<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 0-15324
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Eye Technology, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 52-1402131
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
16 South Market Street, Petersburg, Virginia 23803
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(Address of Principal Executive Offices)
(804) 861-0681
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 53,310,591 shares of Common
Stock, $.01 par value, outstanding as of April 6, 1998
Transitional Small Business Disclosure Format (check one):
Yes No
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
An index to the financial statements of the Company filed as a part of this
report appears at Page F-1. The financial statements of the Company appear at
Pages F-2 through F-7 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Financial Condition. The Company maintained a position of severe working capital
shortages throughout the second quarter of 1997, a situation that did not
improve until a "reverse acquisition" transaction in February 1998 with Star
Tobacco and Pharmaceuticals, Inc. The Company was dependent upon the forbearance
of certain creditors in order to maintain operations.
Results of Operations. Sales for the six-month period ended June 30, 1997,
declined significantly from $1,292,611 to $734,643 in the comparable period of
1996. Continuing a trend that began in 1996, the sales revenue declined due: to
a growing market emphasis on "foldable" or "soft" lenses, which the Company does
not sell, as opposed to "hard" lenses, which comprises the Company's product
line; to working capital shortages which did not allow the Company to make
expenditures for marketing and promotional purposes; and (to a lesser extent)
declining product prices, which was an industry-wide situation.
Gross profit margin for the 1997 six-month period was 39%, compared to
63% in the first half of 1996 and compared to 51% in the first quarter of 1997.
The primary reason for the significant decline was that fixed manufacturing
costs and costs not directly related to volume did not decline, thus becoming a
larger percentage of sales. In addition, manufacturing efficiencies declined as
volume fell off.
Sales and marketing expenses were 11% in the first half of 1997 versus
38% in the first half of 1996. Almost all of the 1997 expense represents
commissions. The Company's poor liquidity position prevented it from making
marketing, promotional and adverting expenditures as it had in 1996. In
addition, a larger portion of the Company's sales were to customers on which no
commissions were payable.
General and administrative expenses, as a percentage of sales, were
similar for the two six-month periods shown, at 41% in 1997 and 42% in 1996.
Interest expense was $98,466 in 1997 versus $73,668 in 1996. The
difference is attributable to fees and penalties incurred in January 1997 to the
Company's then line of credit lender, which were classified as "interest."
The Company achieved net income of $129,122 in the first six months of
1997 due to a one-time license fee received of $325,000, without which the
Company would have shown a loss comparable, as a percentage of sales, to the
loss generated in the first six months of 1996.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
No exhibits are filed with this report.
(b) No Report on Form 8-K was filed during the fiscal quarter for
which this report is filed.
2
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EYE TECHNOLOGY, INC.
Date: April 29, 1998 /s/ Samuel P. Sears, Jr.
--------------------------------------
Samuel P. Sears, Jr., Chief Executive
Officer and Chief Financial Officer
3
<PAGE> 4
Index to Unaudited Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
1. Condensed Consolidated Balance Sheets F-2
as of June 30, 1997 and December 31, 1996
2. Condensed Consolidated Statements of Operations F-4
for the Three Month Periods Ended June 30, 1997 and 1996
3. Condensed Consolidated Statements of Operations F-5
for the Six Month Periods Ended June 30, 1997 and 1996
4. Condensed Consolidated Statements of Cash Flows F-6
for the Six Month Periods Ended June 30, 1997 and 1996
5. Notes to Unaudited Condensed Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 5
Eye Technology, Inc
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
-------------- ---------------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 815 $ 64,266
Accounts receivable, net 112,281 102,623
Inventories 863,701 1,049,257
Prepaid expenses and other deposits 4,414 4,414
----------- -----------
Total Current Assets 981,211 1,220,560
----------- -----------
Property and Equipment:
Machinery and equipment 529,518 498,516
Office equipment and furniture 272,040 272,040
Leasehold improvements 39,837 39,837
----------- -----------
841,395 810,393
Less: Accumulated depreciation (749,069) (733,389)
----------- -----------
Property and Equipment, net 92,326 77,004
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Other Assets:
Purchased technology 379,113 414,434
Other 23,225 23,225
----------- -----------
Total Other Assets 402,338 437,659
----------- -----------
Total Assets $ 1,475,875 $ 1,735,223
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-2
<PAGE> 6
Eye Technology, Inc
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
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<S> <C> <C>
LIABILITIES
Current Liabilities:
Notes payable $ 179,553 $ 450,354
Current portion of long-term debt 275,636 346,166
Notes payable-related party 139,200 172,500
Accounts payable-trade 361,504 405,398
Accrued liabilities:
Professional fees 500,277 491,477
Compensation 168,218 124,517
Commissions 122,155 153,575
Other 148,252 139,273
Deferred Revenue 80,000 80,000
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Total current liabilities 1,974,795 2,363,260
