<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 000-21551
Ocurest Laboratories, Inc.
--------------------------
(Exact name of small business issuer as specified in charter)
Florida 65-0259441
------- ----------
(State or other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
185 East Indiantown Rd., Suite 206, Jupiter, FL 33477
-----------------------------------------------------
(Address of principal executive offices)
(561) 746-1394
--------------
(Issuer's telephone number, including area code)
4400 PGA Boulevard, Suite 300, Palm Beach Gardens, FL 33410
-----------------------------------------------------------
(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 [ ] NO [X]
As of November 21, 1997 the issuer had outstanding 4,147,674 shares of common
stock, $0.008 par value.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
As previously reported, on October 14, 1997 John F. Carlson and Edmund G.
Vimond, Jr. were removed as the sole members of the then Board of Directors of
the small business issuer. On the same day, Messrs. Carlson and Vimond were
removed as the sole officers of the small business issuer. Messrs. Carlson and
Vimond have not participated with present management in the preparation of this
Quarterly Report on Form 10-QSB. The contents of this Quarterly Report are
primarily based upon books, records and other documents maintained by the small
business issuer's former management. As a result thereof and the relatively
short period of time that present management has been in office, present
management has not been able to confirm whether this Quarterly Report contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements made herein, in the light of the
circumstances in which they were made, not misleading.
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
OCUREST LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
6/30/97 6/30/96 12/31/96
---------------- ----------------- ----------------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash $ 371,641 $ 5,138 $ 1,077,400
Accounts receivable-customers 431,980 240,643 164,954
Inventories 557,722 847,184 963,243
Prepaid expenses 130,000 133,100 63,256
--------------- --------------- ---------------
Total current assets 1,491,343 1,226,065 2,268,853
Property and Equipment, at cost, net 1,193,737 888,443 843,606
Other Assets
Patent and trademark licensing rights, net 107,550 130,650 118,900
Deposits 19,426 12,000 406,471
Deferred offering costs - 83,742 -
Organizational Costs - - -
--------------- --------------- ---------------
Total other assets 126,976 226,392 525,371
Total Assets $ 2,812,056 $ 2,340,900 $ 3,637,830
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 1,777,481 $ 1,626,867 $ 831,582
Accrued salaries and taxes - - -
Accrued expenses 270,334 418,029 439,724
Accrued interest 26,252 - -
Notes payable-trade 300,000 - 300,000
Notes payable-stockholders 30,000 - 30,000
Advances payable factor 1,035,267 1,220,721 988,520
--------------- --------------- ---------------
Total current liabilities 3,439,334 3,265,617 2,589,826
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,
3,147,764 and 1,922,674 shares issued and outstanding
September 30, 1997 and September 30, 1996, respectively 25,181 15,322 24,981
Paid-in capital 8,933,960 5,068,902 8,934,160
Retained earnings (deficit) (9,586,419) (6,008,941) (7,911,137)
--------------- --------------- ---------------
Total stockholders' equity (deficit) (627,278) (924,717) 1,048,004
Total liabilities and stockholders' equity (deficit) $ 2,812,056 $ 2,340,900 $ 3,637,830
=============== =============== ===============
The accompanying notes are an integral part of this statement
</TABLE>
2
<PAGE> 3
OCUREST LABORATORIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) Unaudited)
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 555,792 $ 394,028 $ 1,004,200 $ 734,291
Cost of goods sold 351,863 248,678 605,255 456,313
----------- ----------- ----------- -----------
Gross profit (loss) 203,929 145,350 398,945 277,978
Selling and marketing expenses 264,225 426,656 1,214,041 639,053
General and administrative expenses 352,100 255,177 648,147 471,914
Royalty expense 22,237 15,769 40,173 29,380
----------- ----------- ----------- -----------
Operating income (loss) (434,633) (552,252) (1,503,416) (862,369)
Interest expense (98,388) (89,028) (187,017) (148,082)
Interest income 4,485 - 15,151 -
----------- ----------- ----------- -----------
Net income (loss) before taxes (528,536) (641,280) (1,675,282) (1,010,451)
Provision for taxes - - - -
----------- ----------- ----------- -----------
Net income (loss) $ (528,536) $ (641,280) $(1,675,282) $(1,010,451)
=========== =========== =========== ===========
Net income (loss) per share $ (0.17) $ (0.33) $ (0.53) $ (0.53)
=========== =========== =========== ===========
Shares outstanding 3,147,674 1,922,674 3,147,674 1,922,674
</TABLE>
3
<PAGE> 4
OCUREST LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
------------ -------------
Cash flows (used in) from operating activities
<S> <C> <C>
Net loss $(1,675,282) $ 1,586,191)
Adjustments to reconcile net loss to net cash
used in operating activities:
Professional services paid with stock - 18,750
