<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
for the quarterly period ended March 31,1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________to _____________
Commission File Number 333-10323
Ocurest Laboratories, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida 65-0259441
- ------------------------------- ------------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization
4400 PGA Boulevard, Suite 300, Palm Beach Gardens, FL 33410
-----------------------------------------------------------
(Address of principal executive offices) (zip code)
(561) 627-8121
--------------
Registrant's telephone number, including area code
Not applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 CORPORATE ISSUERS
As of May 12, 1997 the registrant had 3,122,674 shares of common stock issued
and outstanding.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE> 2
OCUREST LABORATORIES, INC.
INDEX TO FORM 10-QSB
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1996 and March 31, 1997(unaudited)
Statements of Operations for the three month periods endedMarch 31,
1996 and 1997 (unaudited)
Statement of Stockholders' Equity for the three month period ended
Maech 31, 1997 (unaudited)
Statements of Cash Flows for the three month periods ended March
31 1996 and 1997 (unaudited)
Notes to Financial Statements (unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<PAGE> 3
OCUREST LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 March 31
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 566,699 $ 60,372
Accounts receivable-customers 316,682 204,599
Inventories 800,664 432,401
Prepaid expenses 118,000 90,000
=========== ===========
Total current assets 1,802,045 787,372
Property and Equipment, at cost, net 1,235,096 891,500
Other Assets
Patent and trademark licensing rights, net 113,025 135,925
Deposits 12,000 12,000
Deferred offering costs 75,000
Organizational costs, net 600
=========== ===========
Total other assets 125,025 223,525
=========== ===========
Total assets $ 3,162,166 $ 1,902,397
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 1,206,309 $ 1,422,572
Accrued expenses 738,410 285,565
Notes payable-trade 300,000
Notes payable-stockholders 30,000
Advances payable-factor 986,189 808,908
Patent & trademark licensing rights payable 14,000
=========== ===========
Total Current Liabilities 3,260,908 2,531,045
Commitments
Stockholders' Equity (Deficit)
Preferred stock - $.01 par value, 5,000,000 shares
authorized - none issued
Common stock, $.008 par value, 25,000,000 shares
authorized 1,123,341 and 1,922,674 shares
issued and outstanding December 31, 1995 and
September 30, 1996, respectively 24,981 14,117
Paid-in capital 8,934,160 4,690,107
Retained earnings (deficit) (9,057,883) (5,332,872)
=========== ===========
Total stockholders' equity (deficit) (98,742) (628,648)
=========== ===========
Total liabilities and stockholers' equity (deficit) $ 3,162,166 $ 1,902,397
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
OCUREST LABORATORIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales $ 448,408 $ 340,263
Cost of goods sold 253,392 207,635
=========== ===========
195,016 132,628
Selling and marketing expenses 949,816 212,397
General and administrative expenses 296,047 216,737
Royalty expense 17,936 13,611
=========== ===========
(1,068,783) (310,117)
Interest Expense (88,629) (59,054)
Interest Income 10,666 0
=========== ===========
(1,146,746) (369,171)
Provision for taxes -- --
=========== ===========
($1,146,746) ($ 369,171)
=========== ===========
=========== ===========
Net loss per share ($ 0.57) ($ 0.21)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
OCUREST LABORATORIES, INC
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3,122,674 $ 24,981 $ 8,934,160 ($7,911,137) $ 1,048,004
Net loss for the three months ended
March 31, 1997 (1,146,746) ($1,146,746)
=========== =========== =========== =========== ===========
Balance at March 31, 1997 (Unaudited) 3,122,674 $ 24,981 $ 8,934,160 ($9,057,883) ($ 98,742)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
OCUREST LABORATORIES, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows (used in) from operating activities
Net loss ($1,146,746) (369,171)
Adjustments to reconcile net loss to net cash
used in operating activities
Professional services paid with stock
Accrued salaries paid with stock
Interest Expense paid with stock
Depreciation & Amortization 46,575 31,166
Changes in assets and liabilities
Increase in accounts receivable (151,728) (134,458)
Decrease in inventories 162,579 109,671
Increase in prepaid expenses (3,014) (41,088)
Increase (decrease) in accounts payable 374,727 (433,667)
Increase in accrued expenses 246,956 (106,940)
----------- -----------
Net cash used in operating activities (470,651) (944,487)
Cash flows from investing activities
Purchase of property and equipment (37,719) (187,150)
Deposits on fixed assets
----------- -----------
Net cash used in investing activities (37,719) (187,150)
Cash flows from financing activities
Proceeds from issuance of common stock 1,449,773
Proceeds from new borrowings
Principal repayments on indebtedness (2,331) (199,602)
Increase (decrease) in deferred offering costs (58,500)
----------- -----------
Net cash from financing activities (2,331) 1,191,671
----------- -----------
Net increase (decrease) in cash (510,701) 60,034
Cash at beginning of period 1,077,400 338
----------- -----------
Cash at end of period $ 566,699 $ 60,372
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 88,629 $ 59,054
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The quarterly consolidated financial statements herein have been
prepared by Ocurest Laboratories, Inc., a Florida corporation (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and in accordance with the requirements of Regulation S-B.
