-----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, OAdeym5bDEwZ/ZdW2PKrj1MW9AqK8D+jG2S/20MSfE+JLhEcnCg6ZQQYOpeMtMdy S6sKrAPDP70PqHVCxoZ3Vg== 0000897101-98-000716.txt : 19980716 0000897101-98-000716.hdr.sgml : 19980716 ACCESSION NUMBER: 0000897101-98-000716 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980715 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELOX LABORATORIES INC CENTRAL INDEX KEY: 0000883720 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 363384240 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19866 FILM NUMBER: 98666417 BUSINESS ADDRESS: STREET 1: 1311 HELMO AVE CITY: ST PAUL STATE: MN ZIP: 55128 BUSINESS PHONE: 6127301500 MAIL ADDRESS: STREET 1: 1311 HELMO AVE CITY: ST PAUL STATE: MN ZIP: 55128 FORMER COMPANY: FORMER CONFORMED NAME: CELOX CORPORATION DATE OF NAME CHANGE: 19930328 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB ( X ) Quarterly report under Section 13 of 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended MAY 31, 1998 or ( ) Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ----------------------- to --------------------------------. Commission file number 0-19866 CELOX LABORATORIES, INC. (Exact name of small business issuer as specified in its charter) MINNESOTA 36-3384240 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1311 HELMO AVENUE, ST. PAUL MN 55128 (Address of principal executive offices) (Zip Code) Issuers telephone number, including area code: (651) 730-1500 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or for such shorter periods that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each the issuer's classes of common equity, as of the latest practicable date. THE NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OUTSTANDING ON JUNE 30, 1998 WAS 2,744,169. Transitional small business format disclosure: Yes [ ] No [X] Table of Contents CELOX LABORATORIES, INC. Report on Form 10-QSB for fiscal quarter ended May 31, 1998 PART I -- FINANCIAL INFORMATION Page ITEM 1. Financial Statements Balance Sheet as of August 31, 1997 and May 31, 1998 3 Statement of Operations -- Three months ended May 31, 1998 and May 31, 1997, and nine months ended May 31, 1998 and May 31, 1997. 5 Statement of Changes in Shareholders' Equity for the year ended August 31, 1997 and the nine months ended May 31, 1998 6 Statement of Cash Flows -- Nine months ended May 31, 1998 and May 31, 1997 7 Notes to Financial Statements 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II -- OTHER INFORMATION 15 PART I -- FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS CELOX LABORATORIES, INC. BALANCE SHEET May 31, 1998 August 31, 1997 ASSETS -------------- --------------- CURRENT ASSETS Cash and cash equivalents $204,360 $408,274 Certificates of deposit 651,367 737,119 Trade receivables 58,105 26,562 Investor settlement receivable 6,639 22,446 Accrued interest receivable 11,256 16,956 Inventories 52,985 46,855 Prepaid expenses 1,334 1,058 -------------- --------------- Total current assets 986,046 1,259,270 -------------- --------------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS Laboratory and production equipment 206,730 204,882 Office furniture and equipment 88,131 78,764 Leasehold improvements 115,558 115,558 -------------- --------------- 410,419 399,204 Less accumulated depreciation (262,664) (229,010) -------------- --------------- 147,755 170,194 -------------- --------------- OTHER ASSETS Patents, net 57,724 18,789 -------------- --------------- TOTAL ASSETS $1,191,525 $1,448,253 ============== =============== See Notes to Financial Statements. CELOX LABORATORIES, INC. BALANCE SHEET May 31, 1998 August 31, 1997 LIABILITIES AND SHAREHOLDERS' EQUITY -------------- ---------------- CURRENT LIABILITIES Accounts payable $16,778 $26,321 Accrued liabilities 29,575 31,246 Bank note payable 84,794 94,879 -------------- ---------------- Total current liabilities 131,147 152,446 -------------- ---------------- SHAREHOLDERS' EQUITY Common stock 27,442 27,422 Additional contributed capital 5,254,736 5,251,756 -------------- ---------------- 5,282,178 5,279,178 Accumulated deficit (4,221,800) (3,983,371) -------------- ---------------- Total shareholders' equity 1,060,378 1,295,807 -------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,191,525 $1,448,253 ============== ================ See Notes to Financial Statements. CELOX LABORATORIES, INC. STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------- Three months ended Nine months ended May 31, May 31, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------- REVENUES Net sales $ 61,648 $ 37,809 $ 222,441 $ 163,546 Cost of products sold 28,878 31,816 105,808 93,710 - ------------------------------------------------------------------------------------------- GROSS MARGIN 32,770 5,993 116,633 69,836 - ------------------------------------------------------------------------------------------- OPERATING