<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3700 Mangum Road, Houston, Texas 77092
----------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(713) 681-8481
----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At August 11, 1995: 4,541,134 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
GAMMA BIOLOGICALS, INC.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS JUNE 30, MARCH 31,
1995 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 1,712,273 $ 1,795,854
Short-term investments................ 2,096,140 2,094,112
Receivables - net of allowance for
doubtful accounts of $206,834
and $201,668 respectively............ 3,633,597 3,987,349
Inventories........................... 3,952,949 3,807,495
Prepaid expenses...................... 468,521 514,334
Deferred taxes........................ 132,900 124,400
------------ -----------
Total current assets............ 11,996,380 12,323,544
------------ -----------
PROPERTY - At cost, net of accumulated
depreciation and amortization
of $5,239,399 and $5,084,309,
respectively.......................... 4,523,931 4,190,560
CASH VALUE OF LIFE INSURANCE............ 1,611,361 1,531,998
OTHER ASSETS............................ 293,994 337,806
------------ -----------
TOTAL........................... $18,425,666 $18,383,908
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
obligations.......................... $ 557,102 $ 602,746
Accounts payable - trade.............. 409,489 565,649
Dividends payable..................... 113,529 113,528
Accrued salaries and other expenses... 506,910 366,446
------------ -----------
Total current liabilities............. 1,587,030 1,648,369
------------ -----------
LONG-TERM OBLIGATIONS................... 11,099 19,263
------------ -----------
DEFERRED TAXES.......................... 268,600 262,600
------------ -----------
SHAREHOLDERS' EQUITY.................... 16,558,937 16,453,676
------------ -----------
TOTAL........................... $18,425,666 $18,383,908
============ ===========
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET SALES....................................... $4,088,237 $4,343,115
COST OF SALES................................... 1,916,673 2,043,020
------------ ------------
GROSS MARGIN.................................... 2,171,564 2,300,095
------------ ------------
OPERATING EXPENSES:
Selling....................................... 858,591 858,402
General and administrative.................... 547,516 540,822
Shipping and warehouse........................ 228,514 158,227
Research and development...................... 300,242 214,028
------------ ------------
Total operating expenses.............. 1,934,863 1,771,479
------------ ------------
OPERATING INCOME................................ 236,701 528,616
------------ ------------
OTHER INCOME (EXPENSE):
Interest income............................... 68,944 48,307
Interest expense.............................. (14,389) (18,314)
Other - net................................... 23,735 (18,324)
------------ ------------
Other income - net.................... 78,290 11,669
------------ ------------
INCOME BEFORE INCOME TAXES...................... 314,991 540,285
INCOME TAXES.................................... 94,500 187,250
------------ ------------
NET INCOME...................................... $ 220,491 $ 353,035
============ ============
Weighted average number of common and
common equivalent shares outstanding......... 4,600,058 4,729,586
------------ ------------
Net income per common and common
equivalent share............................. $.05 $.07
============ ===========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Changes in Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JUNE 30,
-------------------------
1995 1994
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
COMMON STOCK......................... 4,700,303 $ 470,030 4,700,078 $ 470,008
-----------------------------------------------------
CAPITAL IN EXCESS OF PAR............. 13,482,615 13,481,763
-----------------------------------------------------
RETAINED EARNINGS
Balance, beginning of period....... 3,619,289 2,609,496
Net income......................... 220,491 353,035
Dividends declared................. (113,605) (115,003)
-----------------------------------------------------
Balance, end of period............. 3,726,175 2,847,528
-----------------------------------------------------
UNREALIZED INVESTMENT LOSS
Balance, beginning of period....... (87,683)
Current period unrealized loss..... (1,625) (1,626)
-----------------------------------------------------
Balance, end of period............. (1,625) (89,309)
-----------------------------------------------------
TREASURY STOCK....................... (159,169) (1,118,258) (99,952) (853,469)
