<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 December 31, 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
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 February 13, 1997: 4,602,802 shares
<PAGE>
PART I. FINANCIAL INFORMATION
GAMMA BIOLOGICALS, INC.
Consolidated Balance Sheets
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents................. $ 3,559,551 $ 3,724,379
Short-term investments.................... 100,000 100,000
Receivables - net of allowance for
doubtful accounts of $186,463
and $156,839,respectively................ 3,420,794 3,696,880
Inventories............................... 3,743,359 3,240,360
Prepaid expenses.......................... 384,719 369,380
Deferred taxes............................ 220,800 110,900
------------- -------------
Total current assets...................... 11,429,223 11,241,899
------------- -------------
PROPERTY - at cost, net of accumulated
depreciation and amortization of
$6,045,025 and $5,684,907, respectively.... 5,905,810 5,178,063
CASH VALUE OF LIFE INSURANCE................ 1,837,252 1,729,774
EXCESS OF COST OVER NET ASSETS ACQUIRED-NET 135,762
OTHER ASSETS................................ 292,963 275,964
------------- -------------
TOTAL..................................... $ 19,601,010 $ 18,425,700
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations.. $ 113,347 $ 96,588
Accounts payable - trade.................. 634,418 487,681
Dividends payable......................... 115,071 113,796
Accrued salaries and other expenses....... 266,908 244,852
------------- -------------
Total current liabilities............... 1,129,744 942,917
------------- -------------
LONG-TERM OBLIGATIONS....................... 387,769 353,097
------------- -------------
DEFERRED TAXES.............................. 527,233 277,600
------------- -------------
SHAREHOLDERS' EQUITY........................ 17,556,264 16,852,086
------------- -------------
TOTAL................................... $ 19,601,010 $ 18,425,700
============= =============
See notes to unaudited consolidated financial statements.
2
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES................................ $ 4,649,766 $4,202,417 $13,038,671 $12,622,215
COST OF SALES............................ 2,185,539 2,005,036 5,901,657 5,842,063
----------- ---------- ----------- -----------
GROSS MARGIN............................. 2,464,227 2,197,381 7,137,014 6,780,152
----------- ---------- ----------- -----------
OPERATING EXPENSES:
Selling........................... 999,156 878,574 2,750,667 2,608,270
General and administrative........ 547,364 621,802 1,632,656 1,755,267
Shipping and warehouse............ 188,221 211,364 541,225 683,846
Research and development.......... 378,488 347,047 1,074,139 976,004
----------- ---------- ----------- -----------
Total operating expense........ 2,113,229 2,058,787 5,998,687 6,023,387
----------- ---------- ----------- -----------
OPERATING INCOME......................... 350,998 138,594 1,138,327 756,765
----------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income................... 53,998 63,548 155,592 200,423
Interest expense.................. (13,000) (3,295) (35,112) (35,345)
Other - net....................... (5,134) (803) (5,695) 21,476
----------- ---------- ----------- -----------
Other income - net............. 35,864 59,450 114,785 186,554
----------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES............... 386,862 198,044 1,253,112 943,319
INCOME TAXES............................. 56,619 30,600 370,119 251,800
----------- ---------- ----------- -----------
NET INCOME............................... $ 330,243 $ 167,444 $ 882,993 $ 691,519
=========== ========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding.. 4,621,665 4,613,352 4,588,356 4,609,026
----------- ---------- ----------- -----------
Net income per common and common
equivalent share..................... $.07 $.04 $.19 $.15
=========== ========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Changes in Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
DECEMBER 31,
--------------------------
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
Acquisition of wholly-owned subsidiary 50,000 5,000
Exercise of stock options............. 1,000 100 10,937 1,094
-----------------------------------------------------
Balance, end of period................ 4,762,365 476,236 4,711,240 471,124
-----------------------------------------------------
CAPITAL IN EXCESS OF PAR
Balance, beginning of period.......... 13,512,836 13,482,615
Acquisition of wholly-owned
subsidiary........................... 157,500
Exercise of stock options............. 2,710 29,639
-----------------------------------------------------
Balance, end of period................ 13,673,046 13,512,254
-----------------------------------------------------
RETAINED EARNINGS
Balance, beginning of period.......... 3,988,022 3,619,289
Net income............................ 882,993 691,519
Dividends declared.................... (343,963) (340,958)
-----------------------------------------------------
Balance, end of period................ 4,527,052 3,969,850
-----------------------------------------------------
TRANSLATION ADJUSTMENTS
Balance, beginning of period..........
