U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission file number 0-25339
U. S. Laboratories Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0586167
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7895 Convoy, Suite 18
San Diego, California 92111
(Address of principal executive offices)
619-715-5800
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 No X
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding as of March 31, 1999
- ----- --------------------------------
<S> <C>
Common Stock, $.01 par value per share 3,200,000
Transitional Small Business Disclosure Format: Yes__ No X
</TABLE>
1
<PAGE>
U.S. Laboratories Inc.
Index
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 1998 5
Consolidated Statements of Stockholders Equity
For the Three Months Ended March 31, 1999 6
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibits 19
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1998 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
Current assets
Cash .............................................................. $ 121,782 $ 2,822,595
Accounts receivable, net of allowances for doubtful
accounts of $38,241 and $58,461, respectively...................... 3,290,353 3,237,544
Work-in-process........................................................ 254,782 238,209
Prepaid expenses and other current assets.............................. 45,602 273,864
--------------- ---------------
Total current assets.......................................... 3,712,519 6,572,212
Furniture and equipment, net of accumulated depreciation
of $783,695 and $829,561, respectively................................. 748,059 765,020
Excess cost over fair value of net assets acquired, net
of accumulated amortization of $442,481 and $472,384,
respectively .......................................................... 1,637,427 1,608,302
Deferred offering costs..................................................... 552,738 -
Other assets .......................................................... 217,984 221,769
--------------- ---------------
Total assets.............................................. $ 6,868,727 $ 9,167,303
=============== ===============
</TABLE>
3
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
December 31, 1998 and March 31, 1999 (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
Current liabilities
Book overdraft......................................................... $ 125,635 $ -
Lines of credit........................................................ 697,744 -
Current portion of long-term debt...................................... 132,048 137,759
Current portion of capitalized lease obligations....................... 12,498 15,000
Current portion of notes payable....................................... 515,000 75,000
Accounts payable....................................................... 581,738 642,486
Accrued payroll and payroll taxes...................................... 222,641 248,580
Other accrued expenses................................................. - 53,662
Due to stockholder..................................................... 81,461 81,101
Deferred income tax.................................................... 1,123,606 1,123,606
Income tax payable..................................................... 162,708 237,463
--------------- ---------------
Total current liabilities.......................................... 3,655,079 2,614,657
Long-term debt, net of current portion...................................... 211,383 192,223
Capitalized lease obligations, net of current portion....................... 5,580 6,500
Notes payable, net of current portion....................................... 1,165,000 150,000
--------------- ---------------
Total liabilities............................................. 5,037,042 2,963,380
--------------- ---------------
Stockholders' equity
Preferred stock, $0.01 par value
5,000,000 shares authorized
none issued and outstanding........................................ - -
Common stock, $0.01 par value
50,000,000 shares authorized
2,200,000 and 3,200,000 shares issued and outstanding.............. 22,000 32,000
Additional paid-in capital............................................. 970,252 5,232,520
Retained earnings...................................................... 839,433 939,403
--------------- ---------------
Total stockholders' equity.................................... 1,831,685 6,203,923
--------------- ---------------
Total liabilities and stockholders' equity................ $ 6,868,727 $ 9,167,303
=============== ===============
</TABLE>
4
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------
1999 1998
--------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Revenue ................................... $ 3,182,700 $ 2,055,378
Cost of goods sold.......................... 1,719,937 1,081,238
--------------- ----------------
Gross profit................................ 1,462,763 974,140
Selling, general, and administrative expenses 1,270,043 836,233
--------------- ----------------
Income from operations...................... 192,720 137,907
--------------- ----------------
Other income (expense)
Interest expense......................... (43,342) (27,579)
Interest income.......................... 12,943 3,856
Other income............................. 15,656 -
Other expense............................ -- (119)
--------------- -----------------
Total other income (expense)........... (14,743) (23,842)
---------------- -----------------
Income before provision for income taxes.... 177,977 114,065
Provision for income taxes.................. 78,007 49,936
--------------- ----------------
Net income.................................. $ 99,970 $ 64,129
=============== ================
Basic income per share...................... $ 0.04 $ 0.03
=============== ================
Diluted income per share.................... $ 0.04 $ 0.03
=============== ================
Weighted average shares outstanding......... 2,611,111 2,200,000
=============== ================
</TABLE>
5
