SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934
FOR QUARTER ENDED November 30, 1997COMMISSION FILE NUMBER 0-16664
______________________________
GENETIC LABORATORIES WOUND CARE, INC.
State of Incorporation: Minnesota
I.R.S. Employer Identification No: 41-1604048
Executive Offices: 2726 Patton Road, St. Paul, MN 55113
Telephone Number: (612) 633-0805
______________________________
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.
Yes X No_____
______________________________
On November 30, 1997, there were 2,402,350 shares of the Registrant's $.01 par
value common stock outstanding. PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GENETIC LABORATORIES WOUND CARE, INC.
BALANCE SHEETS
(Unaudited)
ASSETS
November 30,
May 31,
1997 1997
CURRENT ASSETS
Cash and cash equivalents $ 291,933 $ 351,201
Receivables
Trade, less allowance for
doubtful accounts of
$8,500 and $7,000,
respectively 407,621 412,919
Income taxes
3,680 5,930
Inventories 547,657 478,711
Prepaid expenses 48,297 35,128
Total current assets
1,299,188 1,283,889
PROPERTY AND EQUIPMENT
Production equipment and tooling 60,140 60,140
Office equipment 231,388 194,552
291,528 254,692
Less accumulated depreciation 181,083 166,363
110,445 88,329
OTHER ASSETS
Patents, net 3,663 5,087
Cash surrender value 5,217 -
8,880 5,087
$
1,418,513 $ 1,377,305
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion long term debt $ 6,030$ 5,760
Accounts payable 74,180 122,443
Accrued expenses 122,199 87,794
Total current liabilities
202,409 215,997
LONG TERM DEBT 6,030 9,110
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 12,000,000 shares authorized,
issued 2,402,350 and 2,401,100
shares respectively 24,024 24,018
Additional paid-in capital 647,078 646,880
Retained earnings 538,972 481,300
1,210,074 1,152,198
$
1,418,513 $ 1,377,305
GENETIC LABORATORIES WOUND CARE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
November 30, November 30,
1997 1996 1997
1996
Net revenues $ 731,446 $ 723,597 $
1,571,346 $ 1,450,301
Cost of revenues 265,536 258,723
580,420 549,209
Gross profit 465,910 464,874
990,926 901,092
Operating expenses 461,504 430,910
905,461 830,982
Income from operations 4,406 33,964
85,465 70,110
Interest income(net) 1,273 1,270
2,458 2,920
Income before taxes 5,679 35,234
87,923 73,030
Provision for taxes 1,250 12,500
30,250 22,000
Net income $ 4,429 $ 22,734 $
57,673 $ 51,030
Per common share data
Net income $ .00 $ .01
$ .02 $ .02
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,430,216 2,502,831
2,430,216 2,498,980GENETIC LABORATORIES WOUND CARE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Three months Ended
Six Months Ended
November 30,
November 30,
1997
1996 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,429 $ 22,734 $
57,673 $ 51,030
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 7,893 3,709
16,143 7,125
Changes in current assets and liabilities
Receivables 68,352 (4,249)
7,548 (54,090)
Inventories 15,809 86,174
(68,946) (1,459)
Prepaid expenses (2,932) 2,637
(13,169) 3,165
Accounts payable (30,145) (160,617)
(48,263) (91,158)
Accrued expenses 28,800 27,791
34,405 13,960
Income taxes payable (21,070) (7,500)
- - 646
Net cash provided by (used in) operating activities 71,136
(29,321) (14,609) (70,781)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (31,326) (21,224)
(36,836) (23,379)
Cash surrender value increase (5,217) -
(5,217) -
Net cash used in investing activities (36,54) (21,224)
(42,053) (23,379)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under long-term debt (1,421) (434)
(2,810) (434)
Proceeds from issuance of common stock 110 -
204 -
Proceed from loan - 18,000
- - 18,000
Net cash provided by (used in) financing activities (1,311)
17,566 (2,606) 17,566
Net increase (decrease) in cash and cash equivalents 33,282
(32,979) (59,268) (76,594)
CASH and CASH EQUIVALENTS
Beginning 258,651 208,573
351,201 252,188
Ending $ 291,933 $ 175,594 $
291,933 $ 175,594
GENETIC LABORATORIES WOUND CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
The interim financial statements are unaudited but in the opinion of
management, reflect all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position as of November 30, 1997, and the results of its operations and its
cash flows for the three months and the six months ended November 30, 1997 and
1996. The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year. These statements
are condensed and therefore do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Form 10-KSB
or Annual Report for the year ended May 31, 1997.
