<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended March 31, 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)
Delaware 52-1402131
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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)
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: 53,310,591* shares of
Common Stock, $.01 par value, outstanding as of April 6, 1998
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ ]
* Assumes conversion of 13,831 shares of Series B Preferred Stock into
45,365,680 shares of Common Stock.
<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-9 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Financial Condition. On February 6, 1998, the Company acquired all of the
capital stock of Star Tobacco and Pharmaceuticals, Inc. ("Star") in
consideration for the issue to Star's stockholders of stock which equaled
approximately 90% of the total issued and outstanding capital stock of the
Company after the transaction. As specified by "reverse acquisition" accounting
rules (See Note B to the financial statements filed as a part of this Report),
the condensed consolidated balance sheet of the Company at March 31, 1998,
includes by consolidation Eye Technology, Inc., and all of its subsidiaries
including Star, whereas the balance sheet at December 31, 1997, is the balance
sheet of Star only.
The Company's balance sheet at March 31, 1998, reflects an illiquid
position with a current asset-to-liability ratio of 1 - 2.02. Operations at
Star have been financed over the past several years primarily through increases
in accounts payable, accrued expenses and borrowed funds from institutional
lenders. During the first quarter ended March 31, 1998, and subsequent to the
"reverse acquisition" transaction of February 6, 1998, described above, the
Company received $1.45 million through the private sale of 2.9 million shares of
Common Stock of the Company.
Star maintains with a bank a revolving line of credit pursuant to which
borrowings of up to $1.5 million are available to the Company with advances
being limited by formula to specified levels of accounts receivable and
inventory. This credit facility expired on March 31, 1998, but was extended to
April 30, 1998, and again to May 31, 1998. The Company is in default of certain
financial covenants with this lender, a situation which has existed for over two
years. The Company is currently negotiating with unrelated investors with
respect to equity investments in the Company of not less than five million
dollars. The Company expects to close one or more of these investments prior to
June 30, 1998, and perhaps prior to May 31, 1998. In the event the Company does
not receive these anticipated equity funds by May 31, 1998, the Company believes
that its bank lender will extend its existing line of credit to June 30, 1998.
The Company intends to retire its existing bank indebtedness upon receipt of the
anticipated equity financing, but there can be no assurances that it will
receive such financing. There also can be no assurances that the existing line
of credit would be extended beyond June 30, 1998, or that alternative debt or
equity financing from third parties would be available. The Company's major
shareholders have indicated, however, that they would supply debt or equity
financing in the event such financing were not timely available from unrelated
third parties.
The significant increase in inventories at March 31, 1998, compared to
December 31, 1997, reflects primarily the inclusion of inventories of over
$800,000 maintained by Eye Technology, Inc. ("ETI"). The Company has begun
preliminary discussions with third parties regarding a sale of assets related to
the intraocular lens business of ETI. In the event of such a sale, the Company
does not expect that there would be any significant financial gain or loss to
the Company.
The significant increase in "intangibles" reflects primarily the
recording of $1,231,000 of goodwill incurred in the "reverse acquisition"
transaction described above. This item is being amortized over a five-year
period at the rate of $246,000 per year, or $62,000 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, i.e., at the rate of 100 shares of Common
Stock for each share of Preferred Stock. Each holder of Preferred Stock had the
2
<PAGE> 3
current right to redeem the shares for cash or to be converted to Common Stock
at the rate of 80 shares of Common Stock for each share of Preferred Stock. The
Company offered each holder to convert at the 100-to-1 ratio rather than the
80-to-1 ratio, and the holders of all but 250 shares of Preferred Stock accepted
the Company's offer.
Results of Operations. Results for the first quarter of 1998 include the results
of operations of the Company's ETI division for the months of February and March
1998, whereas results of operations shown for the first quarter of 1997 include
only those of Star.
Net sales declined by slightly more than 50% from the first quarter of
1997 to the first quarter of 1998, which includes $128,000 from the sale of
intraocular lenses by the Company's ETI division. Sales of cigarettes and small
cigars by the Company's tobacco products division, Star, declined by more than
52%. This decline is attributable to: (i) the loss of contract manufacturing
business, primarily sales to Swisher International, Inc. for the manufacture of
small cigars, which declined from $1,550,000 in the first quarter of 1997 to
$17,000 in the first quarter of 1998; and (ii) declining sales of Star brand
cigarettes due to the reallocation of financial resources throughout 1997 and
1998 to date from marketing, selling and promotional expenses to research and
development expenses devoted to tobacco processing and the development of new
products containing tobacco which is free of tobacco-specific nitrosamines. Net
sales in the 1998 first quarter include $247,000 from the sale of a
tobacco-flavored, non-nicotine chewing gum, first introduced to the market in
the 1998 first quarter.
Excise taxes, as a percentage of sales, increased from 35% in the 1997
first quarter to 40% in the 1998 first quarter. This change can be attributed to
the fact that tobacco excise taxes are not payable by the Company on its sales
of little cigars to Swisher International.
Costs of goods sold ("COGS") remained relatively stable, as a
percentage of sales, from 1997 first quarter to 1998 first quarter. Tobacco and
gum COGS of approximately 48% in the first quarter of 1998 were only slightly
adversely affected by COGS of 80% in the Company's ETI division.
