<PAGE>
<PAGE>
_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended Commission File Number
June 30, 1997 0-13154
FCS LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
Arizona 95-2568559
(State of Incorporation) (I.R.S Employer ID Number)
2330 S. Industrial Park Ave., Tempe, Arizona 85282
(Address of principal executive offices) (Zip Code)
(602) 966-7248
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90
days.
(1) Yes /X/ No / /
(2) Yes /X/ No / /
Number of shares outstanding as of September 30, 1997:
5,841,145 shares of Common Stock, no par value.
_________________________________________________________________
_________________________________________________________________<PAGE>
<PAGE>
PART I, Financial Information
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, September 30,
1997 1996
------------ ------------
Current Assets:
Cash $ 1,287 $ 924
Accounts receivable, net of
allowance for doubtful
accounts of $25,075 and
$23,854, respectively 196,361 227,316
Inventories 523,267 626,786
Other current assets 10,987 18,516
------------ ------------
Total Current Assets 731,902 873,542
Property, Plant and Equipment, net 676,222 692,542
Deposits and Other Assets, net of
Amortization of $13,387 and
$9,990, respectively 29,877 26,218
------------ ------------
Total Assets $ 1,438,001 $ 1,592,302
============ ============
See accompanying notes to consolidated financial statements.
-2-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
June 30, September 30,
1997 1996
------------ ------------
Current Liabilities:
Accounts payable $ 1,031,817 $ 860,572
Accrued expenses 889,788 859,022
Short-term debt including
current portion of long-
term debt 402,932 510,109
------------ ------------
Total Current Liabilities 2,324,537 2,229,703
------------ ------------
Other Liabilities:
Long-term debt 86,202 88,002
------------ ------------
Total Liabilities $ 2,410,739 $ 2,317,705
------------ ------------
Shareholders' Equity (Deficit)
Common Stock, no par value:
6,000,000 shares authorized;
5,836,145 shares issued and
outstanding (Note 3) 4,060,163 4,060,163
Accumulated deficit (5,032,901) (4,785,566)
Total Shareholders' Equity ------------ ------------
(Deficit) (972,738) (725,403)
Total Liabilities and Share- ------------ ------------
holders' Equity (Deficit) $ 1,438,001 $ 1,592,302
============ ============
See accompanying notes to consolidated financial statements.
-3-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months
Ended June 30,
--------------------------
1997 1996
------------ -----------
Sales $ 1,455,531 $ 1,727,773
Cost of Sales 679,303 673,367
------------ ------------
Gross profit 776,228 1,054,406
Selling, General and
Administrative Expense 947,253 1,078,289
Depreciation and Amortization Expense 4,689 17,635
Interest Expense 71,621 123,442
Other Income --- 188,374
------------ ------------
Income (Loss) from Continuing
Operations (247,335) 23,414
Extraordinary Gain --- 1,221,604
------------ ------------
Net Income (Loss) $ (247,335) $ 1,245,018
============ ============
Net Income (Loss) per Share:
Income (Loss) from Continuing
Operations $ (.04) $ ---
Extraordinary Gain --- .21
------------ ------------
Net Income (Loss) per Share $ (.04) $ .21
============ ============
Weighted Average Shares Outstanding 5,836,145 5,827,751
See accompanying notes to consolidated financial statements.
-4-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months
Ended June 30,
--------------------------
1997 1996
------------ -----------
Sales $ 441,967 $ 515,727
Cost of Sales 231,511 221,971
------------ ------------
Gross profit 210,456 293,756
Selling, General and
Administrative Expense 340,075 306,341
Depreciation and Amortization Expense 1,443 1,725
Interest Expense 22,102 26,529
------------ ------------
Net Income (Loss) $ (153,164) $ (40,839)
============ ============
Net Income (Loss) per Share $ (.02) $ (.01)
============ ============
Weighted Average Shares Outstanding 5,836,145 5,836,145
See accompanying notes to consolidated financial statements.