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the Three Months Ended March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
--------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December
31, 1998 2,200,000 $ 22,000 $ 970,252 $ 839,433 $ 1,831,685
Issuance of common
stock through the
Initial Public Offering
on February 23,
1999 1,000,000 10,000 5,990,000 6,000,000
Deferred offering costs (1,727,732) (1,727,732)
Net income 99,970 99,970
--------------- --------------- ---------------- --------------- ----------------
Balance, March
31, 1999 3,200,000 $ 32,000 $ 5,232,520 $ 939,403 $ 6,203,923
=============== =============== ================ =============== ================
</TABLE>
6
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------
1999 1998
--------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income............................... $ 99,970 $ 64,129
Adjustments to reconcile net income
to net cash provided by operating
activities
Amortization......................... 29,903 19,515
Depreciation......................... 45,651 43,383
(Increase) decrease in
Accounts receivable.................... 52,809 95,241
Work in process........................ 16,573 14,576
Prepaid expenses....................... (228,262) (46,946)
Other assets........................... (4,564) (85,290)
Increase (decrease) in
Accounts payable....................... 60,748 (119,216)
Accrued payroll and payroll taxes...... 25,939 (36,368)
Other accrued expenses................. 53,662 53,599
Income tax payable..................... 74,755 49,997
--------------- ----------------
Net cash provided by operating
activities.................................. 227,184 52,620
--------------- ----------------
Cash flows from investing activities
Purchase of furniture and equipment...... (62,612) (31,407)
Investment in Wyman Enterprises,
Inc., net of cash acquired............. - (127,310)
--------------- ----------------
Net cash used in investing activities....... (62,612) (158,717)
---------------- ----------------
</TABLE>
7
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------
1999 1998
--------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from financing activities
Increase (decrease) in book
overdraft.............................. $ (125,635) $ (4,926)
Line of credit, net...................... (1,877,744) 225,169
Due to stockholders, net................. (360) 164,815
Payments on long-term debt, capitalized
lease obligations and notes payable.. (285,028) (15,692)
Proceeds from the initial stock offering
net of the deferred offering costs..... 4,825,008 (28,720)
Due from Wyman Testing
Laboratories, Inc...................... - (25,000)
--------------- -----------------
Net cash provided by
financing activities ...................... 2,536,241 315,646
--------------- ----------------
Net increase in cash........................ 2,700,813 209,549
Cash, beginning of period................... 121,782 94,132
--------------- ----------------
Cash, end of period......................... $ 2,822,595 $ 303,681
=============== ================
Supplemental disclosures of cash flow information
Interest paid............................ $ 43,342 $ 27,579
=============== ================
Income taxes paid........................ $ 3,253 $ (61)
=============== =================
</TABLE>
8
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998 and March 31, 1999 and for
the Three Months Ended March 31, 1999 and 1998 (unaudited)
(The information with respect to the three months ended
March 31, 1999 and 1998 is unaudited.)
NOTE 1 - ORGANIZATION AND BUSINESS
U.S. Laboratories Inc. and subsidiaries (collectively the "Company")
offers engineering and design services, project management,
construction quality control, structural engineering and design,
environmental engineering and inspection and testing. The Company has
facilities in California, New Jersey, and Florida and grants credit to
customers in those states.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
As contemplated by the Securities and Exchange Commission under Item
310(b) of Regulation S-B, the accompanying financial statements and
footnotes have been condensed and therefore do not contain all
disclosures required by generally accepted accounting principles. The
interim financial data are unaudited, however, in the opinion of the
Company, the interim data include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
Principles of Consolidation
The consolidated financial statements include the accounts of U.S.
Laboratories Inc. and its subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Cash and Cash Equivalents/Book Overdraft
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents. Book overdraft represents the
bank balance at period end, plus deposits in transit, less outstanding
checks.
Furniture and Equipment
Furniture and equipment, including equipment under capital leases, are
recorded at cost, less accumulated depreciation and amortization.
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives as follows:
Automobile and trucks 3 to 5 years
Furniture and fixtures 5 to 7 years
Office hardware and software 5 years
Machinery and equipment 5 to 7 years
Leasehold improvements 5 years
Maintenance, repairs, and minor renewals are expensed as incurred.
Expenditures for additions and major improvements are capitalized.
Gains and losses on disposals are included in the statements of
operations.
Intangibles
Intangibles consist of goodwill which is being amortized over a
fifteen-year period. The Company continually evaluates whether events
or circumstances have occurred that indicate the remaining estimated
value of goodwill may not be recoverable. When factors indicate that
the value of goodwill may be impaired, the Company estimates the
remaining value and reduces the goodwill to that amount.
Deferred Offering Costs
Amounts paid for costs associated with an anticipated initial public
offering ("IPO") were capitalized and subsequently recorded as a
reduction to additional paid-in capital upon the completion of the IPO.