Gross profit margin was 11% in the first quarter of 1998 compared to
15% in the first quarter of 1997. The decline is due primarily to the impact of
the increase in excise taxes calculated as a percentage of sales.
Marketing and distribution expenses, as a percentage of sales, doubled
from 1997's first quarter to the same quarter of 1998. The percentage increase
is attributable to the effect of overhead costs, which become a larger
percentage of sales as sales decline, and to expenses incurred in the
introduction of the Company's gum product in the first quarter of 1998.
General and administrative costs declined by approximately 10% from
first quarter 1997 to first quarter 1998, but increased as a percentage of sales
from 7% to 13%. The percentage increase is due to the following factors: (i)
overhead costs increase as a percentage against a declining sales volume; (ii) a
portion of general and administrative costs is related to research and
development activities of the Company, from which no revenues have been derived,
and which did not decline in the two periods being compared; (iii) an increase
in accounting costs were incurred as a result of the "reverse acquisition"
transaction described in "Financial Condition" above and as a result of the
Company's efforts to file delinquent financial reports required by the
Securities and Exchange Commission (which efforts were successfully completed as
of May 1, 1998); and (iv) this category of expenses was 38% in the ETI division,
the results of which for February and March are included in the 1998 operating
results but not in the 1997 operating results.
Research and development expenses were substantially the same in the
two quarters being compared, and all such expenses are attributable to the
Company's research and development activities described in the second paragraph
of this section.
3
<PAGE> 4
As a consequence of the factors described above, the Company incurred
an operating loss of $625,000 in 1998's first quarter compared to $115,000 in
1997's first quarter. The 1998 results include an operating loss of $35,000 at
the Company's ETI division.
The Company shows net income for the first quarter of almost $20,000,
despite its operating loss of $625,000, due to an extraordinary gain of
$736,000. As a condition to entering into the "reverse acquisition" transaction
described in "Financial Condition" above, Star stipulated that certain
substantial creditors of ETI would have to compromise the monies owed to them,
in some cases for securities of the Company and in some cases for cash. As a
result of those transactions, which were effected on February 6, 1998, the
Company issued a total of approximately 1,238,800 shares of its Common Stock.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 6, 1998, the Company issued 13,831 shares of Series B
Preferred Stock of the Company (the "B Preferred Stock") in exchange for all of
the issued and outstanding capital stock of Star. The shares of B Preferred
Stock are convertible at any time into shares of Common Stock of the Company at
the rate of 3,280 shares of Common Stock for each share of B Preferred Stock.
Consequently, all of the shares of B Preferred Stock outstanding, i.e., 13,831
shares, are convertible into a total of 45,365,680 shares of Common Stock, or
approximately 90% of all such shares of Common Stock outstanding as of February
6, 1998.
The holders of B Preferred Stock vote as one class with the holders of
Common Stock and Class A Preferred Stock, with each share of B Preferred Stock
having 500 votes (compared to one vote for each share of Common Stock and 80
votes for each share of Class A Preferred Stock). Consequently, the holders of
the 13,831 shares of B Preferred Stock outstanding on the date of this Report
have an aggregate of 6,915,500 votes, or approximately 46% of total voting
rights as of the date of this Report. If all shares of currently outstanding B
Preferred Stock were converted at the date of this Report, the holders thereof
would have voting rights equal to approximately 85% of total voting rights.
In connection with the February 6, 1998 exchange acquisition described
above and elsewhere in this Report, approximately 1,238,800 shares of Common
Stock were issued on February 6, 1998, in consideration for the cancellation or
compromise of indebtedness of the Company.
During the quarter covered by this Report, and after February 6, 1998,
the Company sold an additional 2,900,000 shares of Common Stock in consideration
of $1,450,000. The proceeds were used primarily to reduce indebtedness
originally incurred for working capital purposes, including research and
development.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company's subsidiary, Star, has a revolving line of credit with a
bank pursuant to which the Company may borrow monies based upon a formula
related to specified levels of accounts receivable and inventory. The loan is
secured by all assets of Star and is guaranteed by ETI, as well as by certain
major stockholders of the Company. Star is in default of certain financial
covenants of the underlying loan agreements, as has been the case for at least
two years. Star has never been, and is not now, in default in the payment of any
principal or interest payment required by the terms of the loan. See Item 2,
"Financial Condition," of Part I of this Report regarding the Company's
intentions with respect to this loan.
4
<PAGE> 5
ITEM 5. OTHER INFORMATION
Star entered into a License Agreement dated January 5, 1998, with
Regent Court Technologies, a partnership of which Jonnie R. Williams and Francis
E. O'Donnell, Jr., M.D., are the sole partners, and with Mr. Williams and Dr.
O'Donnell (collectively, the partnership, Mr. Williams and Dr. O'Donnell are
referred to hereinafter as the "Licensor"). Under the terms of the License
Agreement, Star is granted an exclusive license in the United States and its
possessions, with the right to grant sublicenses under specified conditions, "to
make, have made, use, sell or otherwise dispose of, or deal in . . ." tobacco in
which the presence of one or more tobacco-specific nitrosamines has been
eliminated to undetectable levels or been reduced to insignificant (for human
use) levels or been prevented from forming to either of such levels, under any
current or future patent rights and know-how held by the Licensor. The term of
the License is for a period expiring upon the last to issue of any applicable
patents.
