EYE TECHNOLOGY INC, 10KSB, 1998-04-20

EYE TECHNOLOGY INC
10KSB, 1998-04-20
OPHTHALMIC GOODS

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB

[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the fiscal year ended December 31, 1997
-----------------

[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from to
------- ------- .

Commission file number 0-15324
-------

EYE TECHNOLOGY, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)

Delaware 52-1402131
- --------------------------------- ---------------------
(State or Other Jurisdiction (IRS Employer ID No.)
of incorporation or organization)

16 South Market Street, Petersburg, Virginia 23803
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)

Issuer's Telephone Number, Including Area Code (804) 861-0681
----------------

Securities Registered under Section 12(g) of the Exchange Act:

Common Stock, $.01 per value
----------------------------
(Title of Class)

Check whether the issuer: (1) filed all reports required 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 [ ] No [X]

Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].

Issuer's revenues for its most recent fiscal year. $1,333,431

Aggregate market value of the voting stock held by non-affiliates of
the registrant as of April 6, 1998 = $29,075,771

Number of shares of Common Stock, $.01 par value, outstanding as
of April 6, 1998 = 53,310,591

DOCUMENTS INCORPORATED BY REFERENCE: Current Report on Form
8-K filed on February 14, 1998, as amended on April 20, 1998.

<PAGE> 2
This Annual Report on Form 10-KSB ("Form 10-KSB") contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
a number of known and unknown risks and uncertainties set forth throughout this
Form 10-KSB.

PART I

Item 1. Business.

General

Eye Technology, Inc. (the "Company"), founded in 1985, develops, manufactures,
sells and distributes intraocular lenses and other ophthalmic products.
Intraocular lenses ("IOLs") are medical devices implanted in the human eye by
ophthalmic surgeons to correct vision loss resulting from the removal of the
natural crystalline lens during cataract surgery. Beginning in 1992, the Company
sought to broaden its product line in the ophthalmic field. Consequently, the
Company began to market and distribute titanium diamond knives, hand-held
instruments, pachymeters and diamond knife calibration units; however, marketing
efforts were largely unsuccessfully and sales of such products in 1997 were
immaterial. As part of its efforts to diversify its product line, in 1994 the
Company acquired proprietary rights to a microlamellar keratomileusis ("MKM")
system and developed a modified version of its MKM system for a surgical
procedure known as laser assisted in-situ keratomileusis ("LASIK").

Throughout 1997, the Company had severe financial difficulties characterized by
declining revenue and a lack of working capital. As a result, operations were
contracted, an operating loss was incurred and research and development efforts
to bring on new products or to improve existing products were curtailed.

The IOL industry specifically, as well as the medical device industry in
general, is subject to significant governmental regulations, particularly by the
United States Food and Drug Administration ("FDA"). The IOL industry's pricing
policies are directly impacted by the maximum allowable charges of an IOL
implant procedure as established by the United States Health Care Financing
Administration ("HCFA").

The Company's business is not seasonal in nature.

Significant 1998 Transaction

On February 6, 1998, the Company entered into a "reverse acquisition" agreement
with the shareholders of Star Tobacco and Pharmaceuticals, Inc. ("Star"),
resulting in a change of control of the Company. That transaction has been
reported on a Current Report on Form 8-K of the Company filed February 19, 1998,
with the Securities and Exchange Commission and reference is made to that report
for further information regarding the "reverse acquisition" transaction.

Star's business consists of: (a) the manufacture and sale of cigarettes and
little cigars, (b) the sale of a tobacco-flavored chewing gum, (c) the
development of proprietary technology for the curing of tobacco so as to prevent
the formation of certain carcinogens otherwise present in tobacco and

<PAGE> 3

tobacco smoke, and (d) the development of products utilizing tobacco which has
been cured pursuant to the Company's proprietary process described in (c) above.

Star manufactures and sells its own brands of cigarettes - GUMSMOKE(R),
VEGAS(R), SPORT(R), and MAIN STREET(R). Such cigarettes are sold through
approximately 200 tobacco and candy distributors ("T&C Distributors") throughout
the United States. The cigarettes are sold as "deep discount" products, i.e., at
or near the lowest price range in the wholesale market and, consequently, in the
retail market as well. Star does not engage in extensive advertising or
marketing programs for its cigarette products and relies primarily upon price
and, to a lesser extent, on product appearance and taste in order to compete in
the marketplace. Star has also engaged in contract manufacturing, i.e., the
manufacture of products under brands owned by others. The production and sale of
such products are expected to be an immaterial portion of sales in 1998. Export
sales are immaterial.

In January 1998, Star introduced to the market a chewing gum, under the label
GUMSMOKE(TM), which contains an FDA-approved tobacco flavoring. The gum is being
promoted by Star as an alternative to smoking to be chewed when the consumer
either is unable to smoke or desires to reduce the amount of smoking. The gum is
being sold in the United States through the T&C Distributors, as well as
directly to certain large retail chains. The product is also being distributed
in certain countries in Europe through a single distributor. GUMSMOKE(TM) is a
food product meeting FDA requirements and for which Star asserts no health or
therapeutic claims and is, therefore, distinguished from the therapeutic chewing
gum described below.

Star has an exclusive and perpetual United States license under patents pending
relating to methods to prevent the formation of tobacco-specific nitrosamines
("TSNAs") in tobacco. Certain TSNAs are generally regarded by tobacco chemists
as the most abundant and powerful carcinogens in tobacco and tobacco smoke.
Star's licensed processes employ the application of an energy source to tobacco
leaf shortly following the harvesting of the leaf and prior to completion of the
curing (drying) process. No chemicals are used. Star's processes prevent TSNAs
from forming in the tobacco leaf, a natural process which otherwise occurs
during the curing period. Independent tests have confirmed that Star's processes
reduce the amount of TSNAs in tobacco and tobacco smoke to either undetectable
levels or to de minimis levels. Star has successfully tested its processes in
both Virginia flue-cured and burley tobacco; the two most prevalent varieties of
tobacco used in cigarettes sold in the United States, and believes that its
processes may achieve similar results on other varieties of tobacco. Star has
not yet generated any revenues from the production and sale of TSNA-free
tobacco. It intends to purchase, treat with its proprietary processes, and sell
tobacco during the 1998 tobacco harvest season (July - October), including the
sale of tobacco to manufacturers of tobacco products.

Star has developed several products containing TSNA-free tobacco, but has not
yet marketed any such products. It has developed both a chewing gum and a
lozenge, each containing TSNA-free tobacco, as therapeutic products for the
smoking cessation market. The gum/lozenge products contain nicotine. Star has an
approved Investigational New Drug application ("IND") for the gum product filed
with the FDA and intends to commence human clinical trials in the second quarter
of 1998 in order to demonstrate the safety and efficacy of the product for
smoking cessation purposes. Neither the gum nor the lozenge may be sold in the
United States unless and until the FDA has approved a New Drug Application
("NDA") for such product, and no assurances can be given when

<PAGE> 4

or if Star might obtain such an approval or that, even if such approvals are
obtained, there will be significant revenues from the sale of CIGRX(TM).

Star has also developed a cigarette product, called CIGRX(TM), containing
TSNA-free tobacco. Star could now market such a product in the United States,
but existing federal law would preclude Star from making any health/therapeutic
claims for the product. Consequently, Star has chosen to submit this product to
the FDA pursuant to an IND which was filed with and approved by the FDA. Star
has positioned the product, if so approved, to be sold by physician's
prescription only as part of a smoking cessation regimen to be used by a patient
who relapses from his/her cessation effort and who is being prepared for a
subsequent cessation attempt. There can be no assurances when or if Star might
obtain FDA approval for CIGRX(TM).

Products of the Company

IOLs. The Company manufactures and markets eleven different series of lens
styles. These series of lenses, which incorporate over 63 lens configurations,
include both single-piece and multi-piece lens designs, blue
polymethylmethacrylate ("PMMA") loops, optics in 5.0mm, 5.5mm, 6.0mm, 6.5mm, and
7.0mm sizes, and optics of biconvex and convex-plano designs. The Company also
offers its UltraThin series, notch, double eyelet and left-handed IOLs to
address certain segments of the small incision and capsulorhexis market. Sales
of IOLs accounted for more than approximately 94% of net sales in 1997.

Microlamellar Keratomileusis (MKM). The 1990s has seen an increasing use in the
United States, and throughout the world, of a number of surgical procedures and
devices to correct human vision impairment, including myopia (nearsightedness),
hyperopia (farsightedness) and astigmatism. Such procedures include radial
keratotomy ("RK"), in which incisions are made in the cornea to flatten the
anterior surface and photorefractive keratotomy ("PRK") in which excimer or
solid-state lasers are employed to alter the surface and shape of the cornea.
MKM procedure employs a microkeratome device to remove the patient's corneal cap
after which a second resection is made in the stroma. The cap is then replaced,
adhering to the eye without the aid of sutures. LASIK is a combined procedure,
utilizing a microkeratome to make a "flap" on the cornea, folding the flap back
and employing a laser to alter the stroma, and then replacing the corneal flap
to its original position. Sales of MKM and LASIK equipment by the Company during
1997, almost all of which were export sales, accounted for approximately 6% of
all net sales of the Company.

Sales and Marketing

The Company marketed its products in the United States in 1997 through field
sales representatives to ophthalmologists, hospitals, health-care buyer groups,
outpatient clinics, health maintenance organizations and surgicenters. At
December 31, 1997, the Company had six field sales representatives, several of
which are corporate entities employing more than one representative, compared to
eight representatives at December 31, 1996. All such representatives are
independent contractors of the Company and are not employees. Declining sales
volume over the last several years, coupled with the Company's lack of a soft
lens product (see "IOLs", below), has resulted in a number of representatives
who have ceased to represent the Company's IOL product line, a situation which
has added to the Company's sales decline. The Company has lacked sufficient
working capital and a positive business outlook so as to attract experienced
independent sales representatives to replace the ones who have terminated their
relationship with the Company.

<PAGE> 5

The Company's domestic customers generally obtain lenses on a consignment basis
with actual title passing and invoicing occurring when the lens is implanted. As
of December 31, 1997, the Company had approximately 5,000 lenses on consignment.
No single customer accounted for ten percent or more of the Company's net sales
for any of the last three fiscal years.

For international sales, the Company generally grants nonexclusive distribution
rights for specified countries or territories to independent distributors.
Exclusive distribution rights, which are rarely granted, are awarded based upon
superior performance and distribution capabilities. The Company presently
distributes its products through 15 international distributors whose agreements
are subject to renewal based on performance. Export sales in 1997 and 1996 were
$408,227 and $578,812, respectively.

Competition

The markets for the Company's products are characterized by rapidly evolving
technology and intense competition. The Company competes with major
pharmaceutical and medical device companies. Most of these companies have
substantially greater financial and other resources, larger research and
development staffs, and more extensive marketing and manufacturing organizations
than the Company.