EXPENSES Research and development 39,435 14,724 69,853 48,966 Marketing and sales 31,335 39,614 138,183 114,742 Administration 45,806 69,468 184,183 244,097 - ------------------------------------------------------------------------------------------- Total operating expenses 116,576 123,806 392,219 407,805 OPERATING LOSS (83,806) (117,813) (275,586) (337,969) OTHER INCOME Interest and investment income 8,130 17,214 35,388 53,032 Other income 1,003 0 6,492 1,041 Legal settlement 0 (27,500) 0 (27,500) Interest expense (1,189) (701) (4,723) (701) - ------------------------------------------------------------------------------------------- Total other income, net 7,944 (10,987) 37,157 25,872 NET LOSS ($ 75,862) ($ 128,800) ($ 238,429) ($ 312,097) ============================================================================================ BASIC LOSS PER COMMON SHARE ($ 0.03) ($ 0.05) ($ 0.09) ($ 0.11) DILUTED LOSS PER COMMON SHARE ($ 0.03) ($ 0.05) ($ 0.09) ($ 0.11) - ------------------------------------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF 2,742,836 2,742,169 2,742,373 2,742,169 COMMON SHARES OUTSTANDING ============================================================================================
See Notes to Financial Statements. CELOX LABORATORIES, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------- Common Stock Additional --------------------- Paid-in Accumulated Shares Amount Capital Deficit Total - ---------------------------------------------------------------------------------------------------------- BALANCE AT AUGUST 31,1996 2,742,169 $ 27,422 $ 5,251,756 ($3,594,898) $ 1,684,280 Net loss for the period (388,473) (388,473) - ---------------------------------------------------------------------------------------------------------- BALANCE AT AUGUST 31,1997 2,742,169 $ 27,422 $ 5,251,756 ($3,983,371) $ 1,295,807 Shares issued for options exercised 2,000 20 2,980 3,000 Net loss for the period (238,429) (238,429) - ---------------------------------------------------------------------------------------------------------- BALANCE AT MAY 31,1998 2,744,169 $ 27,442 $ 5,254,736 ($4,221,800) $ 1,060,378
See Notes to Financial Statements. CELOX LABORATORIES, INC. STATEMENT OF CASH FLOWS - -------------------------------------------------------------------------------- Nine months ended May 31, May 31, 1998 1997 - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss for the period ($238,429) ($312,097) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 34,530 27,446 Deferred rent expense 0 (773) Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (31,543) 69,111 Accrued interest receivable 5,700 5,758 Inventories (6,130) 24,677 Prepaid expenses (276) (3,523) Increase (decrease) in: Accounts payable (9,544) (1,991) Accrued liabilities (1,672) (940) - -------------------------------------------------------------------------------- Net cash used in operating activities (247,364) (192,332) - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Maturity of bank certificates of deposit, net 85,752 231,450 Investment in ViaStem(TM) patent (39,811) 0 Proceeds from investor settlement receivable 15,807 57,328 Capital expenditures (11,214) (115,558) - -------------------------------------------------------------------------------- Net cash from investing activities 50,534 173,220 - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank note payable 0 98,769 Principal payments on bank note payable (10,084) 0 Proceeds from issuance of common stock 3,000 0 - -------------------------------------------------------------------------------- Net cash from (used) in financing activities (7,084) 98,769 Net increase (decrease) in cash and cash equivalents (203,914) 79,657 CASH AND CASH EQUIVALENTS: Beginning of period 408,274 420,222 - -------------------------------------------------------------------------------- End of period $ 204,360 $ 499,879 ================================================================================ See Notes to Financial Statements. CELOX LABORATORIES, INC, NOTES TO FINANCIAL STATEMENTS -- MAY 31, 1998 NOTE A - BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the Company's financial statements filed as part of the Company's August 31, 1997 Form 10-KSB. This quarterly report should be read in connection with such annual report. NOTE B - FORWARD LOOKING INFORMATION Information contained in this Form 10-QSB contains " forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. There are certain important factors that could cause results to differ materially from those anticipated by some of these forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The factors, among others, that could cause actual results to differ materially include the Company's ability to execute its business plan. NOTE C - CASH AND CASH EQUIVALENTS For purposes