<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, 1996
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 Identification No.)
incorporation or organization)
3700 Mangum Road, Houston, Texas 77092
- -------------------------------- --------------------------------------
(Address of principal executive (Zip code)
offices)
(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 13, 1996: 4,552,802 shares
<PAGE>
PART I. FINANCIAL INFORMATION
GAMMA BIOLOGICALS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1996 MARCH 31, 1996
------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,129,514 $ 3,724,379
Short-term investments 100,000 100,000
Receivables - net of allowance for
doubtful accounts of $164,604 and
$156,839 respectively 3,306,718 3,696,880
Inventories 3,236,616 3,240,360
Prepaid expenses 339,995 369,380
Deferred taxes 117,700 110,900
----------- -----------
Total current assets 11,230,543 11,241,899
----------- -----------
PROPERTY - At cost, net of accumulated
depreciation and amortization of
$5,636,644 and $5,684,907, respectively 5,417,821 5,178,063
CASH VALUE OF LIFE INSURANCE 1,813,588 1,729,774
OTHER ASSETS 257,665 275,964
----------- -----------
TOTAL $18,719,617 $18,425,700
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
obligations $ 91,893 $ 96,588
Accounts payable - trade 595,656 487,681
Dividends payable 113,821 113,796
Accrued salaries and other
expenses 294,041 244,852
----------- -----------
Total current liabilities
1,095,411 942,917
----------- -----------
LONG-TERM OBLIGATIONS 330,501 353,097
----------- -----------
DEFERRED TAXES 332,200 277,600
----------- -----------
SHAREHOLDERS' EQUITY 16,961,505 16,852,086
----------- -----------
TOTAL $18,719,617 $18,425,700
=========== ===========
</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,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
NET SALES $4,212,036 $4,088,237
COST OF SALES 1,984,592 1,916,673
---------- ----------
GROSS MARGIN 2,227,444 2,171,564
---------- ----------
OPERATING EXPENSES:
Selling 863,366 858,591
General and administrative 533,229 547,516
Shipping and warehouse 168,818 228,514
Research and development 329,916 300,242
---------- ----------
Total operating expenses 1,895,329 1,934,863
---------- ----------
OPERATING INCOME 332,115 236,701
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 47,806 68,944
Interest expense (11,412) (14,389)
Other - net (3,979) 23,735
---------- ----------
Other income - net 32,415 78,290
---------- ----------
INCOME BEFORE INCOME TAXES 364,530 314,991
INCOME TAXES 144,100 94,500
---------- ----------
NET INCOME $ 220,430 $ 220,491
========== ==========
Weighted average number of common and
common equivalent shares outstanding 4,593,336 4,600,058
---------- ----------
Net income per common and common
equivalent share $.05 $.05
========== ==========
</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,
-----------------------------------------------------
1996 1995
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
COMMON STOCK
Balance, beginning of period 4,711,365 $ 471,136 4,700,303 $ 470,030
Exercise of stock options 1,000 100
--------- ------------ --------- ------------
Balance, end of period 4,712,365 471,236 4,700,303 470,030
--------- ------------ --------- ------------
CAPITAL IN EXCESS OF PAR
Balance, beginning of period 13,512,836 13,482,615
Exercise of stock options 2,710
--------- ------------ --------- ------------
Balance, end of period 13,515,546 13,482,615
--------- ----------- --------- -----------
RETAINED EARNINGS
Balance, beginning of period 3,988,022 3,619,289
Net income 220,430 220,491
Dividends declared (113,821) (113,605)
--------- ----------- --------- -----------
Balance, end of period 4,094,631 3,726,175
--------- ----------- --------- -----------
UNREALIZED INVESTMENT LOSS
Balance, beginning of period
Current period unrealized loss (1,625)
--------- ----------- --------- -----------
Balance, end of period (1,625)
--------- ----------- --------- -----------
TREASURY STOCK (159,563) (1,119,908) (159,169) (1,118,258)
--------- ----------- --------- -----------
TOTAL SHAREHOLDERS' EQUITY 4,552,802 $ 16,961,505 4,541,134 $ 16,558,937
========= ============ ========= ============
</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,
-----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
[INCREASE (DECREASE) IN CASH]
Cash flows from operating activities:
Cash received from customers $ 4,482,280 $ 4,456,373
Interest received 51,192 38,213
Cash paid to suppliers and employees (3,479,830) (3,837,137)
Interest paid (11,412) (14,389)
------------ ------------
Net cash provided by operating
activities 1,042,230 643,060
------------ ------------
Cash flows from investing activities:
Property additions (415,053) (488,461)
Increase in cash value of life
insurance (83,814) (79,363)
Proceeds from sale of equipment 49 8,595
------------ ------------
Net cash used in investing
activities (498,818) (559,229)
------------ ------------
Cash flows from financing activities:
Payments on long-term
obligations (27,291) (53,808)
Exercise of stock options 2,810
Dividends paid (113,796) (113,604)
------------ ------------
Net cash used in financing
activities (138,277) (167,412)
------------ ------------
Net increase (decrease) in cash 405,135 (83,581)
Cash and cash equivalents at beginning
of period 3,724,379 1,795,854
------------ ------------
Cash and cash equivalents at end of
period $ 4,129,514 $ 1,712,273
============ ============
</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,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net Income $ 220,430 $ 220,491
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 172,383 155,090
Loss on sale of fixed assets 2,863
Decrease in accounts receivable 285,008 382,455
(Increase) decrease in investments 3,386 (30,731)
Increase in inventory (50,918) (145,454)
Decrease in prepaid expenses 185,815 37,218
Decrease in other assets 18,299 42,187
Increase (decrease) in accounts
payable 107,975 (156,160)
Increase in accrued salaries and
other expenses 96,989 137,964
--------- ---------
Net Cash Provided by
Operating Activities $1,042,230 $ 643,060
========== ==========
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In March 1996, the company outsourced the assembly of plastic droppers and
SegmentSamplers/TM/. As a result, inventory of component parts totaling $282,886
was transferred to outside vendors and a corresponding receivable due from the
vendors was recorded. This receivable will be reduced as assembled parts are
delivered, with the cost of components deducted from the vendors' selling price.
