-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bjj5kIMN2s0LJGiKpN8DClw9wnotjNDs3Uijtc7ujCDtdLq/ca0TzAvObEAwxga1 uGexnYbwIuEHuCN2r+mKFg== 0000950168-97-002883.txt : 19971006 0000950168-97-002883.hdr.sgml : 19971006 ACCESSION NUMBER: 0000950168-97-002883 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19971003 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CONSOLIDATED LABORATORIES INC CENTRAL INDEX KEY: 0000823187 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 592624130 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-18448 FILM NUMBER: 97690558 BUSINESS ADDRESS: STREET 1: 1640 NORTH MARKET DRIVE CITY: RALEIGH STATE: NC ZIP: 27609 BUSINESS PHONE: 9198720744 MAIL ADDRESS: STREET 1: 1640 NORTH MARKET DRIVE CITY: RALEIGH STATE: NC ZIP: 27609 FORMER COMPANY: FORMER CONFORMED NAME: SALVATORI OPHTHALMICS INC DATE OF NAME CHANGE: 19920703 10KSB/A 1 AMERICAN CONSOLIDATED LABORATORIES 10KSB/A FORM 10-KSB/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1996 -------------------------- OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from Commission File Number 000-18448 AMERICAN CONSOLIDATED LABORATORIES, INC. (Exact name of registrant as specified in its charter) FLORIDA 59-2624130 (State of other jurisdiction of incorporation or organization) (I. R. S. Employer Identification No.) 1640 NORTH MARKET DRIVE RALEIGH, NORTH CAROLINA 27609 (Address of principal executive office, including zip code) Registrant's telephone number, including area code (919) 872-0744 Securities registered under section 12 (b) of the Exchange Act: Title of each class Name of exchange on which registered Common Stock, $.05 par value Not Applicable Securities registered under section 12(g) of the Exchange Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ X ] Issuer's revenues for the year ended December 31, 1996 were $7,858,315 The aggregate market value of the voting stock of the registrant held by nonaffiliates as of April 25, 1997 was $671,259. The number of shares of the registrant's common stock outstanding on April 25, 1997 was 3,978,081. DOCUMENTS INCORPORATED BY REFERENCE None 1996 FORM 10-KSB/A TABLE OF CONTENTS PART I PAGE NO. Item 1. Description of Business 3 Item 2. Description of Properties 7 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a vote of Security Holders 8 PART II Item 5. Market for Common Equity and Related Stockholders Matters 9 Item 6. Management's Discussion and Analysis 9 Item 7. Financial Statements 11 Item 8. Changes In and Disagreements with Accountants on Accounting and 30 Financial Disclosure PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act 30 Item 10. Executive Compensation 32 Item 11. Security Ownership of Certain Beneficial Owners and Management 35 Item 12. Certain Relationships and Related Transactions 36 Item 13. Exhibits and Reports on Form 8-K 38 2 PART I ITEM 1. BUSINESS GENERAL American Consolidated Laboratories, Inc. (the "Company", or "ACL") is a leading manufacturer of custom contact lenses and is a distributor of commodity lenses. The Company is headquartered in Raleigh, North Carolina with manufacturing and distribution operations in Sarasota, Florida and Raleigh, and a sales office in Philadelphia, Pennsylvania. ACL is a Florida corporation formed in 1985 under the name Salvatori Ophthalmics. The name was changed in 1994 to better reflect the Company's announced acquisition strategy within the contact lens laboratory and distributor industry segment. ACL is traded over-the- counter under the symbol EYES. In December 1994, the Company acquired all the stock of Carolina Contact Lens, Inc. ("CCL"). CCL is a manufacturer of custom contact lenses and distributor of commodity lenses for all the major manufacturers. CCL's customers are primarily located in the Mid-Atlantic States. Subsequently the Company moved its headquarters from Sarasota to Raleigh. In May 1995, the Company acquired certain assets of Philcon Laboratories, Inc. ("Philcon"). Philcon was a manufacturer of custom contact lenses and distributor of commodity lenses for all the major manufacturers. Philcon customers are primarily located in the greater Philadelphia area. The contact lens industry today can be divided into two principal segments: commodity lenses, which are soft lenses mass-produced to industry standard parameters, and custom lenses, which are custom-made to individual specifications from primarily Rigid Gas Permeable ("RGP") or soft materials. ACL manufactures custom lenses in simple to complex lens designs from both RGP and soft materials. The Company's expertise is in the more complex lens designs for more difficult to fit eye care situations such as: presbyopia, keratoconus, post-keratoplasty, radical keratotomy, pediatric aphakia, and high degrees of myopia, hyperopia, and astigmatism. The Company also distributes a full line of disposable and non-disposable commodity lenses produced by all the major manufacturers. PRINCIPAL PRODUCTS CUSTOM LENSES The Company manufactures a full line of daily and extended wear custom lenses in the most technologically advanced designs from over 15 different Food and Drug Administration ("FDA") approved base materials (buttons) purchased from various suppliers or from proprietary materials. Custom lenses are made to individual patient specifications. Lens designs range from simple spheres to complex toric, bi-toric, bifocal, and multifocal lenses. The company manufactures custom lenses from cylindrical buttons on state-of-the-art automated lathing equipment. 3 The Company purchases the raw material buttons from two primary suppliers, Polymer Technologies Corp., a subsidiary of Bausch & Lomb, and Paragon Vision Sciences. The Company has no difficulty in obtaining an adequate supply of raw material buttons. The Company produces methafilcon A from generally available chemicals, under a license agreement with Kontour Kontact Lens, Inc. which is the raw material used in the production of soft lenses. The Company purchases polymacon from a supplier in Sarasota, however there are alternative suppliers available if needed. The Company utilizes two FDA approved manufacturing facilities located in Raleigh and Sarasota. The Sarasota site manufactures both soft and rigid lenses, while the Raleigh facility produces only RGP lenses. The Sarasota facility has been approved by the FDA for all of the Company's soft custom lens products for "Rapid Release". This allows for next day shipment of custom soft lenses and is a significant service advantage in the market place. All custom lenses are warranted to be free of defects in workmanship, and the raw material is warranted by each manufacturer. COMMODITY LENSES The Company distributes virtually every brand of daily wear, extended wear, disposable, and specialty soft lenses of any consequence available in the United States. The Company's Raleigh facility includes a distribution center for commodity lenses manufactured by the principal commodity lens manufacturers, Bausch & Lomb, Wesley-Jessen, Ciba-Geigy and Johnson & Johnson. All commodity products are covered by warranties from each manufacturer. LENS CARE PRODUCTS The Company distributes the Boston line of RGP lens care products from Polymer Technology Corp., along with certain other brands. DISTRIBUTION METHODS The Company's primary means of distributing its products is regular mail or overnight service on a daily basis. The method of distribution is determined based on the customer's preference. To a lesser extent, products are distributed next day service at the customer's request or in special circumstances. The cost of distribution is billed to the customer directly on the invoice as a separate item along with the product and applicable sales tax, if any. NEW PRODUCTS MAXIMEYES RGP PLANNED REPLACEMENT PROGRAM In 1997, the Company will introduce the "MaximEyes" RGP Planned Replacement Program from Paragon Vision Science featuring the new FluoroPerm 151 material. This program is intended to address the growing consumer trend towards convenience which has propelled the significant growth in the disposable segment of the commodity lens market at the expense of the non-disposable segment of the commodity lenses market. With the "MaximEyes" Program, the lenses are replaced at regular intervals, which provides for better vision, corneal health, and comfort. 4 The FluoroPerm 151 material has one of the highest oxygen permeablilities available in the U.S. today. It promotes optimal corneal health with approximately four times the oxygen transmission of soft lenses. This makes it ideal for extended and flexible wear schedules, thick lens profiles, specialty applications and planned replacements. FluroPerm 151 achieves a balance between visual acuity, corneal health, and comfort. A lens made of this material offers safe, extended wear up to 7 days. CORNEAL MAPPING During 1996 the Company installed the three leading corneal mapping software systems to enhance its consultant fitting services. This software permits a real-time transmission to the Company's consultants of a picture of the patient's cornea. This sophisticated system greatly simplifies the fitting process by allowing the consultant to assess directly the patient's corneal shape when working with the eye care professional. Corneal mapping is the latest technology available and results in a higher initial success rate and a more cost efficient practice for the eye care professional. MARKETING The Company's products are marketed directly to eye care professionals, ophthalmologists, optometrists and opticians. These eye care professionals are in individual or group practices, associated with chain stores, or members of buying groups. The Company's marketing emphasis is on high margin custom lenses which are more difficult to fit, such as multifocal, keratoconus, post-keratoplasty, radical keratotomy, pediatric aphakia, and lenses for high degrees of myopia, hyperopia, and astigmatisms. The Company's marketing efforts are focused on Tele-marketing directly to the eye care professional, print advertising in trade publications, trade show participation, professional seminars, direct mail pieces and incentive programs based on volume purchased. Sales and marketing efforts are further supported by highly experienced consultants that work directly with the eye care professional to fit the lenses. New sophisticated corneal mapping technology allows the consultant to more precisely evaluate and offer guidance to the eye care professional resulting in a better fit for the patient on the first visit, which increases the efficiency of the eye care professionals practice. The Company did business in 45 states in 1996. Sales are primarily concentrated in the Mid-Atlantic States, the Midwest, and the Northeast. COMPETITION CUSTOM LENSES In the custom lens segment of the market; ACL is already one of the 5 largest manufacturers. This segment is highly fragmented, and is currently comprised of approximately 200 small independent companies. ACL is a dominant force in its primary markets on the East Coast. ACL penetration in its primary markets has been based on a combination of outstanding customer service and price. Outside of its primary markets along the East Coast, the Company does experience competition from other labs on a regional basis. 