Current year translation
adjustments.......................... (162)
-----------------------------------------------------
Balance, end of period................ (162)
-----------------------------------------------------
TREASURY STOCK..........................
Balance, beginning of period.......... (159,563) (1,119,908) (159,169) (1,118,258)
Purchase of treasury stock............ (394) (1,650)
-----------------------------------------------------
Balance, end of period................ (159,563) (1,119,908) (159,563) (1,119,908)
-----------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY.............. 4,602,802 $ 17,556,264 4,551,677 $ 16,833,320
=====================================================
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Cash Flows
(Unaudited)
NINE MONTHS ENDED
------------------------------
DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
[INCREASE (DECREASE) IN CASH]
Cash flows from operating activities:
Cash received from customers........... $ 13,484,822 $ 13,135,395
Interest received...................... 156,569 103,857
Cash paid to suppliers and employees... (11,803,096) (11,476,576)
Interest paid.......................... (35,112) (35,345)
Income taxes paid...................... (302,825) (325,000)
-------------- --------------
Net cash provided by operating
activities........................... 1,500,358 1,402,331
-------------- --------------
Cash flows from investing activities:
Property additions..................... (1,283,188) (1,185,692)
Increase in cash value of life
insurance............................. (107,478) (132,565)
Purchase of investments................ (920,702)
Proceeds from investments.............. 2,343 2,065,615
Investment in subsidiary............... 142,659
Proceeds from sale of equipment........ 49 9,245
-------------- --------------
Net cash used in investing activities.. (1,245,615) (164,099)
-------------- --------------
Cash flows from financing activities:
Payments on long-term obligations...... (77,805) (143,927)
Exercise of stock options.............. 2,811 30,733
Purchase of treasury stock............. (1,650)
Dividends paid......................... (342,688) (340,737)
-------------- --------------
Net cash used in financing activities (417,682) (455,581)
-------------- --------------
Effect of exchange rate
fluctuation on cash................... (1,889)
Net increase (decrease) in cash.......... (164,828) 782,651
Cash and cash equivalents at beginning
of period............................... 3,724,379 1,795,854
-------------- --------------
Cash and cash equivalents at end of
period.................................. $ 3,559,551 $ 2,578,505
============== =============
5
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GAMMA BIOLOGICALS, INC.
Statements of Consolidated Cash Flows
(Unaudited)
Reconciliation of Net Income to
Net Cash Provided by Operating Activities
NINE MONTHS ENDED
-------------------------
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
Net Income.................................... $ 882,993 $ 691,519
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation............................. 586,624 484,628
Amortization of goodwill................. 7,145
(Gain) loss on sale of fixed assets...... 3,312 (7)
Decrease in accounts receivable.......... 491,541 557,458
(Gain) loss on sale of investments....... 977 (162,181)
(Increase) decrease in inventory......... (564,237) 30,528
Increase in prepaid expenses............. (11,541) (19,458)
(Increase) decrease in other assets...... (16,998) 49,050
Increase (decrease) in accounts payable.. 71,302 (79,914)
Increase (decrease) in accrued
salaries and other exp.................. 49,240 (149,292)
---------- ----------
Net Cash Provided by
Operating Activities.................. $1,500,358 $1,402,331
========== ==========
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 is being reduced as assembled parts are
delivered, with the cost of components deducted from the vendors' selling price.
During the nine months ended December 31, 1996 additional inventory valued at
$88,000 was transferred to outside vendors and the outstanding receivable
balance at December 31, 1996 was $37,057.