IOLs. In 1997, the Company's competitors with respect to IOLs included Iolab,
Chiron Ophthalmics, Storz (by the end of 1997, Iolab, Chiron Ophthalmics, and
Storz were all owned by Bausch & Lomb), Staar, Alcon, Allergan, and Mentor
Ophthalmics, all of which sold IOLs domestically and internationally. The
Company also competed in the United States with several small manufacturers, as
well as in the international market with several United States manufacturers who
sell exclusively in that market.

Throughout the 1990s, the use of "soft" or "foldable" IOLs have grown in
popularity among surgeons. The Company does not offer soft lenses, which the
Company estimates comprised approximately 60% of the United States IOL market in
1997.

In the "hard" lens segment of the United States market, the Company relies upon
a varied product selection, aggressive pricing and individualized customer
service. The Company estimates that its sales of IOLs accounted for less than
one percent of the United States IOL market in 1997.

In the international market, the primary competitive factors are price and
product offerings. The fact that the Company's products are approved by the FDA
for sale in the United States is an important factor in the Company's ability to
make export sales. In 1997, export sales accounted for 25% of the total
Company's IOL sales volume on a revenue basis and 55% on a units-sold basis.

MKM and LASIK Equipment. Domestic sales of the Company's MKM and LASIK equipment
in 1997 were insignificant as lack of working capital to market and promote the
Company's products and to make desired product improvements hampered the
Company's sales efforts for this product line.

The United States domestic market was dominated in 1997 by Chiron Ophthalmics,
which has far greater financial, technical and market resources than the
Company.

<PAGE> 6

Export sales of MKM and LASIK equipment in 1997 were $70,227, but the Company
does not maintain an established sales, distribution and service network in the
international market for its MKM and LASIK equipment.

Transaction with Ophthalmic Innovations International, Inc.

On January 31, 1997, the Company entered into a license agreement (the "License
Agreement") with Ophthalmic Innovations International, Inc. ("OII"), of
Claremont, California. Pursuant to the terms of the License Agreement, the
Company granted to OII a non-exclusive license under the Company's pre-market
approvals (PMAs) granted to the Company by the FDA to manufacture and market
IOLs designed and manufactured in compliance with the PMAs. The Company received
a one-time license fee of $325,000.

In connection with the License Agreement, the Company and OII entered into a
Supply Agreement on January 31, 1997, by which OII agreed to manufacture and
sell to the Company certain IOLs at predetermined fixed prices. During 1997, the
Company did not purchase any IOLs from OII pursuant to the Supply Agreement or
otherwise.

FDA Regulation

The manufacture and sale of IOLs requires prior approval by the FDA of an
application for an Investigational Device Exemption ("IDE") on a parent lens.
The "Parent Lens" is the original lens involved in a patient study undertaken to
approve the safety and effectiveness of the materials used in forming the lens
and the lens design. This application contains, among other things, a
description of the lens design, the materials to be used, and the proposed
manufacturing process. Upon FDA acceptance of an IDE, a company may commence
sales to a group of ophthalmologists who serve as clinical investigators for the
lens (the "Core Group"). The Core Group performs a defined number of implant
procedures for each intraocular lens style. The results of the implant
procedures are then submitted to the FDA. If the results are favorable, the FDA
will permit the company on whose behalf the IDE is filed to sell the lens on a
less restricted basis. The final stage of review involves filing an application
for pre-market approval ("PMA") with the FDA. PMA is granted based on results of
clinical investigations and, if approved, allows the lens to be sold for general
domestic implant purposes. Each new lens design must comply with these
procedures. (See "Products").

FDA regulations require the Company to comply with "Good Manufacturing
Practices" ("GMPs") regarding the manufacture of IOLs and to maintain complete
traceability of each lens implanted, including pertinent information about each
patient. Any adverse reactions to an implant must be reported to the FDA.

In June 1990, the Company received pre-market approval ("PMA") on its Parent
Lens and three supplements, which included several three-piece lens designs with
PMMA loops. In September 1990, the Company received approvals for supplements on
both single-piece and biconvex lens designs introduced by the Company to address
the fastest growing segment of the IOL market, small incision products. In
September 1991, the Company's 5.0mm lens received PMA status from the FDA. As a
result of the above approvals, 90% of the Company's IOL product line has
received FDA approval.

<PAGE> 7

In March 1994, the Company acquired certain assets of a company manufacturing a
microkeratome unit under the name of MicroPrecision(TM). The assets included
patent rights and FDA 510K approval of the keratome system. These products are
manufactured under the name MicroPrecision(TM).

Research and Development

In 1991, the Company entered into an agreement with Ronald P. Jensen, M.D., to
consult with the Company with respect to the development of viscoelastic
material whereby he granted to the Company a right of first refusal for the
development of any such viscoelastic material that may be developed by Dr.
Jensen for a five-year period beginning December 1993. The Company was required
to pay to Dr. Jensen $200,000 over such five-year period.

In 1997, the Company was not working with any viscoelastic material developed by
Dr. Jensen and was in default of its payments to Dr. Jensen. In February 1998,
the Company renegotiated its contract with Dr. Jensen, which now extends to the
year 2000 and requires further payments totaling $100,000. The Company still
does not work on any viscoelastic material developed by Dr. Jensen.

In 1995, the Company conducted research and development primarily for research
in the fields of corneal topography, glaucoma and soft/foldable lens technology.
In 1996, due to a lack of working capital, the Company ceased research and
development activities on corneal topography and glaucoma technologies and
reduced work on soft/foldable lens technology to in-house research. Costs for
such research were not material. This situation continued throughout 1997.

Product Liability

The testing, marketing, and sale of human health care products entail an
inherent risk of allegations of product liability. Although the Company has not
incurred any material product liability to date, whether insured or uninsured,
there can be no assurance that substantial product liability claims will not be
asserted against the Company.

In 1996, the Company allowed its product liability insurance to lapse so that
there is no insurance coverage in the event the Company is confronted with any
more product liability claims. Accordingly, a significant amount of claims
against the Company for product liability, if resolved against the Company,
would have a material adverse effect on the Company's business, results of
operations and financial condition.

Raw Materials

The raw materials used by the Company in the manufacture of IOLs are cast PMMA
and extruded PMMA (See "Products"). Although these raw materials are only
available through a limited number of suppliers, they are generally available.
The Company has an adequate supply of the PMMA materials on hand to meet
short-term production requirements and does not anticipate that the availability
of PMMA will restrict its ability to meet production demands.

Patents, Trademarks, and Licenses

The Company is not reliant upon patent protection for the marketing of its IOLs
and believes that its ability to effectively compete in the IOL marketplace is
dependent upon other factors. (See

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"Competition"). There are no patents, trademarks, or licenses which are material
to the business and operations of the Company, except its approvals from the FDA
to market IOLs in the United States.
(See "FDA Regulation").

Employees

As of December 31, 1997, the Company had 6 full-time employees in the United
States. The Company also employed 25 full-time employees in its Mexicali, Mexico
facility.

Item 2. Properties.

In 1996, the Company's executive, manufacturing, and administrative offices were
located in approximately 19,500 square feet of leased office space in St. Paul,
Minnesota. The Company also leased 7,400 square feet in a building located in
Mexicali, Mexico for use as a manufacturing plant pursuant to the Maquiladora
program administered by the United States and Mexican governments. In general,
all of the Company's premises are nearly fully utilized and considered to be in
good condition and adequate for the purposes for which they are being used.

Item 3. Legal Proceedings.

The Company was a defendant in 1997 in several lawsuits brought by creditors of
the Company to collect monies due and payable by the Company, including the
following three lawsuits:

Dr. Ronald P. Jensen brought suit in 1996 in the United States District
Court for the Central District of California for breach of a consulting
contract, claiming damages of $111,000 plus interest and costs. The
suit was settled in February 1998 in the amount of $25,000 plus a
renegotiated consulting arrangement providing for the payment by the
Company of $100,000 over a two-year period beginning June 1, 1998.

Dr. Richard Lindstrom brought suit in 1996 in the District Court,
Second Judicial District, County of Ramsey, Minnesota, against the
Company alleging breach of agreement of the Company arising out of
payments due to Dr. Lindstrom and a leasing company for the lease of
equipment by the Company. Plaintiff sought damages in excess of
$50,000. The matter was settled in June 1997 through the provision of
IOLs to Dr. Lindstrom in lieu of cash payments.

The law firm of Christie, Parker & Hale brought suit in 1996 against
the Company to collect legal fees owing to it in connection with that
law firm's representation of the Company in a patent infringement suit
against the Company that was settled in 1995. The suit was entered in
the Superior Court of California, County of Los Angeles. Default
judgment in the amount of approximately $43,000 was entered against the
Company in 1996. Christie, Parker & Hale has agreed to forego action
against the Company on its judgment as long as the Company remains
current on a schedule of payments totaling $43,000, agreed upon by the
parties. As of April 1998, the Company was current in its payment
schedule.

<PAGE> 9

In early 1997, Tracy Hoffman, a former employee of the Company, brought suit in
the District Court, Second Judicial District, County of Ramsey, Minnesota,
against the Company, alleging monies due for compensation and damages for
sexual harassment. This suit was settled in February 1998 by the Company's
agreement to pay to Ms. Hoffman and to her attorneys a total of $30,000.

In September 1996, Dr. Samuel Yankelove brought suit against the Company in the
164th Judicial District Court of Harris County, Texas, claiming damages for an
alleged defective item of equipment sold by the Company to Dr. Yankelove. In
March 1998, the Company entered into an Agreed Judgment with the plaintiff
providing for the payment by the Company of $30,000 over more than a three-year
period.

There were several other lawsuits pending against the Company in 1997 which
individually or in the aggregate are not material to the business or financial
condition of the Company either because the amounts are not material or the
liability is covered by applicable insurance.

Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this Report.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

The Common Stock of the Company is traded in the Over-The-Counter ("OTC") market
and is quoted on the National Service "Pink Sheets". Set forth below are the
high and low bid prices (which reflect prices between dealers and do not include
retail markup, markdown or commission and may not represent actual transactions)
for each full quarterly period during 1996 and 1997, as reported by the National
Quotation Bureau. From time to time, during the periods indicated, trading
activity in the Company's stock was infrequent. No dividends have ever been
declared by the Company. As of April 10, 1998 there were approximately 570
record holders of the Company's Common Stock.

Period High Bid Low Bid
------ -------- -------
<S> <C> <C>
Quarter Ended:
03-31-96 $0.125 $0.125
06-30-96 $1.0625 $0.125
09-30-96 $0.75 $0.40625
12-31-96 $0.40625 $0.09375
03-31-97 $0.21875 $0.09375
06-30-97 $0.21875 $0.01563
09-30-97 $0.035 $0.01
12-31-97 $0.01 $0.01
03-31-98 $5.9375 $0.01
</TABLE>

<PAGE> 10

Item 6. Management's Discussion and Analysis or Plan of Operation.