-----------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY........... 4,541,134 $ 16,558,937 4,600,126 $15,856,521
=====================================================
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
JUNE 30,
-----------------------------
1995 1994
-------------- -------------
[INCREASE (DECREASE) IN CASH]
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers............. $ 4,456,373 $ 4,185,893
Interest received........................ 38,213 30,000
Cash paid to suppliers and employees..... (3,837,137) (4,094,629)
Interest paid............................ (14,389) (18,314)
------------ ------------
Net cash provided by operating
activities............................. 643,060 102,950
------------ ------------
Cash flows from investing activities:
Property additions....................... (488,461) (183,358)
Increase in cash surrender value of life
insurance.............................. (79,363) (60,713)
Proceeds from sale of equipment.......... 8,595 13,508
------------ ------------
Net cash used in investing activities.... (559,229) (230,563)
------------ ------------
Cash flows from financing activities:
Payments on long-term obligations........ (53,808) (52,906)
Dividends paid........................... (113,604) (115,004)
------------ ------------
Net cash used in financing activities.... (167,412) (167,910)
------------ ------------
Net decrease in cash...................... (83,581) (295,523)
Cash and cash equivalents at beginning
of period............................... 1,795,854 3,175,265
------------ ------------
Cash and cash equivalents at end of
period.................................... $ 1,712,273 $ 2,879,742
============ ============
</TABLE>
5
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Cash Flows
(Unaudited)
Reconciliation of Net Income to
Net Cash Provided by Operating Activities
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
JUNE 30,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net Income............................... $ 220,491 $ 353,035
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation........................ 155,090 127,679
Amortization of goodwill............ 36,758
Loss on sale of fixed assets........ 18,823
(Increase) decrease in accounts
receivable......................... 382,455 (135,480)
Increase in investments............. (30,731) (18,307)
Increase in inventory............... (145,454) (6,196)
(Increase) decrease in prepaid
expenses........................... 37,218 (89,101)
(Increase) decrease in other
assets............................. 42,187 (17,701)
Decrease in accounts payable........ (156,160) (174,309)
Increase in accrued salaries and
other expenses..................... 137,964 7,749
---------- ----------
Net Cash Provided by
Operating Activities............. $ 643,060 $ 102,950
========== ==========
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
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.
See notes to unaudited consolidated financial statements.
6
<PAGE>
GAMMA BIOLOGICALS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Reconciliation of statutory rate with effective United States income tax
rate:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30,
------------------
<S> <C> <C>
1995 1994
---- ----
Statutory rate........................ 34.0% 34.0%
Increase (decrease) resulting from:
Exempt export earnings............. (5.2)
Life insurance premiums............ 1.1 .1
Amortization of goodwill........... 2.3
Other-net.......................... .1 (1.7)
---- ----
Effective tax rate.................... 30.0% 34.7%
==== ====
</TABLE>
The provision for deferred income taxes is based on the liability method
prescribed by SFAS No. 109, 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>
JUNE 30, 1995 MARCH 31, 1995
-------------- ---------------
<S> <C> <C>
Allowance for bad debts............... $ 70,300 $ 68,600
Inventory costs capitalized........... 57,600 50,800
Other................................. 5,000 5,000
---------- ----------
Net current deferred tax asset...... 132,900 124,400
---------- ----------
Difference between book and tax
basis of property, plant and
equipment........................... (253,000) (254,000)
Other................................. (15,600) (8,600)
---------- ----------
Net noncurrent deferred tax
liability......................... (268,600) (262,600)
---------- ----------
Net deferred tax liability............ $ (135,700) $ (138,200)
========== ==========
</TABLE>
2. Net income per common and common equivalent share is computed using
weighted average number of shares and dilutive equivalent shares
outstanding during each period. The weighted average number of shares for
the three-month period ended June 30 was 4,600,058 in 1995 and 4,729,586 in
1994.