5 There is little competitive threat to the Company from the major manufacturers because the job-shop production process of custom lenses is not compatible with the continuous flow, low cost processes required to compete in the commodity contact lens business. COMMODITY LENSES The commodity lens segment of the market has two components, disposable and non-disposable lenses, and is dominated by the four major, well capitalized manufacturers. The production of commodity lenses requires sophisticated technology and significant capital investment to allow for large, low cost production runs. Due to the intense competition in the commodity lens segment, prices and margins have been declining over the past several years, especially with respect to disposable lenses. Disposable commodity lenses are the fastest growing lens type in the contact lens industry today. In an effort to maintain profit margins, the major manufacturers are making it more economical for the eye care professional to go direct to the manufacturer to purchase their disposable commodity lenses. As a result, the major manufacturers represent more of a competitive threat for sales of this lens type than do other distributors. The non-disposable lens business is also competitive. The major competitors for this lens type are the other authorized distributors and the manufacturers. The authorized distributors are the Company's direct competition on a daily basis. The major manufacturers compete with the Company indirectly, as they spend significant advertising dollars to influence the eye care professional and the end consumer to the merits of disposable products. This is rapidly shifting consumers to disposable products from non-disposable. The non-disposable lens market is quickly becoming a replacement market and should continue to decline. The growth, if any, in this segment of the business will come as financially weaker distributors cease doing business. SIGNIFICANT CUSTOMER The Company had a multi-year contract with one customer that expired August 31, 1996. The contract was not renewed when it expired. Sales to this customer in 1996 and 1995 were approximately $460,000, or 5.9%, of total sales and $761,000, or 8.5%, of total sales, respectively. The expiration of this contract has not had a significant adverse effect on the Company. The Company has no other single customer, which accounts for more than 2.0% of total sales. PATENTS, TRADEMARKS AND LICENSE The Company has seven registered U.S. Trademarks, one of which is also registered in Canada. The registered trademarks currently being used by the Company are "Allvue", "BiVue", "Consta-Vu", "Sof-form", and "Accuform". The Company occasionally uses the marks "Comfort Control" and "The Tailors of Contact Lenses". ACL does not own any patents. The Company holds three manufacturing licenses. A nonexclusive license, expiring in 2006, is held from the estate of David Volk, M.D., to manufacture certain aspheric RGP lenses and a soft multifocal lens sold under the trademark "Allvue". The Company holds an on going license from Kontour Kontact Lens to produce Methafilcon A and contact lenses from that material. In addition, the Company has licenses with Polymer Technology Corp.; a division of Bausch & Lomb, and Paragon Vision Sciences to produce RGP lenses from each individual company's various polymers. Polymer and Paragon are the industry leaders, however the Company also has license agreements with every U.S. polymer manufacturer. This is a competitive advantage, which allows ACL to manufacture in any material the eye care professional prefers. 6 FDA AND ENVIRONMENTAL REGULATION Virtually all of the products manufactured or distributed by the Company are classified as medical devices and are therefore regulated by the U.S. Food and Drug Administration. FDA regulations govern the Company's products, manufacturing procedures, and facilities. All new medical devices must be submitted to the FDA along with supporting microbiological, toxicoligical, and clinical trial results to obtain approval for a Pre-Market Application ("PMA"), which must be obtained before the device can be marketed. The approval process can take several years and be very expensive. The Company does not currently have any submission with the FDA for approval. ACL is an FDA approved alternative manufacturer for virtually every RGP polymer under each supplier's PMA. The Company is subject to various environmental laws. Most of these regulations apply to the proper handling, storage, and disposal of chemicals used in the manufacturing process. The cost of complying with applicable laws is not significant to the Company's operation. The Company generates very little hazardous waste in its manufacturing process. The Company contracts with a licensed company to properly dispose of any waste generated. The Company is not aware of any violations of environmental regulations. The Company is not aware of any pending regulations or legislation that would have an impact on the Company's business. RESEARCH AND DEVELOPMENT The Company's research and development activities are primarily devoted to developing and enhancing lens designs and qualifying as an FDA approved alternative manufacturing site for new RGP materials and designs. Total expenditures in this area have been less than $60,000 per year in both 1996 and 1995. All of the Company's research and development expenditures are funded internally. No funds are received for research and development from suppliers or customers. EMPLOYEES At December 31, 1996, the Company employed 63 individuals, of which 59 were full-time employees. The Company is not party to any collective bargaining agreements and believes that its relations with its employees are good. ITEM 2. PROPERTIES The Company leases its facilities in Raleigh, North Carolina, Sarasota, Florida and Philadelphia, Pennsylvania. The Company owns a facility in Lincoln, Nebraska, which was closed on November 15, 1996. On March 3, 1997 the Company executed an agreement to sell this facility. In Raleigh, the Company leases a single purpose, one-story building of approximately 6,000 square feet from the former owner of CCL who is also an officer of ACL. The Company manufactures custom RGP lenses and distributes commodity lenses in this facility. The term of the lease is five years commencing in December 1994, and provides for monthly rent of $5,000. This facility is fully utilized at present with no opportunity for expansion. On November 1, 1995 the Company leased approximately 1,360 square feet of administrative space in a building adjacent to the manufacturing and distribution building for a term of five years. This space 7 accommodates the Company's corporate administration functions. The monthly rent is $963 for the first three years of the lease and $1,020 in the fourth and fifth years. In Sarasota, the Company leases approximately 12,000 square feet in a single story concrete block building. The Company manufactures both custom RGP and Soft lenses in this facility. The term of the lease is ten years, and terminates on January 31, 2001, and provides for monthly rent of approximately $8,500 in 1996, with 3% increases each year of the lease. During 1996, the Company subleased approximately half of the 12,000 square foot space to one tenant and is collecting rent under the sublease agreement. In Philadelphia, the Company leases 2,000 square feet of administrative space in a multi-purpose facility. The Company operates a sales office out of this facility. The term of the lease is five years commencing on January 1, 1996, and provides for monthly rental payments of $2,275, with annual increases of approximately 3%. The Company owns two connected buildings comprising approximately 10,800 square feet in Lincoln from which it operated a custom lens manufacturing facility until it was closed on November 15, 1996. These two one-story buildings, one of which is of steel construction and the other of which is brick masonry, are about 35 years old and are in good condition. The Company has a mortgage loan from Cornhusker Bank, secured by the property and the buildings. On March 3, 1997, the Company executed an agreement to sell the land and building at a price in excess of its current carrying value. The Company's tangible property consists primarily of production equipment and computer hardware, which is either owned or leased. The leased equipment is subject to liens held by a variety of financing companies, none of which is material. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 12, 1997 the Company held a Special Meeting of Shareholders at the Company's offices in Raleigh. The purpose of the meeting was to vote on a proposal to amend the Company's Articles of Incorporation that would increase the authorized number of shares of capital stock of the Company by creating a class of 5,000,000 shares of Preferred Stock with no par value. The proposal was approved by unanimous vote of the shareholders attending. 