The company purchased 100% of the outstanding shares of Gamma Biologicals, B.V.
effective September 30, 1996, for 50,000 shares of common stock. In conjunction
with the acquisition, assets of $336,000 (including $143,000 cash) were received
and liabilities of $313,000 were assumed.
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:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DECEMBER 31, DECEMBER 31,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
Statutory rate.................... 34.0% 34.0% 34.0% 34.0%
Increase (decrease) resulting
from:
Exempt export earnings.......... (1.7) (.8) (2.4) (3.7)
Life insurance premiums......... 3.3 1.7 1.4 1.1
Amortization of goodwill........ .6 .2
Reduction of taxes provided
in prior year................. (51.0) (8.4) (15.7) (1.8)
Valuation of temporary
differences................... 25.9 (12.4) 10.4 (3.8)
Other-net....................... 3.5 1.4 1.6 .9
----- ----- ----- -----
Effective tax rate.............. 14.6% 15.5% 29.5% 26.7%
===== ===== ===== =====
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:
DECEMBER 31, 1996 MARCH 31, 1996
------------------ ---------------
Allowance for bad debts............ $ 63,400 $ 53,300
Inventory costs capitalized........ 61,700 57,600
Development costs.................. 95,700
------------ ------------
Net current deferred tax asset... 220,800 110,900
------------ ------------
Difference between book and tax
basis of property, plant and
equipment......................... (504,900) (253,000)
Other.............................. (22,333) (24,600)
------------ ------------
Net noncurrent deferred tax
liability...................... (527,233) (277,600)
------------ ------------
Net deferred tax liability......... $ (306,433) $ (166,700)
============ ============
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 December 31, was 4,621,665 in 1996 and 4,613,352 in 1995; for the nine
month period then ended, 4,588,356 in 1996 and 4,609,026 in 1995.
7
<PAGE>
3. Inventories are valued at the lower of cost or market value, based on the
cost method summarized below:
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
First-in, first out:
Finished products................ $ 1,608,591 $ 1,387,826
Products in process.............. 304,713 499,579
------------ ------------
1,913,304 1,887,405
------------ ------------
Specific identification:
Raw material..................... 998,601 737,717
------------ ------------
998,601 737,717
------------ ------------
Average:
Supplies......................... 831,454 615,238
------------ ------------
Total.......................... $ 3,743,359 $ 3,240,360
============ ============
4. INVESTMENTS
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", the company classified its investments in debt
securities as "held to maturity", since 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 securities
are summarized as follows:
<TABLE>
<CAPTION>
UNREALIZED CARRYING
TYPE CLASSIFICATION FAIR VALUE GAIN (LOSS) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nine months ended December 31, 1996
Debt securities:
Certificates of Deposit - due 3/10/97 Held to maturity $ 100,000 $ 100,000
-------------------------------------------
Total debt securities 100,000 100,000
-------------------------------------------
Total investments $ 100,000 $ 100,000
===========================================
Nine months ended December 31, 1995
Debt securities:
U.S. Government:
Treasury Notes - due 3/31/96 Held to maturity 999,690 1,367 998,323
Certificates of Deposit - due 3/11/96 Held to maturity 100,000 100,000
-------------------------------------------
Total debt securities 1,099,690 1,367 1,098,323
-------------------------------------------
Total investments $1,099,690 $1,367 $1,098,323
===========================================
</TABLE>
8
<PAGE>
5. In the opinion of management, the unaudited consolidated condensed financial
statements for Gamma Biologicals, Inc. (the "company") include all
adjustments (consisting solely of normal recurring adjustments) necessary for
a fair presentation of the financial position of the company as of December
31, 1996, the results of operations of the three and nine month periods ended
December 31, 1996 and 1995 and cash flows for the nine month periods ended
December 31, 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 December 31, 1996 are not necessarily
indicative of the results to be expected for the full year.
