SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934
FOR QUARTER ENDED February 28, 1998COMMISSION FILE NUMBER 0-16664
______________________________
GENETIC LABORATORIES WOUND CARE, INC.
State of Incorporation: Minnesota
I.R.S. Employer Identification No: 41-1604048
Executive Offices: 2726 Patton Road, St. Paul, MN 55113
Telephone Number: (612) 633-0805
______________________________
Indicate by check mark whether the registrant
(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_____
______________________________
On February 28, 1998, there were 2,402,350 shares of the Registrant's $.01 par
value common stock outstanding. PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GENETIC LABORATORIES WOUND CARE, INC.
BALANCE SHEETS
(Unaudited)
ASSETS
February 28,
May 31,
1998 1997
CURRENT ASSETS
Cash and cash equivalents $ 315,603 $ 351,201
Receivables
Trade, less allowance for
doubtful accounts of
$9,000 and $7,000,
respectively 411,260 412,919
Income taxes
- 5,930
Inventories 529,002 478,711
Prepaid expenses 66,434 35,128
Total current assets
1,322,299 1,283,889
PROPERTY AND EQUIPMENT
Production equipment and tooling 60,140 60,140
Office equipment 244,552 194,552
304,692 254,692
Less accumulated depreciation 188,738 166,363
115,954 88,329
OTHER ASSETS
Patents, net 5,338 5,087
Cash surrender value 6,277 -
11,635 5,087
$
1,449,888 $ 1,377,305
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion long term debt $ 6,170$ 5,760
Accounts payable 83,668 122,443
Income taxes payable 2,190 -
Accrued expenses 122,770 87,794
Total current liabilities
214,798 215,997
LONG TERM DEBT 4,436 9,110
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 12,000,000 shares authorized,
issued 2,402,350 and 2,401,100
shares respectively 24,024 24,018
Additional paid-in capital 647,078 646,880
Retained earnings 559,552 481,300
1,230,654 1,152,198
$
1,449,888 $ 1,377,305
GENETIC LABORATORIES WOUND CARE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
1998 1997 1998
1997
Net revenues $ 757,688 $ 738,471 $
2,329,034 $ 2,188,772
Cost of revenues 270,876 267,281
851,296 816,490
Gross profit 486,812 471,190
1,477,738 1,372,282
Operating expenses 447,655 417,090
1,353,116 1,248,072
Income from operations 39,157 54,100
124,622 124,210
Interest income(net) 1,293 972
3,751 3,892
Income before taxes 40,450 55,072
128,373 128,102
Provision for taxes 19,870 23 ,000
50,120 45,000
Net income $ 20,580 $ 32,072 $
78,253 $ 83,102
Per common share data
Net income, basic and diluted $ .01 $ .01
$ .03 $ .03
Weighted average common
shares outstanding 2,402,350 2,401,350
2,402,267 2,401,267
Weighted average common
and common equivalent
shares outstanding 2,438,557 2,495,639
2,438,557 2,497,930GENETIC LABORATORIES WOUND CARE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Three months Ended
Nine Months Ended
February 28,
February 28,
1998
1997 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,580 $ 32,072 $ 78,253
$ 83,102
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,450 4,989 24,593
12,114
Changes in current assets and liabilities
Receivables 41 5,641 7,589
(48,449)
Inventories 18,655 127,285
(50,291) 125,826
Prepaid expenses (18,137) 11,122
(31,306) 14,287
Accounts payable 9,488 (94,414)
(38,775) (185,572)
Accrued expenses 571 2,773 34,976
16,733
Income taxes payable 2,190 1,000 2,190
1,646
Net cash provided by operating activities 41,838 90,468
27,229 19,687
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (15,654) (15,662)
(52,490) (39,041)
Cash surrender value increase (1,060) -
(6,277) -
Net cash used in investing activities (16,714) (15,662)
(58,767) (39,041)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under long-term debt (1,454) (1,326)
(4,264) (1,760)
Proceeds from issuance of common stock - 188
204 188
Proceed from loan - -
- - 18,000
Net cash provided by (used in) financing activities (1,454)
(1,138) (4,060) 16,428
Net increase (decrease) in cash and cash equivalents 23,670
73,668 (35,598) (2,926)
CASH and CASH EQUIVALENTS
Beginning 291,933 175,594
351,201 252,188
Ending $ 315,603 $ 249,262 $
315,603 $ 249,262
GENETIC LABORATORIES WOUND CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
The interim financial statements are unaudited but in the opinion of
management, reflect all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position as of February 28, 1998, and the results of its operations and its
cash flows for the three months and the nine months ended February 28, 1998
and 1997. The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year. These statements
are condensed and therefore do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Form 10-KSB
or Annual Report for the year ended May 31, 1997.