The FASB has issued Statement No. 128, Earnings per Share, which supersedes APB
Opinion No. 15. Statement No 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertibles securities, outstanding that trade in a
public market. Those entities that have only common stock outstanding are
required to present basic earnings per share amounts. All other entities are
required to present basic and diluted per share amounts. Diluted per share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the income
per common share from continuing operations. All entities required to present
earnings per share amounts must initially apply Statement No. 128 for annual
and interim periods ending after December 15, 1997. Earlier applications is not
permitted.
The adoption of Statement No. 128 would have no material effect on reported
earnings per share for the three months ended November 30, 1997 and 1996.
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net Revenues:
Net revenues were $731,446 for the three months ended November 30, 1997,
compared to $723,597 for the three months ended November 30, 1996, an increase
of 1.0%. Domestic sales decreased 2.8% comparing the three months ended
November 30, 1997, to the three months ended November 30, 1996. Sales to
international customers accounted for 15.9% of net revenues for the three
months ended November 30, 1997, compared to 12.5% for the three months ended
November 30, 1996. All sales require payment in U.S. funds.
Sales of Suture Strip wound closure strips were down 5.4% comparing the three
months ended November 30, 1997, to the three months ended November 30, 1996.
Wound closure strips accounted for 53.0% of net revenues for the three months
ended November 30, 1997 compared to 56.7% of net revenues for the three months
ended November 30, 1996.
Sales of specialty fasteners increased 11.1% comparing the three months ended
November 30, 1997, to the three months ended November 30, 1996. Specialty
fasteners accounted for 36.8% of net revenues for the three months ended
November 30, 1997 compared to 33.5% of net revenues for the three months ended
November 30, 1996.
Cost of Revenues:
Cost of revenues were $265,536, or 36.3% of net revenues, for the three months
ended November 30, 1997, compared to $258,723 or 35.8% of net revenue for the
three months ended November 30, 1996. The minor increase in the cost of
revenues percentage and the resulting decrease in the gross profit percentage
was primarily due to an increase in sales to international customers. The
Company expects its cost of revenues to continue to remain at the current
percentage of net sales throughout the remainder of the fiscal year, if the
sales mix continues as experienced during the three months ended November 30,
1997.
Operating Expenses:
Operating expenses were $461,504, or 63.1% of net revenues, for the three
months ended November 30, 1997, compared to $430,910, or 59.6% of net revenues,
for the three months ended November 30, 1996. The increase was primarily due to
increased wage and benefit costs, and increased rent charges for additional
facility space.
Liquidity and Capital Resources:
At November 30, 1997, the Company had working capital of $1,096,779 and a
working capital ratio of 6.4 to 1 compared to working capital of $1,067,892 and
a working capital ratio of 5.9 to 1 on May 31, 1997.
Cash and cash equivalents increased by $33,282 from August 31, 1997 to November
30,1997. Operating activities generated $71,136, while equipment purchased
utilized $31,326.
The Company has a revolving line of credit with a local bank in the amount of
$200,000. Outstanding balances on the line of credit at November 30, 1997 and
May 31, 1997 were $0.
The Company expects that is will be able to fund its working capital
requirements for the year through internally generated funds, or utilize the
line of credit if needed.
Major Customers:
For the three months ended November 30, 1997 one customer accounted for more
than ten percent of net revenues. This customer accounted for approximately 11%
of net revenues for the three months ended November 30, 1997.
Foreign Currency Transactions:
All of the Company's foreign transactions are negotiated, invoiced and paid in
U.S. dollars. Fluctuations in currency exchange rates in other countries may
therefore reduce the demand for the Company's products by increasing the price
of the Company's products in the currency of the countries in which the
products are sold.
Forward Looking Statements:
In addition to historical information this report may contain forward-looking
statements that are subject to risks and uncertainties that may cause actual
results to differ materially from those reflected in the forward-looking
statements. The Company believes it has made fair and accurate forward-looking
statements by relying on past events and current information available. The
Company undertakes no obligations to revise these forward-looking statements to
reflect events that may arise.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENETIC LABORATORIES WOUND CARE, INC.
January 12, 1998 By: /s/ Arthur A. Beisang
Arthur A. Beisang
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the November
30, 1997 10QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 291,933
<SECURITIES> 0
<RECEIVABLES> 411,301
<ALLOWANCES> 0
<INVENTORY> 547,657
<CURRENT-ASSETS> 1,299,188
<PP&E> 291,528
<DEPRECIATION> 181,083
<TOTAL-ASSETS> 1,418,513
<CURRENT-LIABILITIES> 202,409
<BONDS> 0
<COMMON> 24,024
0
0
<OTHER-SE> 1,210,074
<TOTAL-LIABILITY-AND-EQUITY> 1,418,513
<SALES> 731,446
<TOTAL-REVENUES> 731,446
<CGS> 265,536
<TOTAL-COSTS> 461,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,679
<INCOME-TAX> 1,250
<INCOME-CONTINUING> 4,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,429
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
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