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, 2000
[ ] 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.
Class Outstanding as of March 31, 2000
- ----- ---------------------------------
Common Stock, $.01 par value per share 3,201,065
Transitional Small Business Disclosure Format: Yes___ No _X_
1
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U.S. Laboratories Inc.
Index
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Income
For the Three Months ended March 31, 2000 (unaudited) and 1999 5
Consolidated Statements of Stockholders Equity
For the Three Months Ended March 31, 2000 (unaudited) 6
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 (unaudited) and 1999 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibits 21
2
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Part I - Financial Information
Item 1. Financial Statements
<TABLE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and March 31, 2000 (unaudited)
ASSETS
<CAPTION>
December 31, March 31,
1999 2000
------------- --------------
(unaudited)
Current assets
<S> <C> <C>
Cash............................................................ $1,217,527 $ 529,683
Accounts receivable, net of allowances for doubtful
accounts of $209,956 and $571,000, respectively............. 4,783,095 6,775,253
Work-in-process................................................. 329,899 719,839
Prepaid expenses and other current assets....................... 85,147 283,523
Current portion of notes receivable-related party............ 46,905 46,905
------------- --------------
Total current assets............................. 6,462,573 8,355,203
Furniture and equipment, net of accumulated depreciation
of $ 1,077,836 and $1,199,548, respectively..................... 1,102,149 1,658,487
Excess cost over fair value of net assets acquired, net
of accumulated amortization of $575,420 and $622,565,
respectively.................................................... 1,629,826 2,548,579
Note Receivable-related party,net of current portion............... 93,809 93,958
Other assets....................................................... 303,420 346,043
------------- --------------
Total assets.................................... $9,591,777 $13,002,270
============= ==============
</TABLE>
See accompanying notes.
3
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<TABLE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 1999 and March 31, 2000 (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
December 31, March 31,
1999 2000
------------- --------------
(unaudited)
Current liabilities
<S> <C> <C>
Bank overdraft.................................................. $ - $ 509,444
Lines of credit................................................. 63,641 756,450
Current portion of long-term debt............................... 132,750 132,750
Current portion of capitalized lease obligations................ 4,966 -
Current portion of notes payable................................ 157,325 832,633
Accounts payable................................................ 736,540 1,165,369
Accrued payroll and payroll taxes............................... 308,757 503,810
Deferred income tax............................................. 306,203 724,433
Income tax payable.............................................. 777,434 768,570
------------- --------------
Total current liabilities................................... 2,487,616 5,393,459
Long-term debt, net of current portion.......................... 283,173 314,233
Notes payable, net of current portion........................... 225,000 146,185
------------- --------------
Total liabilities........................................... 2,995,789 5,853,877
------------- --------------
Commitment
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
3,200,000 and 3,201,065 shares issued and outstanding..... 32,000 32,010
Treasury Stock at cost...................................... (114,088) -
Additional paid-in capital.................................. 5,188,442 5,244,354
Retained earnings........................................... 1,489,634 1,872,029
------------- --------------
Total stockholders' equity.................................. 6,595,988 7,148,393
------------- --------------
Total liabilities and stockholders' equity.......... $ 9,591,777 $ 13,002,270
============= ==============
</TABLE>
See accompanying notes.
4
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<TABLE>
U.S. LABORATORIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2000 and 1999 (unaudited)
For the Three Months Ended
March 31,
-------------------------------
2000 1999
------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Revenue..................................................... $ 6,930,138 $ 3,182,700
Cost of goods sold.......................................... 3,790,644 1,719,937
------------- --------------
Gross profit................................................ 3,139,494 1,462,763
------------- --------------
Selling, general, and administrative expenses............... 2,406,927 1,270,043
------------- --------------
Income from operations...................................... 732,567 192,720
------------- --------------
Other income (expense)
Interest expense.......................................... (66,393) (43,342)
Interest income........................................... 10,221 12,943
Other income.............................................. 952 15,656
Other expense............................................. (1,737) -
------------- --------------
Total other income (expense)............................ (56,957) (14,743)
------------- --------------
Income before provision for income taxes.................... 675,610 177,977
Provision for income taxes.................................. 293,215 78,007
------------- --------------
Net income.................................................. $ 382,395 $ 99,970
============= ==============
Basic and diluted income per share.......................... $ .12 $ .04
============= ==============
Weighted average shares outstanding......................... 3,201,065 2,611,111
============= ==============
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2000 ( unaudited)
<CAPTION>
Additional
Common Stock Treasury Paid-In Retained
Shares Amount Stock Capital Earnings Total
--------- ------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999.........3,200,000 $32,000 $(114,088) $5,188,442 $ 1,489,634 $6,595,988