Jonnie R. Williams is an executive officer and principal stockholder of
the Company. Francis E. O'Donnell, Jr., M.D., is a principal stockholder of the
Company. Mr. Williams and Dr. O'Donnell, by virtue of their combined holdings of
capital stock of the Company, should be considered as controlling stockholders
of the Company.
Under the terms of the License Agreement, the Company is obligated to
pay to the Licensor a royalty of 2% on any sales of products covered by the
License and 6% of any royalty income or sublicensee fees received by the Company
from any unrelated sublicensees. The Company is entitled to certain deductions
from revenues for patent prosecution and research and development in the
calculation of royalty payments due to the Licensor.
The Company regards the License Agreement as material to its future
prospects. Research and development expenses in excess of $3.5 million have been
incurred to date by Star since the beginning of the 1996 fiscal/calendar year in
furtherance of the technology and products development covered by the License
Agreement, and Star's business strategy for the future is dependent upon the
License Agreement.
The brief description of the License Agreement set forth herein is
qualified by reference to the entire License Agreement, a copy of which has been
filed with the Securities and Exchange Commission with this Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
License Agreement dated January 5, 1998, by and between Star
Tobacco and Pharmaceuticals, Inc., as Licensee, and, as Licensor,
Regent Court Technologies, Jonnie R. Williams, and Francis E.
O'Donnell, Jr., M.D.
(b) Reports on Form 8-K.
(i) The Company filed a Report on Form 8-K on February 19, 1998,
which Report was amended (as permitted by the rules and
regulations of the Securities and Exchange Commission) by
amendment filed on April 20, 1998. Item 1, Change in Control of
Registrant, and Item 2, Acquisition or Disposition of Assets,
were included in this Report. Financial statements of Star
Tobacco and Pharmaceuticals, Inc. for the 1997 and 1996 fiscal
years ended December 31, and pro forma combined condensed
financial statements of the Registrant, all as required by the
instructions to Form 8-K, were also filed as part of the Report
on Form 8-K.
(ii) The Company filed a Report on Form 8-K on March 30, 1998,
which Report was amended (as permitted by the rules and
regulations of the Securities and Exchange Commission) by
amendment filed April 10, 1998. Item 4, Changes in Registrant's
Certifying Accountant, was included in this Report.
5
<PAGE> 6
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: May 15, 1998 /s/ Samuel P. Sears, Jr.
-----------------------------------
Samuel P. Sears, Jr.,
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
6
<PAGE> 7
Index to Unaudited Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
1. Condensed Consolidated Balance Sheets F-2
dated March 31, 1998 and December 31, 1997
2. Condensed Consolidated Statements of Operations F-4
for the Three Month Periods Ended March 31, 1998 and 1997
4. Condensed Consolidated Statements of Cash Flows F-5
for the Three Month Periods Ended March 31, 1998 and 1997
5. Notes to Unaudited Condensed Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 8
STAR TOBACCO & PHARMACEUTICALS, INC. (Note B)
(Accounting Acquirer of Eye Technology, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
Assets (Unaudited) 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 118,811 $ 10,929
Accounts receivable 621,007 775,168
Inventories 1,743,122 605,392
Advances to related parties 167,355 --
Other current assets 82,398 89,989
---------- ----------
Total current assets 2,732,693 1,481,478
---------- ----------
Property and equipment, net 2,177,992 2,415,632
---------- ----------
Other assets:
Intangibles, net of amortization 1,531,526 157,557
Other assets 118,729 64,969
---------- ----------
Total other assets 1,650,255 222,526
---------- ----------
$6,560,940 $4,119,636
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE> 9
STAR TOBACCO & PHARMACEUTICALS, INC. (Note B)
(Accounting Acquirer of Eye Technology, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
Liabilities and Stockholders' Deficit (Unaudited) 1997
----------- -----------
<S> <C> <C>
Current liabilities:
Notes payable - current $ 1,478,711 $ 1,942,085
Accounts payable 3,169,269 2,735,686
Accrued expenses 896,085 85,108
----------- -----------
Total current liabilities 5,544,065 4,762,879
Notes payable, less current maturities 994,035 1,099,242
----------- -----------
Total liabilities 6,538,100 5,862,121
----------- -----------
Commitments and contingencies
Redeemable preferred stock 25,000 --
----------- -----------
Stockholders' deficit:
Preferred stock 138 --
Common stock 79,698 383,557
Additional paid-in capital 3,029,007 1,004,607
Accumulated deficit (3,111,003) (3,130,649)
----------- -----------
Total stockholders' deficit (2,160) (1,742,485)
----------- -----------
$ 6,560,940 $ 4,119,636
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-3
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STAR TOBACCO & PHARMACEUTICALS, INC. (Note B)
(Accounting Acquirer of Eye Technology, Inc. and Subsidiaries)
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 3,069,636 $ 6,201,279
Cost of goods sold 1,505,003 3,111,150
Excise taxes on products 1,236,807 2,186,216
----------- -----------
Gross profit 327,826 903,913
----------- -----------
Operating expenses:
Marketing and distribution expenses 310,120 312,158
General and administrative expenses 395,808 435,642
Research and development 247,310 270,762
----------- -----------
Total operating expenses 953,238 1,018,562
----------- -----------
Operating loss (625,412) (114,649)
Other income (expenses):
Other (13,569) 12,851