Accrued salaries paid with stock - 8,140
Interest expense paid with stock - 53,425
Depreciation & amortization 97,728 99,030
(Increase) decrease in assets:
Accounts receivable (267,026) (67,327)
Inventories 405,521 (162,115)
Prepaid expenses (66,744) (14,327)
Increase (decrease) in liabilities:
Accounts payable 945,899 (251,778)
Accrued expenses (143,138) 118,905
Other liabilities 46,747 -
----------- -------------
Net cash (used in) operating activities (656,295) (1,783,488)
Cash flows from investing activities
Purchase of property and equipment (373,672) (294,395)
Deposits on fixed assets 324,209 (185,513)
----------- -------------
Net cash (used in) investing activities (49,463) (479,908)
Cash flows from financing activities
Proceeds from issuance of common stock, net - 1,745,708
Proceeds from new borrowings - 921,960
Principal repayments on indebtedness - -
(Increase) decrease in deferred offering costs - -
----------- -------------
Net cash from financing activities - 2,667,668
----------- -------------
Net increase (decrease) in cash (705,758) 404,272
Cash at beginning of period 1,077,400 1,607
=========== -------------
Cash at end of period $ 371,642 $ 405,879
=========== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 151,151 $ 108,807
=========== =============
Noncash transactions:
Conversion of notes payable to common stock $ - $ 642,058
=========== =============
</TABLE>
4
<PAGE> 5
OCUREST LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
Common Stock 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
Issuance of stock for cash upon
exercised warrants 25,000 200 (200) - -
Net loss for six months ended - - - (1,675,282) (1,675,282)
June 30, 1997
------------- ------------ ------------- ------------ ------------
Balance at June 30, 1997 (Unaudited) 3,147,674 $ 25,181 $ 8,934,960 $ (9,586,419) $ (627,278)
============= ============ ============= ============ ============
</TABLE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
1. Significant Accounting Policies
The quarterly consolidated financial statements herein have 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 anf 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 10KSB for
December 31, 1996.
The accompanying unaudited interim 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. Advances Payable - Factor
During 1995, the Company entered into an agreement with a factor for the
financing of accounts receivable and inventory. Under the terms of the accounts
receivable agreement, the Company sells its accounts receivable to the factor
and the factor advances the Company an amount equal to 70% of the accounts
receivable sold. The factor's initial fee for this service is 3% of the amount
advanced. Under certain circumstances, such fee may increase by an additional
3%. However, the Company can avoid the additional fees by replacing the unpaid
invoice with a new invoice of equal value within 30 days. Under the terms of the
inventory agreement, the factor will finance 50% of the finished goods
inventory cost. Financings are made in the form of a "sale" whereby the factor
buys the inventory and then re-sells it to the Company when the sale is made to
the end customer. The factor charges a fee ranging from 3% to 6% of the
inventory amounts financed. The factor also makes advances against the Company's
machinery and equipment up to a maximum of $524,000. The agreement calls for an
associated management fee of $5,000 per month which the factor has pro-rated
based upon the actual amounts of such advances as compared to the $524,000
maximum. Based upon the escalating fee schedule and the Company's ability to
substitute sales invoices, all rights and obligations assocaited with a sale
have not occurred and therefore this transaction has been accounted for as a
financing transaction in the financial statements.
The total amounts financed by the factor amounted to $1,035,267 and $988,520 as
of June 30, 1997 and December 31, 1996, respectively.
5
<PAGE> 6
Item 2. Management's Discussion and Analysis or Plan of Operation
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 Laboratories, Inc. was organized in 1991 to commercialize new consumer
products in the health and personal care industry. For the period from inception
through December 31, 1993 the Company was in the 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 drug delivery system in the
non-prescription eye drop market. The Company believes that a similar delivery
system has not been and is not currently being marketed by any other entity. The
delivery system is protected by a United States patent and trademark. The
products sold in the delivery system are marketed as Ocurest Sterile Eyedrops in
two over the counter formulations.
In late 1994, the Company began limited marketing of its two OTC formulations
and in 1995 expanded its marketing efforts to 10 southern states. In early 1996
the Company began the process of marketing its products nationally and in
November of 1996 completed an initial public offering raising approximately
$3,800,000.
Net Sales
For the three months ended June 30, 1997 and 1996 the Company had net losses of
($529,000) and ($641,000) on net sales of $556,000 and $394,000 respectively.