Certain information and footnote disclosures which would be included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although the Company's management believes the disclosures are
adequate to make the information not misleading, it is suggested that these
quarterly financial statements be read in conjunction with the Company's audited
annual consolidated financial statements and footnotes thereto contained in its
definitive prospectus dated November 12. 1996 (Commission File No. 333- 10323),
with respect to its initial public offering of securities (the "IPO") and its
Form 10-KSB for December 31, 1996.
The accompanying unaudited interim consolidated financial statements
include all adjustments (consisting only of those of a normal recurring nature)
necessary for a fair presentation of the results of the interim period.
2. INITIAL PUBLIC OFFERING
On November 12, 1996 the Company completed its initial public offering
of 1,200,000 units consisting of one share of common stock and one warrant. Each
warrant entitled the holder to purchase, at any time commencing on the date the
warrants are separately tradeable and transferable and until November 12, 1999,
one share of common stock at a price of $4.80 per share, subject to adjustments
in certain events. The right to exercise the warrants will terminate at the
close of business on November 12,1999. Commencing on the date the warrants are
separately tradeable and transferable, the warrants may be redeemed by the
Company at a price of $.55 per warrant until November 12, 1998 and at $.75 per
warrant until November 12, 1999, on 30 days' prior written notice given at any
time that the common stock has traded above $6.72 ( or 140% of the then exercise
price of the warrants if the exercise price is adjusted) per share for a least
20 consecutive trading days ending within 10 days prior to the date of the
notice of redemption,.
The net proceeds received by the Company from the IPO were $3,876,000,
inclusive of $924,000 of offering costs (including commissions and discounts) as
of November 12, 1996.
<PAGE> 8
MANAGEMENT DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unless otherwise indicated, all dollar amounts included in this section
have been rounded to the nearest thousand dollars and the related dollar and
percentage fluctuations are calculated based on such rounding.
OVERVIEW
Ocurest was organized in 1991 to commercialize new consumer products in
the health and personal care industry. For the period from inception though
December 31,1993, the Company was in a development stage and accumulated a
deficit of $572,379 attributed to developing manufacturing and marketing plans
and paying the cost of professional services. The Company sells ophthalmic drug
solutions in an ophthalmic delivery system in the non- prescription eye drop
market. The Company believes that a similar delivery system has not been and is
not now being marketed by any other entity. The delivery system is protected by
United States patent and trademarks. The products sold with the delivery system
are Ocurest Sterile Eye Drops in a line of two over-the-counter formulations.
In late 1994, the Company began limited marketing of two OTC eyedrop
products in the Ocurest dispenser. In late 1995 the Company expanded its
marketing efforts to ten southern states. In early 1996, the Company began the
process of expanding the Ocurest brand nationally. In November 1996 the Company
complete an initial public offering of raising approximately $3,800,000.
NET SALES
For the three months ended March 31, 1997 and 1996 the Company had net
losses of ($1,146,746) and ($369,171) on net sales of $448,408 in 1997 and
$340,263 in 1996. The increase (+32%) in sales for the three month period ended
1997 versus 1996 reflects customer reorders to meet the sell through to
consumers following the Company's national advertising campaign. The first three
months of 1996 reflects mostly initial shipments to fill retail shelves
nationally anticipating the advertising campaign. There was no advertising in
the first quarter of 1996. Consequently, the quarter-to-quarter loss increased
$777,575. Prospects for the remainder of the year are for increased marketing
costs to continue through the third quarter subject to the availability of
funds.
COST OF GOODS SOLD
Cost of goods sold was 59% of net sales for the three month period of
1997 and 61% for the same period of 1996. The decrease between the three month
periods was primarily attributable to lower per unit production costs. The
Company anticipates that product costs and expenses will continue to decline as
a percentage of net sales as the Company gains wider national distribution.