8 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The common stock of the Company is reported by The National Association of Securities Dealers through the NASD OTC Bulletin Board, its automated system for reporting NON-NASDAQ quotes and National Quotation Bureau's Pink Sheets. The prices shown are the high and low bid prices for each quarter and do not include retail markup, markdowns or commissions. 1996 1995 High Low High Low ------------------------------------------------- First Quarter 1 1/4 2 1/8 1/2 Second Quarter 1 3/4 1/2 5 1 1/2 Third Quarter 1 5/8 1 4 3/8 1 1/2 Fourth Quarter 1 7/16 2 1/2 3/8 As of March 21, 1997, the Company had approximately 231 shareholders of record of its common stock. No cash dividends have been declared or paid on the Company's common stock. Various loan agreements prohibit the Company from paying dividends. Further, the Company has no plans for payment of cash dividends on stock until operations generate funds in excess of those required to provide for the growth needs of the Company. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995 GENERAL During April of 1996, the Board of Directors of the Company strengthened the Company's management team by bringing in two seasoned executives to replace the previous management On June 28, 1996, the Company closed on an asset-based loan facility with Fidelity Funding Group that has allowed the Company to repay certain debt and reopen credit lines with its vendors. This financing allowed the Company to increase its inventory levels in order to achieve higher customer fill rates and overall customer satisfaction. RESULTS OF OPERATIONS Net sales for the year ended December 31, 1996 ("1996"), totaled $7,858,314, a decrease of $1,144,915, or 13.7% from the ended December 31, 1995 ("1995"). This decrease is due to the problems encountered with the 9 change to a new fully integrated computer software package in August of 1995, which resulted in the erosion of sales through December of 1995. Monthly sales increased steadily in 1996 from the low in December of 1995. The Company incurred an operating loss, excluding the impact of restructuring expenses and the write-down of intangible assets, of $1,354,263 in 1996 compared to $1,775,159, in 1995, an improvement of $420,896. The Company attributes the loss to decisions and actions taken in 1995 by the previous management team and the residual implications of those decisions and actions which carried over into 1996. Significant progress was made in the third and fourth quarters to increase sales and reduce the monthly level of expenses built up by the previous management team. Sales of all products were lower for 1996 compared to 1995. This is primarily the result of the effects of the computer software installation problems encountered in August 1995, which adversely affected customer service levels, and the change in philosophy by the major manufacturers to compete directly with the distributors for the commodity disposable products. The gross profit for 1996 was $2,469,673, or 31.4%, of net sales compared to $2,762,654, or 30.7%, of net sales for 1995. This represents the effect of continued pricing pressures on the commodity disposable products from the major manufacturers. Management believes pressure on pricing will continue for this product line as the Company competes with the manufacturers for these sales. Total operating costs and expenses for 1996, excluding the impact of the one-time restructuring expenses, were $713,877, or 18.7%, lower than 1995. All of the reduction of $713,877 was achieved in the third and fourth quarters. Total operating costs and expenses for 1996, excluding the restructuring expenses and the write-down of intangible assets, were $3,823,936 compared to $4,537,813 for 1995. This is the result of the following actions: 1) reduction in work force on 10/1/96; 2) closure of the Lincoln facility on 11/15/96; 3) renegotiating with various vendors that provide services to the Company. In the first quarter of 1996, monthly operating expenses, averaged approximately $342,000, compared to December 1996 operating expenses, excluding restructuring expenses and the write-down of intangible assets, of $274,679. Operating expenses in the first two months of 1997 have averaged less than $250,000 per month. Selling expenses are down in 1996 compared to 1995 due to the elimination of the "National Sales Force", which was established by the previous management team in 1995. This industry does not typically operate with a sales force, but rather through Tele-marketing and other more cost-effective methods. Consequently all but three members of the sales force were terminated in early 1996. The remaining three sales representatives either resigned or were terminated in the fourth quarter of 1996. Marketing activities had been curtailed during 1996 as a result of cash flow constraints. However, with the closing of the Fidelity credit line in June, the Company did increase spending for marketing activities in the second half of the year, including the hiring, late in the year, of a Tele-marketer as it begins to focus on telemarketing. The Company recorded restructuring expenses of $483,774 in 1996 related to the closing of the Lincoln facility. The restructuring expenses include the cost to close the facility, the severance costs related to the layoff of the workforce, and the write-off of the remaining goodwill associated with the acquisition of the Lincoln facility. These costs are non-recurring and will not impact future periods. The Company is already realizing the positive benefits from closing the Lincoln facility and consolidating it into Sarasota and Raleigh. The Company has successfully retained a large portion of the Lincoln business while absorbing the production without increasing 10 costs in either facility. Thus, the Company has realized a substantial benefit from the costs eliminated by closing the facility. The Company recorded a write-down of intangible assets in the amount of $883,369 in the fourth quarter of 1996. Given the uncertainty of the Company's financial condition at December 31, 1996 and the losses incurred in 1996 and 1995 the Company believes the value of its intangible assets have been impaired. Interest expense for 1996 totaled $713,248 compared to $214,536 for 1995. The increase is the result of the additional funds borrowed to support the 1996 loss, and the recognition of $312,000 in interest expense associated with warrants, issued in connection with certain financing arrangements in 1996, to purchase the Company's common stock. FINANCIAL CONDITION At December 31, 1996 the Company had a cash overdraft of $16,834, which is included in accounts payable, compared to cash on hand at December 31, 1995, of $37,772. Net cash used in operating activities for the year ended December 31, 1996, was $786,142 compared to $456,559 used in operating activities in 1995. The cash used in operating activities was provided from an asset-based loan with Fidelity Funding and additional loans from the Company's primary stockholder, Tullis-Dickerson Capital Focus, L.P. The Company had a working capital deficit of $3,111,842 compared to a working capital deficit of $890,227 at December 31, 1995. Management is working to achieve positive cash flow from operations by reviewing and adjusting sales prices to provide acceptable profit margins, rescheduling its current obligations and significantly cutting costs. Management continues to aggressively pursue obtaining debt or equity financing, as well as acquisitions in order to improve liquidity and enhance shareholder value. No assurances can be given that additional financing can be obtained, or that acquisitions will be consummated. If management is not successful in generating positive cash flow from operations or raising additional financing the Company may not have adequate cash to meet its current obligations. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and attain profitable operations and positive cash flow. ITEM 7 FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 Notes to Consolidated Financial Statements 11 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of American Consolidated Laboratories, Inc. Raleigh, North Carolina We have audited the accompanying consolidated balance sheets of American Consolidated Laboratories, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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, such consolidated financial statements present fairly, in all material respects, the financial position of American Consolidated Laboratories, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company's loss from operations, negative operating cash flows and working capital deficiency raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. March 28, 1997 (May 15, 1997 as to paragraphs three and four of Note 13) 12 AMERICAN CONSOLIDATED LABORATORIES, INC. CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER DECEMBER 31, 1996 31, 1995 ------------ ------------- CURRENT ASSETS: Cash $ - $ 37,772 Accounts receivable, less allowance for doubtful accounts (note 3) 644,157 635,032 Inventories, at lower of cost (first in, first out) or market (note 4) 708,152 1,094,743 Other current assets 115,408 5,181 ------------ ------------- Total current assets 1,467,717 1,772,728 ------------ ------------- PROPERTY AND EQUIPMENT AT COST: Laboratory equipment 871,167 1,114,567 Office Equipment 216,990 320,607 Leasehold improvements 56,024 60,150 Assets being held for disposition 255,000 255,000 ------------ ------------- Total property and equipment 1,399,181 1,750,324 Less accumulated depreciation 915,942 1,128,838 ------------ ------------- Property plant and equipment, net 483,239 621,486 ------------ ------------- OTHER ASSETS: Costs in excess of fair value of assets acquired - 828,419 Other intangible assets - 938,815 Miscellaneous - 91,945 ------------ ------------- - 1,859,179 Less accumulated amortization - 411,835 ------------ ------------- Total other assets, net - 1,447,344 ------------ ------------- TOTAL ASSETS $ 1,950,956 $ 3,841,558 ============ =============