of reporting the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. NOTE D - SHORT-TERM INVESTMENTS The Company had invested excess cash in the Piper Jaffray Institutional Government Income Portfolio Fund (Piper Fund). During the quarter ended February 29, 1996, the Company sold all remaining shares in this Fund. As an alternative to the Piper Fund, the Company has utilized bank certificates of deposit. As of May 31,1998 the Company had investments of $651,367 in certificates of deposit. Certificates of deposit are made only with the highest rated banks. The Company also utilizes a money market fund, which is restricted by its charter to Tier 1 instruments, for a portion of its investments. At times throughout the year, the Company's cash, cash equivalents and certificates of deposit in financial institutions may exceed FDIC insurance limits. The Company has not experienced any losses in such accounts. NOTE E - NOTES PAYABLE BANK During April, 1997 the Company borrowed $100,000 from a local bank with the proceeds used for financing a portion of the tenant improvements in the Company's new facility. The loan is secured by a certificate of deposit at this bank. The interest rate for this loan, currently 5.7%, is tied to the certificate of deposit rate. The loan was renewed for a one-year term in February, 1998. NOTE F - REPURCHASE OF COMMON STOCK Effective July 30, 1993, the Board of Directors authorized the repurchase of up to 300,000 shares of the Company's common stock in open market transactions at prices not to exceed $1.75 per share. At May 31,1998 the Company had repurchased 136,700 shares at prices ranging from $0.85 to $1.58 per share. NOTE G - LOSS PER COMMON SHARE Basic loss per share is computed based upon the weighted average number of common shares outstanding during the period. Stock options for 244,000 shares were not included in the computation of diluted loss per share as the results were antidilutive. Implementation of SFAS No. 128 in fiscal 1998 had no effect on previously reported EPS. ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Celox Laboratories, Inc. ("Celox" or the "Company") is a cell therapy company formed in 1985 that researches, develops, manufactures and markets cell biology products used in the propagation of cells derived from mammals, including humans, and other species. These specialized cell growth products are used primarily in academic, pharmaceutical, diagnostic and other commercial laboratories to improve the growth condition, productivity and quality of cell-derived medical and other biological products such as vaccines, monoclonal antibodies, interferons and human growth factor. The Company focuses primarily on solving the fundamental problems associated in culturing cells with the use of serum, which is derived from the whole blood of animals and humans. The Company's research activities have resulted in proprietary technology which has been used to commercialize its non-serum growth media, cell freezing solutions and other cell biology products. Celox currently manufactures and markets over 30 products. Celox's proprietary products consist of four serum replacement products, TCM(TM), TM-235(TM), TCH(TM), and VaxMax(TM) and a cell freezing medium, Cellvation(TM). VaxMax(TM) was developed specifically for use in the production of veterinary vaccines. Celox also manufactures ten basal media formulations, a series of buffered salt solutions, other cell biology regents and a variety of custom formulations. The Company introduced a new product in the third quarter of this fiscal year. The product, Nephrigen(TM), is a fortified, low protein, serum-free growth medium for the long-term culturing of human embryonic kidney cells. These cells are frequently used by researchers and manufacturers for human adenovirus production, drug screening, toxicity testing and the production of recombinant proteins. An additional proposed product, ViaStem(TM), continues to undergo further analysis in pre-clinical testing. This product was developed to improve the preservation of critical cells (e.g. stem cells) which are required for bone marrow transplantation. Other potential applications for ViaStem(TM) include the preservation of umbilical cord blood and platelets. Currently, Memorial Blood Centers of Minnesota and the University of Cincinnati's Hoxworth Blood Center will be providing additional pre-clinical data on ViaStem(TM). A patent was received by the Company from the United States Patent and Trademark Office (USPTO) for ViaStem(TM) in the first week of December, 1996. The Company has also filed the documents needed for an International Patent Application as required by the Patent Cooperation Treaty. The Company has received indications from a number of countries that a patent will be issued for ViaStem(TM) by their respective patent offices. In June, 1998, a second