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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1997
------------------------------------------------
[ ] 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 53,310,591 shares of Common
Stock, $.01 par value, outstanding as of April 6, 1998
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ ]
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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-6 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Financial Condition. The Company was in a severe liquidity position at the
beginning of the quarter ended March 31, 1997. During the quarter, the Company's
primary working capital lender threatened repeatedly to cease advances under the
Company line of credit, which was geared by formula to accounts receivable and
inventory levels. On January 31, 1997, the Company entered into a license
agreement by which it granted a non-exclusive license for the use of its
intraocular lenses. The proceeds therefrom (approximately $325,000) enabled the
Company to retire its working capital line of credit. The Company simultaneously
entered into an arrangement for the recourse factoring of its accounts
receivable.
Notwithstanding the effect of the license agreement described above,
the Company remained in a severe cash shortage and was dependent upon the
forbearance of certain creditors in order to maintain operations.
Results of Operations. Sales for the first quarter declined significantly from
$718,437 in the first quarter of 1996 to $370,086 in the comparable quarter of
1997. Sales declines are attributable primarily to two factors: (1) the
Company's product line of intraocular lenses does not include "foldable" or
"soft" lenses, which achieved a larger share of the market; and (2) the
Company's poor liquidity position does not allow it to expend money on marketing
and sales activity or to recruit additional sales personnel.
The gross profit margin declined from 64% in 1996 to 51% in 1997,
reflecting slightly lower prices and, more significantly, the impact of fixed
overhead manufacturing costs relative to a declining sales volume.
Sales and marketing expense, as a percentage of sales, was 12% in 1997
compared to 40% in 1996. The Company reduced its presence at leading industry
trade shows due to a lack of working capital and generally reduced its
advertising and promotional expenditures. Products on which commissions were
payable were less, as a larger percentage of sales went to "house" accounts.
General and administrative expenses in the first quarter of 1997 were
41% of sales versus 38% in 1996. The slight increase is attributable to the
lower sales revenue and the inability of the Company to reduce expenses at the
same rate as the reduction in sales.
Interest expense rose significantly from $38,882 in the first quarter
of 1996 to $62,656 for the first quarter of 1997. The increase reflects fees and
penalties assessed by the Company's line of credit lender as a result of the
Company's default position, which amounts more than offset interest declines
resulting from lower levels of borrowed monies.
Net income was $243,557 in 1997's first quarter compared to a net loss
of $157,706 in 1996. That the Company was able to generate net income was
attributable to the one-time license fee described above.
2
<PAGE> 3
PART II
OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
In January 1997, the Company's line of credit lender declared the
Company to be in default of its loan arrangements by reason of its failure to
provide financial information to the lender. On January 31, 1997, the Company
paid off its indebtedness to the lender.
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.
3
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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
4
<PAGE> 5
Index to Unaudited Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C> <C>
1. Condensed Consolidated Balance Sheets F-2
dated March 31, 1997 and December 31, 1996
2. Condensed Consolidated Statements of Operations F-4
for the Three Month Periods Ended March 31, 1997
and 1996
3. Condensed Consolidated Statements of Cash Flows F-5
for the Three Month Periods Ended March 31, 1997
and 1996
4. Notes to Unaudited Condensed Consolidated Financial Statements F-6
</TABLE>
F-1
<PAGE> 6
Eye Technology, Inc
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,167 $ 64,266
Accounts receivable, net 53,685 102,623
Inventories 988,386 1,049,257
Prepaid expenses and other deposits 4,414 4,414
------------ ------------
Total Current Assets 1,048,652 1,220,560
------------ ------------
Property and Equipment:
Machinery and equipment 498,516 498,516
Office equipment and furniture 272,040 272,040
Leasehold improvements 39,837 39,837
