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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
___________________
FORM 10-K
(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 MARCH 31, 1995.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-10538.
GAMMA BIOLOGICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-1668436
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
3700 MANGUM ROAD 77092
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (713) 681-8481
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK $.10 PAR VALUE........... AMERICAN STOCK EXCHANGE
COMMON STOCK PURCHASE RIGHTS.......... AMERICAN STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE 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 Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file 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 the 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]
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within 60 days of the date of
filing.
As of June 19, 1995: Common Stock, $.10 par value -- $20,435,103
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as at the latest practicable date.
As of June 19, 1995: Common Stock, $.10 par value -- 4,541,134 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended March
31, 1995 are incorporated by reference into Part I and Part II.
Portions of the proxy statement for the annual meeting to be held August
10, 1995 are incorporated by reference into Part III.
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P A R T I
ITEM 1. BUSINESS.
Gamma Biologicals, Inc. (which, together with its subsidiaries is herein
referred to as the "company" or "Gamma") manufactures reagents and systems used
for in-vitro diagnostic testing. The reagents are sold to hospitals, blood banks
and medical laboratories where they are used to detect the presence of
diagnostically significant substances in biological fluids, primarily human
blood. The company also develops test systems, which use certain of the
company's reagents and serve to standardize, while automating, test procedures.
See "New Technology" and "Products Under Development - Gamma ReACT(TM) System".
The company's current products are used in a number of applications,
including:
. grouping donor and patient bloods and performing compatibility tests
prior to transfusion
. detecting hemolytic disease of the newborn
. identifying antibodies and certain inherited blood group antigens
. screening for certain human diseases
Gamma markets its products to over 3,500 hospitals, blood banks and
laboratories in the United States and Canada, and to dealers in approximately 50
countries. Domestic sales are made through the company's direct sales force, as
well as through distributors. Internationally, the company sells its products
and products manufactured by others through independent dealers in other parts
of the world.
CURRENT PRODUCTS
Most of the company's sales are derived from products used in tests
performed to determine the ABO and Rh groups of hospital patients and blood
donors, to detect and identify antibodies, to confirm compatibility between
blood donors and patients, and in routine prenatal care. Antibodies are serum
components produced in reaction to the introduction of foreign substances into
the body through transfusion, pregnancy or other mechanisms. The company's
reagent red cell products are used to test patients' blood specimens for
antibodies and, if antibodies are present, to determine their identity, thereby
enabling suitable donor blood to be selected. The selection of proper donor
blood is also aided by testing with the company's line of other blood grouping
reagents. Blood grouping reagents are products prepared from serum (the liquid
portion) of blood drawn from immunized human donors, from antibodies secreted by
monoclonal cell lines (hybridomas), and certain seed extracts (lectins). After
an appropriate donor blood has been selected for transfusion to a patient, a
direct test of compatibility is commonly performed using patient and donor
bloods. The company's antiglobulin reagents (commonly known as "Coombs
reagents") are used in all stages of these procedures beyond initial blood
grouping. The company's line of serological products is used in screening for
certain diseases.
BLOOD BANK PRODUCTS. This group includes blood grouping reagents, Coombs
reagents, antibody potentiators, test cell products, quality control systems and
certain specialty products.
Blood grouping reagents are used to determine the four major blood groups
(A, B, AB and O) and six factors in the Rh blood group system, and include other
products utilized to detect blood group factors in the eight other blood group
systems.
Coombs reagents are used in blood grouping, antibody detection and
identification procedures and in the diagnosis of hemolytic disease of the
newborn, as well as autoimmune hemolytic anemia. The company presently markets
nine Coombs products in three different specificities.
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Antibody potentiators are solutions added to blood testing systems to
enhance their sensitivity. Improved sensitivity is also achieved by the use of
certain proteolytic enzymes. The company presently markets six antibody
potentiators and two enzyme reagents.
Reagent red cell products are used in conjunction with Coombs reagents to
detect and identify antibodies during pregnancy and in patient and donor blood
serums. The company presently manufactures and sells 20 test cell products
processed from human blood.
Reagent Quality Control (RQC(R)) Kit is a product comprising three selected
reagents, designed to enable hospital laboratories and blood banks to test the
effectiveness of reagents and to provide an organized permanent record of the
test results, as required by various regulatory agencies.
Specialty reagents include a screening test for the detection of significant
fetal-maternal hemorrhage, a self-evaluation system that is designed both to
determine technical proficiency and to provide educational content, a simpler
system for competency testing, and six products for the resolution of unusual
blood groups or antibody detection problems.
DIAGNOSTIC PRODUCTS. The company manufactures and sells diagnostic reagents
used in testing for infectious mononucleosis, rheumatoid arthritis and acute
inflammatory infection. In addition, the company currently sells several
diagnostic products manufactured by others, which are used to test for typhoid,
brucellosis and other human diseases.
GAMMA PRODUCT GROUP TABLE
<TABLE>
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NUMBER OF
BASIC PRODUCT GROUPS PRODUCTS MAIN USE OF PRODUCTS
- --------------------------- --------- ----------------------------------------
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BLOOD GROUPING REAGENTS
ABO
Monoclonal 4 Routine testing of patients and donors
Lectin 2 and in prenatal care.
Rh
Human source 7 Rh phenotyping in selected cases;
Monoclonal 2 routine testing of patients and donors and in prenatal care.
Rh Control 2 Routine control of Rh grouping tests.
Other
Human source 15 To aid in the selection of blood for
Monoclonal 8 patients with blood group antibodies.
Lectin 1
COOMBS REAGENTS
Rabbit source 4 With other products, in routine antibody detection (including
Monoclonal 5 pretransfusion compatibility testing), antibody identification and the
diagnosis of certain diseases.
ANTIBODY POTENTIATORS 6 With other products, in all antibody detection and identification tests.
REAGENT RED CELL PRODUCTS
Serum ABO Grouping 4 With ABO blood grouping reagents, in routine ABO grouping tests.
Antibody Detection 7 With Coombs reagents and antibody potentiators, in detection of
antibodies in patients and donors, and in prenatal care.
</TABLE>
(Table continued on following page)
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<TABLE>
<CAPTION>
NUMBER OF
BASIC PRODUCT GROUPS PRODUCTS MAIN USE OF PRODUCTS
- --------------------------- --------- ----------------------------------------
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REAGENT RED CELL PRODUCTS (continued)
Antibody Identification 5 With Coombs reagents and antibody potentiators, in identification of
antibodies detected in routine testing.
Reagent Control 4 Routine control of all Coombs tests and control of the
test for weak D (D/u/ test), mainly on donors.
RQC(R) KIT 1 Routine quality control of blood bank reagents and procedures.
SPECIALTY REAGENTS
Fetal Bleed Screen Kit 1 To detect excessive fetal-maternal hemorrhage in Rh-negative women.
ELU-KIT(R) II 1 To aid in identification of antibodies (especially those bound to red cells in
the circulation).
Blood Group Substances 2 To assist in antibody identification procedures.
Enzymes 2 To assist in antibody detection and identification.
Gamma-Quin(R) 1 To remove cell-bound antibody in some disease states to enable patient cells
to be tested with blood grouping reagents.
Lectins 2 For the investigation of polyagglutination.
RiSE(TM) 1 To determine technical proficiency and provide continuing education.
Tech-Chek 1 To test technical staff for competency.
SEROLOGICAL REAGENTS
Slide Latex Tests 2 To aid in the diagnosis of inflammatory disease and rheumatoid arthritis.
Febrile Antigens and 18 To aid in the diagnosis of febrile illnesses.
Controls
IM Kit 1 To aid in the diagnosis of infectious mononucleosis.
OTHER SPECIALTY ITEMS
Micro-U(R) Wash Solution 1 Low-ionic-strength solution for the washing phase of the antiglobulin test
in microplates.
STS Diluent 1 Cell-suspending medium for use on the STS-M Instrument.
PV-Plates(TM) 4 Extended blood grouping on selected samples, for forensic use.
PT-Trays(TM) 1 Prefilled trays for tissue typing, for forensic use.
SegmentSampler(TM) 1 Blood handling safety device.
INSTRUMENT ACCESSORIES
STS Microtear(R) Belt 1 For use in the STS-M Instrument.
</TABLE>
(Table continued on following page)
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<TABLE>
<CAPTION>
NUMBER OF
BASIC PRODUCT GROUPS PRODUCTS MAIN USE OF PRODUCTS
- --------------------------- --------- ----------------------------------------
<S> <C> <C>
INSTRUMENT ACCESSORIES (continued)
Dilution Cups 1 For use in the STS-M Instrument.
Micro-U Plates 1 For use with the Gamma Micro-U System.
</TABLE>
NEW TECHNOLOGY
In February 1991, Gamma acquired from the University of Texas M.D. Anderson
Cancer Center the exclusive worldwide rights to a patent covering a new in-vitro
diagnostic testing system utilizing electro-biosensor technology. The
immunoelectrode technique detects change in electrical charge as a positive test
result in less than five minutes. The advantages of this testing system are
speed and accuracy, while obtaining objectivity, as the results are determined
by electrical impulse. Gamma began in-house research into this diagnostic
testing concept in 1989.
Gamma is currently funding biosensor research at two university centers, and
progress reports look encouraging towards the development of a reliable test
system. Although commercialization is not expected before fiscal 1999, the
company is not aware of any competitive efforts to utilize this new technology
in the field of immunohematology. The company provided the two centers with
$197,000 for biosensor research in fiscal 1995 and has committed to provide an
additional $155,000 to one of the centers in fiscal 1996.
PRODUCTS UNDER DEVELOPMENT
Gamma ReACT(TM) System. Gamma has recently developed and applied for a
patent on a microcolumn technology to be used for red cell affinity testing.
Products based on this technology should help Gamma compete with other
microcolumn tests marketed very successfully in Europe since 1988 and recently
introduced in the United States. The acronym ReACT has been chosen as a
commercial trade name for the product line.
The principle of ReACT is based on the affinity adherence of red cells to an
immunologically active matrix. The matrix consists of specially treated agarose
beads. Custom designed disposables and dedicated centrifuge equipment have been
developed to provide customers with an easy-to-use and inexpensive testing
system.
The company's first ReACT products will be used for blood grouping,
crossmatching, antibody screening and identification. Gamma plans to apply for
FDA approval to market ReACT products in the United States later this year after
completion of field testing. Manufacture and sales of test systems are expected
to commence outside the United States before the end of fiscal 1996.
Gamma-clone(R) (Monoclonal) Reagents. The development of hybridoma
technology has led to a ready availability of monoclonal antibodies, which have
had a major impact on the design and manufacture of immunodiagnostic reagents.
The company has recognized the potential for the application of this new
technology to several of its blood bank product lines, and, since 1983, has
pursued a program of introducing monoclonal-based products wherever the
technology proves to be advantageous.
The company currently markets fourteen FDA-licensed blood grouping reagents
manufactured by hybridoma technology, Anti-A, -B, -A,B, -C, -D, -H, -He, -K,
- -Le/a/, -Le/b/, -M, -M/g/, -N and -P\1\. Its five monoclonal Coombs reagents
include the first FDA-licensed Anti-IgG. The company owns or has exclusive use
of the raw material sources (clones) for eight of the blood grouping reagents
and all of the Coombs products; these clones are grown in-house to produce
source material for manufacturing the relevant products. The raw materials for
the remaining products are at present purchased from a single supplier. Should
the supply of these materials from this source be interrupted, the company
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anticipates that it could locate alternative sources of supply. The company is
committed to a program aimed at developing clones for all blood grouping
reagents.
Gamma is currently pursuing license applications for additional monoclonal
blood grouping reagents, including two Anti-D's and an Anti-E reagent based on
cell lines of which the company has exclusive use, and an Anti-B reagent derived
from a hybridoma developed by the company. Upon FDA approval, the two new Anti-D
reagents, as well as the new Anti-B, will replace the existing products.