Interest expense (76,985) (55,320)
----------- -----------
Loss before extraordinary item (715,966) (157,118)
Extraordinary gain from extinguishment of debt
(no applicable income taxes) 735,612 --
----------- -----------
Net income (loss) $ 19,646 $ (157,118)
=========== ===========
Basic and diluted earnings (loss) per common share:
Loss before extraordinary item $ (.19) $ (786)
Extraordinary item $ .20 $ --
Net income (loss) $ .01 $ (786)
Weighted average number of shares 3,662,262 200
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE> 11
STAR TOBACCO & PHARMACEUTICALS, INC. (Note B)
(Accounting Acquirer of Eye Technology, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) $ 19,646 $ (157,118)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and other non-cash charges 150,358 105,865
Extraordinary gain from extinguishment of debt (735,612) --
(Increase) decrease in current assets (29,098) 585,722
(Decrease) increase in current liabilities 251,297 180,737
----------- -----------
Net cash provided (used) by operating activities (343,409) 715,206
----------- -----------
Investing activities:
Advances to related parties (167,355) --
Purchases of property and equipment (98,500) (432)
Purchases of intangible assets (460) --
Proceeds from sale of property and equipment 175,000 --
----------- -----------
Net cash used by investing activities (91,315) (432)
----------- -----------
Financing activities:
Proceeds from notes payable 48,500 --
Proceeds from capital contribution 1,488,679 --
Payments on notes payable (994,573) (676,074)
Stockholder distributions -- (38,700)
----------- -----------
Net cash provided (used) by financing activities 542,606 (714,774)
----------- -----------
Increase in cash 107,882 --
Cash, beginning of period 10,929 10,584
----------- -----------
Cash, end of period $ 118,811 $ 10,584
=========== ===========
Cash paid for:
Interest $ 81,231 $ 58,952
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE> 12
STAR TOBACCO & PHARMACEUTICALS, INC. (Note B)
(Accounting Acquirer of Eye Technology, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31
1998 1997
------------- --------------
<S> <C> <C> <C>
Non-cash investing and financing activities:
Repayment of related party note payable with
related party note receivable $ -- $ 759,489
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 $ 105,000 $ --
Acquisition:
Fair value of assets acquired $ 1,237,134 $ --
Liabilities assumed 2,468,366 --
------------- --------------
Excess assigned to goodwill $ 1,231,232 $ --
============= ==============
</TABLE>
See notes to condensed consolidated financial statements.
F-6
<PAGE> 13
STAR TOBACCO & PHARMACEUTICALS, INC. (Note B)
(Accounting Acquirer of 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 month period ended March 31,
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
the shareholders of Star Tobacco & Pharmaceuticals, Inc., a
privately-owned company. Under the agreement, Star Tobacco &
Pharmaceuticals, Inc.'s shareholders exchanged all of their common
stock for 13,831 shares of Series B convertible voting preferred stock,
par value $.01 per share. When converted this stock would equal
45,367,251 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
$1,231,232 and was assigned to goodwill which is being amortized over
five years on a straight-line basis.
F-7
<PAGE> 14
STAR TOBACCO & PHARMACEUTICALS, INC. (Note B)
(Accounting Acquirer of Eye Technology, Inc. and Subsidiaries)
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
B. Description of acquisition, continued:
The results of operations of Eye Technology, Inc. and Subsidiaries are
included in the accompanying condensed consolidated financial
statements from the date of acquisition.
The following summarized pro forma information assumes the acquisition
had occurred as of January 1, 1997.
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
1998 1997
---------- -----------
<S> <C> <C>
Net sales $3,128,529 $ 6,571,365
Operating loss $ (641,710) $ (193,996)
Net income (loss) $ (2,169) $ 24,879
Earnings per share:
Basic and diluted $ -- $ .005
</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 $735,612 as the result of its extinguishment of
certain notes and trade accounts payable. Certain of the debt was
extinguished through the exchange of shares of common stock amounting
to approximately 1,238,800 shares resulting in a gain of $442,006. The
remaining gain of $293,606 resulted from negotiated settlements with
vendors. There was no income tax effect on the transactions.
F-8
<PAGE> 15
STAR TOBACCO & PHARMACEUTICALS, INC. (Note B)
(Accounting Acquirer of Eye Technology, Inc. and Subsidiaries)
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
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 and in 1997 because all potential common shares were antidilutive.
F. Related party transactions:
During the first quarter of 1998, $167,355 was advanced to related
parties. These advances are scheduled to be repaid during 1998.
F-9
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------
<S> <C>
10 License Agreement dated January 5, 1998, by and between Star
Tobacco and Pharmaceuticals, Inc., as Licensee, and, as Licensor,
Regent Court Technologies, Jonnie R. Williams, and Francis E.
O'Donnell, Jr., M.D.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10
LICENSE AGREEMENT
AGREEMENT (this "Agreement") made as of the 5th day of January, 1998 by
and among Regent Court Technologies ("Licensor"), a general partnership of which
Jonnie R. Williams ("Williams"), of Manakin-Sabot, Virginia, and Francis
O'Donnell, Jr., M.D. ("O'Donnell"), of Chesterfield, Missouri, are partners,
Williams, individually, O'Donnell individually, and Star Tobacco and
Pharmaceuticals, Inc., a Virginia corporation ("Licensee").