-5-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
------------------------
Accumulated
Shares Amount Deficit
--------- ------------ ------------
Balance at
September 30,
1996 5,836,145 $ 3,970,610 $(4,785,566)
Net income for
the period --- --- (247,335)
Balance at
June 30, --------- ----------- -----------
1997 5,836,145 $ 3,970,610 $(5,032,901)
========= =========== ===========
Shares to
be issued
(Note 3) 250,000 89,553 ---
Adjusted Balance
at June 30, --------- ----------- -----------
1997 6,086,145 $ 4,060,163 $(5,032,901)
========= =========== ===========
See accompanying notes to consolidated financial statements.
-6-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended June 30,
---------------------------
1997 1996
------------ -----------
Cash Flows from Operating Activities:
Net income (loss) $ (247,335) $ 1,245,018
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Extraordinary gain on debt
accommodation --- (1,221,604)
Sale of portion of business --- (626,842)
Valuation reserve on
French assets --- 342,810
Expense the reserve for
currency exchange --- 95,658
Depreciation and amortization 25,018 37,197
Effect of changes in foreign
currency exchange rates --- (1,142)
Increase of common stock in lieu
of cash payments --- 99,553
Provision for losses on
accounts receivable 12,150 12,600
Changes in assets and liabilities:
Decrease in accounts receivable 18,805 56,368
Decrease in inventory 103,519 6,421
Decrease (increase) in other
current assets 7,529 (7,582)
Decrease (increase) in
other assets (7,056) 10,160
Increase (decrease) in accounts
payable and accrued expenses 202,011 (276,162)
------------ ------------
Total adjustments 361,976 (1,472,565)
Net cash provided by ------------ ------------
(used in) operating activities 114,641 (227,547)
-continued-
-7-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months
Ended June 30,
---------------------------
1997 1996
------------ ------------
Cash Flows from Investing Activities:
Sale of portion of business $ --- $ 626,842
Purchases of property, plant and
equipment (5,301) (892)
Net cash provided by (used in) ----------- ------------
investing activities (5,301) 625,950
Cash Flows from Financing Activities:
Net repayment of short-term
revolving debt (68,015) (99,167)
Retirement of short-term debt --- (200,000)
Proceeds from issuance of
long-term debt --- 100,000
Payments on long-term debt and
installment obligations (40,962) (176,996)
Net cash used in ----------- ------------
financing activities (108,977) (376,163)
Effect of Exchange Rate
Changes on Cash --- (141)
------------ ------------
Increase in Cash 363 22,099
Cash at Beginning of
Nine Month Period 924 6,106
Cash at End of ------------ ------------
Nine Month Period $ 1,287 $ 28,205
============ ============
See accompanying notes to consolidated financial statements.
-8-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1: BASIS OF PRESENTATION
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to Rules and
Regulations of the Securities and Exchange Commission. Certain
information normally included in footnote disclosure in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations. All adjustments necessary to assure
a fair statement of the results have been recorded and such
adjustments are of a normal recurring nature. The Company
believes the disclosure on the included condensed statements and
footnotes is adequate and that the information taken as a whole
is not misleading.
NOTE 2: INVENTORIES
The components of inventories are as follows:
June 30, September 30,
1997 1996
------------ -------------
Raw material $ 30,787 $ 52,406
Work in process 492,480 574,380
------------ ------------
Total $ 523,267 $ 626,786
============ ============
NOTE 3: COMMON STOCK
At June 30, 1997, there were 5,836,145 shares of common
stock issued and outstanding. An additional 250,000 shares will
be issued upon approval by the shareholders of an increase in the
number of shares authorized.
-9-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FIRST NINE MONTHS RESULTS OF OPERATIONS
Sales
During the first nine months of fiscal 1997 which ended June
30, 1997, sales decreased $272,242 or 15.8 percent below the same
period of the prior year. The decrease was due to continued
declines in the Company's sales of products and services for
humans, as well as a change in channels of distribution for its
"retail" domestic animal health product line.