PRODUCTION AND QUALITY CONTROL
The company believes that its reputation in the industry as a source of
quality products and services is largely attributable to the expertise of its
technical employees and its maintenance of rigid quality control procedures at
every step of the manufacturing process.
Raw materials for the FDA-licensed products manufactured and sold by the
company are obtained from several sources. The principal sources for the
company's blood grouping reagent products are human plasma obtained from FDA-
licensed establishments and monoclonal antibodies. Test cell products are
manufactured from whole blood drawn from local donors or purchased from licensed
blood banks. The company believes that the available sources of supply for all
raw materials are adequate for its present and anticipated needs. The company is
not dependent on any single source for any of its raw materials, other than
seven of its current Gamma-clone(R) products (see above) and for PT-Trays(TM),
which are manufactured by another company and marketed exclusively by Gamma.
Once received, raw materials are subjected to a series of manufacturing and
quality control steps, which vary according to the product. FDA regulations
require samples of each finished lot of all blood grouping and Coombs reagents
to be submitted to the Center for Biologics Evaluation and Research for approval
of release prior to shipment. The FDA has granted the company exemption from the
lot release requirements for non-monoclonal Coombs reagents, for one of its Rh
reagents, and also for two of its monoclonal ABO reagents. The remaining blood
grouping reagents, as well as all five monoclonal Coombs products, remain
subject to this provision of the regulations. Test cell products, though also
licensed, do not require prior FDA approval on a lot-by-lot basis.
The products sold by the company that are not required to be licensed by the
FDA (including antibody potentiators, diagnostic and specialty reagents) fall
into two categories: those manufactured by the company from raw materials
acquired from various sources, and those purchased in bulk from outside
manufacturers and packaged for distribution by the company. All such products
are manufactured in accordance with current Good Manufacturing Practices (cGMPs)
as promulgated by the FDA. See "Regulation".
The company maintains product liability insurance against bodily injury and
property damage in the amount of $10,000,000.
MARKETING AND SERVICES
The company's marketing strategy is to build a broad base of customer
loyalty by providing a wide variety of quality products, marketed by a highly
qualified sales force and supported by in-house technical assistance. The
company believes that responsiveness to customer needs, both in the provision of
services and the introduction of new products, is the key to success.
The company sells its products to hospitals, blood banks, the United States
armed forces, and university and private research institutions throughout the
world. In the United States and Canada, the company is directly represented by
20 full-time salespersons. Most members of the sales force have degrees in
medical technology or blood banking experience. Each salesperson makes direct
calls on pathologists, chief blood bank technologists and purchasing agents at
institutions in defined geographic areas. The company also markets its products
domestically through selected distributors, who sell to
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small hospitals, laboratories and doctors' offices. Internationally, the company
is represented by independent dealers.
Management believes that timely delivery of its products to customers is an
important element of its marketing and sales strategy. The company maintains an
inventory sufficient to allow prompt response to customer needs. The company
sells test cell products and its RQC(R) and Tech-Chek Kits on standing orders
for shipment every two, three or four weeks. All contracts for company products
may be terminated at any time without penalty by either the customer or the
company.
To support its sales force and dealers, the company participates in a number
of educational programs, with management and employees serving as speakers or
faculty members in numerous domestic and international workshops and
conventions. This participation provides visibility for the company and enhances
its reputation in the scientific community. The company also conducts in-house
training programs for blood bank personnel. In addition, the company maintains a
reference laboratory, recognized by the American Association of Blood Banks,
which employs five persons (including three persons registered as blood bank
specialists by the American Society of Clinical Pathologists) and provides
consulting services for hospitals and blood banks with rare or difficult blood
testing problems. The reference laboratory often serves as a means of
introducing the company and its products to potential customers, generating new
products in response to customer needs and providing ongoing quality control of
the company's blood bank products. New discoveries made in the course of
investigating problems referred for consultation are regularly reported in
scientific literature or at scientific meetings.
Sales to the company's six largest domestic customers (two of which are
regional laboratory supply dealers) represented 8.6% of the company's net sales
for fiscal 1995 and 5.8% for fiscal 1994.
Approximately 27.8% of the company's net sales in fiscal 1995 were made to
foreign customers. In fiscal 1995 the company's export sales were to customers
in Italy ($756,000), Japan ($691,000), Spain ($503,000), Australia ($391,000),
Argentina ($354,000), and over 50 other countries worldwide.
Sales to Delta Biologicals S.r.l., one of the company's former Italian
subsidiaries, accounted for 2.2% ($399,000) of the company's net sales in fiscal
1995 and 3.2% ($551,000) in fiscal 1994. The distribution agreement with Delta
Biologicals expired April 27, 1995, and the company has appointed a new dealer
to market its products in Italy.
REGULATION
The company operates under U.S. Government Establishment License No. 435,
granted by the National Institutes of Health in 1971. The terms of the license
subject the company to stringent manufacturing and quality control standards,
and the license may be suspended or revoked by the FDA for cause at any time.
Such revocation would cause the company to cease business. The company's blood
grouping and Coombs reagents, as well as its test cell products, must be
licensed by the FDA pursuant to the Public Health Service Act and are
manufactured in accordance with defined standards.
In addition, the Federal Food, Drug and Cosmetic Act and the Safe Medical
Devices Act, together with regulations issued or authorized thereunder, provide
for regulation by the FDA of the marketing, manufacture, labeling, packaging and
distribution of medical devices, including most of the company's non-licensed
products. Among the applicable regulations are requirements that medical device
manufacturers register with the FDA, list devices manufactured by them, and file
various reports. Regulations covering Good Manufacturing Practices for Medical
Devices set forth requirements for, among other things, the company's
manufacturing processes and associated record-keeping and maintenance. Certain
requirements must be met before initial marketing of medical devices, ranging
from a minimum obligation to notify the FDA before commencing marketing of a
product substantially equivalent to devices already in commerce, to a maximum
obligation to comply with the potentially expensive and time-consuming process
of testing necessary to support an
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application for premarket approval. The FDA also has the authority, which it has
so far exercised only to a limited degree, to issue performance standards to be
met by most of the types of non-licensed products manufactured by the company.
The company anticipates no difficulty in meeting the performance standards for
the products as promulgated by the FDA.
None of the company's current or proposed products, except those labeled for
forensic use only, can be marketed in the United States without the licenses or
registrations required by the FDA. Unscheduled FDA inspections of the company's
facilities occur from time to time to determine compliance with applicable FDA
regulations. To date, the company believes that it has satisfactorily complied
with requirements imposed by the FDA, OSHA, EEOC and other government agencies.
The company also believes that the manufacturing and quality control procedures
it employs conform to requirements of Good Manufacturing Practices for Medical
Devices regulations and does not anticipate having to make any material
additional expenditures as a result of these requirements.
MARKETS AND COMPETITION
Management believes that the world market for blood bank reagent products is
approximately $160 million per year, with about 40% of the market being in the
United States. There are three other companies that actively compete with the
company, two of which are divisions of large, diversified corporations with
substantially greater financial resources than those of Gamma. The largest share
of the domestic market is held by Ortho Diagnostic Systems, a division of
Johnson and Johnson, Inc., which the company believes accounts for about 35% of
all domestic sales. Other competitors include Immucor and Organon-Teknika, a
division of AKZO.
Competition is based on quality of product, price, the size and talent of
sales forces, ability to furnish a range of existing and new products, customer
services, and continuity of product supply. During the past several years, the
industry has experienced aggressive price competition, particularly among
manufacturers that target large hospitals and institutions as key customers. In
spite of this competitive environment, the company has maintained its worldwide
sales and increased its domestic reagent market share. Management believes that
this is due to the company's emphasis on product quality, the introduction of
new products, specialty products, customer service and training.
RESEARCH AND DEVELOPMENT
The company's strategy for growth includes internal research and
development, technology acquisition and worldwide marketing. The research and
development program is based upon the allocation of available resources among
new product development, process development, product and process improvement,
and technical services to manufacturing and marketing.
Any new product developed by the company will require, prior to its domestic
sale, licensing or approval to market by the FDA. There can be no assurance that
any such product will be so licensed or approved, or that it will gain
acceptance in the marketplace.
In fiscal 1995, 1994 and 1993, the company expended $1,013,000, $902,000 and
$1,718,000, respectively, for research and development on monoclonal,
microcolumn and electro-biosensor technologies. The company engaged in no
customer-sponsored research during these periods.
PATENTS AND TRADEMARKS
In May 1994, the company applied for a United States patent covering a new
antigen/antibody detection procedure using an affinity adherence technology. See
"Products Under Development--Gamma ReACT System(TM)".
The company already holds two U.S. patents and protection in several foreign
countries on the STS-M blood grouping instrumentation. The remaining lives of
these two patents are 9 and 11 years,
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respectively, subject to payment of appropriate statutory annuities. There can
be no assurance that any of the company's patent rights will be enforceable.
The company still has the worldwide exclusive rights to a patent covering
the electro-biosensor technology. See "New Technology". The duration of the
company's rights to the patent is contingent on the company's development of the
technology.
The company's trademark rights to the mark "Gamma" have been federally
registered. The company holds nine different trademark registrations for various
uses of "Gamma" and claims trademark rights in respect of other brand names
utilized to identify the company's products. The company presently owns a number
of federal and state registrations and has an aggressive policy of registering
its trademark rights, where such is deemed available. There can be no assurance
that any of the company's registrations will be enforceable.
EMPLOYEES
The company has 122 full-time employees, of whom 36 hold advanced technical
degrees or certifications in medical technology. Of the total, 42 are sales,
marketing and customer-support personnel, 48 are engaged in manufacturing and
quality control, and the remainder serve in other capacities. The company has
experienced a low turnover rate among its employees and considers its employee
relations to be excellent. None of the company's employees are represented by a
union.
EXECUTIVE OFFICERS
The executive officers of the company and their respective ages, offices and
periods of service as executive officers are set forth below. The officers are
elected for one-year terms.
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<CAPTION>
SERVED AS AN
EXECUTIVE OFFICER
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
David E. Hatcher 72 Chairman of the Board and Chief Executive Officer 1970
John J. Moulds 51 President and Chief Operating Officer 1984
Betty F. Hatcher 62 Executive Vice President -- Product Development 1992
John Case 68 Vice President -- Regulatory Affairs 1980
Margaret J. O'Bannion 40 Vice President -- Finance and Chief Financial Officer 1989
Jimmie L. Turner 56 Vice President -- Customer Services 1989
Gary L. Parrish 58 Vice President -- National Sales 1994
</TABLE>
All of the executive officers of the company have held the office indicated
or other offices, or have been employed by the company for more than five years.
There are no family relationships among any of the directors or executive
officers of the company.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The company operates in one business sector and one geographic area.
ITEM 2. PROPERTIES.
The principal manufacturing, research, shipping, sales and administrative
functions of the company are conducted in a 41,000 square foot building located
in northwest Houston on a three-acre tract of land owned by the company. The
land and building are subject to a first lien mortgage. Management believes that
the facility is both suitable and adequate for current production needs and has
no plans for expanding its domestic facilities in fiscal 1996. The company is
currently evaluating
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potential manufacturing sites outside the United States for the production of
ReACT test systems, scheduled to begin in late fiscal 1996.
ITEM 3. LEGAL PROCEEDINGS.
The company is involved in various legal actions that are in various stages
of litigation and investigation by the company and its legal counsel. After
reviewing all actions pending or threatened involving the company, management
believes that while the resolution of any matter may have an impact on the
financial results of the period in which the matter is settled, their ultimate
resolution will not have any material adverse affect upon the business or
consolidated financial position of the company. Since these matters are in
various stages of proceedings, future developments could cause management to
revise its assessment of these matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal 1995, no matter was submitted to a vote
of security holders of the company.