WHEREAS, Licensor is the assignee of Williams of certain intellectual
property rights, including without limitation United States patent applications
and foreign patent filings relating to methods to cure tobacco so as to
eliminate or reduce the amount of tobacco-specific nitrosamines in cured
tobacco, and products containing such specially-cured tobacco;
WHEREAS, Licensee is desirous of acquiring an exclusive license with
respect to certain of said products; and
WHEREAS, Licensor, Williams and O'Donnell are willing to grant said
license upon the terms and conditions hereinafter recited;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
1.1 "Patent Rights," as used in this Agreement, shall mean (i)
all claims of patent applications and issued patents which are now owned by
Licensor in the United States and in foreign countries, or to which Licensor has
rights, and which read on TSNA-Free Tobacco or which read on the Know-How; (ii)
all claims of such patent applications and issued patents which may hereafter be
filed or issued, or of which Licensor or Williams or O'Donnell may hereafter
become owner, or to which any of them may hereafter acquire rights during the
term of this Agreement, and which read on TSNA-Free Tobacco or which read on the
Know-How; (iii) any inventions, conceived or reduced to practice before the date
of this Agreement or during the term of this Agreement, and thereafter made the
subject of a patent application, relating to the production, treatment or curing
of tobacco, or a method of manufacturing a product containing tobacco, or of
extracting one or more substances from tobacco for the purpose of incorporating
such substance or substances in a product or products, and which Licensor,
Williams or O'Donnell may hereafter own or acquire rights to.
1.2 "Know-How," as used in this Agreement shall mean all
information, including without limitation trade secrets, whether or not
patentable, relating to, used in, or useful in connection with, TSNA- Free
Tobacco, or any methods or devices which are claimed to result in and be useful
in connection with tobacco or any product containing tobacco that is less
harmful to humans, or for which therapeutic claims are made, whether any such
information is now in the possession of Licensor, Williams or O'Donnell, or
developed or acquired by any of them during the term of this Agreement.
1.3 "TSNA-Free Tobacco," shall mean tobacco in which the
presence of one or more tobacco-specific nitrosamines has been eliminated to
undetectable levels or been reduced to insignificant (for human use) levels or
been prevented from forming to either of such levels. "TSNA-Free Tobacco" shall
also refer to any method or device used to produce TSNA-Free Tobacco.
1
<PAGE> 2
1.4 "Product" shall mean any article, composition, apparatus,
substance, chemical, material, method or services which is made, used,
distributed or sold which: (i) is covered in whole or in part by one or more
pending or unexpired claims contained in any patent included in the Patent
Rights; (ii) is manufactured using a method or process which is covered in whole
or in part by one or more pending or unexpired claims contained in any patent
included in the Patent Rights and/or which utilizes any of the Know-How; or
(iii) the use of which is covered in whole or in part by one or more pending or
unexpired claims contained in any patent included in the Patent Rights. For
purposes of this definition, a Product is covered by a pending or unexpired
claim of a patent if in the course of manufacture, use, distribution or sale, it
would, in the absence of this Agreement, infringe one or more claims of a patent
which has not been held invalid by a court from which no appeal can be taken.
1.5 "License," shall mean the license granted in Section 2
hereof.
1.6 "FDA" shall mean the United States Food and Drug
Administration.
1.7 "Licensor Affiliate," shall mean any entity controlled by
Williams and/or O'Donnell.
1.8 "Royalties" shall mean the royalties payable by Licensee
to Licensor as set forth in Section 3.1 of this Agreement.
1.9 "Affiliated Sublicensee" shall mean an entity which
Licensee owns or controls or which owns or controls Licensee or which is under
the common ownership or control of another Affiliated Sublicensee.
1.10 "Royalty Income" shall mean all royalties, license fees
and other revenue howsoever characterized earned by Licensee and any Affiliated
Sublicensee from any third party other than Licensee or any Affiliated
Sublicensee by reason of or pursuant to a sublicense, or rights in the nature of
a sublicense, granted under the License or otherwise.
2. GRANT OF LICENSE.
Subject to the terms and conditions of this Agreement,
Licensor hereby grants and agrees to grant to Licensee an exclusive and
irrevocable license, with the right to grant sublicenses as provided in this
Agreement, under the Patent Rights and under the Know-How, to make, have made,
use, sell or otherwise dispose of, or deal in, any Product anywhere in the
United States and its possessions. All rights under the Patent Rights and
Know-How to make, have made, use, sell or otherwise dispose of or deal in, any
Product anywhere outside of the United States and its possessions are expressly
reserved to the Licensor.
3. ROYALTIES.
3.1 In consideration of the grant of License hereunder,
Licensee agrees to pay to Licensor (a) a royalty of two percent (2%) on the Net
Sales Price on the sale of Products, less any Deductions, by Licensee and any
Affiliated Sublicensee (the "Royalties"), and (b) a royalty of six percent (6%)
on the Royalty Income, less any Deductions earned by Licensee and any Affiliated
Sublicensee. As used herein, "Deductions" shall refer to all expenses accruable
under generally accepted accounting practices for (i) the cost of applying for,
obtaining, maintaining, enforcing and defending any Patents Rights, (ii)
research and development costs related to any Product or any potential Product,
or any improvement thereto, or any technology which would be encompassed within
the definition of Patent Rights or Know-How. Only those Deductions accruable
from and after January 1, 1998, shall be deducted from the Net Sales Price in
order to determine the amount of Royalties earned for that period.
