SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934
For the Fiscal Year Ended May 31, 1996 Commission File Number 0-16664
GENETIC LABORATORIES WOUND CARE, INC.
(Exact Name of Company as specified in its charter)
Minnesota 41-1604048
____________________ _______________________________
(State of Incorporation) (IRS Employer Identification No.)
2726 PATTON ROAD, ST. PAUL, MINNESOTA 55113
(Address)
TELEPHONE NUMBER: (612) 633-0805
Securities Registered Pursuant to Section 12(b) OF THE ACT: None
Securities Registered Pursuant to Section 12(g) OF THE ACT:
COMMON STOCK $.01 par value
___________________________
Check whether the issuer (1) has 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 Company was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $2,442,878.
Aggregate market value of voting stock held by nonaffiliates of Company as of
June 30, 1996 was approximately $1,200,000.
The number of shares of each class of common stock outstanding on June 30, 1996
was:
Common Stock $.01 par value2,401,100 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location on Form 10-KSB
1. Genetic
Laboratories Wound Care, Inc. Part III
Proxy statement for 1996 Annual
meeting of Shareholders
PART I
ITEM 1. BUSINESS
General Development of Business
Genetic Laboratories Wound Care, Inc. (herein referred to as "the Company")
manufactures and markets proprietary wound care
products; wound closure strips, specialty fasteners, and net dressings.
The Company contracts out the manufacture of its products having complete
control over all manufacturing specifications involved.
The Company sells the completed products to its distribution network consisting
of independent distributors who resell the products
to its end users, principally physicians, hospitals and clinics.
The Company was incorporated on January 19, 1988, in the state of Minnesota as
a dividend to the shareholders of Bioplasty, Inc.
(referred to herein as Bioplasty). Pursuant to an Agreement between Bioplasty
and the Company dated as of February 29, 1988
(referred to herein as the "Purchase Agreement"), the Company acquired the
wound care business and certain assets of Bioplasty.
The wound care business and assets of Bioplasty include the right to develop
and market proprietary wound care products.
Financial Information about Industry Segments
The Company has only one industry segment, namely, the manufacture and
marketing of wound care products. Financial
information about the Company's business is contained in Items 6 and 7 hereof.
Products
The Company has continued to develop and market the wound care products through
its independent dealer organization worldwide.
These products include:
WOUND CLOSURE STRIPS:
SUTURE STRIP is a sterile pressure sensitive adhesive wound closure strip.
The wound closure strip was designed with
flexibility characteristics which provides maximum adherence to maintain
wound integrity, while allowing the proper amount
of flex to minimize problems with skin shear and blistering. Suture Strip
is available in a wide variety of sizes and packages,
and is used in various surgical and wound care procedures.
NET DRESSINGS:
FLEXINET/SYSTENET is a specially woven versatile elastic net dressing for
wounds which reduces dressing time, allowing
for proper ventilation without restrictions and holds the dressings in place
firmly and comfortably. Flexinet/Systenet is
available in various sizes and packages and is used to hold dressings firmly
in place.
SPECIALTY FASTENERS:
NG STRIP is a nasogastric tube fastener. It is made of a flexible material
designed to maximize adhesion and minimize
irritation, blistering, and skin shear. NG Strip is available in various
packages and is used to secure nasal or feeding tubes to
the nose.
UC STRIP /CATH-STRIP is a catheter tubing fastener. UC Strip/Cath-Strip
allows you to secure urinary and gastrostomy
catheter tubing to the patients skin. UC Strip/Cath-Strip is made of a
flexible material designed to maximize adhesion and
minimize irritation, blistering, and skin shear. UC Strip/Cath-Strip is
available in various packages and is used to secure
catheter tubing.
Sales of the companies products are not seen as being affected by seasonal
influences. Product sales as a percent of net revenues
are as follows:
1996 1995 1994 1993 1992
Wound Closure Strips 67% 65% 65% 63% 65%
Net Dressings 11% 12% 12% 14% 12%
Specialty Fasteners 21% 20% 19% 21% 18%
Materials and Manufacturing
The Company does not manufacture its products. Independent contractors
manufacture the products for the Company utilizing
specifications provided by the Company. The Company's intention will be to add
manufacturing when and where appropriate. As
reported in the Company's 10QSB, November 30, 1995, a major supplier will
discontinue production of an essential component
material used in the Company's wound closure strips and fastener products.
These products combined accounted for 88% and 85%
of net revenues for the years ended May 31, 1996 and 1995, respectively. The
Company immediately began identifying alternatives
for the discontinued component material. The Company has qualified an
alternative component material before the product
inventory levels were affected.
Government Regulation
The Company's products are subject to government regulation by the FDA under
the Federal Food, Drug and Cosmetic Act (the
"FDCA") and accordingly, unless determined to be exempt, are subject to
preclearance procedures of the FDA before marketing.
Under the FDCA, a medical device is classified as either a Class I device,
which is subject only to the general control provisions of
the FDCA; a Class II device which, in addition to applicable general controls,
is subject to performance standards (if such standards
have been developed) and may be subject to premarket approval; or a Class III
device which, in addition to applicable general
controls is subject to the FDA premarket approval. A premarket approval
application (PMAA), if granted, permits full marketing
in the United States. A PMAA is only granted after experimental data has been
obtained under an investigational device exemption
("IDE"), which permits clinical use of products for experimental purposes. All
of the Companies products have been classified as
Class I devices. The Company has 510(k) approval from the FDA to market all of
its Class I devices.
The governmental regulatory policies of countries outside the United States
vary considerably. This results in some countries
allowing the use of medical products through a registration only process, while
other countries require a lengthy approval process.
Inability to receive governmental approval from a country outside the United
States has not hindered the Company through a loss of
sales in countries outside the United States. The European community has issued
various directives for the sale of foreign products.
These directives have certain requirements to be met before products can be
sold in the European Community. The Company has
until July 1, 1997 to comply with these requirements. The Company has begun
work on complying with the requirements and feels
it will be able to meet the July 1, 1997 deadline. Sales to the European
Community were approximately 17% and 15% of net
revenues for the years ended May 31, 1996 and 1995, respectively.
Patents, Trademarks, Licenses, Franchises and Concessions
The Company has patents on its Suture Strip, NG Strip, Cath-Strip, and UC Strip
products in the United States and the United
Kingdom. The patents begin to expire in the year 2005. The Company also has
trade names for Suture Strip, Flexinet, NG Strip,
Cath-Strip, and UC Strip.
The Company believes that its success as a business will depend primarily upon
the quality and economic value of its products,
rather than its ability to obtain and defend patents. There can be no
assurance that the Company's patents will afford protection
against competitors with similar technology; nor can there be any assurance
that any patents issued to the Company will not be
infringed upon or designed around by others or that others will not obtain
patents that the Company would need to license or design
around.