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of:
DECEMBER 31, 1996 MARCH 31, 1996
--------------------- --------------
Mortgage note, due monthly
through 2000..................... $ 371,880 $ 430,422
Note payable-foreign, due
semiannually through 2000........ 129,236
Other obligations.................. 19,263
-------------- --------------
501,116 449,685
Less current portion............. 113,347 96,588
-------------- --------------
Total long-term obligations........ $ 387,769 $ 353,097
============== ==============
The mortgage note bears interest at the bank's base rate, but not less than
7% nor more than 13%. At December 31, 1996, the note bore interest at 9.25%.
The mortgage note is collaterized by a first lien on the company's land and
building. The foreign note payable bears interest at 7%.
9
<PAGE>
7. OPERATIONS 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. During the three month period ended
December 31, 1996 the company operated in two geographic areas, the United
States and Europe. Prior to the September 30, 1996 acquisition of Gamma
Biologicals, B.V., the company operated in one geographic area, the United
States, from which it sold to numerous countries.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- -----------------
DECEMBER 31, DECEMBER 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers:
United States..................................... $ 3,333,984 $ 3,038,354 $ 9,253,379 $ 9,175,611
Europe............................................ 433,145 423,014 1,190,737 1,194,482
Pacific Region.................................... 315,105 323,945 1,023,314 931,755
Mexico, Central and South America ................ 325,221 243,038 967,627 649,782
Middle East....................................... 189,601 114,701 455,576 482,887
Other............................................. 52,710 59,365 148,038 187,698
----------------------------------------------------------
Total........................................... $ 4,649,766 $ 4,202,417 $ 13,038,671 $ 12,622,215
==========================================================
Export sales from United States to unaffiliated
customers:
Europe............................................ $ 274,311 $ 423,014 $ 1,031,903 $ 1,194,482
Pacific Region.................................... 315,105 323,945 1,023,314 931,755
Mexico, Central and South America................. 325,221 243,038 967,627 649,782
Middle East....................................... 189,601 114,701 455,576 482,887
Other............................................. 52,709 59,365 148,038 187,698
----------------------------------------------------------
Total............................................. $ 1,156,947 $ 1,164,063 $ 3,626,458 $ 3,446,604
==========================================================
Export sales from United States to
affiliated customers: $ 78,443 $ 78,443
----------------------------------------------------------
Income from operations:
United States...................................... $ 343,853 $ 167,444 $ 896,603 $ 691,519
Europe............................................. (13,610) (13,610)
----------------------------------------------------------
Total............................................ $ 330,243 $ 167,444 $ 882,993 $ 691,519
==========================================================
12/31/96 3/31/96
-------- -------
Identifiable assets:
United States..................................... $ 17,395,701 $ 16,695,926
Europe............................................ 232,295
Corporate......................................... 1,973,014 1,729,774
----------------------------------------------------------
Total........................................... $ 19,601,010 $ 18,425,700
----------------------------------------------------------
</TABLE>
10
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8. ACQUISITION OF WHOLLY-OWNED SUBSIDIARY
Effective September 30, 1996, the company acquired 100% of the outstanding
shares of its distributor in the Netherlands, Gamma Biologicals, B.V.
Consideration for the acquisition was 50,000 shares of Gamma common stock,
valued at $3.25 per share, the market price on the effective date. The
acquisition has been accounted for using the purchase method of accounting,
and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date
of acquisition. The excess of the purchase price over the fair values of the
net assets acquired was $139,397 and has been recorded as goodwill, which
will be amortized over five years.
On the basis of a pro forma consolidation of the results of operations as if
the acquisition had taken place at April 1, 1995 rather than at September 30,
1996, consolidated net sales for the nine month periods ending December 31,
1996 and 1995 would have been approximately $13,340,000 and $13,080,000.
Consolidated income and earnings per share would have been $928,000 and $.20
for 1996 and $780,000 and $.17 for 1995. Such pro forma amounts are not
necessarily indicative of what the actual consolidated results of operations
might have been if the acquisition had been effective at April 1, 1995 and
should not be viewed as indicative of future operations.