Liquidity and Capital Resources

The Company incurred substantial losses since the beginning of the 1994
fiscal/calendar year and throughout 1995 and 1996 and 1997 had a net capital
deficiency. As a result, the Company experienced severe working capital
shortages in 1997, was compelled to curtail or reduce marketing and sales
promotion and new product development activities, and was in default of several
contractual obligations which threatened the ability of the Company to continue
operations.

On January 31, 1997, the Company received a one-time license payment of $325,000
pursuant to the License Agreement with OII (See "Transaction with Ophthalmic
Innovations International, Inc." in Item 1 above). The cash received allowed the
Company to retire secured indebtedness to an institutional lender to whom it had
been in material default of its loan agreement. The Company thereupon entered
into a new financing arrangement by which its eligible receivables are factored
to a third party.

Notwithstanding the cash infusion received pursuant to the License Agreement
with OII, and the factoring arrangement described in the preceding sentence, the
Company continued throughout 1997 to have significant liquidity shortages and to
be in default of a number of contractual obligations by reason of its inability
to make timely payments.

In February 1998, the Company entered into a "reverse acquisition" with Star
pursuant to which the Company exchanged newly-issued shares of its capital
stock to the shareholders of Star in consideration for all the capital stock of
Star, resulting in a change of control of the Company. (The "reverse
acquisition" transaction is described in the Company's Current Report on Form
8-K, filed February 19, 1998, with the Securities and Exchange Commission.) In
February and March 1998, the Company received $1.45 million from the sale of
2.9 million shares of its Common Stock in a private placement on February 9,
1998. A portion of the funds received by the Company from this private
placement, together with issuance of Common Stock in satisfaction of accrued
expenses, has resulted in a reduction of outstanding indebtedness of the
Company of approximately $700,000. The Company plans to use additional funds
from the private sale of equity securities, and/or funds provided to it by
Star, in order to satisfy its working capital and debt requirements.

Results of Operations - Fiscal 1997 Compared to Fiscal 1996

Net sales for the year ended December 31, 1997 were $1,333,431, a decrease of
$959,880 (42%) from sales of $2,293,311 for the year ended December 31, 1996.
In 1997, 69% of the Company's sales were in the domestic market and 31% were in
the international market. This compares to a market mix of 75% domestic sales
and 25% international sales in 1996.

Sales of IOLs comprised 94% of net sales in 1997, with the balance of sales
being primarily MKM and LASIK equipment. This compares to 88% IOL sales in
1996.

In 1997, industry-wide pricing pressures were reflected in a decrease in the
average unit price per domestic sale of 9% from 1996. Unit sales in the United
States also decreased from 1996 by 38%, reflecting continuing industry trend of
greater sales of soft/foldable lenses, which the Company does not offer, as
well as the Company's lack of working capital to provide marketing and

<PAGE> 11
sales support for its independent sales force. The Company's unit sales in the
United States were also adversely affected by a reduction in the number of sales
representatives soliciting sales of the Company's products.

Sales of MKM and LASIK equipment declined 74% in 1997 from 1996, or from
$275,000 to $70,000. The decline is principally attributable to the inability of
the Company to conduct sales promotion activities, such as skills transfer
courses, and to provide product design improvements in both cases due to a lack
of working capital funds. More than 95% of sales revenue of this equipment in
1997 reflects export sales, as was the case in 1996.

Gross profit, as a percentage of net sales, decreased significantly to 44% in
1997 from 65% in 1996. The decrease is attributable primarily to four factors: a
higher percentage of IOL sales were export sales for which the gross profit
margin is substantially less than for domestic sales; manufacturing overhead,
which is relatively fixed in cost, becomes a greater percentage of sales as
sales volume declines; both domestic and international prices continued to
decline; and high return of MKM/LASIK equipment adversely affected margins.

Selling and marketing expenses decreased $415,552 to 15% of net sales from 27%
in 1995, due primarily to the increase in the percentage of international sales,
which are associated with lower commission rates than are domestic sales, and
to reduced marketing and promotional expenses due to a lack of working capital.

General and administrative expenses were 67% of net sales in 1997 compared to
46% in 1996, despite the reduction of $155,543 of such expenses. The Company was
unable to reduce costs, such as rent, insurance and management compensation, at
the same rate as sales declined. In addition, the Company incurred unanticipated
legal fees as a result of litigation by certain creditors for collections.

Research and development expense decreased from $24,530 in 1996 to zero in 1997.
Because of a severe lack of working capital, the Company abandoned, in late 1995
and early 1996, research and development projects related to potential new
products in the fields of corneal topography and glaucoma. A project to develop
a soft/foldable IOL was significantly cut back and only relatively immaterial
expense was incurred on this project in 1997, which expense was accounted for as
manufacturing labor.

Interest expense increased from $144,627 in 1996 to $160,576 in 1997. In both
years, the amount of borrowed debt of the Company was related principally to
accounts receivable which were lower throughout 1997 compared to 1996 because of
lower sales, resulting in lower interest accruals. The decrease in interest on
borrowed debt was more than offset by a higher amount of interest incurred
with respect to certain past due obligations to creditors who charged interest
on past due amounts.

Net loss in 1997 was $330,191 compared to net loss of $213,816 in 1996. The
increase was due to the factors noted above. 1997 results were significantly and
favorably impacted by the receipt of a $325,000 license fee for the grant of a
license by the Company to a manufacturer of IOLs to manufacture and sell IOLs
under the Company's PMA approvals. Also, 1996 results were favorably impacted by
a judgment of $161,053 received by the Company in a lawsuit against a competitor
for wrongful product disparagement, netting approximately $56,000 to the Company
after offsetting legal fees.

Item 7. Financial Statements.

An index to the financial statements of the Company filed as part of this
report appears at Page F-1. The financial statements of the Company including
the Independent Auditors' Report appear at Pages F-2 through F-12 of this
Report.

<PAGE> 12

Item 8. Changes in and Disagreements with Accountants and Financial Disclosure.

On December 19, 1996, Price Waterhouse LLP ("Former Auditors") resigned as the
Company's independent accountant. In its reports for the Company's 1995 and 1994
fiscal years, the Former Auditors expressed "substantial doubt about the
Company's ability to continue as a going concern." During the 1995 and 1994
fiscal years and the interim period through December 19, 1996, there were no
disagreements between the Company and the Former Accountant on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to their satisfaction,
would have caused them to make reference in connection with their opinion to the
subject matter of the disagreement.

On March 5, 1998, the Board of Directors of the Company engaged Olsen, Thielen &
Co., Ltd. ("New Auditors") as the Company's new independent auditors to audit
the Company's financial statements for the years ended December 31, 1996 and
December 31, 1997. The Company had not, prior to such engagement, consulted the
New Auditors regarding any financial statement matters, or otherwise, of the
Company.

PART III

Item 9. Directors and Executive Officers of the Registrants.

Following is a list that sets forth the names, ages, and positions (a) of all
executive officers, significant personnel, and directors as of April 15, 1998,
of the Company and of Star Tobacco and Pharmaceuticals, Inc. ("Star"), the
Company's subsidiary acquired by the Company on February 6, 1998, and (b) all
executive officers and directors of the Company during the 1996 fiscal year of
the Company:

Name Age Position(s)
---- --- -----------
<S> <C> <C>
Samuel P. Sears, Jr. 54 Chairman of the Board(1), Chief Executive Officer(1),
and Director of the Company and of Star
John M. Gallahan 42 President, Chief Operating Officer, and Director of Star
and Director of the Company(1)
Robert J. Fitzsimmons 61 President and Director of the Company; Chairman of
the Board and Chief Executive Officer of the Company
until February 6, 1998
Jonnie R. Williams 42 Director of Product Development and Director of
Marketing of Star
Robert J. DeLorenzo, M.D., 50 Director of the Company and Medical Research
Ph.D., M.P.H. Director of Star
Larry Leiske, M.D. 60 Director of the Company until February 5, 1998
Paul H. Lamb, III 65 Director of Star
Debra McCoy Seagrist 39 Vice President - Product Development of the Company
until August 1997
</TABLE>

(1) elected to such position on February 6, 1998

<PAGE> 13
All Directors hold office until the next annual meeting of stockholders or until
their successors are elected. Officers serve at the discretion of the Board of
Directors. As of April 15, 1998, neither the Company nor Star had any employment
agreements.

Samuel P. Sears, Jr. has been Chairman, Chief Executive Officer, and Director of
Star since September 1994. He has been a Director of the Company since 1985, and
its Chairman and Chief Executive Officer since February 6, 1998. From April 1993
to September 1994, Mr. Sears was "Of Counsel" to the New York law firm of
LeBouef, Lamb, Green & MacRae. Prior to April 1993, Mr. Sears was Managing
Partner of the Boston law firm of Burns & Levinson.

John M. Gallahan has been President, Chief Operating Officer, and a Director of
Star since October 1995. From 1991 to 1995, he was Vice President, Air Express
International Corporation, of Darien, Connecticut. Mr. Gallahan became a
Director of the Company on February 6, 1998.

Robert J. Fitzsimmons has been President and a Director of the Company since
1985. For at least five years prior to February 6, 1998, Mr. Fitzsimmons was
also Chairman and Chief Executive Officer of the Company.

Jonnie R. Williams has been Director of Product Development and Director of
Marketing of Star since 1994. Mr. Williams is a principal stockholder of the
Company and, until February 6, 1998, when the Company acquired all of the
capital stock of Star, was a principal stockholder of Star. While not holding a
position as Director or other officer position of the Company or Star, Mr.
Williams exercises significant control over, and spends substantial amounts of
business time to, the affairs of the Company and Star, and is considered a key
executive and a controlling person of the Company. Since the late 1980s, Mr.
Williams has been owner and President of Jonnie R. Williams Venture Capital
Company, an entity engaged in providing venture capital financing to start-up
businesses.

Robert J. DeLorenzo, M.D., Ph.D., M.P.H., became a Director of the Company on
February 17, 1998, as well as its Medical Research Director. From 1985 to
present, Dr. DeLorenzo has been: George B. Bliley III Professor and Chairman,
Department of Neurology, Medical College of Virginia, Richmond, Virginia
("MCV"); Professor, Department of Pharmacology at MCV; Neurologist-in-Chief, MCV
Hospitals; and (since 1986) Director, Molecular Neurobiology Research Facility
at MCV.

Larry Leiske, M.D., was a Director of the Company from 1987 until February 6,
1998. Dr. Leiske has been in the private practice of ophthalmology since 1967
and has held teaching positions at the University of Southern California School
of Medicine and the White Memorial Medical Center.

Paul H. Lamb III has been a Director of Star since 1990. Mr. Lamb has acted as a
key advisor to Star on matters pertaining to tobacco products for at least the
past five years.

Debra McCoy Seagrist resigned as Vice President - Product Development of the
Company in August 1997, a position she had held for at least the five previous
years.