See notes to consolidated financial statements 13 AMERICAN CONSOLIDATED LABORATORIES, INC. CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
DECEMBER DECEMBER 31, 1996 31, 1995 ------------- -------------- CURRENT LIABILITIES: Accounts payable $ 1,433,469 $ 1,796,484 Accrued expenses (note 5) 742,766 260,097 Current maturities of long-term debt (note 7) 2,012,733 606,374 Revolving credit line (note 6) 390,591 - ------------- -------------- Total current liabilities 4,579,559 2,662,955 ------------- -------------- LONG - TERM DEBT (note 7): 395,171 1,050,639 DEFERRED RENT 52,597 58,238 COMMITMENTS AND CONTINGENCIES (Note 1) STOCKHOLDERS' EQUITY (DEFICIT) (note 8) Common stock, $.05 par value, 20,000,000 shares authorized; 4,621,623 issued and 4,005,623 shares outstanding at December 31, 1996, and 4,436,927 issued and outstanding at December 31, 1995 231,082 221,847 Capital in excess of par value 6,220,273 5,887,834 Receivable for shares issued as collateral - (225,000) Treasury Stock (328,000) - Deficit (9,199,726) (5,814,955) ------------- -------------- Total stockholders' equity (deficit) (3,076,371) 69,726 ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,950,956 $ 3,841,558 ============= ==============
See notes to consolidated financial statements 14 AMERICAN CONSOLIDATED LABORATORIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 ------------- ------------- NET SALES $ 7,858,314 $ 9,003,229 COST OF SALES 5,388,641 6,240,575 ------------- ------------- Gross profit 2,469,673 2,762,654 ------------- ------------- OPERATING COSTS AND EXPENSES: Selling expenses 979,878 1,059,294 Marketing expenses 107,448 153,616 Research and development 54,099 56,435 General and administrative expenses 2,682,511 3,268,468 Restructuring expenses (note 9) 483,774 - Write-down of intangibles (note 10) 883,369 ------------- ------------- Total operating costs and expenses 5,191,079 4,537,813 ------------- ------------- Operating loss (2,721,406) (1,775,159) OTHER INCOME (EXPENSES): Interest expense (note 8) (713,248) (214,536) Other income (expense) 49,883 (104,751) ------------- ------------- Loss before income taxes (3,384,771) (2,094,446) INCOME TAXES (note 11) - - ------------- ------------- NET LOSS $ (3,384,771) $ (2,094,446) ============= ============= Loss per common share (note 1) ($0.81) ($0.51) ============= ============= Weighted average shares outstanding (note 1) 4,158,141 4,091,549 ============= ============= See notes to consolidated financial statements 15 AMERICAN CONSOLIDATED LABORATORIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
CAPITAL IN RECEIVABLE COMMON STOCK EXCESS OF FOR SHARES -------------------- PAR ISSUED AS TREASURY SHARES AMOUNT VALUE COLLATERAL DEFICIT STOCK TOTAL ------------------------------------------------------------------------------------------- Balances, January 1, 1995 3,823,048 191,153 5,282,708 0 (3,720,509) 0 1,753,352 Issuances of common stock 613,879 30,694 605,126 (225,000) - 0 410,820 Net loss - - - 0 (2,094,446) 0 (2,094,446) ------------------------------------------------------------------------------------------ Balances, December 31, 1995 4,436,927 221,847 5,887,834 (225,000) (5,814,955) - 69,726 Issuances of common stock (431,304) 9,235 (131,917) 225,000 (328,000) (225,682) Issuance of stock warrants 464,356 464,356 Net loss (3,384,771) (3,384,771) =========================================================================================== Balances, December 31, 1996 4,005,623 231,082 6,220,273 - (9,199,726) (328,000) (3,076,371) ===========================================================================================
See notes to consolidated financial statements. 16 AMERICAN CONSOLIDATED LABORATORIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,1996 AND 1995
1996 1995 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (3,384,771) $ (2,094,446) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 151,316 134,959 Amortization 268,244 321,663 Write-off of Intangibles 1,179,099 Debt extension expense - 8,125 Interest expense related to issuance of warrants 311,508 Loss on disposal of assets 7,066 - Management fee expense - 18,000 (Increase) decrease in accounts receivable (9,125) 438,875 (increase) decrease in inventories 386,591 (290,884) (Increase) decrease in other current assets (110,227) 87,307 (Decrease) increase in accounts payable (160,188) 893,484 Increase in accrued expenses 579,986 29,167 (Decrease) in deferred rent (5,641) (2,808) ----------- -------------- Net cash used in operating activities (786,142) (456,558) ----------- -------------- Cash flows from investing activities: Additions to property and equipment (20,135) (84,220) Deferred acqusition costs - (36,117) Purchase of Philcon Laboratories, Inc. - (95,000) ----------- -------------- Net cash used in investing activities (20,135) (215,337) ----------- -------------- Cash flows from financing activities: Net proceeds from asset based loan 455,915 - Proceeds from borrowings 885,833 592,000 Principal payments on long - term debt (560,480) (242,975) Principal payments under capital leases (34,563) - Issuance of common stock 4,966 39,695 ----------- -------------- Net cash provided by financing activities 751,671 388,720 ----------- -------------- Net decrease in cash (54,606) (283,175) Cash beginning of period 37,772 320,948 ----------- -------------- Cash (overdraft) end of period $ (16,834) $ 37,773 =========== ==============
See notes to consolidated financial statements 17 CONSOLIDATED LABORATORIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995 - -------------------------------------------------------------------------------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES THE FOLLOWING ACTIVITIES ARE APPLICABLE TO THE YEAR ENDED DECEMBER 31, 1996: The Company purchased a total of 600,000 shares of common stock from two former officers pursuant to the Share Purchase and Stockholder Agreement dated August 15, 1994, between the Company and the former officers. Under the terms of the agreement the Company purchased these shares at $0.50 per share, or $150,000 payable to each in twenty equal quarterly installments, along with interest at 5.53% on one note and 6.21% on the other note. These shares are being held in Treasury. In May the Company issued 40,000 shares of common stock to one of its vendors, as payment of $40,000 owed that vendor. The Company converted $36,000 in management fees owed to Tullis-Dickerson & Co. into common stock in June 1996. The Company issued 53,327 shares as payment for the amount owed. Tullis-Dickerson Capital Focus Limited Partnership ("TDCFLP") exercised warrants at various times between May and August of 1996 in accordance with the provisions of the loan agreement for advances made to the Company in late 1995 and in 1996. A total of 199,503 shares were issued at an exercise price of $.10 per share. A portion of the interest owed by the Company to TDCFLP was used to offset the $19,950 cost of exercising the warrants by TDCFLP. During 1996 the Company issued warrants to purchase common stock in connection with certain financing arrangements and recorded a discount of $253,440. THE FOLLOWING ACTIVITIES ARE APPLICABLE TO THE YEAR ENDED DECEMBER 31, 1995: The issuance of a note payable in the amount of $125,000 to a shareholder of Philcon Laboratories in conjunction with the purchase of certain assets of Philcon Laboratories. The issuance of 8,117 shares of common stock valued at $20,000 in conjunction with the purchase of certain assets of Philcon Laboratories. The issuance of 166,666 shares of common stock for the conversion of notes payable to three employees in the aggregate amount of $250,000. The issuance of 100,000 shares of common stock valued at $75,000 for the conversion of a $55,000 note payable to a stockholder of the Company and forgiveness of $20,000 of accrued interest payable. The issuance of 150,000 shares of common stock valued at $225,000 and recording of a receivable for $225,000 as collateral for a $150,000 term loan. 18 AMERICAN CONSOLIDATED LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS NATURE OF BUSINESS American Consolidated Laboratories, Inc. ("the Company") or ("ACL") is in the business of manufacturing and distribution of contact lenses. The Company is headquartered in Raleigh, North Carolina with operations in Sarasota, Florida and Philadelphia, Pennsylvania. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has made significant progress since December 31, 1995. Management successfully closed on a revolving line of credit with Fidelity Funding during the second quarter of 1996. This line of credit provided the funds to allow the Company to meet its current obligations. Management has significantly reduced operating expenses, especially during the second half of 1996. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and attain profitable operations and positive cash flow. Management continues to aggressively pursue securing additional debt or equity financing, as well as an acquisition of a profitable entity. Accomplishment of any of the foregoing could provide the resources to allow the Company to continue as a going concern. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its subsidiaries, Salvatori Ophthalmic Manufacturing Corporation ("SOMC"), S-O Nebraska, Inc. ("Lincoln"), and Carolina Contact Lens, Inc. ("CCL"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies is presented to assist the reader in understanding and evaluating the accompanying financial statements. These policies are in conformity with generally accepted accounting principles and have been consistently applied unless otherwise noted. 