Gamma Biologicals, B.V. was formed in November 1993 to market Gamma products
and certain noncompeting product lines in the Netherlands. Subsequent to the
acquisition, the subsidiary will continue to sell directly in the Benelux
area, as well as serve as a European distribution center and manufacturing
site for the ReACT test system.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED DECEMBER 31, 1996
- ------------------------------------
Revenues rose 10.6% for the three months ended December 31, 1996 compared
with the same period in 1995. Domestic sales increased 9.7% due primarily to the
fulfillment of backorders of one third-party product. Our supplier introduced an
improved, and consequently more costly, version of this product late in the
second quarter; and could still experience periodic supply shortages.
Internationally, sales continue to strengthen in Central and South America,
increasing 33.8% compared to the same period last year. Buildup in this region
replaced sales for custom reagents sold to a European customer in the prior
period, leveling export sales between the two periods.
Gross margin as a percentage of sales remained near 53% in the current
period. The on-going conversion of source material for additional high-volume
products to clone-based raw materials grown in our in-house clone lab continues
to improve manufacturing efficiencies as more products are converted. However,
these margin improvements were partially offset by the effects of higher sales
volume and lower gross margin generated by the one third-party product mentioned
above.
Selling expenses rose 13.7% as a result of the acquisition of Gamma
Biologicals, B.V. at September 30, 1996. General and administrative expenses
declined 11.9% over the prior period, which were higher due to travel expense
associated with the company's evaluation of potential manufacturing sites
outside the United States. Shipping and warehouse expenses fell 10.9% 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 and
completion of a computer software upgrade that further streamlined the order
fulfillment process should continue to improve accuracy and control.
Research and development expenses increased 9% in 1996 after a 17% increase
in 1995, due to costs associated with ReACT and Olympus reagent field studies.
Interest income 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.
The provision for income taxes rose 85% due to a 95% increase in taxable
income in the current period.
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.
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
12
<PAGE>
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 and nine month periods ended December 31, 1996.
NINE MONTHS ENDED DECEMBER 31, 1996
- -----------------------------------
Net income for the nine months ended December 31, 1996 rose 27.7% over the
prior period. A 1% increase in gross margin on a 3% increase in revenues as
outlined above for the three month period ended December 31, 1996 resulted in a
33% increase in pretax earnings to date which was partially offset by a 47%
increase in income taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash flows declined approximately $948,000 during the nine month period
ended December 31, 1996 compared with the same period in 1995. Operating cash
flows improved by $98,000, due primarily to the improved collection of
receivables. Management believes that operating cash flows will be sufficient to
meet future operating needs.
Completed improvements to the shipping area and the computer system, and
projects in progress to relocate and streamline the packaging function and to
double the monoclonal laboratory capacity have kept capital expenditures at a
higher than normal level. Cash from investing activities was improved by
$143,000 due to the acquisition of 100% of the outstanding shares of its
distributor in the Netherlands (see Note 8). The prior period cash from
investing activities benefitted from investment maturation of $1,985,000.
The new subsidiary, Gamma Biologicals, B.V. relocated its operations to a
larger facility in the Amsterdam area in the third quarter. The additional
square footage will allow the subsidiary to begin European distribution
activities and ReACT manufacturing during the fourth quarter of fiscal 1997.
Capital expenditures for leasehold improvements and equipment to date is $32,000
and are not expected to exceed $100,000 during the next six months.
The company is reviewing proposals from medical equipment manufacturers for
the development of an upgraded version of the ReACT system. The cost to develop
such a system will depend on several factors, including the level of automation
and the number of enhanced features required for market acceptance. Once a
manufacturer is selected, the development process should take between 12 and 18
months. We submitted a 510K application to the FDA in October 1996 for approval
to market our existing ReACT system, and expect to begin selling this system
internationally shortly after fiscal year-end.
The company's existing capital resources, consisting of $3,660,000 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.
13
<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
14
<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.
February 13, 1997 By: /s/ David E. Hatcher
_____________________________
David E. Hatcher
President
(Chief Executive Officer)
February 13, 1997 By: /s/ Margaret J. O'Bannion
_____________________________
Margaret J. O'Bannion
Vice President - Finance
(Chief Financial Officer)
15
<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>
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476,236
0
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