Approximately $193,576 of this sales decline was due to a
decline of products and services for humans, due in large part to
extensive staffing reductions and regulatory changes, discussed
in more detail below under "Operating Expenses" and "Other
Activities" respectively. Also the restrictive insurance
reimbursement policies of major insurance companies adopted
several years ago, while now in the process of reversal, still
impact sales negatively. The new generation of antihistamines
launched by major pharmaceutical companies in the same time frame
as the reimbursement policies noted above combined with those
policies to exacerbate the decline. As allergy testing becomes
more routine and less specialized, many physicians are now
sending samples to their own local laboratories for testing, thus
further compounding the problem. Physician customers are
increasingly resistant to splitting allergy samples from other
serum samples sent to the local laboratory for testing. The
Company expects to use existing resources to target new potential
allergy customers in an attempt to minimize this negative sales
impact.
In the field of animal health, the Company has serviced in
parallel both the veterinarian, through the provision of
services, as well as the veterinarian's local laboratory, through
the sale of diagnostic kit products. The Company made this
strategic decision so that, to the extent the resistance to
sample splitting becomes a factor in the veterinary field, any
negative impact would be minimized because of its parallel
activities of both performing testing services in its own testing
laboratory, as well as selling kits to other laboratories.
More recently the Company decided to in fact put its primary
emphasis on diagnostic test kits in the field of animal health.
As a result, the Company developed and since 1992 has
manufactured and distributed a test strip for use in the
-10-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
FIRST NINE MONTHS RESULTS OF OPERATIONS, continued
veterinarian's office for screening canine patients suspected of
having allergies. In 1993 the Company completed development of a
test kit for allergen-specific IgE in canine serum for use in
reference laboratories. In 1994, this was superseded by a faster
test which also included a test for allergen-specific IgG, a
second substance relevant in the diagnosis of allergy. In
addition, in 1994 the Company acquired the rights to a test for a
molecule critical to proper blood coagulation processes, and
began manufacturing and distributing test kits and performing the
test in its own laboratory. Also late in 1994 the Company
obtained distribution rights to and launched a kit for the
detection of dermatophytes in dogs, cats, and horses and began
manufacturing and distributing a series of test kits for horses.
The Company decided to sell most of its "retail" animal
health activities and during March, 1996, the Company sold to an
independent third party, that portion of its business relating to
the provision of canine allergy testing services and
immunotherapy treatment products directly to veterinarians. That
portion of FCS's business involving the sale of diagnostic kits
to other laboratories that provide such testing services and the
sale of immunotherapy treatment to such laboratories and
distributors of such products was not impacted by the
transaction. The buyer also agreed to purchase its requirements
of the test kits necessary to provide such services and of
immunotherapy treatment products from FCS for a period of four
years. After the end of the quarter, the buyer terminated the
product purchase agreement by making a payment of $750,000 to the
Company. As a result of this action, the non-compete provisions
of the contract also terminate, permitting the Company to again
sell directly to veterinarians in the U.S. Therefore the Company
again actively began marketing its canine products and services
to veterinarians to replace the sales which were lost when the
product purchase agreement was terminated.
During the period, sales of products and services for
animals decreased $78,666 or 9.4 percent. Although unit sales
volume of products and services increased, this was more than
offset by a decrease in sales dollars due to the changes in
channels of distribution noted above, the sales to veterinarians
having been replaced since the date of the transaction by sales
-11-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
FIRST NINE MONTHS RESULTS OF OPERATIONS, continued
to the buyer at a transfer price lower than that price previously
charged veterinarians.
Sales of test kits and other products for animals sold
abroad or through other laboratories other than the buyer
referenced above increased slightly compared to the prior year.
Because of the Company's limited resources, it was determined
that the Company could not continue to pursue international
distribution of its products without assistance. Thus during
1995 the responsibility for all international distribution of
animal healthcare products was transferred to DMS Laboratories.
The transfer prices to DMS are from 27 percent to 38 percent
below the Company's price to domestic distributors or customers.
These discounts reduced the dollars of sales below the level that
would otherwise have been reported, reducing sales in dollars of
the veterinary products as well as increasing the cost of sales
percentage. With the introduction of the new products described
earlier, the Company anticipates continued growth in worldwide
sales of kits as well as sales of testing services and treatment
products to veterinarians in the U.S.
Cost of Sales
Cost of sales increased $5,936 above the year earlier level
and cost of sales as a percentage of sales was 46.7 percent,
compared to 39.0 percent reported in the prior year period. The
increase in percentage was primarily due to the change in sale
prices to the domestic distributor noted above.