U.S. Patent was issued for ViaStem(TM) which broadened the patented use for ViaStem(TM). During February, 1996 the Company entered into an agreement with the Department of the Army, Walter Reed Army Institute of Research (WRAIR) that provides for a Cooperative Research and Development Agreement for Material Transfer which encompasses the Company's ViaStem(TM) product. The Company has received its first Drug Master File classification from th Food and Drug Administration (FDA) for TCM(TM). This classification will expedite the FDA approval process for customers who want to use the Company's TCM(TM) product in the manufacture of drugs or drug substances for human use. The Company is in the process of gaining similar status for its other proprietary products. In April, 1994, the Company entered into an agreement with American Type Culture Collection (ATCC), Rockville, MD, the world's largest public archive of living biological cultures and genetic materials. ATCC serves the international scientific community by acquiring, preserving and distributing strains of the most diverse collection of organisms and derivative biological materials in the world. Under the agreement, ATCC will distribute cell lines adapted to the Company's non-serum products as well as other associated products worldwide. Orders for growth media under this agreement have continued during the current fiscal year. During July of 1995, the Company completed a non-exclusive world-wide distribution agreement with ICN Pharmaceuticals, Inc., Costa Mesa, CA. Under the agreement, ICN is marketing Celox's TCM(TM), TCH(TM), TM-235(TM) serum replacement products as well as Cellvation(TM). Initial orders under this agreement were shipped in the last quarter of fiscal 1995. Additional orders have been received during the first nine months of this fiscal year. The Company has also entered into an agreement with ICN to provide the rest of the Company's products (except for ViaStem(TM) and Nephrigen(TM) to ICN for worldwide distribution. The first shipment of these additional products occurred in fiscal 1997. ICN manufactures and markets a broad range of prescription and over-the-counter pharmaceuticals, medical diagnostic products and biotechnology research products in North and Latin America, Eastern and Western Europe and the Pacific Rim countries. Beginning in fiscal 1997, the Company is providing its proprietary products to Sigma Chemical Company under a private label distribution agreement. The first shipment under this agreement occurred during the quarter ended November 30, 1996. During November 1997 the Company entered into a non-exclusive distribution agreement with TaKaRa Shuzo Co., Ltd., Biomedical Group, Kyoto, Japan. Under the agreement, TaKaRa will initially market Celox's proprietary product Cellvation(TM). TaKaRa's Biomedical Group leads the industry in several areas owing to the international scope of its research operations which span from the People's Republic of China to North America and Europe. TaKaRa will market Cellvation(TM) in Japan, Taiwan, Korea, and People's Republic of China. YEAR 2000 ISSUES Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. The Year 2000 issue affects virtually all companies and organizations. Management is currently evaluating its reliance on both internal and external systems with respect to the Year 2000 issues. At this time, Year 2000 issues are not expected to materially affect the Company's products, services or competitive condition. RESULTS OF OPERATIONS The Company had recorded an Investor Settlement Receivable in the amount of $133,000 on the Balance Sheet in order to reflect the expected settlement proceeds from a class action lawsuit which was brought on behalf of investors in the Piper Fund. In December, 1995, the District Court Judge approved the Class Action Settlement. Payments from the Piper Fund have been received in accordance with the schedule agreed upon in the settlement. As of May 31, 1998 the Investor Settlement Receivable is $6,639. In June the Company received the final installment. The amount received exceeded the balance of $6,639 and the excess will be accounted for as other income in the fourth quarter of this fiscal year. Also in June, the Company was advised by the attorneys for the plaintiffs, that an additional residual distribution will be made to investors. The payment will come from money that had been reserved for a potential income tax liability facing the settlement fund. This issue was resolved with the Internal Revenue Service with no taxes due. Funds from this reserve are anticipated to be distributed in September, 1998. The Company has been given no information regarding the amount of this distribution. With respect to the lawsuit filed against the fund's auditors, KPMG Peat Marwick, the Eighth Circuit Court of Appeals issued a decision reversing the dismissal