Adjustment to opening balance to
reflect acquisition of subsidiary.. 30,000 30,000
Issuance of 20,000 Treasury
Shares for purchase of
AGS, Inc........................... 63,613 16,387 80,000
Issuance of 15,000 Treasury
Shares for purchase of
Sage Engineering, Inc.............. 50,475 9,525 60,000
Issuance of common stock........... 1,065 10 10
Net income......................... 382,395 382,395
--------- ------- --------- ---------- ----------- ----------
Balance, March 31, 2000............3,201,065 $32,010 0 $5,244,354 $1,872,029 $7,148,393
========= ======= ========= ========== =========== ==========
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999 (unaudited)
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------
2000 1999
------------- --------------
(unaudited) (unaudited)
Cash flows from operating activities
<S> <C> <C>
Net income............................................. $ 382,395 $ 99,970
Adjustments to reconcile net income
to net cash provided by operating
activities
Amortization........................................... 47,145 29,903
Depreciation........................................... 119,806 45,651
Deferred Income Tax.................................... 246,878 -
(Increase) decrease in
Accounts receivable.................................... 114,804 52,809
Work in process........................................ (205,859) 16,573
Prepaid expenses....................................... (138,947) (228,262)
Other assets........................................... 18,511 (4,564)
Increase (decrease) in
Accounts payable....................................... 3,170 60,748
Accrued payroll and payroll taxes...................... 99,375 25,939
ther accrued expenses.................................. - 53,662
Income tax payable..................................... (8,864) 74,755
------------- --------------
Net cash provided by operating
activities...................................................... 678,414 227,184
------------- --------------
Cash flows from investing activities
Purchase of furniture and equipment (net).............. (230,240) (62,612)
------------- --------------
Investment in BTC, Inc net of cash acquired............ (1,143,839) -
Investment in Unitech Technical
Services Inc........................................... (1,650,000) -
Investment in BDI, Inc................................. (63,000) -
Note Receivable-related party.......................... (149) -
Investment in Stewart Envriomental,Inc................. (30,000) -
------------- --------------
Net cash (used in) investing activities......................... (3,117,228) (62,612)
------------- --------------
</TABLE>
See accompanying notes.
7
<PAGE>
<TABLE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999 (unaudited)
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------
2000 1999
------------- --------------
(unaudited) (unaudited)
------------- --------------
Cash flows from financing activities
<S> <C> <C>
Increase (decrease) in bank
overdraft................................................... $ 509,444 $ (125,635)
Line of credit, (net)....................................... 692,809 (1,877,744)
Due to stockholders, (net).................................. - (360)
Payments on long-term debt, capitalized
lease obligations and notes payable......................... 492,797 (285,028)
Proceeds from the initial stock offering
net of the deferred offering costs.......................... - 4,825,008
Issuance of common & treasury stock......................... 55,920 -
Net cash provided by
financing activities............................................ 1,750,970 2,536,241
------------- --------------
Net increase (decrease) in cash................................. (687,844) 209,549
Cash, beginning of period....................................... 1,217,527 94,132
------------- --------------
Cash, end of period............................................. $ 529,683 $ 303,681
============= ==============
Supplemental disclosures of cash flow information
Interest paid................................................... $ 66,393 $ 27,579
============= ==============
Income taxes paid............................................... $ 50,000 $ (61)
============= ==============
</TABLE>
Supplemental Schedule of Financing Activities
- ---------------------------------------------
In the first quarter, the company issued treasury stock as the initial payment
for the purchase of Sage Engineering Inc. and as an installment payment for AGS
Inc., purchased in 1999, as per the respective purchase agreements.
See accompanying notes.
8
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1999 and March 31, 2000 (unaudited) and for
the Three Months Ended March 31, 2000 and 1999 (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, Florida, Nevada and Virginia and grants credit to customers in
those states. Please refer to additional information in the annual report
filed on Form 10K-SB for December 31, 1999.
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 is
unaudited. However, in the opinion of the Company the interim data includes
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
----------------------------------------
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.
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 fifteen and
twenty year periods. 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.
9
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1999 and March 31, 2000 (unaudited) and for
the Three Months Ended March 31, 2000 and 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
-------------------
Revenue from services performed, including fixed-price and unit-price
contracts, is recorded as earned over the lives of the contracts. 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 its contracts.
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, 2000 are not necessarily indicative of results for the entire
fiscal year ending December 31, 2000.
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.
10
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1999 and March 31, 2000 (unaudited) and for
the Three Months Ended March 31, 2000 and 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Risk
----------------------
The Company sells products and provides contract services to construction
companies and the military, primarily in California, New Jersey, Florida,
Nevada and Virginia. 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.