Operating Expenses
Operating expenses were reduced $195,803 from the prior
year. Selling, general and administrative expenses were
decreased by $131,036 or 12.2 percent below the year-earlier
levels. Late in 1995 the Company implemented major staffing
reductions, and additional reductions were implemented upon the
sale of part of its retail animal health activities. These
reductions may impact the Company's ability to promptly complete
its plan of transition to a predominantly animal healthcare
business from a predominantly human health business, from a
predominantly service business to a predominantly product
Business and to expand its technical base beyond allergy and
-12-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
FIRST NINE MONTHS RESULTS OF OPERATIONS, continued
related diseases. Interest expense was reduced $51,821 or 42.0
percent due to lower debt levels.
Other Activities
The United States Food & Drug Administration (FDA) has
recently implemented a new level of regulation for companies
manufacturing so-called "allergenic extracts," that is
immunotherapy, for human use. The Company has advised the FDA
that it strongly supports this decision and is of the opinion
that allergenic extracts should be produced to the standards of
pharmaceutical products, packaged like pharmaceutical products
and priced like pharmaceutical products. It has urged the entire
industry to support this decision.
The Company is one of the first to be asked to achieve this
level of control. In order to do this expeditiously, the Company
has decided, after meeting with the FDA and reviewing these
requirements in detail, to accept a temporary license suspension
while it implements changes to its procedures, upgrades certain
personnel and, perhaps modifies certain aspects of its
facilities. The Company has arranged to purchase from another
manufacturer human immunotherapy on an interim basis so as to
maintain its program of an integrated Allergy Management System
of testing and treatment.
As noted earlier, the Company sold a portion of its business
during the month of March, 1996. As consideration for the sale,
FCS received $500,000 and $250,000 in unconditional and
assignable promissory notes of the buyer. After sale of the
notes at a discount, and closing costs on the transactions, the
Company reported other income of $626,842 in the period from this
transaction.
The Company decided in January 1996 to discontinue all
operations in France and to cease making payments to creditors
under its reorganization plan. As a result, Iatric SA, one of
the Company's subsidiaries in France, received notification dated
February 15, 1996 that it had been liquidated by order of the
French bankruptcy court. The other three French subsidiaries
-13-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
FIRST NINE MONTHS RESULTS OF OPERATIONS, continued
were not subject to the liquidation order. The Company recorded
a reserve of $342,810 which equals the carrying value of the
assets in excess of the liabilities of its subsidiaries in
France. Because all operations utilizing foreign currencies have
been reserved, the cumulative foreign currency translation
adjustment was liquidated, resulting in a $95,658 write off. The
reserve and the liquidation of the cumulative foreign currency
translation adjustment totaled $438,468 and this amount is
reported in the financial statements partially offsetting the
other income from the sale of a portion of its retail animal
health activities. The Company will continue to own certain
assets in France, primarily a building and land. If in the
future these assets are able to be sold, a gain will be recorded
at that time.
The Company also had loans from CEPME, a French bank. The
proceeds from these loans were used to fund the launch of the
French operations in 1985 and 1986. In March 1996, utilizing
funds from the sale described earlier, the Company and CEPME
reached an agreement to make a one-time payment of $79,177 in
full satisfaction of $601,349, including accrued interest of
$158,540 owed to CEPME. This resulted in an extraordinary gain
of $522,172.
In addition, utilizing the funds from the sale discussed
earlier, the Company reached an accommodation with Swiss Bank
Corporation in which the bank accepted $100,000 in cash and
$100,000 due in December 1998 in full satisfaction of $700,582 of
principal and accrued interest. The note is non-interest bearing
and recorded in the balance sheet discounted for interest at 9
percent. The extraordinary gain resulting from this transaction
equaled $500,582. Also, several providers of materials and
services agreed to a payment in the amount of $23,369 in full
satisfaction of $222,218 of amounts owed resulting in an
extraordinary gain of $198,850.