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P A R T II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information contained under "Market for Registrant's Common Equity and
Related Shareholder Matters" on page 14 of the company's annual report to
shareholders for the year ended March 31, 1995, is incorporated herein by
reference. See also Notes 7 and 8 of Notes to Consolidated Financial Statements
on page 29 of the company's annual report to shareholders for the year ended
March 31, 1995, which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information contained under "Selected Financial Data" on pages 14 and 15
of the company's annual report to shareholders for the year ended March 31,
1995, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information contained under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16 through 20 of the
company's annual report to shareholders for the year ended March 31, 1995, is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the company and its
subsidiaries, included on pages 21 through 31 of the company's annual report to
shareholders for the year ended March 31, 1995, are incorporated herein by
reference:
Statements of Consolidated Income -- Years ended March 31, 1995, 1994 and
1993
Consolidated Balance Sheets -- March 31, 1995 and 1994
Statements of Changes in Shareholders' Equity -- Years ended March 31, 1995,
1994 and 1993
Statements of Consolidated Cash Flows -- Years ended March 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements
The information contained under "Quarterly Financial Data" on page 15 of the
company's annual report to shareholders for the year ended March 31, 1995, is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
P A R T III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under "Election of Directors" on pages 3 and 4 of
the company's proxy statement dated June 28, 1995, which has been filed with the
Securities and Exchange Commission, is incorporated herein by reference.
Reference is made to the information set forth under the caption "Executive
Officers" on page 9 in Item 1 of this report, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under "Executive Officers", "Severance
Agreements", and "Split-Dollar Agreements" on pages 4 through 10 (except for the
Compensation/Stock Option Committee
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Report therein) of the company's proxy statement dated June 28, 1995, which has
been filed with the Securities and Exchange Commission, is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under "Common Stock Outstanding and Principal
Holders Thereof" on pages 2 and 3 of the company's proxy statement dated June
28, 1995, which has been filed with the Securities and Exchange Commission, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under "Certain Relationships and Related
Transactions" on pages 12 and 13 of the company's proxy statement dated June 28,
1995, which has been filed with the Securities and Exchange Commission, is
incorporated herein by reference.
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) AND (2) FINANCIAL STATEMENTS AND RELATED SCHEDULES
The response to this portion of Item 14 is submitted as a separate section
of this report.
(3) EXHIBITS
The response to this portion of Item 14 is submitted as a separate section
of this report.
(b) REPORTS ON FORM 8-K
No Report on Form 8-K was filed by the company during the quarter ended
March 31, 1995.
(c) EXHIBITS
See Item 14(a)(3), above.
(d) FINANCIAL STATEMENT SCHEDULES
Such schedules are not required or are disclosed in the financial
statements.
12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GAMMA BIOLOGICALS, INC.
By: DAVID E. HATCHER
----------------------------------------
(DAVID E. HATCHER, CHAIRMAN OF THE BOARD
OF DIRECTORS AND CHIEF EXECUTIVE OFFICER)
Dated: June 23, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
-------------- ------- -------
<S> <C> <C>
DAVID E. HATCHER Chairman of the Board of Directors June 23, 1995
----------------------- and Chief Executive Officer
(DAVID E. HATCHER) (Principal executive officer)
MARGARET J. O'BANNION Vice President--Finance and June 23, 1995
----------------------- Chief Financial Officer
(MARGARET J. O'BANNION) (Principal financial and
accounting officer)
JOHN J. MOULDS Director and President June 23, 1995
-----------------------
(JOHN J. MOULDS)
BETTY FRANCIS HATCHER Director and Executive Vice June 23, 1995
----------------------- President
(BETTY FRANCIS HATCHER)
BRYAN J. BRIEDEN Director June 23, 1995
-----------------------
(BRYAN J. BRIEDEN)
R. BRUCE LABOON Director June 23, 1995
-----------------------
(R. BRUCE LABOON)
HAYLE B. RANDOLPH Director June 23, 1995
-----------------------
(HAYLE B. RANDOLPH)
</TABLE>
13
<PAGE>
REPORT AND CONSENT OF INDEPENDENT AUDITORS
Gamma Biologicals, Inc.:
We have audited the consolidated financial statements of Gamma Biologicals,
Inc. and subsidiaries (the company) as of March 31, 1995 and 1994, and for each
of the three years in the period ended March 31, 1995, and have issued our
report thereon dated June 9, 1995; such consolidated financial statements and
report are included in your 1995 Annual Report to Shareholders and are
incorporated herein by reference. We consent to the incorporation by reference
of our report included in the company's Annual Report to Shareholders into the
company's Annual Report to the Securities and Exchange Commission filed on this
Form 10-K and of our report and related consent in the Registration Statement of
Gamma Biologicals, Inc. on Form S-8 (File No. 33-44950).
DELOITTE & TOUCHE LLP
Houston, Texas
June 9, 1995
14
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(3)
EXHIBIT INDEX
EXHIBIT
Year Ended March 31, 1995
GAMMA BIOLOGICALS, INC.
HOUSTON, TEXAS
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(3)
GAMMA BIOLOGICALS, INC. AND SUBSIDIARIES
MARCH 31, 1995
EXHIBIT
NUMBER
-------
3(a) --Articles of Incorporation of the Company, as amended to
date. Incorporated by reference to Exhibit 2.1 to the
Company's Registration Statement on Form S-18 (File No.
2-68275) dated June 27, 1980.
(b) --Amended and Restated Bylaws of the Company dated April 13,
1990. Incorporated by reference to Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1990 (the "1990 Form 10-K").
4(a) --Specimen Common Stock certificate of the Company.
Incorporated by reference to Exhibit 4(a) to the 1990 Form
10-K.
(b) --Shareholder Rights Plan dated as of September 5, 1989.
Incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated September 5, 1989.
10(a) --Restated and Amended Split-Dollar Agreement dated May 29,
1990 between the Company and David E. Hatcher.
Incorporated by reference to Exhibit 10(a) to the 1990
Form 10-K.
(b) --Restated and Amended Split-Dollar Agreement dated May 29,
1990 between the Company and Betty F. Hatcher.
Incorporated by reference to Exhibit 10(b) to the 1990
Form 10-K.
(c) --Restated and Amended Split-Dollar Agreement dated May 29,
1990 between the Company and Bryan J. Brieden.
Incorporated by reference to Exhibit 10(c) to the 1990
Form 10-K.
(d) --Restated and Amended Split-Dollar Agreement dated May 29,
1990 between the Company and Larry E. Letwin. Incorporated
by reference to Exhibit 10(d) to the 1990 Form 10-K.
(e) --Amendment to Restated and Amended Split-Dollar Agreement
dated May 8, 1991 between the Company and David E.
Hatcher. Incorporated by reference to Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1991 (the "1991 Form 10-K").
(f) --Amendment to Restated and Amended Split-Dollar Agreement
dated May 8, 1991 between the Company and David E.
Hatcher. Incorporated by reference to Exhibit 10(f) to the
1991 Form 10-K.
(g) --Amendment to Restated and Amended Split-Dollar Agreement
dated May 8, 1991 between the Company and Betty F.
Hatcher. Incorporated by reference to Exhibit 10(g) to the
1991 Form 10-K.
<PAGE>
EXHIBIT
NUMBER
-------
(h) --Amendment to Restated and Amended Split-Dollar Agreement
dated May 8, 1991 between the Company and Betty F.
Hatcher. Incorporated by reference to Exhibit 10(h) to the
1991 Form 10-K.
(i) --Amendment to Restated and Amended Split-Dollar Agreement
dated May 8, 1991 between the Company and Bryan J.
Brieden. Incorporated by reference to Exhibit 10(i) to the
1991 Form 10-K.
(j) --Amendment to Restated and Amended Split-Dollar Agreement
dated May 8, 1991 between the Company and Larry E. Letwin.
Incorporated by reference to Exhibit 10(j) to the 1991
Form 10-K.
(k) --Split-Dollar Agreement dated March 25, 1993 between the
Company and John J. Moulds. Incorporated by reference to
Exhibit 10(k) to the Company's Annual Report on Form 10-K
for the year ended March 31, 1993 (the "1993 Form 10-K").
(l) --Split-Dollar Agreement dated March 25, 1993 between the
Company and Margaret J. O'Bannion. Incorporated by
reference to Exhibit 10(l) to the 1993 Form 10-K.
(m) --Split-Dollar Agreement dated March 25, 1993 between the
Company and Jimmie L. Turner. Incorporated by reference to
Exhibit 10(m) to the 1993 Form 10-K.
(n) --Split-Dollar Agreement dated March 25, 1993 between the
Company and Jimmie L. Turner. Incorporated by reference to
Exhibit 10(n) to the 1993 Form 10-K.
(o) --Incentive Stock Option Plan of the Company. Incorporated
by reference to the Company's Proxy Statement dated June
25, 1987, Exhibit A.
(p) --1991 Employee Stock Option Plan of the Company.
Incorporated by reference to Exhibit 28.2 to the Company's
Registration Statement on Form S-8 (File No. 33-44950)
dated January 6, 1992.
(q) --1991 Outside Director Stock Option Plan of the Company.
Incorporated by reference to Exhibit 28.3 to the Company's
Registration Statement on Form S-8 (File No. 33-44950)
dated January 6, 1992.
(r) --401(k) Retirement Savings Plan of the Company adopted July
1, 1992. Incorporated by reference to Exhibit 10(r) to the
1993 Form 10-K.
(s) --Distributorship Agreement dated April 27, 1990 between the
Company and Delta Biologicals S.r.l. Incorporated by
reference to Exhibit 10(r) to the 1990 Form 10-K.
(t) --Commission Agreement dated April 27, 1990 between the
Company and GDU Trading Company, Ltd. Incorporated by
reference to Exhibit 10(s) to the 1990 Form 10-K.
<PAGE>
EXHIBIT
NUMBER
-------
(u) --Patent License Agreement effective November 30, 1990
between the Company and the Board of Regents of the
University of Texas System. Incorporated by reference to
Exhibit 10(s) to the 1991 Form 10-K.
(v) --Term and Revolving Line of Credit Loan Agreement dated
August 17, 1990 between Sterling Bank and the Company.
Incorporated by reference to Exhibit 10(v) to the 1991
Form 10-K.
(w) --Promissory Note dated November 2, 1990 payable to the
order of Sterling Bank by the Company. Incorporated by
reference to Exhibit 10(w) to the 1991 Form 10-K.
(x) --Employment Contract dated January 29, 1976 between the
Company and John Case. Incorporated by reference to
Exhibit 10(aa) to the Company's Annual Report on Form 10-K
for the year ended March 31, 1986.
(y) --Severance Agreement dated April 25, 1990 between Betty F.
Hatcher and the Company. Incorporated by reference to
Exhibit 10(jj) to the 1990 Form 10-K.
(z) --Severance Agreement dated October 18, 1989 between John J.
Moulds and the Company. Incorporated by reference to
Exhibit 10(kk) to the 1990 Form 10-K.
(aa) --Severance Agreement dated October 2, 1989 between David E.
Hatcher and the Company. Incorporated by reference to
Exhibit 10(ee) to the 1990 Form 10-K.
(bb) --Severance Agreement dated July 25, 1991 between Margaret
J. O'Bannion and the Company. Incorporated by reference
to Exhibit 10(cc) to the Company's Annual Report on Form
10-K for the year ended March 31, 1992 (the "1992 Form
10-K").
(cc) --Severance Agreement dated July 25, 1991 between Jimmie L.
Turner and the Company. Incorporated by reference to
Exhibit 10(dd) to the 1992 Form 10-K.
(dd) --Listing Agreement dated May 14, 1990 between the Company
and the American Stock Exchange. Incorporated by reference
to Exhibit 10(mm) to the 1990 Form 10-K.
(ee) --Agreement Concerning Issuance of Rights. Incorporated by
reference to Exhibit 10(nn) to the 1990 Form 10-K.