of the case against KPMG Peat Marwick by the Federal District Court of Minneapolis. KPMG Peat Marwick has petitioned the Eighth Circuit for a rehearing on that decision. If the decision of the Circuit Court is upheld, the attorneys for the plaintiffs will move forward on the prosecution of the case in federal court. During the quarter ended May 31, 1998, the Company had net sales of $61,648 which was an increase of $23,839 or 63% from $37,809 reported in the same quarter for the prior year. For the nine months ended May 31, 1998 net sales totaled $222,441, versus $163,546 for the nine months ended May 31, 1997. This represents an increase of 36% from the previous period. The increase in between years for the quarter results from a combination of increased interest in the Company's serum replacement products along with the amount and timing of distributors orders. The increase for the nine months is due to the aforementioned interest in serum replacements as well as orders from a large manufacturer. The Company had a net loss of $75,862 for the quarter ended May 31, 1998 compared to a net loss of $128,800 for the same period in the previous year. For the nine month period, a net loss of $238,429 was incurred in fiscal 1998 as compared to a net loss of $312,097 in fiscal 1997. On a per share basis, the loss for the current quarter equaled 3 cents versus a 5 cent loss in the comparable period in fiscal 1997. For the nine months ended May 31, 1998 the net loss per share was 9 cents compared to a net loss of 11 cents per share in the prior year. The cost of products sold was 47% of net sales for the three months ended May 31, 1998, as compared to 84% of net sales for the three months ended May 31, 1997. For the nine month period, cost of products sold was 48% compared to 57% during the same period in the previous fiscal year. The decrease in the cost of sales for each of the respective reporting periods is due primarily to increased sales volume to cover fixed manufacturing costs. The mix of proprietary products versus standard formulations will also affect comparisons between periods. Labor, raw materials and other production costs have also been consistently controlled. An operating loss of $83,806 was generated for the quarter ended May 31, 1998 compared to an operating loss of $117,813 for the same period in the previous year. For the nine months ended May 31, 1998 the Company had an operating loss of $275,586 versus a loss of $337,969 for the nine months ended May 31, 1997. The decrease between years for both reporting periods is due to an increase in sales, and reduced operating expenses. The Company received interest and investment income of $8,130 during the quarter ended May 31, 1998 as compared to $17,214 in the prior year. Interest and investment income for the nine month period was $35,388 in fiscal 1998 compared to $53,032 for the same period in 1997. Investment income is derived primarily from the investment of the proceeds of the Company's March 1992 initial public offering. The decrease in investment income during the quarter as well as for the nine month period, as compared to the previous year results from reduced investment balances as the Company used capital in its operations. As was disclosed in previous sections of this Form 10-QSB, Piper Jaffray and the Class Action Plantiffs have agreed to settle a lawsuit which was brought against the Piper Fund by investors. A lawsuit filed against the Fund's auditors, KPMG Peat Marwick, is still being pursued by investors other than the Company. The Company has not filed a lawsuit nor has it decided if it will join in any future class actions, but has not eliminated these options as a possibility in the future. Operating expenses decreased $7,230 (6%) to $116,576 from $123,806 for the quarter ended May 31, 1998 and decreased by $15,586 (4%) to $392,219 from $407,805 for the nine months ended May 31, 1998 compared to the comparable periods in the prior fiscal year. The decrease for the three month period results from lower marketing and sales and administrative expenses offset by increased research and development expenses incurred during the development of new products. The decrease for the nine month period is due to reduced administrative expenses offset by increased research and development and marketing and sales expenses. The marketing and sales increase results from the amount and timing of new marketing materials. Research and development costs increased by $24,711 (168%) to $39,435 from $14,724 in the current quarter as compared to the previous fiscal year. For the comparative nine month periods, research and development expenses increased by $20,887 (43%) to $69,853 from $48,966. The increase for both of the reporting periods results from the timing of expenditures in the areas of salaries and wages and patent expenses incurred in connection