Net Income Per Share
--------------------
For the three months ended March 31, 2000 and 1999, 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.
NOTE 3 - CASH
The Company maintains cash deposits at banks located in California, Nevada,
Florida, Virginia and New Jersey. Deposits at each bank are insured by the
Federal Deposit Insurance Corporation up to $100,000. As of December 31,
1999 and March 31, 2000, uninsured portions of balances held at banks
aggregated to $1,079,135 and $ 147,567, 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 STATEMENT (Continued)
As of December 31, 1999 and March 31, 2000 (unaudited) and for
the Three Months Ended March 31, 2000 and 1999 (unaudited)
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
December 31, March 31,
1999 2000
Automobile and trucks.......................... $ 963,259 $ 1,121,024
Furniture and fixtures......................... 319,136 375,833
Office hardware and software................... 168,735 454,640
Machinery and equipment........................ 596,337 755,916
Leasehold improvements......................... 132,518 150,622
---------- -----------
Less accumulated depreciation and amortization. 1,077,836 1,199,548
---------- -----------
Total..................................... $ 1,102,149 $ 1,658,487
=========== ===========
Depreciation and amortization expense for the three months ended March 31,
1999 and 2000 was $45,651 and $119, 806, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following at March 31, 2000:
Note payable to stockholders of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is to be paid in
two annual installments of $75,000 beginning March 25, 2001..... $150,000
Note payable to stockholder of Advanced Geo Materials Inc.
in connection with the acquisition.
The amount is to paid commencing October
15, 2000........................................................ 159,115
Note payable to stockholder of Stewart Enviromental Inc.
in connection with the acquisition
the amount is to be paid on March 31, 2001...................... 27,372
Note payable to stockholders of BTC Associates, Inc.
in connection with the acquisition.
the amount is to be paid on June 30, 2000....................... 538,588
12
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1999 and March 31, 2000 (unaudited) and for
the Three Months Ended March 31, 2000 and 1999 (unaudited)
NOTE 5 - NOTES PAYABLE (Continued)
Note payable to stockholders of Sage Engineering Inc.
in connection with the acquisition. The amount..................
is due starting February 1, 2001................................ 103,743
---------
978,818
Less: current portion.............................. 832,633
---------
Long term portion.................................. $146,185
The notes payable bear interest at the prime rate at the date of
acquisition.
NOTE 6 - RELATED PARTY TRANSACTIONS
Due from Stockholder
At March 31, 2000, the company had amounts due from the majority
stockholder of $140,863. The amounts are due in three annual equal
installments and are non - interest bearing.
On November 30, 1999, the company entered into a stock purchase agreement
with a related party to purchase all of the issued and outstanding shares
of capital stock of the Building Department Inc. (BDI) for a purchase price
of $30,000 in cash which was paid in 1999 and an additional payment of
$63,000 paid in the first quarter, 2000.
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. In June 1999, the Board of
Directors and the stockholders approved an increase in the number of shares
reserved under the Option Plan to bring the total number of shares reserved
to 810,000. 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 2000, 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.
13
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1999 and March 31, 2000 (unaudited) and for
the Three Months Ended March 31, 2000 and 1999 (unaudited)
NOTE 9 - INITIAL PUBLIC OFFERING
On February 23, 1999 the Company completed an initial public offering that
generated net cash of $4,825,000 in the first quarter. The offering was for
the sale of 1,000,000 shares of common stock which represent 31.l25% 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 - LINES OF CREDIT
In the third quarter 1999, the Company entered into a $4,000,000 revolving
working capital line of credit facility as part of its ongoing efforts to
ensure appropriate levels of liquidity. At the end of March 31, 2000, this
working capital line of credit balance was $756,450.
In the third quarter 1999, the Company entered into a $200,000 capital
purchases line of credit facility. This line of credit is used for
equipment purchases of the company and at the end of one year this facility
will convert to a five year term loan. At the end of March 31, 2000, this
capital purchases line of credit balance was $184,713, included in long
term debt.
In the third quarter, 1999, the Company entered into a $350,000 term loan
facility to refinance existing equipment debt. At the end of March 31,
2000, this term loan facility was unused and available for future use.
All of these credit facilities are secured with the assets of the company
and its subsidiaries and bear interest at the variable prime rate.
The Company also has 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. The company
does not intend to use this credit facility in the future.