As of June 30, 1996 additional inventory valued at $54,662 was transferred to
outside vendors and the outstanding receivable balance was $154,422.
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>
1996 1995
---- ----
Statutory rate 34.0% 34.0%
Increase (decrease) resulting from:
Exempt export earnings (3.2) (5.2)
Life insurance premiums .7 1.1
Valuation of temporary
differences 7.1 (.7)
Other-net .9 .8
---- ----
Effective tax rate 39.5% 30.0%
==== ====
</TABLE>
The provision for deferred income taxes is based on the liability method
prescribed by SFAS No. 109. 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, 1996 MARCH 31, 1996
-------------- ---------------
<S> <C> <C>
Allowance for bad debts $ 56,000 $ 53,300
Inventory costs capitalized 61,700 57,600
---------- ----------
Net current deferred tax
asset 117,700 110,900
---------- ----------
Difference between book and tax
basis of property,
plant and equipment (309,000) (253,000)
Other (23,200) (24,600)
---------- ----------
Net noncurrent deferred tax (332,200) (277,600)
liability ---------- ----------
Net deferred tax liability $ (214,500) $ (166,700)
========== ==========
</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 4,593,336 in 1996 and 4,600,058 in
1995.
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, 1996 MARCH 31, 1996
------------- --------------
<S> <C> <C>
First-in, first out:
Finished products $1,509,074 $1,387,826
Products in process 403,630 499,579
---------- ----------
1,912,704 1,887,405
---------- ----------
Specific identification:
Raw material 705,918 737,717
---------- ----------
705,918 737,717
---------- ----------
Average:
Supplies 617,994 615,238
---------- ----------
Total $3,236,616 $3,240,360
========== ==========
</TABLE>
4. INVESTMENTS
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", 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, 1996
Debt securities:
Certificates of Deposit - due 9/9/96 Held to maturity $ 100,000 $ 100,000
----------------------------------------
Total debt securities 100,000 100,000
----------------------------------------
Total investments $ 100,000 $ 100,000
========================================
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 995,630 662 994,968
Certificates of Deposit - due
9/11/95 Held to maturity 100,937 100,937
----------------------------------------
Total debt securities 2,096,257 117 2,096,140
----------------------------------------
Total investments $2,105,201 $ (1,508) $2,105,084
========================================
</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,
1996, the results of operations of the three month periods ended June 30,
1996 and 1995 and cash flows for the three month periods ended June 30, 1996
and 1995. 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, 1996 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>
<S> <C> <C>
JUNE 30, 1996 MARCH 31, 1996
-------------- --------------
Mortgage note, due monthly through $411,295 $430,422
2000
Other obligations 11,099 19,263
-------- ---------
422,394 449,685
Less current portion 91,893 96,588
-------- ---------
Total long-term obligations $330,501 $353,097
======== =========
</TABLE>
The mortgage note bears interest at the bank's base rate, but not less than 7%
nor more than 13%. At June 30, 1996, the note bore interest at 9.25%. The
mortgage note is collateralized 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,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales to unaffiliated customers:
United States $3,077,478 $2,990,547
Europe 389,155 387,824
Pacific Region 317,242 281,097
Mexico, Central and South 240,490 158,949
America
Middle East 142,206 208,571
Other 45,465 61,249
---------- ----------
Total $4,212,036 $4,088,237
========== ==========
</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, 1996
- --------------------------------
Revenues increased 3% for the three months ended June 30, 1996 compared with
the same period in 1995. Domestic sales rose 3% due, in large part, to the
fulfillment of backorders of one third-party product. Our supplier plans to
introduce a new and improved version of this product in the near future; this
should eliminate the supply shortages and FDA recalls experienced over the past
twelve months. Internationally, now that exclusive distributorships have been
established in every country in Central and South America, sales have begun to
strengthen in this region, increasing 51% compared to the same period last year.