The increase in sales (41%) for the three month period ended 1997 versus 1996
reflects customer reorders to meet the sell through to consumers that resulted
from the Company's national advertising campaign which began in the fourth
quarter of 1996 and was concluded in the first quarter of 1997. The only
advertising in the second quarter of 1997 was a national consumer coupon
distributed the first Sunday in June. There are no plans to begin advertising
again until the Company obtains additional financing.
Cost of Goods Sold
Cost of goods were 63% of net sales for the three month period of 1997 which was
equal to the 63% cost of goods for the same period in 1996. Unit production
costs were expected to decline during 1997 but weak sales and the write down of
obsolete inventory have kept cost of goods at a higher percent of net sales than
anticipated. Unless the Company is able to increase sales allowing it to reduce
its current finished goods inventory and produce fresh inventory at higher
production runs cost of goods will continue to be a substantial portion of net
sales.
Selling and Marketing Expenses
The Company believes that consumer demand for its products has been generated
through advertising and sales promotion and a substantial amount of funds have
been expended to date. The Company conducted minimal advertising and sales
promotion in the second quarter of 1997 and will not advertise or promote its
products in the future unless substantial additional capital is obtained.
General and Administrative Expenses
General and administrative expenses including professional fees and services
amounted to $352,000 for the three month period ended June 1997 and $255,000 for
the same period in 1996. The increase of $97,000 is a result of higher
professional fees and outside service expenses incurred as a result of increased
infrastructure.
6
<PAGE> 7
Interest Expense
Interest expense was $98,000 in the three month period ended June 1997 as
compared to $89,000 for the same period in 1996. The Company has a factor and
financing agreement whereby it sells its accounts receivable and finished goods
inventory and finances its equipment. The Company negotiated a lower rate for
1997 as compared to 1996 however increased sales and the buildup of inventory
resulted in increased interest expense in 1997. The current factor and financing
agreement expires in December 1997, however the Company and the Factor agreed to
terminate the agreement as of July 31, 1997. The Company has entered into an
agreement with another factor to sell its accounts receivable and is negotiating
with other potential lenders to obtain replacement financing for its inventory
and equipment. See "Liquidity and Capital Resources."
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 agreement pursuant to which the Company sells its accounts receivable.
A similar arrangement is being sought to finance inventories as well as possible
sale and lease back of its production equipment.
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
equity and interim debt financing each on a best efforts basis and has signed a
letter of intent with an brokerage firm in August 1997 (see "Subsequent
Events").
Income Taxes
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 of such income tax liabilities will have to be made.
NASDAQ Compliance
The Company was notified June 16, 1997 that it does not comply with the minimum
capital and surplus requirements of NASDAQ. The Company requested a hearing with
NASDAQ that has been scheduled for September 4, 1997.
Although the Company believes that the contemplated sale of convertible
preferred stock (see "Liquidity and Capital Resources"), if successful which
there is no guarantee of, will have the Company in compliance with the capital
and surplus requirement and its listing will continue on the NASDAQ Small Cap
Market but there can be no assurance that the listing will continue.
Subsequent Events
The Company has entered into a non-binding letter of intent relating to a "best
efforts" equity offering and interim debt financing agreement with a brokerage
firm. The brokerage firm subsequently declined to proceed with the offering.
On August 14, Robert S. Marker and Ralph H. Laffler resigned from the Board of
Directors and Joseph F. Mansfield was appointed to the Board of Directors to
replace Mr. F. Ahlbin who resigned on July 3, 1997.
The Company's Current Report on Form 8-K dated October 14, 1997 is hereby
incorporated by reference.
7
<PAGE> 8
Forward-Looking Statements
The foregoing Management's Discussion and Analysis or Plan of Operation contain
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 profitably 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's 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
the enhancement of products by the company's 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.
8
<PAGE> 9
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only).
(a) Non-applicable
9
<PAGE> 10
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.
Ocurest Laboratories, Inc.
Date: November 25, 1997 By: /s/ Larry M. Reid
---------------------------------------------------
Larry M. Reid, Principal Executive & Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 371,641
<SECURITIES> 0
<RECEIVABLES> 431,980
<ALLOWANCES> 0
<INVENTORY> 557,722
<CURRENT-ASSETS> 1,491,343
<PP&E> 1,193,737
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,812,056
<CURRENT-LIABILITIES> 3,439,334
<BONDS> 0
0
0
<COMMON> 25,181
<OTHER-SE> 8,933,960
<TOTAL-LIABILITY-AND-EQUITY> (627,278)
<SALES> 1,004,200
<TOTAL-REVENUES> 1,004,200
<CGS> 605,255
<TOTAL-COSTS> 1,902,361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187,017
<INCOME-PRETAX> (1,675,282)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,675,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,675,282)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> 0
</TABLE>