The FASB has issued Statement No. 128, Earnings per Share, which supersedes APB
Opinion No. 15. Statement No 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertibles securities, outstanding that trade in a
public market. Those entities that have only common stock outstanding are
required to present basic earnings per share amounts. All other entities are
required to present basic and diluted per share amounts. Diluted per share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the income
per common share from continuing operations. All entities required to present
earnings per share amounts must initially apply Statement No. 128 for annual
and interim periods ending after December 15, 1997.
The Company has applied this accounting standard in this quarter and determined
that basic and diluted per share amounts are the same, and no restatement of
prior year amounts was necessary.
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net Revenues:
Net revenues were $757,688 for the three months ended February 28, 1998,
compared to $738,471 for the three months ended February 28, 1997, an increase
of 2.6%. Domestic sales increased 3.5% comparing the three months ended
February 28, 1998, to the three months ended February 28, 1997. Sales to
international customers accounted for 18.0% of net revenues for the three
months ended February 28, 1998, compared to 18.7% for the three months ended
February 28, 1997. All sales require payment in U.S. funds.
Sales of specialty fasteners increased 17.0% comparing the three months ended
February 28, 1998, to the three months ended February 28, 1997. Specialty
fasteners accounted for 41.0% of net revenues for the three months ended
February 28, 1998 compared to 36.0% of net revenues for the three months ended
February 28, 1997. The increase in specialty fasteners reflects the increased
marketing activities of the Company.
Sales of Suture Strip wound closure strips were down 8.3% comparing the three
months ended February 28, 1998, to the three months ended February 28, 1997.
Wound closure strips accounted for 48.9% of net revenues for the three months
ended February 28, 1998 compared to 54.7% of net revenues for the three months
ended February 28, 1997. The decrease in wound closure strips sales reflects
the diminished marketing emphasis and the increase in competition.
Cost of Revenues:
Cost of revenues were $270,876, or 35.8% of net revenues, for the three months
ended February 28, 1998, compared to $267,281 or 36.2% of net revenue for the
three months ended February 28, 1997. The minor decrease in the cost of
revenues percentage and the resulting increase in the gross profit percentage
was primarily due to an increase in sales of specialty fasteners at slightly
higher gross margins than wound closure strips. The Company expects its cost of
revenues to continue to remain at the current percentage of net sales
throughout the remainder of the fiscal year, if the sales mix continues as
experienced during the three months ended February 28, 1998.
Operating Expenses:
Operating expenses were $447,655, or 59.1% of net revenues, for the three
months ended February 28, 1998, compared to $417,090, or 58.4% of net revenues,
for the three months ended February 28, 1998. The increase was primarily due to
increased wage and benefit costs, and increased rent charges for additional
facility space.
Liquidity and Capital Resources:
At February 28, 1998, the Company had working capital of $1,107,501 and a
working capital ratio of 6.2 to 1 compared to working capital of $1,067,892 and
a working capital ratio of 5.9 to 1 on May 31, 1997.
Cash and cash equivalents increased by $23,670 from August 31, 1997 to February
28, 1998. Operating activities generated $41,838, while equipment purchased
utilized $15,654.
The Company has a revolving line of credit with a local bank in the amount of
$200,000. Outstanding balances on the line of credit at February 28, 1998 and
May 31, 1997 were $0.
The Company expects that is will be able to fund its working capital
requirements for the year through internally generated funds, or utilize the
line of credit if needed.
Major Customers:
For the three months ended February 28, 1998 one customer accounted for more
than ten percent of net revenues. This customer accounted for approximately 12%
of net revenues for the three months ended February 28, 1998.
Foreign Currency Transactions:
All of the Company's foreign transactions are negotiated, invoiced and paid in
U.S. dollars. Fluctuations in currency exchange rates in other countries may
therefore reduce the demand for the Company's products by increasing the price
of the Company's products in the currency of the countries in which the
products are sold.
Forward Looking Statements:
In addition to historical information this report may contain forward-looking
statements that are subject to risks and uncertainties that may cause actual
results to differ materially from those reflected in the forward-looking
statements. The Company believes it has made fair and accurate forward-looking
statements by relying on past events and current information available. The
Company undertakes no obligations to revise these forward-looking statements to
reflect events that may arise.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENETIC LABORATORIES WOUND CARE, INC.
April 13, 1998 By: /s/ Arthur A. Beisang
Arthur A. Beisang
Chief Executive Officer