals, Inc., as adjusted, and
the estimated fair value of Eye Technology, Inc. and Subsidiaries
assets and liabilities. The excess of Eye Technology Inc. and
Subsidiaries' liabilities assumed over assets acquired amounted to
$764,450 and was assigned to goodwill which is being amortized over
five years on a straight-line basis.
The results of operations of Eye Technology, Inc. and Subsidiaries are
included in the accompanying condensed consolidated financial
statements from the date of acquisition.
F-6
<PAGE> 11
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
B. Description of acquisition, continued:
The following summarized pro forma information assumes the acquisition
had occurred as of January 1, 1997.
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 6,869,658 $ 12,643,903
Operating loss $ (1,837,338) $ (178,203)
Net loss $ (2,004,376) $ (51,432)
Earnings (loss) per share:
Basic and diluted $ (.29) $ (.01)
</TABLE>
C. Income taxes:
Effective February 6, 1998, Star Tobacco & Pharmaceuticals, Inc. will
no longer be treated as an S Corporation for tax purposes and will be
subject to corporate income taxes. If the Company had been subject to
corporate income taxes during 1997 and through February 6, 1998, it
would not have any current income tax liability due to its operating
losses. Star Tobacco & Pharmaceuticals, Inc. would have a deferred
income tax asset resulting from the net operating losses and a deferred
income tax liability resulting primarily from temporary differences in
depreciation. A valuation allowance would have been established to
fully reserve the excess of the deferred tax asset over the deferred
tax liability due to the uncertainty of the utilization of the
operating loss carryforward.
D. Extraordinary item:
During the first quarter of 1998, the Company recognized an
extraordinary gain of $293,606 as the result of its negotiated
settlements with vendors for trade accounts payable. There was no
income tax effect on the transactions.
E. Earnings (loss) per common share:
Earnings (loss) per common share is computed under the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per
Share". Basic earnings (loss) per common share is computed by dividing
net earnings (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per common share
includes the dilutive effect of potential common shares outstanding.
The Company's potential common shares outstanding are from preferred
stock. Basic and diluted earnings (loss) per share were the same in
1998 because all potential common shares were antidilutive.
F-7
<PAGE> 12
EYE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
F. Related party transactions:
During the first quarter of 1998, $167,355 was advanced to related
parties. These advances were repaid during the second quarter of 1998.
G. Purchased Technology:
The Company maintained certain purchased technologies in connection
with its Microlamellar Keratomileusis (MKM) product line. Additional
development was needed to sustain marketability of the technology and
during the second quarter of 1998 management elected not to make such
improvements. Under guidance of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", management has determined
that the value of such technology has been impaired and should be
written-off. The carrying value of the technology amounted to $180,000
and was written-off as a charge to general and administrative expenses.
H. Subsequent events:
The Company maintained a $1.5 million revolving line of credit pursuant
to which borrowings were available to the Company with advances limited
by formula to specified levels of accounts receivable and inventory.
This credit facility was to expire on March 31, 1998, but was extended
to June 30, 1998. The Company was in default of certain covenants, a
situation which has existed for over two years. In July, 1998, the
Company's bank loan arrangements were assigned to a different bank and
the loan terms were modified. As a result, the term of the loan was
extended to January 1, 1999, and existing defaults were waived.
In July 1998, the Company sold to a single institutional investor
2,500,000 shares of Common Stock, 763 shares of Series B Preferred
Stock convertible into 2,502,640 shares of Common Stock, and a one-year
warrant to purchase 500,000 shares of Common Stock of the Company at a
price of $2.00 per share for a total price of $2,500,000.
Simultaneously with that transaction, certain controlling stockholders
of the Company contributed to the Company 1,144 shares of Series B
Preferred Stock convertible into 3,752,320 shares of common stock.
Additional warrants to purchase 350,000 shares of common stock at a
price of $2.00 per share were issued to other parties in connection
with this transaction.
F-8
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,367
<SECURITIES> 0
<RECEIVABLES> 736,804
<ALLOWANCES> 0
<INVENTORY> 1,654,248
<CURRENT-ASSETS> 2,547,658
<PP&E> 3,447,178
<DEPRECIATION> 1,791,441
<TOTAL-ASSETS> 5,159,071
<CURRENT-LIABILITIES> 6,249,927
<BONDS> 0
40,800
168
<COMMON> 71,698
<OTHER-SE> (2,012,608)
<TOTAL-LIABILITY-AND-EQUITY> 5,159,071
<SALES> 6,837,765
<TOTAL-REVENUES> 6,837,765
<CGS> 6,008,915
<TOTAL-COSTS> 6,008,915
<OTHER-EXPENSES> 298,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157,111
<INCOME-PRETAX> (2,262,866)
<INCOME-TAX> 0
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