(ff) --Asset Purchase Agreement dated effective April 1, 1992
between the Company and JB Plastics, Inc., with
accompanying exhibits. Incorporated by reference to
Exhibit 10(gg) to the 1992 Form 10-K.
<PAGE>
EXHIBIT
NUMBER
-------
11 --Incorporated by reference to the Company's Statements of
Consolidated Income for the years ended March 31, 1995,
1994 and 1993 on page 21 of the Company's Annual Report to
Shareholders for the year ended March 31, 1995 and to Note
1 of Notes to Consolidated Financial Statements on page 25
of the Company's Annual Report to Shareholders for the
year ended March 31, 1995.
13 --The Company's Annual Report to Shareholders for the year
ended March 31, 1995.
21 --Subsidiaries of the Company.
27 --Financial Data Schedule.
<PAGE>
Gamma 1995 ANNUAL REPORT
'70 Organized as in-vitro diagnostic reagent manufacturer
'95 Celebrates silver anniversary, a quarter century of service
Cover photo goes here.
<PAGE>
The Company
Gamma Biologicals, Inc. manufactures and sells a wide variety of highly refined
and specialized testing products known as in-vitro diagnostic reagents. These
reagents, which are restricted to specific uses and for which there are no
substitutes, are used . to test blood to ensure safe transfusions, . to detect
hemolytic disease of the newborn, . to determine the presence or absence of the
Rh factor, . to study inherited blood factors, and . to aid in the diagnosis of
certain human diseases, such as autoimmune hemolytic anemia.
Operating in a niche market, Gamma supplies products and services to
immunohematology, commonly called "blood banking". Immunohematology is one of
the major disciplines within the $2+ billion clinical (laboratory) medicine
market.
The company sells its products to blood donation centers (blood banks),
transfusion departments of hospitals, medical laboratories, physicians' offices
and research institutions through a direct sales force and a dealer network.
Gamma distributes its products to more than 50 countries.
<TABLE>
<CAPTION>
Contents
<S> <C>
Company profile Inside front cover
Letter to shareholders 2
Founder's viewpoint 2
President's message 4
Review of operations 7
Industry synopsis 7
New product review 9
International marketing 10
Preface to year-end financials 13
Corporate data Inside back cover
</TABLE>
<PAGE>
After 25 years,
Gamma Biologicals is still
a company of experienced people
dedicated to
providing
the profession
quality products and service.
<PAGE>
Letter A LETTER TO SHAREHOLDERS
The Founder's Viewpoint
Please allow me to look beyond financial results and give you a short overview
of this entity we call Gamma. Twenty-five years ago, the co-founders envisioned
a company that would compete successfully in a niche in-vitro diagnostic market
- -- immunohematology. We entered this business -- with $0 sales -- facing eight
well-entrenched domestic competitors. We have survived and progressed, and today
the company has reached the number two position -- with $18 million in sales --
and has only three active domestic competitors.
Our commitment to bench technologists as their source of quality products and
service has earned Gamma a worldwide reputation envied by the competition. We
have never lost sight of the diagnostic laboratory workers, who perform
extremely important blood tests to determine patient/donor compatibility prior
to transfusion. To this end, management has built an in-house team based on
skills and knowledge to support our 20 sales people, a unique group of expert
technical representatives that includes 18 former customers. The company has and
continues to support our sales force and our international dealers with new
products, based primarily on monoclonal reagents.
Since our initial public offering in August 1980, we have tried and continue to
enhance shareholder value. Our field as manufacturers and marketers of blood
bank reagents is not a high-tech industry like the computer business, where
stock prices skyrocket, then occasionally crash. Nor is it glamorous like
biotechnology, in which companies very often do not have a product ready to sell
or license.
Ours is a rapidly changing industry. We see customers in Europe converting their
historical test tube method to the new microcolumn technology. Fortunately, we
have developed in house a method utilizing microcolumns that we believe will be
extremely competitive to the currently available products. We have filed a
patent on our method, called ReACT/(TM)/, now in its initial outside testing. We
plan to manufacture this product outside of the United States for overseas sales
the latter half of 1996. ReACT's international introduction will occur about
the time we submit a license application to the FDA for permission to market
domestically.
Gamma's ReACT/(TM)/ system is based on
red cell affinity adherence and uses a
custom-designed microcolumn disposable
strip. We expect to come to market in
Europe and Latin America while pursuing
FDA approval to market domestically.
2
<PAGE>
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----------------------------------
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3
<PAGE>
-------------------------
Barchart:
Net Sales
-------------------------
Gamma is well positioned to enter its second quarter century, with continuing
product improvement, new product introductions, and an outstanding, stable
employee base. Seventy-five of our 122 employees have at least five years of
service; 22, more than 15 years.
We have lost some good people. Edward Bice, Gamma's first treasurer, died
shortly after we took the company public in 1980. Founding directors Hans de
Strakosch and Homer Durden both died during the past few years. We appreciate
their contributions to the company's birth and growth, as well as the
contributions of current, retired and former employees.
In my capacity as a founder and chairman of the board, I want to thank our
customers, shareholders, directors, officers and employees for helping Gamma
Biologicals become the second largest, FDA-licensed, diagnostic reagent
manufacturer in the United States. You made our success possible. Our future is
indeed bright.
Sincerely,
[Signature of David E. Hatcher appears here]
David E. Hatcher
Chairman & Chief Executive Officer
The President's Message
We are pleased to report greater net sales, increased net income, higher
operating margin and stronger book value for fiscal 1995. This solid picture is
the result of management's ongoing program to concentrate on our core reagent
business, add to the product line, focus sales on high-margin items, expand
export activity, and upgrade production capability. Shareholders benefited from
our strong position with four cash dividend payments of $.025 per share.
Much of our marketing this past year has centered on underserved international
markets, especially Central and South America. Sales in Latin America increased
more than 60% and are now close to sales in Europe. We expect this high growth
to continue for at least the next two years
-------------------------
Barchart:
Net Income
-------------------------
4
<PAGE>
- -------------------------
Barchart:
Net Income
per Share
- -------------------------
Interest is also high among Gamma's dealers throughout Latin America for ReACT,
the company's rapid antibody/antigen test system now in development. As we
review alpha test site data and begin identifying locations for collecting field
test (beta) data, we are actively promoting this technology to potential export
customers. Centrifuges modified to our specifications are being manufactured and
should be delivered this fall. Since FDA approval to market domestically may
take as long as two years, we expect to begin selling ReACT in the international
markets during the last half of fiscal 1996.
In other new technologies, the board re-evaluated the electro-biosensor project
and decided to fund research through one of the two university laboratories
cited last year. Gamma has always sought new applications and approaches to
immunohematology that might result in better products for or service to the
blood bank technologist. The electro-biosensor project, as with much R&D work,
is a viable technology that has not yet produced marketable results. We believe
commercial application to the discipline of immunohematology is at least three
years away.
Our monoclonal program continues to be a success story. Three new clone-based
reagents from Gamma-owned clones received FDA approval to market. The company
now owns or has exclusive use of more than 50 antibody-producing clones.
As Chairman Hatcher wrote, our silver anniversary is just the beginning. We will
continue to seek long-term growth in earnings from long-term service to
customers.
Sincerely,
[Signature of John J. Moulds appears here]
John J. Moulds
President & Chief Operating Officer
June 9, 1995
- -------------------------
Barchart:
Sales Foreign-
Domestic
- -------------------------
5
<PAGE>
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6
<PAGE>
Operations A REVIEW OF OPERATIONS
Industry Synopsis
COMPANY GROWTH Just 25 years ago, Gamma Biologicals was a start-up seeking an
FDA license to sell the product it manufactured. Today, Gamma (FDA establishment
license #435) is an American Stock Exchange-listed company with $18 million in
sales, a full range of diagnostic reagent products and supplies, 122 employees,
the second largest share of the $60 million domestic blood bank reagent market,
and a significant hold in the $100 million international market.
Gamma's approach to the niche market of immunohematology has always been to
manufacture and sell products which are restricted to specific uses and for
which there are no substitutes, namely in-vitro diagnostic reagents. The company
also supplies disposable items to increase the customer's ability to perform
tests efficiently and safely.
INDUSTRY CHANGES In the past quarter century, competitors merged or were
acquired or simply found themselves unable to compete. Raw materials switched
from animal- and human-based to clone-based sources. Test procedures evolved
from test tubes to slides to microplates to microcolumns. Meanwhile, Gamma
continues to provide quality products and service. Gamma became the only
domestic blood bank diagnostic reagent manufacturer to establish its own
monoclonal department and, early on, developed microplates for its blood group
frequency and paternity testing products. Now the focus is on the ReACT system,
a microcolumn technology.
When immunohematology was the last clinical laboratory of the hospital to become
automated, Gamma developed the first manual blood grouping instrument, then the
first automated one. Today's processes rely on both technical ability and
dedicated semiautomated equipment, such as adapted centrifuges.
Large purchasing groups formed to provide diversified product lines at
competitive prices. The sales force can no longer show the head technologist our
products' value without also selling the purchasing agent on cost. Now Gamma
participates with various alliances in the bidding process, asks sales personnel
to become both educators on new techniques and problem solvers, and develops
support materials that make the customer's job more efficient.
CHALLENGES Hospital laboratory budgets continue to be constricted by cost
containment. Community blood banks are consolidating, and the number of Red
Cross centers will be reduced from 55 to 18. Some laboratories draw blood, but
send it to a limited number of centers for testing and typing. (This is
primarily because of the extensive tests that must be performed for viral agents
such as HIV and hepatitis.) Gamma faces the challenge of providing standard
reagents and rate antiserums to a decreasing technologist base with an
increasing burden of testing.
As the industry shifted from human-
and animal-source raw material to
clones, Gamma began systematically
converting to monoclonal-based
products. These three newly licensed
reagents are manufactured from
Gamma-owned clones.
7
<PAGE>
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8
<PAGE>
New Product Review
MONOCLONAL REAGENTS In 1983, Gamma committed itself to developing products based
on hybridoma technology -- the growth of identical cells, produced by fusion of
two kinds of cells, capable of reproducing and secreting monoclonal antibody
when grown in fluid culture. Our goal was to convert reagent production from
human- and animal-source raw material to monoclonal supernate whenever possible.
At present, the company markets 14 FDA-licensed monoclonal blood grouping
reagents and five FDA-licensed monoclonal Coombs reagents. We are pursuing
license applications for four additional blood grouping reagents, some derived
from Gamma-owned clones, some from clones to which the company holds exclusive
use. Ongoing, in-house evaluation determines which clones are suitable for
producing raw material in the quantities and purities needed for in-vitro
diagnostic reagents. Some products, such as certain rare antiserums produced in
tiny batches, probably will continue to require individual donors. Our most
recently licensed products are anti-Le/a/ and Le/b/ and the first monoclonal
anti-M/g/, all from in-house-developed clones.
MICROCOLUMN TECHNOLOGY As reported last year, we are developing an advanced
microcolumn technology called ReACT. Used for antibody detection, identification
and blood group antigen determination, this Red cell Adherence Column Technology
is superior to the currently used agglutination method, with longer shelf life
and shorter centrifuge time. ReACT even allows a supervisor to check results up
to 72 hours after tests are completed and still have accurate interpretation.
Early microcolumn technology has sold well in Europe since the late 1980s.
To date, Gamma has applied for a patent related to ReACT, designed a disposable
microcolumn strip and developed the immunoreactive test medium, started a
preliminary feedback program (alpha testing), and ordered dedicated centrifuges
and heat incubators for use in field tests prior to license application.
ELECTRO-BIOSENSOR TECHNOLOGY Gamma continues to believe in the viability of a
diagnostic technique that uses change in electrical charge to show a positive
test result in less than five minutes. Like many of our customers and
shareholders, we would like the path to market to be quick and smooth. However,
we recognize the need to fully develop any preliminary research to assure that
the final product meets the requirements of speed, accuracy and objectivity.