Export sales rose 3% overall in the current period.
Gross margin as a percentage of sales held at 53% in the current period, in
spite of continued pressure on selling prices, due to the conversion of source
material for additional high-volume products to clone-based raw materials grown
in our in-house clone lab. This conversion has improved and should continue to
improve manufacturing efficiencies in both reagent manufacturing and the clone
lab as more products are converted.
Selling and general and administrative expenses remained relatively constant
with the prior period. Shipping and warehouse expenses fell 26% compared with
the same period in 1995. Relocation of the shipping department to new
facilities that fully utilize the bar coding system implemented last year has
significantly improved accuracy and control. The order fulfillment process will
be further streamlined this fall with the completion of a computer software
upgrade.
Research and development expenses increased 10% in 1996 after a 40% increase
in 1995, due to costs associated with ReACT alpha testing, Olympus reagent field
studies, and ongoing electro-biosensor research.
Interest income has declined due to a reduction in the amount of funds
invested and a change in the investment mix in the current period. Interest
expense decreased due to normal debt retirement. Other income in 1995 was
related to the sale of infectious mononucleosis test kit technology, one of the
company's low-volume serological products.
The provision for income taxes rose 52% due mainly to deferred taxes provided
for temporary differences between the book and tax basis of fiscal 1996 property
additions.
In March 1995, the Financial Accounting Standards Board("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of",
which sets forth guidance as to when to recognize an impairment of long-lived
assets, including goodwill, and how to measure such an impairment. The company
adopted SFAS No. 121 on April 1, 1996. The adoption of SFAS No. 121 did not
have a material effect on the company's results of operations or financial
position.
10
<PAGE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits, but does not require, a fair-value-based method
for accounting for employee stock option plans which results in compensation
expense being recognized in the results of operations when stock options are
granted. The company adopted SFAS No. 123 on April 1, 1996. We plan to
continue the use of our current intrinsic-value-based method of accounting for
such plans where no compensation expense is recognized. However, as required by
SFAS No. 123, we will provide pro forma disclosure of net income and earnings
per share, if significantly different from reported amounts, in the notes to the
annual financial statements as if the fair-value-based method had been applied.
The company has not granted any stock-based compensation instruments in the
three month period ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash flows increased approximately $489,000 during the three month period
ended June 30, 1996 compared with the same period in 1995. Operating cash flows
improved by nearly $400,000, due primarily to reduced inventory levels resulting
from outsourcing the assembly of plastic droppers and SegmentSamplers.
Management believes that operating cash flows will be sufficient to meet future
operating needs.
With the completion of improvements to the shipping area in May 1996, capital
expenditures have begun to slow, decreasing $73,000 from the same period last
year. Although further expenditures are planned during fiscal 1997 to upgrade
the computer system, automate the packaging function and add capacity to the
monoclonal laboratory, domestic expenditures are expected to total $800,000, or
approximately half of the fiscal 1996 total.
In July 1996, we took delivery of nine of the first production lot of 25
ReACT microcolumn centrifuges. This lot will cost about $23,000, plus a molding
charge. We plan to establish a manufacturing facility outside the United States
during the second half of fiscal 1997, since FDA approval to market ReACT in the
United States may take as long as two years. The company has also committed
$165,000 to fund electro-biosensor research in fiscal 1997, half of which was
funded this quarter.
The company's existing capital resources, consisting of $4,200,000 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 13, 1996 By: /s/ John J. Moulds
-------------------------------
John J. Moulds
President
(Chief Operating Officer)
August 13, 1996 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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 4,129,514
<SECURITIES> 100,000
<RECEIVABLES> 3,471,322
<ALLOWANCES> 164,604
<INVENTORY> 3,236,616
<CURRENT-ASSETS> 11,230,543
<PP&E> 11,054,465
<DEPRECIATION> 5,636,644
<TOTAL-ASSETS> 18,719,617
<CURRENT-LIABILITIES> 1,095,411
<BONDS> 330,501
471,236
0
<COMMON> 0
<OTHER-SE> 16,490,269
<TOTAL-LIABILITY-AND-EQUITY> 18,719,617
<SALES> 4,212,036
<TOTAL-REVENUES> 4,212,036
<CGS> 1,984,592
<TOTAL-COSTS> 1,362,100
<OTHER-EXPENSES> 518,465
<LOSS-PROVISION> 14,764
<INTEREST-EXPENSE> 11,412
<INCOME-PRETAX> 364,530
<INCOME-TAX> 144,100
<INCOME-CONTINUING> 220,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220,430
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