Dependence on Single Customer
One distributor accounted for more than 10% of the Company's sales for the year
ended May 31, 1996. The Company believes its
relationship with this distributor is strong. During the year ended May 31,
1996 the Company has seen its customer base remain
unchanged from this prior year.
The Company has developed relationships with large distributors of medical
products in the hospital, clinic and long-term care
markets and continues to work on strengthening these relationships.
Marketing and Competition
The Company's products are sold through an international network of independent
distributors servicing the hospital, clinic, and
long-term care facilities. This network, which presently has over 200
distributors, is managed by two Regional Sales Managers.
Each Regional Sales Manager has independent manufacturers representatives
working with the distributors, hospitals, clinic, and
long-term care facilities.
Competition in the sale of medical devices and products such as the wound care
products is intense. The principal factors of
competition are product performance, customer service, and price. There are
other suppliers of competing products who are
considerably larger than the Company, or are a division or subsidiary of
corporations which have much greater resources than the
Company. The Company believes it has a competitive edge in the quality and
performance of its product allowing it to compete
with the larger companies. The Company also feels it is able to provide more
personal service to its customers giving it an
advantage over larger more rigidly structured companies. The Company does not
have enough information to date to estimate its
market position in the wound care field nor its competitors position, however,
management does not believe the Company currently
controls a significant share of the market. The Company's main competition in
the wound closure strip market is 3M with their
Steri-Strip products that control a large share of the wound closure strip
market. There are products that compete with the specialty
fasteners, including white hospital tape. The Company's task is to demonstrate
to the end user that white hospital tape does have a
cost and risk associated with its use. When the end user accepts the cost and
risks associated with white hospital tape, the specialty
fasteners provide better performance with lower risks involved.
The net dressings market is very price competitive. The Company provides its
customers with the highest quality net dressing and
does not compete on price.
Research and Development
The Company's ability to greatly increase sales will depend upon, among other
things, the expansion of its current product lines or
the introduction of new products. The Company is actively pursuing new product
ideas that match the interests of the current
international distribution network already in place. Arthur A. Beisang, the
C.E.O., is in charge of evaluating the development and
acquisition of new products. A portion of Arthur A. Beisang, C.E.O., and Robert
A. Ersek, Medical Director, time is devoted to
the evaluation of new product development. During the year ended May 31, 1996
the Company incurred $19,474 of costs associated
with the qualification of an alternative component material for its wound
closure strips and specialty fasteners. No costs were
incurred by the Company for the year ended May 31, 1995.
Environmental Compliance
Compliance by the Company with applicable environmental requirements is not
expected to have a material effect upon the capital
expenditures, earnings or competitive position of the Company.
Employees
As of May 31, 1996, the Company employed sixteen employees of which fourteen
are full time. None of such employees has a
collective bargaining agreement with the Company. The Company's size allows it
to foster a close relationship with its employees
which management feels increases productivity.
Financial Information about Foreign and Domestic Operations and Export Sales
The Company sold approximately $462,000 and $363,000 to foreign distributors
during the year ended May 31, 1996 and 1995,
respectively. All sales require payment to be made in U.S. Funds. The
Company intends to expand its exporting in the future.
The Company has experienced no losses from any foreign receivables in the years
ended May 31, 1996 and 1995.
ITEM 2. PROPERTIES
The Company does not own any real estate. The Company leases 6,800 square feet
of office and warehouse space at 2726 Patton
Road, St. Paul, Minnesota 55113, pursuant to a five-year lease that expires
March 1997. The Company considers such space to be
adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor is any of its property subject to any
material pending or threatened legal, governmental,
administrative or other judicial proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Of the 12,000,000 shares authorized on May 31, 1996, there were 2,401,100
shares issued and outstanding. The Company's
common stock is traded in the "Local Over the Counter Market" on the "Pink
Sheets" and on the NASD Electronic Bulletin board
under the symbol GELW. At May 31, 1996, there were approximately 1,100
shareholders of record. The bid and ask prices were
as follows:
Quarter Ending: Bid Ask
Fiscal 1995
August 31, 1994 3/8 5/8
November 30, 1994 3/8 5/8
February 28, 1995 3/8 5/8
May 31, 19951 1 1 3/8
Fiscal 1996
August 31, 1995 1/2 15/16
November 30, 1995 7/8 1 1/8
February 29, 1996 3/4 1 1/8
May 31, 1996 1/2 7/8
These prices represent quotations between dealers without adjustments for
retail mark-up, mark-down or commissions, and do not
necessarily represent actual transactions. The Company has not paid cash
dividends on its common stock and does not anticipate
cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the net revenues, gross profit, and operating
income of the Company for the years ended May 31,
1996, 1995, and 1994.
1996 1995 1994
Net Revenues
Domestic Sales $ 1,980,699 $ 1,794,729 $ 1,725,846
International Sales 462,179 363,127 316,175
Royalties 0 56,237 50,351
TOTAL $2,442,878$2,214,093$2,092,372
Gross Profit $1,440,122$1,367,690$1,280,356
Operating Income $ 27,618$ 195,604$ 157,850
COMPARISON OF THE YEAR ENDED MAY 31, 1996 WITH THE YEAR ENDED MAY 31, 1995
Revenues
Net revenues increased 10.3% to $2,442,878 for fiscal 1996 from $2,214,093 for
fiscal 1995. Domestic sales increased by 10.4%
to $1,980,699 for fiscal 1996 from $1,794,729 for fiscal 1995, while
international sales increased 27.3% to $462,179 for fiscal
1996 from $363,127 for fiscal 1995.
Net revenues from sales of wound closure strips increased by 15% due to an
increase in units sold. Net revenues from sales of
specialty fasteners increased by 15% due mainly to an increase in the unit
sales price of one of the new fasteners sold by the
Company. Net revenues from the sales of net dressings increased by 3% on a
minor increase in units sold.
The Company received no royalties in fiscal 1996. On June 26, 1995, the Company
sold its rights, title, and interest in the royalty
agreement for $164,213 (see Note 7 to the Financial Statement).
Gross Profit
The gross profit percentage decreased to 58.95% of net revenues for fiscal 1996
from 61.77% for fiscal 1995. The decrease in
gross profit percentage was the result of slight increases in product costs, an
increase in international sales which have a lower
profit percentage, and the discontinuance of the royalties.
Operating Expenses
Operating expenses increased to $1,412,504, 58% of net revenues, for fiscal
1996 from $1,172,086, 53% of net revenues, for
fiscal 1995. The majority of the increase resulted from increased marketing
activities intended to more rapidly increase the sales of
the specialty fasteners and wound closure strips.
Other Income
The Company sold its right, title, and interest in a royalty agreement with
Bio-Vascular for $164,213 in fiscal 1996. The royalty
agreement was due to terminate in July 1995. Other income includes interest
income of $10,550 for fiscal 1996 and $3,759 for
fiscal 1995.
COMPARISON OF THE YEAR ENDED MAY 31, 1995 WITH THE YEAR ENDED MAY 31, 1994.