Gamma's tiny SegmentSampler/TM/,
a blood handling safety device we
began manufacturing shortly before
year-end, produced $50,000 in sales
in just 45 days. Such specialty items
help the company market its complete
product line.
9
<PAGE>
OTHER PRODUCTS Long known for service to the profession, Gamma developed certain
products to let our customers work more efficiently. Our new SegmentSampler/TM/
helps the technologist safely transfer a blood sample to a test tube for
antibody detection and identification. Our Tech-Chek kit saves time in the
proficiency testing required in U.S. hospitals to meet CLIA '88 regulations and
is becoming increasingly popular around the world. Gamma-supplied testing
procedures-on-disc help the laboratory supervisor compose the required standard
operating procedures (SOP) for our products.
International Marketing
GROWTH Last year, Gamma completely reorganized its international department,
consolidating order processing to provide the same level of service domestic
customers receive. We began dealer commitment levels in formal distribution
agreements, training distributors to focus their attention on the most
profitable products. To increase bilingual technical support, we are beginning
to translate sales and technical materials into Spanish and plan to introduce
Italian and French versions at a later date. Along with greater visibility
before export customers, Gamma has increased communication with the scientific
community in those countries.
Sales continue to grow moderately in Europe, but are skyrocketing in Latin
America. As we continue to focus on Central and South America, we expect strong
sales growth to continue. Our target is to double international sales in five
years. Potential growth areas include Gamma red cell products and Tech-Chek, a
kit to evaluate internal laboratory procedures. Overnight transport to most
cities worldwide helps sales of red cell products, which have short shelf life
and require careful handling.
CHALLENGES Challenges abound in the international markets. The lack of
homogeneity in regulatory laws results in protectionism in some parts of the
world. The same rules challenge Gamma's flexibility to manufacture products to
local requirements. While cost containment in the United States affects prices,
companies can sell in certain international markets at prices that compete
favorably with local manufacturers. Still, export customers urge companies like
Gamma to reduce costs while improving performance.
As Gamma opens previously underserved
markets in Central and South America,
Spanish-language versions of products
such as Tech-Chek (technical staff
competency kit) become increasingly
important.
10
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11
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
Financials A PREFACE TO YEAR-END FINANCIALS
GROWTH AND IMPROVEMENT For the fiscal year ended March 31, 1995, Gamma
Biologicals increased net income by 9%, despite the significant tax increase
caused by a 34.4% increase in pretax earnings and the utilization of all
operating loss carryforwards in the prior fiscal year.
Operating margin improved to 12.0% from 9.0%. Return on average equity was 9.1%.
Net income per share of 32 cents (versus 28 cents last year) was helped by both
increased earnings and decreased number of shares outstanding, due to the
purchase on the open market of 59,217 shares. The company paid a $.025-per-share
dividend in each of the four quarters of fiscal 1995.
DEVELOPMENT AND DEBT The company continued to fund from cash flows the expenses
for research and development, sales and marketing, and shareholder dividends. As
has been true for several years, the company is virtually debt free, except for
the mortgage on its headquarters manufacturing facility. In fact, long-term
obligations dropped 97% during fiscal 1995.
Financial statements for fiscal 1995 follow.
<TABLE>
<CAPTION>
<S> <C>
11-year summary 14
Market for common equity 14
Quarterly financial data 15
Management's discussion and analysis 16
Income statements 21
Balance sheets 22
Shareholders' equity 23
Cash flows 24
Notes to consolidated financials 25
Independent auditors' report 32
Management's report 32
</TABLE>
13
<PAGE>
Summary 11-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994
<S> <C> <C>
FINANCIAL
Net sales $18,261 $17,213
Operating income (loss) 2,193 1,546
Income (loss) before
extraordinary item 1,467 1,348
Net income (loss) 1,467 1,348
Working capital 10,675 11,261
Total assets 18,384 18,030
Long-term obligations 19 630
Shareholders' equity 16,454 15,620
STATISTICAL
Operating margin 12.0% 9.0%
Return on net sales 8.0% 7.8%
Return on average equity 9.1% 9.0%
Current ratio 7.5 8.3
PER SHARE AMOUNTS
Income (loss) before
extraordinary item $ .32 $ .28
Net income (loss) .32 .28
Dividends .10 .05
Book value 3.55 3.29
Weighted average common and common
equivalent shares outstanding 4,638 4,744
</TABLE>
Market MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The company's common stock trades on the American Stock Exchange under the
symbol GBL. The bid prices included in the following table are from the American
Stock Exchange and may not reflect prices in actual transactions. The prices do
not include markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH CLOSING LOW CLOSING
BID PRICE BID PRICE DIVIDEND
- --------------------------------------------------------------------
<S> <C> <C> <C>
FISCAL 1995
First Quarter $ 6.75 $ 5.25 $.025
Second Quarter 6.25 4.31 .025
Third Quarter 5.00 4.02 .025
Fourth Quarter 4.75 3.94 .025
FISCAL 1994
First Quarter $ 3.94 $ 3.00 --
Second Quarter 3.63 3.00 --
Third Quarter 4.63 3.13 $.025
Fourth Quarter 7.00 4.00 .025
</TABLE>
As of June 19, 1995, there were approximately 540 holders of record of the
company's common stock. The number does not include shares held in broker or
nominee name.
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1992 1991* 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
$16,390 $16,942 $15,674 $19,257 $18,089 $18,385 $18,014 $15,804 $15,046
(966) 678 1,402 2,288 (2,631) 938 464 (3,399) 1,057
(904) 533 896 727 (3,510) (83) (451) (2,378) 687
(904) 721 1,253 1,299 (3,510) (83) (451) (2,378) 687
9,772 10,543 6,714 8,719 9,410 7,722 6,150 5,289 9,417
16,925 17,800 19,005 23,158 22,056 28,548 28,420 27,607 26,581
734 815 1,122 1,240 4,168 2,531 2,842 2,868 3,177
14,507 15,397 14,818 14,354 12,383 16,582 16,395 15,803 17,688
(5.9)% 4.0% 8.9% 11.9% (14.5)% 5.1% 2.6% (22.0)% 7.0%
(5.5)% 4.3% 8.0% 6.7% (19.4)% (.5)% (2.5)% (15.0)% 4.6%
(6.0)% 4.8% 8.6% 9.7% (24.2)% (.5)% (2.8)% (14.2)% 3.8%
6.8 7.6 3.2 2.2 2.7 1.8 1.7 1.6 2.9
$(.20) $ .12 $ .20 $ .17 $ (.77) $ (.02) $ (.10) $ (.52) $ .15
(.20) .16 .28 .29 (.77) (.02) (.10) (.52) .15
.07 .10
3.16 3.35 3.26 3.15 2.72 3.67 3.64 3.51 3.95
4,594 4,661 4,551 4,551 4,546 4,542 4,539 4,535 4,571
</TABLE>
*The company sold its Italian subsidiaries in 1991.
Quarterly QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET GROSS OPERATING NET NET INCOME
SALES MARGIN INCOME INCOME PER SHARE
- -------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
FISCAL 1995
First Quarter $ 4,343 $2,300 $ 529 $ 353 $.07
Second Quarter 4,301 2,399 483 311 .07
Third Quarter 4,773 2,535 580 484 .10
Fourth Quarter 4,844 2,633 601 319 .08
----------------------------------------------------------------
$18,261 $9,867 $2,193 $1,467 $.32
================================================================
FISCAL 1994
First Quarter $ 4,325 $2,206 $ 448 $ 389 $.08
Second Quarter 4,305 2,198 425 359 .08
Third Quarter 4,162 2,123 300 317 .07
Fourth Quarter 4,421 2,302 373 283 .05
----------------------------------------------------------------
$17,213 $8,829 $1,546 $1,348 $.28
================================================================
</TABLE>
15
<PAGE>
MD&A MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
---------------------------
Barchart:
Working Capital
---------------------------
Results of Operations
NET INCOME A 4.4% increase in export sales; nonrecurring sales of reagent red
cell, serum and RQC products to another domestic reagent manufacturer; and the
accompanying boost to manufacturing efficiency improved net income to $1,466,519
for the year ended March 31, 1995, compared with $1,348,548 in 1994 and a net
loss of $904,394 in 1993. The provision for income taxes rose significantly in
the current year due to a 34.4% increase in pretax earnings and the utilization
of all net operating loss carryforwards during the year ended March 31, 1994.
REVENUES Building on a 5% increase in 1994, revenues rose 6% to $18,261,288 in
1995. Again, sales in the core product groups of blood grouping reagents and
reagent red cells showed a 10% increase, more than replacing the expected
$285,000 decline in STS-M disposable sales and instrument service contract
revenue. The consolidation of blood processing centers in the United States and
the maturation of the STS-M technology have now reduced the number of
instruments in use to a level that does not justify an in-house service staff.
In the current year, existing service contracts were not renewed, and, effective
Fall 1995, Gamma will no longer service STS-M units. The effect on sales in 1996
should be less than $160,000, with a positive effect on gross margin. STS-M
disposables will continue to be offered for sale at least through 1996. In
addition, the company's line of serological products may be discontinued after
December 1995 due to marginal profitability. This product line generated
$438,000 in revenues for 1995. The SegmentSampler, a blood handling safety
device, was introduced in February 1995 to favorable customer response. We
expect that SegmentSampler sales for fiscal 1996 will offset the loss of
STS-M-related and serological revenues.
DOMESTIC SALES Reflected in the 6.8% increase in domestic sales are $707,000 of
sales to another reagent manufacturer to cover unanticipated inventory
shortages. These supplementary sales occurred between September 1994 and
February 1995. Two products introduced in January 1994, the RQC kit and
Tech-Chek, added $141,000 to domestic revenues in 1995. Management will continue
to focus on expanding sales of these products, as well as the SegmentSampler and
other higher margin core products, to offset declining STS-M-related and
serological revenues.
EXPORT SALES In the core product lines of monoclonal blood grouping and
monoclonal Coombs reagents, export sales grew 36.8% in 1995, representing
$524,000 of revenue. These increases replaced sales in 1994 attributable to a
large government contract which was not awarded in 1995. Export sales should
continue to experience healthy growth as we strengthen our network of
international dealers, particularly in Mexico and Central and South
16
<PAGE>
- ------------------------
Barchart:
Cash Flows
- ------------------------
America. Sales into these regions increased 62.4% in 1995. We intend to expand
the international product line to include private-label, FDA-licensed products
and foreign-language versions of proficiency testing products. In addition, we
plan to introduce the ReACT (Red cell Adherence Column Technology) product line
in export markets in late fiscal 1996.
The combination of a 7% domestic volume increase and a 9.8% export sales
increase raised revenues 5% in 1994. An expanded domestic customer base, sales
under a large foreign government contract, and sales of private-label monoclonal
blood grouping reagents accounted for the rise.
GROSS MARGIN Gross margin as a percentage of sales continued to improve, rising
to 54% in 1995 from 51% in 1994 and 48% in 1993. Manufacturing unit costs
declined, with an 8% increase in production volume due, in part, to the
supplementary sales mentioned above. Efficiency also improved with the final
conversion of human-source ABO blood grouping reagents to clone-source products.
Marketing and sales strategies continue to emphasize higher margin core and
specialty products. Sales of these products represented 81% of revenues in 1995;
79%, in 1994; and 73%, in 1993.
SELLING EXPENSES Due, firstly, to a $124,000 increase in travel and personnel
costs to support and expand export marketing efforts, selling expenses increased
5%. Secondly, although downsizing reduced total instrument service costs by
$113,000 in 1995, following a decrease of $117,000 in 1994, the declining number
of instruments in use reduced the need for service and thus the number of
billable service hours. Instrument service personnel developed repair manuals
and held complementary training sessions for customers in the repair of their
instruments in preparation for the department's Fall 1995 closing. In 1994,
selling expenses were relatively constant with the prior year.
