SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 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 000-18448
AMERICAN CONSOLIDATED LABORATORIES, INC.
(Name of small business issuer 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
Issuer's telephone number
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 April 22, 1997 was 3,978,081 shares.
Transitional Small Business Disclosure Format (check one): Yes ____; No X
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1997
(unaudited)
(Begins on the following page)
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (UNAUDITED)
------------------ --------------------
CURRENT ASSETS:
Accounts receivable, less allowance
for doubtful accounts (note 2) $ 671,527 $ 644,157
Inventories, at lower of cost (first in,
first out) or market (note 3) 544,950 708,152
Other current assets 139,528 115,408
------------------ --------------------
Total current assets 1,356,006 1,467,717
------------------ --------------------
PROPERTY AND EQUIPMENT AT COST:
Laboratory equipment 871,167 871,167
Office Equipment 216,990 216,990
Leasehold improvements 56,024 56,024
Assets being held for disposition 255,000 255,000
------------------ --------------------
Total property and equipment 1,399,181 1,399,181
Less accumulated depreciation 940,365 915,942
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Property plant and equipment, net 458,816 483,239
------------------ --------------------
TOTAL ASSETS $ 1,814,822 $ 1,950,956
================== ====================
See notes to consolidated financial statements
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIT
MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (UNAUDITED)
------------------ --------------------
CURRENT LIABILITIES:
Accounts payable (note 4) $ 1,515,728 $ 1,433,469
Accrued expenses 834,604 742,766
Current maturities of long-term debt 2,227,119 2,012,733
Revolving credit line 392,616 390,591
------------------ --------------------
Total current liabilities 4,970,067 4,579,559
------------------ --------------------
LONG - TERM DEBT: 353,327 395,171
DEFERRED RENT 50,678 52,597
COMMITMENTS AND CONTINGENCIES (note 1)
STOCKHOLDERS' DEFICIT
Common stock, $.05 par value, 20,000,000 shares authorized; 4,625,956 issued
and 4,009,956 shares outstanding at March 31, 1997, and 4,621,623 issued
and 4,005,623 shares outstanding at
December 31, 1996 231,298 231,082
Capital in excess of par value 6,221,139 6,220,273
Treasury stock (328,000) (328,000)
Deficit (9,683,687) (9,199,726)
------------------ --------------------
Total stockholders' deficit (3,559,250) (3,076,371)
------------------ --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,814,822 $ 1,950,956
================== ====================
See notes to consolidated financial statements
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
Three Months Ended March 31, 1997 and 1996
1997 1996
------------------ --------------------
NET SALES $ 1,875,031 $ 2,026,450
COST OF SALES 1,458,271 1,190,945
------------------ --------------------
Gross profit 416,760 835,505
------------------ --------------------
OPERATING COSTS AND EXPENSES:
Selling expenses 175,648 297,885
Marketing expenses 42,452 21,630
Research and development - 11,221
General and administrative expenses 465,358 695,135
------------------ --------------------
Total operating costs and expenses 683,458 1,025,871
------------------ --------------------
Operating loss (266,698) (190,366)
OTHER INCOME (EXPENSES):
Interest expense (232,347) (59,663)
Other income 15,084 14,777
------------------ --------------------
Loss before income taxes (483,961) (235,252)
INCOME TAXES - -
------------------ --------------------
NET LOSS $ (483,961) $ (235,252)
================== ====================
Deficit at beginning of period (9,199,726) (5,814,955)
------------------ --------------------
Deficit at end of period $ (9,683,687) $ (6,050,207)
================== ====================
Net loss per common share - primary ($0.12) ($0.05)
================== ====================
Weighted average shares outstanding - primary 4,008,464 4,311,652
================== ====================
See notes to consolidated financial statements
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 1997 and 1996
1997 1996
------------------ --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (483,961) $ (235,252)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 24,423 45,961
Amortization - 64,713
Unpaid interest 102,654 41,439
Discount amortization 87,523 -
(Increase) in accounts receivable (27,370) (191,109)
Decrease in inventories 163,202 81,348
(Increase) in other current assets (24,120) (22,692)
Increase in accounts payable 48,605 100,287
Increase in accrued expenses (10,816) (23,049)
(Decrease) in deferred rent (1,919) (1,228)
------------------ --------------------
Net cash used in operating activities (121,779) (139,582)
------------------ --------------------
Cash flows from investing activities:
Additions to property and equipment 0 (13,400)
------------------ --------------------
Net cash used in investing activities 0 (13,400)
------------------ --------------------
Cash flows from financing activities:
Proceeds from stockholder borrowings 135,000 420,000
Principal payments on long - term debt (49,982) (193,118)
Net proceeds from asset based loan 2,025 -
Principal payments under capital leases - (15,267)
Issuance of common stock 1,082 -
------------------ --------------------
Net cash provided by financing activities 88,125 211,615
------------------ --------------------
Net increase (decrease) in cash (33,654) 58,633
Cash beginning of period (note 4) (16,834) 37,772
------------------ --------------------
Cash and end of period (note 4) $ (50,488) $ 96,405
================== ====================
See notes to consolidated financial statements
AMERICAN CONSOLIDATED LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of and for the Three Months Ended March 31, 1997
1. Basis of presentation and description of business
Nature of business
American Consolidated Laboratories, Inc. ("the Company") or ("ACL") is
in the business of manufacturing and distribution of contact lenses. The Company
is headquartered in Raleigh, North Carolina with operations in Sarasota, Florida
and Philadelphia, Pennsylvania. 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 reclassification of assets and
liabilities that might be necessary should the Company be unable to continue as
a going concern.