19 USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION All significant intercompany accounts and transactions have been eliminated in consolidation. REVENUE RECOGNITION Revenues are recognized when product is shipped. Net sales include returns and allowances in accordance with Company policies. The Company grants credit terms to its customers consistent with normal industry practices. INVENTORIES Inventories are stated at lower of cost, determined by the first-in, first-out method, or market. Consideration is given to deterioration, obsolescence and other factors in determining market value. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Depreciation is determined using the straight-line method for both financial statement and income tax purposes. Cost in excess of the fair value of assets is being amortized on the straight-line method over five to ten years. INTANGIBLE ASSETS In accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-lived Assets", the Company assesses the recoverability of the excess of cost over fair market value of net assets acquired and other intangible assets based on management's estimates of future cash flows. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", (SFAS #109) which is an asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the tax consequences of temporary differences by applying statutory rates to differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. 20 ACCOUNTS PAYABLE The accounts payable balance at December 31, 1996 includes a cash overdraft in the amount of $16,834. LOSS PER SHARE Loss per share was computed based upon the weighted average number of shares outstanding during the period. Loss per share is presented on a primary basis only, since on a fully diluted basis it would be anti-dilutive. RECLASSIFICATIONS Certain amounts for 1995 have been reclassified to conform to the 1996 presentation. 3. ACCOUNTS RECEIVABLE Accounts receivable consists of the following at December 31, 1996 and 1995: 1996 1995 ---- ---- Trade receivables $ 976,693 $ 1,127,537 Less allowances: Doubtful accounts 156,780 215,728 Sales returns 175,756 276,778 ------- ------- Net receivables $ 644,157 $ 635,032 ------- ------- 4. INVENTORIES Inventories consist of the following at December 31, 1996 and 1995: 1996 1995 ---- ---- Raw materials $ 171,738 $ 180,913 Work in process 21,562 29,154 Finished goods 514,852 884,676 ------- ------- Total $ 708,152 $1,094,743 ------- --------- 21 5. ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 1996 and 1995: 1996 1995 ---- ---- Interest $ 364,829 $ 99,975 Restructuring costs 90,684 - Royalties 72,451 15,029 Payroll 57,032 86,756 Vacation pay 24,787 47,570 Other 132,983 10,767 ------- -------- Total $ 742,766 $ 260,097 ------- ------- 6. REVOLVING CREDIT LINE On June 28, 1996 the Company closed on a $2,000,000 revolving line of credit with Fidelity Funding of California, Inc. The line of credit is secured by the first positions in the Company's accounts receivable and inventory. The interest rate on the loan is 1.5% over the prime rate. The line of credit is for a term of three years and has prepayment penalties. The proceeds from the loan were used for working capital purposes. The Company is prohibited from paying dividends without Fidelity's consent. In connection with this line of credit, Fidelity also received 150,000 warrants to purchase the Company's common stock, which is discussed in detail in note 8. The balance at December 31, 1996 is net of unamortized discount of $65,324. 22 7. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1996 and 1995:
1996 1995 ---- ---- Notes payable to Tullis-Dickerson Capital Focus, L.P., net of unamortized discount of $87,524 $ 1,065,309 $ 272,000 Secured Convertible Term Promissory Note payable to Tullis-Dickerson Capital Focus L.P. 800,000 800,000 Note payable to The Oncologic Foundation, Inc. 7,500 22,500 Obligation under capital lease, payable to IBM Credit - 27,762 Note payable to David Dougherty - 55,000 Note payable to Joe Kelly 104,809 125,000 Note payable to SouthTrust - 25,400 Note payable to Cornhusker 167,786 172,550 Note payable to The Caribou Bridge Fund - 150,000 Note payable to Grady Deal 120,000 - Note payable to Estate of Wayne Smith 142,500 - Long-term debt, other - 6,801 ----------- ----------- Total debt 2,407,904 1,657,013 Less current maturities 2,012,733 606,374 ----------- ----------- $ 395,171 $1,050,639 ----------- -----------
In November and December 1995 Tullis-Dickerson Capital Focus L.P. (TDCFLP) provided financing to the Company in the amount of $267,000. TDCFLP continued to advance funds in 1996 under the same terms and conditions. Each advance has a maturity date six months from the date of the advance. Interest is payable until maturity at 13.5%, and at 19.5% after maturity. On the last $550,000 of advances, TDCFLP received 550,000 warrants to purchase the Company's common stock which is discussed in detail in note 8. In order to complete the CCL acquisition, TDCFLP loaned the Company $800,000 in the form of a bridge loan. The secured Convertible Term Promissory Note is due September 30, 1997. Interest is payable quarterly at a rate of 25%. The loan was amended effective February 15, 1996, to allow TDCFLP to convert the note into common stock of the Company at the conversion price of one dollar ($1.00) per share of Common Stock and after the Maturity Date shall be Fifty Cents ($0.50) per share of Common Stock. All the TDCFLP debt is secured by the accounts receivable, inventory and property and equipment. In addition the Company is prohibited from paying any dividends under the terms of the TDCFLP loan agreements. 23 At December 31, 1996 and 1995 interest owed and unpaid to TDCFLP was $363,714 and $85,000, respectively. In accordance with Grady Deal and Wayne Smith's, (former officers of the Company) termination agreements dated April 18, 1996, and July 10, 1996, respectively, they each exercised their option to put to the Company 300,000 shares each of common stock. Pursuant to the Share Purchase and Stockholder Agreement dated August 15, 1994 the Company had to purchase these shares at $0.50 per share, or $150,000 payable to each in twenty equal quarterly installments, along with interest at 5.53% on the Deal note and 6.21% on the Smith note. 8. STOCKHOLDERS' EQUITY (DEFICIT) COMMON STOCK The Company's authorized capital stock consists of 20,000,000 shares of Common Stock, par value $0.05 per share. There are 4,621,623 shares issued of which 4,005,623 are outstanding at December 31, 1996. There are 616,000 shares held in Treasury at December 31, 1996. As part of the Deal and Smith termination agreements, discussed in note 7, the Company purchased a total of 600,000 shares of common stock from these individuals. These shares are being held in Treasury. In May the Company issued 40,000 shares of common stock to one of its vendors, as payment of amounts owed that vendor. The Company converted $36,000 in management fees owed to Tullis-Dickerson & Co. into common stock in June 1996. The Company issued 53,327 shares as payment for the amount owed. The Caribou Bridge Fund (Caribou) exercised a warrant to purchase 20,000 shares of common stock at $.10 per share in May 1996. In accordance with the loan agreement with Caribou, these shares if not registered by the Company by June 1996, provided for additional shares to be issued each month for which they remained unregistered. The Company negotiated the repurchase of these shares. To date, four payments have been made with the final payment to be made in 1997. The shares repurchased, 16,000 to date are being held in Treasury. The 150,000 shares held as collateral by Caribou were returned to the Company in 1996. In December, the Company issued 10,000 shares of stock to a former employee in payment for services provided to the Company, as an outside consultant capacity. The Company issued 11,866 shares to employees who exercised options in accordance with the Company's Stock Option Plan. 24 WARRANTS During 1996, TDCFLP was granted certain warrants to purchase common stock of the Company at an exercise price of $.10 per share in accordance with the provisions of the Convertible Promissory note dated February 15, 1996. The Company recorded the issuance of such warrants based on the fair value of the warrants. The fair value was determined based on the market price of the Company's stock at the exercise date. The total value of the warrants, $210,916 was charged to interest expense during 1996 as the terms of the related advances had expired. A total of 199,503 shares were issued at an exercise price of $.10 per share. A portion of the interest owed by the Company to TDCFLP was used to offset the cost of exercising the warrants by TDCFLP. TDCFLP received 550,000 warrants to purchase the Company's common stock at $.25 per share with an expiration date in 2001, in connection with TDCFLP's most recent loan advances to the Company in 1996. The warrants were valued using the Black-Scholes pricing model. The value of the warrants was approximately $175,047 and is being amortized to expense over the term of the loan. Fidelity Funding received 150,000 warrants to purchase the Company's common stock at $.50 per share with an expiration date in 2001, in connection with an asset-based loan to the Company in June of 1996. The warrants were valued using the Black-Scholes pricing model. The value of the warrants was approximately $77,762 and is being amortized to expense over the term of the loan. STOCK OPTIONS As permitted, the Company applies "Accounting Principles Board Opinion 25" and related interpretations in accounting for its stock-based compensation plan. Stock options are primarily granted at fair market value of the common stock at the grant date. Accordingly no compensation expense has been recognized for stock option awards. Had compensation cost for the Company's stock-based compensation plan been determined based on the fair value at the grant dates for awards under the plan consistent with the alternative method of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", (SFAS 123) the effect