3.2 All Royalties shall be paid by Licensee to Licensor on a
quarterly basis within thirty (30) days after the end of each calendar quarter
in which such Royalties and Licensing Payments are accrued. Each such payment
shall be accompanied by an accounting statement which shall include:
2
<PAGE> 3
(i) the quantity and classification (e.g.,
tobacco, cigarettes, snuff, chewing
tobacco, or cigars) of Products sold;
(ii) the aggregate Net Sales Price of each
classification of Products sold and the
aggregate Net Sales Price of all Products
sold;
(iii) the amount of Royalty Income earned, broken
down by identity of sublicensee and a
description of the transaction by which the
Royalty Income has been earned, including,
if applicable, a copy of any royalty report
or similar report received by Licensee or
any Affiliated Sublicensee;
(iv) the amount and classification (i.e., whether
patent-related expense or research and
development expense) of Deductions, and the
aggregate amount of all Deductions; and
(v) the total of all Royalties payable to Licensor.
3.3 Licensee and all Affiliated Sublicensees shall keep proper
books of account showing sales of Products. Licensor's designated auditing firm
shall have access to the books and records of Licensee and all Affiliated
Sublicensee at all reasonable times to independently determine the amount of
Royalties payable hereunder, but for no other purpose. Under no circumstances
shall Licensor require such an examination more often than once a calendar year.
All information obtained by Licensor and its auditing firm shall be kept
strictly confidential by Licensor and its auditing firm.
3.4 "Net Sales Price" shall mean the gross sales price of a
Product, less any rebates actually paid, discounts and allowances actually
taken, and returns to the extent credit is given or paid. There shall be no
deduction from Net Sales Price of any federal excise or sales taxes payable on
account of the sale of Products or otherwise, including without limitation
tobacco product excise taxes.
4. RETENTION OF RIGHTS.
Notwithstanding the exclusive license granted in Section 2,
and in addition to the rights reserved to Licensor in Section 2 Licensor will
have the absolute, nontransferable right to use the technology covered by the
Patent Rights and Know-How and all improvements thereof, for conducting
research.
5. PATENT PROSECUTION.
5.1 Licensee shall diligently prosecute at Licensee's
discretion and at Licensee's expense all Untied States patent applications
included within the Patent Rights and shall otherwise at its discretion take
such action as shall perfect or effect its title to the Patent Rights. Licensee
shall provide Licensor with copies of all U.S. patent applications included in
Patent Rights, and, generally, shall provide to Licensor such other information
regarding the Patent Rights as Licensor may request from time to time. All
patent prosecution information supplied by Licensee to Licensor hereunder shall
be subject to the confidentiality provisions of this Agreement.
5.2 If Licensor so elects, Licensee shall also diligently
prosecute, as instructed by and as agent for Licensor, the Patent Rights in such
foreign jurisdictions as Licensor may designate from time to time. Licensor
shall reimburse Licensee for all expenses incurred in the prosecution of the
Patent Rights in such foreign jurisdictions and as instructed or authorized by
Licensor and Licensee shall have the right to offset such expenses actually
incurred against Royalties payable. Licensee acknowledges that, in performing
the services required of it under this Section 5.2, no license of Patent Rights
in foreign jurisdictions is being granted to it.
3
<PAGE> 4
6. PATENT INFRINGEMENT.
6.1 Licensee shall promptly notify Licensor of all claims,
allegations and notifications of infringement of third party patents. Except for
the placing in escrow of a portion of royalties as referred to hereinafter,
Licensor shall have no obligation or liability in the event that legal action is
brought against Licensee for patent infringement. Such obligation and liability
shall be borne by Licensee. Licensee may choose legal counsel and defend the
patent infringement lawsuit. During such lawsuit, Licensee may place all
Royalties in an interest-bearing escrow account. The escrow account shall be
established in a bank mutually acceptable to both parties under escrow
instructions insulating the funds from claims of any creditor. Upon termination
of the action, one-half (1/2) of any judgment amount, reasonable attorneys' fees
and costs, may be paid from this escrow account. In addition, should the
settlement of any such patent infringement lawsuit involve payment of royalties
by Licensee to a third party for the continued right to manufacture, use, and
sell a Product, then funds in the escrow account and royalties payable to
Licensor may be applied against up to one-half (1/2) of such royalties to a
third party. Any funds thereafter remaining in the escrow shall be paid to
Licensor. The above shall constitute Licensor's sole liability and
responsibility in the event of such action. During the patent infringement
litigation both parties shall keep each other informed in writing of significant
developments in the lawsuit.