Management is working to achieve positive cash flow from
operations by reviewing and adjusting sales prices to provide acceptable profit
margins, rescheduling its current obligations and significantly cutting costs.
Additionally, the Company continues to manage liquidity by concentrating on
servicing its custom lens customers and is selectively no longer selling to
customers who only purchase soft distributed lenses.
On May 7, 1997, the Company consummated the acquisition of NovaVision,
Inc. for stock through a subsidiary merger. An aggregate of 3,561,906 shares of
the Company's common stock and 2,808,175 shares of the Company's Series A
Redeemable Preferred Stock were issued in the Transaction. In addition, the
Company options to purchase NovaVision stock at a nominal price were converted
into options to purchase 412,700 shares of the Company's common stock. In
connection with this transaction, the Company and its subsidiaries entered into
a loan agreement with Sirrom Capital Corporation, pursuant to which the Company
borrowed $1,575,000. A portion of the proceeds from this financing were used to
completely repay the Company's debt to Fidelity Funding. The remainder of the
funds will be used for general corporate purposes. The Company believes that the
acquisition of NovaVision and the Sirrom Capital Corporation loan will assist it
in becoming cash flow positive.
Basis of presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Salvatori Ophthalmic Manufacturing Corporation
("SOMC"), S-O Nebraska, Inc. ("Lincoln"), and Carolina Contact Lens, Inc.
("CCL").
2. Accounts receivable
Accounts receivable consists of the following at March 31, 1997 and
December 31, 1996:
1997 1996
Trade receivables $1,004,876 $ 976,693
Less allowances:
Doubtful accounts 157,593 156,780
Sales returns 175,756 175,756
Net receivables $ 671,527 $ 644,157
3. Inventories
Inventories consist of the following at March 31, 1997 and December 31,
1996:
1997 1996
Raw materials $171,781 $171,738
Work in process 13,153 21,562
Finished goods 360,016 514,852
Total $544,950 $708,152
4. Accounts payable
Accounts payable balance includes a cash overdraft of $50,488 and
$16,834 at March 31, 1997 and December 31, 1996, respectively.
5. Long-term debt
Tullis-Dickerson, the majority shareholder, provided additional loan
advances during the quarter ended March 31, 1997, of $135,000. These advances
where on the same terms and conditions as the advances made during 1996.
6. Loss per share
Loss per share was computed based upon the weighted average number of
shares outstanding during the period. Loss per share is presented on a primary
basis only, since on a fully diluted basis it would be anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Three Months Ended March 31, 1997 Compared to Three
Months Ended March 31, 1996
Net sales for the three months ended March 31, 1997 totaled $1,875,031,
a decrease of $151,419 or 7.5% from 1996. This decrease is due to there being
one less selling day in 1997, and the impact of significant soft distributed
product promotions in the fourth quarter of 1996 which resulted in reduced soft
distributed sales levels in the first quarter of 1997 as eye care professionals
built inventories during the promotion.
The gross profit was $416,760, or 22.2% for the quarter ended March 31,
1997 compared to $835,505, or 41.2% for the comparable period in 1996. The
reduction in the gross margin is due to the shift in product mix to the lower
margin soft distributed products as sales recovered from the computer
implementation problems of late 1995 and early 1996.
Total operating expenses of $683,458 for the quarter ended March 31,
1997, were $343,413, or 33.4% lower than the $1,025,871 for the quarter ended
March 31, 1996. The decrease is the result of strong cost cutting measures taken
in the fourth quarter of 1996. On October 1, 1996 there was a 13% reduction in
work force, and on November 15, 1996 the Lincoln, Nebraska location was closed.
These two actions have contributed significantly to the reduced level of
operating expenses.
The Company incurred an operating loss of $266,698 for the three months
ended March 31, 1997 compared to an operating loss of $190,366 for the three
months ended March 31, 1996. The increased loss was due to the lower gross
profit margin. The impact of the lower gross margin was significantly offset by
the lower operating expenses.
Interest expense for the three months ended March 31, 1997 totaled
$232,347 compared to $59,663 for the prior year. This increase is due to the
increased borrowings incurred to support the 1996 and 1995 losses, and the
impact of the amortization of the discount associated with the Tullis-Dickerson
and Fidelity warrants issued in 1996. The amortization of the Tullis-Dickerson
discount ended March 31, 1997.