on the Company's net loss for the periods ended December 31, 1996 is estimated to have increased the Company's net loss by approximately $186,000. The estimated impact of the fair value of the options awarded in 1996 on compensation expense of approximately $186,000 is calculated using the Black-Scholes option-pricing model with the following assumptions applied individually to each option award: Market price of stock equaled exercise price of option award at date of grant Expected life in years 2 to 5 years Annualized volatility 115% Annual rate of quarterly dividends $0.00 Discount rate - Bond Equivalent Yield 5.00% 25 The Pro-Forma impact on the Net Loss and Earnings Per Share in 1996 using the fair value method of SFAS 123 is detailed in the table below. The Pro-forma impact in 1995 is not material. Net loss 1996 ---- As reported $3,384,771 Pro-Forma $3,570,771 Loss per share As reported $0.81 Pro-Forma $0.86 The Company has, over the years, granted to certain officers, directors, employees and advisors stock options for the purchase of the Company's common stock. The options granted have expiration dates of five or ten years after date of grant. In some instances the option vests over a period of years. At December 31, 1996, there are no options outstanding that vest over a period in excess of four years. The weighted average price of the options outstanding at December 31, 1996 was $0.62 per share, and the weighted average life of the options was 8.5 years. The table below summarizes stock options granted and outstanding for the years ended December 31, 1996 and 1995: Number Price of Shares Per Share Outstanding, December 31, 1994 685,000 $0.125 to $3.00 Granted 0 Exercised 109,390 $0.125 to $0.50 Expired 0 ------- Outstanding, December 31, 1995 575,610 $0.125 to $3.00 Granted 913,010 $0.25 to $0.76 Exercised 31,866 $0.10 to $0.50 Expired 499,410 $0.50 to $3.00 ------- Outstanding, December 31.1996 957,344 $0.125 to $1.125 ------- Of the 913,010 options granted in 1996, 765,000 were granted to the three members of the new management team and 148,010 were issued to employees. In February all the employees received varying numbers of stock options, based on compensation levels, under the Company's 1994 Incentive and Non-Statutory Stock Option Plan ("the Plan"). Under the Plan there are 810,000 shares registered. The Company is proposing to make substantial modifications to the Plan. The proposed modifications will be put to a vote of the shareholders at the next annual meeting. 26 9. RESTRUCTURING EXPENSES On November 15, 1996 the Company closed its Lincoln, Nebraska facility and consolidated that production and customer base into its Raleigh and Sarasota manufacturing facilities. The Company incurred costs in 1996 associated with the closure and accrued for the remaining expenses. Of the $483,774 in expenses charged against income in 1996, $188,043 relate to the expenses incurred to close the facility and $295,731 relate to the write-off of the remaining book value of the goodwill and intangibles recorded for the Lincoln facility. 10. WRITE-DOWN OF INTANGIBLES Given the uncertainty of the Company's financial condition at December 31, 1996 and the operating losses incurred in 1996 and 1995, the Company believes the value of its intangible assets have been impaired. Accordingly, the Company has taken a write-down for the net book value of the intangible assets at December 31, 1996. 11. INCOME TAXES The Company files a consolidated Federal income tax return. Due to its net loss position, the Company recorded no provision for income taxes in 1996 and 1995. The Federal net operating loss carryforward ("NOL") at December 31, 1996 is approximately $6,200,000. The Company had an ownership change in 1990 as defined by the Internal Revenue Code Section 382. The Company has, to date, not been able to utilize approximately $670,000 of the pre-ownership change NOL subject to annual limitations. The NOL of approximately $5,536,000 generated after the ownership change is not subject to any annual limitation. The NOL carryforwards expire between 2003 and 2011. As of December 31, 1996, state NOL carryforwards totaled approximately $4,900,000 and are also subject to various Section 382 limitations. The components of the net deferred tax assets under SFAS 109 consist of the following at December 31, 1996 and 1995: 1996 1995 ---- ---- Federal net operating loss $ 2,110,174 $ 1,712,174 State net operating loss 216,826 134,583 Other 394,127 128,677 ----------- ----------- Total deferred tax assets $ 2,721,127 $ 1,975,434 Less: valuation allowance (2,721,127) (1,975,434) ----------- ----------- Net deferred tax assets $ 0 $ 0 ----------- ----------- 27 These net deferred tax assets are subject to a valuation allowance, as the realization of the deferred tax asset is uncertain, given the Company's current financial condition. The Company has established a valuation allowance equal to the deferred tax asset. 12. COMMITMENTS AND CONTINGENCIES LEASES The Company has executed operating leases for manufacturing and or office space related to each of its three locations. Future minimum lease payments under non-cancelable operating leases at December 31, 1996 are as follows: Year Ending Amount ------ ------ 1997 $ 241,403 1998 223,210 1999 198,294 2000 142,844 2001 0 ---------- Total $ 805,751 ---------- Operating lease expense for these leases approximated $238,000 in 1996 and $185,000 in 1995. During the third quarter of 1996 the Company entered into a sub-lease arrangement for a portion of the space in its Sarasota facility. The Company will receive approximately $54,000 annually under the sub-lease arrangement. The payments received from the sub-lease tenant are being recorded as other income. The above listing of future minimum lease payments reflects the gross amount of rental the Company is obligated to pay the landlord and has not been reduced by the sub-lease contractual obligation. The Company leases its North Carolina manufacturing facility from the former owner of Carolina Contact Lens and the current President of the Company. The lease calls for monthly rental payments of $5,000 through December 14, 1999. The real property taxes and insurance are the responsibility of the Lessor. LITIGATION The Company is not a party to any litigation, and has no knowledge of any threatened or pending litigation. 28 13. SUBSEQUENT EVENTS On February 12, 1997 the Company held a Special Meeting of Shareholders at the Company's offices in Raleigh. The purpose of the meeting was to vote on a proposal to amend the Company's Articles of Incorporation that would increase the authorized number of shares of capital stock of the Company by creating a class of 5,000,000 shares of Preferred Stock with no par value. The proposal was approved by unanimous vote. Due to the current financial condition of the Company it was necessary for management to approach its vendors to avoid serious cash flow constraints in the second quarter of 1997. In March 1997, the Company executed notes with various suppliers to defer payment of existing trade payable obligations. These notes vary in term and provide for interest at rates no higher than 10.25%. In May 1997, the Company consummated the acquisition of NovaVision, Inc. for stock through a subsidiary merger. An aggregate of 3,561,906 shares of the Company's common stock and 2,808,175 shares of the Company's Series A Redeemable Preferred Stock were issued in the Transaction. In addition, options to purchase NovaVision stock at a nominal price were converted into options to purchase 412,700 shares of the Company's common stock. In connection with this transaction, the Company and its subsidiaries entered into a loan agreement with Sirrom Capital Corporation, pursuant to which the Company borrowed $1,575,000. A portion of the proceeds from this financing were used to completely repay the Company's debt to Fidelity Funding. The remainder of the funds will be used for general corporate purposes. The Company believes that the acquisition of NovaVision and the Sirrom Capital Corporation loan will assist it in becoming cash flow positive. On May 15, 1997, the Company decided for strategic reasons to discontinue the distribution of commodity soft lenses produced by the major manufacturers, Bausch & Lomb, Wesley-Jessen, Ciba-Geigy and Johnson & Johnson. The profit margins had declined to a point the Company could no longer distribute these products at acceptable profit margins. All inventories on hand are being returned to the various vendors for credit. 29 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. None PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Certain information concerning the Company's directors is set forth below. Each director shall serve until the next Annual Meeting of the Company's shareholders or until his successor is duly elected and qualified.
