SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1996
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( ) 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 000-18448
AMERICAN CONSOLIDATED LABORATORIES, INC.
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(Exact name of registrant as specified in its charter )
FLORIDA 59-2624130
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
1640 NORTH MARKET DRIVE, RALEIGH, NORTH CAROLINA 27609
(Address of principal executive offices) (Zip code)
(919) 872- 0744
Registrant's telephone number, including area code
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
The number of shares outstanding of the registrants Common Stock, par value
$0.05 per share, at July 23, 1996 was 4,430,878 shares.
PART 1
ITEM 1. FINANCIAL STAEMENTS FOR THE PERIOD ENDED JUNE 30, 1996
(Unaudited)
(Begins on the following page)
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30,
1996 DECEMBER
(UNAUDITED) 31, 1995
----------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents $ 481,031 $ 37,772
Accounts receivable, less allowance
for doubtful accounts of $216,000
($216,000 at December 1995) 616,802 635,032
Inventories, at lower of cost (first in,
first out) or market 707,116 1,094,743
Other current assets 168,109 5,181
----------------- -----------------
Total current assets 1,973,058 1,772,728
----------------- -----------------
PROPERTY AND EQUIPMENT AT COST:
Land 50,000 50,000
Building and improvements 205,000 205,000
Laboratory equipment 1,125,889 1,114,567
Office Equipment 326,349 320,607
Leasehold improvements 60,150 60,150
----------------- -----------------
Total property and equipment 1,767,388 1,750,324
Less accumulated depreciation 1,217,967 1,128,838
----------------- -----------------
Property plant and equipment, net 549,421 621,486
----------------- -----------------
OTHER ASSETS:
Costs in excess of fair value of assets
acquired 828,419 828,419
Other intangible assets 865,034 865,034
Deferred loan costs 73,781 73,781
Miscellaneous 91,945 91,945
----------------- -----------------
1,859,179 1,859,179
Less accumulated amortization 542,814 411,835
----------------- -----------------
Total other assets, net 1,316,365 1,447,344
----------------- -----------------
TOTAL ASSETS $ 3,838,844 $ 3,841,558
================= =================
See notes to consolidated financial statements
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30,
1996 DECEMBER
(UNAUDITED) 31, 1995
----------------- -----------------
CURRENT LIABILITIES:
Accounts payable $ 1,607,354 $ 1,796,484
Accrued expenses 181,369 260,097
Current maturates of long-term debt and
obligation under capital lease 51,200 230,267
Revolving credit line (note 3) 559,949 -
----------------- -----------------
Total current liabilities 2,399,872 2,286,848
----------------- -----------------
LONG - TERM DEBT (note 3): 1,954,520 1,426,746
DEFERRED RENT 55,539 58,238
COMMITMENTS AND CONTINGENCIES (Note 1)
STOCKHOLDERS' EQUITY
Common stock, $.05 par value, 20,000,000
shares authorized; 4,609,052 shares issued
and 4,309,053 and 4,436,927 outstanding, respectively 236,544 221,847
Capital in excess of par 5,969,199 5,887,834
Receivable for shares issued as collateral (225,000) (225,000)
Treasury Stock (150,000) -
(Deficit) (6,401,831) (5,814,955)
----------------- -----------------
Total stockholders' equity (deficit) (571,088) 69,726
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,838,844 $ 3,841,558
================= =================
See notes to consolidated financial statements
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- -----------------------------------
1996 1995 1996 1995
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NET SALES $ 1,979,108 $ 2,641,113 $ 4,005,558 $ 4,829,641
COST OF SALES 1,358,993 1,748,661 2,549,938 3,191,438
---------------------------------- -----------------------------------
Gross profit 620,115 892,452 1,455,620 1,638,203
---------------------------------- -----------------------------------
OPERATING COSTS AND EXPENSES:
Selling expenses 172,295 229,969 470,180 415,423
Marketing expenses 19,629 40,052 41,259 53,509
Research and development 13,737 14,413 24,958 29,703
General and administrative expenses 692,724 717,926 1,387,859 1,303,628
---------------------------------- -----------------------------------
Total operating costs and expenses 898,385 1,002,360 1,924,256 1,802,263
---------------------------------- -----------------------------------
Operating (loss) income (278,270) (109,908) (468,636) (164,060)
OTHER INCOME (EXPENSES):
Interest expense (84,120) (37,358) (143,783) (72,955)
Other income 10,760 17,818 25,537 33,654
---------------------------------- -----------------------------------
Loss before income taxes (351,630) (129,448) (586,882) (203,361)
INCOME TAXES - - - -