Other income of $188,374 in the 1996 period is comprised of
the $626,842 gain on sale of a portion of its retail animal
health activities, offset by the $342,810 reserves in France and
the liquidation of the cumulative foreign currency translation
-14-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
FIRST NINE MONTHS RESULTS OF OPERATIONS, continued
adjustment in the amount of $95,658. The extraordinary gains
totaling $1,221,604 are comprised of the debt accommodations with
CEMPE ($522,172), Swiss Bank Corporation ($500,582) and several
providers of materials and services ($198,850). The total of the
other income and extraordinary gains is $1,409,978.
Net Income (Loss)
These factors outlined above resulted in a net loss of
$247,335 in the current period compared to a net income of
$1,245,018 in the year-earlier period.
THIRD QUARTER RESULTS OF OPERATIONS
During the quarter, sales decreased $73,760 or 14.3 percent.
Sales of products and services for humans decreased $132,538 or
42.8 percent, almost entirely due to the temporary cessation of
shipping immunotherapy for human use, following the Company's
acceptance of a temporary suspension of the Company's FDA
license, which was discussed earlier. Many of the immunotherapy
orders were later shipped to customers in the fourth quarter,
following the arrangement of another manufacturer to supply the
immunotherapy on an interim basis. A portion of the sales
decrease will not be recovered, however, because some customers
canceled their orders due to the shipping delays and purchased
their immunotherapy from other suppliers.
Sales to the veterinary marketplace increased $58,778 or
28.5 percent from the prior period on an increase in sales of
kits, most of which was due to a stocking order under the product
purchase agreement which was terminated after the end of the
quarter, as mentioned earlier. Despite the stocking order, sales
to this customer decreased $40,749 below the prior three month
period.
Cost of sales increased $9,540 or 4.3 percent. Although
sales of immunotherapy products decreased during the quarter,
cost of sales increased due to disposal of immunotherapy products
which could not be shipped to customers due to the FDA license
suspension discussed previously. Operating expenses increased
$29,025 or 8.7 percent above the year earlier levels.
-15-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
THIRD QUARTER RESULTS OF OPERATIONS, continued
As a result of these factors, losses from operations
increased from $40,839 during the second quarter of 1996 to
$153,164 in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ending June 30, 1997, funds were
provided by a decrease in inventories and an increase in accounts
payable and accrued expenses. These funds were used to reduce
debt levels. During the same period of the prior year, funds
were provided by the sale of a portion of the Company's
veterinary business. These funds were used to make payments on
accounts payable and accrued expenses, to reduce its bank debt,
and to reach agreement with its foreign banks and suppliers on
discounted payment of amounts owed.
At June 30, 1997 current assets equaled $731,902, current
liabilities equaled $2,324,537 and the current ratio equaled .31.
The Company's total liabilities exceeded total assets by
$972,738.
Management believes that the Company's future success is
dependent upon permanently reversing the sales decline and
increasing sales through the launch of new products and through
the use of new distribution channels and/or raising or generating
additional capital. The Company is aggressively pursuing new
product opportunities within the cash constraints imposed by the
present financial situation of the Company. In addition, the
Company is actively pursuing both debt and equity capital.
However, there can be no assurance of the success of either of
these programs.
The Company had available from Bank of America lines of
credit for working capital purposes, subject to certain
restrictions based upon the amounts of accounts receivable which
secure such borrowing. As of June 30, 1997, the Company had
borrowed $133,085 under the line of credit and had an additional
$6,151 available. In addition, the Company has $116,382 of term
loans from Bank of America. The agreement, which covers both the
-16-<PAGE>
<PAGE>
PART I, Financial Information, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
LIQUIDITY AND CAPITAL RESOURCES, continued
credit line and term loans, will expire October 31, 1997, however
the bank has agreed to extend the loan through October 31, 1998.
The Company does not possess the financial resources to repay
these amounts at the present time and has made periodic
arrangements to extend such loan agreements in the past. The
Company will attempt to continue to reach periodic arrangements.
During the fiscal year, certain of the financial ratio
covenants in the agreement with Bank of America were not met by
the Company. The Company expects that it will continue to be out
of compliance with certain financial covenants until a new loan
agreement is executed.
SUBSEQUENT EVENTS
After the end of the quarter, one of the Company's customers
terminated a product purchase agreement by paying $750,000 to the
Company. In addition, the Company completed the refinancing of
the mortgage on its building.
