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 September 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.
---------------------------------------------------------------
(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 October 28, 1996 was 4,008,744 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(Unaudited)
(Begins on the following page)
2
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER
30, 1996 DECEMBER
(UNAUDITED) 31, 1995
--------------- ------------
CURRENT ASSETS:
Cash (overdraft) $ (61,419) $ 37,772
Accounts receivable, less allowance
for doubtful accounts of $216,000
($216,000 at December 1995) 751,232 635,032
Inventories, at lower of cost (first in,
first out) or market (note 2) 776,793 1,094,743
Other current assets 146,138 5,181
------------ ------------
Total current assets 1,612,745 1,772,728
------------ ------------
PROPERTY AND EQUIPMENT AT COST:
Land 50,000 50,000
Building and improvements 205,000 205,000
Laboratory equipment 1,041,869 1,114,567
Office Equipment 260,997 320,607
Leasehold improvements 56,024 60,150
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Total property and equipment 1,613,891 1,750,324
Less accumulated depreciation 1,105,356 1,128,838
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Property plant and equipment, net 508,535 621,486
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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
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1,859,179 1,859,179
Less accumulated amortization 609,079 411,835
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Total other assets, net 1,250,100 1,447,344
------------ ------------
TOTAL ASSETS $ 3,371,381 $ 3,841,558
============ ============
See notes to consolidated financial statements
3
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER
30, 1996 DECEMBER
(UNAUDITED) 31, 1995
-------------- --------------
CURRENT LIABILITIES:
Accounts payable $ 1,378,069 $ 1,796,484
Accrued expenses 411,715 260,097
Current maturates of long-term debt and
obligation under capital lease 71,250 230,267
Revolving credit line 594,160 -
------------- -------------
Total current liabilities 2,455,194 2,286,848
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LONG - TERM DEBT: 2,046,506 1,426,746
DEFERRED RENT 54,069 58,238
COMMITMENTS AND CONTINGENCIES (Note 1)
STOCKHOLDERS' EQUITY
Common stock, $.05 par value, 20,000,000
shares authorized; 4,305,744 shares issued
and 3,998,744 and 4,436,927 outstanding, respectively 220,081 221,847
Capital in excess of par 5,753,016 5,887,834
Receivable for shares issued as collateral - (225,000)
Treasury Stock (307,000) -
(Deficit) (6,850,486) (5,814,955)
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Total stockholders' equity (deficit) (1,184,389) 69,726
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,371,381 $ 3,841,558
============= =============
See notes to consolidated financial statements
4
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ------------------------------
1996 1995 1996 1995
--------------------------------- ------------------------------
NET SALES $ 2,073,964 $ 2,523,295 $ 6,079,522 $ 7,352,936
COST OF SALES 1,434,722 1,545,335 3,984,660 4,736,773
--------------------------------- ------------------------------
Gross profit 639,243 977,960 2,094,863 2,616,163
--------------------------------- ------------------------------
OPERATING COSTS AND EXPENSES:
Selling expenses 247,255 333,396 717,435 748,819
Marketing expenses 40,109 45,494 81,368 99,003
Research and development 12,201 13,720 37,159 43,423
General and administrative expenses 684,925 831,683 2,072,784 2,135,311
--------------------------------- -------------------------------
Total operating costs and expenses 984,489 1,224,293 2,908,745 3,026,556
--------------------------------- ------------------------------
Operating loss (345,246) (246,333) (813,882) (410,393)
OTHER INCOME (EXPENSES):
Interest expense (125,255) (36,876) (269,038) (109,831)
Other income 11,847 949 37,384 34,603
--------------------------------- ------------------------------
Loss before income taxes (458,655) (282,260) (1,045,537) (485,621)
INCOME TAXES - - - -
--------------------------------- ------------------------------
NET LOSS $ (458,655) $ (282,260) $ (1,045,537) $ (485,621)
================================= ==============================
Deficit at beginning of period (6,401,831) (3,923,870) (5,814,949) (3,720,509)
--------------------------------- -----------------------------------
Deficit at end of period $ (6,860,486) $ (4,206,130) $ (6,860,486) $ (4,206,130)
================================= ===================================
Loss per common share - primary ($0.11) ($0.07) ($0.25) ($0.11)
================================= ===================================
Weighted average shares outstanding - primary (note 3) 4,233,663 4,032,286 4,233,663 4,414,736
================================= ===================================
See notes to consolidated financial statements
5
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, 1996 and 1995
1996 1995
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,045,537) $ (485,621)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 132,440 110,286
Amortization 197,244 231,196
Provision for bad debts - (16,397)
Receipt of shares issued as collateral 225,000 -
Adjustments to opening reained earnings 10,000 -
Adjustments to equity for prior period items (136,579) -
(Increase) in accounts receivable (116,200) (162,533)
Decrease in inventories 317,950 143,522
(Increase) decrease in other current assets (140,957) 27,964
(Decrease) in accounts payable (418,415) 195,484
(Decrease) increase in accrued expenses 151,618 (10,558)
(Decrease) in deferred rent (4,169) (2,048)
------------------ ---------------
Net cash (used in) provided by operating activities (827,606) 31,295
------------------ ---------------
Cash flows from investing activities:
Additions to property and equipment (19,489) (243,234)
Purchase of Philcon Laboratories, Inc. - (246,972)
------------------ ----------------
Net cash used in investing activities (19,489) (490,206)
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Cash flows from financing activities:
Proceeds from borrowings 1,607,606 300,000
Principal payments on long - term debt (518,139) (466,706)
Principal payments under capital leases (34,563) -
Issuance of common stock - 402,695
Purchase of treasury stock (307,000) -
----------------- ----------------
Net cash provided by financing activities 747,904 235,989
------------------ ----------------
Net (decrease) in cash and cash equivalents (99,191) (222,922)
Cash beginning of period 37,772 320,948
------------------ ----------------
Cash (overdraft) end of period $ (61,419) $ 98,026
================== ================
See notes to consolidated financial statements
6
AMERICAN CONSOLIDATED LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of and for the Nine Months Ended September 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. 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 September 30, 1996 and the related
consolidated statements of operations and deficit and statements of
cash flows for the nine month periods ended September 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.