GENERAL AND ADMINISTRATIVE EXPENSES Following a 4.2% decline in 1994, general
and administrative expenses remained relatively constant. In 1995, additional
legal expenses were incurred to prepare a patent application covering Gamma's
new microcolumn technology and to create a prototype distributor agreement.
These expenses were offset by efficiencies achieved in various areas. Goodwill
related to the company's Italian distributorship agreement was fully amortized
in March 1995. Amortization expense was $147,000 in each of the past five years.
In 1994, costs declined after temporary increases in shareholder relations and
computer consulting expenses in 1993.
17
<PAGE>
---------------------------
Barchart:
Shareholders'
Equity
---------------------------
SHIPPING AND WAREHOUSE EXPENSES After a 15% reduction in 1994, shipping and
warehouse expenses rose 12.5% in 1995. The increase reflects additional staffing
and supply expense to support the higher sales volume. Shipping supplies also
experienced significant vendor price increases, with additional increases
anticipated for 1996. The first phase of a bar coding system was installed in
March 1995; the remaining phases will be completed by Fall 1995. This technology
will streamline the shipment process, enabling the company to handle higher
volumes while minimizing staffing levels. The reduction in 1994 reflected
efforts to consolidate shipments to lower freight and packaging costs.
RESEARCH AND DEVELOPMENT EXPENSES Due to costs of transferring the electro-
biosensor research to two university centers, research and development expenses
marked a 12% increase in 1995, after a 48% decline in 1994. This research
expense amounted to $137,000 in 1995. Biosensor research will continue at one of
the centers throughout 1996. We concentrated in-house research efforts on the
ReACT microcolumn technology and clone development. Prototype ReACT centrifuges
were received in February 1995, and field studies have begun. The 1994 decline
was due to expensing electro-biosensor design and engineering charges previously
capitalized in the prior year.
The discontinuation of the Fe-Cult Plus product line resulted in an unusual
charge of approximately $480,000 in 1993. [See Note 10.]
INTEREST With more funds invested and higher interest rates, interest income
increased 61% in 1995. Interest expense declined 9% because of normal debt
retirement. Net interest income more than doubled in 1994 due to improved cash
flows from operations that allowed for longer term investment strategies
yielding a higher return and the reduction of the mortgage interest rate floor
from 9% to 7%.
OTHER EXPENSE Other expense rose significantly in 1995 due to $83,000 in losses
on the disposal of obsolete computer equipment in connection with the network
system installation and to the recognition of an $87,000 permanent decline in
the fair value of a common stock investment, in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
18
<PAGE>
- ---------------------------
Barchart:
Book Value
per Share
- ---------------------------
INCOME TAXES The provision for income taxes increased in 1995 because of higher
pretax earnings and the utilization of all net operating loss carryforwards
during the year ended March 31, 1994. The income tax provision for 1994 also
reflected the recording of $147,000 in deferred taxes due to adoption of SFAS
No. 109. For all events recognized for financial statement purposes, SFAS No.
109 requires that a company determine the future tax benefit or burden, based on
the provisions of enacted tax laws, and record these as a deferred tax asset or
liability.
Liquidity and Capital Resources
OPERATING ACTIVITIES Net cash flows decreased $1,098,000 during the year ended
March 31, 1995, compared with a decline of $1,907,000 in 1994. Cash flows from
operating activities shrunk $1,684,000 due to slower collection of customer
receivables, increased income tax payments, and the payment of fees to obtain
the rights to use certain technologies developed by others. The number of days
sales in receivables moved to 80 days at March 31, 1995 from 68 days at March
31, 1994. This was due mainly to a 35% increase in fourth quarter export sales,
which have longer payment terms. Income tax payments increased $636,000 in 1995
due to the lack of net operating loss carryforwards to offset current year
income. License fees amounted to $165,000 to purchase the rights to use 14 new
clones and another $65,000 for the right to manufacture and sell the
SegmentSampler. In 1994, cash flows from operations increased because of
improved receivables collections and lower operating expenses of $925,000 and
$749,000, respectively, partially offset by a $300,000 payment to settle prior
years' royalties claimed by the owner of a patent covering certain manufacturing
processes in the discontinued Fe-Cult Plus product line.
INVESTING ACTIVITIES Cash flows from investing activities improved $1,245,000.
Investments made in 1994 matured, amounting to $2,086,000, and were offset by a
$924,000 increase in capital expenditures. Capital expenditures were made to
renovate and modify office and laboratory areas, install a computer network
system, and design and install a bar coding system in the shipping and warehouse
area. Cash flows from investing activities decreased $3,165,000 in 1994, due
primarily to the purchase of investments.
FINANCING ACTIVITIES Cash flows used in financing activities increased $658,000
due primarily to the payment of dividends and the purchase of treasury shares.
Four quarterly dividend payments of $.025 per share, totaling $458,000, were
made in 1995, compared with one quarterly payment, totaling $115,000, in 1994.
Dividend payments for 1996 should remain relatively constant with 1995 levels.
In 1994, the board authorized the
19
<PAGE>
---------------------------
Barchart:
Total Debt
---------------------------
open-market repurchase, from time to time, of up to 250,000 shares of the
company's common stock; 59,217 shares have been repurchased to date, all in
1995, at a total cost of $265,000. Payments on long-term obligations are
scheduled to increase to $603,000 in fiscal 1996, with a balloon mortgage
payment due in December 1995. Depending on prevailing interest rates and the
availability of operating cash flows, Gamma may refinance the mortgage loan at
maturity. Cash flows used in financing activities for 1994 increased $146,000,
primarily for dividend payments.
Management believes that operating cash flows will continue to meet the
company's operating needs for the future. In 1995, we made further progress
toward self-sufficiency in raw materials. Gamma now owns or has exclusive use of
more than 50 antibody-producing clones. Seventeen products have been formulated
from in-house clones; 14 of these products are FDA licensed and three are at the
field-test stage. Continued conversion of human-source products to monoclonal
equivalents, introduction of new products such as the SegmentSampler and the
ReACT system, and concentration of sales efforts on the company's most
profitable products should help sustain margins and improve operating cash
flows.
CAPITAL EXPENDITURES For 1995, capital expenditures reached $1,303,000. They are
expected to remain higher than normal for the next 12 months to complete planned
improvements in the computer system and the shipping function. The space
formerly occupied by the animal laboratory will be used for shipping-area
expansion and modification to increase automation and efficiency. Conversion
should begin in late fiscal 1996.
PRODUCT DEVELOPMENT We funded $105,000 to develop a mold for disposable test
strips and prototype centrifuges for use in the ReACT system. In April 1995, we
ordered the first production lot of 25 centrifuges that should be available for
sale internationally in the fall. This lot will cost about $23,000, plus a one-
time molding charge of $42,000. We are evaluating potential manufacturing sites
outside the United States, since FDA approval to market ReACT in the United
States may take as long as two years.
Funding for electro-biosensor research was $197,000 for fiscal 1995, compared
with $210,000 for fiscal 1994. Gamma has committed an additional $155,000 to one
of the two research centers for work in 1996. Existing capital resources,
consisting of about $3,900,000 in cash and short-term investments and a
$1,500,000 revolving credit line, should be sufficient to support planned
product development and improvements during the next 12 months.
INFLATION Except for the 1995 price increases in shipping supplies mentioned
above, costs of materials and services have remained relatively stable over the
past three years. We do not expect operations to be influenced significantly by
rising costs in the foreseeable future.
20
<PAGE>
Income STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $18,261,288 $17,212,635 $16,389,848
Cost of sales 8,393,870 8,383,301 8,538,025
----------------------------------------
Gross margin 9,867,418 8,829,334 7,851,823
----------------------------------------
Operating expenses:
Selling 3,607,945 3,426,741 3,447,643
General and administrative 2,306,374 2,290,873 2,391,051
Shipping and warehouse 746,644 663,609 780,654
Research and development 1,013,155 901,751 1,717,684
Discontinuation of product line 480,453
----------------------------------------
Total operating expenses 7,674,118 7,282,974 8,817,485
----------------------------------------
Operating income (loss) 2,193,300 1,546,360 (965,662)
----------------------------------------
Other income (expense):
Interest income 250,163 154,973 114,569
Interest expense (67,645) (74,082) (91,911)
Other expense (213,099) (17,703) (4,940)
----------------------------------------
Other income (expense) -- net (30,581) 63,188 17,718
----------------------------------------
Income (loss) before income taxes 2,162,719 1,609,548 (947,944)
Income taxes (benefit) 696,200 261,000 (43,550)
----------------------------------------
Net income (loss) $ 1,466,519 $ 1,348,548 $ (904,394)
========================================
Weighted average number of common and
common equivalent shares outstanding 4,638,183 4,744,255 4,594,438
========================================
Net income (loss) per common and
common equivalent share $.32 $.28 $(.20)
========================================
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE>
Balance CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,795,854 $ 3,175,265
Short-term investments 2,094,112 2,157,088
Receivables -- net of allowance for doubtful
accounts: 1995, $201,668; 1994, $149,513 3,987,349 3,218,407
Inventories 3,807,495 3,852,337
Prepaid expenses 514,334 317,154
Deferred taxes 124,400 87,000
-------------------------
Total current assets 12,323,544 12,807,251
-------------------------
Property:
Land 284,147 284,147
Building and improvements 4,788,218 4,495,903
Machinery and equipment 3,672,214 3,809,399
Furniture and fixtures 530,290 683,274
-------------------------
Total 9,274,869 9,272,723
Less accumulated depreciation and amortization 5,084,309 5,750,221
-------------------------
Property -- net 4,190,560 3,522,502
-------------------------
Cash value of life insurance 1,531,998 1,379,888
Excess of cost over net assets acquired -- net 147,034
Other 337,806 173,618
-------------------------
Total assets $18,383,908 $18,030,293
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 602,746 $ 219,165
Accounts payable -- trade 565,649 691,334
Dividends payable 113,528 115,004
Accrued salaries and other expenses 366,446 521,121
-------------------------
Total current liabilities 1,648,369 1,546,624
-------------------------
Long-term obligations 19,263 629,554
-------------------------
Deferred taxes 262,600 234,000
-------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- $10.00 par value; 1,000,000 shares
authorized; none outstanding
Common stock -- $.10 par value; 25,000,000 shares
authorized; outstanding: 1995, 4,700,303 shares;
1994, 4,700,078 shares 470,030 470,008
Capital in excess of par value 13,482,615 13,481,763
Retained earnings 3,619,289 2,609,496
Unrealized investment loss (87,683)
Treasury stock at cost: 1995, 159,169 shares; 1994,
99,952 shares (1,118,258) (853,469)
-------------------------
Total shareholders' equity 16,453,676 15,620,115
-------------------------
Total liabilities and shareholders' equity $18,383,908 $18,030,293
=========================
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
Equity STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Balance, beginning of year 4,700,078 $ 470,008 4,696,328 $ 469,633 4,690,378 $ 469,037
Exercise of stock options 225 22 3,750 375 5,950 596
-----------------------------------------------------------------------------
Balance, end of year 4,700,303 470,030 4,700,078 470,008 4,696,328 469,633
-----------------------------------------------------------------------------
CAPITAL IN EXCESS OF PAR VALUE
Balance, beginning of year 13,481,763 13,471,600 13,455,476
Exercise of stock options 852 10,163 16,124
-----------------------------------------------------------------------------
Balance, end of year 13,482,615 13,481,763 13,471,600
-----------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 2,609,496 1,490,881 2,395,275
Net income (loss) 1,466,519 1,348,548 (904,394)
Dividends declared (456,726) (229,933)
-----------------------------------------------------------------------------
Balance, end of year 3,619,289 2,609,496 1,490,881
-----------------------------------------------------------------------------
UNREALIZED INVESTMENT GAIN (LOSS)
Balance, beginning of year (87,683) (71,433) (69,808)
Current year unrealized gain (loss) 87,683 (16,250) (1,625)
-----------------------------------------------------------------------------
Balance, end of year (87,683) (71,433)
-----------------------------------------------------------------------------
TREASURY STOCK
Balance, beginning of year (99,952) (853,469) (99,952) (853,469) (99,952) (853,469)
Purchase of treasury stock (59,217) (264,789)
-----------------------------------------------------------------------------
Balance, end of year (159,169) (1,118,258) (99,952) (853,469) (99,952) (853,469)
-----------------------------------------------------------------------------
Total shareholders' equity 4,541,134 $16,453,676 4,600,126 $15,620,115 4,596,376 $14,507,212
=============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
Cash STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash received from customers $ 17,406,173 $ 17,507,789 $ 16,582,612
Interest received 125,224 110,744 87,405
Cash paid to suppliers and
employees (15,992,239) (15,025,539) (15,474,598)
Interest paid (67,645) (74,082) (91,911)
Income taxes paid (701,500) (65,000) (55,000)
------------------------------------------
Net cash provided by
operating activities 770,013 2,453,912 1,048,508
------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Property additions (1,302,629) (378,571) (271,672)
Purchase of investments (2,997,977) (2,102,211)
Increase in cash value of life
insurance (152,110) (126,958) (126,580)
Proceeds from:
Investments 3,181,064 89,352 1,057,163
Sale of equipment 56,055 57,332 45,445
------------------------------------------
Net cash provided by (used in)
investing activities (1,215,597) (2,461,056) 704,356
------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Payments on long-term
obligations (211,710) (171,475) (146,561)
Exercise of stock options 874 10,538 16,720
Dividends paid (458,202) (114,929)
Purchase of treasury stock (264,789)
------------------------------------------
Net cash used in financing
activities (933,827) (275,866) (129,841)
------------------------------------------
Effect of exchange rate
fluctuation on cash 1,562 2,544
Net increase (decrease) in cash (1,379,411) (281,448) 1,625,567
Cash and cash equivalents at
beginning of period 3,175,265 3,456,713 1,831,146
------------------------------------------
Cash and cash equivalents at
end of period $ 1,795,854 $ 3,175,265 $ 3,456,713
==========================================
RECONCILIATION OF NET INCOME
(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income (loss) $ 1,466,519 $ 1,348,548 $ (904,394)
Adjustments to reconcile net
income (loss) to cash provided
by operating activities:
Depreciation 529,957 518,850 473,827
Amortization of goodwill 147,034 147,034 147,033
Loss on sale of fixed assets 101,897 13,554 2,476
Gain on sale of investments (124,939) (44,229) (27,164)
Net effect of changes in
operating accounts (1,350,455) 470,155 1,356,730
------------------------------------------
Net cash provided by
operating activities $ 770,013 $ 2,453,912 $ 1,048,508
==========================================
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
Notes NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS The company manufactures and sells a wide variety of highly refined and
specialized testing products known as in-vitro diagnostic reagents. The company
operates in one business sector and geographic area. Customers include numerous
hospitals, blood donation centers, medical laboratories, and research
institutions in more than 50 countries. The company does not have a
concentration of credit risk due to its large customer base.