6.2 Licensee shall promptly notify Licensor of any potential
infringement of any of the Patent Rights. In the event that a third party
infringes on any of the Patent Rights, Licensee shall have the right but not an
obligation to bring legal action to enforce any such patent. If Licensee
exercises such right, Licensee shall select legal counsel and pay all legal fees
and costs of prosection of such action. In the event that Licensee shall choose
not to take such action, Licensor shall have the right, at its option and at its
own expense, to prosecute any action to enjoin such infringement or to prosecute
any claim for damages. The party prosecuting any such action shall be entitled
to retain any funds received as a result of settlement or judgment of such
action. The parties may also agree to jointly pursue infringers. After deduction
and payment to the parties of their respective costs and fees (including without
limitation reasonable attorneys' fees) incurred in prosecuting any such actions,
the net funds obtained as a result of settlement or of judgment of any such
jointly prosecuted action shall be divided in the following manner: 25% of all
net funds shall be divided equally by the parties and 75% of all the net funds
shall be divided between the parties in the proportion to the amount of legal
fees and costs incurred by the paries in the prosecution of such actions. If
funds are insufficient to pay all costs and fees then all of the funds shall be
paid to the parties in said proportion.
6.3 During any litigation described in Section 6, both parties
shall keep each other timely informed of any significant development in the
litigation and provide all reasonably requested technical assistance. During any
such controversy, full royalty payment shall continue, except as otherwise
provided herein.
7. SUBLICENSE PERMISSION.
Licensee may sublicense any of the Patent Rights only with the
prior written permission of Licensor, which permission will not be unreasonably
withheld. Notwithstanding the foregoing, no such permission is required with
respect to a sublicense granted to any Affiliated Sublicensee, provided,
however, that any Affiliated Sublicensee shall agree in writing to be jointly
and severally obligated and liable to Licensor for all of the obligations of
Licensee under this Agreement, and that no further right to sublicense may be
granted to an Affiliated Sublicensee.
8. PATENT MARKING.
Licensee, all Affiliated Sublicensees and any other
sublicensee shall use reasonable efforts to place all appropriate patent and
other intellectual property notices, markings and indicia on product and
marketing literature for any Products as needed to protect the patent and other
intellectual property rights of Licensor and right for damages for infringement
thereof.
4
<PAGE> 5
9. TERMINATION.
9.1 Upon the breach of or default under this License Agreement
by either party, the non- breaching party may terminate this License Agreement
by forty-five (45) days written notice to the breaching party. Said notice shall
be effective at the end of such period unless during said period breaching party
shall remedy such defect or default. Licensee may also terminate this Agreement
at any time, for any reason, by providing Licensor a thirty (30) days written
notice. No Royalties shall be returnable. This Agreement may also be terminated
immediately by Licensor upon notice to Licensee upon the occurrence of any of
the following: (i) Licensee attempts to use, sublicense, transfer or assign its
rights or obligations under this Agreement in any manner contrary to the terms
of this Agreement or in derogation of Licensor's proprietary rights; or (ii)
Licensee is determined to be insolvent or makes an assignment for the benefit of
creditors, or has a bankruptcy petition filed by or against it, or a receiver or
trustee in bankruptcy or similar officer is appointed to take charge of all or
part of Licensee's property. Upon termination of the Agreement all rights
granted to or provided by each party to the other shall automatically and
irrevocably revert to the granting party.
9.2 Surviving any termination are:
(i) Licensee's obligation to pay Royalties
accrued or accruable.
(ii) Licensee's obligations under Section 3.3 of
this Agreement.
(iii) Any cause of action or claim of Licensee or
Licensor, accrued or to accrue, because of
any breach or default by the other party.
(iv) The provisions of Sections 6, 9.3, 10, 14,
16, 17 and 18.
9.3 Upon termination of this License Agreement, Licensee
agrees to immediately discontinue the manufacture and sale of the Products and
the use of the Patent Rights. Within twenty (20) days after such termination,
Licensee shall provide Licensor with a written inventory of all Products
currently in its stock as of the date of termination (the "Inventory"). Licensee
shall have the right to dispose of such Inventory within four (4) months after
said termination. The disposition of all such Inventory shall be subject to all
of the terms and conditions of this License Agreement. After the four (4) month
sell-off period, Licensee shall destroy or certify their destruction or return
to Licensor all remaining unsold Products, all packaging and marketing
materials, and shall certify their destruction or return to Licensor specifying
the number of each destroyed or returned. All royalty obligations, shall be
accelerated and shall become immediately due and payable. In addition, Licensee
shall immediately deliver to Licensor (i) all materials relating the Patents
together with all copies thereof, and (ii) all market studies or other tests or
studies conducted by Licensee with respect to the Products, all at no cost
whatsoever to Licensor. This Paragraph 9.3 shall not apply if the termination of
this License Agreement arises from the expiration of the term of this Agreement
under Section
10. REMEDIES.
Licensee acknowledges and agrees that any violation of this
License Agreement by Licensee would result in irreparable harm to Licensor.
Accordingly, Licensee consents and agrees that, if Licensee violates any of the
provisions of this License Agreement, Licensor shall be entitled, in addition to
other remedies available to it, to an injunction to be issued by any court of
competent jurisdiction restraining Licensee from committing or continuing any
violation of this License Agreement, without the need for posting any bond or
any other undertaking.
5
<PAGE> 6
11. NOTICES, REPORTS AND PAYMENTS.
Any notice, report or payment permitted or required under this
Agreement shall be in writing, and shall be sent or delivered to the receiving
party at the address set forth below or at such address as either party may from
time to time designate in writing.
Licensor: Regent Court Technologies
c/o Francis I. O'Donnell, Jr., M.D.
709 The Hamptons Lane
Chesterfield, MO 63017
Licensee: Star Tobacco & Pharmaceuticals, Inc.