Revenues
Net revenues for fiscal 1995 were $2,214,093 compared to $2,092,372 for fiscal
1994, a 5.8% increase. The increase resulted from
increases in both unit volume and unit prices of some products. The following
products saw unit increases; Suture Strip, NG Strip,
and UC/Cath-Strip. The Flexinet/Systenet product unit sales were flat. The
Company also increased its prices to International
dealers for all products effective January 1, 1995.
Domestic sales, which accounted for 84% of net revenues, were up 4.0% for
fiscal 1995 when compared to fiscal 1994.
International sales, which accounted for 16% of net revenues, were up 14.8% for
fiscal 1995 when compared to fiscal 1994.
Included in net revenues are royalties of $56,237 for fiscal 1995 and $50,351
for fiscal 1994. Royalties were 2.5% and 2.4% of net
revenues for fiscal 1995 and 1994, respectively. On June 26, 1996, the Company
sold its rights, title and interest in the royalty
agreement for approximately $165,000. (See Note 7 to the financial statements.)
The Company has set up an international network of independent stocking
distributors. Sales to international customers accounted
for 16% of net revenues for fiscal 1995 and 15% for fiscal 1994.
Gross Profit
The gross profit percentages remain stable between fiscal years 1995 and 1994,
and reflect the Company's ability to keep product
costs constant during the fiscal year. The Company does expect product costs to
increase slightly during the fiscal year ending May
31, 1996, as the cost of packaging continues to increase.
Operating Expenses
Operating expenses as a percent of net revenues were 53% in fiscal 1995 and 54%
in fiscal 1994. While the operating expenses as a
percentage of net revenues remained relatively constant, there were increases
for product promotion. The Company's level of
expenses is not expected to change significantly in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $998,872 on May 31, 1996 and a working
capital ratio of 4.5 to 1 compared to working
capital of $834,432 and a working capital ratio of 5.0 to 1 on May 31, 1995.
The Company's cash and cash equivalents decreased to $252,188 on May 31, 1996,
compared to $295,830 on May 31, 1995. The
decrease was primarily the result of higher levels of inventory. The Company's
inventory increased to $631,734 on May 31, 1996,
from $429,105 as the Company increased its inventory of wound closure strips
and specialty fasteners during the period of time the
Company was in the process of locating an alternative material component and to
take advantage of quantity price advantages by
purchasing larger amounts.
Purchases of equipment during fiscal 1996 was $15,529 and $11,247 during fiscal
1995. The Company received $22,169 from the
issuance of stock that was exercised by employee stock options.
The Company believes it will be able to fund its operations and any capital
expenditure requirements through internally generated
funds during the next 12 months. The Company has a $75,000 line of credit with
a local bank to provide additional liquidity if
needed. (See Note 4 to the financial statements.) The agreement expires in
October 1996, the Company intends to renew the line
for another year.
INFLATION AND CHANGING PRICES
Inflation and changing prices have not had a significant impact upon the
operations or growth of the Company during the past three
years. Increases in prices of the components used to produce the Company's
products during the next twelve months are not
expected to significantly affect the Company's operations. Although the Company
believes that the Wound Care business is
extremely competitive, management believes that product integrity, customer
service, and reputation are more important than
pricing in a customer's selection of Wound Care products.
ITEM 7. FINANCIAL STATEMENTS
Page Reference
Form 10-KSB
Independent auditor's report 12
Balance sheets at May 31, 1996 and 1995 13,14
Statements of operations for the years ended May 31, 1996 and 1995 15
Statements of stockholders' equity for the years ended May 31, 1996 and 1995
16
Statements of cash flows for years ended May 31, 1996 and 1995 17
Notes to Financial Statements 18-22
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Directors and Executive Officers" in the Registrant's
definitive proxy statement for its 1996 annual meeting of
shareholders is incorporated by reference herein.
ITEM 10. EXECUTIVE COMPENSATION
The sections entitled "Executive Compensation" and "Election of Directors" in
the Registrant's definitive proxy statement for its
1996 annual meeting of shareholders is incorporated by reference herein.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Beneficial Ownership of Principal Shareholders and
Management" and "Election of Directors" in the
Registrant's definitive proxy statement for its 1996 annual meeting of
shareholders is incorporated by reference herein.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
Two directors of the Company, Arthur A. Beisang and Robert A. Ersek, M.D. and a
former director, Daniel G. Holman were also
directors of Bioplasty, during the negotiations of the terms of the Spin-Off
Agreement, dated January 18, 1988, between the
Company and Bioplasty, therefore the negotiations were not conducted on an arms
length basis. In addition, such persons, in the
aggregate, owned beneficially approximately 31% of the outstanding stock of
both the Company and Bioplasty.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report in Item 7:
1.Financial Statements:
Independent auditor's report
Balance sheets at May 31, 1996 and 1995
Statement of operations for the years ended May 31, 1996 and 1995
Statements of stockholders' equity for the years ended May 31, 1996 and
1995
Statements of cash flows for the years ended May 31, 1996 and 1995
Notes to financial statements
(b) Reports on Form 8-K
The company filed no reports on Form 8-K during the quarter ended May 31,
1996.
(c) Exhibits:
Incorporated by Reference
In This Report From
(3) Articles of Incorporation Exhibit (3.1)
and (3.2) to Company's Form 10 (File No. 000-16664)
dated March 25, 1988.
(4) Instruments Defining RightsExhibit (3.1)
and (3.2) above
Security Holder
(10)Material ContractsExhibit (2.1)
10.1Genetic Laboratories WoundForm 10-K Annual Report for the year ended
May 31, 1989
Care, Inc. Incentive Stock Option Plan(File No. 0-16664) dated August 25,
1989
10.2Executive Agreement withForm 10-KSB Annual Report for the year ended
May 31, 1993
Arthur A. Beisang(File No. 0-16664) dated August 25, 1993
10.3Executive Agreement withForm 10-KSB Annual Report for the year ended
May 31, 1993
Dr. Robert Ersek(File No. 0-16664) dated August 25, 1993
10.4Executive Agreement withForm 10-KSB Annual Report for the year ended
May 31, 1993
H. James Thompson(File No. 0-16664) dated August 25, 1993
10.5 Executive Agreement with
Arthur A. Beisang
10.6 Executive Agreement with
Dr. Robert Ersek
10.7 Executive Agreement with
H. James Thompson
27 Financial Data Schedule
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Genetic Laboratories Wound Care, Inc.
St. Paul, Minnesota
We have audited the accompanying balance sheets of GENETIC LABORATORIES
WOUND CARE, INC. as of May 31,
1996 and 1995 and the related statements of operations, stockholders' equity
and cash flows for the years than ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of
Genetic Laboratories Wound Care, Inc. as of May 31, 1996 and 1995, the results
of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
St. Paul, Minnesota
June 27, 1996
GENETIC LABORATORIES WOUND CARE, INC.