CONSOLIDATION The consolidated financial statements include the accounts of
Gamma Biologicals, Inc. and all subsidiaries (the company). All significant
intercompany items have been eliminated in consolidation.
INVENTORIES Inventories are valued at the lower of cost or market value.
PROPERTY AND DEPRECIATION Property, including improvements, is stated at cost,
including interest charges incurred during construction. Expenditures for
maintenance and repairs are charged to operations as incurred. Costs of assets
sold or retired and the related amounts of accumulated depreciation are
eliminated from the accounts, and the resulting gains or losses are recognized
in current operations.
Depreciation on machinery and equipment and furniture and fixtures is
computed using the straight-line method over estimated useful lives of 5 to 10
years. Depreciation and amortization on building and improvements are computed
using the straight-line and 150% declining balance methods over estimated
service lives of 5 to 30 years.
EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over net assets
acquired was amortized on a straight-line basis over the initial five-year term
of the distributorship agreement with the former Italian subsidiary. The
accumulated amortization was $917,033 and $769,999 at March 31, 1995 and 1994,
respectively. The distributorship agreement expired without renewal in April
1995.
UNREALIZED INVESTMENT LOSS The company has an investment in common stock which
is valued at the lower of cost or market.
RESEARCH AND DEVELOPMENT EXPENDITURES The company capitalizes certain costs
relating to the development of new technologies. Capitalization does not begin
until technological feasibility is established. All other research and
development expenditures are charged to expense in the period incurred.
REVENUE RECOGNITION Revenue is recognized when products are shipped or services
are performed.
FEDERAL INCOME TAXES The company adopted SFAS No. 109, "Accounting for Income
Taxes," during the first quarter of 1994. Deferred income taxes reflect the
future tax consequences of differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. There was no
cumulative effect of this change because the company had a net operating loss
carryforward for which a valuation allowance was established at the adoption
date.
Tax credits are recognized as a reduction of federal income taxes in the year
in which the credits are realized.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Net income per common and
common equivalent share is computed using the weighted average number of shares
and dilutive equivalent shares outstanding during each year. Loss per common
share is based solely on the weighted average number of shares outstanding
during the year.
STATEMENTS OF CONSOLIDATED CASH FLOWS For purposes of reporting cash flows, cash
and cash equivalents include cash on hand and in banks, amounts deposited in
money market funds, and certificates of deposit with original maturities of
three months or less.
25
<PAGE>
2. INVENTORIES
Inventory costs and the methods of computing such costs are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1995 1994
---------------------------------------------------------
<S> <C> <C>
First-in, first-out cost:
Finished products $1,540,278 $1,733,499
Products in process 650,443 773,162
-----------------------
2,190,721 2,506,661
Specific identification cost:
Raw material 840,289 842,235
Finished instrument systems 3,648 4,033
-----------------------
843,937 846,268
Average cost:
Supplies 772,837 499,408
-----------------------
TOTAL $3,807,495 $3,852,337
=======================
</TABLE>
3. INVESTMENTS
The company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," in 1994. In accordance with this statement, the company
has classified its investment in equity securities as "available for sale,"
which is reported at fair value. Unrealized holding gains and losses are
reported in a separate component of shareholders' equity until realized. The
company has the positive intent and ability to hold its investments in debt
securities to maturity; these investments are reported at amortized cost.
Investments in debt and equity securities are summarized as follows:
<TABLE>
<CAPTION>
UNREALIZED CARRYING
TYPE CLASSIFICATION FAIR VALUE GAIN (LOSS) VALUE
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended March 31,
1995
Equity securities:
Common stock Available for sale $ 10,569 $ $ 10,569
-------------------------------------
Debt securities:
U.S. Government:
Federal Farm Credit
Banks -- due 9/1/95 Held to maturity 997,500 (3,087) 1,000,587
Treasury Notes --
due 3/31/96 Held to maturity 986,560 (6,731) 993,291
Certificates of
Deposit -- due 9/11/95 Held to maturity 100,234 100,234
-------------------------------------
Total debt securities $2,084,294 $(9,818) $2,094,112
-------------------------------------
TOTAL INVESTMENTS $2,094,863 $(9,818) $2,104,681
-------------------------------------
</TABLE>
Prior to 1995, the unrealized loss was reported as an adjustment to
shareholders' equity. In 1995, the investment's decline in value was determined
to be "other than temporary," and the loss was included in earnings for the
current period.
26
<PAGE>
4. CASH VALUE OF LIFE INSURANCE
Cash value of life insurance consists primarily of contractual rights under
split-dollar life insurance agreements. Prior to 1980 and in 1992, the company
purchased policies insuring the lives of certain officers and directors and
entered into split-dollar agreements with these persons. The company owns the
policies and, by the terms of the split-dollar agreements, is obligated to pay
all premiums and to take all necessary steps, upon the death of the insured, to
obtain the death benefits provided under the policies.
The insured is obligated to reimburse the company annually for the value of
the policy's economic benefit to the insured for that year (as determined for
federal income tax purposes). Net premiums accrue interest at 3% per year; upon
the insured's death, the insured's estate will be obligated to repay the company
the amount of net premiums plus interest.
The company has the right to obtain loans secured by the policy. With the
company's consent, the insured may also obtain loans secured by the policy. The
company may also consent to pay interest on policy loans to the insured. Any
outstanding loan amounts will be repaid from the death benefits. If the company
paid interest on the loan amounts, the insured's estate will be obligated to
repay the interest paid plus 3% interest.
With respect to all policy proceeds in excess of the amounts required to be
paid to the company, the insured has the right to designate the beneficiaries of
the policy and the right to elect the settlement option with respect to such
proceeds.
5. LONG-TERM OBLIGATIONS AND CREDIT AGREEMENT
LONG-TERM OBLIGATIONS
Long-term obligations consist of:
<TABLE>
<CAPTION>
MARCH 31, 1995 1994
-------------------------------------------------------------
<S> <C> <C>
Mortgage note, due monthly through 1995 $508,434 $601,357
Other obligations 113,575 247,362
------------------
622,009 848,719
Less current portion 602,746 219,165
------------------
TOTAL LONG-TERM OBLIGATIONS $ 19,263 $629,554
==================
</TABLE>
The mortgage note bears interest at the bank's base rate, but not less than
7% nor more than 13%. At March 31, 1995, the note bore interest at 10%. The note
is collateralized by a first lien on the company's land and building.
Long-term obligations mature as follows: $602,746 in 1996 and $19,263 in
1997.
27
<PAGE>
5. CONTINUED
CREDIT AGREEMENT
The company has a revolving line of credit agreement under which the company can
borrow $1,500,000 at the bank's floating base rate plus 0.5%. The agreement
expires in August 1995. At March 31, 1995 or during the year then ended, no
borrowings were outstanding under this agreement. The company pays no fees nor
is required to maintain any compensating balances under this agreement.
The line of credit agreement provides for maximum amounts that can be
outstanding, based on the company's receivables and inventories. Prepayments on
this loan may be required when the bases of receivables and inventories, as
determined under the agreement provisions, are less than certain defined levels.
The agreement also contains various provisions that restrict borrowings,
capital expenditures, advances and other distributions, and certain direct or
contingent liabilities. Dividend payments are restricted to 25% of the company's
prior year net income. This restriction was waived in December 1993 for the
years ended March 31, 1995 and 1994. The agreement also provides for the
maintenance of certain ratios or amounts relative to working capital, net worth
and debt-to-equity. At March 31, 1995, the company was in compliance with the
provisions of the agreement.
Security for the company's obligations under the line of credit agreement
includes substantially all of the company's assets, except for the cash value of
all life insurance policies and the company's land and building which are
pledged as collateral for the mortgage note.
6. CASH FLOWS INFORMATION
Following is a summary of the changes in operating assets and liabilities.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Decrease (increase) in:
Receivables $ (764,114) $ 381,008 $ 274,623
Inventories 44,842 185,746 434,780
Prepaid expenses (250,518) (109,053) 528,442
Other assets (76,505) 171,101 75,392
Increase (decrease) in:
Accounts payable (125,685) (29,242) (134,811)
Accrued salaries and other expenses (178,475) (129,405) 178,304
------------------------------------
NET EFFECT OF CHANGE IN OPERATING ACCOUNTS $(1,350,455) $ 470,155 $1,356,730
====================================
</TABLE>
The company entered into various capital leases for new equipment, which
increased the company's property and long-term debt by $119,389 in 1994 and
$113,930 in 1993.
In April 1992, a note receivable of $221,356 was received in connection with
the sale of the company's plastics manufacturing operations. Additional advances
of $26,518 in fiscal 1995 and $114,730 in 1994 in connection with the former
plastics manufacturing operations were consolidated into a note receivable in
September 1994.