7
<PAGE>
3. Inventories are valued at the lower of cost or market value, based on the
cost method summarized below:
<TABLE>
<CAPTION>
JUNE 30, 1995 MARCH 31, 1995
------------- --------------
<S> <C> <C>
First-in, first out:
Finished products.................. $1,747,757 $1,540,278
Products in process................ 534,584 650,443
---------- ----------
2,282,341 2,190,721
---------- ----------
Specific identification:
Raw material....................... 809,667 840,289
Finished instrument systems........ 3,624 3,648
---------- ----------
813,291 843,937
---------- ----------
Average:
Supplies........................... 857,317 772,837
---------- ----------
Total............................ $3,952,949 $3,807,495
========== ==========
</TABLE>
4. 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>
Three months ended June 30, 1995
Equity securities:
Common stock.................... Available for sale $ 8,944 (1,625) $ 8,944
Debt securities:
U.S. Government:
Federal Farm Credit Banks -
due 9/1/95.................... Held to maturity 999,690 (545) 1,000,235
Treasury Notes - due 3/3/96.... Held to maturity 995,630 661 994,969
Certificates of Deposit - due
9/11/95...................... Held to maturity 100,937 100,937
--------------------------------------
Total debt securities............................. 2,096,257 116 2,096,140
--------------------------------------
Total investments................................ $2,105,201 (1,509) $2,105,084
======================================
Three months ended June 30, 1994
Equity securities:
Common stock.................... Available for sale $ 13,000 (1,626) $ 13,000
Debt securities:
U.S. Government:
Federal Farm Credit Banks -
due 9/1/94.................... Held to maturity 2,011,260 (63,275) 2,074,535
Certificates of Deposit - due
9/12/94........................ Held to maturity 100,860 100,860
--------------------------------------
Total debt securities............................. 2,112,120 (63,275) 2,175,395
--------------------------------------
Total investments............................... $2,125,120 (64,901) $2,188,395
======================================
</TABLE>
8
<PAGE>
5. In the opinion of management, the unaudited consolidated condensed
financial statements for Gamma Biologicals, Inc. (the "company") includes
all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial position of the company
as of June 30, 1995, the results of operations of the three month periods
ended June 30, 1995 and 1994 and cash flows for the three month periods
ended June 30, 1995 and 1994. Although management believes the disclosures
in these financial statements are adequate to make the information
presented not misleading, certain information and footnote disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The results of operations for the period ended June
30, 1995 are not necessarily indicative of the results to be expected for
the full year.
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of:
<TABLE>
<CAPTION>
JUNE 30, 1995 MARCH 31, 1995
------------- --------------
<S> <C> <C>
Mortgage note, due monthly through
1995................................. $485,552 $508,434
Other obligations..................... 82,649 113,575
-------- --------
568,201 622,009
Less current portion............... 557,102 602,746
-------- --------
Total long-term obligations........... $ 11,099 $ 19,263
======== ========
</TABLE>
The mortgage note bears interest at the bank's base rate, but not less than
7% nor more than 13%. At June 30, 1995, the note bore interest at 10.0%.
The mortgage note is collaterized by a first lien on the company's land and
building.
7. 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>
THREE MONTHS ENDED
------------------------
JUNE 30,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net sales to unaffiliated customers:
United States................. $2,990,547 $3,119,202
Europe........................ 387,824 477,703
Pacific Region................ 281,097 297,155
Mexico, Central and South
America...................... 158,949 253,095
Middle East................... 208,571 125,977
Other......................... 61,249 69,983
---------- ----------
Total......................... $4,088,237 $4,343,115
========== ==========
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED JUNE 30, 1995
--------------------------------
Company sales declined nearly 6% for the three months ended June 30, 1995
when compared with the same period in 1994. Domestic sales declined 4% due, in
large part, to the anticipated decrease in STS-M reagent and disposable sales
and instrument service contract revenue, along with the shrinkage in sales of
third-party products caused by short supply. Management expects the downward
trend of STS-M related revenues to continue as these mature instruments are
retired. It also appears that third-party product sales will continue to be
affected by a supply shortage for the interim. Sales of the new SegmentSampler
partially offset losses and should increasingly offset future declines.