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than 10% of a registered class
of the Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Officers,
directors and greater than 10% beneficial owners are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of the forms furnished to the Company, or
written representations that no Forms 5 were required, the Company believes that
during the fiscal year ended December 31, 1997 all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, except that Mr. Fitzsimmons acquired 6,481
shares of Common Stock in December 1997 for which a Form 4 was filed in March
1998.

<PAGE> 14

Item 10. Executive Compensation.

The following table sets forth certain information concerning compensation paid
and accrued to the Chief Executive Officer of the Company for the three fiscal
years ended December 31, 1997. The Chief Executive Officer was the only
executive officer or significant employee whose annual compensation exceeded
$100,000 in any of such fiscal years.

Annual Annual Compensation All Other
Individual Compensation Paid Accrued But Not Paid Compensation
- ---------- ----------------- -------------------- ------------
<S> <C> <C> <C>
Robert J. Fitzsimmons
Chairman of the Board, 1995 - $179,156 1995 - -0- 1995 - (2)
President and Chief Executive 1996 - $103,179 1996 - $ 58,831(1) 1996 - 15,706
Officer 1997 - $ 15,456 1997 - $ 147,619(1) 1997 - 15,706

</TABLE>

(1) See "Item 12. Certain Relationships and Related Transactions"
below regarding the issue to Mr. Fitzsimmons of shares of Common
Stock of the Company in partial consideration of the cancellation
of indebtedness of the Company to Mr. Fitzsimmons, including
indebtedness for accrued compensation set forth in the above
table.

(2) Less than 10% of compensation paid for year.

The Company entered into a five-year employment agreement with Robert J.
Fitzsimmons on November 1, 1989, which provided that Mr. Fitzsimmons would serve
as Chief Executive Officer of the Company at an annual salary of $120,000
subject to increase by the Board of Directors. Such agreement was renewed for an
additional five-year term beginning November 1, 1994. Mr. Fitzsimmons' annual
salary was increased twice by the Board, once in 1990 and again in 1991, to a
level of $192,000. Mr. Fitzsimmons' employment agreement provided that, in the
event of a hostile change in control of the Company, and in the event Mr.
Fitzsimmons' employment was terminated as a result thereof, the Company was
obligated to make a cash payment to Mr. Fitzsimmons totaling 299.99% of his
average annual base salary during the five-year period prior to termination.
This employment agreement was canceled on February 6, 1998, with Mr. Fitzsimmons
releasing the Company from any liability under the agreement in consideration
for the issue of shares of Common Stock of the Company to Mr. Fitzsimmons. (See
"Item 12. Certain Relationships and Related Transactions" below.)

In 1994, Mr. Fitzsimmons was granted an option to acquire 150,00 shares of
Common Stock at an exercise price of $0.50 per share. The option was exercisable
with respect to 50,000 shares at year end. The option was due to expire on
February 28, 1999. As of year end, the option was out-of-the-money. No options
were granted to Mr. Fitzsimmons in 1997. See "Certain Relationships and Related
Transactions."

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth as of March 30, 1998, certain information with
respect to the beneficial ownership of the Company's Common Stock and the
Company's Series B Preferred Stock by each beneficial owner of more than 5% of
the Company's Common Stock, each Director of the Company, and all Directors and
Officers and significant personnel of the Company and of Star as a group.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Percentage of
Percentage of Voting Rights
Voting Rights of Securities
of Securities Owned if All
Owned Prior Shares of
Amount of Percentage to Conversion Series B
Name and Address of Amount of Series B of Series B of Series B Preferred
Individual or Identity of Common Preferred Preferred Preferred Stock are
Group Stock(1) Stock(1) Stock Stock(1) Converted(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jonnie R. Williams 42,498,890(2)(3) 12,956,979(2)(3) 93.7 44.7 79.7
16 S. Market Street
Petersburg, VA 23803
- ----------------------------------------------------------------------------------------------------------------------
Francis E. O'Donnell, 42,498,890(2)(4) 12,956,979(2)(4) 93.7 44.7 79.7
Jr., M.D.
709 The Hamptons Lane
Chesterfield, MO 63017
- ----------------------------------------------------------------------------------------------------------------------
Robert J. Fitzsimmons 1,152,281 -0- -0- 7.9 2.2
1997 Sloan Place
St. Paul, MN 55117
- ----------------------------------------------------------------------------------------------------------------------
Samuel P. Sears, Jr. 440,600 60.9756 .4 1.9 .8
16 S. Market Street
Petersburg, VA 23803
- ----------------------------------------------------------------------------------------------------------------------
Robert J. DeLorenzo, 500,000 60.9756 .4 2.3 .9
M.D., Ph.D., M.P.H.
Medical College of
Virginia
MCV Box 980599
Richmond, VA 23298
- ----------------------------------------------------------------------------------------------------------------------
John M. Gallahan 200,000(5) 60.9756 .4 .2 .4
16 S. Market Street
Petersburg, VA 23803
- ----------------------------------------------------------------------------------------------------------------------
All Directors and 44,791,177 13,139.904 95.0 57.0 84.0
Officers and Significant
Personnel
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Shares of Series B Preferred Stock are convertible into shares of Common
Stock at the rate of 3,280 shares of Common Stock for each share of
Series B Preferred Stock. Consequently, shares of Common Stock shown in
the table include shares of Common Stock into which the shares of Series
B Preferred Stock are convertible. Shares of Common Stock, Class A
Preferred Stock and Series B Preferred Stock all vote as one class.
Holders of Common Stock are entitled to one vote for each share held, and
holders of Series B Preferred Stock are entitle to five hundred votes for
each share held.

(2) Includes 11,573.8311 shares of Series B Preferred Stock, convertible into
37,962,166 shares of Common Stock, owned of record by Regent Court
Partnership, a general partnership of which Jonnie R. Williams and
Francis E. O'Donnell, Jr., are the sole partners.

(3) Includes 691.5740 shares of Series B Preferred Stock, convertible into
2,268,362 shares of Common Stock, owned by a trust for the benefit of the
children of Jonnie R. Williams. Mr. Williams disclaims beneficial
ownership of these shares.

(4) Includes 691.5740 shares of Series B Preferred Stock, convertible into
2,268,362 shares of Common Stock, owned by a trust for the benefit of the
descendants of Francis E. O'Donnell, Jr. Also includes 691.5740 shares of
Series B Preferred Stock, convertible into 2,268,362 shares of Common
Stock, owned by trusts of which Dr. O'Donnell is trustee but in which
neither he nor any member of his family has a beneficial interest. Dr.
O'Donnell disclaims any beneficial interest in such shares.

Item 12. Certain Relationships and Related Transactions.

Throughout 1996, the Company owed Robert J. Fitzsimmons, Chairman of the Board,
President and Chief Executive Officer of the Company during that year, the sum
of $172,500 plus accrued interest in consideration for loans provided by Mr.
Fitzsimmons in March 1994 and April 1995. The sums

<PAGE> 15

bear interest at two percent (2%) in excess of the prime rate. At December 31,
1996, the amount of accrued interest was $48,343.

In February 1994, the Company issued to Mr. Fitzsimmons a stock option to
acquire 150,000 shares of Common Stock at $0.50 per share. The option was due to
expire on February 28, 1999. On February 5, 1998, 50,000 of such shares were
exercisable and options to purchase 100,000 shares were exercisable only upon
satisfaction of certain conditions which had not yet occurred. On February 6,
1998, the Company agreed to issue to Mr. Fitzsimmons a total of 887,500 shares
of Common Stock of the Company in consideration for (i) cancellation of
indebtedness of the Company to Mr. Fitzsimmons for unpaid compensation and for
the loans of Mr. Fitzsimmons to the Company in the aggregate amount at February
6, 1998 of $378,950, (ii) the mutual termination of Mr. Fitzsimmons' employment
contract with the Company (See "Item 10. Executive Compensation" above), and
(iii) cancellation of options held by Mr. Fitzsimmons to purchase shares of
Common Stock of the Company, as described above.

Samuel P. Sears, Jr., a Director of the Company and, effective February 6, 1998,
Chairman and Chief Executive Officer of the Company, provided legal services to
the Company during 1995 and 1996. Fees payable to Mr. Sears for such services
for those years were $38,175 and $500, respectively. As of December 31, 1996,
Mr. Sears was owed a total of $56,332 for legal services. In February 1998, Mr.
Sears received a total of 225,300 shares of Common Stock in consideration of
cancellation of such indebtedness.

In November 1993, the Company issued to Mr. Sears a stock option to acquire
50,000 shares of Common Stock at $0.50 per share in recognition of his services
as a Director and counsel to the Company since 1985. The option was due to
expire on January 31, 2001. On February 6, 1998, the Company issued to Mr. Sears
15,000 shares of Common Stock of the Company in consideration of the
cancellation of his stock option.

Item 13. Exhibits and Reports on Form 8-K.

(a) Exhibits

An index to exhibits filed as part of this Report or
incorporated herein by reference appears at pages 17 through
20 of this Report.

(b) Reports on Form 8-K
Not Applicable

<PAGE> 16

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.
(Registrant)

By: /s/ Samuel P. Sears, Jr.
-------------------------------------------------------
SAMUEL P. SEARS, JR., CHIEF FINANCIAL OFFICER

Dated: April 20, 1998

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By: /s/ John M. Gallahan
-------------------------------------------------------
JOHN M. GALLAHAN, DIRECTOR

Dated: April 20, 1998

By: /s/ Robert J. Fitzsimmons
-------------------------------------------------------
ROBERT J. FITZSIMMONS, DIRECTOR

Dated: April 20, 1998

By: /s/ Samuel P. Sears, Jr.
-------------------------------------------------------
SAMUEL P. SEARS, Jr., DIRECTOR

Dated: April 20, 1998

<PAGE> 17

EYE TECHNOLOGY, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

Description Page
----------- ----
<S> <C>
1. Independent Auditors' Report F-2

2. Consolidated Balance Sheets -
December 31, 1997 and 1996 F-3

3. Consolidated Statement of Operations
for the Two Years Ended December 31, 1997 F-4

4. Consolidated Statement of Stockholders' Deficit
for the Two Years Ended December 31, 1997 F-5

5. Consolidated Statement of Cash Flows
for the Two Years Ended December 31, 1997 F-6

6. Notes to Consolidated Financial Statements F-7

</TABLE>

F-1

<PAGE> 18
INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Eye Technology, Inc.
St. Paul, Minnesota

We have audited the accompanying consolidated balance sheet of Eye Technology,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for the years then ended. 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eye Technology, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

St. Paul, Minnesota /S/ OLSEN THIELEN & CO., LTD.
April 13, 1998

F-2
<PAGE> 19
EYE TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996

================================================================================
<TABLE>
<CAPTION>

ASSETS
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,244 $ 64,266
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $202,000 and $180,000 52,214 102,623
Inventories 894,077 1,049,257
Prepaid Expenses and Other 7,177 4,413
------------ ------------
Total Current Assets 956,712 1,220,559
------------ ------------

PROPERTY AND EQUIPMENT:
Machinery and Equipment 498,516 498,516
Furniture and Fixtures 272,040 272,040
Leasehold Improvements 1,750 39,838
------------ ------------
Total 772,306 810,394
Less Accumulated Depreciation 723,793 733,389
------------ ------------
Net Property and Equipment 48,513 77,005
------------ ------------

OTHER ASSETS
Purchased Technology 193,793 414,434
Other 54,225 23,225
------------ ------------
Total Other Assets 248,018 437,659
------------ ------------

TOTAL ASSETS $ 1,253,243 $ 1,735,223
============ ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Notes Payable $ 269,639 $ 796,520
Notes Payable to Related Party 183,000 172,500
Accounts Payable 478,347 405,399
Accrued Professional Fees 548,154 491,477
Accrued Compensation 450,580 124,517
Accrued Commissions 107,240 153,575
Other Accrued Liabilities 174,510 219,271
------------ ------------
Total Current Liabilities 2,211,470 2,363,259
------------ ------------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE PREFERRED STOCK, Class A, Convertible,
2,570 shares issued and outstanding at liquidation value 257,000 257,000
------------ ------------

STOCKHOLDERS' DEFICIT:
Common Stock, $.01 par value, 10,000,000 shares authorized
3,435,190 shares issued and outstanding 34,352 34,352
Additional Paid-In Capital 8,777,505 8,777,505
Accumulated Deficit (10,027,084) (9,696,893)
------------ ------------
Total Stockholders' Deficit (1,215,227) (885,036)
------------ ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,253,243 $ 1,735,223
============ ============
</TABLE>

The accompanying notes are an integral part of
the consolidated financial statements.

