<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 June 30,1997
[x] 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.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0259441
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(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization
4400 PGA Boulevard, Suite 300, Palm Beach Gardens, FL 33410
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(Address of principal executive offices) (zip code)
(561) 627-8121
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Registrant's telephone number, including area code
Not applicable
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(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 August 18, 1997 the registrant had 3,147,674 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 (audited) and June 30,
1996 and 1997 (unaudited)
Statements of Operations for the three month periods ended
June 30, 1996 and 1997 (unaudited)
Statement of Stockholders' Equity for the three month period
ended June 30, 1997 (unaudited)
Statements of Cash Flows for the three month periods ended
June 30, 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>
June 30 June 30 Dec 31
1997 1996 1996
=========== =========== ===========
<S> <C> <C> <C>
Assets
Current Assets
Cash $ 372,165 $ 5,138 $ 1,077,400
Accounts receivable-customers 431,869 240,643 164,954
Inventories 579,816 847,184 963,243
Prepaid expenses 130,000 133,100 63,256
=========== =========== ===========
Total current assets 1,513,850 1,226,065 2,268,853
=========== =========== ===========
Property and Equipment, at cost, net 1,194,398 888,443 843,606
Other Assets
Patent and trademark licensing rights, net 107,550 130,650 118,900
Deposits 17,926 12,000 406,471
Deferred offering costs 83,742
=========== =========== ===========
Total other assets 125,476 226,392 525,371
=========== =========== ===========
Total assets $ 2,833,724 $ 2,340,900 $ 3,637,830
=========== =========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 1,335,230 $ 1,626,866 $ 831,582
Accrued expenses 312,006 418,029 439,724
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 3,012,503 3,265,616 2,589,826
=========== =========== ===========
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 3,147,674 and 1,922,674 shares
issued and outstanding June 30, 1997 and
June 30, 1996, respectively 24,981 15,322 24,981
Paid-in capital 8,934,160 5,068,902 8,934,160
Retained earnings (deficit) (9,137,920) (6,008,941) (7,911,137)
=========== =========== ===========
Total stockholders' equity (deficit) (178,779) (924,717) 1,048,004
=========== =========== ===========
Total liabilities and stockholers' equity (deficit) $ 2,833,724 $ 2,340,899 $ 3,637,830
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
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 280,297 248,678 533,689 456,313
=========== =========== =========== ===========
Gross Profit 275,495 145,350 470,511 277,978
Selling and marketing expenses 73,586 426,656 1,023,402 639,053
General and administrative expenses 165,806 255,177 461,853 471,914
Royalty expense 22,237 15,769 40,173 29,380
=========== =========== =========== ===========
Operating Income (Loss) 13,866 (552,252) (1,054,917) (862,369)
Interest Expense (98,388) (89,028) (187,017) (148,082)
Interest Income 4,485 0 15,151 0
=========== =========== =========== ===========
Net Loss before taxes (80,037) (641,280) (1,226,783) (1,010,451)
Provision for taxes -- -- -- --
=========== =========== =========== ===========
Net loss $ (80,037) $ (641,280) $(1,226,783) $(1,010,451)
=========== =========== =========== ===========
Net loss per share $ (0.03) $ (0.33) $ (0.39) $ (0.53)
Shares Outstanding 3,147,674 1,922,674 3,147,674 1,922,674
</TABLE>
<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
Net loss for the three months ended
March 31, 1997 (1,146,746) $(1,146,746)
Warrants converted to Common Stock 25,000
Net loss for the three months ended
June 30, 1997 (80,037) $ (80,037)
=========== =========== =========== =========== ===========
Balance at June 30, 1997 (Unaudited) 3,147,674 $ 24,981 $ 8,934,160 $(9,137,920) $ (178,779)
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 6
OCUREST LABORATORIES, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
=========== ===========
<S> <C> <C>
Cash flows (used in) from operating activities
Net loss $(1,226,783) $(1,010,450)
=========== ===========
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation & Amortization 92,750 65,098
Changes in assets and liabilities
Increase in accounts receivable (266,915) (175,503)
Decrease in inventories 383,425 (305,112)
Increase in prepaid expenses (15,014) (68,688)
Increase (decrease) in accounts payable 503,649 (262,247)
Increase in accrued expenses (179,448) 54,001
=========== ===========
Net cash used in operating activities (708,336) (1,702,901)
=========== ===========
Cash flows from investing activities
Purchase of property and equipment (37,719) (212,150)
Deposits (5,926)
=========== ===========
Net cash used in investing activities (43,645) (212,150)
=========== ===========
Cash flows from financing activities
Proceeds from issuance of common stock 1,829,773
Proceeds from new borrowings 46,747 167,551
Principal repayments on indebtedness
Increase (decrease) in deferred offering costs (78,742)
=========== ===========
Net cash from financing activities 46,747 1,918,582
=========== ===========
Net increase (decrease) in cash (705,234) 3,531
Cash at beginning of period 1,077,400 1,607
=========== ===========
Cash at end of period $ 372,165 $ 5,138
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 156,392 $ 148,082
=========== ===========
</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.