- ------------------------------- --------------------------------------------------------------- -------------------- Position with the Company; Principal Occupation Name, Age for past five years; Other directorships Director Since - ------------------------------- --------------------------------------------------------------- -------------------- Joseph A. Arena Chief Executive Officer (1993-1994, 1996-present); Chairman 1993-94, 96 49 of the Board of Directors (1993-1994); Director of Finance (1991-1993); Chief Operating Officer and Chief Financial Officer, Quantum Solutions, Inc., Austin, Texas, (1994-1996) (training and education) - ------------------------------- --------------------------------------------------------------- -------------------- Thomas P. Dickerson Chairman of the Board of Directors (1996-present); General 1990 47 Partner, Tullis-Dickerson Partners, the general partner of Tullis-Dickerson Capital Focus, L.P. (1986-present) (venture capital); President, Tullis-Dickerson & Co., Inc. (health care investment firm) (1990-present) - ------------------------------- --------------------------------------------------------------- -------------------- James L.L. Tullis General Partner, Tullis-Dickerson Partners, the general 1990 50 partner of Tullis-Dickerson Capital Focus, L.P. (1986-present) (venture capital); Chairman of the Board and Chief Executive Officer, Tullis-Dickerson & Co., Inc. (health care investment firm) (1990-present); Director, Acme - United, Inc.; Director, Physician Sales & Service, Inc. - ------------------------------- --------------------------------------------------------------- -------------------- 30 General Partner, Tullis-Dickerson Partners, the general Joan P. Neuscheler partner of Tullis-Dickerson Capital Focus, L.P. 1993 38 (1992-present) (venture capital); Chief Financial Officer, Tullis-Dickerson & Co., Inc. (health care investment firm) (1989-present); Director, QuadraMed, Inc. - ------------------------------- --------------------------------------------------------------- -------------------- Timothy Buono Senior Vice President, Health Partners, Inc. (1996-present); 1997 41 Vice President - Development, Health Partners, Inc. (1994-1996); Director - Business Development - Occupational Health Resources (1993); Associate, Tullis-Dickerson & Co., Inc. (1990-1993) - ------------------------------- --------------------------------------------------------------- --------------------
EXECUTIVE OFFICERS The current executive officers of the Company are as follows: NAME POSITION WITH THE COMPANY Thomas P. Dickerson Chairman of the Board Joseph A. Arena Chief Executive Officer Jimmy Gray O'Neal President and Chief Operating Officer Kenneth C. Kirkham Chief Financial Officer JIMMY GRAY O'NEAL. Mr. O'Neal has served as President and Chief Operating Officer of the Company since April 1996. He was the founder of Carolina Contact Lens, Inc. ("CCL") and has been its President since its establishment in 1973. CCL was purchased by the Company in December 1994 and is now a wholly-owned subsidiary of the Company. Mr. O'Neal is 52 years old. KENNETH C. KIRKHAM. Mr. Kirkham has been the Chief Financial Officer of the Company since April 1996. From 1994 to 1996, he was the Chief Financial Officer of Bono's Bar-B-Q & Grill, a chain of 33 restaurants. From 1992 to 1994 he was Senior Vice President-Finance for Ford Consumer Finance. Mr. Kirkham is 39 years old. Information about the other executive officers is given above. 31 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under federal securities laws, the Company's directors, its executive officers, and any persons holding more than 10 percent of the Company's stock are required to report their ownership of the Company's stock, as well any changes in that ownership, to the Securities and Exchange Commission. Specific due dates for these reports have been established, and the Company is required to report herein any failure during fiscal year 1996 to file such reports in a timely fashion. All of these filing requirements were satisfied by its directors, officers and 10 percent shareholders. In making this statement, the Company has relied on the written representations of its directors, officers and 10 percent shareholders. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth annual compensation amounts for each of the last three fiscal years, as indicated by the applicable table headings, for both individuals who served as Chief Executive Officer of the Company during fiscal 1996 (the "Named Executive Officers"). Wayne Upham Smith served as Chief Executive Officer of the Company until April 11, 1996 when Joseph A. Arena was named to the position. Annual Compensation, columns (c), (d) and (e), includes base salary and bonus earned during the year covered and, if applicable, other annual compensation not properly categorized as salary or bonus. No executive officer of the Company received compensation for the year ended December 31, 1996 in excess of $100,000. Summary Compensation Table
--------------------------------- Long Term Compensation ------------------------------------- --------------------------------- Annual Compensation Awards Payouts ------------------------------------- ------------------------ -------- -------------- Other Restricted Securities All Annual Stock Under-lying LTIP Other Name and Fiscal Salary Bonus Compensation Award(s) Options/ Payouts Compen-sation Principal Position Year ($) ($) ($) ($) (3) SARs ($) ($) (#) - --------------------- -------- ---------- ----------- -------------- ------------ ----------- -------- -------------- Joseph A. Arena, 1996 78,151 0 0 0 340,000 0 0 Chief Executive 1995 0 0 0 0 0 0 0 Officer 1994 0 0 0 0 0 0 0 - --------------------- -------- ---------- ----------- -------------- ------------ ----------- -------- -------------- Wayne Upham Smith, 1996 18,269 28,334 (1) 0 0 0 0 8,333 (2) Former Chief 1995 87,212 14,166 (1) 0 0 55,000 0 0 Executive Officer 1994 34,327 0 0 0 0 0 0 - --------------------- -------- ---------- ----------- -------------- ------------ ----------- -------- --------------
32 (1) A bonus in the amount of $42,500 was awarded in 1995, of which $14,166 was paid in 1995 and $28,334 was paid in 1996. (2) Paid as part of a severance package upon the termination of Mr. Smith's employment with the Company on April 11, 1996. Stock Options The following table shows stock options granted to the Named Executive Officers during fiscal 1996. Option Grants in Last Fiscal Year (1)
Percent of Total Options Granted to Employees in Name Options Granted (#) Fiscal Year Exercise Price ($/sh) Expiration Date - ---- ------------------- ------------------ --------------------- --------------- Joseph A. Arena 15,000 1.6% $.25 May 1, 2006 75,000 8.2% (2) May 1, 2006 250,000 27.4% $.75 May 1, 2006
(1) Options granted under the Company's 1994 Incentive and Non-Statutory Stock Option Plan. (2) The price of these options is to be negotiated between Mr. Arena and the Company at the time of exercise. The following table shows the number of shares subject to unexercised options held by the Named Executive Officers as of fiscal year-end. The table divides such unexercised options into those that were exercisable as of fiscal year-end and those that were not. On December 31, 1996, the end of the fiscal year, the closing sales price of the Company's Common Stock was $1.00 per share. Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Unexercised Value of Unexercised Shares Acquired Options at Fiscal in-the-money Options Name on Exercise (#) Value Realized ($) Year-End (#) at Fiscal Year-End ($) - ---- --------------- ------------------ ------------------------- ------------------------- Exercisable/Unexercisable Exercisable/Unexercisable -------------------------- ----------------------- Joseph A. Arena -0- -0- 90,000/250,000 11,250/62,500 (1)
(1) The value of the 75,000 share option with an exercise price to be negotiated at the time of exercise as described above under the heading "Option Grants in Last Fiscal Year" is not included inasmuch as the value of such option is not determinable. Employment Agreements and Termination of Employment Arrangements On August 15, 1994, the Company entered into a three-year employment agreement with 33 Wayne Upham Smith. The agreement provided for an initial base salary of $85,000 per year with annual bonuses of up to 50% of his base salary based in part on the trading price of the Company's Common Stock and in part on performance, as determined by the Compensation Committee of the Company's Board of Directors. Mr. Smith's employment with the Company was terminated on April 11, 1996. Upon the termination of Mr. Smith's employment, the Company agreed to pay approximately $36,000 for bonus amounts due, accrued vacation and unpaid wages, and in addition, the Company agreed to purchase from Mr. Smith 300,000 shares of the Company's Common Stock for $150,000, such payment to be made in twenty quarterly installments of $7,500. On April 11, 1996, the Company entered into a one-year employment agreement with Joseph A. Arena, such agreement to be automatically renewed on each anniversary of the agreement thereafter unless either party gives notice of its intent to terminate the agreement at least 90 days prior to such anniversary date. The agreement provides that Mr. Arena is to serve as the Chief Executive Officer and as a director of the Company. Pursuant to the agreement, he is to receive an annual salary payable at the annual rate of $125,000, may receive a bonus of up to 33.33% of his salary based on both his individual performance and the Company's performance and may participate in those benefit plans of the Company available to other executives. In addition, Mr. Arena was granted options to purchase 250,000 shares of the Company's Common Stock, such options to vest in 25% increments on each successive anniversary date of the agreement. The agreement also contains a covenant not to compete and a term defining the Company's property rights. The agreement may be terminated by the Company with or without cause or upon Mr. Arena's death or disability or voluntarily by either party upon 90 days notice. If Mr. Arena is terminated without cause, which shall include termination because of death or disability, then he is entitled to his base salary for the six-month period immediately following such termination. In addition, whether terminated with or without cause, Mr. Arena shall forfeit all unvested options granted under the agreement, shall have ninety days after such termination to exercise all vested options and shall cease to be a member of the Board of Directors of the Company. Directors' Compensation Directors, whether or not employees of the Company, are not compensated for any services provided as a director, for serving on any committee of the Board of Directors or for special assignments. Directors that must travel to attend board meetings are reimbursed for their expenses incurred to do so. 34 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth certain information regarding those persons known by management to hold beneficially at least 5% of the outstanding shares of Common Stock.