F-3
<PAGE> 20
EYE TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996

================================================================================

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
SALES $ 1,333,431 $ 2,293,311

COST OF GOODS SOLD 748,018 810,373
------------ ------------

GROSS PROFIT 585,413 1,482,938
------------ ------------

OPERATING EXPENSES:
Selling and Marketing 197,422 612,974
General and Administrative 888,746 1,044,289
Research and Development -- 24,530
------------ ------------
Total Operating Expenses 1,086,168 1,681,793
------------ ------------

LOSS FROM OPERATIONS (500,755) (198,855)
------------ ------------

OTHER INCOME (EXPENSES):
Sale of License 325,000 --
Litigation Settlement -- 161,053
Interest Expense (160,576) (144,627)
Other 6,140 (31,387)
------------ ------------
Total Other Income (Expenses) 170,564 (14,961)
------------ ------------

NET LOSS $ (330,191) $ (213,816)
============ ============

BASIC AND DILUTED NET LOSS PER SHARE $ (.10) $ (.06)
============ ============

WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING $ 3,435,190 $ 3,436,923
============ ============
</TABLE>

The accompanying notes are an integral part of
the consolidated financial statements.

F-4
<PAGE> 21
EYE TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1996

================================================================================

<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE on December 31, 1995 3,438,656 $ 34,387 $ 8,777,505 $ (9,483,077)

Stock Cancelled (3,466) (35)
Net Loss (213,816)
---------- ---------- ------------ --------------

BALANCE on December 31, 1996 3,435,190 34,352 8,777,505 (9,696,893)

Net Loss (330,191)
---------- ---------- ------------ --------------

BALANCE on December 31, 1997 3,435,190 $ 34,352 $ 8,777,505 $ (10,027,084)
========== ========== ============ ==============
</TABLE>

The accompanying notes are an integral part of
the consolidated financial statements.

F-5
<PAGE> 22
EYE TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996

================================================================================

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (330,191) $ (213,816)
Adjustments to Reconcile Net Loss
to Net Cash Provided By Operating Activities:
Depreciation and Amortization 249,133 236,884
Gain on Disposal of Property and Equipment -- (8,847)
(Increase) Decrease In:
Accounts Receivable 50,409 376,802
Inventories 52,750 36,610
Prepaid Expenses and Other (33,764) 30,422
Increase (Decrease) In:
Accounts Payable and Accrued Liabilities 384,592 (255,023)
---------- ----------
Net Cash Provided By
Operating Activities 372,929 203,032
---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds Received on Sale of Equipment -- 10,000
---------- ----------
Net Cash Provided By Investing Activities -- 10,000
---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes Payable 437,610 516,832
Principal Payments on Notes Payable (871,561) (671,212)
Common Stock Cancelled -- (35)
---------- ----------
Net Cash Used In Financing Activities (433,951) (154,415)
---------- ----------

NET INCREASE (DECREASE) IN CASH (61,022) 58,617

CASH at Beginning of Year 64,266 5,649
---------- ----------

CASH AT End of Year $ 3,244 $ 64,266
========== ==========

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 189,974 $ 87,399
Non Cash Transactions:
Debt Issued for Accrued Liabilities 20,000 --
Inventory Exchanged for Payment of Debt 102,430 --
</TABLE>

The accompanying notes are an integral part of
the consolidated financial statements.

F-6
<PAGE> 23
EYE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Nature of Business - Eye Technology, Inc. (the Company) researches, designs,
develops, manufactures and sells intraocular lenses and other ophthalmic
products. Export sales in 1997 and 1996 were approximately $408,000 and
$579,000. No one geographical area was significant. No customer accounted for
10% or more of the Company's net sales during any of the periods presented.

B. Operations and Cash Flow - As reflected in the accompanying consolidated
financial statements, the Company has incurred losses from operations and has a
net capital deficiency. In addition, the limited availability of additional
working capital indicates uncertainty as to whether current financing
arrangements will be sufficient to fund current operations and financial
commitments. The Company has significant current debt obligations and is in
default under these debt obligations which gives the lenders the right to call
the obligations at their discretion. The Company also is in technical default on
its obligations in conjunction with the purchase of technology (See Note 6).

Management continues to pursue various financing alternatives, and is in the
process of raising additional capital which it believes will be sufficient for
the Company to continue normal operations. In addition, the shareholders of the
Company have agreed to financially support the operations of the entity and
believe they have the ability to do so.

C. Consolidation - The accompanying consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly-owned.
All intercompany accounts and transactions have been eliminated in
consolidation.

D. Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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. Actual results could differ from those estimates.

E. Fair Value of Financial Instruments - The Company's financial instruments
consist of cash, short-term trade receivables and payables for which the current
carrying amounts approximate fair market value. Additionally, the borrowing
rates currently available to the Company approximate the rates for debt
agreements with similar terms and average maturities.

F. Inventories - Inventories are recorded at the lower of first-in, first-out
cost or market. Inventories consist of the following:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw Materials $ 8,108 $ 5,626
Work in Process 440,672 471,135
Finished Goods 445,297 572,496
---------- ----------

$ 894,077 $1,049,257
========== ==========
</TABLE>

F-7
<PAGE> 24

G. Property and Equipment - Property and equipment are recorded at cost.
Additions, improvements or major renewals are capitalized. Any gains or losses
on property and equipment retirements are reflected in the current years
operations. Depreciation is computed using the straight-line method over
estimated useful lives as follows:

Machinery and equipment 10 years
Furniture and fixtures 3 to 5 years
Leasehold improvements Term of lease

H. Research and Development Costs - Research and development costs are expensed.

I. Purchased Technology - As of January 1, 1996, the unamortized cost of
technology acquired in 1994 (See Note 6) is being amortized over its estimated
remaining life of three years. Amortization expense included on the statement of
operations was $220,641 in 1997 and $221,075 in 1996. Accumulated amortization
was $512,617 and $291,976 as of December 31, 1997 and 1996.

J. Revenue Recognition - For domestic intraocular lens sales, which are
regulated by the Food and Drug Administration, the Company generally recognizes
revenue after the intraocular lenses have been surgically implanted and
notification has been received from the physician or institution. For
international sales, which are not regulated by the FDA, the Company recognizes
revenue when the lenses are shipped. The Company generally recognizes revenue on
equipment sales upon shipment of the product.

K. Loss Per Common Share - Net loss per common share is computed under the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share". Basic loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. Diluted
loss per common share includes the dilutive effect of potential common shares
outstanding. The Company's potential common shares outstanding include stock
options and preferred stock. Basic and diluted earnings per share were the same
in 1997 and in 1996 because all potential common shares were antidilutive.

NOTE 2 - ACCOUNTS RECEIVABLE

During 1997, the Company entered into an agreement with a financial institution
to sell the institution substantially all domestic trade receivables with full
recourse. The financial institution purchases the receivables subject to a
variable discount based on a daily aging of amounts receivable. At December 31,
1997, $47,631 of receivables sold remained uncollected and are subject to
repayment.

F-8
<PAGE> 25

NOTE 3 - NOTES PAYABLE AND CREDIT FACILITY

Notes payable and credit facility obligations consisted of the following:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Obligation in conjunction with technology purchase, payable in monthly
installments through May 1996, with 12% interest. Secured by purchased
technology (See Note 6). This obligation is callable by the holder and
subject to surrender of purchased technology due to the Company's default on
scheduled installments $ 84,804 $ 84,804

Unsecured note payable to a partnership with 8% interest in monthly
installments of $2,350, through June 1996. This obligation is callable by
the holder due to the Company's default on scheduled installments 72,164 72,164

Unsecured notes payable to four individuals in various weekly installments
through May 1999 and May 2000, with 14% interest. These obligations are
callable by the holders due to the Company's default on scheduled
installments 53,819 --

Obligations in conjunction with settlement of a lawsuit payable in various
monthly and quarterly installments through May 1997, with 10% to 13%
interest. This obligation is callable by the holder due to the Company's
default on schedules installments 36,715 101,258

Contracts payable in various monthly installments with 8% to 8.5% interest
Collateralized by equipment 22,137 22,137

Line of credit facility with a finance company, which provides for
borrowings determined periodically based on contractual percentages of
accounts receivable and inventories, as defined in the loan agreement
Borrowings under the credit facility are payable on demand and bear interest
at the bank's reference rate plus six percent. The agreement was
terminated in February 1997 -- 450,354

Obligation to a finance company payable in monthly payments of $2,499 and
$1,169 through December 1996 with 9% and 13% interest -- 42,886

Term note payable to bank -- 22,917
---------- ----------

Total $ 269,639 $ 796,520
========== ==========
</TABLE>

NOTE 4 - NOTES PAYABLE TO RELATED PARTY

The Company has various unsecured notes payable to an officer/shareholder. The
notes are payable on demand with interest at 2% in excess of the prime rate
(8.5% at December 31, 1997).

F-9
<PAGE> 26

NOTE 5 - PREFERRED STOCK AND STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Company has 100,000 shares of $.01 par value preferred stock authorized
which includes 4,000 shares of Class A Convertible Redeemable preferred stock.
During May 1993, the Company sold 2,000 shares of Class A Convertible Redeemable
Preferred Stock for $100 per share and issued 570 shares to retire debt. Each
share of the Preferred Stock is convertible into 80 shares of common stock of
the Company at the option of the holder and has voting rights equal to the
number of common shares issuable if converted. The Preferred Stock has the right
to share in dividends declared on the Company's common stock and has certain
liquidation preferences.