For more information, refer to Part II, Item 5, Other
Information, below.
-17-<PAGE>
<PAGE>
FCS LABORATORIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
PART II, Other Information
Item 5. Other Information
After the end of the quarter, the Company announced that the
Product Purchase Agreement between FCS and Heska Corporation
relating to canine allergy test kits and immunotherapy treatment
products was terminated. Aa a result of the termination, the
non-compete provisions of the contract also terminate, permitting
the Company to again sell directly to veterinarians in the U.S.
The Company is therefore again actively marketing testing
services and immunotherapy products directly to veterinarians in
the U. S.
As a part of the termination, the Company received $750,000.
Also after the end of the quarter, the Company completed the
refinancing of the mortgage on its facility in Arizona. The
mortgage is in the amount of $375,000. These funds are being
used to pay the prior mortgage holder, pay certain overdue taxes,
repay loans to the Company, pay accounts payable, to again market
the canine product to veterinarians, and to upgrade the
immunotherapy production facilities.
Item 6. Exhibits
(a) Exhibit 99 - Additional Exhibits
The following Proforma financial statements present the
financial effects of these transactions on the financial
statements of the Company, as if they had occurred prior to the
end of the quarter.
-18-<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned authorized officers.
FCS, Laboratories, Inc.
/S/ Nicholas A. Gallo, III
Nicholas A. Gallo, III
Chairman and member of
the Board of Directors
and President
/S/ Richard C. Mayo
Richard C. Mayo
Treasurer and
Chief Financial Officer
and Director
Date: October 21, 1997
-19-<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The condensed financial statements included heein have been prepared by
the Company without audit. Certain information normally included in
footnote disclosure in financial statements prepared in accordance with
GAAP have been condensed or omitted pursuant to the Rules and Regulations
of the Securities and Exchange Commission.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1287
<SECURITIES> 0
<RECEIVABLES> 196361
<ALLOWANCES> 25075
<INVENTORY> 523267
<CURRENT-ASSETS> 731902
<PP&E> 2948306
<DEPRECIATION> 2272084
<TOTAL-ASSETS> 1438001
<CURRENT-LIABILITIES> 2324537
<BONDS> 86202
0
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<COMMON> 4060163
<OTHER-SE> (5032901)
<TOTAL-LIABILITY-AND-EQUITY> 1438001
<SALES> 1455531
<TOTAL-REVENUES> 1455531
<CGS> 679303
<TOTAL-COSTS> 679303
<OTHER-EXPENSES> 1023563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71621
<INCOME-PRETAX> (247335)
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<CHANGES> 0
<NET-INCOME> (247335)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 99 -- ADDITIONAL EXHIBITS
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1997
ASSETS
PROFORMA ANALYSIS
As Previously Effect of Adjusted
Reported Transactions Amount
---------- --------- ---------
Current Assets:
Cash $ 1,287 $ 208,912 $ 210,199
Accounts receivable, net
of allowance for doubtful
accounts of $25,075 196,361 --- 196,361
Inventories 523,267 --- 523,267
Other current assets 10,987 15,380 26,367
----------- -------- ----------
Total Current Assets 731,902 224,292 956,194
Property, Plant and
Equipment, net 676,222 --- 676,222
Deposits and Other Assets,
net of Amortization
of $13,387 29,877 (3,750) 26,127
---------- --------- ----------
Total Assets $1,438,001 $ 220,542 $1,658,543
========== ========= ==========
See accompanying notes to consolidated financial statements.