BALANCE SHEETS
May 31, 1996 and 1995
ASSETS
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 252,188 $ 295,830
Receivables
Trade, less allowance for doubtful accounts
$5,500 and $4,000 respectively (Notes 4 and 5) 330,779
288,328
Inventories (Note 4) 631,734 429,105
Prepaid expenses 69,454 29,141
Total current assets 1,284,155 1,042,404
PROPERTY AND EQUIPMENT (Notes 3 and 4)
Production equipment and tooling 59,093 59,093
Office Equipment 148,021 132,492
207,114 191,585
Less accumulated depreciation 174,993 159,990
32,121 31,595
OTHER ASSETS, net 8,136 11,952
$ 1,324,412 $ 1,085,951
GENETIC LABORATORIES WOUND CARE, INC.
BALANCE SHEETS (continued)
May 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
CURRENT LIABILITIES
Accounts payable $ 215,764 $ 132,368
Accrued expenses 69,519 65,804
Income taxes payable - 9,800
Total current liabilities 285,283 207,972
COMMITMENTS (Notes 3)
STOCKHOLDERS' EQUITY (Note 2)
Common stock, $.01 par value;
issued 2,401,100 and 2,326,100 shares, respectively 24,011
23,261
Additional paid-in capital 646,605 625,186
Retained earnings 368,513 229,532
1,039,129 877,979
$1,324,412 $1,085,951
See Notes to Financial Statements
GENETIC LABORATORIES WOUND CARE, INC.
STATEMENTS OF OPERATIONS
Years Ended May 31, 1996 and 1995
1996 1995
Net revenues (Note 5) $ 2,442,878 $ 2,214,093
Cost of revenues 1,002,756
846,403
Gross profit 1,440,122 1,367,690
Selling, general and administrative expenses 1,412,504
1,172,086
Operating income 27,618 195,604
Other income (Note 7) 174,763
3,759
Income before income taxes 202,381 199,363
Provision for income taxes (Note 6) 63,400
65,600
Net income $ 138,981$ 133,763
Net income per common share $ .06 $ .06
Weighted average number of common and common
equivalent shares outstanding 2,461,989 2,387,106
See Notes to Financial Statements
GENETIC LABORATORIES WOUND CARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended May 31, 1996 and 1995
Common Stock Additional
Paid in
Retained
Shares Amount Capital
Earnings Total
Balance, May 31, 1994 2,326,100 $ 23,261 $ 625,186
$ 95,769 $ 744,216
Net income - -
- - 133,763 133,763
Balance, May 31, 1995 2,326,100 23,261 625,186
229,532 887,979
Stock issued (Note 2) 75,000 750 21,419
- 22,169
Net income - - -
138,981 138,981
Balance, May 31, 1996 2,401,100 $ 24,011 $ 646,605
$ 368,513 $ 1,039,129
See Notes to Financial Statements
GENETIC LABORATORIES WOUND CARE, INC.
STATEMENTS OF CASH FLOWS
Years Ended May 31, 1996 and 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 138,981 $ 133,763
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 18,819 22,070
Changes in current assets and liabilities:
Receivables (42,451) (19,637)
Inventories (202,629) (173,793)
Prepaid expenses (40,313) (1,187)
Accounts payable 83,396 58,517
Accrued expenses 3,715 23,568
Income taxes payable (9,800) 4,605
Net cash provided by (used in) operating activities (50,282)
47,906
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (15,529) (11,247)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuance 22,169 -
Net increase (decrease) in cash and cash equivalents (43,642)
36,659
CASH AND CASH EQUIVALENTS
Beginning 295,830 259,171
Ending $ 252,188 $ 295,830
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
Note 1.Nature of Business and Significant Accounting Policies
Nature of Business
The Company markets proprietary wound care products; primarily wound
closure strips, specialty
fasteners, and net dressings. The manufacturing of the products is
contracted out utilizing specifications
provided by the Company. Sales are made primarily to medical supply
distributors throughout the
United States and in foreign countries, mainly Europe. See Note 5 for
major customers and supplier.
Significant Accounting Policies
Cash Flows and Cash Equivalents:
For purposes of reporting its cash flows, the Company considers all
highly liquid debt instruments with
an original maturity of three months or less to be cash equivalents.
The Company maintains its cash in
bank checking and savings accounts which, at times, may exceed
insured limits. The Company has not
experienced any losses in such accounts.
Cash payments for income taxes totaled $74,554 and $61,000 for the
years ended May 31, 1996 and
1995, respectively.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventories are
comprised primarily of goods held for resale.
Property and Equipment:
Additions to property and equipment are stated at cost. Depreciation
is computed using accelerated and
straight line methods over the estimated useful lives of five to
seven years.
Fair Value of Financial Instruments:
At May 31, 1996, the Company adopted FASB Statement No. 107,
Disclosures About Fair Value of
Financial Instruments, which requires disclosure of fair value
information about financial instruments,
whether or not recognized in the balance sheet, for which it is
practicable to estimate that value.
Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its
disclosure requirements. The aggregate fair values of the financial
instruments would not represent the
underlying value of the Company.
The financial statements include the following financial instruments:
cash and cash equivalents, trade
accounts receivable, and accounts payable. At May 31, 1996, no
separate comparison of fair values
versus carrying values is presented for the aforementioned financial
instruments since their fair values
are not significantly different than their balance sheet carrying
amounts.
Revenue Recognition:
The Company recognizes revenue upon shipment of its products.
Use of Estimates:
The preparation of the Company's financial statements in conformity
with generally accepting
accounting principles requires management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting periods.
Actual results could differ from those estimates.
Net Income per Common Share:
Net income per common and common equivalent share is computed on the
basis of the weighted average
number of common and common equivalent shares outstanding during the
respective years. Common
equivalent shares consist of the dilutive effect, when material, of
outstanding stock options.
Income Taxes:
Deferred taxes are provided on an asset and liability method whereby
deferred tax assets are recognized
for deductible temporary differences and operating loss or tax credit
carry forwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences
between the amounts of assets and liabilities recorded for income tax
and financial reporting purposes.
Deferred tax assets are reduced by a valuation allowance when
management determines that it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax
assets and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment.
Income tax expense is the tax payable or refundable for the year plus
or minus the change in deferred
tax assets and liabilities during the year. At May 31, 1996 and 1995
the Company has no significant
temporary differences on which to recognize deferred tax assets or
liabilities.
Recently Issued Accounting Standard:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, which
establishes new standards for
stock-based employee compensation plans. The Statement also applies
to transactions in which an entity
issues equity instruments to acquire goods or services from
nonemployees.
The Statement establishes a fair-value-based method of accounting for
stock-based compensation plans
and encourages, but does not require, entities to adopt that method
in place of APB Opinion No. 25,
Accounting for Stock Issued to Employees, for all arrangements under
which employees receive shares
of stock or other equity instruments of the employer or the employer
incurs liabilities to employees in
amounts based on the price of its stock. Entities that elect to
continue under Opinion No. 25 must
disclose pro forma net income (and net income per share) for all
years presented as if Statement No.