with ViaStem(TM) product. Additionally, both the three month and nine month periods were affected by costs associated with the new product release of Nephrigen(TM). The Company expects the costs of research and development to fluctuate based on the status of pre-clinical trials for ViaStem(TM). Marketing expenses decreased by $8,279 (21%) to $31,335 from $39,614 for the quarter ended March 31, 1998 and increased by $23,441 (20%) to $138,183 from $114,742 for the nine months then ending as compared to the comparable periods in fiscal 1997. The variances between years are attributed to the amount and timing of advertising, and promotional materials. As was disclosed in previous Company filings, the Company had instituted a focused advertising and marketing strategy and therefore marketing and sales expenses were expected to increase as programs and advertising materials were developed. Administrative expenses decreased by $23,662 (34%) for the quarter ended May 31, 1998 compared to the previous fiscal year to $45,806 from $69,468. For the nine months ended May 31, 1998 administrative expenses decreased by $59,914 (25%) to $184,183 from $244,097 in the prior year. The decrease between years is primarily due to moving expenses incurred in fiscal 1997 as part of the Company's move to the new facility as well as a reduction in salary expense and related payroll taxes in the current fiscal year. LIQUIDITY AND CAPITAL RESOURCES Capital resources on hand at May 31, 1998 include cash and short-term investments of $855,727 and net working capital of $854,899. This represents a decrease of $289,666 (25%) in cash and short-term investments and a decrease of $251,925 (23%) in net working capital as compared to August 31, 1997. The lease for the Company's previous facility terminated in October, 1996. A new facility has been completed in St. Paul, Minnesota. The Company has leased approximately 9,500 square feet of office, laboratory and warehouse space in this facility during March 1997. In the interim, the Company had leased office and warehouse space on a month-to-month basis. The Company anticipates spending approximately $50,000 in fiscal 1998 on capital expenditures. Through May 31, 1998 the Company has made capital expenditures, in the amount of $11,215. The majority of the planned expenditures will be used to fund additional research and development and manufacturing growth. The Company believes that its capital resources on hand at May 31, 1998, together with revenues from product sales, will be sufficient to meet its cash requirements for the near future. The Company intends to raise additional capital during the fourth quarter of this fiscal year through a private placement, subject to the prevailing market conditions. The additional funds raised will be primarily used for advancing ViaStem(TM) through the necessary testing required before FDA approval can be obtained. There is no guarantee however, that the Company will be able to successfully raise these additional funds. In addition there can be no assurance that the Company will be able to obtain the necessary FDA approvals. PART II -- OTHER INFORMATION ITEM I. -- LEGAL PROCEEDINGS The Company is a member of the class in the KPMG Peat Marwick action as it relates to their audit of the Piper Jaffray Institutional Government Income Portfolio Fund, on whose behalf litigation has been commenced in federal district court in Minneapolis. The Company has not directly participated in the litigation. The Company has been advised that attorneys for the Plantiffs in this action will continue to pursue this litigation in the federal court in Minneapolis. On November 21,1996, the Company filed a lawsuit in Hennepin County Court, in the State of Minnesota, against its former landlord claiming, among other things, that the landlord repeatedly violated the terms of the lease agreement. Subsequently, the former landlord filed a countersuit which alleged the Company failed to leave the leased premises in the condition required by the lease. During March, 1998 the parties reached an out of court settlement of this lawsuit. Settlement amounts are immaterial to the financial statements. 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. -- (A) EXHIBITS Exhibit 27-Financial Data Schedule (B) REPORTS ON FORM 8-K None SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CELOX LABORATORIES, INC. Dated: July 13, 1998 By: /S/ Milo R. Polovina ------------------------------ Milo R. Polovina, President & Principal Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 0000883720 CELOX LABORATORIES, INC. 9-MOS AUG-31-1998 MAY-31-1998 204,360 651,367 58,105 0 52,985 986,046 410,419 262,664 1,191,525 131,147 0 0 0 27,442 1,032,936 1,191,525 222,441 222,441 105,808 243,991 0 0 0 (238,429) 0 (238,429) 0 0 0 (238,429) (0.09) (0.09)
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