7
2. Inventories
Inventories consist of the following:
Sept. 30,
1996 December
(unaudited) 31, 1995
Raw Materials........................................ $ 176,297 $ 180,913
Work in process...................................... 40,891 29,154
Finished Goods....................................... 559,793 884,676
------- --------
Total inventories $ 776,793 $1,094,743
--------- ----------
3. Loss per share
The Company calculates primary loss per share including the effect of stock
options and warrants. Fully diluted loss per share is not presented as it is
anti-dilutive.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Three Months Ended September 30, 1996 Compared to Three
Months Ended September 30, 1995
Net sales for the three months ended September 30, 1996, totaled $2,073,964, a
decrease of $449,331 or 17.8% from 1995. The percentage decrease in sales
reflects improvement from the 25.1% decrease in the second quarter. The lower
sales in the third quarter of 1996 compared to 1995 continues to be 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. Net sales per
day have been increasing steadily during the 1996 and exceeded an average of
$32,000 per day during the third quarter compared to an average of $20,000 per
day in December 1995.
The company incurred a net loss of $458,655 for the three months ended September
30, 1996, compared to a net loss of $282,260 for the three months ended
September 30, 1995. Gross Profit was $338,717 lower for the three months ended
September 30, 1996, compared to September 30, 1995. Had sales not declined, due
to the problems encountered in 1995, the loss in 1996 would have been less than
the loss in 1995 due to tighter control over expenses.
Sales of all products were lower for the three months ended September 30, 1996,
compared to the three months ended September 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. This is supported by the increase in daily sales mentioned
above. Management believes that the computer problems have been corrected and
the system is functioning properly.
The Gross Profit for the three months ended September 30, 1996, was $639,243, or
30.8% compared to $977,960, or 38.7% for the three months ended September 30,
1995. The Gross Profit for the three months ended September 30, 1995 is not
representative due to timing issues in 1995.
All operating costs and expense's were lower for the three months ended
September 30, 1996, compared to September 30, 1995. Operating costs were lower
by $239,804 for the quarter. Selling expenses were $247,255, a reduction of
$86,141, or 25.8%. Marketing expenses were $40,109, a reduction of $5,385, or
11.8%. Research and development expenses were $12,201, a reduction of $1,519, or
11.1%. General and administrative expenses were $684,925, a reduction of
$146,758, or 17.6%.
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 all but one sales
position were eliminated in 1996.
Marketing activities were reinstituted during third quarter as a result of
closing the Fidelity Loan on June 28, 1996. Management intends to continue to
allocate funds to increase marketing efforts in an effort to generate sales
volume. Management is in the process of establishing a two-person telemarketing
group which should be in place by the end of the fourth quarter.
General and administrative expenses for the three months ended September 30,
1996, contained some residual expenses related to the previous management. These
residual expenses, although decreasing, will still have an impact on future
periods.
Interest expense for the three months ended September 30, 1996, totaled $125,255
compared to $36,876 for the same period in 1995. The increase is the result of
the additional funds borrowed to support the 1996 and 1995 losses.
9
Results of Operations - Nine Months Ended September 30, 1996 Compared to Nine
Months Ended September 30, 1995
Net sales for the nine months ended September 30, 1996 totaled $6,079,522, a
decrease of $1,273,414 or 17.3% 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 have been
increasing steadily on a daily basis in 1996 from the low in December of 1995,
as discussed in the previous section.
The Company incurred a net loss of $1,045,537 for the nine months ended
September 30, 1996 compared to a net loss of $485,621 for the nine months ended
September 30, 1995. Gross Profit was $521,300 lower for the nine months ended
September 30, 1996 compared to September 30, 1995 due to lower sales levels and
lower margins.
Sales of all products were lower for the nine months ended September 30, 1996
compared to September 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 sales on a daily basis
continue to increase as discussed in the previous section.
The Gross Profit for the nine months ended September 30, 1996 was $2,094,863, or
34.5%, compared to $2,616,163, or 35.6%, for the nine months ended September 30,
1995. This represents the effect of the continued price pressures on the soft
distributed products from the four major vendors. Management believes the
margins in this segment of the business will continue to decline.
Total operating costs for the nine months ended September 30, 1996 decreased
$121,993 compared to the third quarter of 1995. This is the result of actions
taken by the new management team since May.
Interest expense for the nine months ended September 30, 1996 totaled $269,038
compared to $109,831 for the same period in 1995. The increase is the result of
the additional funds borrowed to support the 1996 and 1995 losses.
FINANCIAL CONDITION
Cash overdraft at September 30, 1996, was ($61,419) due to the timing of cash
receipts, compared to cash at December 31, 1995, of $37,772. Net cash used in
operating activities for the nine months ended September 30, 1996, was $827,606
compared to $31,295 provided by operating activities for the same period in
1995.
The Company had a working capital deficit of $842,449 compared to a working
capital deficit of $514,120 at December 31, 1995.
Management believes the Company's financial condition continues to improve
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.
10
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(a) Employment Agreement dated April 11, 1996 between the
Registrant and Joseph A. Arena.
10(b) Employment Agreement dated April 11, 1996 between the
Registrant and Kenneth C. Kirkham.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cause 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
12