<PAGE> 9
SELLING AND MARKETING EXPENSES
The Company believes that consumer demand for its products can be
generated through advertising and sales promotion. As a result, the Company
intends to expend substantial amounts of funds in advertising and sales
promotion in future years. Selling and marketing expenses in early 1996 reflect
the start of the national roll-out of the Company's products from ten southern
states to the rest of the country. The first quarter of 1997 reflects an
increase for consumer advertising versus 1996. The advertising spending in 1997
follows the initial start of the program in the fourth quarter of 1996, and
will continue through 1997 to the extent funds are available.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include professional services and
administrative expenses for the three months ended March, 1996 of $223,104 as
compared to $305,776 for the same period in 1997. The increase of $82,000 is for
administrative and outside services costs to support the Company's growth The
Company believes general and administrative expenses will continue higher for
the balance of 1997 and all of 1998 as the Company hires additional personnel
necessary to provide the infrastructure to support the Company's planned
continued national distribution of the Company's product line.
INTEREST EXPENSE
Interest expense increased in 1997 over 1996 as the Company increased
its indebtedness as discussed below under "Liquidity and Capital Resources."
Management estimates the interest expense for 1997 will be higher than 1996 due
to increased indebtedness reduced only partially by lower rates of interest.
The Company obtained various loans in 1995 and 1996 and in August 1995
the Company entered into a factoring and financing agreement to sell its
accounts receivable and its finished goods inventory. The factor has agreed not
to terminate its present arrangements with the company prior to December 1997.
The Company negotiated a lower interest rate for 1997, however, the factor and
the Company have mutually agreed to terminated the agreement by July 7. 1997.
The Company has identified and is currently negotiating with three potential
lenders to obtain the necessary financing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and capital requirements will depend on
numerous factors, including growth of the Company's sales. The Company currently
has a factoring and financing agreement pursuant to which the Company sells its
accounts receivable and finished goods inventory, subject to the right of the
company to repurchase such accounts receivable and inventory, and pledges its
machinery and equipment to secure a loan. In addition to interest and fees, the
financing agreement requires the company to pay the factor a management fee of
$5,000 per month. The Company negotiated a lower interest rate for 1997,
however, the factor and the Company have mutually agreed to terminated the
agreement by July 7. 1997. The Company has identified and is in negotiations
with other factors to obtain the
<PAGE> 10
necessary financing.
The Company believes that the level of financial resources available to
it is an important factor in its ability to achieve the marketing and
distribution objectives for its products as well as in its ability to compete
effectively. Consequently, the company is seeking to raise additional capital
through public or private equity or debt financing.
The Company's net operating losses for income tax purposes are subject
to certain restrictions on their utilization. The Company has experienced in
1995 and 1996 changes in ownership under Internal Revenue Service regulations
that will limit the amount of net operating losses that can be utilized in any
given year. If the Company's future pre-tax profits in any given year exceed
such limitation, cash payments for such income tax liabilities will have to be
made.
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations contains various
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events, including without
limitation the following: the expected growth of the Company's sales to
a level to enable the Company to achieve profitability by the last
quarter of 1997; the Company's ability to secure additional credit
facilities in the U.S. , if necessary for the Company to do so; and the
sufficiency of the Company's cash provided by operating, investing and
financing activities for the Company's future liquidity and capital
resource needs.
The Company cautions that these statements are further
qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements,
including without limitation the following: general economic
conditions; the demand for the Company's products; the size and timing
of future orders; management decisions to commence or discontinue
product lines or marketing programs; the Company's ability to introduce
new products on a cost-effective and timely basis; the maintenance of
present and the availability of future strategic alliances the
introduction of new products and product enhancements by the Company or
its competitors; changes in the level of operating expenses; and the
present and future level of competition in the industry. Results
actually achieved thus may differ materially from expected results
included in these statements.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant hereby certifies that it has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized in Palm Beach Gardens in
the State of Florida on May 12, 1997.
Ocurest Laboratories, Inc.
(Registrant)
Date: May 12, 1997 By:
-------------------------------------
Edmund G. Vimond, Jr
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12. 1997 By:
-------------------------------------
John F. Carlson
Vice President, Chief Financial
Officer and Treasure
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 567
<SECURITIES> 0
<RECEIVABLES> 316
<ALLOWANCES> 0
<INVENTORY> 800
<CURRENT-ASSETS> 1,802
<PP&E> 1,510
<DEPRECIATION> 275
<TOTAL-ASSETS> 3,162
<CURRENT-LIABILITIES> 3,260
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> (123)
<TOTAL-LIABILITY-AND-EQUITY> 3,162
<SALES> 448
<TOTAL-REVENUES> 448
<CGS> 253
<TOTAL-COSTS> 1,264
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,146)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
</TABLE>