16 South Market Street
Petersburg, VA 23803
Attn: Chief Executive Officer
12. PARAGRAPH HEADINGS.
Paragraph headings are for the convenience of this Agreement
only and shall not add to or detract from any of the terms or provisions.
13. SEVERABILITY.
If any provision of this Agreement is held invalid under any
law applicable to the parties, Affiliated Sublicensees and other sublicensees
and/or assignees, that provision shall be considered severable and its
invalidity shall not affect the remainder of this Agreement, which shall
continue in full force and effect.
14. CONTROLLING LAW, JURISDICTION AND VENUE.
This Agreement shall be deemed to be executed and to be
performed in the Commonwealth of Virginia, and shall be construed in accordance
with the laws of the Commonwealth of Virginia as to all matters, including but
not limited to matters of validity, constriction, effect and performance. In the
event of any controversy, claim or dispute between the parties hereto arising
out of or relating to this Agreement, such controversy, claim or dispute may be
tried exclusively in the courts of the Commonwealth of Virginia or in the United
States Federal District Court located in, or closest to, Richmond, Virginia, as
either party may elect. Each of the par-ties hereby waives any defense of lack
of in personam jurisdiction, improper venue and forum non conveniens, and agrees
that service of process of such court may be made upon each of them by personal
delivery or by mailing certified or registered mail, return receipt requested,
to the other party at the address provided for in Section 11 hereof. Both
parties hereby submit to the jurisdiction of the court so selected, to the
exclusion of any other courts which may have had jurisdiction apart from this
Section 14.
15. TERM OF THE AGREEMENT.
Except as otherwise terminated pursuant to the other
provisions of this License Agreement, this Agreement shall terminate upon
expiration of the last to expire of the Patent Rights.
16. NEGATION OF WARRANTIES.
16.1 Nothing in this Agreement shall be construed as:
i. a warranty or representation by Licensor as
to the validity or scope of any of the
Patent Rights; or
6
<PAGE> 7
ii. a warranty or representation that any
Products made, used, sold or otherwise
disposed of under any license granted in
this Agreement is or will be free from
infringement of patents of third parties; or
iii. an obligation to bring or prosecute actions
or suits against third parties for
infringement; or
iv. conferring the rights to use in advertising,
publicity or otherwise any trademark, trade
name, or names or any contraction,
abbreviation, simulation or adoption
thereof, of Licensor; or
v. any obligation to furnish any know-how not
provided.
16.2 LICENSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, nor does Licensor represent
that the rights granted hereunder will result in Products that are commercially
successful.
16.3 Licensee further agrees that it will not rely upon
technical information provided by Licensor in developing and manufacturing any
Products hereunder, but will independently test, analyze and evaluate all
Products prior to manufacture and distribution of such Products.
17. INDEMNITY.
17.1 Licensee shall defend, indemnify and hold harmless
Licensor and its partners, employees and agents and Williams and O'Donnell, and
their respective successors, heirs and assigns (the "Indemnitees"), against all
liabilities, demands, losses, costs, and expenses (including without limitation
attorneys' fees) incurred by or imposed upon the Indemnitees or any one of them
in connection with any claims, suits, actions, demands or judgments arising out
of any theory of liability (including but not limited to, actions in the form of
tort, warranty, or strict liability) for death, personal injury, illness, or
property damage arising from Licensee's use, sale, or other disposition of any
Products, or exercise of any of rights under the License.
17.2 Licensee agrees, at its own expense, to provide attorneys
reasonably acceptable to Licensor to defend against any actions brought or filed
against any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.
17.3 As a condition precedent to a grant of permission by
Licensor for Licensee to sublicense any of the Patent Rights herein, the
prospective sublicensee shall agree to indemnify Licensee and Licensor to the
same extent and degree as Licensee has agreed to indemnify Licensor herein.
18. ATTORNEYS' FEES.
In any action on or concerning this Agreement, the prevailing
party shall be awarded its reasonable attorneys' fees, costs and necessary
disbursements, to be paid by the nonprevailing party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Regent Court Technologies
by: /s/ Francis E. O'Donnell, Jr.
-----------------------------------
General Partner
Star Tobacco and Pharmaceuticals, Inc.
by: /s/ Samuel P. Sears, Jr.
-----------------------------------
Samuel P. Sears, Jr.
/s/ Jonnie R. Williams
-----------------------------------
Jonnie R. Williams
/s/ Francis E. O'Donnell, Jr.
-----------------------------------
Francis E. O'Donnell, Jr.
7
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 118,811
<SECURITIES> 0
<RECEIVABLES> 621,007
<ALLOWANCES> 0
<INVENTORY> 1,743,122
<CURRENT-ASSETS> 2,732,693
<PP&E> 2,177,992
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,560,940
<CURRENT-LIABILITIES> 5,544,065
<BONDS> 994,035
0
25,000
<COMMON> 79,698
<OTHER-SE> 3,029,007
<TOTAL-LIABILITY-AND-EQUITY> 6,560,940
<SALES> 3,069,636
<TOTAL-REVENUES> 3,069,636
<CGS> 1,505,003
<TOTAL-COSTS> 1,236,807
<OTHER-EXPENSES> 953,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (76,985)
<INCOME-PRETAX> (715,966)
<INCOME-TAX> 0
<INCOME-CONTINUING> (715,966)
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<EXTRAORDINARY> 735,612
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