.
28
<PAGE>
7. STOCK OPTION PLAN
The company's 1991 incentive stock option plan was approved by shareholders in
August 1992. Under the plan, 250,000 shares of its common stock were reserved
for grant to various employees. The options become exercisable at 25% per year.
The number of shares reserved under the plan will be adjusted for stock splits
and stock dividends.
Options have been granted to certain nonemployee members of the board of
directors to purchase up to 10,000 shares of common stock each at a price of
$2.88 per share, exercisable before October 26, 1999. In addition, in August
1992, the shareholders approved the 1991 Outside Director Stock Option Plan
(nonqualified), which reserves 100,000 shares of the company's common stock for
grant to nonemployee directors. The following is a summary of the company's
stock option plans.
<TABLE>
<CAPTION>
MARCH 31, 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES
Common stock under option 361,337 369,562 268,312
Options exercisable 226,093 166,385 113,892
Options exercised 225 3,750 5,950
Options available 73,500 65,500 170,500
Options reserved 361,337 369,562 268,312
AVERAGE OPTION PRICE
Common stock under option $4.23 $4.22 $4.01
Options exercisable 3.88 3.53 3.17
Options exercised 3.89 2.81 2.81
</TABLE>
8. SHAREHOLDER RIGHTS PLAN
The company has a shareholder rights plan which expires in September 1999. Under
terms of the plan: a) the rights are not exercisable until 10 days after a
public announcement that a person or group has acquired or intends to acquire
20% or more of the company's common stock without the consent of the board of
directors; and b) each share of common stock has the right to purchase common
stock with a value of two times the right's purchase price. The right's
purchase price, which is subject to adjustment by the board of directors, is
currently $15.00 per right. If exercisable, based upon a closing market price of
$4.50 per share at March 31, 1995, a shareholder could purchase, by exercising
such right, approximately 6.7 shares of common stock for each share held. The
board of directors may elect to redeem the outstanding rights at $.01 per right
at any time before the expiration date.
9. EMPLOYEE RETIREMENT SAVINGS PLAN
In July 1992, the company initiated a 401(k) Retirement Savings Plan. Under the
plan's provisions, the company may, at the discretion of the board of directors,
match a portion of the employee's annual contribution. All employees over 21
years of age with at least one year of service are eligible for the plan.
Company contributions, which are 100% vested after five years of continuous
service, were $35,220 in 1995; $32,952 in 1994; and $35,046 in 1993.
10. DISPOSITION OF PRODUCT LINES AND MANUFACTURING FACILITIES
During 1993, management decided to discontinue the Fe-Cult Plus product line due
to the line's marginal profitability. The unusual charge of $480,453 comprised
$180,453 representing the cost of inventory in excess of firm customer orders on
hand at December 31, 1992 and $300,000 representing final settlement of prior
years' royalties claimed by the owner of a patent covering certain processes
used in the manufacture of Fe-Cult Plus. Sales of Fe-Cult Plus products in
fiscal 1993 were approximately $378,000.
In May 1992, the company sold its plastics manufacturing operations. Terms of
the sale provide for payment of approximately $220,000 for equipment (net book
value) and inventory, due in monthly installments, including interest, over
three years. In addition, the purchaser agreed to supply for at least two years
the plastic specialty items formerly manufactured by the company.
29
<PAGE>
11. INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
Federal
Current $705,000 $114,000 $(43,550)
Deferred (8,800) 147,000
-----------------------------
TOTAL $696,200 $261,000 $(43,550)
=============================
</TABLE>
Income taxes as shown in the statements of consolidated income differ from
the amount that would be computed if income before income taxes was multiplied
by the United States federal income tax rate (statutory rate) applicable in each
year. The reasons for this difference are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% (34.0)%
Increase (decrease) resulting from:
Exempt export earnings (3.2) (2.0)
Life insurance premiums .6
Foreign losses recognized for tax purposes (5.0)
Net operating loss recognition/limitation (21.2) 30.8
Amortization of goodwill 2.3 3.1 5.3
Tax credits (4.3)
Other - net 3.4 .3 (.3)
-------------------
EFFECTIVE TAX RATE 32.2% 16.2% (4.6)%
===================
</TABLE>
The provision for deferred income taxes is based on the liability method
prescribed by SFAS No. 109, "Accounting for Income Taxes," which was adopted by
the company during the first quarter of 1994. A deferred income tax liability or
asset is recognized for temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial statements that will
result in net taxable or deductible amounts in future years. Significant
components of the company's deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994
---------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for bad debts $ 68,600 $ 50,800
Inventory costs capitalized 50,800 50,800
DISC earnings (19,600)
Other 5,000 5,000
---------------------
Net current deferred tax asset 124,400 87,000
---------------------
Difference between book and tax basis of property, plant & equipment (254,000) (238,000)
Other (8,600) 4,000
---------------------
Net noncurrent deferred tax liability (262,600) (234,000)
---------------------
NET DEFERRED TAX LIABILITY $(138,200) $(147,000)
=====================
</TABLE>
30
<PAGE>
12. SALES BY GEOGRAPHIC AREA
The company operates within one dominant segment -- the manufacture and sale of
blood bank and diagnostic products -- and has no customer which accounts for 10%
or more of its total sales. The company operates in one geographic area, the
United States, from which it sells to numerous countries.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993
---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States $13,177 $12,344 $11,963
Europe 1,893 1,930 1,413
Pacific Region 1,342 1,246 1,393
Mexico, Central and South America 898 553 566
Middle East 637 848 725
Other 314 292 330
----------------------------
TOTAL $18,261 $17,213 $16,390
============================
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The company leases certain facilities, equipment and automobiles under operating
leases which range from one month to three years. Rent expense charged to income
was approximately $250,000 in 1995; $280,000 in 1994; and $321,000 in 1993.
Future minimum rental commitments at March 31, 1995 are $374,000, due primarily
over two years.
CONTINGENCIES
From time to time, the company is involved in certain legal proceedings and
claims which arise in the normal course of business, none of which, in
management's opinion, is expected to have a material adverse effect on the
company's consolidated operations or financial position.
31
<PAGE>
Auditors INDEPENDENT AUDITORS' REPORT
Gamma Biologicals, Inc.
We have audited the accompanying consolidated balance sheets of Gamma
Biologicals, Inc. and subsidiaries (the company) as of March 31, 1995 and 1994,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended March 31,
1995. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on the 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 the company at March 31, 1995 and
1994, and the results of its operations and its cash flows for each of the three
years in the period ended March 31, 1995, in conformity with generally accepted
accounting principles.
Houston, Texas
June 9, 1995
Management MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of Gamma Biologicals, Inc. has prepared and is responsible for
the financial statements and related financial data contained in this report.
The financial statements were prepared in accordance with generally accepted
accounting principles and necessarily include certain amounts based upon
management's best estimates and judgments. The financial information contained
elsewhere in this annual report is consistent with that in the financial
statements.
The company maintains internal accounting control systems that are adequate
to prepare financial records and to provide reasonable assurance that the assets
are safeguarded from loss or unauthorized use. We believe these systems are
effective, and the cost of the systems does not exceed the benefits obtained.
The Audit Committee, composed exclusively of outside directors, meets
periodically with the company's management and independent public accountants on
financial reporting matters. The independent public accountants have free access
to the Audit Committee and may meet with the committee, without management
present, to discuss their audit results and opinions on the quality of financial
reporting.
The role of independent public accountants is to render a professional,
independent opinion on management's financial statements to the extent required
by generally accepted auditing standards. Gamma's responsibility is to conduct
its affairs according to the highest standards of personal and corporate
conduct.
[Signature of Margaret J. O'Bannion appears here]
Margaret J. O'Bannion
Vice President -- Finance
32
<PAGE>
Data CORPORATE DATA
OFFICERS
David E. Hatcher
Chairman & Chief Executive Officer
John J. Moulds
President & Chief Operating Officer
Betty Francis Hatcher
Executive Vice President -- Product Development
John Case
Vice President -- Regulatory Affairs
Lawrence E. Letwin
Corporate Secretary
Margaret J. O'Bannion
Vice President -- Finance
& Chief Financial Officer
Gary L. Parrish
Vice President -- National Sales
Jimmie L. Turner
Vice President -- Customer Services
DIRECTORS
David E. Hatcher
Chairman
Bryan J. Brieden /*+/
Consultant & former president
Bryan Biologicals, Inc.
Detroit, Michigan
(Laboratory supplies distributor)
Betty Francis Hatcher
R. Bruce LaBoon /*+/
Partner
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Houston, Texas
(Attorneys at law)
John J. Moulds
Hayle B. Randolph /*+/
Blood services consultant
Mesa and Flagstaff, Arizona
GENERAL COUNSEL
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Houston, Texas
AUDITORS
Deloitte & Touche LLP
Houston, Texas
STOCK TRANSFER AGENT AND REGISTRAR
Please direct communications concerning stock transfer requirements, lost
certificates or changes of address to:
Society National Bank
c/o KeyCorp Shareholder Services, Inc.
700 Louisiana, Suite 2620
Houston, Texas 77002-2729
1-800/539-6549 or 713/546-5500
FAX: 713/546-5510
STOCK TRADING
Gamma Biologicals, Inc. common stock trades on the American Stock Exchange using
the symbol GBL.
SEC FORM 10-K
Gamma will provide its shareholders, without charge,
a copy of the company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995, filed with the Securities and Exchange
Commission. Direct requests to:
Margaret J. O'Bannion
Gamma Biologicals, Inc.
3700 Mangum Road
Houston, TX 77092.
FINANCIAL MAILING LIST
Shareholders whose stock is held in trust or by a brokerage firm may receive
timely financial mailings directly from Gamma by writing to Ms. Margaret J.
O'Bannion at the above address.
ANNUAL MEETING
Gamma Biologicals, Inc. invites interested shareholders to attend its annual
meeting at 3:00 p.m. CDT on Thursday, August 10, 1995, at the company's offices,
3700 Mangum Road, Houston, Texas.
/*/ Member, Audit Committee
/+/ Member, Compensation/Stock Option Committee
Portions of this report are printed on recycled paper.
<PAGE>
GAMMA BIOLOGICALS, INC.
3700 Mangum Road
Houston, Texas 77092
713/681-8481
FAX 713/956-3333
<PAGE>
EXHIBIT 21
GAMMA BIOLOGICALS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR COUNTRY
IN WHICH PERCENT
INCORPORATED OWNED
------------------ -------
<S> <C> <C>
Registrant:
Gamma Biologicals, Inc.................................... Texas Not Applicable
Subsidiaries of the Registrant(A):
Delta Diagnostics, Inc.................................... Texas 100%
Gamma Biologicals International, Inc...................... United States
Virgin Islands 100%
</TABLE>
- -------------
Note A All of the subsidiaries are included in the consolidated financial
statements of the Registrant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,795,854
<SECURITIES> 2,094,112
<RECEIVABLES> 4,189,017
<ALLOWANCES> 201,668
<INVENTORY> 3,807,495
<CURRENT-ASSETS> 12,323,544
<PP&E> 9,274,869
<DEPRECIATION> 5,084,309
<TOTAL-ASSETS> 18,383,908
<CURRENT-LIABILITIES> 1,648,369
<BONDS> 19,263
<COMMON> 470,030
0
0
<OTHER-SE> 15,983,646
<TOTAL-LIABILITY-AND-EQUITY> 18,383,908
<SALES> 18,261,288
<TOTAL-REVENUES> 18,261,288
<CGS> 8,393,870
<TOTAL-COSTS> 13,761,614
<OTHER-EXPENSES> 2,215,373
<LOSS-PROVISION> 91,001
<INTEREST-EXPENSE> 67,645
<INCOME-PRETAX> 2,162,719
<INCOME-TAX> 696,200
<INCOME-CONTINUING> 1,466,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,466,519
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