Revenue Recognition
Revenue from services performed, including fixed-price and unit-price
contracts, is recorded as earned over the lives of the contract.
Revenue from services is recognized when services have been performed
and accepted. At the time a loss or a contract becomes known, the
entire amount of the estimated ultimate loss is recognized in the
financial statements. The Company has not experienced any material
losses on these contracts.
9
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1998 and March 31, 1999 and for
the Three Months Ended March 31, 1999 and 1998 (unaudited)
(The information with respect to the three months ended
March 31, 1999 and 1998 is unaudited.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising
The Company expenses advertising costs as incurred.
Income Taxes
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Interim Unaudited Financial Information
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in
the opinion of management, are necessary to fairly state the Company's
financial position, the results of operations, and cash flows for the
periods presented. The results of operations for the three months ended
March 31, 1999 are not necessarily indicative of results for the entire
fiscal year ending December 31, 1999.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
For certain of the Company's financial instruments including cash,
accounts receivable, accounts payable, and other accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
The amounts shown for long-term debt and capital lease obligations also
approximate fair value because current interest rates and terms offered
to the Company for similar long-term debt and capital lease obligations
are substantially the same.
Concentrations of Risk
The Company sells products and provides contract services to
construction companies and the military, primarily in California, New
Jersey, and Florida. It also extends credit based on an evaluation of
the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its
exposure for credit losses and maintains allowances for anticipated
losses.
10
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1998 and March 31, 1999 and for
the Three Months Ended March 31, 1999 and 1998 (unaudited)
(The information with respect to the three months ended
March 31, 1999 and 1998 is unaudited.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Income Per Share
For the three months ended March 31, 1998 and 1999, the Company adopted
SFAS No. 128, "Earnings per Share." Basic earnings per share is
computed by dividing net income to common stockholders by the
weighted-average number of common shares outstanding during the
accounting period. Diluted earnings per share is computed similar to
basic earnings per share except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the
additional common shares were dilutive.
Recently Issued Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. The Company does not expect adoption of SFAS No. 133 to
have a material effect, if any, on its financial position or results of
operations.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," is effective for financial statements with the
first fiscal quarter beginning after December 15, 1998. The Company
does not expect adoption of SFAS No. 134 to have a material effect, if
any, on its financial position or results of operations. SFAS No. 135,
"Rescission of FASB Statement No. 75 and Technical Corrections," is
effective for financial statements with fiscal years beginning February
1999. This statement is not applicable to the Company.
SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections," is effective for financial statements with fiscal years
beginning February 1999. This statement is not applicable to the
Company.
NOTE 3 - CASH
The Company maintains cash deposits at banks located in California,
Florida, and New Jersey. Deposits at each bank are insured by the
Federal Deposit Insurance Corporation up to $100,000. As of December
31, 1998 and March 31, 1999, uninsured portions of balances held at
banks aggregated to $21,781 and $2,744,657, respectively. The Company
has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash.
11
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1998 and March 31, 1999 and for
the Three Months Ended March 31, 1999 and 1998 (unaudited)
(The information with respect to the three months ended
March 31, 1999 and 1998 is unaudited.)
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
--------------- ----------------
<S> <C> <C>
Automobile and trucks...................................... $ 621,719 $ 628,645
Furniture and fixtures..................................... 291,199 261,792
Office hardware and software............................... 91,918 146,797
Machinery and equipment.................................... 423,846 433,590
Leasehold improvements..................................... 103,072 123,757
--------------- ----------------
1,531,754 1,594,581
Less accumulated depreciation and amortization............. 783,695 829,561
--------------- ----------------
Total.................................................. $ 748,059 $ 765,020
=============== ================
Depreciation and amortization expense for the three months ended March 31, 1998 and 1999 was
$43,383 and $45,651, respectively.
</TABLE>
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following at March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Note payable to stockholder of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is to be paid in
three more annual installments of $37,500 beginning March 25, 2000......... $ 112,500
Note payable to stockholder of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is to be paid in
three more annual installments of $37,500 beginning March 25,.............. $ 112,500
----------------
225,000
Less current portion........................................................... 75,000
----------------
Long-term portion..................................................... $ 150,000
================
</TABLE>
NOTE 6 - RELATED PARTY TRANSACTIONS
Due to Stockholder
At December 31, 1998 and March 31, 1999, the Company had amounts due to
the majority stockholder of $81,461 and 81,101, respectively. The
amounts are non-interest bearing and are payable upon demand.
Stockholder Management Fees
During the three months ended March 31, 1998, the Company expensed
$37,755 in management fees to a stockholder. The management fees are
based upon 5% of net sales of a subsidiary.