------------ ------------
810,393 810,393
Less: Accumulated depreciation (741,714) (733,389)
------------ ------------
Property and Equipment, net 68,679 77,004
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Other Assets:
Purchased technology 396,773 414,434
Other 23,225 23,225
------------ ------------
Total Other Assets 419,998 437,659
------------ ------------
Total Assets $ 1,537,329 $ 1,735,223
============ ============
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-2
<PAGE> 7
Eye Technology, Inc
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
LIABILITIES
Current Liabilities:
Notes payable $ 154,881 $ 450,354
Current portion of long-term debt 262,708 346,166
Notes payable-related party 149,200 172,500
Accounts payable-trade 343,835 405,398
Accrued liablities:
Professional fees 495,877 491,477
Compensation 134,469 124,517
Commissions 135,503 153,575
Other 165,335 139,273
Deferred Revenue 80,000 80,000
------------ ------------
Total current liabilities 1,921,808 2,363,260
------------ ------------
Long term debt net of current 0 0
------------ ------------
Convertible preferred stock 257,000 257,000
------------ ------------
STOCKHOLDERS' DEFICIT
Common stock 34,352 34,352
Additional paid-in capital 8,777,505 8,777,504
Accumulated Deficit (9,453,336) (9,696,893)
------------ ------------
Total stockholders' deficit (641,479) (885,037)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 1,537,329 $ 1,735,223
============ ============
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-3
<PAGE> 8
EYE TECHNOLOGY, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31
1997 1996
----------------------------
<S> <C> <C>
NET SALES $ 370,086 $ 718,437
COST OF GOODS SOLD 190,501 255,811
----------- -----------
Gross Profit 179,585 462,626
----------- -----------
OPERATING EXPENSES:
Sales and Marketing 43,882 284,908
General and administrative 153,490 269,958
Research and development 0 15,402
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Total Operating Expenses 197,372 570,268
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OPERATING LOSS (17,787) (107,642)
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OTHER INCOME (EXPENSE):
License sale 324,000 0
Interest expense, net (62,656) (38,882)
Other Income (Expenses) 0 (11,182)
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Total Other Income (Expenses) 261,344 (50,064)
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NET INCOME (LOSS) $ 243,557 $ (157,706)
=========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE $ 0.07 $ (0.05)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,435,190 3,438,556
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-4
<PAGE> 9
EYE TECHNOLOGY, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
MARCH 31
1997 1996
------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 243,557 $(157,706)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 25,986 37,993
Change in current assets and liabilities:
Accounts receivable 48,938 82,879
Inventories 60,871 70,528
Prepaid expenses and other 0 22,314
Accounts payable and accrued liabilities (39,220) 31,102
--------- ---------
Net cash provided by operating activities 340,132 87,110
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Cash flows from investing activities:
Purchase of property and equipment, net 0 84
--------- ---------
Net cash provided by investing activities 0 84
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 8,000
Repayment of long-term debt and notes payable (402,231) 0
--------- ---------
Net cash (used in) provided by financing activities (402,231) 8,000
--------- ---------
Net increase (decrease) in cash (62,099) 95,194
Cash, beginning of period 64,266 5,649
--------- ---------
Cash, end of period $ 2,167 $ 100,843
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 31,533 $ 27,993
</TABLE>
See accompanying notes to the condensed consolidated balance sheets
F-5
<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 three month period ended March 31, 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-6
<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> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,167
<SECURITIES> 0
<RECEIVABLES> 53,685
<ALLOWANCES> 0
<INVENTORY> 988,386
<CURRENT-ASSETS> 1,048,652
<PP&E> 810,393
<DEPRECIATION> 741,714
<TOTAL-ASSETS> 1,537,329
<CURRENT-LIABILITIES> 1,921,808
<BONDS> 0
0
257,000
<COMMON> 34,352
<OTHER-SE> (713,331)
<TOTAL-LIABILITY-AND-EQUITY> 1,499,829
<SALES> 370,086
<TOTAL-REVENUES> 370,086
<CGS> 190,501
<TOTAL-COSTS> 190,501
<OTHER-EXPENSES> 197,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,656
<INCOME-PRETAX> 243,557
<INCOME-TAX> 0
<INCOME-CONTINUING> 243,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243,557
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