123 had been adopted.
The Company does not intend to adopt Statement No. 123 in measuring
expense. However, they must
present the pro forma disclosures beginning in 1997, and those pro
forma amounts will likely reflect
higher compensation expense than the amounts shown in future
statements of operations.
Note 2. Authorized Shares and Employee Stock Option Plan
Authorized Shares:
The Company's Articles of Incorporation provide for an aggregate of
12,000,000 authorized shares of
$.01 par value stock. The Board of Directors is authorized to
designate the class of shares and their
terms. As of May 31, 1996, 2,401,100 shares are designated as common
and 9,598,900 are subject to
future designation.
Employee Stock Option Plan:
The Company has a qualified incentive stock option plan which
authorizes the granting of options to
purchase up to 275,000 shares of common stock to officers and other
key employees. These options are
granted at the discretion of the directors. All options must be
granted at no less than 100% of the fair
market value of the stock on the date of the grant (110% for
employees owning more than 10% of the
Company's common stock). The options expire at varying dates not to
exceed ten years from the grant
date and are not transferable. When exercising options, an
employee's payment may be either cash,
shares of the Company stock valued at the fair market value, or a
combination of the two. All options
outstanding at May 31, 1996 are exercisable. A summary of stock
option activity through May 31,
1996 is as follows:
Number of Exercise Price
shares per share
Balance May 31, 1994 179,950 $ .25 to .625
Surrendered/Canceled (4,000) .25 to .625
Options granted 48,000 .375 to .4125
Balance May 31, 1995 223,950 .25 to .625
Canceled (3,200) .25 to .625
Shares exercised (75,000) .25 to .4125
Balance May 31, 1996 145,750 $ .25 to .625
Note 3. Commitments
Operating Leases:
The Company leases office and production facilities under a lease expiring
March 1997. Future
minimum rental payments of approximately $27,000 are due in the year
ending May 31, 1997. Total
rental expense of $57,298 and $55,466 was charged to operations for the
years ended May 31, 1996 and
1995, respectively.
Savings and Retirement Plan:
The Company has a savings and retirement plan for eligible employees. The
plan was adopted pursuant
to Section 401(k) of the Internal Revenue Code. Contributions to the plan
are discretionary for both the
Company and the employees. The Company may make contributions to the plan
which match employee
contributions subject to certain limitations. The Company contributed
$24,460 and $19,014 to the plan
in the years ended May 31, 1996 and 1995, respectively.
Employment Agreements:
The Company has Employment Agreements with three individuals for total
aggregate annual base
compensation of $180,000. Two of the individuals are directors with total
aggregate annual base
compensation of $94,000. The third individual is an officer with total
aggregate annual base
compensation of $86,000.
The agreements with the two directors provide that in the event of a
change of control of the Company
the two directors, if terminated, would be paid cash as severance equal to
all future amounts owed under
those agreements for the remainder of the terms. All three agreements
expire June 30, 1998.
Note 4.Revolving Credit Agreement
The Company has a revolving credit agreement with a bank which allows the
Company to borrow up to
$75,000. Borrowings bear interest at 1.5% above the bank's prime interest
rate. Under the terms of
the agreement, substantially all assets of the Company are pledged as
collateral. The loan agreement
also contains provisions requiring compliance with certain financial
covenants. The agreement
terminates on October 31, 1996. No amounts were outstanding under the
agreement at May 31, 1996 or
1995.
Note 5. Customers and Supplier
Major Customers:
During the years ended May 31, 1996 and 1995, the following customers
individually accounted for
more than ten percent of the Company's net revenues.
1996
1995
Receivable
Receivable
Percent Balance
Percent Balance
Net to May 31, Net
to May 31,
Revenues Total 1996 Revenues
Total 1995
Customer A $378,272 15.5% $30,870
$410,758 18.5% $43,999
Customer B 221,405 9.1% 25,878
252,935 11.4% 17,282
Foreign Sales:
The Company sells directly to foreign distributors located mainly in
Europe. Total foreign sales
accounted for approximately 19% and 16% of net revenues for the years
ended May 31, 1996 and 1995,
respectively. Accounts receivable at May 31, 1996 and 1995 included
amounts due from foreign
customers of approximately $73,000 and $48,000, respectively. All foreign
sales require payment in
U.S. funds.
Supplier:
The Company has purchased a majority of its products from one supplier.
During Fiscal 1995, this
supplier informed the Company that they would discontinue production of
one of the component materials
the Company uses in the production of its wound closure strips and
fastener products. These products
combined accounted for 88% and 85% of net revenues for the years ended May
31, 1996 and 1995,
respectively. The Company qualified an alternative component material for
these products before
inventory levels were affected.
Note 6.Income Taxes
The Company's effective tax rate varies from the statutory Federal income
tax rate for the following
reasons:
1996 1995
Statutory income tax rate 35.0% 35.0%
State income taxes, net of federal tax benefits .7
2.2
Non-deductible expenses 1.6 1.8
Benefit of income taxed at lower rates (4.5)
(4.6)
Tax credits (1.5) (1.5)
Effective tax rate 31.3% 32.9%
Note 7.Royalty Agreement
On June 26, 1995, the Company sold its rights, title, and interest in a
royalty agreement with Bio-
Vascular, Inc. for $164,213. The royalty agreement was due to terminate in
July 1995. Net revenues
include royalty revenues of $56,237 under the royalty agreement for
the year ended May 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
GENETIC LABORATORIES WOUND CARE, INC.
August 23, 1996 By: /s/ Arthur A. Beisang
Arthur A. Beisang
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the
following persons on behalf of the Registrant and in the capacities on the
dates indicated.
/s/ Arthur A. Beisang Chief Executive Officer
August 23, 1996
Arthur A. Beisang Director
/s/ H. James Thompson President,
August 23, 1996
H. James ThompsonChief Financial Officer
/s/ Robert A. Ersek Director, Secretary
August 23, 1996
Robert A. Ersek, M.D.
/s/ John H. Olson Director
August 23, 1996
John H. Olson
Exhibit 10.5 EXECUTIVE AGREEMENT
THIS AGREEMENT IS MADE this 1st day of July 1995, between Genetic Laboratories
Wound
Care, Inc., a Minnesota Corporation (hereinafter called the "Company") and
Arthur A. Beisang
(Executive and Chief Executive Officer) (hereinafter called the "Executive").
1. DUTIES:
The Company hereby employs the Executive as Chief Executive Officer
(CEO) of the
Company. His powers and duties in that capacity to be such as may be
determined by
the Company's Board of Directors are described below. During the term
of this
Agreement, the Executive may also serve in such other offices of the
Company which
he may be elected or appointed to by the Board of Directors. Although
the Executive
will spend the majority of his working time in the employ of the
Company, the
company recognizes that the Executive is simultaneously employed by
other
companies, and that the Executive has agreed to sell his interest in
any cardiovascular
products developed in the future to Bio-Vascular, Inc., for five
percent (5%) royalties
on the net sales of any such product or invention. The Company shall
pay to the
Executive a base salary in bi-weekly installments as set forth in
Section 3 hereof.