---------------------------------- -----------------------------------
NET LOSS $ (351,630) $ (129,448) $ (586,882) $ (203,361)
================================== ===================================
Deficit at beginning of period (6,050,207) (3,794,422) (5,814,955) (3,720,509)
---------------------------------- -----------------------------------
Deficit at end of period $ (6,401,837) $ (3,923,870) $ (6,401,837) $ (3,923,870)
================================== ===================================
Net loss per common share - primary ($0.08) ($0.03) ($0.14) ($0.05)
================================== ===================================
Weighted average shares outstanding - primary 4,309,052 4,423,787 4,309,052 4,423,787
================================== ===================================
See notes to consolidated financial statements
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 1996 and 1995
1996 1995
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (586,882) $ (203,361)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 89,129 73,985
Amortization 130,979 143,029
Provision for bad debts -- (12,396)
(Increase) decrease in accounts receivable 18,230 (173,311)
(Increase) decrease in inventories 387,627 (52,619)
(Increase) in other current assets (162,928) (82,758)
(Decrease) increase in accounts payable (189,130) 411,026
(Decrease) in accrued expenses (78,728) (102,017)
(Decrease) in deferred rent (2,699) (1,292)
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Net cash (used in) provided by operating activities (394,402) 286
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (17,064) (126,334)
Purchase of Philcon Laboratories, Inc. -- (246,972)
----------- -----------
Net cash used in investing activities (17,064) (373,306)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 1,182,456 125,000
Principal payments on long - term debt (246,031) (331,700)
Principal payments under capital leases (27,762) (29,589)
Purchase of treasury stock (150,000) --
Issuance of common stock 96,062 384,570
----------- -----------
Net cash provided by financing activities 854,725 148,281
----------- -----------
Net increase (decrease) in cash and cash equivalents 443,259 (224,739)
Cash and cash equivalents beginning of period 37,772 320,948
----------- -----------
Cash and cash equivalents end of period $ 481,031 $ 96,209
=========== ===========
See notes to consolidated financial statements
AMERICAN CONSOLIDATED LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of and for the Six Months Ended June 30, 1996
1. Significant accounting policies
(a) General
American Consolidated Laboratories, Inc. (the Company) is in
the business of manufacturing and distribution of contact lenses. The
accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification that might be
necessary should the Company be unable to continue as a going concern.
The Company has made significant progress since December 31, 1995.
Management successfully closed on a revolving line of credit with
Fidelity Funding during the second quarter. This line of credit
provided the funds to allow the Company to meet its current
obligations. The Company expects to achieve positive cash flow from
operations during the third quarter through continued sales growth, and
operating cost reductions. Management continues to aggressively pursue
securing additional debt or equity financing, as well as acquisition of
a profitable entity. Accomplishment of the actions discussed above
would provide sufficient resources to allow the Company to continue as
a going concern.
(b) Basis of presentation and disclosures included
The consolidated balance sheet as of June 30, 1996 and the related
consolidated statements of operations and deficit and statements of
cash flows for the six month periods ended June 30, 1996 and 1995 are
unaudited; in the opinion of management, all adjustments necessary for
a fair presentation of such financial statements have been included.
Such adjustments consisted only of normal reoccurring items. Interim
results are not necessarily indicative of results for a full year.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," which was effective for the Company
beginning January 1, 1996. SFAS 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages
(but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will disclose the
required pro forma effect for the year ending December 31, 1996, in its
year end financial statements.
The financial statements and notes are presented as permitted by Form
10-QSB and accordingly do not contain certain information included in
the Company's annual consolidated financial statements and notes as
included in its annual filing on Form 10-KSB. It is recommended that
these interim financial statements be read in conjunction with the
Company's latest annual filing on Form 10-KSB.