International sales decreased 10% due to a number of factors, primarily the
reorganization of the dealer network and the recent currency volatility in
Mexico and Argentina where the company has significant dealings. Future periods
should show improvement as new dealers are fully in place and economic
conditions stabilize.
Gross margin as a percentage of sales remained at 53% in 1995 due to the
positive effect of reduced travel and personnel expenses related to discontinued
STS-M service contracts combined with decreased sales of lower-margin STS-M
disposables and third-party products.
Selling and general and administrative expenses remained relatively
constant with the prior period. Shipping and warehouse expenses increased 44%
compared with the same period in 1994 due to supply price increases, along with
increased staffing and depreciation expense related to the first phase of the
bar coding system installed in March 1995. The bar coding system, when complete,
is expected to provide significant long-term benefits to the shipping,
warehousing and manufacturing functions.
Research and development expenses increased 40% in 1995 due to costs
associated with the ongoing electro-biosensor research at two university centers
and development costs for the ReACT project.
Interest income increased due to an increase in funds invested and higher
interest rates in the current period. Interest expense decreased due to normal
debt retirement. Other income for 1995 is related to the sale of infectious
mononucleosis test kit technology, one of the company's low-volume serological
products. Other expense for 1994 represented losses on the disposal of obsolete
computer equipment in connection with the installation of a network system.
The provision for income taxes fell in 1995 due to lower pretax earnings.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash flows increased approximately $212,000 during the three month
period ended June 30, 1995 compared with the same period in 1994. Operating cash
flows improved by $540,000 due to collection of international receivables and
the absence of payments of license fees that affected 1994 operating cash flows.
A $305,000 increase in capital expenditures for manufacturing modernization
partially offset the gains in operating cash flows. Management expects that
capital expenditures will continue to be higher than usual for the next 12
months to complete all planned improvements. Management also believes that
operating cash flows will be sufficient to meet future operating needs.
In April 1995, we ordered the first production lot of 25 ReACT microcolumn
centrifuges that should be available for sale internationally in late fiscal
1996. 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. In regards to the electro-biosensor research, additional funding
of $155,000 has been committed to one of the research centers for 1996.
The company's existing capital resources, consisting of $3,800,000 in cash
and short-term investments and a $1,500,000 revolving credit line, should be
sufficient to support planned product development and capital improvements
during the next 12 months.
11
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits, Part II
(27) Article 5 Financial Data Schedule
(b) Reports on Form 8-K - None
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
GAMMA BIOLOGICALS, INC.
August 11, 1995 By: /s/ John J. Moulds
-------------------------------
John J. Moulds
President
(Chief Operating Officer)
August 11, 1995 By: /s/ Margaret J. O'Bannion
-------------------------------
Margaret J. O'Bannion
Vice President - Finance
(Chief Financial Officer)
13
<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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 1,712,273
<SECURITIES> 2,096,140
<RECEIVABLES> 3,840,431
<ALLOWANCES> 206,834
<INVENTORY> 3,952,949
<CURRENT-ASSETS> 11,996,380
<PP&E> 9,763,330
<DEPRECIATION> 5,239,399
<TOTAL-ASSETS> 18,425,666
<CURRENT-LIABILITIES> 1,587,030
<BONDS> 11,099
<COMMON> 470,030
0
0
<OTHER-SE> 16,088,907
<TOTAL-LIABILITY-AND-EQUITY> 18,425,666
<SALES> 4,088,237
<TOTAL-REVENUES> 4,088,237
<CGS> 1,916,673
<TOTAL-COSTS> 3,304,020
<OTHER-EXPENSES> 533,197
<LOSS-PROVISION> 14,319
<INTEREST-EXPENSE> 14,389
<INCOME-PRETAX> 314,991
<INCOME-TAX> 94,500
<INCOME-CONTINUING> 220,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220,491
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