Financial Condition
Cash used in operating activities during the first quarter of 1997
totaled $121,779 compared to cash used of $139,582 in 1996. For the first
quarter of 1997 cash decreased $33,654. For the March 31, 1996 period, cash
increased $58,633 to $96,405.
Working capital at March 31, 1997 was a deficit of $3,614,061 compared
to working capital deficit of $3,111,842 at December 31, 1996. Tullis-Dickerson
Capital Focus, L.P. provided cash advances during the quarter totaling $135,000.
Management is working to achieve positive cash flow from operations by
reviewing and adjusting sales prices to provide acceptable profit margins,
rescheduling its current obligations and significantly cutting costs.
Additionally, the Company continues to manage liquidity by concentrating on
servicing its custom lens customers and is selectively no longer selling
customers who only purchase soft distributed lenses.
On May 7, 1997, the Company consummated the acquisition of NovaVision,
Inc. for stock through a subsidiary merger. An aggregate of 3,561,906 shares of
the Company's common stock and 2,808,175 shares of the Company's Series A
Redeemable Preferred Stock were issued in the Transaction. In addition, the
Company options to purchase NovaVision stock at a nominal price were converted
into options to purchase 412,700 shares of the Company's common stock. In
connection with this transaction, the Company and its subsidiaries entered into
a loan agreement with Sirrom Capital Corporation, pursuant to which the Company
borrowed $1,575,000. A portion of the proceeds from this financing were used to
completely repay the Company's debt to Fidelity Funding. The remainder of the
funds will be used for general corporate purposes. The Company believes that the
acquisition of NovaVision and the Sirrom Capital Corporation loan will assist it
in becoming cash flow positive.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Company's shareholders was held on Wednesday,
February 12, 1997. At the special meeting, the shareholders were asked to
consider and approve an amendment of the Company's Articles of incorporation to
increase the authorized capital stock of the Company by creating a class of
5,000,000 shares of Preferred Stock, no par value. The proposed amendment
provided that such preferred stock would have such preferences, limitations and
relative rights as the Company's Board of Directors may determine from time to
time.
There was present at the special meeting, in person or by proxy, 75.34%
of the outstanding shares of the Company's common stock entitled to vote thereat
(3,223,295), all of which voted to approve the proposed amendment.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
American Consolidated Laboratories, Inc.
Date:____________________ By:______________________________
Joseph A. Arena
Chief Executive Officer
ITEM 6 (a) INDEX TO EXHIBITS
Exhibit
Number Description Incorporated by reference
- ---------------------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation and
subsequent amendments of
registrant
3.2 Bylaws of the registrant
4.1 Term Note between Registrant Exhibit 10.2 to quarterly Report on Form 10-Q for
and TDCFLP, September 16, quarter ended September 30, 1991
1991
4.2 Secured Convertible Term Exhibit 6 to Current Report on Form 8-K, dated
Promissory Note between December 29, 1994
Registrant and TDCFLP
December 15, 1994; and
Stock Purchase and Term
Loan Agreement between
Registrant and TDCFLP,
dated August 15, 1994
4.3 Secured Convertible Term Exhibit 10.11 to Form 10-KSB for the year ended
Promissory Note dated as of December 31, 1995
December 14, 1994, (as
amended and restated as of
June 15, 1995) between
the Company and TDCFLP
and amendment of
Promissory Note dated February
15, 1996
4.4 Amended and Restated Exhibit 10.11 to Form 10-KSB for the year ended
Convertible Promissory December 31, 1995
Note dated February 15,
1996 from the Company to
TDCFLP and related
Warrants
4.5 Loan and Security agreement Exhibit 4.5 to form 10-KSB for the year ended
between Carolina Contact Lens, December 31, 1996.
Inc. and Fidelity Funding of
California, dated as of June 25,
1996
4.6 Loan and Security agreement Exhibit 4.6 to form 10-KSB for the year ended
between Salvatori Ophthalmic December 31, 1996.
Manufacturing Corporation and
Fidelity Funding of California,
Inc. dated as of June 25,
1996
4.7 Warrant for Purchase of Exhibit 4.7 to form 10-KSB for the year ended
securities of American December 31, 1996.
Consolidated Laboratories,
Inc. issued to Fidelity Funding
of California, Inc. in conjunction
with the Loan in Exhibits 10.9
and 10.10 for 150,000 shares
4.8 Warrant for Purchase of Exhibit 4.8 to form 10-KSB for the year ended
securities of American December 31, 1996.
Consolidated Laboratories,
Inc. issued to TDCFLP
in conjunction with Loan
advances in 1996 for
550,000 shares
4.9 Financing Agreement between Exhibit 10.1 to Quarterly Report on Form 10-Q for the
the Company, S-O Nebraska, quarter ended September 30, 1991
Inc. and TDCFLP, dated Sep-
tember 13, 1991
10.1 1994 Incentive and Non- Exhibit 4.1 to Form 10-KSB for the Fiscal year ended
Statutory Stock Option Plan December 31, 1994
27 Financial Data Schedule