2. Inventories
Inventories consist of the following:
June 30,
1996 December
(unaudited) 31, 1995
Raw Materials........................$ 184,554 $ 180,913
Work in process...................... 27,698 29,154
Finished Goods................... 494,864 884,676
------- --------
Total inventories $ 707,116 $1,094,743
--------- ----------
As a result of taking a physical inventory on May 31, 1996 the company
made an adjustment to reduce inventory and accounts payable. Another
physical inventory was taken at June 30, 1996, which resulted in an
immaterial variance.
3. Long - term debt
On June 28, 1996 the Company closed on a $2,000,000 revolving line of
credit with Fidelity Funding of California, Inc. secured by accounts
receivable. As of June 28, 1996 the balance outstanding was $559,949. The
interest rate on the loan is 1.5% above prime.
The company used the proceeds of the loan to repay the Bausch & Lomb note,
the Polymer note, and the Dave Dougherty note, as well as various suppliers
in order to reestablish inventory credit lines.
Certain borrowings from stockholder have been reclassified to long - term
debt to conform to the current presentation.
4. Earnings per share
The Company calculates primary earnings per share including the effect of
stock options and warrants. Fully diluted earnings per share is not
presented as it is anti-dilutive.
5. Significant customer
The contract with one customer of the Company is scheduled to expire in
August 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
During April of 1996, the Board of Directors of the Company strengthened the
Company's management team by bringing in two seasoned executives and reinstating
another to replace the previous management.
On June 28, 1996, the Company closed an asset-based loan facility with
Fidelity Funding Group that has allowed the Company to repay certain debt and
reopen credit lines with its vendors. This financing will allow the Company to
increase its inventory levels in order to achieve higher customer fill rates and
overall customer satisfaction. As a result, management has already seen
improvement in sales and is optimistic this trend will continue. The new
management team is monitoring expense spending very closely.
Results of Operations - Three Months Ended June 30, 1996 Compared to Three
Months Ended June 30, 1995
Net sales for the three months ended June 30, 1996, totaled $1,979,108, a
decrease of $662,005 or 25.1% from 1995. This decrease is due to the problems
encountered with the change over of the computer system in August of 1995, which
resulted in erosion of sales through December of 1995. Sales each month in 1996
have been higher than the low point in December of 1995.
The company incurred a net loss of $351,630 for the three months ended June
30, 1996, compared to a net loss of $ 129,448 for the three months ended June
30, 1995. Gross Profit was $272,337 lower for the three months ended June 30,
1996, compared to June 30, 1995, which accounts for the increased loss.
Sales of all products were lower for the three months ended June 30, 1996,
compared to June 30, 1995. This is the result of the effects of the computer
change over problems encountered in August 1995. Sales of all products,
especially soft disposable lenses, have been increasing steadily in 1996.
The Gross Profit for the three months ended June 30, 1996, was $620,115, or
31.3% compared to $892,452, or 33.7% for the three months ended June 30, 1995.
Year-to-date the Gross Profit Margin is 36.3% which management believes is more
reflective of the company's business.
All operating costs and expense were lower for the three months ended June 30,
1996, compared to June 30, 1995. Operating costs were lower by $103,975 for the
quarter. Selling expenses were $172,295, a reduction of $57,674, or 33%.
Marketing expenses were $19,629, a reduction of $20,423, or 51%. Research and
development expenses were $13,737, a reduction of $676, or 5%. General and
administrative expenses were $692,724, a reduction of $25,202, or 3.5%.
Selling expenses are down due to the elimination of the national sales force,
which was established by the previous management in 1995. This industry does not
typically operate with a sales force, and consequently the sales force was
eliminated in 1996.
Marketing activities had been curtailed during 1996 as a result of the cash flow
constraints. With the closing of the Fidelity loan, management intends to
allocate funds to increase marketing efforts in an effort to generate sales
volume.
General and administrative expenses for the three months ended June 30, 1996,
contained some residual expenses related to the previous management. These
residual expenses, although decreasing, will still have an impact on future
periods. Management is however confident that the trend of general and
administrative expenses will continue to be lower than the prior periods.