The Preferred Stock must be redeemed by the Company on June 30, 2000 at $100 per
share. In addition, redemption of the Preferred Stock may be accelerated, at the
option of the holder or the Company, subject to the Company receiving cumulative
proceeds from the sale of shares of qualifying capital stock, as defined, of not
less than $500,000. In the event of acceleration, the Preferred Stock would be
redeemable at a price of $120 per share through July 1, 1994, and increasing at
a rate of 8% each July 1 thereafter. The carrying value of the Preferred Stock
does not include the potential additional acceleration premium as the Company
has not sold this level of qualifying capital stock. Had accelerated redemption
been required, the carrying value of the Preferred Stock would be $419,424 and
$388,584 at December 31, 1997 and 1996.

COMMON STOCK

The Company has reserved up to 40,000 shares of common stock for issuance to
certain sales representatives under an incentive stock performance plan. Under
this plan, the Company may award shares of common stock as an incentive to the
sales representatives who achieve designated sales performance criteria. Through
December 31, 1997, the Company has awarded a total of 30,000 shares of common
stock to four sales representatives. No awards were given in 1997 or 1996.

STOCK OPTIONS AND WARRANTS

The Company has reserved 200,000 shares of its common stock for issuance to
officers and key employees under an incentive stock option plan. Generally,
options become exercisable over a three year period and expire five years after
the date of grant. Options are granted at an excess of the fair market value of
the common stock on the date of grant. The following is a summary of Plan
activity:

<TABLE>
<CAPTION>
Number of Exercise
Shares Price
----------- ----------
<S> <C> <C>
Balance, December 31, 1995 58,000 $ .38
Canceled 2,000 .38
-----------
Balance, December 31, 1996 56,000 .38
Canceled 29,500 .38
-----------

Balance, December 31, 1997 26,500 .38
===========
</TABLE>

At December 31, 1997, options granted under the Plan to acquire 26,500 shares of
common stock were exercisable and 139,250 were available for grant.

F-10
<PAGE> 27

In November 1993, the Company issued a stock option, outside of the Plan, to a
director of the Company to purchase 50,000 shares of common stock at an exercise
price of $.50 per share. The option expires on January 31, 2001.

In February 1994, the Company issued a stock option, outside of the Plan, to the
president/director of the Company to purchase 150,000 shares of common stock at
an exercise price of $.50 per share. The option expires on February 28, 1999.
Options to acquire 50,000 shares are presently exercisable. Options to purchase
100,000 shares are exercisable contingent upon the satisfaction of certain
conditions which have not yet occurred.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases certain of its facilities under noncancelable operating
leases which expire in 2001. Rent expense and future minimum rental commitments
for these leases are as follows:

<TABLE>
<S> <C>
Expense:
1997 $ 101,568
1996 256,424
Commitments:
1998 $ 78,948
1999 78,948
2000 78,948
2001 59,211
----------

Total Commitments $ 296,055
==========
</TABLE>

TECHNOLOGY PURCHASE AGREEMENT

In March 1994, the Company entered into an agreement with a developer of a
microkeratome unit to acquire certain of the company's technology including an
FDA 510K certification for consideration of $769,500. Upon signing the
agreement, the Company made a nonrefundable deposit of $200,000. Under the terms
of the agreement, the Company is required to pay the balance of the purchase
price in varying installments through May 1996. Should the Company be unable to
comply with the payment terms of this agreement, the $200,000 deposit along with
50% of any payments made in excess of this amount will be forfeited and the
Company will be required to surrender any and all rights to the assets referred
to above. The Company is currently in default on its payments, however, the
Company has not received notice from the note holder of mandatory surrender of
the acquired technology and is attempting to become current on this past due
amount.

CONSULTING AGREEMENTS

In connection with a negotiated settlement in August 1991, the Company entered
into an agreement with a medical professional for consulting services to be
rendered during the five-year period 1994 through 1998. Consulting fees under
the agreement are $50,000 per year. In February 1998, the Company agreed to
settle this agreement including amounts in arrears for a fee of $25,000 and
further agreed to consulting services for quarterly fees of $12,500 from June
1998 through March 2000.

F-11
<PAGE> 28

LITIGATION

The Company is involved in legal actions in the ordinary course of its business.
Although the outcome of any such legal actions cannot be predicted, in the
opinion of management, there is no legal proceeding pending against or involving
the Company whose outcome is likely to have a material adverse effect upon the
consolidated financial position or results of operations of the Company.

NOTE 7 - INCOME TAXES

At December 31, 1997 and 1996, the Company had net operating loss carryforwards
of approximately $8.1 million and $7.8 million expiring from 2003 to 2012. No
provision for income taxes has been reflected in the accompanying consolidated
statements of operations. A valuation allowance has been established for the
entire 1997 and 1996 net deferred tax benefit of $3.2 million and $3.1 million
because its realization is not likely.

The provision for income taxes varied from the federal statutory tax rate as
follows:

<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Statutory Federal Income Tax Rate (35)% (35)%
State Tax, Net of Federal Benefit -- --
Increase in Net Operating Loss Carryforwards 35 35
------ ------

Effective Rate --% --%
====== ======
</TABLE>

NOTE 8 - SUBSEQUENT EVENTS

On February 6, 1998, the Company entered into a stock exchange agreement with
the shareholders of Star Tobacco and Pharmaceuticals, Inc. (Star) to exchange
shares of Series B Convertible Voting Preferred Stock of Eye Technology, Inc.
for 100% of the issued common stock of Star.

In conjunction with this agreement, the Company entered into a number of
subscription and stock acquisition agreements with employees, ex-employees,
vendors, and board members to settle stock options and claims for back wages or
services. As a result of these agreements, 1,402,550 shares of common stock were
issued. In addition, judgements or claims for products or services were settled
for payments of $178,000 less than face value. In February and March 1998, an
additional 2,900,000 shares of common stock was sold for $1.4 million.

F-12
<PAGE> 29

EYE TECHNOLOGY, INC.

Index to Exhibits

Number Description Location
- ------ ----------- --------
<S> <C> <C>
3(i)(a) Restated Certificate of Incorporation Incorporated by reference to
Exhibit No. 3a, Annual Report on
Form 10-KSB for fiscal year
ended December 31, 1992

3(i)(b) Certificate of Amendment of Restated Certificate Incorporated by reference to
of Incorporation dated effective April 2, 1993 Exhibit No. 3(i)(b), Annual Report
on Form 10-KSB for fiscal year
ended December 31, 1996

3(i)(c) Certificate of Amendment of Restated Certificate Incorporated by reference to
of Incorporation dated effective April 2, 1993 Exhibit No. 3(i)(c), Annual Report
on Form 10-KSB for fiscal year
ended December 31, 1996

3(ii) Bylaws of the Company as Amended to Date Incorporated by reference to
Exhibit No. 3b, Annual Report on
Form 10-KSB for fiscal year
ended December 31, 1992

4(a) Option to Purchase Shares of Common Stock Incorporated by reference to
dated as of December 1, 1993, to Samuel P. Exhibit No. 4c, Annual Report on
Sears, Jr. Form 10-KSB for fiscal year ended
December 31, 1994

4(b) Certificate of Designations, Preferences and Incorporated by reference to
Rights of Class A Convertible Preferred Stock Exhibit No. 4h, Annual Report on
Form 8-KSB, dated June 7, 1993

4(c) Certificate of Designation of Series B Convertible Incorporated by reference to
Preferred Stock Exhibit No. 4c, Annual Report
on Form 10-KSB for fiscal year
ended December 31, 1996

4(d) Option to Purchase Shares of Common Stock dated Incorporated by reference to
as of February 28, 1994, to Robert J. Exhibit 4d, Annual Report on
Fitzsimmons Form 10-KSB for fiscal year
ended December 31, 1994

10(a) Employment Agreement dated November 1, 1989, Incorporated by reference to
between Robert J. Fitzsimmons and Eye Exhibit No. 10ii, Annual Report
Technology, Inc. on Form 10-K for fiscal year
ended December 31, 1989
</TABLE>

<PAGE> 30

Number Description Location
- ------ ----------- --------
<S> <C> <C>

10(b) Lease Agreement dated August 1990 for lease of Incorporated by reference to
offices and manufacturing space in St. Paul, Exhibit No. 10f, Annual Report on
Minnesota Form 10-K for fiscal year ended
December 31, 1990

10(c) First Amendment to Lease Agreement for lease of Incorporated by reference to
office and manufacturing space in St. Paul, Exhibit No. 10i, Annual Report on
Minnesota Form 10-KSB for fiscal year
ended December 31, 1992

10(d) License Agreement by and between Eye Incorporated by reference to
Technology, Inc. and Ioptex Research Inc., dated Exhibit No. 10w, Annual Report
September 28, 1990 on Form 10-K for fiscal year
ended December 31, 1990

10(e) Addendum to License Agreement by and between Incorporated by reference to
Eye Technology, Inc. and Ioptex Research Inc., Exhibit No. 10n, Annual Report
dated January 13, 1994 on Form 10-KSB for fiscal year
ended December 31, 1993

10(f) License Agreement by and between Eye Technology, Filed herewith.
Inc. and OII International, Inc., dated January 31,
1997

10(g) Equipment Lease Agreement by and between Eye Incorporated by reference to
Technology, Inc. and Noel G. Bissonette, dated Exhibit No. 10y, Annual Report
August 31, 1990 on Form 10-K for fiscal year
ended December 31, 1990

</TABLE>

<PAGE> 31

Number Description Location
- ------ ----------- --------
<S> <C> <C>

10(h) Joint Venture Agreement by and among Eye Incorporated by reference to
Technology, Inc., Kera-Metrics Inc., and the Exhibit No. 10y, Annual Report
Stockholders of Kera-Metrics Inc., dated on Form 10-KSB for fiscal year
November 27, 1992 ended December 31, 1992

10(i) Distribution Agreement by and between Incorporated by reference to
Kera-Metrics Corporation and Eye Technology, Exhibit No. 10z, Annual Report
Inc., dated November 27, 1992 on Form 10-KSB for fiscal year
ended December 31, 1992

10(j) Promissory Note from Eye Technology, Inc. to Incorporated by reference to
Burns & Levinson, dated June 4, 1993 Exhibit No. 10dd, Annual Report
on Form 10-KSB for fiscal year
ended December 31, 1993

10(k) Consulting and License Agreement by and Incorporated by reference to
between Eye Technology, Inc. and Paul Fyfe, Exhibit No. 10ee, Annual Report
dated October 29, 1993 on Form 10-KSB for fiscal year
ended December 31, 1993

10(l) Accounts Receivable Financing Agreement dated Incorporated by reference to
June 2, 1994 between the Company and Republic Exhibit No. 10z, Annual Report
Acceptance Corporation on Form 10-KSB for fiscal year
ended December 31, 1994