2. TERM:
This Agreement shall be effective from the date hereof through June 30,
1998, and
may be terminated prior to said expiration date only upon the
occurrence of one or
more of the following events:
A. By mutual written agreement of the Company and the Executive;
B. By the Executive at any time upon at least 60 days prior written notice
to the
Company;
C. Immediately upon the Executive's death;
D. By the Executive, upon occurrence of any of the Material Employment
Changes
events as set forth in Section 9 hereof, which termination shall
require the
Company to pay the Severance Payment set forth therein; or
E. At the Company's option upon the Executive's conviction of a felony
arising out
of any acts or omissions of the Executive committed during the term of
this
Agreement.
3. COMPENSATION
As his base monetary compensation for his services to the Company
during the term
of this Agreement, in whatever capacity rendered, the Company shall pay
to the
Executive in bi-weekly installments the sum of $66,000 per year plus a
bonus plan and
deferred compensation. This compensation may be increased annually on
the
anniversary date of this Agreement during the term hereof at a rate
equal to the
increase in the consumer price index issued by the United States
Department of Labor
with July 1, 1995 acting as the base index equal to 100 unless
otherwise mutually
agreed upon by the Executive and the Company. Additional compensation
based upon
the pre-tax profits of the Company may be paid annually to the
Executive as incentive
pay, as determined by the Board of Directors' Compensation Committee.
4. VACATION
The Executive shall be entitled to six (6) weeks of vacation during
each year. Said
vacation is to be taken at the Executive's discretion.
5. BENEFITS
A. The Company shall maintain a medical insurance program for all
employees and
the Company shall be responsible for all premiums for the Executive
and his
spouse. In the event of termination for any reason, the Executive
and his spouse
shall be included in the Company's medical and dental insurance
plans by the
Executive making monthly payments equal to that incurred by the
Company for
its employees in their current medical and dental insurance plans;
B. Term life insurance in an amount at least equal to and comparable to
the
Executive's life insurance policy presently in force with policy
ownership and
proceeds payable as the Executive shall designate;
C. Disability insurance commensurate with such Executive insurance
presently in
force, with policy ownership payable as designated by the Executive;
D. A monthly automobile allowance to be mutually agreed upon by the
parties.
6. ARBITRATION
Any controversy or claim arising out of, or related to this Agreement,
or the breach
thereof, shall be settled by arbitration in accordance with the rules
of the American
Arbitration Association, and judgment upon the award rendered may be
entered in any
court having jurisdiction thereof. This Agreement shall be governed by
and construed
in accordance with the laws of the State of Minnesota.
7. NOTICE
Any notice required to be given pursuant to the provisions of the
Agreement shall be
in writing and delivered personally or by registered or certified mail.
8. COVENANT NOT TO COMPETE
The Executive agrees that during his employment by the Company and for
a period
of one year after termination of the Employment period he shall not,
without prior
written consent of the Company, directly or indirectly, and whether as
a principal or
as agent, officer, director, employee, consultant, or otherwise, alone
or in association
with any other person, carry on, be engaged, concerned, or take part
in, render
services to, or own, share in the earning of, or invest in the stocks,
bonds, or other
securities of any company engaged in the Employer's current business or
reasonably
contemplated business activities provided, however, that the Executive
may invest in
stocks, bonds, or other securities of any Similar Business (but without
otherwise
participating in such Similar Business) if: (I) such stocks, bonds, or
other securities
are publicly traded; (ii) his investment does not exceed, in the case
of any class of the
capital stock of any one issuer, one percent (1%) of the issued and
outstanding shares,
or in the case of bonds or other securities, one percent (1%) of the
aggregate principal
amount thereof issued and outstanding; and (iii) such investment would
not prevent,
directly or indirectly, the transaction of business by the Company.
9. MATERIAL EMPLOYMENT CHANGES
The Executive shall be entitled to terminate his employment upon at
least five days
prior written notice to the Company upon the occurrence of any of the
following
events: (I) a change in majority ownership or control of the Executive
which occurs
as a result of a merger; a sale of all or substantially all of the
Executive's assets; or
the acquisition of a majority of the Company's outstanding stock by a
single party or
a group acting in concert; (ii) any attempted termination of the
Executive's
employment by the Company prior to expiration or not in accordance with
any
termination event as set forth in Section 2; or (iii) any material
diminution of, or any
adverse change occurs in the terms or conditions of the Executive's
employment
duties, responsibilities or authority, except for any isolated,
unsubstantial, inadvertent
matter not occurring in bad faith, which is remedied by the Company
within 30 days
of receipt of notice by the Executive. In the event of such termination
by the
Executive, the Company shall immediately pay the Executive (without
discount or
offset) a Severance Payment equal to the gross base compensation
otherwise payable
to the Executive over the remaining term of the Agreement under Section
2. The
Executive's rights under this Section 9 shall not limit any other
rights he has in the
event of a breach of any provision of this Agreement by the
Company.
10. RESEARCH AND INVENTIONS
This Agreement recognizes that the Executive is simultaneously employed
by more
than one company. Therefore, the Company recognizes that the Executive
is, and
intends to remain, an Executive in other public and private companies,
and has
entered into other employment agreements as such. The Executive has a
history of
successful medical inventions and products and the parties agree that
the Executive's
base and incentive pay is directly related to his Executive duties, and
not for research
leading to the invention of new products or patents. Further, the
Executive and the
Company recognize the Executive's right to sell and assign such rights
to corporate
entities including the Company and companies other than the Company.
11. ASSIGNMENT
This Agreement shall inure to the benefit of, and shall be binding upon
the Company,
its successors, or assigns. In witness whereof the parties have
hereunto executed this
Agreement.
12. EXPENSES
The Company will reimburse the Executive for reasonable business
expenses incurred
on behalf of the Company.
IN WITNESS WHEREOF, THE parties have hereunto executed this Agreement.
ATTEST: GENETIC LABORATORIES WOUND
CARE, INC.
Arthur A. Beisang John H. Olson
Chief Executive Officer Director Compensation Committee
Member
Date Date
Notary:
Exhibit 10.7 EXECUTIVE AGREEMENT
THIS AGREEMENT IS MADE this 1st day of July 1995, between Genetic Laboratories
Wound
Care, Inc., a Minnesota Corporation (hereinafter called the "Company") and H.
James Thompson
(President) (hereinafter called the "Executive").