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Long term debt net of current 0 0
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Convertible preferred stock 257,000 257,000
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STOCKHOLDERS' DEFICIT
Common stock 34,352 34,352
Additional paid-in capital 8,777,505 8,777,504
Accumulated Deficit (9,567,777) (9,696,893)
----------- -----------
Total stockholders' deficit (755,920) (885,037)
----------- -----------
Total Liabilities and Stockholders' Deficit $ 1,475,875 $ 1,735,223
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-3
<PAGE> 7
EYE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Ended
June 30,
1997 1996
-----------------------------
<S> <C> <C>
Net Sales $ 364,557 $ 574,174
Cost of goods sold 260,205 220,436
----------- -----------
Gross Profit 104,352 353,738
----------- -----------
Operating Expenses:
Sales and Marketing 40,340 210,147
General and administrative 147,172 276,054
Research and development 0 3,085
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Total Operating Expenses 187,512 489,286
----------- -----------
Operating Loss (83,160) (135,548)
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Other Income (Expense):
License sale 1,000 0
Interest expense, net (35,810) (34,786)
Other Income (Expenses) 3,535 7,195
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Total Other Income (Expenses) (31,275) (27,591)
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Net Loss $ (114,435) $ (163,139)
=========== ===========
Net loss per common share $ (0.03) $ (0.05)
=========== ===========
Basic and Diluted Net income (loss) per common share 3,435,190 3,438,656
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-4
<PAGE> 8
EYE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Month Period Ended
June 30,
1997 1996
-----------------------------
<S> <C> <C>
Net Sales $ 734,643 $ 1,292,611
Cost of goods sold 450,706 476,247
----------- -----------
Gross Profit 283,937 816,364
----------- -----------
Operating Expenses:
Sales and Marketing 84,222 495,055
General and administrative 300,662 546,012
Research and development 0 18,487
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Total Operating Expenses 384,884 1,059,554
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Operating Loss (100,947) (243,190)
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Other Income (Expense):
License sale 325,000 0
Interest expense, net (98,466) (73,668)
Other Income (Expenses) 3,535 (3,987)
----------- -----------
Total Other Income (Expenses) 230,069 (77,655)
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Net Income (Loss) $ 129,122 $ (320,845)
=========== ===========
Basic and Diluted Net income (loss) per common share $ 0.04 $ (0.09)
=========== ===========
Weighted average common shares outstanding 3,435,190 3,438,656
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-5
<PAGE> 9
<TABLE>
<CAPTION>
======================================================================================================
Eye Technology, Inc
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Month Period Ended
June 30,
1997 1996
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 129,122 $(320,845)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 51,000 79,328
Change in current assets and liabilities:
Accounts receivable (9,658) 124,182
Inventories 185,556 106,329
Prepaid expenses and other 0 18,551
Accounts payable and accrued liabilities (13,838) (3,415)
--------- ---------
Net cash provided by operating activities 342,182 4,130
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment, net (31,002) 0
Proceeds from disposal of property& equipment 0 5,819
--------- ---------
Net cash provided by (used) investing activities (31,002) 5,819
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 8,000
Repayment of long-term debt and notes payable (374,631) 0
--------- ---------
Net cash provided by (used in) financing activities (374,631) 8,000
--------- ---------
Net increase (decrease) in cash (63,451) 17,949
Cash, beginning of period 64,266 5,649
--------- ---------
Cash, end of period $ 815 $ 23,598
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 83,088 $ 44,150
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-6
<PAGE> 10
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary for the fair presentation of results for the interim
period. These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. The Company's annual report on Form 10-KSB should be read in
conjunction with these financial statements.
The results of operations for the six month period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
Note 2 Accounting Policies and Procedures
Earnings (loss) per common share is computed based upon the weighted average
number of common shares outstanding during the period. Common equivalents have
been excluded from the computation as their effect would be antidilutive. Income
(loss) per share computed on a fully diluted basis would not have been
significantly different than the amounts presented in the accompanying condensed
consolidated financial statements.
F-7
<PAGE> 11
Index to Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 815
<SECURITIES> 0
<RECEIVABLES> 112,281
<ALLOWANCES> 0
<INVENTORY> 863,701
<CURRENT-ASSETS> 981,211
<PP&E> 841,395
<DEPRECIATION> 749,069
<TOTAL-ASSETS> 1,475,875
<CURRENT-LIABILITIES> 1,974,795
<BONDS> 0
0
257,000
<COMMON> 34,352
<OTHER-SE> (790,272)
<TOTAL-LIABILITY-AND-EQUITY> 1,475,875
<SALES> 364,557
<TOTAL-REVENUES> 364,557
<CGS> 260,205
<TOTAL-COSTS> 260,205
<OTHER-EXPENSES> 187,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,810
<INCOME-PRETAX> (114,435)
<INCOME-TAX> 0
<INCOME-CONTINUING> (114,435)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,435)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