10(m) Security Agreement dated June 2, 1994, between Incorporated by reference to
the Company and Republic Acceptance Exhibit No. 10aa, Annual Report
Corporation on Form 10-KSB for fiscal year
ended December 31, 1994
</TABLE>

Number Description Location
- ------ ----------- --------
<S> <C> <C>

10(n) Security Agreement dated June 2, 1994, between Incorporated by reference to
Eye Technology International, Inc. and Republic Exhibit No. 10bb, Annual Report
Acceptance Corporation on Form 10-KSB for fiscal year
ended December 31, 1994

10(o) Guaranty of Payment for Existing and/or Future Incorporated by reference to
Indebtedness, dated June 2, 1994 between Eye Exhibit No. 10cc, Annual Report
Technology International, Inc. and Republic on Form 10-KSB for fiscal year
Acceptance Corporation ended December 31, 1994

10(p) Amendment to Agreement by and between the Incorporated by reference to
Company and Microprecision Instrument Exhibit No. 10ee, Annual Report
Company, Inc., dated December 13, 1994 on Form 10-KSB for fiscal year
ended December 31, 1994

10(q) Amendment to Agreement by and between the Incorporated by reference to
Company and Microprecision Instrument Exhibit No. 10ff, Annual Report
Company, Inc., dated March 28, 1995 on Form 10-KSB for fiscal year
ended December 31, 1994

10(r) Stock Exchange Agreement dated February 6, Incorporated by reference to
1998 between the Company and the stockholders Exhibit No. 10.1, Current Report
of Star Tobacco and Pharmaceuticals, Inc. on Form 8-K, dated February 19,
1998

21 Subsidiaries of the Company Incorporated by reference to
Exhibit No. 22, Annual Report on
Form 10-KSB for fiscal year
ended December 31, 1995

23 Consent of Independent Public Accountants Filed herewith.

27 Financial Data Schedule Filed herewith.

</TABLE>

<PAGE> 1
Exhibit 10(f)

LICENSE AGREEMENT

THIS AGREEMENT is dated as of this 31st day of January, 1997, by and
between OII International, Inc., a Delaware corporation ("OII" or "Licensee"),
and Eye Technology, Inc., a Delaware corporation ("Eye Tech").

W I T N E S S E T H

WHEREAS, OII desires to license from Eye Tech the right to manufacture
and distribute certain intraocular lenses for which Eye Tech holds a Pre Market
Approval Application (together with all supplements and amendments thereto, the
"PMA") granted by the United States Food and Drug Administration (the "FDA"),
as described in detail on Exhibit A to this Agreement.

WHEREAS, Eye Tech is willing to grant said license for consideration and
subject to applicable FDA requirements.

NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, OII
and Eye Tech agree as follows:

Section 1. Grant of Nonexclusive License.

Upon the terms and subject to the conditions of this Agreement, at a
closing (the "Closing") being held on the date hereof (the "Closing Date"), Eye
Tech grants to OII as Licensee, and Licensee hereby accepts, a nonexclusive,
non-transferrable license under the PMA to manufacture and market intraocular
lenses designed and manufactured in compliance with the PMA, said license to be
transferable only in the event of merger, sale, or other change in ownership,
the result of which is that OII is not the surviving entity. All rights in and
to any patents owned by Eye Tech not specifically licensed herein to Licensee,
as well as the technology licensed by Eye Tech under the patents commonly
referred to as the Jenson and the Shearing patents, are exclusively reserved to
Eye Tech. This Agreement shall not be deemed to grant any rights, either
express or implied, in such reserved rights, and no use or license to anyone
else of such reserved rights by Eye Tech shall be deemed to violate or
interfere with the Licensee's right under this Agreement.

Section 2. Cash Consideration.

The license contemplated by this Agreement shall be granted in
consideration of a non-refundable one time payment of $325,000.00 cash to Eye
Tech by OII as well as OII's agreements to supply lenses and consultation as
set forth hereinafter.

<PAGE> 2
Section 3. Term and Termination.

3.1 Term. The Term of the License granted in this Agreement shall
commence as of the date of this Agreement and shall continue, unless sooner
terminated, pursuant to the terms of this Agreement, so long as the subject PMA
is in effect.

3.2 Termination. This Agreement may be terminated by the parties
prior to the expiration of the Term as follows:

(a) By mutual agreement of the parties at any time.

(b) By either party in the event the other party hereto
is in default hereunder and such default shall continue uncured by the
defaulting party for a period of thirty (30) days after such defaulting
party is given notice of such default by the other party, provided,
however, that if such default results from a party engaging in conduct in
knowing violation of any law or regulation relating to the manufacture
and/or sale of products, the other party may terminate this Agreement
immediately and the defaulting party shall have no opportunity to cure
such breach.

(c) Immediately by either party in the vent the
continuance of the activities contemplated by this Agreement would result
in a violation of any law or regulation relating to the manufacture
and/or sale of products, provided, however, that in such event,
subsequent to terminating this Agreement, the parties shall negotiate in
good faith to, as promptly as practicable, enter into a new agreement
which would provide the parties with obligations and benefits as nearly
as practicable to those provided by this Agreement.

Section 4. Assignment and Sublicensing.

This Agreement and the License granted herein are personal to the
Licensee, and Licensee may not assign or sublicense any of the rights granted
to the Licensee under this Agreement, except as set forth in Section 1. Any
purported assignment or sublicense by Licensee (or by operation of law) that is
not approved in writing by Eye Tech shall be null and void and of no legal
effect whatsoever, except if made under the circumstances set forth in Section
1.

Section 5. FDA Notification.

Immediately following the closing, Eye Tech, with the assistance of OII,
shall deliver to the FDA the submission of a PMA supplement setting forth the
licensing of OII to manufacture and distribute intraocular lenses under the
Licensee's private label. Eye Tech and OII shall each, as promptly as
practicable, cooperate with each other, prepare, execute, and file with FDA
such documents and take all such other actions as shall be required to obtain
from FDA the approval requested in the PMA supplement in the most expeditious
manner as practicable. All documents set forth on Exhibit B, not previously
supplied to OII by Eye Tech, shall be promptly made available in order to
enable OII to complete the FDA filing. All costs of completing such procedure
and obtaining such approval shall be paid by OII.

2
<PAGE> 3
Section 6. Compliance with Laws.

OII, as a condition of the continuation of the License, shall comply with
all laws and regulations, including those related to packaging and labeling,
sale of the product to third parties, filing of all reports, applications,
notifications, and other documents required by governmental authorities, as
well as the payment of any taxes or other governmental charges lawfully imposed
in connection with Licensee's activities.

Section 7. Confidentiality.

It shall be the responsibility of each of the parties hereto to keep the
other party's confidential information in strict confidence, except when
disclosure of certain confidential information is required to be disclosed to
governmental authorities.

Section 8. Supply of Lenses to Eye Tech.

At such time as OII has proven equivalence and validated its procedures
and processes to those of Eye Tech and is approved as a manufacturing site for
polymethylmethacrylate ("PMMA") hard lenses, then OII agrees to supply Eye Tech
PMMA lenses pursuant to the terms and conditions set forth in the Supply
Agreement attached hereto as Exhibit C.

Section 9. Consulting Arrangements.

As additional consideration for Eye Tech's agreement to grant the License
hereunder, OII agrees to render consulting and advisory services to Eye Tech
with respect to (i) improvement of Eye Tech's production and manufacturing
techniques and procedures for intraocular lenses at its current manufacturing
facilities located in Mexicali, Mexico, and (ii) other business matters within
the special competence, knowledge, and experience of OII's personnel, all in a
manner directed toward improving the efficiency and quality of such production
and manufacturing processes and reducing Eye Tech's costs and expenses. In
order to accomplish the purposes of this consulting arrangement, the parties
shall mutually develop a plan which will enable Eye Tech to have the benefits
intended without creating any unreasonable demands on the time of OII personnel
or the incurring of excessive out-of-pocket expenses. Any time devoted to this
consulting arrangement shall be at the sole discretion of OII, and all
out-of-pocket expenses directly attributable to such consultation incurred by
OII shall be reimbursed by Eye Tech.

Section 10. Representations and Warranties.

10.1 Eye Tech hereby warrants and represents to OII as follows:

(a) This Agreement has been duly authorized, executed,
and delivered by Eye Tech and constitutes a valid and binding obligation
of Eye Tech, enforceable in accordance with its terms. The execution,
delivery, and performance of this Agreement by Eye Tech and the
consummation of the transactions contemplated hereby do not and will not
conflict with or result in any material breach of any of the provisions
of, or constitute a material default under, or result in a material
violation of, or require any authorization, consent, or approval

3
<PAGE> 4

under the provisions of any agreement or instrument to which Eye Tech is
bound or affected, or any law, statute, rule, regulation, judgment, order,
or decree to which Eye Tech is subject.

(b) Eye Tech owns all rights with respect to the subject
Pre Market Approval Application and the products covered thereunder and
licensed patents.

(c) To Eye Tech's knowledge, its products do not infringe
any patent, copyright, or other intellectual property right of any third
party.

(d) Eye Tech has not received notice of any claims,
actions, suits, or proceedings pending or threatened affecting Eye Tech
and its patents or products, which, if adversely determined, would have a
material adverse effect upon OII's ability to manufacture, have
manufactured, use, or sell the products or otherwise utilize the PMA
licensed to OII by Eye Tech under this Agreement, and to Eye Tech's
knowledge, there is no reasonable basis for anyone to bring such claims,
actions, suits, or proceedings.

(e) Eye Tech has not received any claim from any third
party proceedings relating to its patents and products which are based
upon infringement of any patent or misappropriation or misuse of trade
secrets.

(f) Eye Tech specifically represents and warrants that
all funds received hereunder will be applied in accordance with any and
all applicable loan covenants and related security agreements previously
entered into with any financial institution and currently in effect.

It is further agreed that the funds payable to Eye Tech under
this Agreement and currently held in escrow at Messerli & Kramer P.A.
shall, with the exception of funds payable for legal fees not to exceed
$25,000.00, continue to be escrowed until such time as a consent to the
issuance of the license hereunder is obtained from Republic Acceptance
Corp. or such financial institution as may succeed to the obligations and
security agreements currently held by Republic Acceptance Corp.
Notwithstanding the pendency of a final consent from the applicable
financial institution, the parties shall upon execution of this Agreement
immediately commence all cooperative efforts set forth herein to
accomplish the purposes and intent of this Agreement.

10.2 OII hereby warrants and represents to Eye Tech as follows:

(a) OII is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.

(b) This Agreement has been duly authorized, executed,
and delivered by OII and constitutes a valid and binding obligation of
Eye Tech enforceable in accordance with its terms. The execution,
delivery, and performance of this Agreement by OII and the consummation
of the transactions contemplated hereby do not and will not conflict with
or result in any material breach of any of the provisions of, or
constitute a material default under, or result in a material violation
of, or require any authorization, consent, or approval under the

4
<PAGE> 5
provisions of OII's Certificate of Incorporation or Bylaws or any other
agreement or instrument to which Licensee is bound or affected, or any
law, statute, rule, regulation, judgment, order, or decree to which OII
is subject.