12
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1998 and March 31, 1999 and for
the Three Months Ended March 31, 1999 and 1998 (unaudited)
(The information with respect to the three months ended March 31,
1999 and 1998 is unaudited.)
NOTE 7 - STOCK OPTION PLAN
In July 1998, the Board of Directors adopted and approved the 1998
Stock Option Plan (the "Option Plan") under which a total of 500,000
shares of Common Stock have been reserved for issuance. Options under
this plan may be granted to employees, officers, and directors and
consultants of the Company. The exercise price of the options is
determined by the Board of Directors, but the exercise price may not be
less than 100% of the fair market value on the date of grant. Options
vest over periods not to exceed 5 years. In March 1999, the Company had
395,000 stock options outstanding at an exercise price ranging from
$6.00 to $6.60 per share, of which 238,632 stock options were
exercisable. The Board of Directors also approved the grant of an
additional 62,500 options to various employees under the plan.
NOTE 8 - WARRANTS
In July 1998, the Board of Directors approved the grant of 150,000
stock warrants to certain employees of the Company. The warrants
entitle the holder to purchase Company Common Stock at a price of $5.00
per share. The warrants are exercisable the earlier of (i)the date on
which the closing price of a share of the Company's Common Stock as
reported on the Nasdaq Small-Cap Market is greater than $12.00 or (ii)
the date on which the audited consolidated earnings for the fiscal year
ending December 31, 1998, or any fiscal year thereafter, are at least
twice the base period earnings of $841,041. The warrants expire upon
termination or November 9, 2003.
Note 9 - INITIAL PUBLIC OFFERING
On February 23, 1999 the Company completed an initial public offering
that generated net cash of $4,825,008 in this quarter. The offering was
for the sale of 1,000,000 shares of common stock which represent 31.25%
of the post offering common stock. A part of the proceeds of the
offering was used to retire debt in the approximate amount of
$2,150,000.
Note 10 - YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000
Issue and is developing an implementation plan to resolve the Issue.
The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous
data or cause a system to fail. The Company is dependent on computer
processing in the conduct of its business activities.
Based on the review of the computer systems, management does not
believe the cost of implemenation will be material to the Company's
financial position and results of operations.
Note 11 - SUBSEQUENT EVENT
The Company acquired the assets and liabilities of an engineering firm
in Las Vegas, Nevada. The purchase price was comprised of $170,000 in
cash plus 3,333 shares of U.S. Laboratories Inc. common stock. The
Agreement requires the Company to pay an additional $40,000, which is
conditional upon completion of certain tasks by the seller.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition and Results of Operations
Three Months Ended March 31, 1999 and 1998
Revenue. Revenue for the three months ended March 31, 1999 was
$3,182,700, an increase of 55% over the same period in 1998. This increase was
due to an internal growth rate of approximately 10% and 45% through the
acquisition of operating units in California, Florida and New Jersey.
Gross Profit. Gross profit for the three months ended 1999 was
$1,462,763, an increase of 50% over the same period in 1998. This increase in
gross profit was due primarily to the increase of revenues described above.
Income Before Provision for Income Taxes. Income before provision for
income taxes and minority interest for the three months ended March 31, 1999 was
$177,977, an increase of 56% over the same period in 1998. The profit increased
by a greater amount than the incremental increase in gross profit because of the
realization of the economies of administering the larger volume of business.
Interest Expense. Interest expense was $43,342 in the three months
ended March 31, 1999, an increase of 57% over the same period in 1998. This
increase was due primarily to increased debt associated with business
acquisitions, the funding of the initial public offering and the related use of
operating lines of credit.
Net Income. Net income for the three months ended March 31, 1999
$99,970, an increase of 56% over the same period in 1998. The increase was due
primarily to the increased revenues associated with the ordinary growth of
existing operations, the realization of the economies of administering the
larger volume of business, and the acquisitions made during 1998.
Liquidity and Capital Resources
During the three months ended March 31, 1999, our net cash provided by
operating activities was 227,184, an increase of 332% over the same period in
1998.
We also have a line of credit with Bank of America in the amount of
$500,000. Dickerson Wright and his spouse guarantee this line of credit. It is
an unsecured note that is all due in July 2000. The note bears interest at the
prime rate. This line of credit is still in place and has been reduced to a zero
outstanding balance since the end of 1998. We do not intend to use this credit
facility in the future.