1. DUTIES:
The Company hereby employs the Executive as President of the Company,
his powers
and duties in that capacity to be such as may be determined by the
Company's Board
of Directors. During the term of this Agreement, the Executive may also
serve in such
other offices of the Company which he may be elected or appointed to by
the Board
of Directors. The duties of the Executive shall include: the
implementation of
corporate policies and implementation of Company contracts in the areas
of
manufacturing, sales, and marketing in compliance with appropriate
governmental
regulatory agencies having jurisdiction over the Company's activities
worldwide.
2. COMPENSATION
As his base monetary compensation for his executive services to the
Company during
the term of this Agreement, in whatever capacity rendered, the Company
shall pay to
the Executive in bi-weekly installments the sum of $86,000 per year.
This
compensation may be increased annually on the anniversary date of this
Agreement,
during the term hereof, at a rate equal to the increase in the consumer
price index
issued by the United States Department of Labor with July 1, 1995
acting as the base
index equal to 100 unless otherwise mutually agreed upon by the
Executive and the
Company. Additional compensation based upon the pre-tax profits of the
Company
may be paid annually to the Executive as incentive pay, as determined
by the Board
of Directors' Compensation Committee.
3. TERM:
This Agreement shall extend through June 30, 1998 except as hereinafter
provided.
A. With cause, the Company, on three days written notice to the Executive,
may
terminate this Agreement and, thereupon, the Company shall be obligated
to pay
the Executive his regular compensation up to the 30th day following the
date of
termination. The term "with cause" shall be defined only as the
Executive's
fraudulent activity or the commission of a felony or other offense
involving moral
turpitude or immoral conduct by the Executive on behalf of, or in
connection
with, Company activities.
B. If the Executive is absent from his employment by reason of illness or
other
incapacity for more than six consecutive weeks, the Company shall
thereafter pay
him fifty percent (50%) of his regular base compensation until the
Executive is
able to resume his duties. If his absence continues for six consecutive
months,
this Agreement shall automatically terminate without notice, but the
Company
shall be obligated to pay the Executive fifty percent (50%) of his
regular
compensation through the date of such termination.
C. The Executive may terminate this Agreement at anytime upon sixty (60)
days
notice to the Company, and the Company shall be obligated to pay him his
regular compensation up to the date of termination.
4. BENEFITS
A. Fully paid family coverage (subject to applicable deductible amounts
and
limitations) under the Company's current group medical and dental
plans or such
comparable coverage as may be selected in the future;
B. Term life insurance in an amount at least equal to and comparable to
the
Executive's life insurance policy presently in force with policy
ownership and
proceeds payable as the Executive shall designate;
C. Disability insurance commensurate with such Executive insurance
presently in
force, with policy ownership payable as designated by the Executive;
D. A monthly automobile allowance to be mutually agreed upon by the
parties;
E. Annual funding of a deferred compensation plan mutually agreed upon
by the
Executive and the Company.
5. VACATION
The Executive shall be entitled to four (4) weeks of vacation during
each year. Said
vacation is to be taken at the Executive's discretion.
6. EXPENSES
The Company will reimburse the Executive for all authorized items of
traveling,
entertainment, and miscellaneous expenses incurred while away on
business from the
principal office of the Company or the office to which he is assigned,
but
reimbursement shall be made only for those items on a signed itemized
list of such
expenditures.
7. COVENANT NOT TO DISCLOSE
The Executive shall not at any time during or after the termination of
the employment
period knowingly reveal, divulge, or make known to any person (other
than the
Company), or use for his own account any customer lists, trade secrets
or formula,
or secret or confidential information used by the Company prior to or
during the term
of his employment by the Company and made known (whether with the
knowledge
and permission of the Company, whether developed, devised or otherwise
created in
whole or in part by the efforts of the Executive, and whether a matter
of public
knowledge unless as a result of authorized disclosure) to the Executive
by reason of
his employment by the Company. The Executive shall retain all such
knowledge and
information which he may acquire or develop during his employment by
the Company
concerning such lists, secrets, formula and information in trust for
the sole benefit of
the Company.
8. COVENANT TO REPORT
The Executive shall promptly communicate and disclose to the Company all
information concerning the business or affairs of the Company obtained
by him in the
course of his employment by the Company. All written materials, records
and
documents made by the Executive or coming into possession during the
employment
period concerning the business or affairs of the Company shall be the
sole property
of the Company and, upon termination of the employment period, or upon
the request
of the Company during the employment period, the Executive shall
promptly deliver
the same to the Company. The Executive agrees to render to the Company
such
reports of the activities undertaken by the Executive or conducted
under the
Executive's direction pursuant hereto during the employment period as
the Company
may reasonably request.
9. LEGALITY
The parties covenant and agree that the provisions contained herein are
reasonable and
are not known or believed to be in violation of any federal or state
law or regulation.
In the event a court of competent jurisdiction finds any provision
contained herein to
be illegal or unenforceable, such court may modify such provision to
make it valid
and enforceable. Such modification shall not affect the remainder of
this Agreement
which shall continue at all times to be valid and enforceable.
10. ARBITRATION
Any controversy or claim arising out of, or relating to, this Agreement
or the breach
thereof, shall be settled by arbitration in accordance with the rules
then obtaining of
the American Arbitration Association, and judgement upon the award
rendered may
be entered in any court having jurisdiction thereof. The Agreement
shall be governed
by and construed in accordance with the laws of the State of
Minnesota.
11. NOTICE
Any notice required to be given pursuant to the provisions of the
Agreement shall be
in writing and be sent registered mail to the parties at the following
addresses:
Company: Genetic Laboratories Wound Care, Inc.
2726 Patton Road
St. Paul, Minnesota 55113-1136
Executive: H. James Thompson
13625 Henna Court
Apple Valley, Minnesota 55124
12. ASSIGNMENT
This Agreement shall inure to the benefit of, and shall be binding
upon, the Company,
its successors, or assigns.
IN WITNESS WHEREOF, THE parties have hereunto executed this Agreement.
ATTEST: GENETIC LABORATORIES WOUND
CARE, INC.
H. James Thompson Arthur A. Beisang
President Chief Executive Officer
Date Date
John H. Olson
Director Compensation Committee
Member
Date
Notary:
Exhibit 10.6
EXECUTIVE AGREEMENT
THIS AGREEMENT IS MADE this 1st day of July 1995, between Genetic Laboratories
Wound
Care, Inc., a Minnesota Corporation (hereinafter called the "Company") and Dr.
Robert A. Ersek
(Medical Director) (hereinafter called the "Executive").
1. DUTIES
The Company hereby employs the Executive as the Medical Director of the
Company.
His powers and duties in that capacity to be such as may be determined
by the
Company's Board of Directors are described below. During the term of
this
Agreement, the Executive may also serve in such other offices of the
Company which
he may be elected or appointed to by the Board of Directors. Although
the Executive
will spend the majority of his working time in the employ of the
Company, the
company recognizes that the Executive is simultaneously employed by
other
companies, and the Executive has agreed to sell his interest in any
cardiovascular
products developed in the future to Bio-Vascular, Inc., for five
percent (5%) royalties
on the net sales of any such product or invention. The Company shall
pay to the
Executive a base salary in bi-weekly installments as set forth in
Section 3 hereof.