Interest expense for the three months ended June 30, 1996, totaled $84,120
compared to $37,358 for the same period in 1995. The increase is the result of
the additional funds borrowed to support the 1995 loss.
Results of Operations - Six Months Ended June 30, 1996 Compared to Six Months
Ended June 30, 1995
Net sales for the six months ended June 30, 1996 totaled $4,005,558, a
decrease of $824,083 or 17.1% from 1995. This decrease is due to the problems
encountered with the change over of the computer system in August of 1995, which
resulted in erosion of sales through December of 1996. Sales have been
increasing steadily in 1996 from the low in December of 1995.
The Company incurred a net loss of $586,882 for the six months ended June 30,
1996 compared to a net loss of $ 203,361 for the six months ended June 30, 1995.
Gross Profit was $182,583 lower for the six months ended June 30, 1996 compared
to June 30, 1995 due to the lower sales.
Sales of all products were lower for the six months ended June 30, 1996
compared to June 30, 1995. This is the result of the effects of the computer
change over problems encountered in August 1995 which affected customer service
levels. Sales of all products, especially soft disposable lenses, have been
increasing steadily in 1996. Management expects this trend to continue now that
the Fidelity loan has closed and inventory levels are being increased to provide
adequate customer fill rates.
The Gross Profit for the six months ended June 30, 1996 was $1,455,620, or
36.3% compared to $1,638,203, or 33.9% for the six months ended June 30, 1995.
This represents the effect of manufactured products being a larger portion of
the product mix than distributed products in 1996 compared to 1995.
Total operating costs for the six months ended June 30, 1996 increased $121,993.
This is the result of expenses incurred in the first quarter by the previous
management which included ; the additional costs to rectify the computer system
problems; and the cost of the national sales force. As discussed in the previous
section these costs are trending down and should be under the prior period for
the rest of the year.
Selling expenses are up due to the creation of the National sales force, which
was established by the previous management in 1995. This industry does not
typically operate with a sales force, and consequently the sales force was
eliminated in early 1996. The Company employees three sales representatives to
solicit new business and service existing customers.
Marketing activities had been curtailed during 1996 as a result of the cash flow
constraints. With the closing of the Fidelity credit line, management intends to
allocate funds to increase marketing efforts in order to generate sales volume.
General and administrative expenses increased $84,231 for the six months ended
June 30, 1996. This primarily the result of expenses incurred to correct the
computer problems in the first quarter. Management is however confident that the
second quarter trend of lower general and administrative expenses compared to
prior periods will continue for the remainder of 1996.
Interest expense for the six months ended June 30, 1996 totaled $143,738
compared to $72,955 for the same period in 1995. The increase is the result of
the additional funds borrowed to support the 1995 loss.
FINANCIAL CONDITION
Cash at June 30, 1996, was $481,031 as the result of the closing of the Fidelity
loan on June 28, 1996, compared to cash at June 30, 1995, of $96,209. Net cash
used in operating activities for the six months ended June 30, 1996, was
$394,402 compared to $286 provided by operating activities for the same period
in 1995. Of the $394,402 used in operating activities in 1996, approximately
$200,000 is the net result of adjustments made in May to the inventory and
accounts payable.
The Company had a working capital deficit of $426,814 compared to a working
capital deficit of $514,120 at December 31, 1995.
Management believes the Company's financial condition has been improved compared
to December 31, 1995. However, management continues to aggressively pursue
obtaining debt or equity financing, as well as acquisitions in order to improve
liquidity and enhance shareholder value. No assurances can be given that
additional financing can be obtained, or that acquisitions will be consummated.
If management is not successful in generating positive cash flow from operations
or raising additional financing the Company may not have adequate cash to meet
its current obligations.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 6, 1996 the Company held its Annual Meeting of Shareholders. At
that meeting, the shareholders voted to approve the following items:
1. The election of four directors to hold office until the next annual
meeting.
2. The ratification of the appointment of Deloitte & Touche LLP to serve
as the Company's independent auditors for the year ending December
31, 1996.
SIGNATURE
Pursuant to the requirements 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.
American Consolidated Laboratories, Inc.
Date : ___________________ By : ______________________________
Joseph A. Arena
Chief Executive Officer