NOTE 11 - ACQUISITIONS
In January 2000, the Company entered into a stock purchase agreement to
purchase all the outstanding shares of BTC Laboratories, Inc. ("BTC") for a
total purchase price of $1,200,000 payable for $500,000 in cash, which has
been paid on January 3, 2000. Additionally, the Company will pay to the
seller cash equal to the collections of accounts receivable and work in
progress during the six months immediately following the closing date up to
maximum amount of $700,000.
In January 2000, Buena Engineers, Inc., a majority-owned subsidiary of U.S.
Laboratories, Inc., entered into an asset purchase agreement with Stewart
Environmental, Inc. ("Stewart") to purchase substantially all of the assets
for a purchase price of $60,000 of which $30,000 has been paid thru March
31, 2000.
In January 2000, San Diego Testing Engineers, Inc. purchased substantially
all the assets of SAGE Engineering, Inc. ("SAGE") for a total purchase
price of $53,000 in cash and 15,000 shares of common stock.
In February 2000, the Company purchased the assets of Intertek Technical
Services, which will operate under the name Unitek Technical Services,
Inc., for a total purchase price of $1,650,000 in cash which has been paid
as of February 22, 2000.
The above acquisitions were recorded by the Company under the purchase
method of accounting. Goodwill was recorded based on the excess of the
purchase price over the fair value of the assets acquired.
14
<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, 2000 and 1999
Revenue. Revenue for the three months ended March 31, 2000 was
$6,930,138, an increase of 118% over the same period in 1999. The increase is
primarily attributable to an internal growth rate of approximately 67 %, with
the remaining 51% attributed to the expansion of operations through the
acquisition of several engineering consulting services companies in the first
quarter 2000.
Gross Profit. Gross profit for the three months ended 2000 was
$3,139,494, an increase of 115% over the same period in 1999. This increase in
gross profit was due primarily to the increase in revenues described above.
Income Before Provision for Income Taxes. Income before provision for
income taxes for the three months ended March 31, 2000 was $675,610, an increase
of 280% over the same period in 1999. The profit increased due to four
acquisitions in the first quarter 2000, while general and administrative
expenses decreased as a percentage of revenues.
Interest Expense. Interest expense was $66,393 in the three months
ended March 31, 2000, an increase of 53% over the same period in 1999. This
increase was due primarily to the cost of acquiring four companies in the first
quarter 2000.
Net Income. Net income for the three months ended March 31, 2000 was $
382,395, a increase of 282 % over the same period in 1999. The increase in net
income was primarily due to a decrease as a percentage of revenue in selling,
general and administrative expenses and the four acquisitions made in the first
quarter, 2000.
Liquidity and Capital Resources
During the three months ended March 31, 2000, our net cash provided by
operating activities was $678,414, a increase of 199% over the same period in
1999 primarily due to the increases in net income mentioned above.
In the third quarter 1999, we entered into a $4,000,000 revolving
working capital line of credit facility as part of our ongoing efforts to ensure
appropriate levels of liquidity. At the end of March 31, 2000, this working
capital line of credit balance was $756,450.
In the third quarter 1999, we entered into a $200,000 capital
purchases line of credit facility. This line of credit is used for equipment
purchases of the company and at the end of one year this facility will convert
to a five year term loan. At the end of March 31, 2000, this capital purchases
line of credit balance was $184,713, included in long term debt.
In the third quarter, 1999 we entered into a $350,000 term loan
facility to refinance existing equipment debt. At the end of March 31, 2000,
this term loan facility was unused and available for future use.
15
<PAGE>
Liquidity and Capital Resources (Continued)
All of these credit facilities are secured with the assets of our
company and our subsidiaries and bear interest at the variable prime rate.
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 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 2000, we intend to actively continue our search
for acquisitions in order to expand our geographical representation and enhance
our technical capabilities.
Acquisitions
In January 2000, the Company entered into a stock purchase agreement
to purchase all the outstanding shares of BTC Laboratories, Inc. ("BTC") for a
total purchase price of $1,200,000 payable for $500,000 in cash, which has been
paid on January 3, 2000. Additionally, the Company will pay to the seller cash
equal to the collections of accounts receivable and work in progress during the
six months immediately following the closing date up to maximum amount of
$700,000.
In January 2000, Buena Engineers, Inc., a majority-owned subsidiary of
U.S. Laboratories, Inc., entered into an asset purchase agreement with Stewart
Environmental, Inc. ("Stewart") to purchase substantially all of the assets for
a purchase price of $60,000 of which $30,000 has been paid thru March 31, 2000.
In January 2000, San Diego Testing Engineers, Inc. purchased
substantially all the assets of SAGE Engineering, Inc. ("SAGE") for a total
purchase price of $53,000 in cash and 15,000 shares of common stock.