-20-<PAGE>
<PAGE>
EXHIBIT 99 -- ADDITIONAL EXHIBITS, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
PROFORMA ANALYSIS
As Previously Effect of Adjusted
Reported Transactions Amount
---------- --------- ----------
Current Liabilities:
Accounts payable $1,031,817 $(236,368) $ 795,449
Accrued expenses 889,788 (508,862) 380,926
Short-term debt including
current portion of long-
term debt 402,932 (84,707) 318,225
---------- --------- ---------
Total Current
Liabilities 2,324,537 (829,937) 1,494,600
---------- --------- ---------
Other Liabilities:
Long-term debt 86,202 300,479 386,681
---------- --------- ----------
Total Liabilities $2,410,739 $(529,458) $1,881,281
---------- --------- ----------
Shareholders' Equity (Deficit)
Common Stock, no par value:
6,000,000 shares authorized;
5,836,145 shares issued and
outstanding (Note 3) 4,060,163 --- 4,060,163
Accumulated deficit (5,032,901) 750,000 (4,282,901)
Total Shareholders' ---------- --------- ----------
Equity (Deficit) (972,738) 750,000 (222,738)
Total Liabilities and
Shareholders' ---------- --------- ----------
Equity (Deficit) $1,438,001 $ 220,542 $1,658,543
========== ========= ==========
See accompanying notes to consolidated financial statements.
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<PAGE>
EXHIBIT 99 -- ADDITIONAL EXHIBITS, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDING JUNE 30, 1997
PROFORMA ANALYSIS
As Previously Effect of Adjusted
Reported Transactions Amount
---------- ---------- ----------
Sales $1,455,531 $ --- $1,455,531
Cost of Sales 679,303 --- 679,303
---------- --------- ---------
Gross profit 776,228 --- 776,228
Selling, General and
Administrative Expense 947,253 --- 947,253
Depreciation and
Amortization Expense 4,689 --- 4,689
Interest Expense 71,621 --- 71,621
Other Income --- 750,000 750,000
---------- --------- ----------
Net Income (Loss) $ (247,335) $ 750,000 $ 502,665
========== ========== ==========
Net Income (Loss) per Share $ (.04) $ .13 $ .09
========== ========== ==========
Weighted Average
Shares Outstanding 5,836,145 5,836,145 5,836,145
See accompanying notes to consolidated financial statements.
-22-<PAGE>
<PAGE>
EXHIBIT 99 -- ADDITIONAL EXHIBITS, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDING JUNE 30, 1997
PROFORMA ANALYSIS
As Previously Effect of Adjusted
Reported Transactions Amount
----------- ----------- ---------
Cash Flows from
Operating Activities:
Net income (loss) $ (247,335) $ 750,000 $ 502,665
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities
Buy out of product
purchase agreement --- (750,000) (750,000)
Depreciation and
amortization 25,018 --- 25,018
Provision for losses on
accounts receivable 12,150 --- 12,150
Changes in assets
and liabilities:
Decrease in
accounts receivable 18,805 --- 18,805
Decrease in
inventory 103,519 --- 103,519
Decrease (increase)in
other current assets 7,529 (15,380) (7,851)
Decrease (increase)
in other assets (7,056) 3,750 3,306
Increase (decrease) in
accounts payable and
accrued expenses 202,011 (745,230) (543,219)
--------- --------- ---------
Total adjustments 361,976 (1,506,860) (1,144,884)
Net cash provided by
(used in) operating --------- --------- ---------
activities 114,641 (756,860) (642,219)
-continued-
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<PAGE>
EXHIBIT 99 -- ADDITIONAL EXHIBITS, continued
FCS LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDING JUNE 30, 1997 (Continued)
PROFORMA ANALYSIS
As Previously Effect of Adjusted
Reported Transactions Amount
---------- --------- ----------
Cash Flows from
Investing Activities:
Purchases of property,
plant and equipment (5,301) --- (5,301)
Net cash provided
by (used in) ------ -------- --------
investing activities (5,301) --- (5,301)
Cash Flows from
Financing Activities:
Net repayment of short-term
revolving debt (68,015) --- (68,015)
Retirement of
short-term debt --- (50,000) (50,000)
Proceeds from issuance of
long-term debt --- 350,922 350,922
Payments on long-term
debt and installment
obligations (40,962) (85,150) (126,112)
Net cash used in --------- ------- --------
financing activities (108,977) (215,772) (324,749)
--------- -------- -------
Increase in Cash 363 208,912 209,275
Cash at Beginning of
Nine month Period 924 --- 924
Cash at End of --------- --------- ---------
Nine Month Period $ 1,287 $ 208,912 $ 210,199
========= ========= =========
See accompanying notes to consolidated financial statements.
-24- <PAGE>
<PAGE>