NAME AND ADDRESS OF AMOUNT AND NATURE BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENTAGE Tullis-Dickerson Capital Focus, L.P. 3,730,395 (a) 81.7% One Greenwich Plaza, Greenwich, CT 06830 James L.L. Tullis (b) (b) One Greenwich Plaza, Greenwich, CT 06830 Thomas P. Dickerson (b) (b) One Greenwich Plaza, Greenwich, CT 06830 Joan Neuscheler (b) (b) One Greenwich Plaza, Greenwich, CT 06830
(a) Includes 3,038,730 shares owned by Tullis-Dickerson Capital Focus, L.P., warrants to purchase 586,670 shares, 35,714 shares held by Tullis-Dickerson & Co., Inc., 40,251 shares held by James L.L. Tullis, 20,126 shares held by Thomas P. Dickerson and 8,904 shares held by Joan Neuscheler, each of whom may be deemed an affiliate of Tullis-Dickerson Capital Focus, L.P. (b) See footnote (a) above. Mr. Tullis, Mr. Dickerson and Ms. Neuscheler are general partners of Tullis-Dickerson Partners, the general partner of Tullis-Dickerson Capital Focus, L.P., and each may be deemed an affiliate of Tullis-Dickerson Capital Focus, L.P. 35 SECURITY OWNERSHIP OF DIRECTORS, NOMINEES FOR DIRECTOR AND CHIEF EXECUTIVE OFFICER The following table sets forth certain information as of April 30, 1997 with respect to the beneficial ownership of the Company's Common Stock by its directors, nominees for director, and the individuals who served as the Company's chief executive officer during any part of the fiscal year ended December 31, 1996. NAME OF AMOUNT AND NATURE BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENTAGE - ---------------- ----------------------- ---------- Joseph A. Arena 172,500 (a) 4.2% Thomas P. Dickerson 3,730,395 (b) 81.7% James L.L. Tullis 3,730,395 (b) 81.7% Joan P. Neuscheler 3,730,395 (b) 81.7% Timothy Buono -0- 0% Wayne Upham Smith -0- 0% All executive officers and directors as a group (7 persons) 3,969,561 (c) 83.6% (a) Includes currently exercisable options to purchase 152,500 shares (b) Includes 3,038,730 shares owned by Tullis-Dickerson Capital Focus L.P., warrants to purchase 586,670 shares, 35,714 shares held by Tullis-Dickerson & Co., Inc., 40,251 shares held by James L.L. Tullis, 20,126 shares held by Thomas P. Dickerson and 8,904 shares held by Joan Neuscheler, each of whom may be deemed an affiliate of Tullis-Dickerson Capital Focus L.P. (c) Includes currently exercisable options to purchase 152,500 shares and warrants to purchase 586,670 shares ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Thomas P. Dickerson, Chairman of the Board of the Company, and James L.L. Tullis and Joan P. Neuscheler, directors of the Company, are general partners in Tullis-Dickerson Partners, the general partner of Tullis-Dickerson Capital Focus, L.P. ("TD Capital"), an entity to which the Company was indebted in the amount of $60,000 as of January 1, 1995 as a result of various loans and other transactions between the two parties. In connection with a loan made by TD Capital to the Company in September 1991, TD Capital received a warrant to acquire 100,000 shares of the Company's Common Stock at a price of $.75 per share, which warrant was exercised on March 31, 1995, with the exercise price paid by a $55,000 reduction of the outstanding indebtedness and forgiveness of $20,000 of accrued and unpaid interest. Accordingly, on December 31, 1995, the outstanding principal balance of TD Capital's original loan to the Company was $5,000. This loan was repaid in full on June 28, 1996. 36 In December 1994, TD Capital made a loan to the Company, separate and distinct from that discussed above, in the amount of $800,000 with interest payable quarterly at 15.25% and repayment of the principal due on September 30, 1997. Because the principal and interest remained unpaid after June 15, 1995, TD Capital has the option to convert the Note into shares of the Company's Common Stock of the Company at the rate of one share for each $1.00 of principal and interest unpaid until maturity, and one share for each $.50 of principal and interest unpaid thereafter. The Company received additional financing from TD Capital during November and December 1995 and January and February 1996 in the amounts of $167,000, $100,000, $395,000 and $50,000, respectively. Such additional funds were consolidated into a single note payable in installments in varying amounts beginning on June 30, 1996 and concluding on August 5, 1996. Interest on the consolidated note is payable at 13.5% until maturity and 19.5% thereafter. Such consolidated note has not yet been paid. In connection with the consolidated note, TD Capital received and subsequently exercised warrants to purchase 199,503 shares of Common Stock at a price of $.10 per share. A portion of the interest owed by the Company to TD Capital was used to offset the cost to TD Capital of exercising the warrants. During 1996, TD Capital continued to advance funds to the Company on the same terms and conditions as the note discussed above. TD Capital advanced $490,833 under these terms and conditions from June through December 31, 1996. For these additional advances, TD Capital received a warrant to purchase 550,000 shares of the Company's common stock at $.25 per share, such warrant to expire at 2001. As of December 31, 1996, the Company owed TD Capital an aggregate amount of $2,298,196, comprised of principal indebtedness of $1,865,309, accrued interest of $363,714 and $69,173 in reimbursable expenses. All of Company's indebtedness to TD Capital is secured by substantially all inventories and property and equipment, though TD Capital did subordinate its entire security interest to Fidelity Funding on June 28, 1996. In addition, the Company's agreements with TD Capital prohibit it from paying any dividends. The Company and Tullis-Dickerson & Co., Inc. ("TD & Co.") entered into an agreement dated August 15, 1994, whereby the Company pays to TD & Co. a financial advisory fee of $3,000 per month, plus $9,000 per quarter for any quarter that the Company exceeds its internal cumulative cash flow projections for that calendar quarter. TD & Co. terminated these fees effective November 30, 1996. Prior to such termination, the Company paid such fees in the amount of $33,000 in 1996 and $36,000 in 1995. In May 1995, the Company issued 15,954 shares of the Company's common stock to James L.L. Tullis and Thomas P. Dickerson, as assignees of TD & Co., in satisfaction of outstanding invoices for consulting services rendered during 1994 and 1995, including ongoing assistance with the Company's operations, the development of strategy, the hiring of personnel, the streamlining of operations, the coordination between facilities of the Company, and the development of management reporting systems. At the time of the issuance of the stock in payment for such 37 services, the bid price for the Company's stock was $1.13 for a value of $18,000. In July 1996, the Company issued 29,615 shares of the Company's common stock to James L.L. Tullis, 14,808 shares to Thomas P. Dickerson and 8,904 shares to Joan E. Neuscheler, as assignees of TD & Co., in satisfaction of outstanding invoices for consulting services rendered during 1995 and 1996, such services being similar to those described above. At the time of the issuance of the stock in payment for such services, the bid price for the Company's stock was $1.625 for a value of $86,656. Messrs. Tullis and Dickerson and Ms. Neuscheler are the sole shareholders, directors and principal officers of TD & Co. The Company leases from Jimmy Gray O'Neal, President and Chief Operating Officer of the Company, an approximately 6,000 square foot building located in Raleigh, North Carolina from which originates the Company's manufacturing and distribution operations. The lease agreement between the Company and Mr. O'Neal provides for (i) a term of five years commencing in December 1994 and (ii) monthly payments of $5,000. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) The Exhibits filed herewith are listed on accompanying Index to Exhibits. (b) Reports on Form 8-K The registrant did not file any reports on Form 8-K during 1996. 38 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN CONSOLIDATED LABORATORIES, INC. Date: April 30, 1997 By: /s/ Joseph A. Arena Joseph A. Arena Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Joseph A. Arena Chief Executive Officer April 30, 1997 - --------------------------- Joseph A. Arena /s/ Thomas P. Dickerson Chairman of the Board April 30, 1997 - --------------------------- Thomas P. Dickerson /s/ Kenneth C. Kirkham Chief Financial Officer April 30, 1997 Kenneth C. Kirkham (Principal Accounting Officer) /s/ James L.L. Tullis Director April 30, 1997 - --------------------------- James L.L. Tullis /s/ Joan P. Neuscheler Director April 30, 1997 - --------------------------- Joan P. Neuscheler /s/ Timothy M. Buono Director April 30, 1997 - --------------------------- Timothy M. Buono 39 ITEM 13 (a) INDEX TO EXHIBITS
Exhibit Number Description Incorporated by reference - -------------------------------------------------------------------------------------------- 4.1 Term Note between Registrant Exhibit 10.2 to quarterly Report on Form 10-Q for and TDCFLP, September 16, quarter ended September 30, 1991 1991 4.2 Secured Convertible Term Exhibit 6 to Current Report on Form 8-K, dated Promissory Note between December 29, 1994 Registrant and TDCFLP December 15, 1994; and Stock Purchase and Term Loan Agreement between Registrant and TDCFLP, dated August 15, 1994 4.3 Secured Convertible Term Exhibit 10.11 to Form 10-KSB for the year ended Promissory Note dated as of December 31, 1995 December 14, 1994, (as amended and restated as of June 15, 1995) between the Company and TDCFLP and amendment of Promissory Note dated February 15, 1996 4.4 Amended and Restated Exhibit 10.11 to Form 10-KSB for the year ended Convertible Promissory December 31, 1995 Note dated February 15, 1996 from the Company to TDCFLP and related Warrants 4.5 Loan and Security agreement between Carolina Contact Lens, Inc. and Fidelity Funding of California, dated as of June 25, 1996 40 4.6 Loan and Security agreement between Salvatori Ophthalmic Manufacturing Corporation and Fidelity Funding of California, Inc. dated as of June 25, 1996 4.7 Warrant for Purchase of securities of American Consolidated Laboratories, Inc. issued to Fidelity Funding of California, Inc. in conjunction with the Loan in Exhibits 10.9 and 10.10 for 150,000 shares 4.8 Warrant for Purchase of securities of American Consolidated Laboratories, Inc. issued to TDCFLP in conjunction with Loan advances in 1996 for 550,000 shares 10.1 Employment Contract between Exhibit 10(a) to Form 10-QSB for the quarter ended Joseph A. Arena and the September 31, 1996 Company dated April 11, 1996 10.2 Employment Contract between Exhibit 10(a) to Form 10-QSB for the quarter ended Kenneth C. Kirkham and the September 31, 1996 Company dated April 11, 1996 10.3 Financing Agreement between Exhibit 10.1 to Quarterly Report on Form 10-Q for the the Company, S-O Nebraska, quarter ended September 30, 1991 Inc. and TDCFLP, dated Sep- tember 13, 1991 10.4 1994 Incentive and Non- Exhibit 4.1 to Form 10-KSB for the Fiscal year ended Statutory Stock Option Plan December 31, 1994 21 Listing of Subsidiaries 27 Financial Data Schedule
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