We currently intend to use approximately $2.5 million of the proceeds
from our initial public offering to fund acquisitions. Additionally, we intend
to make acquisitions through other financing mechanisms such as notes and other
instruments. Historically, we have been able to make acquisitions with
approximately 20-50% of the purchase price in cash and the balance in
non-interest bearing purchase notes over extended time frames. Although it is
not our intention to use significant amounts of U.S. Laboratories Inc. stock as
consideration while making acquisitions, from time to time it may be necessary
to do so.
We believe that our available cash and cash equivalents as well as cash
generated from operations will be sufficient to meet our cash requirements for
at least the next twelve months. We are, nevertheless, currently negotiating
with a number of lenders to secure credit facilities that can be used to finance
additional acquisitions. During 1999, we intend to actively continue our search
for acquisitions in order to expand our geographical representation and enhance
our technical capabilities.
14
<PAGE>
Year 2000 Compliance
We believe that the software packages we currently use and expect to
use, and those used by our vendors prior to the year 2000, are Year 2000
compliant. We do not expect the financial impact of required modifications to
this software will be material to our financial position, cash flows, or results
of operations.
Inflation
Inflation does not currently affect our operations, and we do not
expect inflation to affect them in the foreseeable future.
15
<PAGE>
Part II
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) On March 15, 1999, we granted options to purchase 100,000 shares of
common stock at an exercise price of $4.50 per share to Miller Capital
Corporation, our investment relations firm, in exchange for investor relations
services. The options vest 50% immediately and 50% when the market price of our
common stock is at least $7.00 per share. We have the discretion to revise the
vesting schedule to make all of the options vest without regard to the market
price of our common stock. We sold the securities under the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
(d) Our registration statement on Form SB-2 was made effective by the
Securities and Exchange Commission on February 23, 1999. We sold 1,000,000
units, each consisting of one share of common stock, $.01 par value per share,
and one redeemable warrant to purchase one share of common stock at an exercise
price of $7.80. We sold the units on February 23, 1999. Our managing
underwriters were Cardinal Capital Management, Inc. and Janda & Garrington LLC.
After deducting the underwriting discounts, commissions, and all the offering's
expenses, we received approximately $4,275,000 from the offering.
As of May 14, 1999, we have used the net proceeds as described in the
table below.
- ------------------------------------ --------------------
Use Amount
- ------------------------------------ --------------------
Acquisitions $ 10,000
- ------------------------------------ --------------------
Repayment of Debt $2,150,000
- ------------------------------------ --------------------
Working Capital for Operations $ 200,000
- ------------------------------------ --------------------
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
4.1 Amendment to Restated and Amended Certificate of Incorporation
27 Financial Data Schedule
(EDGAR version only)
b. Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during
the quarter ended March 31, 1999.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U. S. Laboratories Inc.
Date: May 19, 1999 /S/ Dickerson Wright
------------------------------------------
Dickerson Wright, President
Date: May 19, 1999 /S/ James Wait
------------------------------------------
James Wait
Vice President and Chief Financial Officer
18
<PAGE>
Exhibit Index
Exhibit Number
- --------------
4.1 Amendment to Restated and Amended Certificate of Incorporation
27 Financial Data Schedule
(EDGAR version only)
19
Exhibit 4.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
U. S. Laboratories Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That pursuant to the unanimous written consent of the Board of
Directors of U. S. Laboratories Inc., resolutions were duly adopted setting
forth a proposed amendment of the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and calling for a consent
solicitation of the stockholders of said corporation for consideration thereof.
The following is an additional paragraph to Article "Fourth:"
C. Reverse Stock Split.
Each outstanding share of common stock is hereby converted
into 0.8413 shares of common stock. All fractional shares will be
rounded to the nearest whole number.
SECOND: That thereafter, pursuant to a written consent, a majority of
the shares of the outstanding stock of said corporation were voted in favor of
the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said U. S. Laboratories has caused this certificate
to be signed by James Wait, its authorized officer, this 23rd day of February,
1999.
By: /S/ James Wait
James Wait
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF U.S. LABORATORIES, INC. AS OF AND FOR THE THREE MONTHS ENDED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2822595
<SECURITIES> 0
<RECEIVABLES> 3296005
<ALLOWANCES> (58461)
<INVENTORY> 238209
<CURRENT-ASSETS> 6572212
<PP&E> 1594581
<DEPRECIATION> (829561)
<TOTAL-ASSETS> 9167303
<CURRENT-LIABILITIES> 2614657
<BONDS> 0
0
0
<COMMON> 32000
<OTHER-SE> 6171923
<TOTAL-LIABILITY-AND-EQUITY> 9167303
<SALES> 3182700
<TOTAL-REVENUES> 3182700
<CGS> 1719937
<TOTAL-COSTS> 2989980
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 177377
<INCOME-TAX> 78007
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