2. TERM:
This Agreement shall be effective from the date hereof through June 30,
1998, and
may be terminated prior to said expiration date only upon the
occurrence of one or
more of the following events:
F. By mutual written agreement of the Company and the Executive;
G. By the Executive at any time upon at least 60 days prior written notice
to the
Company;
H. Immediately upon the Executive's death;
I. By the Executive, upon occurrence of any of the Material Employment
Changes
events as set forth in Section 9 hereof, which termination shall
require the
Company to pay the Severance Payment set forth therein; or
J. At the Company's option upon the Executive's conviction of a felony
arising out
of any acts or omissions of the Executive committed during the term of
this
Agreement.
3. COMPENSATION
As his base monetary compensation for his services to the Company
during the term
of this Agreement, in whatever capacity rendered, the Company shall pay
to the
Executive in bi-weekly installments the sum of $28,000 per year plus a
bonus plan and
deferred compensation. This compensation may be increased annually on
the
anniversary date of this Agreement during the term hereof at a rate
equal to the
increase in the consumer price index issued by the United States
Department of Labor
with July 1, 1995 acting as the base index equal to 100 unless
otherwise mutually
agreed upon by the Executive and the Company. Additional compensation
based upon
the pre-tax profits of the Company may be paid annually to the
Executive as incentive
pay, as determined by the Board of Directors' Compensation Committee.
4. VACATION
The Executive shall be entitled to six (6) weeks of vacation during
each year. Said
vacation is to be taken at the Executive's discretion.
5. BENEFITS
A. Fully paid family coverage (subject to applicable deductible amounts
and
limitations) under the Company's current group medical and dental
plans or such
comparable coverage as may be selected in the future;
B. Term life insurance in an amount at least equal to and comparable to
the
Executive's life insurance policy presently in force with policy
ownership and
proceeds payable as the Executive shall designate as required by
state and federal
law;
C. Disability insurance commensurate with such Executive insurance
presently in
force, with policy ownership payable as designated by the Executive;
6. ARBITRATION
Any controversy or claim arising out of, or related to this Agreement,
or the breach
thereof, shall be settled by arbitration in accordance with the rules
of the American
Arbitration Association, and judgment upon the award rendered may be
entered in any
court having jurisdiction thereof. This Agreement shall be governed by
and construed
in accordance with the laws of the State of Minnesota.
7. NOTICE
Any notice required to be given pursuant to the provisions of the
Agreement shall be
in writing and delivered personally or by registered or certified mail.
8. COVENANT NOT TO COMPETE
The Executive agrees that during his employment by the Company and for
a period
of one year after termination of the Employment period he shall not,
without prior
written consent of the Company, directly or indirectly, and whether as
a principal or
as agent, officer, director, employee, consultant, or otherwise, alone
or in association
with any other person, carry on, be engaged, concerned, or take part
in, render
services to, or own, share in the earning of, or invest in the stocks,
bonds, or other
securities of any company engaged in the Employer's current business or
reasonably
contemplated business activities provided, however, that the Executive
may invest in
stocks, bonds, or other securities of any Similar Business (but without
otherwise
participating in such Similar Business) if: (I) such stocks, bonds, or
other securities
are publicly traded; (ii) his investment does not exceed, in the case
of any class of the
capital stock of any one issuer, one percent (1%) of the issued and
outstanding shares,
or in the case of bonds or other securities, one percent (1%) of the
aggregate principal
amount thereof issued and outstanding; and (iii) such investment would
not prevent,
directly or indirectly, the transaction of business by the Company.
9. MATERIAL EMPLOYMENT CHANGES
The Executive shall be entitled to terminate his employment upon at
least five days
prior written notice to the Company upon the occurrence of any of the
following
events: (I) a change in majority ownership or control of the Executive
which occurs
as a result of a merger; a sale of all or substantially all of the
Executive's assets; or
the acquisition of a majority of the Company's outstanding stock by a
single party or
a group acting in concert; (ii) any attempted termination of the
Executive's
employment by the Company prior to expiration or not in accordance with
any
termination event as set forth in Section 2; or (iii) any material
diminution of, or any
adverse change occurs in the terms or conditions of the Executive's
employment
duties, responsibilities or authority, except for any isolated,
unsubstantial, inadvertent
matter not occurring in bad faith, which is remedied by the Company
within 30 days
of receipt of notice by the Executive. In the event of such termination
by the
Executive, the Company shall immediately pay the Executive (without
discount or
offset) a Severance Payment equal to the gross base compensation
otherwise payable
to the Executive over the remaining term of the Agreement under Section
2. The
Executive's rights under this Section 9 shall not limit any other
rights he has in the
event of a breach of any provision of this Agreement by the Company.
10. RESEARCH AND INVENTIONS
This Agreement recognizes that the Executive is simultaneously employed
by more
than one company. Therefore, the Company recognizes that the Executive
is, and
intends to remain, an Executive in other public and private companies,
and has
entered into other employment agreements as such. The Executive has a
history of
successful medical inventions and products and the parties agree that
the Executive's
base and incentive pay is directly related to his Executive duties, and
not for research
leading to the invention of new products or patents. Further, the
Executive and the
Company recognize the Executive's right to sell and assign such rights
to corporate
entities including the Company and companies other than the Company.
11. ASSIGNMENT
This Agreement shall inure to the benefit of, and shall be binding upon
the Company,
its successors, or assigns. In witness whereof the parties have
hereunto executed this
Agreement.
12. EXPENSES
The Company will reimburse the Executive for reasonable business
expenses incurred
on behalf of the Company.
IN WITNESS WHEREOF, THE parties have hereunto executed this Agreement.
ATTEST: GENETIC LABORATORIES WOUND
CARE, INC.
Robert A. Ersek, M.D. John H. Olson
Medical Director Director Compensation Committee Member
Date Date
Notary:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the May 31,
1996 10KSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000831365
<NAME> GENETIC LABORATORIES WOUND CARE INC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 252,188
<SECURITIES> 0
<RECEIVABLES> 330,779
<ALLOWANCES> 0
<INVENTORY> 631,734
<CURRENT-ASSETS> 1,284,155
<PP&E> 207,114
<DEPRECIATION> 174,993
<TOTAL-ASSETS> 1,324,412
<CURRENT-LIABILITIES> 285,283
<BONDS> 0
<COMMON> 24,011
0
0
<OTHER-SE> 1,015,118
<TOTAL-LIABILITY-AND-EQUITY> 1,324,412
<SALES> 2,442,878
<TOTAL-REVENUES> 2,442,878
<CGS> 1,002,756
<TOTAL-COSTS> 1,412,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 202,381
<INCOME-TAX> 63,400
<INCOME-CONTINUING> 138,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,981
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