In February 2000, the Company purchased the assets of Intertek
Technical Services, which will operate under the name Unitek Technical Services,
Inc., for a total purchase price of $1,650,000 in cash which has been paid as of
February 22, 2000.
The above acquisitions were recorded by the Company under the purchase
method of accounting. Goodwill was recorded based on the excess of the purchase
price over the fair value of the assets acquired.
Management Indebtedness
At March 31, 2000, we had amounts due from a majority stockholder
in the amount of $140,863. This amount was evidenced by a promissory note and
the principal payments are due in three equal annual installments and are
non-interest bearing.
Inflation
Inflation does not currently affect our operations, and we do not
expect inflation to affect them in the foreseeable future.
16
<PAGE>
Backlog
As at March 31, 2000, our backlog has reached approximately $16.3 million. This
figure has increased approximately 48% or $ 5.3 million from $11.0 million at
December 31, 1999.
The increase in backlog can be attributed to the increase in contract awards for
the core business of U.S. Laboratories. Also contributing to this increase is
the ongoing and contracted work associated with the first quarter acqusitions of
BTC Laboratories, Interteck Technical Services, Stewart Environmental and Sage
Engineering.
Forward Looking and Cautionary Statements
Except for the historical information and discussions contained
herein, statements contained in this Form 10-QSB (including statements in the
Year 2000 discussion above) may constitute `forward looking statements' within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements involve a number of risks, uncertainties and other factors that could
cause actual results to differ materially, including the company's failure to
continue to develop and market new and innovative products and services and to
keep pace with technological change; competitive pressures; failure to obtain or
protect intellectual property rights; the ultimate impact of the various Year
2000 issues on the company's business, financial condition or results of
operations; quarterly fluctuations in revenues and volatility of stock prices;
the company's ability to attract and retain key personnel; currency and customer
financing risks; dependence on certain suppliers; changes in the financial or
business condition of the company's distributors or resellers; the company's
ability to successfully manage acquisitions and alliances; legal, political and
economic changes and other risks, uncertainties and factors discussed in the
company's other filings with the Securities and Exchange Commission, and in
materials incorporated therein by reference.
17
<PAGE>
Part II
Item 2. Changes in Securities and Use of Proceeds.
(a) Not applicable.
(b) Not applicable.
(c) In January 2000, San Diego Testing Engineers, Inc. entered into an
asset purchase agreement to purchase substantially all the assets of SAGE
Engineering, Inc. As part of the consideration for this acquisition, we issued
15,000 shares of common stock to stockholders in SAGE Engineering, Inc. We
issued these securities under the exemption from registration provided by
Section 4(2) of the Securities Act of 1933.
(d) Our registration statement of 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, $0.1 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 15, 2000, we have used the net proceeds as described in the
table below.
- --------------------------------------------------------------------------------
Use Amount
- --------------------------------------------------------------------------------
Acquisitions $1,495,000
- --------------------------------------------------------------------------------
Repayment of Debt $2,150,000
- --------------------------------------------------------------------------------
Working Capital for Operations $ 630,000
- --------------------------------------------------------------------------------
Item 5. Other Information
The Board of Directors authorized a stock buyback program for the
repurchase of up to 100,000 shares of our common stock on November 2, 1999. The
open market transactions will be made from time to time as determined by us.
Repurchases will be made in compliance with applicable rules and regulations
utilizing corporate earnings, and may be discontinued at any time.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index
27 Financial Data Schedule
(EDGAR version only)
b. Reports on Form 8-K
The company filed two Current Reports on Form 8-K during the quarter
ended March 31, 2000. No financial information was filed with those Form
8-K's
(1) The first Form 8-K filed during the quarter ended March 31, 2000 was
filed on January 21, 2000, in connection with the stock purchase
agreement the company entered into with BTC Laboratories, Inc. ("BTC")
to purchase all the outstanding shares of BTC in exchange for $500,000
in cash and $700,000 in notes.
(2) The second Form 8-K filed during the quarter ended March 31, 2000 was
filed on March 9, 2000, in connection with the asset purchase
agreement the company entered into with Intertek, Inc. The company
purchased certain assets and assumed certain liabilities of Intertek
in exchange for $1,600,000 in cash.
19
<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 15, 2000 /S/ Dickerson Wright
------------------------------------
Dickerson Wright, President
Date: May 15, 2000 /S/ Joseph M. Wasilewski
------------------------------------
Joseph M. Wasilewski,
Vice President and Chief Financial Officer
20
<PAGE>
Exhibit Index
Exhibit Number
- --------------
27 Financial Data Schedule
(EDGAR version only)
21
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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, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
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<FISCAL-YEAR-END> DEC-31-2000
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