Section 11. Miscellaneous.

11.1 Further Assurances. Each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
do or cause to be done all things necessary, proper, or advisable under
applicable law, and to execute and deliver such documents and other instruments
or papers as may be required or may be reasonably requested by the other party
hereto to carry out the provisions of this Agreement and to consummate and
render effective the transactions contemplated by this Agreement.

11.2 Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
11.2:

(a) If to OII or the Company following the Closing:

OII International, Inc.
550 North Claremont Boulevard
Claremont, California 91711
Attn: Sammie D. Cobb, President and CEO
Telecopy No.: (909) 626-7338

(b) If to Eye Tech or to the Company prior to the Closing:

Eye Technology, Inc.
1983 Sloan Place
St. Paul, Minnesota 55117
Attn: Robert J. Fitzsimmons, Chairman and CEO
Telecopy No.: (612) 774-6271

with a copy to:

Messerli & Kramer P.A.
1800 Fifth Street Towers
150 South Fifth Street
Minneapolis, Minnesota 55402
Attn: Joseph W. Lawyer, Esq.
Telecopy No.: (612) 672-5777

5
<PAGE> 6
11.3 Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement. All references herein to
Sections or clauses refer to specific provisions of this Agreement.

11.4 Severability. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal, or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated are consummated
as originally contemplated to the greatest extent possible.

11.5 No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other person or entity any legal or equitable right, benefit, or
remedy of any nature whatsoever under or by reason of this Agreement.

11.6 Amendment. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, OII and Eye
Tech.

11.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Minnesota, applicable to
contracts executed in and to be performed entirely within that state (without
giving effect to its principles of conflicts of laws of that state or any other
jurisdiction).

11.8 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.

11.9 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy at law or equity.

11.10 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersedes all prior agreements and undertakings, both written and
oral, between OII and Eye Tech with respect to the subject matter hereof and
thereof.

11.11 Facsimile Signatures. Until such time as this Agreement has
been duly executed by the Company officers of the respective parties and the
original documents have been exchanged by the parties, a facsimile copy with
signatures of Company officers thereon cross delivered shall be binding on the
parties.

6
<PAGE> 7
11.12 Release of Funds. The execution of this document by the
parties, including facsimile signatures, shall authorize the release of the
$325,000.00 held in escrow by Messerli & Kramer P.A. for payment to Eye Tech by
OII.

IN WITNESS WHEREOF, each of OII and Eye Tech has executed this Agreement
or caused this Agreement to be executed by its duly authorized officer as of
the date first written above.

OII INTERNATIONAL, INC.

By: /s/ Sammie D. Cobb
--------------------------------------
Sammie D. Cobb
President and CEO

EYE TECHNOLOGY, INC.

By: /s/ Robert J. Fitzsimmons
--------------------------------------
Robert J. Fitzsimmons
President and CEO

AGREE TO ESCROW PROVISIONS SET
FORTH IN SECTION 10-1 (F)

/s/ Messerli & Kramer, P.A.
- ---------------------------------
Messerli & Kramer P.A.

7
<PAGE> 8
Exhibit A

8
<PAGE> 9
Exhibit B

Documents Required for PMA Supplement

1. Signed License Agreement for PMA
2. Document Receipt Letter
3. Letter to FDA from President of ETI re: PMA in good standing and OII
rights to access PMA files
4. Letter to President of OII from President of ETI re: PMA in good standing
and OII rights to access PMA files
5. Notice of Acceptance of PMA by OII to FDA
6. Copy of PMA
7. PMA Submission Documentation (all applicable PMAs)
o all drawings required
o applications for IDEs
o PMA amendments
o supplemental amendments
o requests for manufacturing at Mexican and St. Paul facility
o PMA approval letter from FDA
o PMA applications and all supporting documentation (copies of
clinical trial forms) for all applicable PMAs

Manufacturing Documents

o Model characteristics
o Intended use and administration
o Components
o Type of manufacturing
o Standard operation procedures
o Receiving and inspection
o Quality control documents
o Sterilization validation

9
<PAGE> 10
Exhibit C

SUPPLY AGREEMENT

This Agreement for the supply of Goods ("Agreement") is made and
effective this January 31, 1997, by and between OII International, Inc., a
Delaware Corporation ("Seller"), and Eye Technology, Inc., a Delaware
Corporation ("Buyer").

Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, certain tangible personal property (PMMA Intraocular Lenses) after
approval has been obtained from the FDA granting Seller rights to domestic
distribution under the licensed PMA.

NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:

1. Sale.

Seller agrees to sell, transfer and convey to Buyer, and Buyer agrees to
purchase, the following tangible personal property (the "Goods"): Approved
Sterile prepackaged (Tyvek pouch only) PMMA Intraocular Lenses, manufactured to
Sellers GMPs under subject PMA.

2. Price.

Buyer shall pay Seller for the Goods the sum of $10.00 per unit FOB
Claremont, California. Buyer shall make payment of the purchase price in full
within sixty (60) days following delivery of the Goods by Seller as provided
herein, subject to Buyer's right of inspection as set forth in Section 5 below.
In the event that the purchase price is not timely paid, in addition to its
other remedies, Seller may impose, and Buyer shall pay, a late payment charge
equal to one percent (1%) of the overdue amount each month. Seller guarantees
this price for a period of 24 months from the time Seller is first able to
supply PMMA lenses under the subject PMA and that any subsequent increase in
price shall be limited to actual increases in incremental costs incurred by
Seller in its own production of lenses.

3. Minimum Order Quantity.

Buyer agrees to purchase a minimum of 200 units per purchase order and a
minimum of 10 units per diopter.

4. Shipping.

Seller shall deliver the goods to Buyer as follows: Eye Technologies,
Inc., at either St. Paul, Minnesota, or Mexicali, Mexico, at Buyer's
discretion. Buyer shall be solely responsible for the expenses associated with
shipping. The risk of loss from any casualty to the Goods during shipment,
regardless of the cause, shall be upon Buyer upon the delivery of the Goods to
Buyer's address as set forth herein. When practicable, Seller will follow
Buyer's requested shipping instructions. If none are requested, Seller will
use its discretion in selecting an appropriate transportation method.

10
<PAGE> 11
5. Right of Inspection.

Buyer shall have the right to inspect the goods on arrival at Buyer's
facility. Within fifteen (15) business days after delivery, Buyer must give
notice to Seller of any claim with respect to the condition, quality or grade
of the Goods or non-conformance to this Agreement, specifying the basis of the
claim in detail. Seller may, at its option, inspect the Goods at Buyer's
facilities to confirm that the Goods do not conform to this Agreement. Buyer's
sole remedy, and Seller's sole obligation, shall be at Seller's option to
replace the Goods at Seller's expense for the non- conforming goods. Return
shipping shall be the responsibility of Seller.

6. Identification of Goods.

Identification of the Goods shall not be deemed to have been made until
both Buyer and Seller have specified that the Goods are to be appropriated to
the performance of this Agreement.

7. Warranty.

Supplier warrants that all products delivered to Eye Technologies, Inc.,
under this Agreement shall, at the time of delivery, be of merchantable quality
and fit for their intended purposes, be free of defects in materials and
workmanship, meet the requirements set forth in the subject PMA, and have been
manufactured, packages, sterilized, and maintained in conformance with FDA's
current Good Manufacturing Practices regulations. This warranty shall not
apply to any products damaged during shipping. Eye Technology, Inc., shall,
within ten (10) days after the receipt of defective product, provide a written
notice containing a specific and detailed explanation of the circumstances and
nature of the claim or claims regarding the defective nature of the products.
OII shall rework or replace the defective products at OII's expense. EXCEPT AS
SET FORTH HEREIN, SELLER MAKES NO WARRANTY TO BUYER WITH RESPECT TO THE GOODS,
AND BUYER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.

8. Limitation of Liability.

In no event shall Seller be liable for any special, indirect, incidental
or consequential damages arising out of or connected with this Agreement or the
Goods, regardless of whether a claim is based on contract, tort, strict
liability or otherwise, nor shall Buyer's damages exceed the amount of the
purchase price of the Goods.

9. Notices.

Any notice required by this Agreement or given in connection with it
shall be in writing and shall be given to the appropriate party by personal
delivery or by certified mail, postage prepaid, or recognized overnight
delivery services.

11
<PAGE> 12
If to Seller:

OII International, Inc.
550 North Claremont Blvd.
Claremont, California 91711
Attn: Sammie D. Cobb, President and CEO

If to Buyer:

Eye Technology, Inc.
1983 Sloan Place
St. Paul, Minnesota 55117
Attn: Robert J. Fitzsimmons, Chairman and CEO

10. Governing Law.

This Agreement shall be construed and enforced in accordance with the
laws of the State of California.

11. Final Agreement.

This Agreement terminates and supersedes all prior understandings or
agreements on the subject matter hereof. This Agreement may be modified only
by further writing that is duly executed by both parties.

12. Severability.

If any term of this Agreement is held by a court of competent
jurisdiction to be invalid or unenforceable, then this Agreement, including all
of the remaining terms, will remain in full force and affect as if such invalid
or unenforceable term had never been included.

13. Headings.

Headings used in this Agreement are provided for convenience only and
shall not be used to construe meaning or intent.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

<TABLE>
<S> <C>
OII International, Inc. Eye Technology, Inc.

By: /s/ Sammie D. Cobb By: /s/ Robert J. Fitzsimmons
------------------------------------------ ------------------------------------------
Sammie D. Cobb Robert J. Fitzsimmons
President/CEO President/CEO
</TABLE>

<PAGE> 1
EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8, Number 33-16602 and 33-61310 of Eye Technology, Inc. of
our report dated April 13, 1998 appearing on page F-2 of the Annual Report on
Form 10-KSB.

St. Paul, Minnesota /s/ OLSEN THIELEN & CO., LTD.
April 17, 1998

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,244
<SECURITIES> 0
<RECEIVABLES> 254,214
<ALLOWANCES> 202,000
<INVENTORY> 894,077
<CURRENT-ASSETS> 956,712
<PP&E> 772,306
<DEPRECIATION> 723,793
<TOTAL-ASSETS> 1,253,243
<CURRENT-LIABILITIES> 2,211,470
<BONDS> 0
257,000
0
<COMMON> 34,352
<OTHER-SE> (1,249,579)
<TOTAL-LIABILITY-AND-EQUITY> 1,253,243
<SALES> 1,333,431
<TOTAL-REVENUES> 1,333,431
<CGS> 748,018
<TOTAL-COSTS> 748,018
<OTHER-EXPENSES> 915,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,576
<INCOME-PRETAX> (330,191)
<INCOME-TAX> 0
<INCOME-CONTINUING> (330,191)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (330,191)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)

</TABLE>