<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 June 30, 1997 and 1996 the Company had net
losses of ($79,000) and ($641,000) on net sales of $394,000 in 1996 and $556,000
in 1997. The increase (+41%) 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 six months of
1996 reflects mostly initial shipments to fill retail shelves nationally
anticipating the advertising campaign that started in October 1997. There was
neither advertising in the first and second quarters of 1996 nor in the second
quarter of 1997. Entry level promotional costs in the second quarter of 1996 to
gain new distribution were not repeated in the second quarter of 1997 reducing
the comparable losses by $562,000. Management plans to advertise in the balance
of 1997 with proceeds from the primary stock offering scheduled for September or
October 1997 if successfully completed.
COST OF GOODS SOLD
Cost of goods sold was 47% of net sales for the three month period of
1997 and 63% 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's sales increase with gains in national
distribution, subject to the Company obtaining funding to carry- out its
marketing campaign.
<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 for the balance of 1997 and early 1998 as and if funds are available.
Thereafter, the Company anticipates reducing advertising and promotion to levels
consistent with market share and profit objectives. 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. In the
second quarter of 1997 there was no advertising as funds were not available.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include professional services and
administrative expenses for the three months ended June 30, 1996 of $255,000 as
compared to $192,000 for the same period in 1997. The increase of $63,000 is for
administrative infrastructure and outside services costs to support the larger
distribution network. 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 build the infrastructure to support the
Company's planned sales growth and search for product acquisitions
INTEREST EXPENSE
Interest expense increased in 1997 over 1996 as the Company increased
its indebtedness to support increased sales as discussed below under "Liquidity
and Capital Resources."
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 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 mutually terminated the agreement July 31, 1997. The Company has entered
an agreement with a factor to finance accounts receivable and has identified and
is currently negotiating with three potential lenders to obtain the necessary
financing for inventories and the possible sale and lease back of production
equipment.
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 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
<PAGE> 10
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 underwriter dated August 5, 1997. The Company plans to file a
registration statement with SEC by August 31, 1997( see "Subsequent Events").
There can be no assurance that the registration will become effective or that
the underwriter will successfully complete the offering.
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 for such income tax liabilities will have to be
made.
NASDAQ COMPLIANCE
The Company was notified June 16, 1997 that it does not comply withe
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 NASDAQ Small Cap Market
there can be no assurance that the listing will continue.
SUBSEQUENT EVENTS
The Company has entered an agreement relating to a "best efforts "
equity offering and interim debt financing agreement with an underwriter. The
debt financing agreement is to raise a minimum of $250,000 to a maximum of
$1,300,000. The one year notes are in $50,000 units bearing interest at 12% and
include warrants. The equity offering is for the sale of a minimum of 225,000
shares of convertible preferred stock for $2,025,000 to a maximum of 500,000
shares for $4,500,000. Each share is convertible into three shares of common
stock and includes two warrants to purchase common stock. There can be no
guarantee that either the debt or equity offering will succeed.
A vendor has filed a confession of judgment in the state of New York
for $300,000. The Company plans to pay the amount due from the interim financing
and the equity offering but may be unable to pay such amount if at least the
minimum interim debt financing is not completed successfully.
The Company has entered an five year marketing and sales representation
agreement with a London based firm to develop the European and Middle East
markets for the Company's ophthalmic products. Terms of the agreement, in part,
include compensation for
<PAGE> 11
serviced rendered in the form of "Units" as are now trading on NASDAQ Small Cap
Market.
On August 14, Robert S. Marker and Ralph Laffler resigned from the
Board of Directors and Joseph F. Mansfield was appointed to the Board to replace
Mr. F. Albin who resigned on July 3, 1997.
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 v21E 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> 12
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 August 18, 1997.
OCUREST LABORATORIES, INC.
(Registrant)
Date: August 18, 1997 By:
-------------------------------------
Edmund G. Vimond, Jr
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 18, 1997 By: /s/ John F. Carlson
-------------------------------------
John F. Carlson
ExecutiveVice President, Chief
Financial Officer and Treasure
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 372
<SECURITIES> 0
<RECEIVABLES> 432
<ALLOWANCES> 0
<INVENTORY> 580
<CURRENT-ASSETS> 1,514
<PP&E> 1,509
<DEPRECIATION> (315)
<TOTAL-ASSETS> 2,834
<CURRENT-LIABILITIES> 3,014
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> (204)
<TOTAL-LIABILITY-AND-EQUITY> 2,834
<SALES> 555
<TOTAL-REVENUES> 555
<CGS> 280
<TOTAL-COSTS> 261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (80)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (80)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
